8-K: Blue Ridge Bankshares Secures $150 Million in Private Placement, Restructures Operations

Blue Ridge Bankshares has finalized a $150 million private placement to bolster its capital and reposition its business lines, while also winding down its fintech banking-as-a-service operations.

Summary

• Blue Ridge Bankshares, Inc. has entered into an Amended and Restated Securities Purchase Agreement, securing $150 million in gross proceeds through a private placement.
• The private placement included the issuance of 3.4 million common shares at $2.50 per share, 11,418 Series B preferred shares and 2,732 Series C preferred shares at $10,000 per share, and warrants to purchase additional preferred shares.
• The company intends to use the net proceeds for general corporate purposes, to reposition business lines, support organic growth and enhance capital levels of Blue Ridge Bank, National Association.
• Castle Creek Capital Partners VIII, LP, a major investor, will have the right to appoint two members to the boards of directors of both the Company and the Bank, with a potential third board member to be appointed by Kenneth R. Lehman.
• The company plans to reduce the size of its boards to 12 and 13 members, respectively, or 13 and 14 members if Mr. Lehman exercises his right to designate a board member.
• The company will seek shareholder approval to increase the number of authorized common shares to at least 150,000,000 and to approve the issuance of the Underlying Preferred Shares and the Warrant Shares.
• The company is winding down its fintech banking-as-a-service (BaaS) operations and expects to substantially exit this business by the end of 2024.
• The company expects net interest margin compression to continue due to increased funding costs.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the capital raise is positive, the company faces challenges with net interest margin compression and the wind-down of its BaaS operations. The sentiment is neutral to slightly negative.

Positives

• The $150 million capital raise will strengthen the company's balance sheet and support future growth.
• The company is taking steps to reposition its business lines and enhance capital levels.
• The company is addressing its issues with the fintech banking-as-a-service (BaaS) operations by winding them down.
• The company is working to resolve issues related to the Consent Order issued by the Office of the Comptroller of the Currency.

Negatives

• The company expects net interest margin compression to continue due to increased funding costs.
• Nonperforming loans are showing slight declines, but are still an issue.
• Noninterest expenses are expected to remain elevated as the company reduces exposure to fintech operations and remediates the Consent Order.

Risks

• The company faces continued net interest margin compression due to increased funding costs.
• The company is still working to resolve issues related to the Consent Order issued by the Office of the Comptroller of the Currency.
• The company is in the process of winding down its fintech banking-as-a-service (BaaS) operations, which may present challenges.
• The company is working to rationalize out-of-market and transactional loan relationships, which may present challenges.

Future Outlook

The company plans to use the proceeds to reposition business lines, support organic growth, and enhance capital levels. The company expects net interest margin compression to continue due to increased funding costs and plans to substantially exit its BaaS operations by the end of 2024.

Management Comments

• The Company will use the net proceeds from the Private Placement for general corporate purposes and to reposition business lines, support organic growth and enhance capital levels of Blue Ridge Bank, National Association (the Bank), unless otherwise consented to by Mr. Lehman.
• The Company expects net interest margin compression to continue due to increased funding costs.
• The Company expects noninterest expenses to continue to be elevated as it reduces exposure to fintech operations and remediates the previously disclosed Consent Order issued by the Office of the Comptroller of the Currency to the Bank.

Industry Context

This announcement reflects a trend of financial institutions seeking capital to strengthen their balance sheets and adapt to changing market conditions. The wind-down of the BaaS operations suggests a strategic shift away from higher-risk, less profitable ventures.

Comparison to Industry Standards

• The private placement is a common method for banks to raise capital, especially in times of economic uncertainty or when facing regulatory challenges.
• The terms of the preferred stock, including the 15% dividend rate and mandatory conversion features, are relatively standard for this type of financing.
• The company's decision to exit the BaaS business is similar to actions taken by other banks that have faced challenges in this sector.
• The appointment of board members by major investors is a common practice in private placements, reflecting the investors desire for greater oversight and influence.

Management Changes

Corporate Governance

Legal Proceedings

• The Company continues to remediate the previously disclosed Consent Order issued by the Office of the Comptroller of the Currency to the Bank.

Related Party Transactions

• Purchasers who are directors or executive officers of the Company will not have any rights to or otherwise be entitled to receive (i) any dividends in any form on the Series B Preferred Stock and (ii) any adjustment or change to the Conversion Rate (or related conversion price) on the Series B Preferred Stock.

Stakeholder Impact

• Shareholders will be asked to approve an increase in authorized common shares and the issuance of the Underlying Preferred Shares and the Warrant Shares.
• Employees may be affected by the wind-down of the BaaS operations and the restructuring of the company.
• Customers may experience changes in the company's service offerings as it repositions its business lines.
• Creditors may be impacted by the company's efforts to increase secured funding sources.

Next Steps

• The company will hold a shareholder meeting no later than June 17, 2024, to obtain shareholder approval for the increase in authorized common shares and the issuance of the Underlying Preferred Shares and the Warrant Shares.
• The company will file a registration statement to register the resale of the Common Shares, the Underlying Preferred Shares and the Warrant Shares.
• The company will work with Mr. Lehman and Castle Creek to identify specific work-out assets and develop an asset resolution plan.

Key Dates

Keywords

private placement, capital raise, preferred stock, common stock, warrants, fintech, banking-as-a-service, BaaS, net interest margin, board of directors, regulatory approvals, shareholder approval