UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10-Q
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019March 31, 2021
orOR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File Number 033-25507Number: 001-39165
BLUE RIDGE BANKSHARES, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)charter)
Virginia | ||
54-1470908 | ||
( State or
| (I.R.S. Employer
| |
1807 Seminole Trail Charlottesville, Virginia | 22835 | |
(Address of | (Zip |
(540)743-6521
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Reporttelephone number, including area code: (540) 743-6521
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, no par value | BRBS | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐ No ☒
TheAs of May 6, 2021, the registrant had 4,346,86618,622,669 shares of common stock, no par value per share, outstanding as of December 13, 2019.outstanding.
PART I | ||||
3 | ||||
4 | ||||
Consolidated Statements of Income for the three months ended | 5 | |||
| ||||
6 | ||||
7 | ||||
Consolidated Statements of Cash Flows for the | 8 | |||
Notes to Consolidated Financial Statements (unaudited) | 10 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 38 | ||
Item 3. | 51 | |||
Item 4. | 52 | |||
PART II | 53 | |||
Item 1. | 53 | |||
Item 1A. | 53 | |||
Item 2. | 53 | |||
Item 3. | 53 | |||
Item 4. | 53 | |||
Item 5. | 53 | |||
Item 6. | 53 | |||
55 |
2
Blue Ridge Bankshares, Inc.
(dollars in thousands, except share and per share data)
|
| (unaudited) |
|
|
|
|
| |
(Dollars in thousands except share data) |
| March 31, 2021 |
|
| December 31, 2020 (2) |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 273,540 |
|
| $ | 117,945 |
|
Federal funds sold |
|
| 5,238 |
|
|
| 775 |
|
Certificates of deposit |
|
| 1,018 |
|
|
| — |
|
Securities available for sale, at fair value |
|
| 278,734 |
|
|
| 109,475 |
|
Restricted equity and other investments |
|
| 14,821 |
|
|
| 11,173 |
|
Loans held for sale |
|
| 122,453 |
|
|
| 148,209 |
|
Paycheck Protection Program loans, net of deferred fees and costs |
|
| 597,626 |
|
|
| 288,533 |
|
Loans held for investment, net of deferred fees and costs |
|
| 1,706,916 |
|
|
| 732,883 |
|
Less allowance for loan losses |
|
| (13,402 | ) |
|
| (13,827 | ) |
Loans held for investment, net |
|
| 1,693,514 |
|
|
| 719,056 |
|
Accrued interest receivable |
|
| 10,507 |
|
|
| 5,428 |
|
Other real estate owned |
|
| 594 |
|
|
| — |
|
Premises and equipment, net |
|
| 29,677 |
|
|
| 14,831 |
|
Right-of-use asset |
|
| 6,805 |
|
|
| 5,328 |
|
Bank owned life insurance |
|
| 36,164 |
|
|
| 15,724 |
|
Goodwill |
|
| 27,098 |
|
|
| 19,892 |
|
Other intangible assets |
|
| 9,440 |
|
|
| 2,922 |
|
Mortgage derivative asset |
|
| 5,949 |
|
|
| 5,293 |
|
Mortgage servicing rights, net |
|
| 11,442 |
|
|
| 7,084 |
|
Mortgage brokerage receivable |
|
| 2,546 |
|
|
| 8,516 |
|
Interest rate swap asset |
|
| 7,248 |
|
|
| 1,716 |
|
Other assets |
|
| 32,960 |
|
|
| 16,358 |
|
Total assets |
| $ | 3,167,374 |
|
| $ | 1,498,258 |
|
LIABILITIES & STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
| $ | 617,102 |
|
| $ | 333,051 |
|
Interest-bearing demand and money market deposits |
|
| 751,390 |
|
|
| 282,263 |
|
Savings |
|
| 159,455 |
|
|
| 78,352 |
|
Time deposits |
|
| 612,171 |
|
|
| 251,443 |
|
Total deposits |
|
| 2,140,118 |
|
|
| 945,109 |
|
Securities sold under repurchase agreements |
|
| 1,198 |
|
|
| — |
|
FHLB borrowings |
|
| 183,122 |
|
|
| 115,000 |
|
FRB borrowings |
|
| 509,667 |
|
|
| 281,650 |
|
Subordinated notes, net |
|
| 54,588 |
|
|
| 24,506 |
|
Lease liability |
|
| 7,990 |
|
|
| 5,506 |
|
Interest rate swap liability |
|
| 1,593 |
|
|
| 2,735 |
|
Other liabilities |
|
| 29,364 |
|
|
| 15,552 |
|
Total liabilities |
|
| 2,927,640 |
|
|
| 1,390,058 |
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Common stock, no par value; 37,500,000 shares authorized; 18,621,531 and 8,577,932 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively (1) |
|
| 192,974 |
|
|
| 66,771 |
|
Additional paid-in capital |
|
| 252 |
|
|
| 252 |
|
Retained earnings |
|
| 42,239 |
|
|
| 40,688 |
|
Accumulated other comprehensive income, net of tax |
|
| 4,035 |
|
|
| 264 |
|
|
|
| 239,500 |
|
|
| 107,975 |
|
Noncontrolling interest |
|
| 234 |
|
|
| 225 |
|
Total stockholders’ equity |
|
| 239,734 |
|
|
| 108,200 |
|
Total liabilities and stockholders’ equity |
| $ | 3,167,374 |
|
| $ | 1,498,258 |
|
September 30, 2019 | December 31, 2018 | |||||||
(unaudited) | (audited) | |||||||
Assets | ||||||||
Cash and due from banks | $ | 22,318 | $ | 15,026 | ||||
Federal funds sold | 285 | 546 | ||||||
Securities available for sale, at fair value | 121,740 | 38,047 | ||||||
Securities held to maturity, at cost | 13,117 | 15,565 | ||||||
Restricted equity securities, at cost | 7,855 | 5,138 | ||||||
Loans held for sale | 80,255 | 29,233 | ||||||
Loans, net of unearned income | 460,878 | 414,868 | ||||||
Less allowance for loan losses | (4,404 | ) | (3,580 | ) | ||||
|
|
|
| |||||
Loans, net | 456,474 | 411,288 | ||||||
Premises and equipment, net | 3,457 | 3,343 | ||||||
Cash surrender value of life insurance | 8,871 | 8,455 | ||||||
Goodwill | 3,307 | 2,694 | ||||||
Other assets | 18,559 | 10,255 | ||||||
|
|
|
| |||||
Total assets | $ | 736,238 | $ | 539,590 | ||||
|
|
|
| |||||
Liabilities and Stockholders’ Equity | ||||||||
Deposits: | ||||||||
Noninterest-bearing | $ | 91,840 | $ | 88,265 | ||||
Interest-bearing | 428,440 | 326,762 | ||||||
|
|
|
| |||||
Total deposits | 520,280 | 415,027 | ||||||
|
|
|
| |||||
Other borrowings | 129,600 | 73,100 | ||||||
Subordinated debentures, net of issuance costs | 9,792 | 9,766 | ||||||
Other liabilities | 10,970 | 2,076 | ||||||
|
|
|
| |||||
Total liabilities | 670,642 | 499,969 | ||||||
|
|
|
| |||||
Stockholders’ Equity: | ||||||||
Common stock, no par value; 10,000,000 shares authorized; 4,346,866 and 2,792,885 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 38,731 | 16,453 | ||||||
Additionalpaid-in capital | 252 | 252 | ||||||
Retained earnings | 25,516 | 23,321 | ||||||
Accumulated other comprehensive income | 876 | (618 | ) | |||||
|
|
|
| |||||
65,375 | 39,408 | |||||||
Noncontrolling interest | 221 | 213 | ||||||
|
|
|
| |||||
Total stockholders’ equity | 65,596 | 39,621 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 736,238 | $ | 539,590 | ||||
|
|
|
|
(1) | Common stock as of the periods presented is reflective of the Company’s 3-for-2 stock split effective April 30, 2021. |
(2) | Derived from audited December 31, 2020 Consolidated Financial Statements. |
See accompanying notes to unaudited consolidated financial statements.
3
(unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share data) |
| For the three months ended |
| |||||
INTEREST INCOME |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Interest and fees on loans |
| $ | 21,363 |
|
| $ | 9,544 |
|
Interest on taxable securities |
|
| 1,130 |
|
|
| 829 |
|
Interest on nontaxable securities |
|
| 52 |
|
|
| 48 |
|
Interest on deposit accounts and federal funds sold |
|
| 31 |
|
|
| 2 |
|
Total interest income |
|
| 22,576 |
|
|
| 10,423 |
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
Interest on deposits |
|
| 1,540 |
|
|
| 1,725 |
|
Interest on subordinated notes |
|
| 630 |
|
|
| 177 |
|
Interest on FHLB and FRB borrowings |
|
| 389 |
|
|
| 498 |
|
Total interest expense |
|
| 2,559 |
|
|
| 2,400 |
|
Net interest income |
|
| 20,017 |
|
|
| 8,023 |
|
Provision for loan losses |
|
| — |
|
|
| 575 |
|
Net interest income after provision for loan losses |
|
| 20,017 |
|
|
| 7,448 |
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 327 |
|
|
| 272 |
|
Residential mortgage banking income, net |
|
| 9,301 |
|
|
| 3,861 |
|
Mortgage servicing rights |
|
| 3,371 |
|
|
| — |
|
Gain on sale of guaranteed USDA loans |
|
| 1,074 |
|
|
| 20 |
|
Wealth and trust management |
|
| 602 |
|
|
| — |
|
Increase in cash surrender value of bank owned life insurance |
|
| 164 |
|
|
| 93 |
|
Payroll processing |
|
| 270 |
|
|
| 303 |
|
Bank and purchase card, net |
|
| 300 |
|
|
| 129 |
|
Other |
|
| 400 |
|
|
| 162 |
|
Total noninterest income |
|
| 15,809 |
|
|
| 4,840 |
|
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 14,009 |
|
|
| 7,160 |
|
Occupancy and equipment |
|
| 1,357 |
|
|
| 856 |
|
Data processing |
|
| 845 |
|
|
| 382 |
|
Legal, issuer, and regulatory filing |
|
| 576 |
|
|
| 194 |
|
Advertising and marketing |
|
| 290 |
|
|
| 224 |
|
Communications |
|
| 368 |
|
|
| 135 |
|
Audit and accounting fees |
|
| 189 |
|
|
| 43 |
|
FDIC insurance |
|
| 343 |
|
|
| 150 |
|
Intangible amortization |
|
| 400 |
|
|
| 143 |
|
Other contractual services |
|
| 853 |
|
|
| 175 |
|
Other taxes and assessments |
|
| 348 |
|
|
| 224 |
|
Merger-related |
|
| 9,019 |
|
|
| 269 |
|
Other |
|
| 1,915 |
|
|
| 1,225 |
|
Total noninterest expenses |
|
| 30,512 |
|
|
| 11,180 |
|
Income before income tax |
|
| 5,314 |
|
|
| 1,108 |
|
Income tax expense |
|
| 1,077 |
|
|
| 267 |
|
Net income |
| $ | 4,237 |
|
| $ | 841 |
|
Net income attributable to noncontrolling interest |
|
| (9 | ) |
|
| (9 | ) |
Net income attributable to Blue Ridge Bankshares, Inc. |
| $ | 4,228 |
|
| $ | 832 |
|
Net income available to common stockholders |
| $ | 4,228 |
|
| $ | 832 |
|
Basic and diluted earnings per common share (EPS) (1) |
| $ | 0.28 |
|
| $ | 0.10 |
|
(1) | EPS has been adjusted for all periods presented to reflect the Company’s 3-for-2 stock split effective April 30, 2021. |
See accompanying notes to unaudited consolidated financial statements.
Blue Ridge Bankshares, Inc.
Consolidated Statements of Comprehensive Income
(dollars in thousands, except share and per share data)
(Unaudited)(unaudited)
Three Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Interest income: | ||||||||
Interest and fees on loans | $ | 6,927 | $ | 5,285 | ||||
Interest on taxable securities | 1,133 | 409 | ||||||
Interest on nontaxable securities | 56 | 73 | ||||||
Interest on federal funds sold | 2 | 3 | ||||||
|
|
|
| |||||
Total interest income | 8,118 | 5,770 | ||||||
|
|
|
| |||||
Interest expense: | ||||||||
Interest on deposits | 1,763 | 910 | ||||||
Interest on subordinated debentures | 169 | 169 | ||||||
Interest on other borrowings | 750 | 255 | ||||||
|
|
|
| |||||
Total interest expense | 2,682 | 1,334 | ||||||
|
|
|
| |||||
Net interest income | 5,436 | 4,436 | ||||||
Provision for loan losses | 570 | 225 | ||||||
|
|
|
| |||||
Net interest income after provision for loan losses | 4,866 | 4,211 | ||||||
|
|
|
| |||||
Non-interest income: | ||||||||
Service charges on deposit accounts | 171 | 155 | ||||||
Mortgage brokerage income | 1,648 | 904 | ||||||
Gain on sale of mortgages | 2,295 | 1,385 | ||||||
Income from investment in life insurance contracts | 59 | 50 | ||||||
Other income | 800 | 597 | ||||||
|
|
|
| |||||
Total other income | 4,973 | 3,091 | ||||||
|
|
|
| |||||
Non-interest expenses: | ||||||||
Salaries and employee benefits | 5,079 | 3,430 | ||||||
Occupancy and equipment expense | 627 | 414 | ||||||
Data processing fees | 413 | 265 | ||||||
Legal and other professional fees | 434 | 334 | ||||||
Advertising fees | 191 | 113 | ||||||
Audit and accounting fees | 37 | 29 | ||||||
FDIC insurance expense | 86 | 42 | ||||||
Director fees | 52 | 45 | ||||||
Other taxes and assessments | 171 | 159 | ||||||
Other operating | 1,117 | 872 | ||||||
|
|
|
| |||||
Total other expenses | 8,207 | 5,703 | ||||||
|
|
|
| |||||
Income before income tax | 1,632 | 1,599 | ||||||
Income tax expense | 379 | 329 | ||||||
|
|
|
| |||||
Net income | $ | 1,253 | $ | 1,270 | ||||
|
|
|
| |||||
Net Income attributable to noncontrolling interest | (3 | ) | (1 | ) | ||||
|
|
|
| |||||
Net Income attributable to Blue Ridge Bankshares, Inc. | $ | 1,250 | $ | 1,269 | ||||
|
|
|
| |||||
Net Income available to Common Stockholders | $ | 1,250 | $ | 1,269 | ||||
|
|
|
| |||||
Basic earnings per common share | $ | 0.29 | $ | 0.45 | ||||
|
|
|
| |||||
Diluted earnings per common share | $ | 0.29 | $ | 0.45 | ||||
|
|
|
|
|
| For the three months ended |
| |||||
(Dollars in thousands) |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Net income |
| $ | 4,237 |
|
| $ | 841 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Gross unrealized losses on securities available for sale arising during the period |
|
| (3,142 | ) |
|
| (612 | ) |
Deferred income tax benefit |
|
| 660 |
|
|
| 128 |
|
Unrealized losses on securities available for sale arising during period, net of tax |
|
| (2,482 | ) |
|
| (484 | ) |
Unrealized gains (losses) on interest rate swaps |
|
| 7,915 |
|
|
| (3,164 | ) |
Deferred income tax (expense) benefit |
|
| (1,662 | ) |
|
| 665 |
|
Unrealized gains (losses) on interest rate swaps, net of tax |
|
| 6,253 |
|
|
| (2,499 | ) |
Other comprehensive income (loss), net of tax |
|
| 3,771 |
|
|
| (2,983 | ) |
Comprehensive income (loss), net of tax |
| $ | 8,008 |
|
| $ | (2,142 | ) |
Comprehensive income attributable to noncontrolling interest |
|
| (9 | ) |
|
| (9 | ) |
Comprehensive income (loss) attributable to Blue Ridge Bankshares, Inc. |
| $ | 7,999 |
|
| $ | (2,151 | ) |
See accompanying notes to unaudited consolidated financial statements.
Blue Ridge Bankshares, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
| Shares of |
|
|
|
|
|
| Additional |
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| |||
(Dollars in thousands) | Common |
|
| Common |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
|
| Noncontrolling |
|
|
|
|
| ||||||
Three months ended March 31, 2021 | Stock (1) |
|
| Stock |
|
| Capital |
|
| Earnings |
|
| Income, net |
|
| Interest |
|
| Total |
| |||||||
Balance at beginning of period |
| 8,577,932 |
|
| $ | 66,771 |
|
| $ | 252 |
|
| $ | 40,688 |
|
| $ | 264 |
|
| $ | 225 |
|
| $ | 108,200 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 4,228 |
|
|
| — |
|
|
| 9 |
|
|
| 4,237 |
|
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,771 |
|
|
| — |
|
|
| 3,771 |
|
Dividends on common stock |
| — |
|
|
| — |
|
|
| — |
|
|
| (2,677 | ) |
|
| — |
|
|
| — |
|
|
| (2,677 | ) |
Issuance of common stock and other consideration paid in business combination |
| 9,951,743 |
|
|
| 125,403 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 125,403 |
|
Stock option exercises |
| 67,031 |
|
|
| 633 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 633 |
|
Restricted stock awards, net of forfeitures |
| 24,825 |
|
|
| 167 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 167 |
|
Balance at end of period |
| 18,621,531 |
|
| $ | 192,974 |
|
| $ | 252 |
|
| $ | 42,239 |
|
| $ | 4,035 |
|
| $ | 234 |
|
| $ | 239,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| |
| Shares of |
|
|
|
|
|
| Additional |
|
|
|
|
|
| Comprehensive |
|
|
|
|
|
|
|
|
| |||
(Dollars in thousands) | Common |
|
| Common |
|
| Paid-in |
|
| Retained |
|
| Income (Loss), |
|
| Noncontrolling |
|
|
|
|
| ||||||
Three months ended March 31, 2020 | Stock (1) |
|
| Stock |
|
| Capital |
|
| Earnings |
|
| net |
|
| Interest |
|
| Total |
| |||||||
Balance at beginning of period |
| 8,487,878 |
|
| $ | 66,204 |
|
| $ | 252 |
|
| $ | 25,428 |
|
| $ | 229 |
|
| $ | 224 |
|
| $ | 92,337 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 832 |
|
|
| — |
|
|
| 9 |
|
|
| 841 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,983 | ) |
|
| — |
|
|
| (2,983 | ) |
Restricted stock awards, net of forfeitures |
| 3,600 |
|
|
| 79 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 79 |
|
Balance at end of period |
| 8,491,478 |
|
| $ | 66,283 |
|
| $ | 252 |
|
| $ | 26,260 |
|
| $ | (2,754 | ) |
| $ | 233 |
|
| $ | 90,274 |
|
(1) | Common stock outstanding as of and for the periods presented is reflective of the Company’s 3-for-2 stock split effective April 30, 2021. |
See accompanying notes to unaudited consolidated financial statements.
4
Consolidated Statements of IncomeCash Flows
(dollars in thousands, except share and per share data)
(Unaudited)(unaudited)
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Interest income: | ||||||||
Interest and fees on loans | $ | 19,640 | $ | 14,625 | ||||
Interest on taxable securities | 2,601 | 1,199 | ||||||
Interest on nontaxable securities | 183 | 226 | ||||||
Interest on federal funds sold | 6 | 13 | ||||||
|
|
|
| |||||
Total interest income | 22,430 | 16,063 | ||||||
|
|
|
| |||||
Interest expense: | ||||||||
Interest on deposits | 4,491 | 2,469 | ||||||
Interest on subordinated debentures | 532 | 532 | ||||||
Interest on other borrowings | 1,920 | 563 | ||||||
|
|
|
| |||||
Total interest expense | 6,943 | 3,564 | ||||||
|
|
|
| |||||
Net interest income | 15,487 | 12,499 | ||||||
Provision for loan losses | 1,465 | 640 | ||||||
|
|
|
| |||||
Net interest income after provision for loan losses | 14,022 | 11,859 | ||||||
|
|
|
| |||||
Non-interest income: | ||||||||
Service charges on deposit accounts | 459 | 479 | ||||||
Mortgage brokerage income | 3,511 | 1,914 | ||||||
Gain on sale of mortgages | 7,455 | 2,954 | ||||||
Income from investment in life insurance contracts | 874 | 148 | ||||||
Other income | 1,956 | 1,514 | ||||||
|
|
|
| |||||
Total other income | 14,255 | 7,009 | ||||||
|
|
|
| |||||
Non-interest expenses: | ||||||||
Salaries and employee benefits | 14,149 | 8,127 | ||||||
Occupancy and equipment expense | 1,868 | 1,117 | ||||||
Data processing fees | 1,069 | 803 | ||||||
Legal and other professional fees | 1,253 | 578 | ||||||
Advertising fees | 607 | 348 | ||||||
Audit and accounting fees | 125 | 114 | ||||||
FDIC insurance expense | 256 | 138 | ||||||
Director fees | 174 | 141 | ||||||
Other taxes and assessments | 490 | 397 | ||||||
Other operating | 3,226 | 2,574 | ||||||
|
|
|
| |||||
Total other expenses | 23,217 | 14,337 | ||||||
|
|
|
| |||||
Income before income tax | 5,060 | 4,531 | ||||||
Income tax expense | 989 | 944 | ||||||
|
|
|
| |||||
Net income | $ | 4,071 | $ | 3,587 | ||||
|
|
|
| |||||
Net Income attributable to noncontrolling interest | (21 | ) | (8 | ) | ||||
|
|
|
| |||||
Net Income attributable to Blue Ridge Bankshares, Inc. | $ | 4,050 | $ | 3,579 | ||||
|
|
|
| |||||
Net Income available to Common Stockholders | $ | 4,050 | $ | 3,579 | ||||
|
|
|
| |||||
Basic earnings per common share | $ | 1.01 | $ | 1.29 | ||||
|
|
|
| |||||
Diluted earnings per common share | $ | 1.01 | $ | 1.29 | ||||
|
|
|
|
|
| For the three months ended |
| |||||
(Dollars in thousands) |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 4,237 |
|
| $ | 841 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 453 |
|
|
| 211 |
|
Deferred income taxes |
|
| (1,002 | ) |
|
| 85 |
|
Provision for loan losses |
|
| — |
|
|
| 575 |
|
Accretion of fair value adjustments (discounts) on acquired loans |
|
| (359 | ) |
|
| (388 | ) |
Accretion of fair value adjustments (premiums) on acquired time deposits |
|
| (697 | ) |
|
| (23 | ) |
Accretion of fair value adjustments (premiums) on acquired subordinated notes |
|
| (35 | ) |
|
| — |
|
Proceeds from sale of loans held for sale |
|
| 412,139 |
|
|
| 67,362 |
|
Loans held for sale, originated |
|
| (377,854 | ) |
|
| (104,815 | ) |
Gain on sale of loans held for sale, originated |
|
| (4,715 | ) |
|
| (3,041 | ) |
Loss on disposal of premises and equipment |
|
| 32 |
|
|
| 4 |
|
Investment amortization expense, net |
|
| 463 |
|
|
| 229 |
|
Amortization of subordinated debt issuance costs |
|
| 17 |
|
|
| 8 |
|
Intangible amortization |
|
| 400 |
|
|
| 143 |
|
Increase in cash surrender value of bank owned life insurance |
|
| (164 | ) |
|
| (93 | ) |
Increase in other assets |
|
| (2,873 | ) |
|
| (12,248 | ) |
Increase in other liabilities |
|
| 5,674 |
|
|
| 5,618 |
|
Net cash provided by (used in) operating activities |
|
| 35,716 |
|
|
| (45,532 | ) |
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Net (increase) decrease in federal funds sold |
|
| (2,731 | ) |
|
| 316 |
|
Purchases of securities available for sale |
|
| (107,057 | ) |
|
| (200 | ) |
Proceeds from calls, sales, paydowns and maturities of securities available for sale |
|
| 12,490 |
|
|
| 9,012 |
|
Proceeds from calls, sales, paydowns and maturities of securities held to maturity |
|
| — |
|
|
| 960 |
|
Proceeds from sale of other real estate owned |
|
| 4 |
|
|
| — |
|
Net change in restricted equity securities |
|
| 1,944 |
|
|
| (1,970 | ) |
Net increase in loans held for investment |
|
| (252,760 | ) |
|
| (17,843 | ) |
Purchase of premises and equipment |
|
| (78 | ) |
|
| (832 | ) |
Proceeds from sale of premises and equipment |
|
| 278 |
|
|
| 6 |
|
Capital calls of small business investment company funds and other investments |
|
| (376 | ) |
|
| (38 | ) |
Net cash acquired in acquisition of Bay Banks of Virginia, Inc. |
|
| 44,066 |
|
|
| — |
|
Nonincome distributions from limited liability companies |
|
| 107 |
|
|
| — |
|
Net cash used in investing activities |
|
| (304,113 | ) |
|
| (10,589 | ) |
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Net increase in demand, savings and other interest-bearing deposits |
|
| 181,850 |
|
|
| 45,358 |
|
Net (decrease) increase in time deposits |
|
| (17,032 | ) |
|
| 1,795 |
|
Common stock dividends paid |
|
| (2,677 | ) |
|
| — |
|
Federal Home Loan Bank advances |
|
| 200,000 |
|
|
| 147,300 |
|
Federal Home Loan Bank repayments |
|
| (142,000 | ) |
|
| (131,200 | ) |
Federal Reserve Bank advances |
|
| 265,908 |
|
|
| — |
|
Federal Reserve Bank repayments |
|
| (62,706 | ) |
|
| — |
|
Stock option exercises |
|
| 633 |
|
|
| — |
|
Net increase in securities sold under repurchase agreements |
|
| 16 |
|
|
| — |
|
Net cash provided by financing activities |
|
| 423,992 |
|
|
| 63,253 |
|
Net increase in cash and due from banks |
|
| 155,595 |
|
|
| 7,132 |
|
Cash and due from banks at beginning of period |
|
| 117,945 |
|
|
| 60,026 |
|
Cash and due from banks at end of period |
| $ | 273,540 |
|
| $ | 67,158 |
|
Supplemental Schedule of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
8
Interest |
| $ | 2,039 |
|
| $ | 2,289 |
|
Income taxes |
| $ | 1,000 |
|
| $ | — |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale securities |
| $ | (3,142 | ) |
| $ | (612 | ) |
Issuance of restricted stock awards, net of forfeitures |
| $ | 167 |
|
| $ | 79 |
|
Assets acquired in business combination |
| $ | 1,224,583 |
|
| $ | — |
|
Liabilities assumed in business combination |
| $ | 1,107,036 |
|
| $ | — |
|
Effective settlement of subordinated notes in business combination |
| $ | 650 |
|
| $ | — |
|
Change in goodwill |
| $ | 7,206 |
|
| $ | 23 |
|
See accompanying notes to unaudited consolidated financial statements.
5
Blue Ridge Bankshares, Inc.
Consolidated Statements of Comprehensive Income
9
(dollars in thousands)
(Unaudited)
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income | $ | 4,071 | $ | 3,587 | $ | 1,253 | $ | 1,270 | ||||||||
Other comprehensive income: | ||||||||||||||||
Gross unrealized gains (losses) arising during the period | 2,288 | (500 | ) | 1,256 | (110 | ) | ||||||||||
Adjustment for income tax (expense) benefit | (480 | ) | 101 | (264 | ) | 23 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
1,808 | (399 | ) | 992 | (87 | ) | |||||||||||
Unrealized gains (losses) on interest rate swaps | (483 | ) | — | (258 | ) | — | ||||||||||
Adjustment for income tax benefit | 102 | — | 54 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(381 | ) | — | (204 | ) | — | |||||||||||
Less: | ||||||||||||||||
Reclassifications adjustment for gains included in net income | 86 | 5 | — | 2 | ||||||||||||
Adjustment for income tax expense | (20 | ) | (1 | ) | — | (1 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
66 | 4 | — | 1 | |||||||||||||
Other comprehensive income (loss), net of tax | 1,493 | (395 | ) | 788 | (86 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income | $ | 5,564 | $ | 3,192 | $ | 2,041 | $ | 1,184 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income attributable to noncontrolling interest | $ | (21 | ) | $ | (8 | ) | $ | (3 | ) | $ | (1 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income attributable to Blue Ridge Bankshares, Inc. | $ | 5,543 | $ | 3,184 | $ | 2,038 | $ | 1,183 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
Blue Ridge Bankshares, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(dollars in thousands)
(Unaudited)
Three Months Ended September 30, 2019 and 2018
Common Stock & Related Surplus | Contributed Equity | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest | Unearned ESOP Shares | Total | ||||||||||||||||||||||
Balance, June 30, 2018 | $ | 16,375 | $ | 237 | $ | 21,782 | $ | (633 | ) | $ | 206 | $ | (31 | ) | $ | 37,936 | ||||||||||||
Net income | — | — | 1,269 | — | 1 | — | 1,270 | |||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | (86 | ) | — | — | (86 | ) | |||||||||||||||||||
Dividends on common stock ($0.14 per share) | — | — | (391 | ) | — | — | — | (391 | ) | |||||||||||||||||||
Issuance of restricted common stock, net of forfeitures | 38 | — | — | — | — | — | 38 | |||||||||||||||||||||
Release of unearned ESOP shares | — | 10 | — | — | — | 31 | 41 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance, September 30, 2018 | $ | 16,413 | $ | 248 | $ | 22,660 | $ | (719 | ) | $ | 207 | $ | — | $ | 38,808 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance, June 30, 2019 | $ | 38,690 | $ | 252 | $ | 24,886 | $ | 88 | $ | 218 | $ | — | $ | 64,134 | ||||||||||||||
Net income | — | — | 1,250 | — | 3 | — | 1,253 | |||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | 788 | — | — | 788 | |||||||||||||||||||||
Dividends on common stock ($0.1425 per share) | — | — | (620 | ) | — | — | — | (620 | ) | |||||||||||||||||||
Issuance of restricted common stock, net of forfeitures | 41 | — | — | — | — | — | 41 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance, September 30, 2019 | $ | 38,731 | $ | 252 | $ | 25,516 | $ | 876 | $ | 221 | $ | — | $ | 65,596 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Ridge Bankshares, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(dollars in thousands)
(Unaudited)
Nine Months Ended September 30, 2019 and 2018
Common Stock & Related Surplus | Contributed Equity | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest | Unearned ESOP Shares | Total | ||||||||||||||||||||||
Balance,December 31, 2017 | $ | 16,324 | $ | 195 | $ | 20,190 | $ | (324 | ) | $ | 199 | $ | (143 | ) | $ | 36,441 | ||||||||||||
Net income | — | — | 3,579 | — | 8 | — | 3,587 | |||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | (395 | ) | — | — | (395 | ) | |||||||||||||||||||
Dividends on common stock ($0.40 per share) | — | — | (1,110 | ) | — | — | — | (1,110 | ) | |||||||||||||||||||
Issuance of restricted common stock, net of forfeitures | 89 | — | — | — | — | — | 89 | |||||||||||||||||||||
Release of unearned ESOP shares | — | 53 | — | — | — | 143 | 196 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance, September 30, 2018 | $ | 16,413 | $ | 248 | $ | 22,660 | $ | (719 | ) | $ | 207 | $ | — | $ | 38,808 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance,December 31, 2018 | $ | 16,452 | $ | 252 | $ | 23,321 | $ | (618 | ) | $ | 213 | $ | — | $ | 39,620 | |||||||||||||
Net income | — | — | 4,050 | — | 21 | — | 4,071 | |||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | 1,494 | — | — | 1,494 | |||||||||||||||||||||
Noncontrolling interest capital distributions | — | — | — | — | (13 | ) | — | (13 | ) | |||||||||||||||||||
Dividends on common stock ($0.1425 per share) | — | — | (1,855 | ) | — | — | — | (1,855 | ) | |||||||||||||||||||
Issuance of common stock (1,536,731 shares), Net of capital raise expenses | 22,119 | — | — | — | — | — | 22,119 | |||||||||||||||||||||
Issuance of restricted common stock, net of forfeitures | 160 | — | — | — | — | — | 160 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance, September 30, 2019 | $ | 38,731 | $ | 252 | $ | 25,516 | $ | 876 | $ | 221 | $ | — | $ | 65,596 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
Blue Ridge Bankshares, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 4,071 | $ | 3,587 | ||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation, amortization and accretion | 383 | 295 | ||||||
Deferred income taxes | 9 | (325 | ) | |||||
Provision for loan losses | 1,465 | 640 | ||||||
Proceeds from sale of loans held for sale, originated | 241,112 | 105,343 | ||||||
Gain on sale of loans held for sale, originated | (7,455 | ) | (2,954 | ) | ||||
Gain on sale of securities | (86 | ) | (5 | ) | ||||
Loans held for sale, originated | (264,625 | ) | (108,773 | ) | ||||
(Gain) loss on disposal of premises and equipment | (2 | ) | 5 | |||||
Loss on sale of other real estate owned | 33 | — | ||||||
Investment amortization expense, net | 356 | 182 | ||||||
Amortization of debt refinancing fees | — | 57 | ||||||
Amortization of subordinated debt issuance costs | 25 | 25 | ||||||
Amortization of other intangibles | 352 | 390 | ||||||
Earnings on life insurance | (874 | ) | (148 | ) | ||||
Increase in other assets | (9,677 | ) | (2,392 | ) | ||||
Increase (decrease) in accrued expenses | 8,893 | (160 | ) | |||||
Release of unearned ESOP shares | — | 196 | ||||||
|
|
|
| |||||
Net cash used in operating activities | (26,020 | ) | (4,037 | ) | ||||
|
|
|
| |||||
Cash flows used in investing activities: | ||||||||
Net (increase) decrease in federal funds sold | 261 | (138 | ) | |||||
Purchase of securities available for sale | (96,743 | ) | (9,307 | ) | ||||
Purchase of securities held to maturity | — | (4,401 | ) | |||||
Proceeds from calls, maturities, sales, paydowns and maturities of securities available for sale | 15,231 | 4,342 | ||||||
Proceeds from calls, maturities, sales, paydowns and maturities of securities held for investment | 2,370 | 1,915 | ||||||
Purchase of insurance policies | (600 | ) | — | |||||
Redemption of insurance policies | 1,058 | — | ||||||
Net change in restricted equity securities | (2,717 | ) | (249 | ) | ||||
Net increase in loans held for investment | (46,650 | ) | (45,484 | ) | ||||
Net increase in loans held for sale, participations | (20,053 | ) | (4,719 | ) | ||||
Purchase of premises and equipment | (507 | ) | (640 | ) | ||||
Proceeds from sale of premises and equipment | 13 | 4 | ||||||
Capital calls of SBIC funds and other investments | (665 | ) | (310 | ) | ||||
Nonincome distributions from limited liability companies | 147 | 252 | ||||||
|
|
|
| |||||
Net cash used in investing activities | (148,855 | ) | (58,735 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Net increase in deposits | 105,254 | 53,683 | ||||||
Common stock dividends paid | (1,866 | ) | (1,110 | ) | ||||
Federal Home Loan Bank advances | 257,100 | 106,100 | ||||||
Federal Home Loan Bank repayments | (200,600 | ) | (92,700 | ) | ||||
Issuance of common stock | 22,279 | 89 | ||||||
Repayment of contingent ESOP liability | — | (151 | ) | |||||
|
|
|
| |||||
Net cash provided by financing activities | 182,167 | 65,911 | ||||||
|
|
|
| |||||
Net increase in cash and due from banks | 7,292 | 3,139 | ||||||
Cash and due from banks at beginning of period | 15,026 | 10,319 | ||||||
|
|
|
| |||||
Cash and due from banks at end of period | $ | 22,318 | $ | 13,458 | ||||
|
|
|
| |||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 6,217 | $ | 3,203 |
See accompanying notes to unaudited consolidated financial statements.
7
Notes to Consolidated Financial Statements (Unaudited)
Note 1 – SummaryOrganization and Basis of Significant Accounting PoliciesPresentation
Principles Blue Ridge Bankshares, Inc. (the "Company"), a Virginia corporation, was formed in 1988 and is registered as a bank holding company under the Bank Holding Company Act of Consolidation1956, as amended. The Company is headquartered in Charlottesville, Virginia and conducts its business activities primarily through the branch offices of its wholly-owned subsidiary bank, Blue Ridge Bank, National Association (the "Bank"). The Company exists primarily for the purposes of holding the stock of its subsidiary, the Bank.
The Bank operates under a national charter and is subject to regulation by the Office of the Comptroller of the Currency (the “OCC”). Consequently, it undergoes periodic examinations by this regulatory authority.
On January 31, 2021, the Company completed a merger with Bay Banks of Virginia, Inc. (“Bay Banks”), a bank holding company conducting substantially all its operations through its bank subsidiary, Virginia Commonwealth Bank, and its wealth and trust management subsidiary, VCB Financial Group, Inc. (the “Financial Group”). Immediately following the Company’s merger with Bay Banks, Bay Banks’ subsidiary bank was merged with and into the Bank, while the Financial Group became a subsidiary of the Company (collectively, the “Bay Banks Merger”).
The Financial Group provides management services for personal and corporate trusts, including estate planning, estate settlement and trust administration, and investment and wealth management services from its Richmond and Kilmarnock, Virginia offices. Products and services include revocable and irrevocable living trusts, testamentary trusts, custodial accounts, investment planning, brokerage services, insurance investment managed accounts, and managed and self-directed individual retirement accounts.
The accompanying unaudited consolidated financial statements of Blue Ridge Bankshares, Inc. (“the Company” or “Blue Ridge”)Company include the accounts of Blue Ridgethe Bank, N.A. (“the Bank”),Financial Group, PVB Properties, LLC, and MoneyWise Payroll Solutions, Inc. (net of noncontrolling interest) and were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) forand to general practices within the interim financial information. Accordingly, these financial statements do not include all of the informationbanking industry. All significant intercompany balances and footnotes required by U.S. GAAP for complete financial statements. Operating results for the quarter ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.transactions have been eliminated in consolidation. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 included2020.
Information contained herein as of March 31, 2021 includes the balances of Bay Banks; information contained herein as of and for the year ended December 31, 2020 does not include the balances of Bay Banks. Information for the three months ended March 31, 2021 includes the operations of Bay Banks only for the period immediately following the effective date of the Bay Banks Merger (January 31, 2021) through March 31, 2021.
On March 17, 2021, the Company announced that its board of directors had approved a three-for-two stock split (“Stock Split”) effected in the joint proxy statement/prospectus filedform of a 50% stock dividend on its common stock outstanding paid on April 30, 2021 to shareholders of record as of April 20, 2021. Cash was paid in lieu of fractional shares based on the closing price of common stock on the record date. References made to outstanding shares or per share amounts in the accompanying consolidated financial statements and disclosures have been adjusted to reflect the Stock Split for all periods presented, unless otherwise noted.
Certain amounts presented in the consolidated financial statements of prior periods have been reclassified to conform to current year presentations, including the following circumstance. The reclassifications had no effect on net income, net income per share, or shareholders’ equity as previously reported.
Correction of Immaterial Classification Error
During the first quarter of 2021, the Company determined a loan arrangement with a third-party financial institution for the purpose of residential mortgage loan originations, which had been reported on its consolidated balance sheets in loans held for sale, should be reported as loans held for investment.
The Company has changed the classification of this loan on its December 31, 2020 consolidated balance sheet to reflect it as held for investment. The change in classification resulted in a $30.4 million decrease from what was
10
previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 in loans held for sale with a corresponding increase of the same amount in loans held for investment as of December 31, 2020.
The change in classification does not affect the Company’s reported earnings for 2020, as the Company does not believe any material allowance for loan losses (“ALL”) would have been necessary for this loan as of December 31, 2020, and the Company believes its ALL was adequate as of December 31, 2020. This reclassification does not change total loans or total assets on the Company’s consolidated balance sheets. The Company has evaluated the effect of the incorrect presentation, both qualitatively and quantitatively, and concluded that it did not materially misstate the Company’s previously issued financial statements.
Note 2 – Amendments to the Accounting Standards Codification
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. As a “smaller reporting company” under Securities and Exchange Commission (“SEC”) rules, the Company will be required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company has formed a cross-functional working group to assess and implement the requirements of ASU 2016-13 by the adoption date.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. This ASU addresses issues raised by stakeholders during the implementation of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on October 31, 2019.
Financial Instruments. Among other narrow-scope improvements, the new ASU clarifies guidance around how to report expected recoveries. “Expected recoveries” describes a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. While applying the credit losses standard, stakeholders questioned whether expected recoveries were permitted on assets that had already shown credit deterioration at the time of purchase (also known as purchased credit-deteriorated (“PCD”) assets). In response to this question, the ASU permits organizations to record expected recoveries on PCD assets. In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities. The accompanying unauditedASU includes effective dates and transition requirements that vary depending on whether or not an entity has already adopted ASU 2016-13. The Company is currently assessing the impact that ASU 2019-11 will have on its consolidated financial statements includestatements.
Note 3 – Business Combinations
On January 31, 2021, the accountsCompany completed its acquisition of Bay Banks, which was accounted for as a business combination. At the effective date of the merger, Bay Banks’ shareholders received 0.5000 shares of the Company’s common stock in exchange for each share of Bay Banks common stock held (“Exchange Ratio”), plus cash in lieu of any fractional shares, resulting in the Company issuing 6,634,495 shares (9,951,743 shares on a post Stock Split basis) with an aggregate fair market value of $124.9 million based on the closing price of the Company’s common stock at January 29, 2021, the last trading day prior to the effective date of the merger, and paying $3.4 thousand in lieu of fractional shares. In addition, options to purchase 198,362 shares of Bay Banks common stock, whether vested or unvested, were converted to options to acquire 99,176 shares of the Company’s common stock (148,764 shares on a post Stock Split basis) at an estimated fair value of $472 thousand as of the merger date. Finally, Bay Banks had previously acquired $1.75 million of the Company’s subordinated notes, while the Bank had previously acquired $1.10 million of Bay Banks’ subordinated notes. In the merger, an effective settlement of the notes occurred in the amount of $650 thousand, which reduced the consideration paid.
The Bay Banks Merger combined two banks with complementary capabilities and geographical focus, thus provided the opportunity for the organization to leverage its subsidiaries. All significant intercompany balancesexisting infrastructure, including people, processes and transactions have been eliminated in consolidation.systems, across a larger asset base.
Nature of Operations
The Company operateshas accounted for the Bay Banks Merger under the supervisionacquisition method of accounting, whereby the acquired assets and monitoringassumed liabilities are recorded by the Company at their estimated fair values as of the Federal Reserve Bank of Richmond while the Bank operates under a national charter subject to regulation by the Officeeffective date of the Comptrollermerger. Fair value estimates were based on management’s assessment of the Currency. best information available at the time of determination and are highly subjective.
The Bank provides commercial banking services to customers located primarilyfollowing table presents the consideration paid in the Piedmont, Southside,merger and Shenandoah Valley regionsthe summary balance sheet of Bay Banks as of the Commonwealthdate of Virginiathe merger inclusive of estimated fair value adjustments and also operates under the name Carolina State Bankallocation of consideration paid in Greensboro, North Carolina. Mortgage lending servicesthe merger to the acquired assets and assumed liabilities. The goodwill resulting from the Bay Banks Merger was $7.2 million.
(Dollars in thousands, except per share data) |
|
|
|
|
Consideration paid: |
|
|
| Reference: |
Company's common shares issued |
| 9,951,743 |
| A |
Purchase price per share | $ | 12.55 |
| A, B |
Value of common stock issued | $ | 124,928 |
|
|
Estimated fair value of stock options |
| 472 |
|
|
Cash in lieu of fractional shares |
| 3 |
|
|
Total consideration paid | $ | 125,403 |
|
|
Effective settlement of subordinated notes |
| (650 | ) |
|
Total consideration paid less effective settlement of subordinated notes | $ | 124,753 |
|
|
Fair value of assets acquired: |
|
|
|
|
Cash and due from banks | $ | 44,066 |
|
|
Federal funds sold |
| 1,732 |
|
|
Certificates of deposit |
| 1,018 |
|
|
Securities available for sale |
| 79,505 |
|
|
Restricted securities |
| 4,385 |
|
|
Loans held for investment |
| 1,030,433 |
| C |
Loans held for sale |
| 3,814 |
|
|
Premises and equipment |
| 15,532 |
| D |
Right of use asset |
| 1,864 |
|
|
Other real estate owned |
| 598 |
|
|
Bank owned life insurance |
| 20,259 |
|
|
Mortgage servicing rights |
| 987 |
|
|
Core deposit intangible |
| 6,850 |
| E |
Deferred tax asset, net |
| 2,685 |
| F |
Other assets |
| 10,855 |
| G |
Total assets | $ | 1,224,583 |
|
|
Fair value of liabilities assumed: |
|
|
|
|
Deposits | $ | 1,030,888 |
| H |
FHLB borrowings |
| 10,124 |
| I |
FRB borrowings |
| 24,815 |
|
|
Subordinated notes |
| 31,850 |
| J |
Other liabilities |
| 9,359 |
|
|
Total liabilities | $ | 1,107,036 |
|
|
Net identifiable assets acquired at fair value | $ | 117,547 |
|
|
Goodwill | $ | 7,206 |
|
|
Reference: | Explanation of reference: |
A | Common shares issued and purchase price per share are presented on a post Stock Split basis, which was effective April 30, 2021. |
B | The value of the shares of the Company's common stock exchanged for shares of legacy Bay Banks common stock was based upon the closing price of the Company's common stock at January 29, 2021, the last trading day prior to the date of completion of the merger on January 31, 2021. |
C | Reflective of a $17.9 million (or 1.70%) fair value adjustment (discount) to the amortized cost of the loan portfolio acquired. |
D | Reflective of a $4.4 million fair value adjustment (premium) over the net book value of premises and equipment acquired. |
E | Core deposit intangible asset recorded to reflect the fair value of nonmaturity deposits, except for time deposits over $100,000, assumed by the Company. |
F | Reflective of a $2.1 million net deferred tax asset recorded on all fair value adjustments, excluding goodwill, at the statutory federal income tax rate of 21%. |
G | Reflective of a $203 thousand fair vale adjustment (premium) on other assets acquired. |
H | Reflective of a $5.8 million fair value adjustment (premium) over the book value of time deposits assumed. |
I | Reflective of a $124 thousand fair value adjustment (premium) on the $10 million Federal Home Loan Bank of Atlanta ("FHLB") advance assumed. |
J | Reflective of a $950 thousand fair value adjustment (premium) over the book value of subordinated notes assumed. |
Below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the acquisition.
Cash and cash equivalents. The carrying amounts of cash, due from banks, federal funds sold, and certificates of deposit was deemed to be a reasonable estimate of fair value.
Securities available for sale. The estimated fair value of investment securities acquired was based on quoted market and third-party broker provided prices as of the merger date.
Restricted securities. The carrying amount of restricted equity securities was used as a reasonable estimate of fair value. These investments are carried at cost as no active trading market exists.
Loans. The acquired loan portfolio was segregated into two categories for valuation purposes: purchased credit-impaired (“PCI”) and purchased performing loans. PCI loans were identified as those loans that were nonaccrual prior to the business combination and those loans that were identified as potentially impaired. Potentially impaired loans were those loans that were identified during the credit review process where there was an indication that the borrower did not have sufficient cash flows to service the loan in accordance with its terms. Specifically, loans with a risk rating of special mention or worse, loans that had been previously restructured as a troubled debt restructuring (“TDR”), or loans that had a history of delinquent payments were deemed PCI. Performing loans were those loans that were currently performing in accordance with the loan contract and did not exhibit any significant deterioration in credit quality since origination.
For loans that were identified as performing, the fair values were determined using a discounted cash flow analysis (the "income approach"). Performing loans were segmented into pools based on loan type including commercial mortgages, multifamily, commercial and industrial, construction and land development, consumer residential, and consumer nonresidential, and further segmented based on payment structure (fully amortizing, non-fully amortizing balloon, or interest only), rate type (fixed versus variable), and remaining maturity. The estimated cash flows expected to be collected for each loan were determined using a valuation model that included the following key assumptions: prepayment speeds, expected credit loss rates, and discount rates. Prepayment speeds were influenced by many factors including, but not limited to, current yields, historic rate trends, payment types, interest rate type, and the duration of the individual loan. Expected credit loss rates were based on recent and historical default and loss rates observed for loans with similar characteristics, and further influenced by a third-party loan review on a selection of loans within the acquired portfolio. The discount rates used were based on rates market participants may require for cash flows with similar risk characteristics at the acquisition date.
13
For loans that were identified as PCI, either the above income approach or the asset approach was used. The income approach was used for PCI loans where there was an expectation that the borrower would more likely than not continue to pay based on the current terms of the loan contract. Management used the asset approach for all nonaccrual loans to reflect market participant assumptions. Under the asset approach, the fair value of each loan was determined based on the estimated fair values of the underlying collateral, less estimated costs to sell.
The methods used to estimate the fair values of loans are sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these regions as well with additional mortgage offices locatedvalues than in Northern Virginia, Maryland, North Carolina, and Florida.
Basis of Presentationthose determined in active markets.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimatesfollowing table presents the purchased performing and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilitiesPCI loans receivable at the date of the financial statementsBay Banks Merger and the reportedfair value adjustments (discounts) recorded immediately following the merger.
| As of January 31, 2021 |
| |||||||||
(dollars in thousands) | Purchased Performing |
|
| PCI |
|
| Total |
| |||
Principal payments receivable | $ | 936,523 |
|
| $ | 111,766 |
|
| $ | 1,048,289 |
|
Fair value adjustment - credit and interest |
| (2,784 | ) |
|
| (15,072 | ) |
|
| (17,856 | ) |
Fair value of acquired loans | $ | 933,739 |
|
| $ | 96,694 |
|
| $ | 1,030,433 |
|
Premises and equipment. Land and buildings (collectively, “premises”) acquired were recorded at estimated fair value as determined by third-party appraisals at or near the merger date. Equipment, including office furniture, computers, and similar assets, were recorded at the their net book values as of the merger date, which approximated fair value.
Bank owned life insurance. The carrying value of bank owned life insurance was deemed to reasonably approximate fair value. These policies are recorded at their cash surrender value, using information provided by the insurance carriers.
Core deposit intangible. Core deposit intangible ("CDI") is the measure of the value of noninterest-bearing checking, savings, interest-bearing checking, money market, and certain certificates of deposits assumed in a business combination. Certificates of deposit with balances over $100,000 and brokered deposits are excluded from evaluation, as the Company determined customer related intangible assets are non-existent for these accounts. The estimated fair value of CDI was based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative funding source. The CDI is being amortized over an estimated useful life of 10 years, which approximates the existing deposit relationships acquired.
Deposits. The fair values of deposit liabilities with no stated maturity (noninterest-bearing checking, savings, interest-bearing checking, and money market deposits) are equal to the carrying amounts payable on demand. The estimated fair value of revenuesthe certificates of deposit represents contractual cash flows, discounted to present value using interest rates currently offered by market participants on deposits with similar characteristics and expenses duringremaining maturities.
FHLB borrowings. The fair value of the reporting period. Actual results could differ from those estimates. MaterialFHLB borrowings was estimated by discounting the future cash flows using current interest rates offered for similar advances as of the acquisition date.
FRB borrowings. The fair value of Federal Reserve Bank (“FRB”) borrowings was deemed to approximate its carrying value. These borrowings are pursuant to the FRB’s Paycheck Protection Plan Liquidity Facility (“PPPLF”) and there is no comparable borrowing to advances under this facility.
Subordinated notes. The fair value of the subordinated notes was estimated by utilizing recent issuance rates for subordinated debt offerings of similar issuer size near the merger date.
The fair value estimates that are particularly susceptiblesubject to significant change for up to one year after the effective date of the merger, if additional information relative to effective date fair values becomes available.
14
Impact of Certain Fair Value Adjustments
The net effect of the amortization and accretion of premiums and discounts associated with the Company’s fair value adjustments to assets acquired and liabilities assumed in the near term relate toBay Banks Merger had the determinationfollowing effect on the Company’s consolidated income statement for the three months ended March 31, 2021.
| For the three months ended March 31, |
| |
(dollars in thousands) | 2021 |
| |
Loans (1) | $ | 272 |
|
Time deposits (2) |
| 687 |
|
FHLB borrowings (3) |
| 2 |
|
Subordinated notes (4) |
| 35 |
|
CDI (5) |
| (226 | ) |
Net impact to income before income taxes | $ | 770 |
|
(1) Loan discount accretion is included in the “Interest and fees on loans” section of “Interest Income” in the allowance for loan losses, goodwillconsolidated income statements.
(2) Time deposit premium amortization is included in the “Interest on deposits” section of “Interest Expense” in the consolidated income statements.
(3) FHLB borrowings premium amortization is included in the “Interest on FHLB and intangibles, fair value,FRB borrowings” section of “Interest Expense” in the valuationconsolidated income statements.
(4) Subordinated notes premium amortization is included in the “Interest on subordinated notes” section of deferred tax assets and liabilities, and valuation“Interest Expense” in the consolidated income statements.
(5) CDI amortization is included in the “Intangible amortization” section of foreclosed real estate. In“Noninterest Expense” in the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for fair presentation of the results of operations in these financial statements, have been made.consolidated income statements.
Reclassification
Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.
Earnings Per Share
Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. ESOP shares are considered outstanding for this calculation. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had been issued. The Company had no dilutive common shares outstanding at September 30, 2019 and 2018.
8
Note 1 – Summary of Significant Accounting Policies, continued
Pro Forma Financial Information
The following table sets forthpresents the computationeffect of basicthe Bay Banks Merger on the Company on a pro forma basis, as if the merger had occurred at the beginning of the three-month periods ended March 31, 2021 and diluted earnings per share2020. There were no merger-related expenses incurred in the first quarter of 2020 related to the Bay Banks Merger. Merger-related expenses of $9.0 million for the three and nine months ended September 30.March 31, 2021, which are included in the Company’s consolidated income statements, are not included in the pro forma information below. Merger-related expenses incurred by Bay Banks prior to the completion of the Bay Banks Merger are not included in the Company’s consolidated income statements and are also not included in the pro forma information below. Net income includes pro forma adjustments for the accretion and amortization of estimated fair value adjustments on acquired loans and assumed time deposits and borrowings, as well as amortization of estimated CDI. An income tax rate of 21% was used in determining pro forma net income.
| For the three months ended March 31, |
| |||||
(dollars in thousands, except per share data) | 2021 |
|
| 2020 |
| ||
Revenue (net interest income plus noninterest income) | $ | 39,005 |
|
| $ | 24,098 |
|
Net income |
| 11,944 |
|
|
| 3,928 |
|
Earnings per common share |
| 0.64 |
|
|
| 0.21 |
|
For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income | $ | 4,070,745 | $ | 3,587,096 | $ | 1,253,139 | $ | 1,269,659 | ||||||||
Net income attributable to noncontrolling interest | (21,251 | ) | (7,612 | ) | (3,075 | ) | (1,043 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income available to common shareholders | $ | 4,049,494 | $ | 3,579,484 | $ | 1,250,064 | $ | 1,268,616 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares | 3,998,267 | 2,774,441 | 4,346,866 | 2,795,303 | ||||||||||||
Effect of dilutive securities | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted average common shares | 3,998,267 | 2,774,441 | 4,346,866 | 2,795,303 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings (losses) per common share | $ | 1.01 | $ | 1.29 | $ | 0.29 | $ | 0.45 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted earnings (losses) per common share | $ | 1.01 | $ | 1.29 | $ | 0.29 | $ | 0.45 | ||||||||
|
|
|
|
|
|
|
|
Note 24 – Investment SecuritiesInvestments
Investment securities available for sale are carried at fair value in the Company’s consolidated balance sheets at their fair value and investment securities held to maturity are carried in the consolidated balance sheets at their amortized cost.sheets. The following tables present amortized cost and fair values of investment securities at September 30, 2019available for sale as of the dates stated.
|
| March 31, 2021 |
| |||||||||||||
(Dollars in thousands) |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal |
| $ | 31,630 |
|
| $ | 185 |
|
| $ | (339 | ) |
| $ | 31,476 |
|
U.S. Treasury and agencies |
|
| 54,477 |
|
|
| 56 |
|
|
| (807 | ) |
|
| 53,726 |
|
Mortgage backed securities |
|
| 159,239 |
|
|
| 440 |
|
|
| (2,552 | ) |
|
| 157,127 |
|
Corporate bonds |
|
| 35,716 |
|
|
| 738 |
|
|
| (49 | ) |
|
| 36,405 |
|
Total investment securities |
| $ | 281,062 |
|
| $ | 1,419 |
|
| $ | (3,747 | ) |
| $ | 278,734 |
|
|
| December 31, 2020 |
| |||||||||||||
(Dollars in thousands) |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal |
| $ | 14,069 |
|
| $ | 258 |
|
| $ | (68 | ) |
| $ | 14,259 |
|
U.S. Treasury and agencies |
|
| 2,500 |
|
|
| — |
|
|
| (91 | ) |
|
| 2,409 |
|
Mortgage backed securities |
|
| 72,337 |
|
|
| 696 |
|
|
| (398 | ) |
|
| 72,635 |
|
Corporate bonds |
|
| 19,755 |
|
|
| 469 |
|
|
| (52 | ) |
|
| 20,172 |
|
Total investment securities |
| $ | 108,661 |
|
| $ | 1,423 |
|
| $ | (609 | ) |
| $ | 109,475 |
|
As of March 31, 2021 and December 31, 20182020, securities with a market value of $11.9 million and $12.5 million, respectively, were pledged to secure public deposits with the Treasury Board of the Commonwealth of Virginia.
As of March 31, 2021 and December 31, 2020, securities with a market value of $23.6 million and $29.4 million, respectively, were pledged to secure the Bank’s borrowing facility with the FHLB.
As a result of the Bay Banks Merger, the Company assumed a limited number of reverse repurchase agreements, all of which had remaining contractual maturities that were overnight and continuous. Securities sold under repurchase agreements were $1.2 million as of March 31, 2021 and are included in liabilities on the Company’s consolidated balance sheets. The securities pledged to each agreement are reviewed daily and can be changed at the option of the Bank with minimal risk of loss due to fair value changes. Securities with a fair value of $3.0 million were pledged as follows:
September 30, 2019 | ||||||||||||||||
(In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Available for sale | ||||||||||||||||
U.S. Treasury and agencies | $ | 3,375 | $ | 2 | $ | 46 | $ | 3,331 | ||||||||
Mortgage backed securities | 110,220 | 1,640 | 70 | 111,790 | ||||||||||||
Corporate bonds | 6,553 | 68 | 2 | 6,619 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 120,148 | $ | 1,710 | $ | 118 | $ | 121,740 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Held to maturity | ||||||||||||||||
State and municipal | $ | 13,117 | $ | 506 | $ | 8 | $ | 13,615 | ||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 13,117 | $ | 506 | $ | 8 | $ | 13,615 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investment Securities | $ | 133,265 | $ | 2,216 | $ | 126 | $ | 135,355 | ||||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2018 | ||||||||||||||||
(In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Available for sale | ||||||||||||||||
State and municipal | $ | 1,000 | $ | 3 | $ | — | $ | 1,003 | ||||||||
U.S. Treasury and agencies | 3,375 | — | 208 | 3,167 | ||||||||||||
Mortgage backed securities | 28,976 | 22 | 628 | 28,370 | ||||||||||||
Corporate bonds | 5,477 | 78 | 48 | 5,507 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 38,828 | $ | 103 | $ | 884 | $ | 38,047 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Held to maturity | ||||||||||||||||
State and municipal | $ | 15,565 | $ | 78 | $ | 140 | $ | 15,503 | ||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 15,565 | $ | 78 | $ | 140 | $ | 15,503 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investment Securities | $ | 54,393 | $ | 181 | $ | 1,024 | $ | 53,550 | ||||||||
|
|
|
|
|
|
|
|
9
Note 2 – Investment Securities, continued
collateral for securities sold under repurchase agreements as of March 31, 2021, and all securities pledged were state and municipal obligations.
The following table presents the amortized cost and fair value of securities at September 30, 2019,available for sale by contractual maturity are shown below.as of the date stated. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| March 31, 2021 |
| ||||||||||||||||||||||
September 30, 2019 | ||||||||||||||||||||||||
Securities Available for Sale | Securities Held to Maturity | |||||||||||||||||||||||
(In thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||
(Dollars in thousands) |
| Amortized Cost |
|
| Fair Value |
| ||||||||||||||||||
Due in one year or less | $ | — | $ | — | $ | 461 | $ | 463 |
| $ | 20,100 |
|
| $ | 19,986 |
| ||||||||
Due after one year through five years | 2,500 | 2,499 | 2,590 | 2,641 |
|
| 52,994 |
|
|
| 53,082 |
| ||||||||||||
Due after five years | 8,794 | 8,781 | 3,761 | 3,863 | ||||||||||||||||||||
Due after five years through ten years |
|
| 41,606 |
|
|
| 41,811 |
| ||||||||||||||||
Due after ten years | 108,854 | 110,460 | 6,305 | 6,648 |
|
| 166,362 |
|
|
| 163,855 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||
Total | $ | 120,148 | $ | 121,740 | $ | 13,117 | $ | 13,615 |
| $ | 281,062 |
|
| $ | 278,734 |
| ||||||||
|
|
|
|
AThe following tables present a summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type, as of the dates stated.
|
|
|
|
|
| March 31, 2021 |
| |||||||||||||||||||||
|
|
|
|
|
| Less than 12 Months |
|
| 12 Months or Greater |
|
| Total |
| |||||||||||||||
(Dollars in thousands) |
| Number of Securities |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| |||||||
State and municipal |
|
| 38 |
|
| $ | 17,258 |
|
| $ | (339 | ) |
| $ | — |
|
| $ | — |
|
| $ | 17,258 |
|
| $ | (339 | ) |
U.S. Treasury and agencies |
|
| 46 |
|
|
| 31,377 |
|
|
| (807 | ) |
|
| — |
|
|
| — |
|
|
| 31,377 |
|
|
| (807 | ) |
Mortgage backed securities |
|
| 37 |
|
|
| 105,822 |
|
|
| (2,381 | ) |
|
| 10,182 |
|
|
| (171 | ) |
|
| 116,004 |
|
|
| (2,552 | ) |
Corporate bonds |
|
| 4 |
|
|
| 5,005 |
|
|
| (24 | ) |
|
| 976 |
|
|
| (25 | ) |
|
| 5,981 |
|
|
| (49 | ) |
Total |
|
| 125 |
|
| $ | 159,462 |
|
| $ | (3,551 | ) |
| $ | 11,158 |
|
| $ | (196 | ) |
| $ | 170,620 |
|
| $ | (3,747 | ) |
|
|
|
|
|
| December 31, 2020 |
| |||||||||||||||||||||
|
|
|
|
|
| Less than 12 Months |
|
| 12 Months or Greater |
|
| Total |
| |||||||||||||||
(Dollars in thousands) |
| Number of Securities |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| |||||||
State and municipal |
|
| 6 |
|
| $ | 3,111 |
|
| $ | (68 | ) |
| $ | — |
|
| $ | — |
|
| $ | 3,111 |
|
| $ | (68 | ) |
U.S. Treasury and agencies |
|
| 1 |
|
|
| 2,410 |
|
|
| (91 | ) |
|
| — |
|
|
| — |
|
|
| 2,410 |
|
|
| (91 | ) |
Mortgage backed securities |
|
| 22 |
|
|
| 20,545 |
|
|
| (65 | ) |
|
| 8,592 |
|
|
| (333 | ) |
|
| 29,137 |
|
|
| (398 | ) |
Corporate bonds |
|
| 7 |
|
|
| 3,242 |
|
|
| (7 | ) |
|
| 1,955 |
|
|
| (45 | ) |
|
| 5,197 |
|
|
| (52 | ) |
Total |
|
| 36 |
|
| $ | 29,308 |
|
| $ | (231 | ) |
| $ | 10,547 |
|
| $ | (378 | ) |
| $ | 39,855 |
|
| $ | (609 | ) |
The Company reviews for other-than-temporary impairment of its investment securities portfolio at September 30, 2019least quarterly. As of March 31, 2021 and December 31, 2018 is2020, only investment grade securities were in an unrealized loss position. Investment securities with unrealized losses are a result of pricing changes due to recent and negative conditions in the current market environment and not as follows:a result of permanent credit impairment. Contractual cash flows for the agency mortgage-backed securities are guaranteed and/or funded by the U.S. government. Municipal securities show no indication that the contractual cash flows will not be received when due. The Company does not intend to sell nor does it believe that it will be required to sell any of its temporarily impaired securities prior to the recovery of the amortized cost.
September 30, 2019 | Less than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
State and Municipal | $ | 1,667 | $ | (8 | ) | $ | — | $ | — | $ | 1,667 | $ | (8 | ) | ||||||||||
U.S. Treasury and Agency | — | — | 2,829 | (46 | ) | 2,829 | (46 | ) | ||||||||||||||||
Mortgage backed | 6,251 | (4 | ) | 6,986 | (66 | ) | 13,237 | (70 | ) | |||||||||||||||
Corporate bonds | 250 | — | 898 | (2 | ) | 1,148 | (2 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 8,168 | $ | (12 | ) | $ | 10,713 | $ | (114 | ) | $ | 18,881 | $ | (126 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 | Less than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
State and Municipal | $ | 6,278 | $ | (105 | ) | $ | 2,402 | $ | (35 | ) | $ | 8,680 | $ | (140 | ) | |||||||||
U.S. Treasury and Agency | — | — | 3,167 | (208 | ) | 3,167 | (208 | ) | ||||||||||||||||
Mortgage backed | 10,031 | (51 | ) | 17,173 | (577 | ) | 27,204 | (628 | ) | |||||||||||||||
Corporate bonds | 2,114 | (36 | ) | 488 | (12 | ) | 2,602 | (48 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 18,423 | $ | (192 | ) | $ | 23,230 | $ | (832 | ) | $ | 41,653 | $ | (1,024 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
OtherRestricted equity investments (in thousands) consistconsisted of stock in the Federal Home Loan BankFHLB (carrying basis $5,993)value of $8.2 million and $5.8 million as of March 31, 2021 and December 31, 2020, respectively), Federal ReserveFRB stock (carrying basis $963)value of $4.9 million and $2.2 million as of March 31, 2021 and December 31, 2020, respectively), and stock in the Company’s correspondent bank (carrying value of $468 thousand and $248 thousand as of March 31, 2021 and December 31, 2020, respectively). Restricted equity investments are carried at cost. The Company also has various other equity investments (carrying basis $899)totaling $1.2 million and $3.0 million as of March 31, 2021 and December 31, 2020, respectively, which are marked to market through the consolidated income statement each reporting period.
16
Note 5 – Loans and Allowance for Loan Losses
The following table presents loans held for investment as of the dates stated.
(Dollars in thousands) |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Commercial and industrial |
| $ | 286,835 |
|
| $ | 123,675 |
|
Paycheck Protection Program |
|
| 608,692 |
|
|
| 292,068 |
|
Real estate – construction, commercial |
|
| 155,631 |
|
|
| 54,702 |
|
Real estate – construction, residential |
|
| 49,338 |
|
|
| 18,040 |
|
Real estate – mortgage, commercial |
|
| 649,474 |
|
|
| 273,499 |
|
Real estate – mortgage, residential |
|
| 496,301 |
|
|
| 213,404 |
|
Real estate – mortgage, farmland |
|
| 5,245 |
|
|
| 3,615 |
|
Consumer |
|
| 65,210 |
|
|
| 46,684 |
|
Gross loans |
|
| 2,316,726 |
|
|
| 1,025,687 |
|
Less: Deferred loan fees, net of costs |
|
| (12,184 | ) |
|
| (4,271 | ) |
Total |
| $ | 2,304,542 |
|
| $ | 1,021,416 |
|
In 2020, the Company participated in the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (“PPP 1”). Through the PPP 1, which is administered by the Small Business Administration, the federal government partnered with banks, including the Bank, to provide over $650 billion to small businesses to support payrolls and other operating expenses. PPP 1 loans have a two-year term if originated prior to June 5, 2020 or a five-year term if originated on or subsequent to June 5, 2020 and earn an annual interest rate of 1%. Banks originating PPP 1 loans earned a processing fee of 1%, 3%, or 5% of the loan amount, depending on the size of the loan. The Company originated approximately $363.4 million in PPP 1 loans in 2020 and approximately $71.3 million were forgiven or paid back by the borrower by December 31, 2020. As of March 31, 2021, $261.0 million of PPP 1 loans were outstanding, including those acquired in the Bay Banks Merger.
In the first quarter of 2021, the Company participated in the PPP pursuant to the Economic Aid Act, passed into law on December 27, 2020 (“PPP 2”), and through March 31, 2021, the Company had funded over 3,800 PPP 2 loans for approximately $348.0 million. PPP 2 loans have a contractual term of five years and earn an annual interest rate of 1%. Banks originating PPP 2 loans earn processing fees that are tiered depending on the size of the loan. Specifically, processing fees for loans of not more than $50,000 equal 50% of the loan balance or $2,500, whichever is less; processing fees for loans more than $50,000 and not more than $350,000 equal 5% of the loan balance, and processing fees for loans above $350,000 equal 3% of the loan balance. As of March 31, 2021, no PPP 2 loans had been forgiven.
The Company had pledged securities (in thousands)believes that the majority of $97,265PPP 1 and $26,408 at September 30, 2019PPP 2 loans will be forgiven, in accordance with the terms of the program, and will be paid in full pursuant to the U.S. government guarantee.
The Company is accounting for the PPP processing fees in accordance with ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, which requires fees, net of costs, to be deferred and amortized as a component of loan yield over the expected life of the loans, which the Company believes is 1.5 years for PPP 1 loans and one to three years for PPP 2 loans, depending on the loan balance. Of the $11.5 million of processing fees received in 2020 for PPP 1 loans, approximately $1.3 million of unamortized fees remain as of March 31, 2021, with $2.2 million recognized as a component of interest income in the first quarter of 2021. Of the $11.2 million of net processing fees received in the first quarter of 2021 for PPP 2 loans, approximately $10.1 million of unamortized fees remain as of March 31, 2021, with $1.1 million recognized as interest income in three months ended March 31, 2021.
From the onset of the global COVID-19 pandemic, the Company has proactively addressed the needs of its commercial and individual borrowers by modifying loans allowing for the short-term deferral of principal payments or of principal and interest payments. Pursuant to the CARES Act, banks have the option to temporarily suspend certain requirements of GAAP related to TDRs for a limited period of time if certain conditions are met. All loan modifications made by the Company were made on a good faith basis to borrowers who met the requirements for modifications under the CARES Act. As a result of regulatory and accounting guidance regarding such modifications, the loans are not designated as TDRs, as of March 31, 2021 and December 31, 2018, respectively.2020. In response to the COVID-19 pandemic, during 2020, the Company approved over 550 loan deferrals for a total of $110.6 million. In addition, Bay Banks approved
17
nearly 400 loan deferrals for approximately $160.0 million. Most of these loans are now past the deferment period and are back on normal payment schedules, and as of March 31, 2021, 30 loans were in deferment for a total of approximately $31.0 million.
10
Note 3 – Loans
Loans held for investment outstanding at September 30, 2019 and December 31, 2018 are summarized as follows:
September 30, 2019 | December 31, 2018 | |||||||
(in thousands) | ||||||||
Commercial and industrial | $ | 50,826 | $ | 49,076 | ||||
Agricultural | 175 | 216 | ||||||
Real estate – construction, commercial | 19,876 | 14,666 | ||||||
Real estate – construction, residential | 16,364 | 15,102 | ||||||
Real estate – mortgage, commercial | 167,223 | 150,513 | ||||||
Real estate – mortgage, residential | 165,865 | 149,856 | ||||||
Real estate – mortgage, farmland | 3,754 | 4,179 | ||||||
Consumer installment loans | 37,433 | 31,979 | ||||||
|
|
|
| |||||
Gross loans | 461,516 | 415,587 | ||||||
Less: Unearned income | (638 | ) | (719 | ) | ||||
|
|
|
| |||||
Total | $ | 460,878 | $ | 414,868 | ||||
|
|
|
|
The Company has pledged loans held for investment (in thousands)certain commercial and residential mortgages as collateral for borrowings with the Federal Home Loan Bank of AtlantaFHLB. Loans totaling $126,125$567.0 million and $104,791$213.3 million were pledged as of September 30, 2019March 31, 2021 and December 31, 2018,2020, respectively. Additionally, PPP loans in the amount of $509.7 million and $281.6 million were pledged as collateral for PPPLF advances as of March 31, 2021 and December 31, 2020, respectively.
As a result of the Bay Banks Merger and the 2019 acquisition of Virginia Community Bankshares, Inc., the acquired loan portfolios were initially measured at fair value as of the respective acquisition dates and subsequently accounted for as either purchased performing loans or PCI loans. The following table presents the outstanding principal balance and related recorded investment of these acquired loans included in the Company’s consolidated balance sheets as of the dates stated.
(Dollars in thousands) |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
PCI loans |
|
|
|
|
|
|
|
|
Outstanding principal balance |
| $ | 112,964 |
|
| $ | 1,278 |
|
Recorded investment |
|
| 97,892 |
|
|
| 1,085 |
|
Purchased performing loans |
|
|
|
|
|
|
|
|
Outstanding principal balance |
|
| 967,580 |
|
|
| 97,301 |
|
Recorded investment |
|
| 964,056 |
|
|
| 96,317 |
|
Total acquired loans |
|
|
|
|
|
|
|
|
Outstanding principal balance |
|
| 1,080,544 |
|
|
| 98,579 |
|
Recorded investment |
|
| 1,061,948 |
|
|
| 97,402 |
|
The following table presents the changes in the accretable yield for PCI loans for the periods stated.
|
| For the three months ended |
| |||||
(Dollars in thousands) |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Balance, beginning of period |
| $ | 123 |
|
| $ | 188 |
|
Additions |
|
| 10,030 |
|
|
| — |
|
Accretion |
|
| (840 | ) |
|
| (16 | ) |
Reclassification of nonaccretable difference due to improvement in expected cash flows |
|
| 104 |
|
|
| — |
|
Other changes, net |
|
| 22 |
|
|
| (1 | ) |
Balance, end of period |
| $ | 9,439 |
|
| $ | 171 |
|
The following tables present the aging of the recorded investment of past due loans (in thousands)held for investment as of September 30, 2019the dates stated.
|
| March 31, 2021 |
| |||||||||||||||||||||||||||||
(Dollars in thousands) |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater than 90 Days Past Due & Accruing |
|
| Nonaccrual |
|
| Total Past Due & Nonaccrual |
|
| PCI Loans |
|
| Current Loans |
|
| Total Loans |
| ||||||||
Commercial and industrial |
| $ | 1,166 |
|
| $ | 128 |
|
| $ | — |
|
| $ | 1,432 |
|
| $ | 2,726 |
|
| $ | 10,213 |
|
| $ | 273,896 |
|
| $ | 286,835 |
|
Paycheck Protection Program |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 608,692 |
|
|
| 608,692 |
|
Real estate – construction, commercial |
|
| 310 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 310 |
|
|
| 31,049 |
|
|
| 124,272 |
|
|
| 155,631 |
|
Real estate – construction, residential |
|
| 1,185 |
|
|
| — |
|
|
| — |
|
|
| 262 |
|
|
| 1,447 |
|
|
| — |
|
|
| 47,891 |
|
|
| 49,338 |
|
Real estate – mortgage, commercial |
|
| 3,287 |
|
|
| 685 |
|
|
| — |
|
|
| 2,032 |
|
|
| 6,004 |
|
|
| 47,520 |
|
|
| 595,950 |
|
|
| 649,474 |
|
Real estate – mortgage, residential |
|
| 6,027 |
|
|
| 800 |
|
|
| 7 |
|
|
| 965 |
|
|
| 7,799 |
|
|
| 7,379 |
|
|
| 481,123 |
|
|
| 496,301 |
|
Real estate – mortgage, farmland |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,245 |
|
|
| 5,245 |
|
Consumer |
|
| 752 |
|
|
| 145 |
|
|
| — |
|
|
| 655 |
|
|
| 1,552 |
|
|
| 1,731 |
|
|
| 61,927 |
|
|
| 65,210 |
|
Less: Deferred loan fees, net of costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,184 | ) |
|
| (12,184 | ) |
Total Loans |
| $ | 12,727 |
|
| $ | 1,758 |
|
| $ | 7 |
|
| $ | 5,346 |
|
| $ | 19,838 |
|
| $ | 97,892 |
|
| $ | 2,186,812 |
|
| $ | 2,304,542 |
|
|
| December 31, 2020 |
| |||||||||||||||||||||||||||||
(Dollars in thousands) |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater than 90 Days Past Due & Accruing |
|
| Nonaccrual |
|
| Total Past Due & Nonaccrual |
|
| PCI Loans |
|
| Current Loans |
|
| Total Loans |
| ||||||||
Commercial and industrial |
| $ | 1,117 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,310 |
|
| $ | 2,427 |
|
| $ | — |
|
| $ | 121,248 |
|
| $ | 123,675 |
|
Paycheck Protection Program |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 292,068 |
|
|
| 292,068 |
|
Real estate – construction, commercial |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| 54,667 |
|
|
| 54,702 |
|
Real estate – construction, residential |
|
| 262 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 262 |
|
|
| — |
|
|
| 17,778 |
|
|
| 18,040 |
|
Real estate – mortgage, commercial |
|
| 771 |
|
|
| 211 |
|
|
| — |
|
|
| 3,643 |
|
|
| 4,625 |
|
|
| 808 |
|
|
| 268,066 |
|
|
| 273,499 |
|
Real estate – mortgage, residential |
|
| 1,062 |
|
|
| — |
|
|
| 46 |
|
|
| 881 |
|
|
| 1,989 |
|
|
| 242 |
|
|
| 211,173 |
|
|
| 213,404 |
|
Real estate – mortgage, farmland |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,615 |
|
|
| 3,615 |
|
Consumer |
|
| 935 |
|
|
| 334 |
|
|
| — |
|
|
| 714 |
|
|
| 1,983 |
|
|
| — |
|
|
| 44,701 |
|
|
| 46,684 |
|
Less: Deferred loan fees, net of costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| (4,271 | ) |
|
| (4,271 | ) |
Total Loans |
| $ | 4,147 |
|
| $ | 545 |
|
| $ | 46 |
|
| $ | 6,548 |
|
| $ | 11,286 |
|
| $ | 1,085 |
|
| $ | 1,009,045 |
|
| $ | 1,021,416 |
|
The following tables present the aging of the recorded investment of PCI loans as of the dates stated.
| March 31, 2021 |
| |||||||||||||
(Dollars in thousands) | 30-89 Days Past Due |
|
| Greater than 90 Days Past Due & Accruing |
|
| Current Loans |
|
| Total Loans |
| ||||
Commercial and industrial | $ | — |
|
| $ | 187 |
|
| $ | 10,026 |
|
| $ | 10,213 |
|
Real estate – construction, commercial |
| 8 |
|
|
| 10 |
|
|
| 31,032 |
|
|
| 31,050 |
|
Real estate – mortgage, commercial |
| 722 |
|
|
| 29 |
|
|
| 46,768 |
|
|
| 47,519 |
|
Real estate – mortgage, residential |
| 739 |
|
|
| 978 |
|
|
| 5,662 |
|
|
| 7,379 |
|
Consumer |
| — |
|
|
| 4 |
|
|
| 1,727 |
|
|
| 1,731 |
|
Total PCI Loans | $ | 1,469 |
|
| $ | 1,208 |
|
| $ | 95,215 |
|
| $ | 97,892 |
|
| December 31, 2020 |
| |||||||||||||
(Dollars in thousands) | 30-89 Days Past Due |
|
| Greater than 90 Days Past Due & Accruing |
|
| Current Loans |
|
| Total Loans |
| ||||
Real estate – construction, commercial |
| — |
|
|
| — |
|
|
| 35 |
|
|
| 35 |
|
Real estate – mortgage, commercial |
| 224 |
|
|
| — |
|
|
| 584 |
|
|
| 808 |
|
Real estate – mortgage, residential |
| 35 |
|
|
| — |
|
|
| 207 |
|
|
| 242 |
|
Total PCI Loans | $ | 259 |
|
| $ | — |
|
| $ | 826 |
|
| $ | 1,085 |
|
The Company prepares a quarterly analysis of the ALL, with the objective of quantifying portfolio risk into a dollar amount of inherent losses. The ALL is established as losses are estimated to have occurred through a provision for loan
19
losses charged against income and decreased by loans charged-off (net of recoveries, if any). Management’s periodic evaluation of the adequacy of the ALL is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. While management uses the best information available to make evaluations, future adjustments may be necessary, if economic or other conditions differ substantially from the assumptions used. The allowance consists of specific and general components. The specific component relates to loans that are identified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows or the net realizable value, which is equal to the estimated fair value less estimated costs to sell, of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and those loans classified that are not impaired and is based on historical loss experience adjusted for other internal or external influences on credit quality that are not fully reflected in the historical data.
The Company follows applicable guidance issued by the Financial Accounting Standards Board. This guidance requires that losses be accrued when they are probable of occurring and can be estimated. It also requires that impaired loans, within its scope, be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.
PPP loans are fully guaranteed by the U.S. government; therefore, the Company recorded no ALL for these loans as of March 31, 2021 and December 31, 2018:2020. In future periods, the Company may be required to establish an ALL for these loans, which would result in a provision for loan losses charged to earnings.
September 30, 2019 | ||||||||||||||||||||||||||||
(in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days Past Due & Accruing | Nonaccrual | Total Past Due & Nonaccrual | Current Loans | Total Loans | |||||||||||||||||||||
Commercial and industrial | $ | 126 | $ | — | $ | — | $ | 538 | $ | 664 | $ | 50,162 | $ | 50,826 | ||||||||||||||
Real estate – construction, commercial | 141 | 363 | — | 942 | 1,446 | 18,430 | 19,876 | |||||||||||||||||||||
Real estate – construction, residential | 493 | 240 | — | — | 733 | 15,631 | 16,364 | |||||||||||||||||||||
Real estate – mortgage, commercial | — | — | — | 2,026 | 2,026 | 165,197 | 167,223 | |||||||||||||||||||||
Real estate – mortgage, residential | 1,482 | — | 708 | 947 | 3,137 | 162,728 | 165,865 | |||||||||||||||||||||
Agricultural & Farmland | — | — | — | — | — | 3,929 | 3,929 | |||||||||||||||||||||
Consumer installment loans | 760 | 322 | — | 688 | 1,770 | 35,663 | 37,433 | |||||||||||||||||||||
Less: Unearned income | — | — | — | — | — | (638 | ) | (638 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
$ | 3,002 | $ | 925 | $ | 708 | $ | 5,141 | $ | 9,776 | $ | 451,102 | $ | 460,878 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Note 3 – Loans, continued
December 31, 2018 | ||||||||||||||||||||||||||||
(in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days Past Due & Accruing | Nonaccrual | Total Past Due & Nonaccrual | Current Loans | Total Loans | |||||||||||||||||||||
Commercial and industrial | $ | 280 | $ | 29 | $ | — | $ | 312 | $ | 621 | $ | 48,455 | $ | 49,076 | ||||||||||||||
Real estate – construction, commercial | — | — | — | 979 | 979 | 13,687 | 14,666 | |||||||||||||||||||||
Real estate – construction, residential | — | — | 231 | — | 231 | 14,871 | 15,102 | |||||||||||||||||||||
Real estate – mortgage, commercial | 218 | 441 | 430 | 2,441 | 3,530 | 146,983 | 150,513 | |||||||||||||||||||||
Real estate – mortgage, residential | 760 | 7 | 1,079 | 1,441 | 3,287 | 146,569 | 149,856 | |||||||||||||||||||||
Agricultural & Farmland | 123 | — | 309 | — | 432 | 3,963 | 4,395 | |||||||||||||||||||||
Consumer installment loans | 1,017 | 408 | 4 | 357 | 1,786 | 30,193 | 31,979 | |||||||||||||||||||||
Less: Unearned income | — | — | — | — | — | (719 | ) | (719 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
$ | 2,398 | $ | 885 | $ | 2,053 | $ | 5,530 | $ | 10,866 | $ | 404,002 | $ | 414,868 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4 – Allowance for Loans Losses
A summary of changes in the allowance for loans losses (in thousands) for September 30, 2019 and December 31, 2018 is as follows:
September 30, 2019 | December 31, 2018 | |||||||
(Dollars in thousands) | ||||||||
Allowance, beginning of period | $ | 3,580 | $ | 2,803 | ||||
|
|
|
| |||||
Charge-Offs | ||||||||
Commercial and industrial | $ | 43 | $ | 6 | ||||
Real estate, construction | — | — | ||||||
Real estate, mortgage | 3 | 13 | ||||||
Consumer and other loans | 733 | 545 | ||||||
|
|
|
| |||||
Total charge-offs | 779 | 564 | ||||||
|
|
|
| |||||
Recoveries | ||||||||
Commercial and industrial | — | — | ||||||
Real estate, construction | — | — | ||||||
Real estate, mortgage | (6 | ) | (12 | ) | ||||
Consumer and other loans | (132 | ) | (104 | ) | ||||
|
|
|
| |||||
Total recoveries | (138 | ) | (116 | ) | ||||
|
|
|
| |||||
Net charge-offs (recoveries) | 641 | 448 | ||||||
|
|
|
| |||||
Provision for loan losses | 1,465 | 1,225 | ||||||
|
|
|
| |||||
Allowance, end of period | $ | 4,404 | $ | 3,580 | ||||
|
|
|
|
12
Note 4 – Allowance for Loans Losses, continued
Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total | ||||||||||
September 30, 2019 | ||||||||||||
Commercial and industrial | $ | 291 | $ | 50,535 | $ | 50,826 | ||||||
Agricultural | — | 175 | 175 | |||||||||
Real Estate – construction, commercial | — | 19,876 | 19,876 | |||||||||
Real Estate – construction, residential | — | 16,364 | 16,364 | |||||||||
Real Estate – mortgage, commercial | 735 | 166,488 | 167,223 | |||||||||
Real Estate – mortgage, residential | 658 | 165,207 | 165,865 | |||||||||
Real Estate – mortgage, farmland | — | 3,754 | 3,754 | |||||||||
Consumer installment loans | — | 37,433 | 37,433 | |||||||||
|
|
|
|
|
| |||||||
Gross loans | 1,684 | 459,832 | 461,516 | |||||||||
Less: Unearned income | — | (638 | ) | (638 | ) | |||||||
|
|
|
|
|
| |||||||
Total | $ | 1,684 | $ | 459,194 | $ | 460,878 | ||||||
|
|
|
|
|
|
Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total | ||||||||||
December 31, 2018 | ||||||||||||
Commercial and industrial | $ | — | $ | 49,076 | $ | 49,076 | ||||||
Agricultural | — | 216 | 216 | |||||||||
Real Estate – construction, commercial | — | 14,666 | 14,666 | |||||||||
Real Estate – construction, residential | — | 15,102 | 15,102 | |||||||||
Real Estate – mortgage, commercial | 1,258 | 149,255 | 150,513 | |||||||||
Real Estate – mortgage residential | 688 | 149,168 | 149,856 | |||||||||
Real Estate – mortgage, farmland | — | 4,179 | 4,179 | |||||||||
Consumer installment loans | — | 31,979 | 31,979 | |||||||||
|
|
|
|
|
| |||||||
Gross loans | 1,946 | 413,641 | 415,587 | |||||||||
Less: Unearned income | — | (719 | ) | (719 | ) | |||||||
|
|
|
|
|
| |||||||
Total | $ | 1,946 | $ | 412,922 | $ | 414,868 | ||||||
|
|
|
|
|
|
The following table presentstables present a summary of the loan portfolio individually and collectively evaluated for impairment as of the dates stated.
(Dollars in thousands) |
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
|
| Total |
| |||
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Originated and purchased performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 3,169 |
|
| $ | 273,453 |
|
| $ | 276,622 |
|
Real estate – construction, commercial |
|
| 540 |
|
|
| 124,041 |
|
|
| 124,581 |
|
Real estate – construction, residential |
|
| — |
|
|
| 49,338 |
|
|
| 49,338 |
|
Real estate – mortgage, commercial |
|
| 1,391 |
|
|
| 600,564 |
|
|
| 601,955 |
|
Real estate – mortgage, residential |
|
| 592 |
|
|
| 488,330 |
|
|
| 488,922 |
|
Real estate – mortgage, farmland |
|
| — |
|
|
| 5,245 |
|
|
| 5,245 |
|
Consumer |
|
| — |
|
|
| 63,479 |
|
|
| 63,479 |
|
Total originated and purchased performing loans |
|
| 5,692 |
|
|
| 1,604,450 |
|
|
| 1,610,142 |
|
PCI loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| — |
|
|
| 10,213 |
|
|
| 10,213 |
|
Real estate – construction, commercial |
|
| — |
|
|
| 31,050 |
|
|
| 31,050 |
|
Real estate – mortgage, commercial |
|
| — |
|
|
| 47,519 |
|
|
| 47,519 |
|
Real estate – mortgage, residential |
|
| — |
|
|
| 7,379 |
|
|
| 7,379 |
|
Consumer |
|
| — |
|
|
| 1,731 |
|
|
| 1,731 |
|
Total PCI loans |
|
| — |
|
|
| 97,892 |
|
|
| 97,892 |
|
Gross loans |
|
| 5,692 |
|
|
| 1,702,342 |
|
|
| 1,708,034 |
|
Less: Deferred loan fees, net of costs |
|
| — |
|
|
| (1,118 | ) |
|
| (1,118 | ) |
Total |
| $ | 5,692 |
|
| $ | 1,701,224 |
|
| $ | 1,706,916 |
|
(Dollars in thousands) |
| Individually Evaluated for Impairment |
|
| Collectively Evaluated for Impairment |
|
| Total |
| |||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Originated and purchased performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 234 |
|
| $ | 123,441 |
|
| $ | 123,675 |
|
Real estate – construction, commercial |
|
| — |
|
|
| 54,667 |
|
|
| 54,667 |
|
Real estate – construction, residential |
|
| — |
|
|
| 18,040 |
|
|
| 18,040 |
|
Real estate – mortgage, commercial |
|
| 1,645 |
|
|
| 271,046 |
|
|
| 272,691 |
|
Real estate – mortgage, residential |
|
| 452 |
|
|
| 212,710 |
|
|
| 213,162 |
|
Real estate – mortgage, farmland |
|
| — |
|
|
| 3,615 |
|
|
| 3,615 |
|
Consumer |
|
| — |
|
|
| 46,684 |
|
|
| 46,684 |
|
Total originated and purchased performing loans |
|
| 2,331 |
|
|
| 730,203 |
|
|
| 732,534 |
|
PCI loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate – construction, commercial |
|
| — |
|
|
| 35 |
|
|
| 35 |
|
Real estate – mortgage, commercial |
|
| — |
|
|
| 808 |
|
|
| 808 |
|
Real estate – mortgage, residential |
|
| — |
|
|
| 242 |
|
|
| 242 |
|
Total PCI loans |
|
| — |
|
|
| 1,085 |
|
|
| 1,085 |
|
Gross loans |
|
| 2,331 |
|
|
| 731,288 |
|
|
| 733,619 |
|
Less: Deferred loan fees, net of costs |
|
| — |
|
|
| (736 | ) |
|
| (736 | ) |
Total |
| $ | 2,331 |
|
| $ | 730,552 |
|
| $ | 732,883 |
|
The tables above exclude gross PPP loans of $608.7 million and $292.1 million as of March 31, 2021 and December 2020, respectively. The Company carries no ALL on PPP loans as these loans are fully guaranteed by the U.S. government.
The following tables present information related to impaired loans by portfolio segment, atloan type as of the dates presented.
|
| March 31, 2021 |
| |||||||||||||||||
(Dollars in thousands) |
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Average Recorded Investment |
|
| Interest Income Recognized |
| |||||
With no specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate – construction, commercial |
| $ | 540 |
|
| $ | 539 |
|
| $ | — |
|
| $ | 542 |
|
| $ | 8 |
|
Real estate – mortgage, commercial |
|
| 1,391 |
|
|
| 1,460 |
|
|
| — |
|
|
| 1,384 |
|
|
| 14 |
|
Real estate – mortgage, residential |
|
| 592 |
|
|
| 591 |
|
|
| — |
|
|
| 583 |
|
|
| 6 |
|
Commercial and industrial |
|
| 3,169 |
|
|
| 3,162 |
|
|
| — |
|
|
| 3,250 |
|
|
| 35 |
|
|
| $ | 5,692 |
|
| $ | 5,752 |
|
| $ | — |
|
| $ | 5,217 |
|
| $ | 63 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||||||||||||||
September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||
(in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Average Recorded Investment |
|
| Interest Income Recognized |
| |||||||||||||||||||||||||
With no specific allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Real estate – mortgage, commercial |
| $ | 1,645 |
|
| $ | 2,030 |
|
| $ | — |
|
| $ | 2,091 |
|
| $ | 4 |
| ||||||||||||||||||||
Real estate – mortgage, residential | $ | 658 | $ | 658 | $ | — | $ | 661 | $ | 7 |
|
| 452 |
|
|
| 571 |
|
|
| — |
|
|
| 538 |
|
|
| 2 |
| ||||||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Commercial and industrial | 291 | 291 | 151 | 146 | 2 |
|
| 234 |
|
|
| 234 |
|
|
| 144 |
|
|
| 362 |
|
|
| — |
| |||||||||||||||
Real estate – mortgage, commercial | 735 | 735 | 100 | 735 | 5 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
| $ | 2,331 |
|
| $ | 2,835 |
|
| $ | 144 |
|
| $ | 2,991 |
|
| $ | 6 |
| ||||||||||||||||
$ | 1,684 | $ | 1,684 | $ | 251 | $ | 1,542 | $ | 14 | |||||||||||||||||||||||||||||||
|
|
|
|
|
13
Note 4 – Allowance for Loans Losses, continued
December 31, 2018 | ||||||||||||||||||||
(in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
With no specific allowance recorded: | ||||||||||||||||||||
Real estate – mortgage, residential | $ | 1,946 | $ | 1,946 | $ | — | $ | 2,067 | $ | 64 | ||||||||||
With an allowance recorded: | ||||||||||||||||||||
Real estate – mortgage, commercial | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
$ | 1,946 | $ | 1,946 | $ | — | $ | 2,067 | $ | 64 | |||||||||||
|
|
|
|
|
|
|
|
|
|
PurchasedImpaired loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the 2016 River Bancorp, Inc. acquisitionCompany’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. The Company had remaining balances (in thousands)three TDRs in the amount of $25,091 and 34,672$293
21
thousand as of September 30, 2019March 31, 2021, two of which were classified as a TDR due to a change in interest rate and payment terms and one of which was classified as a TDR due to a change in payment terms. The Company had two TDRs in the amount of $142 thousand as of December 31, 2018, respectively. Of these balances three loan relationships were considered specifically impaired purchased credit-impaired loans. One2020, one of these relationshipswhich was resolved during 2018classified as a TDR due to a change in interest rate and payment terms and the Company recovered $200 of the balance previouslywritten-off. During the first quarter of 2019, anotherother loan relationship was resolved and the Company recovered $200 of the balance previouslywritten-off. At September 30, 2019, the remaining specifically impaired PCI loans totaled $2,318 withclassified as a specific impairment of $190. TDR due to a change in payment terms.
The following table presents an analysis of the recorded investmentchange in the segments of the River Bancorp, Inc. purchased loansALL by loan type as of September 30, 2019 and December 31, 2018 (in thousands):for the periods stated.
|
| For the three months ended |
| |||||
(Dollars in thousands) |
| March 31, 2021 |
|
| March 31, 2020 |
| ||
ALL, beginning of period |
| $ | 13,827 |
|
| $ | 4,572 |
|
Charge-offs |
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | (359 | ) |
| $ | — |
|
Real estate – mortgage |
|
| (12 | ) |
|
| — |
|
Consumer |
|
| (263 | ) |
|
| (319 | ) |
Total charge-offs |
|
| (634 | ) |
|
| (319 | ) |
Recoveries |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| 56 |
|
|
| 1 |
|
Real estate – mortgage |
|
| 16 |
|
|
| — |
|
Consumer |
|
| 137 |
|
|
| 68 |
|
Total recoveries |
|
| 209 |
|
|
| 69 |
|
Net charge-offs |
|
| (425 | ) |
|
| (250 | ) |
Provision for loan losses |
|
| — |
|
|
| 575 |
|
ALL, end of period |
| $ | 13,402 |
|
| $ | 4,897 |
|
September 30, 2019 | December 31, 2018 | |||||||
Real Estate | ||||||||
Construction loans and all land development and other land loans | $ | 1,415 | $ | 1,522 | ||||
Secured by farmland | 3 | 319 | ||||||
Revolving,open-end loans secured by1-4 family residential properties and extended under lines of credit | 2,814 | 3,376 | ||||||
Secured by first liens | 7,803 | 10,448 | ||||||
Secured by junior liens | 399 | 505 | ||||||
Secured by multifamily (5 or more) residential properties | 95 | 250 | ||||||
Loans secured by owner-occupied, nonfarm nonresidential properties | 4,146 | 7,344 | ||||||
Loans secured by other nonfarm nonresidential properties | 5,395 | 6,239 | ||||||
Commercial and Industrial | 2,906 | 4,457 | ||||||
Other | ||||||||
Other revolving credit plans | 37 | 89 | ||||||
Automobile loans | 10 | 30 | ||||||
Other consumer loans | 68 | 93 | ||||||
|
|
|
| |||||
Total | $ | 25,091 | $ | 34,672 | ||||
|
|
|
|
14
Note 4 – Allowance for Loans Losses, continued
The following table presentstables summarize the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment for the periods stated.
|
| For the three months ended March 31, 2021 |
| |||||||||||||||||||||||||||||
(Dollars in thousands) |
| Commercial and Industrial |
|
| Real Estate – Construction Commercial |
|
| Real Estate – Construction Residential |
|
| Real Estate – Mortgage, Commercial |
|
| Real Estate – Mortgage, Residential |
|
| Real Estate – Mortgage, Farmland |
|
| Consumer |
|
| Total |
| ||||||||
ALL, beginning of period |
| $ | 3,762 |
|
| $ | 960 |
|
| $ | 150 |
|
|
| 4,215 |
|
| $ | 1,481 |
|
| $ | 18 |
|
| $ | 3,241 |
|
| $ | 13,827 |
|
Charge-offs |
|
| (359 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| (263 | ) |
|
| (634 | ) |
Recoveries |
|
| 56 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| 137 |
|
|
| 209 |
|
Provision for loan losses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
ALL, end of period |
| $ | 3,459 |
|
| $ | 960 |
|
| $ | 150 |
|
| $ | 4,215 |
|
| $ | 1,485 |
|
| $ | 18 |
|
| $ | 3,115 |
|
| $ | 13,402 |
|
Individually evaluated for impairment |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Collectively evaluated for impairment |
| $ | 3,459 |
|
| $ | 960 |
|
| $ | 150 |
|
| $ | 4,215 |
|
| $ | 1,485 |
|
| $ | 18 |
|
| $ | 3,115 |
|
| $ | 13,402 |
|
|
| For the three months ended March 31, 2020 |
| |||||||||||||||||||||||||||||
(Dollars in thousands) |
| Commercial and Industrial |
|
| Real Estate – Construction Commercial |
|
| Real Estate – Construction Residential |
|
| Real Estate – Mortgage Commercial |
|
| Real Estate – Mortgage Residential |
|
| Real Estate – Mortgage, Farmland |
|
| Consumer |
|
| Total |
| ||||||||
ALL, beginning of period |
| $ | 841 |
|
| $ | 220 |
|
| $ | 60 |
|
|
| 1,604 |
|
| $ | 510 |
|
| $ | 9 |
|
| $ | 1,328 |
|
| $ | 4,572 |
|
Charge-offs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (319 | ) |
|
| (319 | ) |
Recoveries |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 69 |
|
Provision for loan losses |
|
| 86 |
|
|
| 27 |
|
|
| 11 |
|
|
| 62 |
|
|
| 16 |
|
|
| — |
|
|
| 373 |
|
|
| 575 |
|
ALL, end of period |
| $ | 928 |
|
| $ | 247 |
|
| $ | 71 |
|
| $ | 1,666 |
|
| $ | 526 |
|
| $ | 9 |
|
| $ | 1,450 |
|
| $ | 4,897 |
|
Individually evaluated for impairment |
| $ | 144 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 144 |
|
Collectively evaluated for impairment |
| $ | 784 |
|
| $ | 247 |
|
| $ | 71 |
|
| $ | 1,666 |
|
| $ | 526 |
|
| $ | 9 |
|
| $ | 1,450 |
|
| $ | 4,753 |
|
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit
22
documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk (loan grade). This analysis typically includes larger non-homogeneous loans, such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained.
The following tables present the Company’s loan portfolio by internal loan grade (in thousands) as of September 30, 2019the dates stated.
|
| March 31, 2021 |
| |||||||||||||||||||||||||||||
(Dollars in thousands) |
| Grade 1 Prime |
|
| Grade 2 Desirable |
|
| Grade 3 Good |
|
| Grade 4 Acceptable |
|
| Grade 5 Pass/Watch |
|
| Grade 6 Special Mention |
|
| Grade 7 Substandard |
|
| Total |
| ||||||||
Commercial and industrial |
| $ | 1,218 |
|
| $ | 552 |
|
| $ | 125,985 |
|
| $ | 128,054 |
|
| $ | 13,434 |
|
| $ | 7,300 |
|
| $ | 10,292 |
|
| $ | 286,835 |
|
Paycheck Protection Program |
|
| 608,692 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 608,692 |
|
Real estate – construction, commercial |
|
| — |
|
|
| 650 |
|
|
| 36,028 |
|
|
| 78,234 |
|
|
| 9,045 |
|
|
| 29,605 |
|
|
| 2,069 |
|
|
| 155,631 |
|
Real estate – construction, residential |
|
| 147 |
|
|
| 74 |
|
|
| 21,005 |
|
|
| 20,622 |
|
|
| 7,228 |
|
|
| — |
|
|
| 262 |
|
|
| 49,338 |
|
Real estate – mortgage, commercial |
|
| — |
|
|
| 2,645 |
|
|
| 316,340 |
|
|
| 228,523 |
|
|
| 47,630 |
|
|
| 45,092 |
|
|
| 9,244 |
|
|
| 649,474 |
|
Real estate – mortgage residential |
|
| 536 |
|
|
| 9,561 |
|
|
| 329,777 |
|
|
| 131,986 |
|
|
| 15,773 |
|
|
| 2,870 |
|
|
| 5,798 |
|
|
| 496,301 |
|
Real estate – mortgage, farmland |
|
| 410 |
|
|
| — |
|
|
| 1,220 |
|
|
| 3,615 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,245 |
|
Consumer |
|
| 398 |
|
|
| 23 |
|
|
| 18,806 |
|
|
| 42,638 |
|
|
| 2,191 |
|
|
| 497 |
|
|
| 657 |
|
|
| 65,210 |
|
Gross loans |
| $ | 611,401 |
|
| $ | 13,505 |
|
| $ | 849,161 |
|
| $ | 633,672 |
|
| $ | 95,301 |
|
| $ | 85,364 |
|
| $ | 28,322 |
|
| $ | 2,316,726 |
|
Less: Deferred loan fees, net of costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (12,184 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,304,542 |
|
|
| December 31, 2020 |
| |||||||||||||||||||||||||||||
(Dollars in thousands) |
| Grade 1 Prime |
|
| Grade 2 Desirable |
|
| Grade 3 Good |
|
| Grade 4 Acceptable |
|
| Grade 5 Pass/Watch |
|
| Grade 6 Special Mention |
|
| Grade 7 Substandard |
|
| Total |
| ||||||||
Commercial and industrial |
| $ | 844 |
|
| $ | 484 |
|
| $ | 23,828 |
|
| $ | 85,928 |
|
| $ | 7,251 |
|
| $ | 4 |
|
| $ | 5,336 |
|
| $ | 123,675 |
|
Paycheck Protection Program |
|
| 292,068 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 292,068 |
|
Real estate – construction, commercial |
|
| — |
|
|
| 2,143 |
|
|
| 19,524 |
|
|
| 26,324 |
|
|
| 5,916 |
|
|
| 218 |
|
|
| 577 |
|
|
| 54,702 |
|
Real estate – construction, residential |
|
| — |
|
|
| — |
|
|
| 3,073 |
|
|
| 8,247 |
|
|
| 6,458 |
|
|
| — |
|
|
| 262 |
|
|
| 18,040 |
|
Real estate – mortgage, commercial |
|
| — |
|
|
| 3,994 |
|
|
| 128,163 |
|
|
| 114,977 |
|
|
| 15,799 |
|
|
| 2,968 |
|
|
| 7,598 |
|
|
| 273,499 |
|
Real estate – mortgage residential |
|
| — |
|
|
| 3,583 |
|
|
| 101,078 |
|
|
| 100,601 |
|
|
| 5,750 |
|
|
| 158 |
|
|
| 2,234 |
|
|
| 213,404 |
|
Real estate – mortgage, farmland |
|
| 444 |
|
|
| — |
|
|
| 1,175 |
|
|
| 1,996 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,615 |
|
Consumer |
|
| 324 |
|
|
| 36 |
|
|
| 17,062 |
|
|
| 28,033 |
|
|
| 521 |
|
|
| 1 |
|
|
| 707 |
|
|
| 46,684 |
|
Gross loans |
| $ | 293,680 |
|
| $ | 10,240 |
|
| $ | 293,903 |
|
| $ | 366,106 |
|
| $ | 41,695 |
|
| $ | 3,349 |
|
| $ | 16,714 |
|
| $ | 1,025,687 |
|
Less: Deferred loan fees, net of costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,271 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,021,416 |
|
Note 6 – Goodwill and Intangibles
Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives, which range from 5 to 12 years. Goodwill is the only intangible asset with an indefinite life on the Company’s consolidated balance sheets.
23
The following table presents the components of goodwill as of the dates stated.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
| Year of acquisition |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Charlottesville branch acquisition |
| 2011 |
| $ | 366 |
|
| $ | 366 |
|
River Bancorp, Inc. acquisition |
| 2016 |
|
| 1,728 |
|
|
| 1,728 |
|
Mortgage business acquisition |
| 2018 |
|
| 600 |
|
|
| 600 |
|
Hammond Insurance Agency acquisition |
| 2019 |
|
| 613 |
|
|
| 613 |
|
Virginia Community Bankshares, Inc. acquisition |
| 2019 |
|
| 16,585 |
|
|
| 16,585 |
|
Bay Banks Merger |
| 2021 |
|
| 7,206 |
|
|
| — |
|
|
|
|
| $ | 27,098 |
|
| $ | 19,892 |
|
The following table presents information on amortizable intangible assets included on the Company’s consolidated balance sheets as of the dates stated.
|
| Gross |
|
|
|
|
|
| Net |
| ||
(Dollars in thousands) |
| Carrying |
|
| Accumulated |
|
| Carrying |
| |||
March 31, 2021 |
| Value |
|
| Amortization |
|
| Value |
| |||
Core deposit intangibles |
| $ | 9,626 |
|
| $ | (1,683 | ) |
| $ | 7,943 |
|
Other amortizable intangibles |
|
| 2,528 |
|
|
| (1,031 | ) |
|
| 1,497 |
|
Total |
| $ | 12,154 |
|
| $ | (2,714 | ) |
| $ | 9,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
|
|
|
|
|
| Net |
| ||
(Dollars in thousands) |
| Carrying |
|
| Accumulated |
|
| Carrying |
| |||
December 31, 2020 |
| Value |
|
| Amortization |
|
| Value |
| |||
Core deposit intangibles |
| $ | 2,776 |
|
| $ | (1,366 | ) |
| $ | 1,410 |
|
Other amortizable intangibles |
|
| 2,528 |
|
|
| (1,016 | ) |
|
| 1,512 |
|
Total |
| $ | 5,304 |
|
| $ | (2,382 | ) |
| $ | 2,922 |
|
As a result of the Bay Banks Merger, a core deposit intangible asset of $6.9 million was recorded as of the acquisition date and is being amortized on an accelerated basis over 10 years using the sum-of-years digits method.
Included in other amortizable intangibles were loan servicing assets of $277 thousand and $209 thousand at March 31, 2021 and December 31, 2018:2020, respectively, related to the sale of the government guaranteed portion of certain loans that the Company continues to service. Loan servicing assets of $68 thousand and $189 thousand were added during the three months ended March 31, 2021 and the year ended December 31, 2020, respectively. The amortization of these intangibles is included in interest and fees on loans in the Company’s consolidated statement of income.
The Company retains servicing rights on mortgages originated and sold to the secondary market. The Company records mortgage servicing rights (“MSR”) initially at fair value and subsequently accounts for them under the amortization method, pursuant to which an impairment assessment is performed each reporting period. The amortization method requires that the MSR assets be recorded at the lower of cost or fair value. As of March 31, 2021 and December 31, 2020, the carrying value of MSR assets were $11.4 million and $7.1 million, respectively.
September 30, 2019 | ||||||||||||||||||||||||||||||||
Grade 1 Prime | Grade 2 Desirable | Grade 3 Good | Grade 4 Acceptable | Grade 5 Pass/Watch | Grade 6 Special Mention | Grade 7 Substandard | Total | |||||||||||||||||||||||||
Commercial and industrial | $ | 406 | $ | 1,827 | $ | 21,936 | $ | 25,540 | $ | 579 | $ | — | $ | 538 | $ | 50,826 | ||||||||||||||||
Agricultural | — | 103 | 66 | 6 | — | — | — | 175 | ||||||||||||||||||||||||
Real Estate – construction, commercial | — | 659 | 10,210 | 7,923 | 104 | — | 980 | 19,876 | ||||||||||||||||||||||||
Real Estate – construction, residential | — | — | 4,295 | 8,011 | 4,058 | — | — | 16,364 | ||||||||||||||||||||||||
Real Estate – mortgage, commercial | — | 1,656 | 81,973 | 70,093 | 10,226 | 1,012 | 2,263 | 167,223 | ||||||||||||||||||||||||
Real Estate – mortgage residential | — | 2,917 | 81,246 | 76,351 | 3,648 | 96 | 1,607 | 165,865 | ||||||||||||||||||||||||
Real Estate – mortgage, farmland | 1,565 | 100 | 1,418 | 218 | 453 | — | — | 3,754 | ||||||||||||||||||||||||
Consumer installment loans | 297 | 32 | 23,863 | 12,447 | 106 | — | 688 | 37,433 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Gross loans | 2,268 | 7,294 | 225,007 | 200,589 | 19,174 | 1,108 | 6,076 | 461,516 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less: Unearned income | (638 | ) | ||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total | $ | 460,878 | ||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
December 31, 2018 | ||||||||||||||||||||||||||||||||
Grade 1 Prime | Grade 2 Desirable | Grade 3 Good | Grade 4 Acceptable | Grade 5 Pass/Watch | Grade 6 Special Mention | Grade 7 Substandard | Total | |||||||||||||||||||||||||
Commercial and industrial | $ | 44 | $ | 2,660 | $ | 21,009 | $ | 24,254 | $ | 797 | $ | — | $ | 312 | $ | 49,076 | ||||||||||||||||
Agricultural | 9 | 99 | 105 | 3 | — | — | — | 216 | ||||||||||||||||||||||||
Real Estate – construction, commercial | — | 485 | 7,118 | 5,937 | 106 | — | 1,020 | 14,666 | ||||||||||||||||||||||||
Real Estate – construction, residential | — | — | 4,305 | 5,059 | 5,738 | — | — | 15,102 | ||||||||||||||||||||||||
Real Estate – mortgage, commercial | — | 1,920 | 82,097 | 53,487 | 8,470 | 1,668 | 2,871 | 150,513 | ||||||||||||||||||||||||
Real Estate – mortgage residential | — | 3,647 | 76,496 | 63,397 | 3,805 | 522 | 1,989 | 149,856 | ||||||||||||||||||||||||
Real Estate – mortgage, farmland | 1,700 | 100 | 1,340 | 730 | — | — | 309 | 4,179 | ||||||||||||||||||||||||
Consumer installment loans | 213 | 29 | 16,174 | 15,081 | 123 | — | 359 | 31,979 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Gross loans | 1,966 | 8,940 | 208,644 | 167,948 | 19,039 | 2,190 | 6,860 | 415,587 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Less: Unearned income | (719 | ) | ||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total | $ | 414,868 | ||||||||||||||||||||||||||||||
|
|
15
Note 47 – Allowance for Loans Losses, continuedOther Real Estate Owned
The following table presents the number and carrying values of properties included in other real estate owned (“OREO”) as of the dates stated.
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||
|
| Number of |
|
| Carrying |
|
| Number of |
|
| Carrying |
| ||||
|
| Properties |
|
| Value |
|
| Properties |
|
| Value |
| ||||
Residential |
|
| 1 |
|
| $ | — |
|
|
| 1 |
|
| $ | — |
|
Land |
|
| 6 |
|
|
| 420 |
|
|
| — |
|
|
| — |
|
Commercial properties |
|
| 1 |
|
|
| 174 |
|
|
| — |
|
|
| — |
|
Total other real estate owned |
|
| 8 |
|
| $ | 594 |
|
|
| 1 |
|
| $ | — |
|
As a result of the Bay Banks Merger, the Company also utilizesacquired $598 thousand of OREO as of the gradesmerger date. As of March 31, 2021, the carrying value of the OREO portfolio totaled $594 thousand.
As of December 31, 2020, the Company had one OREO property with a carrying value of $0 that was acquired in 2019 as a result of the merger with Virginia Community Bankshares, Inc.
No residential mortgage loans were in the process of foreclosure as of March 31, 2021.
Note 8 (Doubtful)– Borrowings
FHLB Borrowings
The Bank has a borrowing facility from the FHLB secured by the Bank’s real estate loans and 9 (Loss). There were no loans classified in these categories at September 30, 2019certain pledged securities. The FHLB will lend up to 30% of the Bank’s total assets as of the prior quarter end, subject to certain eligibility requirements, including adequate collateral. The available line of credit totaled $426.8 million as of March 31, 2021. The Bank had borrowings from the FHLB that totaled $183.1 million and $115.0 million as of March 31, 2021 and December 31, 2018.2020, respectively. Of these advances, the Company assumed $10.1 million in the Bay Banks Merger. The borrowings also required the Bank to own $8.2 million of FHLB stock, as March 31, 2021, which is included in restricted equity investments on the Company’s consolidated balance sheets.
Note 5 - Derivative Financial InstrumentsThe following table presents information regarding FHLB advances outstanding as of the date stated.
|
| March 31, 2021 | ||||||||||
|
|
|
|
|
|
|
| Stated |
|
|
| |
|
|
|
|
|
| Originated |
| Interest |
|
| Maturity | |
(Dollars in thousands) |
| Balance |
|
| Date |
| Rate |
|
| Date | ||
Convertible |
| $ | 10,122 |
|
| 2/28/2020 |
|
| 0.56 | % |
| 2/28/2030 |
Daily Rate Credit |
|
| 31,000 |
|
| 11/6/2020 |
|
| 0.36 | % |
| 11/8/2021 |
Fixed Rate Credit |
|
| 15,000 |
|
| 1/4/2021 |
|
| 0.23 | % |
| 4/1/2021 |
Fixed Rate Credit |
|
| 25,000 |
|
| 2/2/2021 |
|
| 0.21 | % |
| 5/3/2021 |
Fixed Rate Credit |
|
| 35,000 |
|
| 2/8/2021 |
|
| 0.18 | % |
| 5/6/2021 |
Fixed Rate Credit |
|
| 10,000 |
|
| 2/26/2021 |
|
| 0.19 | % |
| 5/28/2021 |
Fixed Rate Credit |
|
| 10,000 |
|
| 2/26/2021 |
|
| 0.19 | % |
| 5/28/2021 |
Fixed Rate Credit |
|
| 27,000 |
|
| 3/8/2021 |
|
| 0.18 | % |
| 4/8/2021 |
Fixed Rate Credit |
|
| 20,000 |
|
| 3/17/2021 |
|
| 0.17 | % |
| 6/17/2021 |
Total FHLB borrowings |
| $ | 183,122 |
|
|
|
|
|
|
|
|
|
As of March 31, 2021, 1-4 family residential loans held for investment with a lendable value of $229.3 million, multi-family residential loans with a lendable value of $34.4 million, commercial real estate loans with a lendable value of $117.3 million, 1-4 family residential loans held for sale with a lendable value of $23.3 million, and Hedging Activitiessecurities with a lendable value of $22.6 million were pledged against the available line of credit with the FHLB. The Bank also has letters of credit with the FHLB totaling $59.0 million for the purpose of collateral for public deposits with the Treasury Board of the Commonwealth of Virginia. Outstanding letters of credit reduce the available balance of the borrowing facility with the FHLB.
DuringFRB Borrowings
In the firstsecond quarter of 2019,2020, the Company entered intobegan participating in the FRB’s PPPLF, which allows banks to pledge PPP loans as collateral in exchange for advances. The PPPLF advances are at 100% of the PPP loan value and term,
24
have a fixed annual cost of 35 basis points, and receive favorable regulatory capital treatment. As of March 31, 2021, these FRB borrowings were composed of 77 PPPLF advances, totaling $509.7 million with maturities ranging from 1.0 to 4.9 years. Of this balance, 6 PPPLF advances totaling $24.8 million were assumed by the Company in the Bay Banks Merger. As of December 31, 2020, the Company’s FRB borrowings were composed of 23 PPPLF advances, totaling $281.6 million with maturities ranging from 1.2 years to 4.5 years.
Other Borrowings
The Company has unsecured lines of credit with correspondent banks, which totaled $79.0 million and $38.0 million at March 31, 2021 and December 31, 2020, respectively. These lines bear interest at the prevailing rates for such loans and are cancellable any time by the correspondent bank. As of March 31, 2021 and December 31, 2020, none of these lines of credit with correspondent banks were drawn upon.
The Company had $54.6 million and $24.5 million of subordinated notes, net, outstanding as of March 31, 2021 and December 31, 2020, respectively. The Company assumed $30.9 million par value (or $31.9 million fair value) of subordinated notes in the Bay Banks Merger, which is composed of an issuance in October 2019 and maturing October 15, 2029 (the “2029 Bay Banks Notes”) and an issuance in May 2015 and maturing May 28, 2025 (the “2025 Bay Banks Notes”).
The Bay Banks 2029 Notes bear interest at 5.625% per annum, through October 14, 2024, payable semi-annually in arrears. From October 15, 2024 through October 14, 2029, or up to an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Funding Rate (“SOFR”) (as defined in the 2029 Bay Banks Notes) plus 433.5 basis points, payable quarterly in arrears. The Bay Banks 2029 Notes are unsecured, subordinated obligations of the Company and rank junior in right of payment to the Company’s existing and future senior indebtedness and rank in parity with the other subordinated notes issued by the Company. Beginning on October 15, 2024 through maturity, the 2029 Bay Banks Notes may be redeemed, at the Company's option, on any scheduled interest payment date. As of March 31, 2021, the net carrying amount of the 2029 Bay Banks Notes was $25.4 million, inclusive of a $855 thousand purchase accounting adjustment (premium). For the three months ended March 31, 2021, the effective interest rate on the 2029 Bay Banks Notes was 4.74%, inclusive of the amortization of the purchase accounting adjustment (premium) recorded at the effective date of the Bay Banks Merger.
The 2025 Bay Banks Notes bear interest, payable on the first of March and September of each year, at a fixed interest rate of 6.50% per year. The Company has the right to redeem the 2025 Bay Banks Notes, in whole or in part, without premium or penalty, at any interest payment date. The 2025 Bay Banks Notes are unsecured, subordinated obligations of the Company and rank junior in right of payment to the Company’s existing and future senior indebtedness and rank in parity with the other subordinated notes issued by the Company. As of March 31, 2021, the net carrying amount of the 2025 Bay Banks Notes was $6.5 million, inclusive of a $60 thousand purchase accounting adjustment (premium). For the three months ended March 31, 2021, the effective interest rate on the 2025 Bay Banks Notes was 4.84%, inclusive of the amortization of the purchase accounting adjustment (premium) recorded at the effective date of the Bay Banks Merger.
On May 28, 2020, the Company issued a subordinated note with a principal amount of $15.0 million which matures on June 1, 2030 (the “2030 Note”). The aggregate carrying value of the 2030 Note, including capitalized, unamortized debt issuance costs, was $14.7 million as of March 31, 2021. For the three months ended March 31, 2021, the effective interest rate on the 2020 Note was 6.13%.
On November 20, 2015, the Company issued an aggregate of $10.0 million of subordinated notes to institutional accredited investors, which mature on December 1, 2025 (the “2025 Notes”). The Company has the right to redeem the 2025 Notes, in whole or in part, without premium or penalty, at any interest payment date. The aggregate carrying value of the 2025 Notes, including capitalized, unamortized debt issuance costs, was $8.0 million as of March 31, 2021. For the three months ended March 31, 2021 and 2020, the effective interest rate on the 2025 notes was 5.56% and 6.88%, respectively.
Note 9 – Derivatives
The Company enters into interest rate swap agreementagreements (‘‘swap agreement’agreements’’) to facilitate the risk management strategies needed in order to accommodate the needs of its banking customers. The Company mitigates the risk of entering into these
25
loan agreements by entering into equal and offsetting swap agreements with a highly rated third-party financial institution. Thisinstitutions. These back-to-back swap agreement is aagreements are free-standing derivativederivatives and isare recorded at fair value in the Company’s consolidated balance sheets (asset positions are included in other assets and liability positions are included in other liabilities).
The following tables present the notional and fair value of interest rate swaps recorded as other assets and other liabilities on the Company’s consolidated balance sheets as of September 30, 2019.the dates stated.
September 30, 2019 | ||||||||
Notional Amount | Fair Value | |||||||
(Dollars in thousands) | ||||||||
Interest Rate Swap Agreements | ||||||||
Receive Fixed/Pay Variable Swaps | $ | 2,156 | $ | 244 | ||||
Pay Fixed/Receive Variable Swaps | 2,156 | (244 | ) |
|
| March 31, 2021 |
| |||||
(Dollars in thousands) |
| Notional Amount |
|
| Fair Value |
| ||
Interest rate swap agreement |
|
|
|
|
|
|
|
|
Receive fixed/pay variable swaps |
| $ | 2,088 |
|
| $ | 215 |
|
Pay fixed/receive variable swaps |
|
| 2,088 |
|
|
| (215 | ) |
|
|
|
|
|
|
|
|
|
|
| December 31, 2020 |
| |||||
(Dollars in thousands) |
| Notional Amount |
|
| Fair Value |
| ||
Interest rate swap agreement |
|
|
|
|
|
|
|
|
Receive fixed/pay variable swaps |
| $ | 2,100 |
|
| $ | 339 |
|
Pay fixed/receive variable swaps |
|
| 2,100 |
|
|
| (339 | ) |
The Company has entered into various cash flow hedges as defined by ASC 815-20, Derivatives and Hedging. The objective of these interest rate swaps was to hedge the risk of variability in the Company’s cash flows attributable to changes in the 3-month LIBOR index rate component of forecasted three-month fixed rate funding advances from the FHLB. The hedging objective was to reduce the interest rate risk associated with the Company’s fixed rate advances from the designation date and going through the maturity date. The identified hedge layers are summarized as follows (in thousands):
3-Month LIBOR |
|
| Cash & Securities |
|
| Period Hedged | ||||
Hedged Notional |
|
| Exposure Hedged |
|
| From |
| To | ||
$ | 15,000 |
|
| $ | 15,000 |
|
| July 1, 2019 |
| July 1, 2022 |
$ | 25,000 |
|
| $ | 25,000 |
|
| August 2, 2019 |
| February 2, 2023 |
$ | 10,000 |
|
| $ | 10,000 |
|
| August 29, 2019 |
| August 29, 2023 |
Each hedge layer has a variable receive leg of 3-month LIBOR and a fixed pay leg of 1.80%.
At the time the hedges identified in the table above expire, new hedges will begin summarized as follows (in thousands):
3-Month LIBOR |
|
| Cash & Securities |
|
| Period Hedged | ||||
Hedged Notional |
|
| Exposure Hedged |
|
| From |
| To | ||
$ | 15,000 |
|
| $ | 15,000 |
|
| July 1, 2022 |
| July 1, 2032 |
$ | 25,000 |
|
| $ | 25,000 |
|
| February 2, 2023 |
| February 2, 2033 |
$ | 10,000 |
|
| $ | 10,000 |
|
| August 29, 2023 |
| August 29, 2033 |
Each hedge layer has a variable receive leg of 3-month LIBOR and a fixed pay leg ranging from 0.92% to 0.95%.
Beginning in 2020, the Company entered into three additional hedges summarized as follows (in thousands):
3-Month LIBOR |
|
| Cash & Securities |
|
| Period Hedged | ||||
Hedged Notional |
|
| Exposure Hedged |
|
| From |
| To | ||
$ | 20,000 |
|
| $ | 20,000 |
|
| March 13, 2020 |
| March 13, 2030 |
$ | 35,000 |
|
| $ | 35,000 |
|
| May 6, 2020 |
| May 6, 2027 |
$ | 10,000 |
|
| $ | 10,000 |
|
| May 29, 2020 |
| May 29, 2027 |
Each hedge layer has a variable receive leg of 3-month LIBOR and a fixed pay leg ranging from 0.83% to 0.86%.
26
The Company has the intent and ability to fund the 3-month rate advances during the term of these cash flow hedges. Interest rate swap assets and liabilities were $7.2 million and $1.6 million, respectively, as of March 31, 2021, and $1.7 million and $2.7 million, respectively, as of December 31, 2020. The Company had cash collateral with the counterparties of $6.0 million included within other assets on the consolidated balance sheets as of March 31, 2021 and December 31, 2020.
The Bank also participates in a “mandatory” delivery program for its government guaranteed and conventional mortgage loans held for sale. Under the mandatory delivery system,program, loans with interest rate locks are paired with the sale of a TBAto-be-announced mortgage-backed security bearing similar attributes. Under the mandatory delivery program, the Bank commits to deliver loans to an investor at an agreed upon price prior toafter the close of such loans. This differs from a “best efforts” delivery, which sets the sale price with the investor on aloan-by-loan basis when each loan is locked.
Note 6 – Employee Benefit Plan
The Company has a 401(k) Profit Sharing Plan that covers eligible employees. Employees may make voluntary contributions subject to certain limits based on federal tax laws. The Bank matches 100 percenthad entered into $129.8 million and $154.3 million of an employee’s contribution up to five percentrate lock commitments with borrowers, net of his or her salary following one yearexpected fallout, as of continuous service and the benefits vest immediately. The Company’s Board of Directors may make additional contributions at its discretion. Employees become eligible to participate in the discretionary contributions after one year of continuous service and the benefits vest over a five-year period. For the nine months ended September 30, 2019 and the year ended DecemberMarch 31, 2018, total expenses attributable to this plan were $454,439 and $364,653, respectively.
In 2013, the Company established an Employee Stock Ownership Plan (ESOP) that covers eligible employees. Benefits in the Plan vest over a five-year period. Contributions to the plan are made at the discretion of the Board of Directors and may include both the matching component to employees’ elective deferrals into the 401(k) plan and discretionary profit contributions. The Plan held 79,800 total shares of Company stock at September 30, 20192021 and December 31, 2018. All shares issued to2020, respectively, and held$87.7 million and $97.1 million of closed loan inventory waiting for sale, which were hedged by $182.5 million and $225.0 million in forward to-be-announced mortgage-backed securities as of March 31, 2021 and December 31, 2020, respectively. Mortgage derivative assets of $5.9 million and $5.3 million and mortgage derivative liabilities of $0 and $1.6 million were included in other liabilities on the Plan are considered outstanding in the computationconsolidated balance sheets as of earnings per share. The Plan or the Company is required to purchase shares from separated employees at a price determined by a third-party appraisal.March 31, 2021 and December 31, 2020, respectively.
Note 710 – Stock-Based Compensation
The Company has granted restricted stock awards to employees and directors under the Blue Ridge BankCompany’s 2017 Equity Incentive Plan. The restricted stock awards are considered fixed awards as the number of shares and fair value is known at the date of grant, and the fair value of the award at the grant date is amortized over the vestingrequisite service period.Non-cash compensation Compensation expense recognized in the Consolidated Statementsconsolidated statements of Incomeincome related to restricted stock awards, net of estimated forfeitures, in thousands, was $160$167 thousand and $89 thousand for the nine months ended September 30, 2019 and 2018, respectively and $40 thousand and $67$79 thousand for the three months ended September 30, 2019,March 31, 2021 and 2018,2020, respectively. At March 31, 2021, restricted stock awards relating to 115,617 shares of the Company’s common stock were outstanding (173,425 shares on a post Stock Split basis) totaling $1.4 million of unrecognized compensation expense as of the same date.
The Company converted options to purchase 198,362 shares of Bay Banks common stock into options to acquire 99,176 shares (148,764 on a post Stock Split basis) of the Company’s common stock pursuant to the Bay Banks Merger. The converted stock options are fully vested, and the estimated fair value as of the effective date of the merger was $472 thousand and included in the Bay Banks Merger consideration.
The estimated fair value of restricted$472 thousand was determined using the Black-Scholes Model, which requires the use of assumptions including the risk-free interest rate, expected term, expected volatility (of the underlying stock), and expected dividend yield.
The following table presents the ranges and weighted-averages of assumptions used in the Black-Scholes Model to determine the estimated fair value of the converted stock awards at September 30, 2019options from the Bay Banks Merger.
|
| As of January 31, 2021 |
| |||
|
| Range |
|
| Weighted-average |
|
Risk free interest rate (U.S. Treasury) |
| 0.06% - 0.45% |
|
| 0.32% |
|
Expected term (years) |
| 0.14 - 5.00 |
|
| 3.89 |
|
Expected volatility |
| 21.2% - 38.2% |
|
| 32.8% |
|
Expected dividend yield |
| 2.85% |
|
| 2.85% |
|
The weighted-average exercise price and remaining contractual life (in years) of the stock options as of the date of the Bay Banks Merger was $1.0 million.$14.83 per stock option ($9.89 on a post Stock Split basis) and 5.47 years, respectively.
During the first quarter of 2021, 44,688 stock options were exercised (67,031 on a post Stock Split basis), resulting in 54,488 options outstanding (81,732 on a post Stock Split basis) as of March 31, 2021.
Note 8–11 – Fair Value
The fair value of a financial instrument is the current amount that would be exchanged between willing parties in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.
16
Note 8– Fair Value, continued
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations are involved to determine the fair value of financial assets in markets that are not active.
The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:
Level 1 – | Valuation is based on quoted prices in active markets for identical assets and liabilities. | |||
Level 2 – | Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. | |||
Level 3 – | Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. |
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted Federal Reserve BankFRB and Federal Home Loan BankFHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.
Rabbi trust assets
As a result of the Bay Banks Merger, the Company acquired and assumed a rabbi trust and deferred compensation plan. The assets held by the rabbi trust are invested at the direction of the individual participants and are generally invested in marketable investment securities, such as common stocks and mutual funds or short-term investments (e.g., cash) (Level 1). Rabbi trust assets and the associated deferred compensation plan liability are included in other assets and other liabilities, respectively, in the Company’s consolidated balance sheets.
Derivative financial instruments
Derivative instruments used to hedge residential mortgage loans held for sale and the related interest rate lock commitments include forward commitments to sell mortgage loans and are reported at fair value utilizing Level 2
28
inputs. The fair values of derivative financial instruments are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for rate lock commitments.
Cash flow hedges (interest rate swaps) hedge against the risk of variability in cash flows attributable to changes in the 3-month LIBOR index rate component of forecasted 3-month fixed rate funding advances from the FHLB. These cash flow hedges are recorded at fair value utilizing Level 2 inputs.
The following tables present the balances of financial assets measured at fair value on a recurring basis:basis as of the dates stated.
|
| March 31, 2021 |
| |||||||||||||
(Dollars in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals |
| $ | 31,476 |
|
| $ | — |
|
| $ | 31,476 |
|
| $ | — |
|
U.S. Treasury and agencies |
|
| 53,726 |
|
|
| — |
|
|
| 53,726 |
|
|
| — |
|
Mortgage backed securities |
|
| 157,128 |
|
|
| — |
|
|
| 157,128 |
|
|
| — |
|
Corporate bonds |
|
| 36,404 |
|
|
| — |
|
|
| 36,404 |
|
|
| — |
|
Total securities available for sale |
| $ | 278,734 |
|
| $ | — |
|
| $ | 278,734 |
|
| $ | — |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi trust assets |
| $ | 1,130 |
|
| $ | 1,130 |
|
| $ | — |
|
| $ | — |
|
Mortgage derivative asset |
|
| 5,949 |
|
|
| — |
|
|
| 5,949 |
|
|
| — |
|
Interest rate swap asset |
|
| 7,248 |
|
|
| — |
|
|
| 7,248 |
|
|
| — |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage derivative liability |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Interest rate swap liability |
|
| 1,593 |
|
|
| — |
|
|
| 1,593 |
|
|
| — |
|
September 30, 2019 | ||||||||||||||||
(In thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Available for sale securities | ||||||||||||||||
U.S. Treasury and agencies | $ | 3,331 | $ | — | $ | 3,331 | $ | — | ||||||||
Mortgage backed securities | 111,790 | — | 111,790 | — | ||||||||||||
Corporate bonds | 6,619 | — | 6,619 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total securities available for sale | $ | 121,740 | $ | — | $ | 121,740 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2018 | ||||||||||||||||
(In thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Available for sale securities | ||||||||||||||||
State and municipal | $ | 1,003 | $ | — | $ | 1,003 | $ | — | ||||||||
U.S. Treasury and agencies | 3,167 | — | 3,167 | — | ||||||||||||
Mortgage backed securities | 28,370 | — | 28,370 | — | ||||||||||||
Corporate bonds | 5,507 | — | 5,507 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total securities available for sale | $ | 38,047 | $ | — | $ | 38,047 | $ | — | ||||||||
|
|
|
|
|
|
|
|
17
|
| December 31, 2020 |
| |||||||||||||
(Dollars in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals |
| $ | 14,259 |
|
| $ | — |
|
| $ | 14,259 |
|
| $ | — |
|
U.S. Treasury and agencies |
|
| 2,409 |
|
|
| — |
|
|
| 2,409 |
|
|
| — |
|
Mortgage backed securities |
|
| 72,635 |
|
|
| — |
|
|
| 72,635 |
|
|
| — |
|
Corporate bonds |
|
| 20,172 |
|
|
| — |
|
|
| 20,172 |
|
|
| — |
|
Total securities available for sale |
| $ | 109,475 |
|
| $ | — |
|
| $ | 109,475 |
|
| $ | — |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage derivative asset |
| $ | 5,293 |
|
| $ | — |
|
| $ | 5,293 |
|
| $ | — |
|
Interest rate swap asset |
|
| 1,716 |
|
|
| — |
|
|
| 1,716 |
|
|
| — |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage derivative liability |
| $ | 1,569 |
|
| $ | — |
|
| $ | 1,569 |
|
| $ | — |
|
Interest rate swap liability |
|
| 2,735 |
|
|
| — |
|
|
| 2,735 |
|
|
| — |
|
Note 8– Fair Value, continued
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application oflower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements.
Mortgage Servicing Rights
The Company records MSR assets initially at fair value and subsequently accounts for them under the amortization method and performs an impairment assessment each reporting period. The amortization method requires that the MSR assets be recorded at the lower of cost or fair value.
The following tables present the change in MSR assets using Level 3 inputs as of and for the periods stated.
(Dollars in thousands) |
| MSRs |
| |
Balance, December 31, 2020 |
| $ | 7,084 |
|
Acquired in Bay Banks Merger |
|
| 987 |
|
Additions |
|
| 3,935 |
|
Write-offs |
|
| (122 | ) |
Amortization |
|
| (452 | ) |
Impairments |
|
| (1 | ) |
Fair value adjustments |
|
| 2,397 |
|
Balance, March 31, 2021 - fair value |
| $ | 13,828 |
|
Balance, March 31, 2021 - amortized cost |
| $ | 11,442 |
|
(Dollars in thousands) |
| MSRs |
| |
Balance, December 31, 2019 |
| $ | — |
|
Additions |
|
| 7,539 |
|
Write-offs |
|
| (61 | ) |
Amortization |
|
| (391 | ) |
Impairments |
|
| (3 | ) |
Fair value adjustments |
|
| 207 |
|
Balance, December 31, 2020 - fair value |
| $ | 7,291 |
|
Balance, December 31, 2020 - amortized cost |
| $ | 7,084 |
|
A third-party model is used to determine the fair value of the Company’s MSR assets. The model establishes pools of performing loans, calculates projected future cash flows for each pool, and applies a discount rate to each pool. As of March 31, 2021 and December 31, 2020, the Company was servicing approximately $1.38 billion and $846.5 million of loans, respectively. Loans are segregated into homogenous pools based on loan term, interest rates, and other similar characteristics. Cash flows are then estimated based on net servicing fee income and utilizing assumed servicing costs and prepayment speeds. The weighted average net servicing fee income of the portfolio was 27.5 basis points as of March 31, 2021. Estimated base annual servicing costs were $65.00 to $80.00 per loan depending on the guarantor. Prepayment speeds in the model are based on empirically derived data for mortgage pool factors and differences between a mortgage pool’s weighted average coupon and its current mortgage rate. The weighted average prepayment speed assumption used in the fair value model was 12.41% as of March 31, 2021. A base discount rate of 9.50% to 12.50% (9.74% weighted average discount rate) was then applied to each pool’s projected future cash flows as of March 31, 2021. The discount rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. MSR assets are classified as Level 3.
Impaired Loans
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. The measurement of loss associated with impaired loans can be based on either the discounted cash flows of the loan or the fair value of the collateral, if any, less estimated costs to sell, if the loan is collateral dependent. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Any given loan may have multiple types of collateral; however, the majority of the Company’s loan collateral is real estate. The value of real estate collateral is generally determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). If the collateral value is significantly adjusted due to differences in the comparable properties or is discounted by the Company because of lack of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant or the net book value based on the borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statements or aging reports (Level 3). Fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of income.
Loans Held for Sale
Mortgage loans originated or purchased and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. The agreed upon sales price is considered fair value as all of these loans
29
are under agreements to sell to investors at the time of origination. This amount is generally the loan’s principal amount. Changes in fair value are recognized in the Gaingain on Salesale of Mortgagesmortgages on the Consolidated Statementsconsolidated statements of Income.income.
Other Real Estate Owned
Certain assets such as other real estate owned (OREO)OREO are measured at fair value less costestimated costs to sell. Valuation of other real estate ownedOREO is generally determined using current appraisals from independent parties,appraisers, a level twoLevel 2 input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor,real estate agent or broker, estimated selling costs reduce the fair value,listing price, resulting in a valuation based on Level 3 inputs.
The Company markets other real estate owned both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.had no OREO at December 31, 2020.
The following table summarizes the Company’s other real estate ownedtables summarize assets that were measured at fair value on a nonrecurring basis duringas of the period.dates stated.
|
| March 31, 2021 |
| |||||||||||||
(Dollars in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Impaired loans, net |
| $ | 5,692 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,692 |
|
Loans held for sale |
|
| 122,453 |
|
|
| — |
|
|
| 122,453 |
|
|
| — |
|
OREO |
|
| 594 |
|
|
| — |
|
|
| — |
|
|
| 594 |
|
|
December 31, 2018 | ||||||||||||||||
(In thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Other real estate owned | $ | 134 | $ | — | $ | — | $ | 134 |
|
Fair Value At December 31, 2018 | Valuation Technique | Significant Unobservable Inputs | Range | |||||||||||
Other real estate owned | $ | 134 | Discounted appraised value | Discounted for selling costs | 15%-35% |
|
| December 31, 2020 |
| |||||||||||||
(Dollars in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Impaired loans, net |
| $ | 2,187 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,187 |
|
Loans held for sale |
|
| 148,209 |
|
|
| — |
|
|
| 148,209 |
|
|
| — |
|
18The following tables present quantitative information about Level 3 fair value measurements as of the dates stated.
|
| Balance as of |
|
| Valuation |
| Unobservable |
| Weighted |
| ||
(Dollars in thousands) |
| March 31, 2021 |
|
| Technique |
| Input |
| Average |
| ||
Impaired loans, net |
| $ | 5,692 |
|
| Discounted appraised value |
| Selling costs |
|
| 10 | % |
OREO |
|
| 594 |
|
| Discounted appraised value |
| Selling costs |
|
| 7 | % |
(Dollars in thousands) |
| December 31, 2020 |
|
| Technique |
| Input |
| Average |
| ||
Impaired loans, net |
| $ | 2,097 |
|
| Discounted appraised value |
| Selling costs |
|
| 10 | % |
|
|
| 90 |
|
| Discounted cash flows |
| Discount rate |
|
| 6 | % |
Note 9 – Disclosures About Fair Valuevalue information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial Instrumentsinstruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.
The carrying values of cash and due from banks and federal funds sold are of such short duration that carrying value reasonably approximates fair value (Level 1).
The carrying values of accrued interest receivable and accrued interest payable are of such short duration that carrying value reasonably approximates fair value (Level 2).
30
The carrying value of restricted equity investments approximates fair value based on the redemption provisions of the issuer (Level 2).
The fair value of the Company’s loan portfolio includes a credit risk assumption in the determination of the fair value of its loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, impaired loans, and all other loans. The results are then adjusted to account for credit risk as described above. The fair value of the Company’s loan portfolio also considers illiquidity risk through the use of a discounted cash flow model to compensate for based on certain assumptions included within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan. This consideration of both credit risk and illiquidity risk provides an estimated exit price for the Company’s loan portfolio. Loans held for investment are reported as Level 3.
There is no credit risk associated with PPP loans as they are fully guaranteed by the U.S. government. Further, the Company believes the PPP loans will be forgiven within 1.5 years for PPP 1 loans and between one and three years for PPP 2 loans, depending on the loan’s balance, and any fair value adjustment for potential interest rate change was considered inconsequential as of March 31, 2021. As a result, the carrying value of PPP loans reasonably approximates fair value (Level 3).
The carrying value of cash surrender value of life insurance reasonably approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information by insurance carriers (Level 2).
The carrying value of noninterest-bearing deposits approximates fair value (Level 1). The carrying values of interest-bearing demand, money market, and savings deposits approximates fair value based on their current pricing and are reported as Level 2. The fair value of certificates of deposits were valued using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for certificates of deposits that mature in the same period. Time deposits are reported as Level 3.
The fair value of the FHLB borrowings is estimated by discounting the future cash flows using current interest rates offered for similar advances (Level 2).
The fair value of FRB borrowings was approximated as its carrying value as there is no comparable debt to PPPLF advances (Level 2).
The fair value of the Company’s subordinated notes was estimated by utilizing recent issuance rates for subordinated debt offerings of similar issuer size (Level 3).
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values and related carrying amounts, of the Company’s financial instruments will change when interest rate levels change, and these changes may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Borrowers with fixed rate obligations, however, are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
The following tables present the estimated fair values, related carrying amounts, and valuation level of the Company’s financial instruments as follows:of the dates stated.
|
| Carrying Value as of |
|
| Fair Value as of |
|
| Fair Value Measurements as of March 31, 2021 |
| |||||||||||
(Dollars in thousands) |
| March 31, 2021 |
|
| March 31, 2021 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 273,540 |
|
| $ | 273,540 |
|
| $ | 273,540 |
|
| $ | — |
|
| $ | — |
|
Federal funds sold |
|
| 5,238 |
|
|
| 5,238 |
|
|
| 5,238 |
|
|
| — |
|
|
| — |
|
Certificates of deposit |
|
| 1,018 |
|
|
| 1,018 |
|
|
| — |
|
|
| 1,018 |
|
|
| — |
|
Securities available for sale |
|
| 278,734 |
|
|
| 278,734 |
|
|
| — |
|
|
| 278,734 |
|
|
| — |
|
Restricted equity and other investments |
|
| 14,821 |
|
|
| 14,821 |
|
|
| — |
|
|
| 14,821 |
|
|
| — |
|
PPP loans receivable, net |
|
| 597,626 |
|
|
| 597,626 |
|
|
| — |
|
|
| — |
|
|
| 597,626 |
|
Loans held for investment, net |
|
| 1,693,514 |
|
|
| 1,713,201 |
|
|
| — |
|
|
| — |
|
|
| 1,713,201 |
|
Accrued interest receivable |
|
| 10,507 |
|
|
| 10,507 |
|
|
| — |
|
|
| 10,507 |
|
|
| — |
|
Bank owned life insurance |
|
| 36,164 |
|
|
| 36,164 |
|
|
| — |
|
|
| 36,164 |
|
|
| — |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
| $ | 617,102 |
|
| $ | 617,102 |
|
| $ | 617,102 |
|
| $ | — |
|
| $ | — |
|
Interest-bearing demand and money market deposits |
|
| 751,390 |
|
|
| 751,390 |
|
|
| — |
|
|
| 751,390 |
|
|
| — |
|
Savings deposits |
|
| 159,455 |
|
|
| 159,455 |
|
|
| — |
|
|
| 159,455 |
|
|
| — |
|
Time deposits |
|
| 612,171 |
|
|
| 618,166 |
|
|
| — |
|
|
| — |
|
|
| 618,166 |
|
Securities sold under repurchase agreements |
|
| 1,198 |
|
|
| 1,198 |
|
|
| 1,198 |
|
|
| — |
|
|
| — |
|
FHLB borrowings |
|
| 183,122 |
|
|
| 182,890 |
|
|
| — |
|
|
| 182,890 |
|
|
| — |
|
FRB borrowings |
|
| 509,667 |
|
|
| 509,667 |
|
|
| — |
|
|
| 509,667 |
|
|
| — |
|
Subordinated notes, net |
|
| 54,588 |
|
|
| 56,342 |
|
|
| — |
|
|
| — |
|
|
| 56,342 |
|
|
| Carrying Value as of |
|
| Fair Value as of |
|
| Fair Value Measurements as of December 31, 2020 |
| |||||||||||
(Dollars in thousands) |
| December 31, 2020 |
|
| December 31, 2020 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 117,945 |
|
| $ | 117,945 |
|
| $ | 117,945 |
|
| $ | — |
|
| $ | — |
|
Federal funds sold |
|
| 775 |
|
|
| 775 |
|
|
| 775 |
|
|
| — |
|
|
| — |
|
Securities available for sale |
|
| 109,475 |
|
|
| 109,475 |
|
|
| — |
|
|
| 109,475 |
|
|
| — |
|
Restricted equity investments |
|
| 11,173 |
|
|
| 11,173 |
|
|
| — |
|
|
| 11,173 |
|
|
| — |
|
PPP loans receivable, net |
|
| 288,533 |
|
|
| 288,533 |
|
|
| — |
|
|
| — |
|
|
| 288,533 |
|
Loans held for investment, net |
|
| 719,056 |
|
|
| 720,396 |
|
|
| — |
|
|
| — |
|
|
| 720,396 |
|
Accrued interest receivable |
|
| 5,428 |
|
|
| 5,428 |
|
|
| — |
|
|
| 5,428 |
|
|
| — |
|
Bank owned life insurance |
|
| 15,724 |
|
|
| 15,724 |
|
|
| — |
|
|
| 15,724 |
|
|
| — |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
| $ | 333,051 |
|
| $ | 333,051 |
|
| $ | 333,051 |
|
| $ | — |
|
| $ | — |
|
Interest-bearing demand and money market deposits |
|
| 282,263 |
|
|
| 282,263 |
|
|
| — |
|
|
| 282,263 |
|
|
|
|
|
Savings deposits |
|
| 78,352 |
|
|
| 78,352 |
|
|
| — |
|
|
| 78,352 |
|
|
| — |
|
Time deposits |
|
| 251,443 |
|
|
| 257,647 |
|
|
| — |
|
|
| — |
|
|
| 257,647 |
|
FHLB borrowings |
|
| 115,000 |
|
|
| 114,983 |
|
|
| — |
|
|
| 114,983 |
|
|
| — |
|
FRB borrowings |
|
| 281,650 |
|
|
| 281,650 |
|
|
| — |
|
|
| 281,650 |
|
|
| — |
|
Subordinated notes, net |
|
| 24,506 |
|
|
| 25,830 |
|
|
| — |
|
|
| — |
|
|
| 25,830 |
|
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the
32
Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs, and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The Company assumed five operating leases for real estate in the Bay Banks Merger. In accordance with ASC 842–Leases, the original classification of each lease was retained and not re-evaluated as part of the accounting for the business combination. The Company measured each of the assumed lease liabilities as if the lease was new, determined the appropriate lease liability and right-of-use asset fair value based on the Company’s incremental borrowing rate at merger date, and obtained independent assessments of favorable or unfavorable market terms for each lease contract.
The following tables present information about the Company’s leases as of and for the periods stated.
Fair Value Measurements at September 30, 2019 | ||||||||||||||||||||
Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and short-term investments | $ | 22,318 | $ | 22,318 | $ | — | $ | — | $ | 22,318 | ||||||||||
Federal funds sold | 285 | 285 | — | — | 285 | |||||||||||||||
Investment securities | 142,712 | — | 143,210 | — | 143,210 | |||||||||||||||
Loans held for sale | 80,255 | — | 80,255 | — | 80,255 | |||||||||||||||
Net loans held for investment | 456,474 | — | — | 462,414 | 462,414 | |||||||||||||||
Accrued interest receivable | 2,162 | — | 2,162 | — | 2,162 | |||||||||||||||
Bank-owned life insurance | 8,871 | — | 8,871 | — | 8,871 | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Deposits | 520,280 | — | 428,908 | 85,162 | 514,070 | |||||||||||||||
Other borrowed funds | 129,600 | — | 129,908 | — | 129,908 | |||||||||||||||
Subordinated debt, net | 9,792 | — | — | 9,792 | 9,792 | |||||||||||||||
Accrued interest payable | 834 | — | 834 | — | 834 |
Fair Value Measurements at December 31, 2018 | ||||||||||||||||||||
Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and short-term investments | $ | 15,026 | $ | 15,026 | $ | — | $ | — | $ | 15,026 | ||||||||||
Federal funds sold | 546 | 546 | — | — | 546 | |||||||||||||||
Investment securities | 58,750 | — | 58,688 | — | 58,688 | |||||||||||||||
Loans held for sale | 29,233 | — | 29,233 | — | 29,233 | |||||||||||||||
Net loans held for investment | 411,288 | — | — | 404,888 | 404,888 | |||||||||||||||
Accrued interest receivable | 1,769 | — | 1,769 | — | 1,769 | |||||||||||||||
Bank-owned life insurance | 8,455 | — | 8,455 | — | 8,455 | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Deposits | 415,027 | — | 323,280 | 81,070 | 404,350 | |||||||||||||||
Other borrowed funds | 73,100 | — | 73,113 | — | 73,113 | |||||||||||||||
Subordinated debt, net | 9,766 | — | — | 9,766 | 9,766 | |||||||||||||||
Accrued interest payable | 395 | — | 395 | — | 395 |
(Dollars in thousands) |
| March 31, 2021 |
| |
Lease liabilities |
| $ | 7,990 |
|
Right-of-use asset |
| $ | 6,805 |
|
Weighted average remaining lease term (years) |
| 6.22 |
| |
Weighted average discount rate |
|
| 2.94 | % |
19
|
| For the three months ended March 31, |
| |||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
| ||
Operating lease cost |
| $ | 646 |
|
| $ | 431 |
|
Total lease cost |
| $ | 646 |
|
| $ | 431 |
|
The following table presents a maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities as of the date stated.
(Dollars in thousands) |
| March 31, 2021 |
| |
Nine months ending December 31, 2021 |
| $ | 1,636 |
|
Twelve months ending December 31, 2022 |
|
| 1,596 |
|
Twelve months ending December 31, 2023 |
|
| 1,268 |
|
Twelve months ending December 31, 2024 |
|
| 940 |
|
Twelve months ending December 31, 2025 |
|
| 786 |
|
Thereafter |
|
| 2,403 |
|
Total undiscounted cash flows |
|
| 8,629 |
|
Discount |
|
| (639 | ) |
Lease liabilities |
| $ | 7,990 |
|
Note 13 – Minimum Regulatory Capital
Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. A financial institution's capital amounts and
33
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (the “Basel III rules”) became effective for the Bank on January 1, 2015 with full compliance with all of the requirements phased-in over a multi-year schedule and fully phased-in at January 1, 2019. Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios of 2.50% for all ratios, except the tier 1 leverage ratio. If a banking organization dips into its capital conservation buffer, it is subject to limitations on certain activities, including payment of dividends, share repurchases, and discretionary compensation to certain officers. Management believes as of March 31, 2021 and December 31, 202, the Bank met all capital adequacy requirement to which it is subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized; although, these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2021, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.
The following tables present the capital and capital ratios to which the Bank is subject and the amounts and ratios to be adequately and well capitalized as of the dates stated. Adequately capitalized ratios include the conversation buffer.
|
| Actual |
|
| For Capital Adequacy Purposes |
|
| To Be Well Capitalized |
| |||||||||||||||
(Dollars in thousands) |
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
As of March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(To risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Ridge Bank, N.A. |
| $ | 236,932 |
|
|
| 13.67 | % |
| $ | 182,013 |
|
|
| 10.50 | % |
| $ | 173,345 |
|
|
| 10.00 | % |
Tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(To risk-weighted assets) |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Ridge Bank, N.A. |
| $ | 223,428 |
|
|
| 12.89 | % |
| $ | 147,343 |
|
|
| 8.50 | % |
| $ | 138,676 |
|
|
| 8.00 | % |
Common equity tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
(To risk-weighted assets) |
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Blue Ridge Bank, N.A. |
| $ | 223,428 |
|
|
| 12.89 | % |
| $ | 121,342 |
|
|
| 7.00 | % |
| $ | 112,674 |
|
|
| 6.50 | % |
Tier 1 leverage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(To average assets) |
|
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|
|
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|
|
|
|
|
|
|
|
Blue Ridge Bank, N.A. |
| $ | 223,428 |
|
|
| 10.69 | % |
| $ | 83,617 |
|
|
| 4.00 | % |
| $ | 104,521 |
|
|
| 5.00 | % |
|
| Actual |
|
| For Capital Adequacy Purposes |
|
| To Be Well Capitalized |
| |||||||||||||||
(Dollars in thousands) |
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
As of December 31, 2020 |
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Total risk based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
(To risk-weighted assets) |
|
|
|
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|
|
Blue Ridge Bank, N.A. |
| $ | 109,219 |
|
|
| 13.10 | % |
| $ | 87,574 |
|
|
| 10.50 | % |
| $ | 83,404 |
|
|
| 10.00 | % |
Tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(To risk-weighted assets) |
|
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|
Blue Ridge Bank, N.A. |
| $ | 98,751 |
|
|
| 11.84 | % |
| $ | 70,893 |
|
|
| 8.50 | % |
| $ | 66,723 |
|
|
| 8.00 | % |
Common equity tier 1 capital |
|
|
|
|
|
|
|
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(To risk-weighted assets) |
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Blue Ridge Bank, N.A. |
| $ | 98,751 |
|
|
| 11.84 | % |
| $ | 58,383 |
|
|
| 7.00 | % |
| $ | 54,213 |
|
|
| 6.50 | % |
Tier 1 leverage |
|
|
|
|
|
|
|
|
|
|
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(To average assets) |
|
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|
|
Blue Ridge Bank, N.A. |
| $ | 98,751 |
|
|
| 8.34 | % |
| $ | 47,363 |
|
|
| 4.00 | % |
| $ | 59,180 |
|
|
| 5.00 | % |
The Company's principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amounts of dividends that may be paid without approval of regulatory agencies.
Note 14 – Commitments & Contingencies
In the ordinary course of operations, the Company is party to legal proceedings. Based upon information currently available, the Company’s management believes that such legal proceedings, in the aggregate, will not have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.
Also in the ordinary course of operations, the Company offers various financial products to its customers to meet their credit and liquidity needs. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and stand-by letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional commitments as it does for on-balance sheet commitments.
Subject to its normal credit standards and risk monitoring procedures, the Company makes contractual commitments to extend credit. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. As of March 31, 2021 and December 31, 2020, the Company had outstanding loan commitments of $315.7 million and $126.0 million, respectively.
Conditional commitments are issued by the Company in the form of performance stand-by letters of credit, which guarantee the performance of a customer to a third party. As of March 31, 2021 and December 31, 2020, commitments under outstanding performance stand-by letters of credit totaled $7.3 million and $0, respectively. Additionally, the Company issues financial stand-by letters of credit, which guarantee payment to the underlying beneficiary (i.e., third party) if the customer fails to meet its designated financial obligation. As of March 31, 2021 and December 31, 2020, commitments under outstanding financial stand-by letters of credit totaled $4.8 million and $6.1 million, respectively. The credit risk of issuing stand-by letters of credit is essentially the same as that involved in extending loans to customers.
The Company had no reserve for unfunded commitments recorded as of March 31, 2021 and December 31, 2020.
Note 15 – Earnings Per Share
The following table shows the calculation of basic and diluted EPS and the weighted average number of shares outstanding used in computing EPS and the effect on the weighted average number of shares outstanding of dilutive potential common stock. Basic EPS amounts are computed by dividing net income (the numerator) by the weighted
35
average number of common shares outstanding (the denominator). Diluted EPS amounts assume the conversion, exercise, or issuance of all potential common stock instruments, unless the effect is to reduce the loss or increase earnings per common share. Potential dilutive common stock instruments include exercisable stock options, including those converted and assumed in the Bay Banks Merger. For the three months ended March 31, 2021, stock options for 75,410 shares of the Company’s common stock were not included in the computation of diluted earnings per share because their effects would have been anti-dilutive. Weighted average common shares outstanding, basic and dilutive, for all periods presented are presented on a post Stock Split basis.
|
| For the three months ended March 31, |
| |||||
(Dollars in thousands, except per share data) |
| 2021 |
|
| 2020 |
| ||
Net income |
| $ | 4,237 |
|
| $ | 841 |
|
Net income attributable to noncontrolling interest |
|
| (9 | ) |
|
| (9 | ) |
Net income available to common shareholders |
| $ | 4,228 |
|
| $ | 832 |
|
Weighted average common shares outstanding, basic |
|
| 15,137,446 |
|
|
| 8,496,581 |
|
Effect of dilutive securities |
|
| 16,533 |
|
|
| — |
|
Weighted average common shares outstanding, dilutive |
|
| 15,153,979 |
|
|
| 8,496,581 |
|
Basic and diluted earnings per common share |
| $ | 0.28 |
|
| $ | 0.10 |
|
Note 1016 – Business Segments
The Company utilizes its subsidiaries and divisions to provide multiplehas identified two primary business segments including retail banking, mortgagewhich are commercial banking and payroll processing services.mortgage banking. Revenues from retailcommercial banking operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage Bankingbanking operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee income, and interest earned on mortgage loans held for sale. Revenues from payroll services consist of fees charged to customers for payroll services.
Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||
(in thousands) | Blue Ridge Bank | Blue Ridge Bank Mortgage Division | MoneyWise Payroll Solutions, Inc. | Parent Only | Eliminations | Blue Ridge Bankshares, Inc. Consolidated | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Interest income | $ | 21,582 | $ | 844 | $ | — | $ | 4 | $ | — | $ | 22,430 | ||||||||||||
Service charges on deposit accounts | 459 | — | — | — | — | 459 | ||||||||||||||||||
Mortgage banking income, net | — | 10,967 | — | — | — | 10,967 | ||||||||||||||||||
Payroll processing revenue | — | — | 743 | — | — | 743 | ||||||||||||||||||
Other operating income | 2,056 | — | — | 48 | (18 | ) | 2,086 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total income | 24,097 | 11,811 | 743 | 52 | (18 | ) | 36,685 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Expenses: | ||||||||||||||||||||||||
Interest expense | 5,921 | 490 | — | 532 | — | 6,943 | ||||||||||||||||||
Provision for loan losses | 1,465 | — | — | — | — | 1,465 | ||||||||||||||||||
Salary and benefits | 6,167 | 7,711 | 271 | — | — | 14,149 | ||||||||||||||||||
Other operating expenses | 5,194 | 2,697 | 344 | 851 | (18 | ) | 9,068 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total expense | 18,747 | 10,898 | 615 | 1,383 | (18 | ) | 31,625 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) before income taxes | 5,350 | 913 | 128 | (1,331 | ) | — | 5,060 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income tax expense | 932 | 193 | 22 | (158 | ) | — | 989 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) | $ | 4,418 | $ | 720 | $ | 106 | $ | (1,173 | ) | $ | — | $ | 4,071 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net (income) loss attributable to noncontrolling interest | $ | — | $ | — | $ | (21 | ) | $ | — | $ | — | $ | (21 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) attributable to Blue Ridge Bankshares | $ | 4,418 | $ | 720 | $ | 85 | $ | (1,173 | ) | $ | — | $ | 4,050 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019 | ||||||||||||||||||||||||
(in thousands) | Blue Ridge Bank | Blue Ridge Bank Mortgage Division | MoneyWise Payroll Solutions, Inc. | Parent Only | Eliminations | Blue Ridge Bankshares, Inc. Consolidated | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Interest income | $ | 7,757 | $ | 359 | $ | — | $ | 2 | $ | — | $ | 8,118 | ||||||||||||
Service charges on deposit accounts | 171 | — | — | — | — | 171 | ||||||||||||||||||
Mortgage banking income, net | — | 3,943 | — | — | — | 3,943 | ||||||||||||||||||
Payroll processing revenue | — | — | 232 | — | — | 232 | ||||||||||||||||||
Other operating income | 609 | — | — | 23 | (6 | ) | 626 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total income | 8,537 | 4,302 | 232 | 25 | (6 | ) | 13,090 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Expenses: | ||||||||||||||||||||||||
Interest expense | 2,289 | 215 | — | 178 | — | 2,682 | ||||||||||||||||||
Provision for loan losses | 570 | — | — | — | — | 570 | ||||||||||||||||||
Salary and benefits | 2,126 | 2,858 | 95 | — | — | 5,079 | ||||||||||||||||||
Other operating expenses | 1,784 | 955 | 119 | 275 | (6 | ) | 3,127 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total expense | 6,769 | 4,028 | 214 | 453 | (6 | ) | 11,458 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) before income taxes | 1,768 | 274 | 18 | (428 | ) | — | 1,632 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income tax expense (benefit) | 344 | 80 | (1 | ) | (44 | ) | — | 379 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) | $ | 1,424 | $ | 194 | $ | 19 | $ | (384 | ) | $ | — | $ | 1,253 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net (income) loss attributable to noncontrolling interest | $ | — | $ | — | $ | (3 | ) | $ | — | $ | — | $ | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) attributable to Blue Ridge Bankshares | $ | 1,424 | $ | 194 | $ | 16 | $ | (384 | ) | $ | — | $ | 1,250 | |||||||||||
|
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|
|
|
20
Note 10 – Business Segments, continued
Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||
(in thousands) | Blue Ridge Bank | Blue Ridge Bank Mortgage Division | MoneyWise Payroll Solutions, Inc. | Parent Only | Eliminations | Blue Ridge Bankshares, Inc. Consolidated | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Interest income | $ | 15,738 | $ | 325 | $ | — | $ | 6 | $ | — | $ | 15,738 | ||||||||||||
Service charges on deposit accounts | 479 | — | — | — | — | 479 | ||||||||||||||||||
Mortgage banking income, net | — | 4,868 | — | — | — | 4,868 | ||||||||||||||||||
Payroll processing revenue | — | — | 739 | — | — | 739 | ||||||||||||||||||
Other operating income | 1,262 | — | — | 4 | (18 | ) | 1,248 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total income | 17,479 | 5,193 | 739 | 10 | (18 | ) | 23,072 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Expenses: | ||||||||||||||||||||||||
Interest expense | 3,032 | — | — | 532 | — | 3,564 | ||||||||||||||||||
Provision for loan losses | 640 | — | — | — | — | 640 | ||||||||||||||||||
Salary and benefits | 3,851 | 3,980 | 296 | — | — | 8,127 | ||||||||||||||||||
Other operating expenses | 4,800 | 776 | 397 | 255 | (18 | ) | 6,210 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total expense | 12,323 | 4,756 | 693 | 787 | (18 | ) | 18,541 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) before income taxes | 4,825 | 437 | 46 | (777 | ) | — | 4,531 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income tax expense | 999 | 92 | 8 | (155 | ) | — | 944 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) | $ | 3,826 | $ | 345 | $ | 38 | $ | (622 | ) | $ | — | $ | 3,587 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net (income) loss attributable to noncontrolling interest | $ | — | $ | — | $ | (8 | ) | $ | — | $ | — | $ | (8 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) attributable to Blue Ridge Bankshares | $ | 3,826 | $ | 345 | $ | 30 | $ | (622 | ) | $ | — | $ | 3,579 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018 | ||||||||||||||||||||||||
(in thousands) | Blue Ridge Bank | Blue Ridge Bank Mortgage Division | MoneyWise Payroll Solutions, Inc. | Parent Only | Eliminations | Blue Ridge Bankshares, Inc. Consolidated | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Interest income | $ | 5,255 | $ | 184 | $ | — | $ | 6 | $ | — | $ | 5,445 | ||||||||||||
Service charges on deposit accounts | 155 | — | — | — | — | 155 | ||||||||||||||||||
Mortgage banking income, net | — | 2,289 | — | — | — | 2,289 | ||||||||||||||||||
Payroll processing revenue | — | — | 220 | — | — | 220 | ||||||||||||||||||
Other operating income | 755 | — | — | 4 | (6 | ) | 753 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total income | 6,165 | 2,473 | 220 | 10 | (6 | ) | 8,862 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Expenses: | ||||||||||||||||||||||||
Interest expense | 1,159 | — | — | 176 | — | 1,335 | ||||||||||||||||||
Provision for loan losses | 225 | — | — | — | — | 225 | ||||||||||||||||||
Salary and benefits | 963 | 1,745 | 103 | — | — | 2,811 | ||||||||||||||||||
Other operating expenses | 2,066 | 550 | 103 | 179 | (6 | ) | 2,892 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total expense | 4,413 | 2,295 | 206 | 355 | (6 | ) | 7,263 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) before income taxes | 1,752 | 178 | 14 | (345 | ) | — | 1,599 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income tax expense | 366 | 33 | 1 | (71 | ) | — | 329 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) | $ | 1,386 | $ | 145 | $ | 13 | $ | (274 | ) | $ | — | $ | 1,270 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net (income) loss attributable to noncontrolling interest | $ | — | $ | — | $ | (1 | ) | $ | — | $ | — | $ | (1 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) attributable to Blue Ridge Bankshares | $ | 1,386 | $ | 145 | $ | 12 | $ | (274 | ) | $ | — | $ | 1,269 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
21
Note 11 - Other Borrowed Funds
Other Borrowings of $129.6 million at September 30, 2019 are composed of advances from the Federal Home Loan Bank of Atlanta (“FHLB”). The Company utilizes the FHLB advance programs to fund loan growth and provide liquidity. Other borrowings increased $56.5 million from $73.1 million at December 31, 2018.
FHLB advances outstanding and related terms at September 30, 2019 and December 31, 2018 are shown in the following tables:
(In thousands) | FHLB Advances Outstanding September 30, 2019 | |||||||||||
Type advance | Balance | Interest rate | Maturity date | |||||||||
Fixed rate | $ | 15,000 | 2.31 | % | October 1, 2019 | |||||||
Fixed rate | 5,000 | 2.58 | % | October 4, 2019 | ||||||||
Fixed rate | 5,000 | 2.15 | % | October 16, 2019 | ||||||||
Fixed rate | 4,000 | 2.59 | % | October 23, 2019 | ||||||||
Fixed rate | 3,500 | 2.58 | % | October 30, 2019 | ||||||||
Fixed rate | 25,000 | 2.24 | % | November 4, 2019 | ||||||||
Fixed rate | 10,000 | 2.13 | % | November 29, 2019 | ||||||||
Fixed rate | 7,000 | 2.51 | % | November 29, 2019 | ||||||||
Fixed rate | 10,000 | 2.46 | % | December 4, 2019 | ||||||||
Daily rate | 10,000 | 2.07 | % | December 30, 2019 | ||||||||
Fixed rate | 26,100 | 2.49 | % | May 4, 2020 | ||||||||
Fixed rate | 5,000 | 1.99 | % | May 6, 2020 | ||||||||
Fixed rate | 4,000 | 2.15 | % | September 9, 2020 | ||||||||
|
| |||||||||||
FHLB Advances, net | $ | 129,600 | ||||||||||
|
|
(In thousands) | FHLB Advances Outstanding December 31, 2018 | |||||||||||
Type advance | Balance | Interest rate | Maturity date | |||||||||
Fixed rate | $ | 5,000 | 2.42 | % | January 3, 2019 | |||||||
Fixed rate | 2,800 | 2.40 | % | January 7, 2019 | ||||||||
Fixed rate | 4,500 | 2.38 | % | January 9, 2019 | ||||||||
Fixed rate | 5,000 | 2.46 | % | January 16, 2019 | ||||||||
Fixed rate | 1,200 | 2.49 | % | January 18, 2019 | ||||||||
Fixed rate | 8,000 | 2.47 | % | January 31, 2019 | ||||||||
Fixed rate | 3,000 | 2.51 | % | March 8, 2019 | ||||||||
Fixed rate | 2,000 | 2.54 | % | March 19, 2019 | ||||||||
Fixed rate | 5,000 | 2.55 | % | April 1, 2019 | ||||||||
Fixed rate | 3,500 | 2.62 | % | April 30, 2019 | ||||||||
Fixed rate | 4,000 | 1.34 | % | May 31, 2019 | ||||||||
Fixed rate | 2,000 | 2.66 | % | June 19, 2019 | ||||||||
Fixed rate | 1,000 | 3.95 | % | August 27, 2019 | ||||||||
Daily rate | 22,100 | 2.65 | % | August 30, 2019 | ||||||||
Fixed rate | 4,000 | 2.13 | % | September 30, 2019 | ||||||||
|
| |||||||||||
FHLB Advances, net | $ | 73,100 | ||||||||||
|
|
22
Note 12 - Subordinated Debt
On November 20, 2015, the Company entered into a Subordinated Note Purchase Agreement (the “Purchase Agreement”) with 14 institutional accredited investors under which the Company issued an aggregate of $10,000,000 of subordinated notes (the “Notes”) to the institutional accredited investors. The Notes have a maturity date of December 1, 2025. The Notes bear interest, payableon the 1st of June and December of each year, commencing June 1, 2016, at a fixed rate of 6.75% per year for the first five years, and thereafter will bear a floating interest rate of LIBOR plus 512.8 basis points. The Notes are not convertible into common stock or preferred stock and are not callable by the holders. The Company has the right to redeem the Notes, in whole or in part, without premium or penalty, at any interest payment date on or after December 1, 2020 and prior to the maturity date, but in all cases in a principal amount with integral multiples of $1,000, plus interest accrued and unpaid through the date of redemption. If an event of default occurs, such as the bankruptcy of the Company, the holder of a Note may declare the principal amount of the Note to be due and immediately payable. The Notes are unsecured, subordinated obligations of the Company and will rank junior in right of payment to the Company’s existing and future senior indebtedness. The Notes qualify as Tier 2 capital for regulatory reporting.
As part of the transaction, the Company incurred issuance costs totaling $338,813. These costs are being amortized over the life of the Notes. The following table summarizes the balance of the Notes and related issuance costs at September 30, 2019 and December 31, 2018:
September 30, | December 31, | |||||||
(In thousands) | 2019 | 2018 | ||||||
Subordinated debt | $ | 10,000 | $ | 10,000 | ||||
Unamortized issuance costs | (208 | ) | (233 | ) | ||||
|
|
|
| |||||
Subordinated debt, net | $ | 9,792 | $ | 9,767 | ||||
|
|
|
|
Note 13 - Revenue from Contracts with Customers
In May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606). ASU2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.
Interest income, loan fees, realized securities gains and losses, bank owned life insurance income, SBIC income, and mortgage banking revenue are not in the scope of ASC Topic 606. All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income in the consolidated statements of income. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less.
A description of the Company’s significant sources of revenue accounted for under ASC 606 is as follows:
Service fees on deposit accounts are fees charged to deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which are earned based on specific transactions or customer activity within a customer’s deposit account, are recognized at the time the related transaction or activity occurs, as it is at this point when the customer’s request has been fulfilled. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the performance obligation was satisfied. Overdraft fees are recognized when the overdraft occurs. Service fees on deposit accounts are paid through a direct charge to the customer’s account.
Bank card revenue is comprised of interchange revenue and ATM fees. Interchange revenue is earned when bank debit and credit cardholders conduct transactions through VISA, MasterCard, and other payment networks. Interchange fees represent a percentage of the underlying cardholder’s transaction value and are generally recognized daily, concurrent with the transaction processing services provided to the cardholder. ATM fees are earned when anon-Bank cardholder uses a Bank ATM. ATM fees are recognized daily, as the related ATM transactions are settled.
Payroll processing income is comprised of fees charged to customers for payroll services through MoneyWise Payroll Solutions, Inc., of which Blue Ridge Bank, N.A. owns a controlling interest.
23
Note 13 - Revenue from Contracts with Customers, continued
The following table illustrates our totalnon-interest income segregated by revenues within the scope of ASC Topic 606 and those which are within the scope of other ASC Topics:
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Service fees on deposit accounts | $ | 459 | $ | 479 | ||||
Bank card revenue | 408 | 356 | ||||||
Payroll processing income | 743 | 739 | ||||||
|
|
|
| |||||
Revenue from contracts with customers | 1,610 | 1,574 | ||||||
Non-interest income within scope of other ASC topics | 12,645 | 5,435 | ||||||
|
|
|
| |||||
Total noninterest income | $ | 14,255 | $ | 7,009 | ||||
|
|
|
|
Note 14 – Leases
On January 1, 2019, the Company adopted ASUNo. 2016-02“Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. The implementation of the new standard resulted in recognition of aright-of-use asset and lease liability of $7.0 million at the date of adoption, which is related to the Company’s lease of premises used in operations. Theright-of-use asset and lease liability are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease.Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information aboutrevenues and expenses by segment for the Company’s leases:periods stated.
|
| For the three months ended March 31, 2021 |
| |||||||||||||||||
(Dollars in thousands) |
| Commercial Banking |
|
| Mortgage Banking |
|
| Parent Only |
|
| Eliminations |
|
| Blue Ridge Bankshares, Inc. Consolidated |
| |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 21,707 |
|
| $ | 820 |
|
| $ | 49 |
|
| $ | — |
|
| $ | 22,576 |
|
Service charges on deposit accounts |
|
| 327 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 327 |
|
Residential mortgage banking income, net |
|
| — |
|
|
| 9,301 |
|
|
| — |
|
|
| — |
|
|
| 9,301 |
|
Mortgage servicing rights |
|
| — |
|
|
| 3,371 |
|
|
| — |
|
|
| — |
|
|
| 3,371 |
|
Gain on sale of guaranteed USDA loans |
|
| 1,074 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,074 |
|
Wealth and trust management |
|
| 602 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 602 |
|
Increase in cash surrender value of bank owned life insurance |
|
| 164 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 164 |
|
Payroll processing revenue |
|
| 270 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 270 |
|
Bank and purchase card, net |
|
| 300 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 300 |
|
Other income |
|
| 373 |
|
|
| — |
|
|
| 52 |
|
|
| (25 | ) |
|
| 400 |
|
Total income |
|
| 24,817 |
|
|
| 13,492 |
|
|
| 101 |
|
|
| (25 | ) |
|
| 38,385 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 1,871 |
|
|
| 58 |
|
|
| 630 |
|
|
| — |
|
|
| 2,559 |
|
Provision for loan losses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Salaries and employee benefits |
|
| 5,741 |
|
|
| 8,268 |
|
|
| — |
|
|
| — |
|
|
| 14,009 |
|
Merger-related expenses |
|
| 8,137 |
|
|
| — |
|
|
| 882 |
|
|
| — |
|
|
| 9,019 |
|
Other operating expenses |
|
| 5,170 |
|
|
| 2,181 |
|
|
| 158 |
|
|
| (25 | ) |
|
| 7,484 |
|
Total expense |
|
| 20,919 |
|
|
| 10,507 |
|
|
| 1,670 |
|
|
| (25 | ) |
|
| 33,071 |
|
Income (loss) before income taxes |
|
| 3,898 |
|
|
| 2,985 |
|
|
| (1,569 | ) |
|
| — |
|
|
| 5,314 |
|
Income tax expense |
|
| 763 |
|
|
| 605 |
|
|
| (291 | ) |
|
| — |
|
|
| 1,077 |
|
Net income (loss) |
| $ | 3,135 |
|
| $ | 2,380 |
|
| $ | (1,278 | ) |
| $ | — |
|
| $ | 4,237 |
|
Net (income) loss attributable to noncontrolling interest |
| $ | (9 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (9 | ) |
Net income (loss) attributable to Blue Ridge Bankshares, Inc. |
| $ | 3,126 |
|
| $ | 2,380 |
|
| $ | (1,278 | ) |
| $ | — |
|
| $ | 4,228 |
|
(Dollars in thousands) | September 30, 2019 | |||
Lease liabilities | $ | 6,672 | ||
Right-of-use assets | $ | 6,575 | ||
Weighted average remaining lease term | 6.26 years | |||
Weighted average discount rate | 2.79 | % |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
Lease Cost(in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating lease cost | $ | 369 | $ | 213 | $ | 1,104 | $ | 582 | ||||||||
Total lease cost | $ | 369 | $ | 213 | $ | 1,104 | $ | 582 | ||||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 218 | $ | 213 | $ | 874 | $ | 582 |
|
| For the three months ended March 31, 2020 |
| |||||||||||||||||
(Dollars in thousands) |
| Commercial Banking |
|
| Mortgage Banking |
|
| Parent Only |
|
| Eliminations |
|
| Blue Ridge Bankshares, Inc. Consolidated |
| |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 10,057 |
|
| $ | 362 |
|
| $ | 4 |
|
| $ | — |
|
| $ | 10,423 |
|
Service charges on deposit accounts |
|
| 272 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 272 |
|
Residential mortgage banking income, net |
|
| — |
|
|
| 3,861 |
|
|
| — |
|
|
| — |
|
|
| 3,861 |
|
Gain on sale of guaranteed USDA loans |
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
Increase in cash surrender value of bank owned life insurance |
|
| 93 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 93 |
|
Payroll processing revenue |
|
| 303 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 303 |
|
Bank and purchase card, net |
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
Other income |
|
| 168 |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| 162 |
|
Total income |
|
| 11,042 |
|
|
| 4,223 |
|
|
| 4 |
|
|
| (6 | ) |
|
| 15,263 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 2,121 |
|
|
| 102 |
|
|
| 177 |
|
|
| — |
|
|
| 2,400 |
|
Provision for loan losses |
|
| 575 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 575 |
|
Salaries and employee benefits |
|
| 3,433 |
|
|
| 3,908 |
|
|
| — |
|
|
| — |
|
|
| 7,341 |
|
Merger-related expenses |
|
| 265 |
|
|
| — |
|
|
| 4 |
|
|
|
|
|
|
| 269 |
|
Other operating expenses |
|
| 2,266 |
|
|
| 1,105 |
|
|
| 205 |
|
|
| (6 | ) |
|
| 3,570 |
|
Total expense |
|
| 8,660 |
|
|
| 5,115 |
|
|
| 386 |
|
|
| (6 | ) |
|
| 14,155 |
|
Income (loss) before income taxes |
|
| 2,382 |
|
|
| (892 | ) |
|
| (382 | ) |
|
| — |
|
|
| 1,108 |
|
Income tax expense |
|
| 498 |
|
|
| (188 | ) |
|
| (43 | ) |
|
| — |
|
|
| 267 |
|
Net income (loss) |
| $ | 1,884 |
|
| $ | (704 | ) |
| $ | (339 | ) |
| $ | — |
|
| $ | 841 |
|
Net (income) loss attributable to noncontrolling interest |
| $ | (9 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (9 | ) |
Net income (loss) attributable to Blue Ridge Bankshares, Inc. |
| $ | 1,875 |
|
| $ | (704 | ) |
| $ | (339 | ) |
| $ | — |
|
| $ | 832 |
|
24
Note 14 – Leases, continued
|
| For the three months ended March 31, 2021 |
| |||||||||
(Dollars in thousands) |
| Net Unrealized Gains (Losses) on Available for Sale Securities |
|
| Net Unrealized Gains (Losses) on Interest Rate Swaps |
|
| Accumulated Other Comprehensive Income (Loss), net |
| |||
Balance as of January 1, 2021 |
| $ | 1,069 |
|
| $ | (805 | ) |
| $ | 264 |
|
Change in net unrealized holding (losses) gains on securities available for sale, net of deferred tax benefit of $660 |
|
| (2,482 | ) |
|
| — |
|
|
| (2,482 | ) |
Change in net unrealized holding gains (losses) on interest rate swaps, net of deferred tax expense of $1,662 |
|
| — |
|
|
| 6,253 |
|
|
| 6,253 |
|
Balance as of March 31, 2021 |
| $ | (1,413 | ) |
| $ | 5,448 |
|
| $ | 4,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended March 31, 2020 |
| |||||||||
(Dollars in thousands) |
| Net Unrealized Gains (Losses) on Available for Sale Securities |
|
| Net Unrealized Gains (Losses) on Interest Rate Swaps |
|
| Accumulated Other Comprehensive Income (Loss), net |
| |||
Balance as of January 1, 2020 |
| $ | 423 |
|
| $ | (194 | ) |
| $ | 229 |
|
Change in net unrealized holding (losses) gains on securities available for sale, net of deferred tax benefit of $128 |
|
| (484 | ) |
|
| — |
|
|
| (484 | ) |
Change in net unrealized holding (losses) gains on interest rate swaps, net of deferred tax benefit of $665 |
|
| — |
|
|
| (2,499 | ) |
|
| (2,499 | ) |
Balance as of March 31, 2020 |
| $ | (61 | ) |
| $ | (2,693 | ) |
| $ | (2,754 | ) |
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:
As of | ||||
Lease payments due(in thousands) | September 30, 2019 | |||
Three months ending December 31, 2019 | $ | 314 | ||
Twelve months ending December 31, 2020 | 1,305 | |||
Twelve months ending December 31, 2021 | 1,230 | |||
Twelve months ending December 31, 2022 | 1,022 | |||
Twelve months ending December 31, 2023 | 934 | |||
Twelve months ending December 31, 2024 | 640 | |||
Thereafter | 1,979 | |||
|
| |||
Total undiscounted cash flows | 7,425 | |||
Discount | (753 | ) | ||
|
| |||
Lease liabilities | $ | 6,672 | ||
|
|
Note 1518 – Subsequent EventsLegal Matters
On November 20,August 12, 2019, the Company declared a quarterly dividend of $0.1425 per share payable on December 13, 2019 to shareholders of record as of December 6, 2019.
Effective December 15, 2019, the Company completed its acquisitionformer employee of Virginia Community Bankshares, Inc. (“VCB”). The merger of and participant in its Employee Stock Ownership Plan (the “VCB ESOP”) filed a class action complaint against VCB, with and into the Company (the “Merger”) was effected pursuant to the terms and conditions of the Agreement and Plan of Reorganization, dated as of May 13, 2019, between the Company and VCB, and a related Plan of Merger (the “Merger Agreement”). Immediately after the Merger, Virginia Community Bank, VCB’s wholly-owned bank subsidiary, mergedand certain individuals associated with and into the Bank. PursuantVCB ESOP in the U.S. District Court for the Western District of Virginia, Charlottesville Division. The complaint alleges, among other things, that the defendants breached their fiduciary duties to VCB ESOP participants in violation of the Merger Agreement, former holdersEmployee Retirement Income Security Act of shares1974, as amended. The complaint alleges that the VCB ESOP incurred damages “that approach or exceed $12 million.” The Company automatically assumed any liability of VCB common stock had the right to elect to receive either $58.00 in cash or 3.05 sharesconnection with this litigation as a result of the Company’s common stock2019 acquisition of VCB. The outcome of this litigation is uncertain, and the plaintiff and other individuals may file additional lawsuits related to the VCB ESOP. The defense, settlement, or adverse outcome of any such lawsuit or claim could have a material adverse financial impact on the Company. The Company believes the claims are without merit and no loss has been accrued for each sharethis lawsuit.
37
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of VCB common stock held, subject to adjustment so that the overall mixOperations
The following presents management’s discussion and analysis of consideration paid to VCB shareholders consists of approximately 60% the Company’s common stockconsolidated financial condition and 40% cash. The Company expects to issue approximately 1,312,970 sharesthe results of its common stock and pay approximately $16.6 millionour operations. This discussion should be read in cash in connectionconjunction with the Merger.unaudited consolidated financial statements and the notes thereto included in this Form 10-Q and the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. Results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations for the balance of 2021, or for any other period. As used in this report, the terms “the Company,” “we,” “us,” and “our” refer to Blue Ridge Bankshares, Inc. and its consolidated subsidiaries. The term “Bank” refers to Blue Ridge Bank, National Association.
Cautionary Note About Forward-Looking Statements
25
|
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report contains statements concerning the Company’s expectations, plans, objectives, future financial performance, and other statements that are not historical facts. These statements may constitute “forward-looking statements” as defined by federal securities laws. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Words such as “anticipates,” “believes,” “intends,” “should,” “expects,” “will,” and variations of similar expressions are intended to identify forward-looking statements. Factors that could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to: the effect of the COVID-19 pandemic, including its potential adverse effect on economic conditions, and the Company’s employees, customers, loan losses, and financial performance; the Company’s participation in the Paycheck Protection Program (“PPP”); changes in interest rates, general economic conditions, the legislative/regulatory climate, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System (the “Federal Reserve”); the quality or composition of the loan and investment portfolios; demand for loan products; deposit flows; competition; expansion activities; demand for financial services in the Company’s market area; accounting principles, policies, and guidelines; changes in banking, tax, and other laws and regulations and interpretations or guidance thereunder; technological changes; fraud and cybersecurity risks; the effects of the Company’s merger with Bay Banks of Virginia, Inc. (“Bay Banks”) and other acquisitions the Company may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such transactions, disruptions in customer and employee relationships and business operations, and unexpected costs and difficulties integrating the companies’ business, and other factors detailed in the Company’s publicly filed documents, including the factors described in Item 1A., “Risk Factors,” in the Annual Report on Form 10-Q contains10-K for the year ended December 31, 2020 (the “2020 Form 10-K). These risks and uncertainties should be considered in evaluating the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Form 10-Q reflects the current viewscontained herein, and estimates of future economic circumstances, industry conditions, company performance, and financial results of the management of Blue Ridge. These forward-lookingreaders are cautioned not to place undue reliance on such statements, are subject to a number of factors and uncertainties which could cause Blue Ridge’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements, and such differences may be material. Forward-looking statements speak only as of the date they are made and Blue Ridge does not assume any duty to update forward-looking statements. These forward-looking statements include, but are not limited to, statements about (i) the expected benefits of the transaction between Blue Ridge and VCB, including future financial and operating results, cost savings, enhanced revenues and the expected market position of the combined company that may be realized from the transaction, and (ii) Blue Ridge’s and VCB’s plans, objectives, expectations and intentions and other statements contained in this Form 10-Q that are not historical facts. Other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “targets,” “projects,” “predicts,” “potential,” “possible,” “should,” “would,” “will,” “goal,” “target” or words of similar meaning generally are intended to identify forward-looking statements. These statements are based upon the current beliefs and expectations of Blue Ridge’s management and are inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond their respective control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ from those indicated or implied in the forward-looking statements and such differences may be material.
The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
the expected cost savings from the transaction with VCB may not be fully realized or may take longer to realize than expected;
the integration of the businesses of Blue Ridge and VCB may be more difficult, costly or time-consuming than expected, and could result in the loss of customers;
changes in general business, economic and market conditions;
changes in fiscal and monetary policies, and laws and regulations;
changes in interest rates, deposit flows, loan demand and real estate values;
deterioration in asset quality and/or a reduced demand for, or supply of, credit;
increased information security risk, including cyber security risk, which may lead to potential business disruptions or financial losses;
volatility in the securities markets generally or in the market price of Blue Ridge’s stock specifically; and
Blue Ridge’s limited ability to pay dividends; and
other risks and factors identified in the “Risk Factors” sections and elsewhere in documents Blue Ridge files from time to time with the Securities and Exchange Commission.
Critical Accounting Policies
General
The accounting principles Blue Ridge applies under U.S. GAAP are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions, judgments and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such judgments, assumptions and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.
The accounting policies Blue Ridge views as critical are those relating to judgments, assumptions and estimates regarding the determination of the allowance for loan losses, the fair value measurements of certain assets and liabilities, and accounting for other real estate owned.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed to be adequate by Blue Ridge to absorb probable losses inherent in the portfolio and is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans and actual loss experience, current economic events in specific industries and other pertinent factors such as regulatory guidance and general economic conditions. The allowance is established through a provision for loan losses charged to earnings. Loans identified as losses and deemed uncollectible by management are charged to the allowance. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired, for which an allowance is established when the fair value of the loan or present value of future cash flows is lower than its carrying value. The general component coversnon-impaired loans and is based on historical loss experience adjusted for qualitative factors. Historical losses are categorized into risk-similar loan pools and a loss ratio factor is applied to each group’s loan balances to determine the allocation.
Qualitative and environmental factors include external risk factors that Blue Ridge believes affects its overall lending environment. Environmental factors that Blue Ridge routinely analyzes include levels and trends in delinquencies and impaired loans, levels and trends in charge-offs and recoveries, trends in volume and terms of loans, effects of changes in risk selection and underwriting practices, experience, ability, depth of lending management and staff, national and local economic trends, conditions such as unemployment rates, housing statistics, banking industry conditions, and the effect of changes in credit concentrations. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience and consideration of current economic trends, all of which may be susceptible to significant change.
Credit losses are an inherent part of Blue Ridge’s business and, although Blue Ridge believes the methodologies for determining the allowance for loan losses and the current level of the allowance are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.
26
Fair Value Measurements
Blue Ridge determines the fair values of financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Blue Ridge’s investment securitiesavailable-for-sale are recorded at fair value using reliable and unbiased evaluations by an industry-wide valuation service. This service uses evaluated pricing models that vary based on asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.
Other Real Estate Owned
Real estate acquired through, or in lieu of, foreclosure is held for sale and is stated at fair value of the property, less estimated disposal costs, if any. Any excess of cost over the fair value less costs to sell at the time of acquisition is charged to the allowance for loan losses. The fair value is reviewed periodically by management and any write downs are charged against current earnings. Accounting policy and treatment is consistent with accounting for impaired loans described above.
Emerging Growth Company
Blue Ridge qualifies as an “emerging growth company,” as defined in the federal securities laws. For as long as it continues to be an emerging growth company, Blue Ridge may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as an emerging growth company Blue Ridge has elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to a company that is not an issuer (as defined under Section 2(a) of the Sarbanes-Oxley Act of 2002), if such standards apply to companies that are not issuers. This may make Blue Ridge’s financial statements not comparable with other public companies that are not emerging growth companies or that are emerging growth companies that have opted out of the extended transition period because of the potential differences in accounting standards used. Blue Ridge could be an emerging growth company for up to five years, although it could lose that status sooner if its gross revenues exceed $1.07 billion, if it issues more than $1.0 billion innon-convertible debt in a three-year period, or if the market value of its common stock held bynon-affiliates exceeds $700 million as of any June 30 before that time, in which case Blue Ridge would no longer be an emerging growth company as of the following December 31.made.
Merger with VCBBay Banks of Virginia, Inc.
Effective December 15, 2019, Blue Ridge
On January 31, 2021, the Company completed a merger with Bay Banks, a bank holding company conducting substantially all its acquisition of VCB and, immediately thereafter, Virginia Community Bank, VCB’s wholly-ownedoperations through its bank subsidiary, Virginia Commonwealth Bank, and its wealth and trust management subsidiary, VCB Financial Group, Inc. (the “Financial Group”). Immediately following the Company’s merger with Bay Banks, Bay Banks’ subsidiary bank was merged with and into the Bank. AsBank, while the Financial Group became a subsidiary of September 30, 2019, VCBthe Company (collectively, the “Bay Banks Merger”).
Information contained herein as of March 31, 2021 includes the balances of Bay Banks; information contained herein as of the year ended December 31, 2020 does not include the balances of Bay Banks. Information for the three months ended March 31, 2021 includes the operations of Bay Banks only for the period immediately following the effective date (January 31, 2021) of the Bay Banks Merger through March 31, 2021.
Stock Split
On March 17, 2021, the Company announced that its board of directors had approximately $251.5 millionapproved a three-for-two stock split (“Stock Split”) effected in total assets, $179.5 million in total loans and $219.6 million in total deposits. Blue Ridge expects to issue approximately 1,312,970 sharesthe form of a 50% stock dividend on its common stock outstanding on April 30, 2021 to shareholders of record as of April 20, 2021. Cash was paid in lieu of fractional shares based on the closing price of the
38
Company’s common stock on the record date. References made to outstanding shares or per share amounts in the accompanying consolidated financial statements and pay approximately $16.6 milliondisclosures have been retroactively adjusted to reflect the Stock Split, unless otherwise noted.
General
There were no changes to the Critical Accounting Policies disclosed in cashItem 7 of the 2020 Form 10-K, except for the addition of accounting for business combinations, due to significance of the Bay Banks Merger. See Note 2 – Summary of Significant Accounting Policies in connection withItem 8 of the Merger.Company’s 2020 Form 10-K for more information.
Certain amounts presented in the consolidated financial statements of prior periods have been reclassified to conform to current year presentations. The reclassifications had no effect on net income, net income per share, or shareholders’ equity as previously reported.
Comparison of Financial Condition at September 30, 2019as of March 31, 2021 and December 31, 20182020
Total assets at September 30, 2019as of March 31, 2021 were $736.2 million,$3.17 billion, an increase of $196.6 million or 36.4%,$1.67 billion from $539.6 million$1.50 billion at December 31, 2018.2020. The increase in assets was primarily driven by growth in investment securities, both the loans held for sale and loans held for investment portfolios, as well as other assets. Investment securities totaled $142.7 million at September 30, 2019, an increase of $84.0 million, or 142.9% compared to $58.8 million at December 31, 2018, and is attributed to the implementation of a balance sheet strategy following the Company’s common stock raise. Loans held for sale totaled $80.3 million as of September 30, 2019, an increase of $51.0 million, or 174.5% compared to $29.2 million at December 31, 2018, while loans held for investment totaled $461.0 million as of September 30, 2019, an increase of $46.0 million, or 11.1% compared to $414.9 million at December 31, 2018. Other assets totaled $18.6 million at September 30, 2019, an increase of $8.3 million, or 81.0% compared to $10.3 million as of December 31, 2018. The increase in othertotal assets was primarily due to the implementationBay Banks Merger, which increased assets by $1.22 billion at the effective date of ASUNo. 2016-02,Leases (Topic 842)the merger, and higher balances of PPP loans, which increased to $597.6 million at March 31, 2021 from $288.5 million at December 31, 2020. Of the recordingincrease in total assets due to the Bay Banks Merger, $1.03 billion were related to loans held for investment. The preliminary purchase accounting adjustment (discount) to record the Bay Banks loan portfolio at estimated fair value, at the effective date of aright-of-use asset on the balance sheet for property leased for branches and offices.
27
Themerger, was $17.9 million, or 1.70% of the pre-adjusted portfolio balance. No allowance for loan losses increased by $825 thousand during(“ALL”) carried over in the business combination.
Total deposits at March 31, 2021 were $2.14 billion, an increase of $1.20 billion from December 31, 2020, of which $1.03 billion were assumed in the Bay Banks Merger at the effective date of the merger. The remaining increase in the first nine monthsquarter of 20192021 was primarily attributable to $4.4funds retained from PPP customers and additional customer deposits from economic stimulus funds granted by the federal government’s response to the COVID-19 pandemic.
The majority of PPP loans were funded through the Paycheck Protection Plan Liquidity Facility (“PPPLF”), resulting in an increase in Federal Reserve Bank (“FRB”) advances to $509.7 million or 0.96% of total loans held for investment as of September 30, 2019, compared to $3.6March 31, 2021 from $281.7 million or 0.86% of total loans held for investment as of December 31, 2018, reflective of the growth in Blue Ridge’s loan portfolio.
At September 30, 2019, total liabilities were $670.6 million, an increase of $170.7 million, or 34.1% compared to $500.0 million at December 31, 2018. The increase in liabilities was concentrated in total deposit growth of $105.3 million, or 25.4%, to $520.3 million as of September 30, 2019 compared to $415.0 million at December 31, 2018. FHLB borrowings increased $56.5 million, or 77.3% from $129.6 million at September 30, 2019 compared to $73.1 million at December 31, 2018. Additionally, other liabilities totaled $11.0 million as of September 30, 2019, an increase of $8.9 million, or 428.3%, compared to $2.1 million at December 31, 2018. The increase in other liabilities was due to the implementation of ASUNo. 2016-02,Leases (Topic 842) and the recording of a lease liability on the balance sheet for property leased for branches and offices.2020.
Total shareholders’ equity increased by $26.0$131.5 million to $65.6$239.7 million at September 30, 2019as of March 31, 2021 compared to $39.6$92.3 million at December 31, 2018. The increase in shareholders’ equity was due2020, primarily attributable to the sale$124.8 million of 1.5 million shares of Blue Ridge’s common stockconsideration paid in a private placement to accredited investors. Net proceeds from the sale amounted to $22.2 million.Bay Banks Merger.
Comparison of Results of OperationOperations for the NineThree Months Ended September 30, 2019March 31, 2021 and 20182020
For the ninethree months ended September 30, 2019, Blue RidgeMarch 31, 2021, the Company reported net income of $4.1$4.2 million, equal to basic andor $0.28 earnings per diluted income per common share, of $1.01. Forcompared to $832 thousand, or $0.10 earnings per diluted common share, for the ninethree months ended September 30, 2018, net income was $3.6March 31, 2020. Earnings for the first quarters of 2021 and 2020 included merger-related expenses of $9.0 million and both basic and diluted earnings per share were $1.29.$269 thousand, respectively.
Net Interest Income. Net interest income is the amount by which interest earned on assets exceeds the interest paid on interest-bearing liabilities and is Blue Ridge’sthe Company’s primary revenue source. Net interest income is thereby affected by overall balance sheet growth, changes in interest rates, and changes in the mix of investments, loans, deposits, and borrowings. Blue Ridge’sThe Company’s principal interest earninginterest-earning assets are loans to individuals, businesses, and real estate investors, as well as its investment securities portfolio. Interest-bearing liabilities consist primarily of negotiable order of withdrawal (“NOW”) and savings accounts, money market accounts, certificates of deposit, and FHLBFederal Home Loan Bank of Atlanta (“FHLB”) and FRB advances. Generally, changes in net interest income are measured by the net interest rate spread and the net interest margin. The netNet interest rate spread is equal to the difference between the average rate earned on interest earninginterest-earning assets and the average rate incurred on interest-bearing liabilities. The netNet interest margin represents the difference between interest income and interest expense calculated as a percentage of average earning assets.
39
28
The following table showspresents the average balance sheets for the first ninethree months of 2019 compared to the first nine months of 2018.ended March 31, 2021 and March 31, 2020. Also shown are the amounts of interest earned on interest-earning assets, with related yields, and interest expense on interest-bearing liabilities, with related rates.rates, as well as a volume and rate analysis of changes in net interest income for the periods stated.
|
| Average Balances, Income and Expense, Yields and Rates |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
|
| As of and For the three months ended March 31, |
|
|
|
| ||||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Total Increase/ |
|
| Increase/(Decrease) Due to |
| ||||||||||||||||||||||||
(Dollars in thousands) |
| Average Balance |
|
| Interest |
|
| Yield/ Rate (1) |
|
| Average Balance |
|
| Interest |
|
| Yield/ Rate (1) |
|
| (Decrease) |
|
| Volume (12) |
|
| Rate (12) |
| |||||||||
Average Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities |
| $ | 213,028 |
|
| $ | 1,130 |
|
|
| 2.12 | % |
| $ | 111,575 |
|
| $ | 759 |
|
|
| 2.72 | % |
| $ | 371 |
|
| $ | 690 |
|
| $ | (319 | ) |
Tax-exempt securities (2) |
|
| 14,170 |
|
|
| 67 |
|
|
| 1.89 | % |
|
| 6,298 |
|
|
| 58 |
|
|
| 3.68 | % |
|
| 9 |
|
|
| 72 |
|
|
| (63 | ) |
Total securities |
|
| 227,198 |
|
|
| 1,197 |
|
|
| 2.11 | % |
|
| 117,873 |
|
|
| 817 |
|
|
| 2.77 | % |
|
| 380 |
|
|
| 763 |
|
|
| (383 | ) |
Interest-earning deposits in other banks |
|
| 131,051 |
|
|
| 30 |
|
|
| 0.09 | % |
|
| 37,789 |
|
|
| 70 |
|
|
| 0.74 | % |
|
| (40 | ) |
|
| 173 |
|
|
| (213 | ) |
Federal funds sold |
|
| 3,113 |
|
|
| — |
|
|
| — |
|
|
| 114 |
|
|
| 2 |
|
|
| 7.02 | % |
|
| (2 | ) |
|
| 53 |
|
|
| (55 | ) |
Loans held for sale |
|
| 132,918 |
|
|
| 821 |
|
|
| 2.47 | % |
|
| 53,864 |
|
|
| 439 |
|
|
| 3.26 | % |
|
| 382 |
|
|
| 644 |
|
|
| (262 | ) |
Paycheck Protection Program loans (3) |
|
| 452,096 |
|
|
| 4,477 |
|
|
| 3.96 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,477 |
|
|
| 4,477 |
|
|
| — |
|
Loans held for investment (3,4,5) |
|
| 1,386,113 |
|
|
| 16,065 |
|
|
| 4.64 | % |
|
| 655,670 |
|
|
| 9,105 |
|
|
| 5.55 | % |
|
| 6,960 |
|
|
| 10,143 |
|
|
| (3,183 | ) |
Total average interest-earning assets |
|
| 2,332,489 |
|
|
| 22,590 |
|
|
| 3.87 | % |
|
| 865,310 |
|
|
| 10,433 |
|
|
| 4.82 | % |
|
| 12,157 |
|
|
| 16,253 |
|
|
| (4,096 | ) |
Less: allowance for loan losses |
|
| (13,625 | ) |
|
|
|
|
|
|
|
|
|
| (4,608 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-earning assets |
|
| 157,048 |
|
|
|
|
|
|
|
|
|
|
| 88,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
| $ | 2,475,912 |
|
|
|
|
|
|
|
|
|
| $ | 948,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Liabilities and Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand, money market deposits, and savings |
| $ | 700,291 |
|
| $ | 462 |
|
|
| 0.26 | % |
| $ | 295,349 |
|
| $ | 490 |
|
|
| 0.66 | % |
| $ | (28 | ) |
| $ | 672 |
|
| $ | (700 | ) |
Time deposits (6) |
|
| 498,965 |
|
|
| 1,079 |
|
|
| 0.86 | % |
|
| 246,673 |
|
|
| 1,235 |
|
|
| 2.00 | % |
|
| (156 | ) |
|
| 1,263 |
|
|
| (1,419 | ) |
Total interest-bearing deposits |
|
| 1,199,256 |
|
|
| 1,541 |
|
|
| 0.51 | % |
|
| 542,022 |
|
|
| 1,725 |
|
|
| 1.27 | % |
|
| (184 | ) |
|
| 1,935 |
|
|
| (2,119 | ) |
FHLB borrowings (7) |
|
| 137,583 |
|
|
| 85 |
|
|
| 0.25 | % |
|
| 120,313 |
|
|
| 498 |
|
|
| 1.66 | % |
|
| (413 | ) |
|
| 71 |
|
|
| (484 | ) |
FRB borrowings |
|
| 348,803 |
|
|
| 304 |
|
|
| 0.35 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 304 |
|
|
| 304 |
|
|
| — |
|
Subordinated notes and other borrowings (8) |
|
| 47,016 |
|
|
| 630 |
|
|
| 5.36 | % |
|
| 9,803 |
|
|
| 177 |
|
|
| 7.22 | % |
|
| 453 |
|
|
| 672 |
|
|
| (219 | ) |
Total average interest-bearing liabilities |
|
| 1,732,658 |
|
|
| 2,560 |
|
|
| 0.59 | % |
|
| 672,138 |
|
|
| 2,400 |
|
|
| 1.43 | % |
|
| 160 |
|
|
| 2,982 |
|
|
| (2,822 | ) |
Noninterest-bearing demand deposits |
|
| 522,971 |
|
|
|
|
|
|
|
|
|
|
| 170,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noninterest-bearing liabilities |
|
| 25,180 |
|
|
|
|
|
|
|
|
|
|
| 13,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
| 195,103 |
|
|
|
|
|
|
|
|
|
|
| 92,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average liabilities and stockholders’equity |
| $ | 2,475,912 |
|
|
|
|
|
|
|
|
|
| $ | 948,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin (9) |
|
|
|
|
| $ | 20,030 |
|
|
| 3.43 | % |
|
|
|
|
| $ | 8,033 |
|
|
| 3.71 | % |
| $ | 11,997 |
|
| $ | 13,270 |
|
| $ | (1,273 | ) |
Cost of funds (10) |
|
|
|
|
|
|
|
|
|
| 0.45 | % |
|
|
|
|
|
|
|
|
|
| 1.14 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (11) |
|
|
|
|
|
|
|
|
|
| 3.28 | % |
|
|
|
|
|
|
|
|
|
| 3.39 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | |||||||||||||||||||||||
(Dollars in thousands) | Average Balance | Interest Income- Expense | Average Yields / Rates (1) | Average Balance | Interest Income- Expense | Average Yields / Rates (1) | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Taxable investments (2) | $ | 100,453 | $ | 2,384 | 3.16 | % | $ | 43,538 | $ | 1,139 | 3.49 | % | ||||||||||||
Tax-free investments (2) | 8,153 | 182 | 3.61 | % | 9,739 | 226 | 3.75 | % | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total securities | 108,606 | 2,566 | 3.39 | % | 53,277 | 1,365 | 3.62 | % | ||||||||||||||||
Interest-bearing deposits in other banks | 17,852 | 218 | 1.63 | % | 9,685 | 59 | 0.82 | % | ||||||||||||||||
Federal funds sold | 338 | 6 | 2.37 | % | 988 | 13 | 1.73 | % | ||||||||||||||||
Loans held for sale | 46,800 | 1,333 | 3.80 | % | 15,747 | 498 | 4.22 | % | ||||||||||||||||
Loans held for investment (3) | 441,569 | 18,307 | 5.53 | % | 347,155 | 14,127 | 5.43 | % | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total interest-earning assets | 615,165 | 22,430 | 4.87 | % | 426,852 | 16,062 | 5.03 | % | ||||||||||||||||
Less allowance for loan losses | (3,953 | ) | (3,002 | ) | ||||||||||||||||||||
Totalnon-interest earning assets | 31,742 | 23,545 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total assets | $ | 642,954 | $ | 447,395 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Liabilities & Shareholders’ equity | ||||||||||||||||||||||||
Interest-bearing demand and savings deposits | $ | 165,481 | $ | 1,194 | 0.96 | % | $ | 128,500 | $ | 538 | 0.56 | % | ||||||||||||
Time deposits | 210,448 | 3,297 | 2.09 | % | 165,475 | 1,931 | 1.56 | % | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total interest-bearing deposits | 375,929 | 4,491 | 1.53 | % | 293,975 | 2,469 | 1.06 | % | ||||||||||||||||
FHLB advances and other borrowings | 113,989 | 2,452 | 2.87 | % | 47,774 | 1,094 | 3.06 | % | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total interest-bearing liabilities | 489,918 | 6,943 | 1.89 | % | 341,749 | 3,563 | 1.39 | % | ||||||||||||||||
Demand deposits and other liabilities | 102,033 | 69,168 | ||||||||||||||||||||||
|
|
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Total liabilities | 591,951 | 410,917 | ||||||||||||||||||||||
Shareholders’ equity | 51,003 | 36,478 | ||||||||||||||||||||||
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Total liabilities and shareholders’ equity | $ | 642,954 | $ | 447,395 | ||||||||||||||||||||
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Interest rate spread | 2.98 | % | 3.64 | % | ||||||||||||||||||||
Net interest income and margin | $ | 15,487 | 3.36 | % | $ | 12,499 | 3.90 | % | ||||||||||||||||
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(1) Annualized. |
Average interest-earning assets were $2.33 billion for the three months ended March 31, 2021 compared to $865.3 million for the same period of 2020, a $1.47 billion increase. Most of this increase was Average interest-bearing liabilities were $1.73 billion for the three months ended March 31, 2021 compared to $672.1 million for the same period of 2020, a $1.06 billion increase. Most of this increase was attributable to interest-bearing deposits assumed in the Bay Banks Merger and organic deposit growth, primarily attributable to funds retained from PPP customers and additional customer deposits from economic stimulus funds granted by the federal government’s response to the COVID-19 pandemic. Additionally, the Company utilized the PPPLF offered by the FRB starting in the second quarter of 2020 to fund PPP loans. Interest expense increased by Net interest income (on a taxable equivalent basis) for the
Provision for Loan Losses.
Noninterest Income
Noninterest Expense. Merger-related expenses for the first quarters of 2021 and 2020 were $9.0 million and $269 thousand, respectively, with the former amount attributable to the Bay Banks Merger and the latter amount attributable to the Company’s December 2019 merger with Virginia Community Bankshares, Inc. (“VCB”). Excluding merger-related expenses, noninterest expense increased $10.6 million in the first quarter of 2021, primarily Income Tax Expense.
42
Analysis of Financial Condition Loan Portfolio. The following table
The In 2020, the Company participated in the PPP pursuant to the Coronavirus Aid, Relief, and In the first quarter of 2021, the Company participated in the PPP pursuant to the Economic Aid Act, passed into law on December 27, 2020 (“PPP 2”), and also administered by the SBA. As of March 31, 2021, the Company had funded over 3,800 PPP 2 loans for approximately $348.0 million. PPP 2 loans have a five-year term and earn an annual interest rate of 1%. As of March 31, 2021, no PPP 2 loans had been forgiven. The Company believes that the majority of PPP 1 and PPP 2 loans will be forgiven, in accordance with the terms of the program, and will be paid in full pursuant to the U.S. government guarantee. From the onset of the global COVID-19 pandemic, the Company has proactively addressed the needs of its commercial and individual borrowers by modifying loans allowing for the short-term deferral of principal payments or of principal and interest payments. Pursuant to the CARES Act, banks have the option to temporarily suspend certain requirements of generally accepted accounting principles related to troubled debt restructuring (“TDR”) for a limited period of time if certain conditions are met. During 2020, in response to the COVID-19 pandemic, the Company approved over 550 loan deferrals for a total of $110.6 million. In addition, during 2020, Bay Banks approved nearly 400 loan deferrals for approximately $160.0 million. At March 31, 2021, most of these loans were past the deferment period 43 and back on normal payment schedules, and as of this date, 30
Loans are evaluated fornon-accrual status when principal or interest is delinquent for 90 days or more Management believes that the 44
The following table presents
The
The information in the table above excludes PPP loans which carry no ALL as they are fully guaranteed by the U.S. government. Non-performing Assets. Non-performing assets consist ofnon-accrual
Impaired loans also include certain loans that have been modified as TDRs where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. The Company had three TDRs in the amount of $293 thousand as of March 31, 2021, two of which were classified as TDRs due to a change in interest rate and payment 45 terms and one of which was classified as a TDR due to a change in payment terms. The Company had two TDRs in the amount of $142 thousand as of December 31, 2020 one of which was classified as a TDR due to a change in interest rate and payment terms and the other loan due to a change in payment terms. All of these TDRs were performing in accordance with their modified terms at the respective dates and therefore excluded from the non-performing loan and non-performing asset figures in the table below. The following
The decline in the ratio of ALL to total loans held for investment, including PPP loans, to March 31, 2021 from December 31, 2020 was primarily attributable to loans acquired in the Bay Banks Merger, as no ALL carried over in the merger. The remaining purchase accounting adjustment (discount) related to loans acquired in the Bay Banks Merger and earlier acquisitions by the Company was $18.7 million at March 31, 2021. Also contributing to the decline in this ratio was an increase in PPP loans, which were $597.6 million and $288.5 million at March 31, 2021 and December 31, 2020, respectively, which carry no ALL as they are fully guaranteed by the U.S. government. Investment Securities. The investment portfolio is used as a source of interest income, credit risk diversification, and liquidity, as well as to manage rate sensitivity and provide collateral for short-term borrowings. Securities in the investment portfolio classified as securitiesavailable-for-sale may be sold in response to changes in market interest rates, changes in the securities’ prepayment risk, increased loan demand, general liquidity needs, and other similar factors, and are carried at estimated fair value. The fair value of As of
46 be received when due.
No other-than-temporary impairment has been recognized for the securities in
The following table
The following tables present information about the
Deposits. The principal sources of funds for 47 Total deposits as of March 31, 2021 were $2.14 billion, an increase of $1.20 billion from December 31, 2020, of which $1.03 billion were assumed in the Bay Banks Merger as of the effective date of the merger. The remaining increase in the first quarter of 2021 was primarily attributable to customer deposits from economic stimulus funds granted in the federal government’s response to the Approximately The following
FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in FRB borrowings through the PPPLF are secured by loans the Bank originated under the PPP. The PPPLF advances are at the full PPP loan value and term, have a fixed annual cost of 35 basis points, and receive favorable regulatory capital treatment. Subordinated notes, net, totaled $54.6 million as of March 31, 2021 compared to $24.5 million as of December 31, 2020, a $30.1 million increase in the first quarter of 2021, which was primarily attributable to subordinated notes assumed in the Bay Banks Merger. Liquidity. Liquidity is essential to the Company’s business. The Company’s liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of cash, including deposits. This situation may arise due to circumstances that the Company may be unable to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or the Company. The 48 Company’s ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the The
Deposits are the primary source of the Company’s liquidity. Cash flow from amortizing assets or maturing assets provides funding to meet the needs of depositors and cash flow from amortizing assets or maturing assets also provides funding to meet the needs of depositors and borrowers.
In addition to deposits and federal funds lines, the Company has access to the different wholesale funding markets. These markets include the brokered certificate of deposit market, listing service deposit market, and the federal funds market. The Company is a member of the IntraFi Network (formerly, Promontory Interfinancial Network), which allows banking customers to access Federal Deposit Insurance Corporation (the “FDIC”) insurance protection on deposits through the Company that exceed FDIC insurance limits. The Company also has one-way authority with the IntraFi Network for both Certificate of Deposit Account Registry Service and Insured Cash Sweep products which provides the Company the ability to access additional wholesale funding as needed. The Company also maintains secured lines of credit with the FHLB and the FRB under which the Company can borrow up to the allowable amount for the collateral pledged. The Company had a credit line available of $426.8 million with the FHLB with outstanding advances totaling $183.1 million and letters of credit totaling $59.0 million, as of March 31, 2021, leaving the remaining credit availability of $184.8 million as of the same date. The letters of credit are used as collateral and pledged to the Commonwealth of Virginia to secure public deposits. As of December 31, 2020, outstanding FHLB advances totaled $115.0 million and letters of credit totaled $20.0 million. The Company utilized the FRB PPPLF to fund loans originated under the PPP, which collateralize the advances. As of March 31, 2021 and December 31, 2020, FRB borrowings under this facility totaled $509.7 million and $281.7 million, respectively. Capital. Capital adequacy is an important measure of financial stability and performance.
49 buffer, it is subject to limitations on certain activities, including payment of dividends, share repurchases, and discretionary compensation to certain officers. Management believes as of March 31, 2021, the Bank met all capital adequacy requirement to which it is subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized; although, these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2021, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. Federal and state banking regulations place certain restrictions on dividends paid by the Company. The total amount of The following tables present the capital and
Off-Balance Sheet Activities
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 50 extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include real estate and income producing commercial properties. The approved commitments to extend credit that was available but unused Conditional commitments are issued by the Company in the form of performance stand-by letters of credit, which guarantee the performance of a customer to a third party. As of March 31, 2021 and December 31, 2020, commitments under outstanding performance stand-by letters of credit totaled $7.3 million and $0, respectively. Additionally, the Company issues financial stand-by letters of credit, which guarantee payment to the underlying beneficiary (i.e., third party) if the customer fails to meet its designated financial obligation. As of March 31, 2021 and December 31, 2020, commitments under outstanding financial stand-by letters of credit totaled $4.8 million and $6.1 million, respectively. The credit risk of issuing stand-by letters of credit is essentially the same as that involved in extending loans to customers. The Company had no reserve for unfunded commitments recorded as of March 31, 2021 and December 31, 2020. Interest Rate Risk Management As a financial institution,
The Company employs an independent consulting firm to model its interest rate Stress testing the balance sheet and net interest income using instantaneous parallel shock movements in the yield curve of 100 to 400 basis points is a regulatory and banking industry practice. However, these stress tests may not represent a realistic forecast of future interest rate movements in the yield curve. In addition, instantaneous parallel interest rate shock modeling is not a predictor of actual future performance of earnings. It is a financial metric used to manage interest rate risk and track the movement of
Not required. 51
The Company maintains disclosure controls and procedures that are designed to provide assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods required by the SEC and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
On August 12, 2019, a former employee of VCB and participant in its Employee Stock Ownership Plan (the “VCB ESOP”) filed a class action complaint against VCB, Virginia Community Bank, and certain individuals associated with the VCB ESOP in the U.S. District Court for the Western District of Virginia, Charlottesville Division. The complaint alleges, among other things, that the defendants breached their fiduciary duties to
There have been no material changes to the risk factors disclosed in the 2020 Form 10-K. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition, or results of operations. See also “Cautionary Note About Forward-Looking Statements,” included in Part 1, Item 2, of this Form 10-Q.
None None None None
Form of 6.50% Subordinated Note (incorporated by reference to Exhibit 4.1 to Bay Banks of Virginia, Inc.’s Form 8-K filed on June 2, 2015).
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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