As filed with the Securities and Exchange Commission on October 4, 2019December 9, 2020
RegistrationNo. 333-233148333-249438
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORMS-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BLUE RIDGE BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia | 6021 | 54-1470908 | ||
(State or other jurisdiction of Incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
17 West Main Street
1807 Seminole Trail
Luray,Charlottesville, Virginia 2283522901
Telephone:(540) 743-6521
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Brian K. Plum
President and Chief Executive Officer
17 West Main Street
Luray, Virginia 22835
Telephone:(540) 743-6521
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Scott H. Richter
Williams Mullen 200 South Richmond, Virginia 23219 (804)420-6000 |
Richmond, Virginia 23219 (804) |
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and upon completion of the merger described herein.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or 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 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an ☒ in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | ☐ | |||
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) | ☐ |
Exchange Act Rule14d-1(d) (Cross-Border Third-Party Tender Offer) ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to Section 8(a) of the Securities Act, may determine.
The information in this joint proxy statement/prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This joint proxy statement/prospectus is not an offer to sell or otherwise issue these securities and is not soliciting offers to buy these securities in any state or jurisdiction where such offer or sale is not permitted.
PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 4, 2019DECEMBER 9, 2020
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MERGER PROPOSED – PROPOSED—YOUR VOTE IS VERY IMPORTANT
Dear Fellow Shareholders:
The boards of directors of Blue Ridge Bankshares, Inc. (“Blue Ridge”) and Bay Banks of Virginia, Community Bankshares, Inc. (“VCB”Bay Banks”) have unanimously approved a strategic merger in which VCBBay Banks will merge with and into Blue Ridge. After the merger, Blue Ridge is expected to have approximately $969.2 million$2.8 billion in assets, $719.4 million$2.0 billion in deposits, and $629.5 million$2.0 billion in loans. We are sending you this document to ask you, as a Blue Ridge and/or VCBBay Banks shareholder, to approve the merger.
In the merger, each share of VCBBay Banks common stock will be converted into the right to receive at the holder’s election, either:
$58.00 per share in cash (the “cash consideration”); or
3.050.5000 shares of Blue Ridge common stock, (the “stock consideration”).
If you are a VCB shareholder, you will haveplus cash in lieu of any fractional shares. Although the opportunity to elect the formnumber of consideration to be received for all shares of VCBBlue Ridge common stock held by you, subject to allocation and proration procedures set forth inthat Bay Banks’ shareholders will receive is fixed, the merger agreement and described in this joint proxy statement/prospectus. These allocation procedures are intended to ensure that 60% of the outstanding shares of VCB common stock will be converted into the right to receive the stock consideration and 40% of the outstanding shares of VCB common stock will be converted into the right to receive the cash consideration. If you are a VCB shareholder, the form of the consideration ultimately received by you will depend upon the election, allocation and proration procedures described in this joint proxy statement/prospectus and the choices of other VCB shareholders, and may be different from what you elect.
The market value of the stockmerger consideration that VCBBay Banks shareholders will receive will fluctuate with the market price of Blue Ridge stock and will not be known at the time the Blue Ridge and VCBBay Banks shareholders vote on the merger. Based on the closing price of $14.45 per share Blue Ridge common stock on May 13, 2019,August 12, 2020, the date preceding the public announcement of the merger, the stockmerger consideration represented approximately $64.96$7.23 in value for each share of VCBBay Banks common stock, for merger consideration of $44.6or $96.4 million on an aggregate basis. Based on the closing price of Blue Ridge common stock on [●], 2019,December 8, 2020, the last practicable date before the date of this joint proxy statement/prospectus, the stockmerger consideration represented approximately $[●]$8.06 in value for each share of VCBBay Banks common stock, for merger consideration of $[●]or $107.4 million on an aggregate basis.We urge you to obtain current market quotations for Blue Ridge common stock, which is quoted on the OTC Markets Group’s Pink marketplaceNYSE American (trading symbol “BRBS”“BRBS”) and VCBBay Banks common stock, which is quoted on the OTC Markets Group’s PinkGroup’s OTCQB marketplace (trading symbol “VCBS”“BAYK”).
Based on the current number of shares of VCBBay Banks common stock outstanding, Blue Ridge expects to issue 1,312,970approximately 6,664,848 shares of common stock in the aggregate upon completion of the merger, with current Blue Ridge shareholders owning approximately 76.7%46.2% of Blue Ridge’s outstanding common stock and former shareholders of VCBBay Banks owning approximately 23.3%53.8% of Blue Ridge’s outstanding common stock immediately following the merger.
Your vote is very important. We are holding special meetings of our respective shareholders to obtain approval of the merger agreement and related plan of merger as described in this joint proxy statement/prospectus. Approval of the merger agreement and related plan of merger requires the affirmative vote of the holders of more thantwo-thirds of the outstanding shares of Blue Ridge common stock and at leasttwo-thirds 60% of the outstanding shares of VCBBay Banks common stock.
Due to the ongoing coronavirus (COVID-19) pandemic and in support of the health of our shareholders, directors and employees, the special meetings will be held in a virtual meeting format via online live webcast. Please follow the instructions in this joint proxy statement/prospectus and your proxy card to attend the respective virtual meetings online.
Whether or not you plan to attend the Blue Ridge or VCBBay Banks special meeting online, it is important that your shares be represented at the applicable meeting and your vote recorded. Please take the time to vote by completing and mailing the enclosed proxy card or by voting via the Internet or telephone using the instructions given on the proxy card. Even if you return the proxy card, you may attend the Blue Ridge or VCBBay Banks special meeting via the Internet and vote your shares in person.online during the meeting. The boards of directors of Blue Ridge and VCBBay Banks unanimously recommend that you vote “FOR” approval of the merger agreement and related plan of merger and “FOR” the other matters to be considered at each shareholder meeting.
This document, which serves as a joint proxy statement for the special meetings of Blue Ridge and VCB,Bay Banks, and as a prospectus for the shares of Blue Ridge common stock to be issued to VCBBay Banks shareholders in the merger, describes the special meetings, the merger, the documents related to the merger and other related matters. Please carefully read this entire joint proxy statement/prospectus, including the information in the “Risk Factors” section beginning on page25 31 for a discussion of the risks relating to the proposed merger.
Thank you for your support.
Brian K. Plum |
| |
President and Chief Executive Officer | President and Chief Executive Officer | |
Blue Ridge Bankshares, Inc. | Bay Banks of Virginia, |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares of Blue Ridge common stock are not savings or deposit accounts or other obligations of any bank or savings association, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
The date of this joint proxy statement/prospectus is [●], 2019,2020, and it is first being mailed or otherwise delivered to the shareholders of Blue Ridge and VCBBay Banks on or about [●], 2019.
2020.
BLUE RIDGE BANKSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [●], 2019JANUARY 21, 2021
A special meeting of shareholders of Blue Ridge Bankshares, Inc., a Virginia corporation (“Blue Ridge”), will be held on [●], [●], 2019Thursday, January 21, 2021 at [●] [●].m.11:00 a.m., local time, at [●], for the purpose of considering and voting upon the following:
1. | A proposal to approve the Agreement and Plan of Reorganization, dated as of |
2. | A proposal to adjourn the special meeting to a later date or dates, if necessary to solicit additional proxies to approve the Blue Ridge merger proposal (the “Blue Ridge adjournment proposal”). |
3. | To act upon any other matter that may properly come before the special meeting or any adjournment thereof. |
Only holders of record of Blue Ridge common stock at the close of business on [●], 2019December 8, 2020 will be entitled to notice of and to vote at the special meeting or any adjournment thereof.
Blue Ridge’s board of directors unanimously recommends that Blue Ridge shareholders vote “FOR” the Blue Ridge merger proposal and “FOR” the Blue Ridge adjournment proposal.
Due to the current coronavirus (COVID-19) pandemic and in support of the health of its shareholders, directors and employees, Blue Ridge’s board of directors has determined that the special meeting will be conducted as a virtual meeting of shareholders via online live webcast. You are cordially invitedwill be able to attend and participate in the special meeting online, vote your shares electronically and submit your questions prior to and during the meeting in person. However, even if you expect to attendby visiting www.meetingcenter.io/205738032.
You may vote your shares through the meeting, you are requested to complete, sign, and date the enclosed appointment of proxy and return it in the envelope provided for that purpose to ensure that a quorum is presentInternet, by telephone, by regular mail, or virtually at the special meeting. You mayIf you receive a proxy card, it also contains instructions regarding how to vote viathrough the Internet, orby telephone, by followingregular mail, or virtually at the instructions on the proxy card.special meeting. If your shares are held in the name of a broker, trust, bank or other fiduciary,nominee, please follow the instructions on the voting instruction card provided by such person.
You may revoke your proxy at any time prior to or at the meeting by providing written notice to Blue Ridge, by executing a proxy bearing a later date, or by attending the meeting via the Internet and voting in person.during the meeting. If you wish to attend the meeting via the Internet and vote in personduring the meeting and your shares are held in the name of a broker, trust, bank or other nominee, you must bring with youregister in advance to attend the special meeting a legalvirtually via the Internet. Additional instructions are included in this joint proxy from the broker, trust, bank or other nominee to confirm your beneficial ownership of the shares.statement/prospectus.
By Order of the Board of Directors, |
Amanda G. Story |
Corporate Secretary |
Luray,Charlottesville, Virginia
[●], 20192020
BAY BANKS OF VIRGINIA, COMMUNITY BANKSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [●], 2019JANUARY 21, 2021
A special meeting of shareholders of Bay Banks of Virginia, Community Bankshares, Inc., a Virginia corporation (“VCB”Bay Banks”), will be held on [●], [●], 2019Thursday, January 21, 2021, at [●] [●].m.10:00 a.m., local time,time. The special meeting will be held in a virtual meeting format via online live webcast at [●], forhttps://www.cstproxy.com/baybanks/2021. At the purpose of consideringmeeting, you will be asked to consider and votingvote upon the following:
1. | A proposal to approve the Agreement and Plan of Reorganization, dated as of |
2. | A proposal to approve, on a nonbinding advisory basis, specified compensation that may become payable to the named executive officers of Bay Banks in connection with the merger (the “Bay Banks compensation proposal”). |
3. | A proposal to adjourn the special meeting to a later date or dates, if necessary to solicit additional proxies to approve the |
To act upon any other matter that may properly come before the special meeting or any adjournment thereof. |
Only holders of record of VCBBay Banks common stock at the close of business on [●], 2019November 30, 2020 will be entitled to notice of and to vote at the special meeting or any adjournment thereof.
VCB’sBay Banks’ board of directors unanimously recommends that VCBBay Banks shareholders vote “FOR” the VCBBay Banks merger proposal, “FOR” the Bay Banks compensation proposal and “FOR” the VCBBay Banks adjournment proposal.
You are cordially invited to attend the virtual meeting online. To attend and participate in person. However, eventhe meeting, visit https://www.cstproxy.com/baybanks/2021 and enter the 12 digit control number included on your proxy card. If you hold your shares through a broker, trust, bank or other nominee and wish to attend the meeting and vote during online during the meeting, you will need to take additional steps to participate in the meeting, as described in this joint proxy statement/prospectus.
Even if you expect to attend the virtual meeting, you are requested to complete, sign, and date the enclosed appointment of proxy and return it in the envelope provided for that purpose to ensure that a quorum is present at the meeting. You may also vote via the Internet, smartphone or telephonetablet by following the instructions on the proxy card. If your shares are held in the name of a broker, trust, bank or other fiduciary,nominee, please follow the instructions on the voting instruction card provided by such person.
You have the right to assert appraisal rights with respect to the merger and demand in writing that Blue Ridge pay the fair value of your shares of VCBBay Banks common stock under applicable provisions of Virginia law. Any shareholder who wishes to exercise and perfect appraisal rights must strictly comply with the procedures set forth in Article 15 of Title 13.1 of the Virginia Stock Corporation Act, a copy of which is included asAppendix D to the joint proxy statement/prospectus. A description of these procedures is included in the “The Merger – Merger—Appraisal Rights” section beginning on page [●].101.
You may revoke your proxy at any time prior to or at the virtual meeting by providing written notice to VCB,Bay Banks, by executing a proxy bearing a later date, or by attending the virtual meeting and voting in person.online during the meeting. If you wish to attend the meeting and vote in person and your shares are held in the name ofthrough a through a broker, trust, bank or other nominee and you must bring withwish to revoke your proxy or change your vote, you to the meeting a legal proxy from the broker, trust, bank or other nominee to confirm your beneficial ownership of the shares.should contact that organization.
By Order of the Board of Directors, |
Corporate Secretary |
Louisa,Richmond, Virginia
[●], 20192020
This joint proxy statement/prospectus is part of a registration statement filed by Blue Ridge with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) that registers the shares of Blue Ridge common stock to be issued to shareholders of VCBBay Banks in the merger. The registration statement, including the attached exhibits and schedules, contains additional relevant information about Blue Ridge and its common stock, VCBBay Banks and the combined company. The rules and regulations of the SEC allow Blue Ridge to omit some information included in the registration statement from this joint proxy statement/prospectus.
The SEC maintains a website that contains information about issuers, like Blue Ridge and Bay Banks, that file electronically with the SEC. The address of that site iswww.sec.gov. Following effectiveness of the registration statement of which this joint proxy statement/prospectus is a part, Blue Ridge will becomeand Bay Banks are each subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and, in accordance with those requirements, will filefiles reports and proxy statements with the SEC. You will be able tomay inspect and obtain copies of these reports and proxy statements and other information on the SEC’s website at the address set forth above.
Blue Ridge’s website iswww.mybrb.com. and Bay Banks’ website is www.baybanks.com. Blue Ridge and Bay Banks will make available on its website, itstheir respective websites, their respective annual reports on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after itthey electronically filesfile such materials with, or furnishesfurnish them to, the SEC. TheNeither the information on Blue Ridge’s website nor Bay Banks’ website is not a part of, andor is not incorporated into, this joint proxy statement/prospectus. VCB’s website iswww.virginiacommunitybank.com. The information on VCB’s website is not a part of, and is not incorporated into, this joint proxy statement/prospectus.
Additional information about Blue Ridge may be obtained by contacting Amanda G. Story, Chief Financial Officer, Blue Ridge Bankshares, Inc., 17 West Main Street, Luray, Virginia 22835, at (540)743-6521, and additional information about VCBBay Banks may be obtained by contacting Thomas M. Crowder, Executive Vice President, Chief Financial Officer and Chief Operating Officer, 114 Industrial Drive, Louisa,Pamela A. Varnier, Corporate Secretary, at Bay Banks of Virginia, 23093,Inc., 1801 Bayberry Court, Suite 101, Richmond, Virginia 23226, at (540)(757) 967-2111.414-9808, ext. 5756. To obtain timely delivery, you must request the information no later than [●], 2019.January 13, 2021.In addition, financial information about Blue Ridge Bank and Virginia CommunityCommonwealth Bank is available through financial reports that they file with their regulators on a quarterly basis. This information is available through the website maintained by the Federal Financial Institutions Examination Council at http://www.ffiec.gov. The information on, or that can be accessed through, the Federal Financial Institutions Examination Council’s website is not part of, and is not incorporated into, this joint proxy statement/prospectus.
Blue Ridge has supplied all information contained in this joint proxy statement/prospectus relating to Blue Ridge and Blue Ridge Bank, and VCBBay Banks has supplied all information contained in or incorporated by reference into this joint proxy statement/prospectus relating to VCBBay Banks and Virginia CommunityCommonwealth Bank.
You should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus relating to the offered securities. We have notsecurities and the merger. Neither Blue Ridge nor Bay Banks has authorized anyone to provide you with different information. We are not offering to sell the securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information which appears in, or is incorporated by reference to another document into, this joint proxy statement/prospectus is accurate as of any date other than the date of this joint proxy statement/prospectus. Ourprospectus or the date of such other document, as applicable. The business, financial condition, results of operations and prospects of Blue Ridge or Bay Banks may have changed since that date.
Unless otherwise specified in this joint proxy statement/prospectus or the context otherwise requires:
references to “Blue Ridge” are to the registrant, Blue Ridge Bankshares, Inc.;
references to “Blue Ridge Board” are to the board of directors of Blue Ridge;
references to “Blue Ridge Bank” are to Blue Ridge Bank, National Association, a national bank and a wholly-owned subsidiary of Blue Ridge;
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references to “VCB”“Bay Banks” are to Bay Banks of Virginia, Community Bankshares, Inc.;
references to “VCB“Bay Banks Board” are to the board of directors of VCB;Bay Banks;
references to “Virginia CommunityCommonwealth Bank” are to Virginia CommunityCommonwealth Bank, a Virginia chartered bank and a wholly-owned subsidiary of VCB;Bay Banks;
ireferences to “VCB Financial Group” are to VCB Financial Group, Inc., a wholly-owned subsidiary of Bay Banks;
• | references to the “merger agreement” are to the Agreement and Plan of Reorganization, dated as of |
references to the “merger” are to the proposed merger of VCBBay Banks with and into Blue Ridge pursuant to the terms of the merger agreement, as more fully described in the “The Merger” section beginning on page [●];66; and
references to the “shareholder meetings” are to the special meeting of shareholders of Blue Ridge and the special meeting of shareholders of VCB,Bay Banks, collectively.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
iiThe SEC allows Bay Banks to incorporate certain information into this document by reference to other information that has been filed with the SEC. The information incorporated by reference is deemed to be part of this document, except to the extent any information is superseded by information in this document. The documents that are incorporated by reference contain important information about Bay Banks and you should read this document together with any other documents incorporated by reference in this document.
This document incorporates by reference the following documents that have previously been filed with the SEC by Bay Banks (File No. 0-22955):
• | Annual Report on Form 10-K for the year ended December 31, 2019; |
• | Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020; and |
• | Current Reports on Form 8-K filed on January 2, 2020, January 29, 2020, June 15, 2020(two reports), August 13, 2020, August 17, 2020, September 21, 2020 and November 13, 2020. |
Bay Banks also incorporates by reference any future documents it may file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, excluding any document or portion thereof that has been furnished to the SEC rather than filed, during the period between the filing of the registration statement and its effectiveness.
In addition, Bay Banks is incorporating by reference any documents it may file under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this joint proxy statement/prospectus and prior to the date of the special meetings of the Bay Banks and Blue Ridge shareholders, provided, however, that Bay Banks is not incorporating by reference any information furnished (but not filed), except as otherwise specified herein.
Bay Banks files annual, quarterly and current reports, proxy statements and other business and financial information with the SEC. You may obtain the information incorporated by reference and any other materials Bay Banks files with the SEC without charge by following the instructions in the section entitled “Additional Information.”
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TABLE OF CONTENTS
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Blue Ridge’s Board of Directors and Management Following Completion of the Merger | ||||
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TABLE OF CONTENTS
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BLUE RIDGE | 183 | |||||||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BAY BANKS | 185 | |||||||
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SUBMISSION OF FUTURE BLUE RIDGE AND BAY BANKS SHAREHOLDER PROPOSALS | 187 | |||||||
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SHAREHOLDER MEETINGS
The following are answers to certain questions that you may have regarding the merger and the meetings of the shareholders of Blue Ridge and VCB.Bay Banks. You should carefully read this entire joint proxy statement/prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the appendices to and other documents referred to in this joint proxy statement/prospectus.
Q: | Why am I receiving this document? |
A: | Blue Ridge and |
You are receiving this document because Blue Ridge and VCBBay Banks are each holding a special meeting of shareholders to vote on the proposals necessary to complete the merger. The merger cannot be completed unless, among other things:
the holders of more thantwo-thirds of the shares of Blue Ridge’s outstanding common stock entitled to vote at Blue Ridge’s special meeting vote in favor of the merger; and
the holders of not less thantwo-thirds 60% of the shares of VCB’sBay Banks’ outstanding common stock entitled to vote at VCB’sBay Banks’ special meeting vote in favor of the merger.
Each of the Blue Ridge Board and the VCBBay Banks Board has unanimously determined that the merger is in the best interest of its shareholders, approved the merger and recommended that its shareholders vote “FOR” the merger proposals. Blue Ridge and VCBBay Banks will hold separate shareholder meetings to obtain these approvals.
This joint proxy statement/prospectus contains important information about the merger and the other proposals being voted on at the shareholder meetings, and you should read it carefully. It is a joint proxy statement because both the Blue Ridge Board and the VCBBay Banks Board are soliciting proxies from their respective shareholders. It is a prospectus because it registers the shares of Blue Ridge common stock that Blue Ridge will issue to holders of VCBBay Banks common stock in connection with the merger. The enclosed materials allow you to have your shares voted by proxy without attending your respective shareholder meeting. Your vote is important. We encourage you to submit your proxy as soon as possible.
Q: | Why do Blue Ridge and |
A: | Blue Ridge and |
In addition, shareholders of the combined company could benefit from greater potential for increased liquidity in the market for Blue Ridge’s common stock and higher trading multiples than either company could achieve independently. Blue Ridge also plans to apply to list its common stock on the New York Stock Exchange in connection with the merger.
Each of the Blue Ridge Board and the VCBBay Banks Board has unanimously determined that the merger is fair and in the best interest of its respective shareholders and recommends that its shareholders vote for their respective proposals. You should review the reasons for the merger described in greater detail under the
sections entitled “The Merger – Merger—Blue Ridge’s Reasons for the Merger; Recommendation of the Blue Ridge Board” and “The Merger – VCB’s“—Bay Banks’ Reasons for the Merger; Recommendation of the VCBBay Banks Board,” beginning on pages [●]73 and [●],82, respectively.
Q: | What will |
A: |
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$58.00 per share in cash (the “cash consideration”); or
3.05 shares of Blue Ridge common stock (the “stock consideration”).
The allocation and proration procedures are intended to ensure that 60% of the outstanding shares of VCB common stock will be converted into the right to receive shares of Blue Ridge common stock and 40% of the outstanding shares of VCB common stock will be converted into the right to receive cash. Because of these procedures, the actual allocation of Blue Ridge common stock and/or cash VCB shareholders receive will depend on the elections of other VCB shareholders and may be different from what each VCB shareholder elects. For more information, see “The Merger Agreement – Merger Consideration” on page [●], “– Cash or Stock Election for VCB Shareholders” on page [●] and “ – Allocation Procedures” on page [●].
The stock consideration exchange ratio of 3.05 shares of Blue Ridge common stock is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger.
In lieu of fractional shares, Blue Ridge will issue cash to holders of Bay Banks common stock in an amount based upon the closing prices of Blue Ridge common stock preceding the effective time of the merger.
Blue Ridge shareholders will continue to own their existing shares, which will not be affected by the merger.
Q: |
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When and where are the shareholder meetings? |
A: | Blue Ridge: |
VCBBay Banks: The VCBA special meeting is scheduled to take placeof shareholders of Bay Banks will be held on [●], [●], 2019Thursday, January 21, 2021, at [●] [●].m.10:00 a.m., local time, in a virtual meeting format at the [●].https://www.cstproxy.com/baybanks/2021.
Q: | Who can vote at the shareholder meetings? |
A: | Blue Ridge: |
VCBBay Banks: HoldersOnly holders of record of VCBBay Banks common stock at the close of business on [●], 2019, which is the date that the VCB Board has fixed as the record date for the VCB special meeting, areNovember 30, 2020 will be entitled to notice of and to vote at the VCB special meeting.meeting or any adjournment thereof.
Q: | In addition to the Blue Ridge merger proposal, what are Blue Ridge’s shareholders voting on at the Blue Ridge special meeting? |
A: | A proposal to adjourn the special meeting to a later date or dates, if necessary to solicit additional proxies to approve the Blue Ridge merger proposal (the “Blue Ridge adjournment proposal”). |
Q: | How does the Blue Ridge Board recommend that Blue Ridge shareholders vote at the Blue Ridge special meeting? |
A: | The Blue Ridge Board unanimously recommends that Blue Ridge shareholders vote“FOR” the Blue Ridge merger proposal and “FOR” the Blue Ridge adjournment proposal. |
Q: | In addition to the |
A: | A proposal to approve, on a nonbinding advisory basis, specified compensation that may become payable to the named executive officers of Bay Banks in connection with the merger (the “Bay Banks compensation proposal”), and a proposal to adjourn the special meeting to a later date or dates, if necessary to solicit additional proxies to approve the |
Q: | How does the |
A: | The |
Q: | What do I need to do now? |
A: | After you have carefully read this joint proxy statement/prospectus and have decided how you wish to vote your shares, please vote your shares promptly so that your shares are represented and voted at the Blue Ridge special meeting or |
If you are a VCB shareholder, you also will receive a separate mailing that will allow you to make an election to receive the stock consideration, cash consideration, a mixture thereof, or to indicate that you have no preference. These forms must be returned separately no later than the deadline stated in the election materials.
Q: | What constitutes a quorum for the shareholder meetings? |
A: | Blue Ridge: The presence at the Blue Ridge special meeting, in person via the Internet or by proxy, of holders of a majority of the outstanding shares of Blue Ridge common stock entitled to vote at the Blue Ridge special meeting will constitute a quorum for the transaction of business. Abstentions will be included in determining the number of shares present at the Blue Ridge special meeting for the purpose of determining the presence of a quorum. If a Blue Ridge shareholder holds shares in “street name” through a bank, broker or other nominee, those shares will not be counted for purposes of determining the presence of a quorum unless the bank, broker or other nominee has been instructed to vote on at least one of the proposals at the Blue Ridge special meeting. |
VCBBay Banks: The presence at the VCBBay Banks special meeting, in person via the Internet or by proxy, of holders of a majorityat least 60% of the outstanding shares of VCBBay Banks common stock entitled to vote at the VCBBay Banks special meeting will constitute a quorum for the transaction of business. Abstentions will be included in determining the number of shares present at the VCBBay Banks special meeting for the purpose of determining the presence of a quorum. If a VCBBay Banks shareholder holds shares in “street name” through a bank, broker or other nominee, those shares will not be counted for purposes of determining the presence of a quorum unless the bank, broker or other nominee has been instructed to vote on at least one of the proposals at the VCBBay Banks special meeting.
Q: | What is the vote required to approve each proposal? |
A: | Blue Ridge: Approval of the Blue Ridge merger proposal requires the affirmative vote of more thantwo-thirds of the outstanding shares of Blue Ridge common stock entitled to vote on the merger as of the close of business on |
Approval of the Blue Ridge adjournment proposal requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote in person at the Blue Ridge special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the Blue Ridge adjournment proposal, it will have no effect on the outcome of the vote on that proposal.
VCB: Approval of the VCB merger proposal requires the affirmative vote of not less thantwo-thirds of the outstanding shares of VCB common stock entitled to vote on the merger as of the close of business on [●], 2019, the record date for the VCB special meeting. If you (1) fail to submit a proxy or vote in person at the VCB special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the VCB merger proposal, it will have the same effect as a vote “AGAINST” the proposal. Approval of the VCB adjournment proposal requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote in person atduring the VCBBlue Ridge special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the VCBBlue Ridge adjournment proposal, it will have no effect on the outcome of the vote on that proposal.
Bay Banks: Approval of the Bay Banks merger proposal requires the affirmative vote of not less than 60% of the outstanding shares of Bay Banks common stock entitled to vote on the merger as of the close of business on November 30, 2020, the record date for the Bay Banks special meeting. If you (1) fail to submit a proxy or vote during the Bay Banks special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the Bay Banks merger proposal, it will have the same effect as a vote “AGAINST” the proposal.
Approval of the Bay Banks compensation proposal requires the affirmative vote of more than 60% of the shares represented at the Bay Banks special meeting. If you (1) fail to submit a proxy or vote during the Bay Banks special meeting or (2) fail to instruct your bank or broker how to vote with respect to the Bay Banks compensation proposal, it will have no effect on the outcome of the proposal. If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the proposal.
Approval of the Bay Banks adjournment proposal requires the affirmative vote of more than 60% of the shares represented at the Bay Banks special meeting, whether or not a quorum is present. If you (1) fail to submit a proxy or vote during the Bay Banks special meeting or (2) fail to instruct your bank or broker how to vote with respect to the Bay Banks adjournment proposal, it will have no effect on the outcome of the proposal. If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the proposal.
Q: | Why is my vote important? |
A: | If you do not submit a proxy or vote |
Q: | If my shares are held in “street name” by my bank or broker, will my bank or broker automatically vote my shares for me? |
A: | If your shares are held in “street name” in a stock brokerage account or by a bank or other nominee, you should provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Blue Ridge or |
Under the rules of applicable securities exchanges, brokers who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from the beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the securities exchanges determine to be“non-routine” without specific instructions from the beneficial owner. We believe that all proposals to be voted on at the shareholder meetings are“non-routine” matters. Brokernon-votes occur when a broker or nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.
Blue Ridge: If you are a Blue Ridge shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares:
your broker, bank or other nominee may not vote your shares on the Blue Ridge merger proposal, which will have the same effect as a vote “AGAINST” such proposal; and
your broker, bank or other nominee may not vote your shares on the Blue Ridge adjournment proposal, which will have no effect on the outcome of the vote on such proposal.
VCBBay Banks: If you are a VCBBay Banks shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares:
your broker, bank or other nominee may not vote your shares on the VCBBay Banks merger proposal, which will have the same effect as a vote “AGAINST” such proposal; and
your broker, bank or other nominee may not vote your shares on the VCBBay Banks adjournment proposal or the Bay Banks compensation proposal, which will have no effect on the outcome of the vote on such proposal.proposals.
Q: | What if I fail to vote or abstain from voting? |
A: | Blue Ridge: With respect to the Blue Ridge merger proposal, if you fail to submit a proxy or vote |
VCBBay Banks: With respect to the VCBBay Banks merger proposal, if you fail to submit a proxy or vote in person atduring the VCBBay Banks special meeting, or you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the proposal. With respect to the VCBBay Banks adjournment proposal and the Bay Banks compensation proposal, if you fail to submit a proxy or vote in person atduring the VCBBay Banks special meeting, or you mark “ABSTAIN” on your proxy, it will have no effect on the outcome of the vote on such proposal.proposals. If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” such proposals.
Q: | Can I attend the shareholder meeting and vote my shares in person? |
A: |
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Blue Ridge: All shareholders of Blue Ridge, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record will be able to attend and participate in the Blue Ridge special meeting online, vote their shares electronically and submit their questions prior to and during the meeting by visiting at www.meetingcenter.io/205738032.
If you are not a shareholder of record, you must register in advance to attend the special meeting virtually on the Internet. To register to attend the Blue Ridge special meeting, you must submit proof of your proxy power (legal proxy) reflecting your holdings along with your name and email address to Blue Ridge’s transfer agent, Computershare, Inc. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on January 15, 2021.
You will receive a confirmation of your registration by email after Computershare, Inc. receives your registration materials. Requests for registration should be directed to Computershare, Inc. at the following:
By email: | Forward the email from your broker or of | |
By mail: | Computershare, Inc. Blue Ridge Bankshares, Inc. Legal Proxy P.O. Box 43001 Providence, RI 02940-3001 |
Bay Banks: Holders of record of Bay Banks common stock can attend and participate in the Bay Banks special meeting, submit questions and vote shares electronically during the meeting by visiting https://www.cstproxy.com/baybanks/2021 and entering the 12 digit control number included on your proxy
card. You may pre-register to attend the special meeting and to vote and submit questions. If you hold your shares in street name and wish to attend the special meeting, you must contact Bay Banks’ transfer agent, Continental Stock Transfer & Trust Company, at the telephone number or e-mail address below for specific instructions on how to receive a control number and access the meeting. If you hold your shares in street name and wish to vote during the meeting, you also must obtain a legal proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote during the meeting. Please allow up to 48 hours prior to the special meeting to process your control number.
If you are a Bay Banks shareholder of record and do not have a control number, or if you hold your shares in street name and wish to receive a control number to access the Bay Banks special meeting, please contact Continental Stock Transfer & Trust Company at (917) 262-2373 or proxy@continentalstock.com.
Q: | Can I change my vote? |
A: | Blue Ridge: Yes. If you are a holder of record of Blue Ridge common stock, you may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, (2) timely submitting a later proxy via the telephone or Internet, (3) delivering a written revocation letter to Blue Ridge’s Corporate Secretary or (4) attending the Blue Ridge special meeting |
VCBBay Banks: Yes. If you are a holder of record of VCBBay Banks common stock, you may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, (2) timely submitting a later proxy via telephonethe Internet, smartphone or the Internet,tablet, (3) delivering a written revocation letter to VCB’sBay Banks’ Corporate Secretary or (4) attending the VCBBay Banks special meeting in person, notifying the Corporate Secretaryonline and voting by ballotduring the Bay Banks special meeting. Virtual attendance at the VCB special meeting. Attendance at the VCBBay Banks special meeting alone will not automatically revoke your proxy. A revocation or later-dated proxy received by VCBBay Banks after the VCBBay Banks special meeting will be ineffective. VCB’sBay Banks’ Corporate Secretary’s mailing address is: 114 Industrial Drive, Louisa,1801 Bayberry Court, Suite 101, Richmond, Virginia 23093,23226, Attention: Corporate Secretary. If you hold your shares in “street name” through a bank or broker, you should contact your bank or broker if you want to revoke or change your voting instructions.
Q: | What are the material U.S. federal income tax consequences of the merger to |
A: | As structured, the merger will qualify as atax-free “reorganization” within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (“Code”). Accordingly, holders of |
Holders of Bay Banks common stock who receive solely cash pursuant to a valid election of such holder’s appraisal rights will recognize gain or loss on the exchange in an amount equal to the difference between the cash received and that shareholder’s adjusted basis in the shares of Bay Banks common stock exchanged therefor. For further information, see “The Merger—Material United States Federal Income Tax Consequences” beginning on page 105.
The U.S. federal income tax consequences described above may not apply to all holders of VCBBay Banks common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you.
Q: | Are |
A: | Yes. |
Q: | If I am a |
A: | No. Please do not send in your |
Q: | Whom may I contact if I cannot locate my |
A: | If you are unable to locate your original |
Following the merger, any inquiries should be directed to Blue Ridge’s transfer agent, Computershare, at 250 Royall Street, Canton, Massachusetts 02021, or at (800)368-5948.
Q: | When do you expect to complete the merger? |
A: | Blue Ridge and |
Q: | Who may solicit proxies on behalf of Blue Ridge or |
A: | Blue Ridge: In addition to solicitation of proxies by Blue Ridge by mail, proxies may also be solicited by Blue Ridge’s directors and employees personally, and by telephone, facsimile or other means. Blue Ridge has also retained Regan & Associates, Inc. to assist in soliciting proxies for a fee of approximately |
VCBBay Banks: In addition to solicitation of proxies by VCBBay Banks by mail, proxies may also be solicited by VCB’sBay Banks’ directors and employees personally, and by telephone, facsimile or other means. VCBBay Banks has also retained Regan & Associates, Inc. to assist in soliciting proxies for a fee of approximately $4,500.$20,000. For more information on solicitation of proxies in connection with the VCBBay Banks special meeting, see “VCB“Bay Banks Special Meeting of Shareholders—Solicitation of Proxies” beginning on page [●].61.
Q: | Whom should I call with questions? |
A: | Blue Ridge: If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of Blue Ridge common stock, please contact: Amanda G. Story, Chief Financial Officer, 17 West Main Street, Luray, Virginia 22835, at (540)743-6521. You may also obtain more information about the merger and the proxy materials by contacting Regan & Associates, Inc., Blue Ridge’s proxy solicitor, at (800)737-3426. |
VCBBay Banks: If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of VCBBay Banks common stock, please contact: Thomas M. Crowder, Executive Vice President, Chief Financial Officer and Chief Operating Officer, 114 Industrial Drive, Louisa,Pamela A. Varnier, Corporate Secretary, at Bay Banks of Virginia, 23093,Inc., 1801 Bayberry Court, Suite 101, Richmond, Virginia 23226, at (540)(804) 967-2111.404-9668. You may also obtain more information about the merger and the proxy materials by contacting Regan & Associates, Inc., VCB’sBay Banks’ proxy solicitor, at (800)737-3426.
This summary highlights selected information from this joint proxy statement/prospectus. It does not contain all of the information that may be important to you. We urge you to read carefully the entire document and the other documents we refer you to so that you may fully understand the merger and the related transactions. Each item in this summary refers to the page of this joint proxy statement/prospectus on which that subject is discussed in more detail.
The Parties
Blue Ridge(see (see page [●])120)
Blue Ridge is a bank holding company headquartered in Luray, Virginia, providing a wide array ofCharlottesville, Virginia. It provides commercial and consumer banking and financial services through its wholly-owned bank subsidiary, Blue Ridge Bank, a national banking association,National Association, and itsnon-bank financial financial services affiliates. Blue Ridge was incorporated under the laws of the Commonwealth of Virginia in July 1988 in connection with the holding company reorganization of Blue Ridge Bank, which was completed in July 1988.
Blue Ridge Bank is a federally chartered national bank headquartered in Martinsville, Virginia that traces its roots to Page Valley Bank of Virginia, which opened for business in 1893. Blue Ridge Bank currently operates nine14 full-service banking offices in central Virginia and one in north-central North Carolina.
As of JuneSeptember 30, 2019,2020, Blue Ridge had total consolidated assets of approximately $721.8 million,$1.5 billion, total consolidated loans of approximately $514.2 million,$1.23 billion, total consolidated deposits of approximately $499.0$915.3 million and consolidated stockholders’shareholders’ equity of approximately $64.1$99.9 million.
The principal executive offices of Blue Ridge are located at 17 West Main Street, Luray,1807 Seminole Trail, Charlottesville, Virginia 22835, and its telephone number is(540) 743-6521. Blue Ridge’s website can be accessed atwww.mybrb.com. Information contained on Blue Ridge’s website does not constitute part of, and is not incorporated into, this joint proxy statement/prospectus. Blue Ridge’s common stock is tradedlisted on the OTC Markets Group’s Pink marketplaceNYSE American under the symbol “BRBS.”
VCBBay Banks (see page [●])169)
VCBBay Banks is a Virginia corporation and bank holding company that conducts substantially all of its operations through its subsidiaries, Virginia Commonwealth Bank and VCB Financial Group. Virginia Commonwealth Bank opened for business in 1930 as Bank of Lancaster and partners with the communities it serves to deliver banking and other financial services.
Virginia Commonwealth Bank is a state-chartered bank, headquartered in Louisa,Richmond, Virginia, providingand a member of the Federal Reserve System. Virginia Commonwealth Bank has 17 banking offices located throughout the greater Richmond region of Virginia, the Northern Neck region of Virginia, Middlesex County, and the Hampton Roads region of Virginia. Virginia Commonwealth Bank serves businesses, professionals, and consumers with a wide arrayvariety of financial services, including retail and commercial banking, services through its wholly-owned subsidiary, Virginia Community Bank, a Virginia-chartered commercial bank. VCB currently has seven branch offices in Louisa, Orange, Mineral, Culpeper, Troy, Fredericksburg and Gordonsville, Virginia and its commercial office in Charlottesville, Virginia. mortgage banking.
As of JuneSeptember 30, 2019, VCB reported $247.3 million2020, Bay Banks had total assets of assets, $178.8 million$1.25 billion, deposits of loans, $221.0 million$1.03 billion, and shareholders’ equity of deposits, and $24.9 million of stockholders’ equity.$121.4 million.
The principal executive offices of VCBBay Banks are located at 114 Industrial Drive, Louisa,1801 Bayberry Court, Suite 101, Richmond, Virginia 23093,23226 and its telephone number is (804) (540) 967-2111.404-9668. VCB’sBay Banks’ website can be accessed atiswww.virginiacommunitybank.com www.baybanks.com. Information contained on VCB’sBay Banks’ website doesis not constitutea part of and is notor incorporated into this joint proxy statement/prospectus. VCB’sreport or any other filing Bay Banks makes with the SEC. Bay Banks’ common stock is tradedquoted on the OTC Markets Group’s PinkOTCQB marketplace under the symbol “VCBS.“BAYK.”
The Merger (see page [●])66)
The terms and conditions of the merger are contained in the merger agreement, which is attached to this joint proxy statement/prospectus asAppendix A, and is incorporated in this joint proxy statement/prospectus by reference. You should read the merger agreement carefully and in its entirety, as it, along with its ancillary documents, is the legal document that governs the merger.
Under the terms ofThe merger agreement provides for the merger agreement, each share of VCB common stock will be converted into the right to receive, at the election of the holder, either $58.00 in cash or 3.05 shares of Blue Ridge common stock, with cash paid in lieu of any fractional shares of Blue Ridge common stock. Upon the closing of the merger, VCB will mergeBay Banks with and into Blue Ridge, with Blue Ridge as the surviving corporation. The separate existence of Bay Banks shall cease upon completion of the merger, agreement also calls forand Blue Ridge will continue to exist as a Virginia Communitycorporation. As soon as practicable after the merger, Virginia Commonwealth Bank towill be merged with and into Blue Ridge Bank, with Blue Ridge Bank as soonthe surviving bank. Blue Ridge Bank will continue to exist as practicable after the mergera national banking association and a wholly-owned subsidiary of VCB into Blue Ridge.
Closing and Effective Time of the Merger (see page [●])109)
The merger is currently expected to close in the fourthfirst quarter of 2019.2021. The merger will close on either the fifth business day following the completion of the conditions to closing set forth in the merger agreement, or another mutually agreed upon date. The merger will become effective upon the issuance of a certificate of merger by the Virginia State Corporation Commission, or such other date and time as may be set forth in the articles of merger filed with the Virginia State Corporation Commission. Neither Blue Ridge nor VCBBay Banks can predict, however, the actual date on which the merger will be completed because it is subject to factors beyond each company’s control, including whether or when the parties’ respective shareholders’ approvals and outstanding regulatory approvalsapproval will be received, if at all.
Merger Consideration (see page [●])109)
IfUnder the terms of the merger is completed,agreement, at the effective time of the merger, each issued and outstanding share of VCBBay Banks common stock will be converted into the right to receive at0.5000 shares (the “exchange ratio”) of Blue Ridge common stock. The exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the electionclosing of the holder, either:merger.
$58.00 per shareIn lieu of fractional shares, Blue Ridge will issue cash to holders of Bay Banks common stock in cash (the “cash consideration”); or
3.05 sharesan amount based upon the closing prices of Blue Ridge common stock (the “stock consideration”).
The cash consideration andpreceding the stock consideration are sometimes together referred to in this joint proxy statement/prospectus as the “merger consideration.”
If you are a VCB shareholder, you have the opportunity to elect the form of consideration to be received for all shares of VCB common stock held by you, subject to allocation and proration procedures set forth in the merger agreement and described in this joint proxy statement/prospectus. These allocation procedures are intended to ensure that 60%effective time of the outstanding shares of VCB common stock will be converted into the right to receive shares of Blue Ridge common stock and 40% of the outstanding shares of VCB common stock will be converted into the right to receive cash. If you are a VCB shareholder, the form of the consideration ultimately received by you will depend upon the election, allocation and proration procedures described below and the choices of other VCB shareholders, and may be different from what you elect.merger.
Blue Ridge’s shareholders will continue to own their existing shares of Blue Ridge common stock. Each sharestock, which will not be affected by the merger.
Treatment of Bay Banks Stock Options and Other Equity-Based Awards (see page 110)
As of November 30, 2020, Bay Banks had stock options to purchase an aggregate of 219,960 shares of Bay Banks common stock, of which 195,793 were exercisable. At the effective time of the merger, each Bay Banks stock option, whether vested or unvested, then issued and outstanding under an equity or equity-based compensation plan of Bay Banks (a “Bay Banks stock plan”) will be converted into a stock option to purchase,
on the same terms and conditions as were applicable under such Bay Banks stock option, shares of Blue Ridge common stock will continuein a number equal to represent onethe shares subject to such Bay Banks stock option multiplied by the exchange ratio, with any fractional shares rounded down to the next lower whole number of shares. The exercise price per share of each newly issued Blue Ridge stock option will be equal to the exercise price per share of Bay Banks common stock subject to such Bay Banks stock option divided by the exchange ratio, rounded up to the next whole cent. Notwithstanding the foregoing, each Bay Banks stock option that is intended to qualify as an “incentive stock option” will be adjusted if necessary in accordance with Treasury Regulation Section 1.424-1(a) and all other Bay Banks stock options will be adjusted if necessary in a manner that maintains the option’s exemption from Section 409A of Blue Ridge following the merger.Code.
Based onAs of November 30, 2020, Bay Banks had 133,673 restricted stock awards granted under a Bay Banks stock plan that was unvested or contingent. At the current number of shares of VCB common stock outstanding, Blue Ridge expects to issue 1,312,970 shares of common stock in the aggregate upon completioneffective time of the merger, with current Blue Ridge shareholders owning approximately 76.7% of Blue Ridge’seach Bay Banks restricted stock award that is unvested or contingent and outstanding common stock and former shareholders of VCB owning approximately 23.3% of Blue Ridge’s outstanding common stock immediately following the merger.
Election of Cash or Stock Consideration by VCB Shareholders (see page [●])
If you are a VCB shareholder, an election form is being sent to you in a separate mailing so that you can indicate whether your preference is to receive cash, Blue Ridge common stock or a combination of cash and Blue Ridge common stock (a mixed election), in exchange for your shares of VCB common stock, or whether you have no preference. The VCB shares in these three categories are referred to herein as stock election shares, cash election shares and no election shares. In order to make an effective election, you must send in your properly completed election form to Computershare, the exchange agent for the merger, no later than[●], Eastern time, on[●], 2019.
All elections by VCB shareholders are subjectprior to the allocationeffective time will vest fully and proration procedures described in the merger agreement that are intended to ensure that 60% of the outstanding shares of VCB common stock will be converted into the right to receive the merger consideration with respect to each share of Bay Banks common stock underlying such Bay Banks restricted stock award.
At the effective time of the merger, Blue Ridge commonwill assume the Bay Banks stock plans, and will have the remaining 40%right, but not the obligation to make additional grants or awards under the Bay Banks stock plans. For a more complete description of the outstanding sharestreatment of VCB commonBay Banks stock will be converted into the right to receive cash. It is unlikely that elections will be made in the exact proportions provided for in the merger agreement. As a result, the merger agreement describes procedures to be followed if VCB shareholders in the aggregate elect to receive stock consideration in exchange for more or fewer than 60%options and other equity-based awards, please see “The Merger—Treatment of the outstanding shares of VCB common stock. These procedures are summarized below.Bay Banks Stock Options and Other Equity-Based Awards” beginning on page 109.
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The above-described allocation will be made by Blue Ridge’s exchange agent within five business days after the completion of the merger.
Blue Ridge Board Recommendations (see page [●])57)
After careful consideration, the Blue Ridge Board unanimously recommends that Blue Ridge shareholders vote “FOR” the Blue Ridge merger proposal and “FOR” the Blue Ridge adjournment proposal.
For a more complete description of Blue Ridge’s reasons for the merger and the recommendation of the Blue Ridge Board, please see “The Merger – Merger—Blue Ridge’s Reasons for the Merger; Recommendation of the Blue Ridge Board” beginning on page [●].57.
VCBBay Banks Board Recommendations (see page [●])61)
After careful consideration, the VCBBay Banks Board unanimously recommends that VCBBay Banks shareholders vote “FOR” the VCBBay Banks merger proposal, FOR” the Bay Banks compensation proposal and “FOR” the VCBBay Banks adjournment proposal.
For a more complete description of VCB’sBay Banks’ reasons for the merger and the recommendation of the VCBBay Banks Board, please see “The Merger – VCB’sMerger—Bay Banks’ Reasons for the Merger; Recommendation of the VCBBay Banks Board” beginning on page [●].61.
Opinion of Blue Ridge’s Financial Advisor (see page [●]75 andAppendix B)
In connection withAt the merger,August 12, 2020 meeting of the Blue Ridge’s financial advisor,Ridge Board, representatives of Raymond James & Associates, Inc. (“Raymond James”) delivered its oralrendered Raymond James’ opinion dated August 12, 2020 to the Blue Ridge Board, which was subsequently confirmed in writing,board (in its capacity as such), as to the fairness, as of May 13, 2019, andsuch date, from a financial point of view, to Blue Ridge of the exchange ratio in the merger pursuant to the merger agreement, based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Raymond James in preparingconnection with the opinion, as to the fairnesspreparation of its opinion.
The full text of the merger consideration, from a financial pointwritten opinion of view,Raymond James, dated August 12, 2020, which sets forth, among other things, the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Raymond James, is attached as Appendix B to Blue Ridge.
this joint proxy statement/prospectus. Raymond James provided its opinion for the information and assistance of the Blue Ridge Board (in its capacity as such) in connection with, and for purposes of, its consideration of the financial terms of the merger and its opinion only addresses whether the opinion relates onlyexchange ratio in the merger pursuant to the fairness of the merger consideration,agreement was fair, from a financial point of view, to Blue Ridge. The opinion of Raymond James’ opinion doesJames did not address any other term or aspect of the merger agreement or the merger contemplated thereby, the underlying business decisions of Blue Ridge to engage in the merger, the form or structure of the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for Blue Ridge, or the effect of any other transaction in which Blue Ridge might engage. The full text of Raymond James’ opinion, dated May 13, 2019, which sets forth the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Raymond James is included asAppendix B to this joint proxy statement/prospectus. The description of the opinion is qualified inits entirety by reference to the full text of the opinion. Blue Ridge shareholders are urged to read the entire opinion carefully in connection with their consideration of the approval ofBlue Ridge share issuance. Neither the merger agreement. However, neither Raymond James’James opinion nor the summary of its opinion and the related analyses set forth in this joint proxy statement/prospectus areis intended to be and do notor constitute advice or a recommendation to the Blue Ridge Board or any shareholderholder of Blue Ridge common stock as to how tothe Blue Ridge Board, such shareholder or any other person should vote or otherwise act or vote with respect to the merger or related matters.
For further information, please see “The Merger – Opinion of Blue Ridge’s Financial Advisor” beginning on page [●].any other matter.
Opinion of VCB’sBay Banks’ Financial Advisor (see page [●]85 andAppendix C)
VCB retainedAt the August 12, 2020 meeting of the Bay Banks Board, representatives of Piper Sandler O’Neill & Partners, L.P.Co. (“Sandler O’Neill”Piper Sandler”) to act as financial advisorrendered its opinion, dated August 12, 2020, to the VCBBay Banks Board in connection with VCB’s consideration of a possible business combination. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of(in its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.
In connection with the merger, Sandler O’Neill delivered to the VCB Board its oral opinion on May 13, 2019, which it subsequently confirmed in writingcapacity as of the same date,such), to the effect that, as of such date, and based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations set forth in the opinion, the merger consideration provided for in the merger agreementexchange ratio was fair to the holders of VCBBay Banks common stock from a financial point of view. The full text of Sandler O’Neill’sPiper Sandler’s opinion is attached asAppendix C to this joint proxy statement/prospectus.The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler O’Neill in rendering its opinion.
Sandler O’Neill’s opinion speaks only as The description of the dateopinion set forth herein is qualified in its entirety by reference to the full text of the opinion. TheHolders of Bay Banks common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.
Piper Sandler’s opinion was directed to the VCBBay Banks Board in connection with its consideration of the merger agreement and the merger agreement and does not constitute a recommendation to any shareholder of VCBBay Banks as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger agreement and the merger. Sandler O’Neill’smerger agreement. Piper Sandler’s opinion was directed only as to the fairness, from a financial point of view, of the
merger consideration exchange ratio to the holders of VCBBay Banks common stock and doesdid not address the underlying business decision of VCBBay Banks to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for VCBBay Banks or the effect of any other transaction in which VCBBay Banks might engage.
For further information, please see “The Merger—Opinion of VCB’sBay Banks’ Financial Advisor” beginning on page [●].85.
Interests of VCBBay Banks Directors and Executive Officers in the Merger (see page [●])97)
In addition to the receipt of merger consideration on the same terms as all other VCBBay Banks shareholders, twoBlue Ridge will appoint seven of VCB’sBay Banks’ directors (in addition to A. Pierce Stone, its former(including C. Frank Scott, III, the Chairman of the Bay Banks Board, and Randal R. Greene, Bay Banks’ President and Chief Executive Officer and Chairman) will be appointed to serve on theOfficer) as directors of Blue Ridge Board and Blue Ridge Bank board, VCB’s other directors will be offeredeffective upon consummation of the opportunity to serve on an advisory board of Blue Ridge,merger, certain of VCB’sBay Banks’ directors and executive officers hold stock options and restricted stock awards that will vest upon completion of the merger, certain of Bay Banks’ executive officers are expected to continue with Blue Ridge following completion of the merger and two
four of VCB’sBay Banks’ executive officers have entered into employment agreements with Blue Ridge that will be effective at the closing of the merger and, in addition, theycertain officers will receive cash severance payments related to change in control provisions in existing transaction bonusemployment agreements. The VCBBay Banks Board was aware of these interests and considered them, among other matters, in approving the merger agreement and making its recommendation on the VCBBay Banks merger proposal.
These interests are discussed in more detail in the “The Merger – VCB’sMerger—Interests of Bay Banks’ Directors and Officers Have Financial Interests in the Merger” section beginning on page [●].97.
Material U.S. Federal Income Tax Consequences of the Merger (see page [●])105)
As structured, the merger will qualify as atax-free “reorganization” within the meaning of Section 368 of the Code. Accordingly, holders of VCBBay Banks common stock generally will not, except with respect to cash received in lieu of a fractional share interest in Blue Ridge common stock, recognize any gain or loss for U.S. federal income tax purposes on the exchange of VCBBay Banks common stock solely for Blue Ridge common stock in the merger. A holder of VCB common stock who elects to receive a combination of cash and Blue Ridge common stock will generally not recognize any loss but will recognize gain, if any, in an amount equal to the lesser of (1) the excess, if any, of the sum of the cash received and the fair market value of the shares of Blue Ridge common stock received pursuant to the merger over that shareholder’s adjusted tax basis in his, her, or its shares of VCB common stock surrendered, and (2) the amount of cash received by that shareholder in exchange for their shares of VCB common stock pursuant to the merger.
Holders of VCBBay Banks common stock who elect to receive solely cash pursuant to the merger or who receive solely cash pursuant to a valid election of such holder’s appraisal rights will recognize gain or loss on the exchange in an amount equal to the difference between the cash received and that shareholder’s adjusted basis in the shares of VCBBay Banks common stock exchanged therefor. For further information, see “The Merger—Material United States Federal Income Tax Consequences” beginning on page 105.
The U.S. federal income tax consequences described above may not apply to all VCB shareholders.holders of Bay Banks common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you.
For further information, please see “The Merger – Material United States Federal Income Tax Consequences” beginning on page [●].
VCB’sBay Banks’ Shareholders Have Appraisal Rights in the Merger (see page [●]102 andAppendix D)
If the merger is completed, Virginia law gives holders of VCBBay Banks common stock the right to assert appraisal rights with respect to the merger and demand in writing that Blue Ridge pay the fair value of yourtheir shares of VCBBay Banks common stock, instead of accepting the consideration offered in the merger. Any VCBBay Banks shareholder who wishes to exercise and perfect appraisal rights must strictly comply with the procedures set forth in Article 15 of Title 13.1 of the Virginia Stock Corporation Act (the “VSCA”), a copy of which is included asAppendix D to the joint proxy statement/prospectus. A description of these procedures is included in the “The Merger – Merger—Appraisal Rights” section beginning on page [●]. 101.
Blue Ridge shareholders do not have the right to dissent and assert appraisal rights.
Accounting Treatment (see page [●])105)
The merger will be accounted for under the acquisition method of accounting for business combinations under accounting principles generally accepted in the United States of America.
Regulatory Approvals (see page [●])104)
The merger requires various approvals or waivers from bank regulatory authorities, including the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency (the “OCC”) and the Virginia Bureau of Financial Institutions. ApprovalAs of the date of this joint proxy statement/prospectus, we have received approvals from the Federal Reserve and the Virginia Bureau of Financial Institutions regarding the merger. As of the date of this joint proxy statement/prospectus, we have not yet received approval from the OCC regarding the bank merger.
Any approval of the regulators doeswill not constitute an endorsement of the merger or a determination that the terms of the merger are fair to Blue Ridge shareholders or VCBBay Banks shareholders. As of the date of this joint proxy statement/prospectus, we have filed applications with the regulatory authorities but have not yet received the required regulatory approvals. While we do not know of any reason why we would not be able to obtain the
necessary regulatory approvals in a timely manner, we cannot be certain when or if we will receive them or, if obtained, whether they will contain terms, conditions or restrictions not currently contemplated that will be detrimental to the combined company after completion of the merger.
For a more complete description of the regulatory approvals, please see “The Merger – Merger—Regulatory Approvals Required for the Merger” beginning on page [●].104.
Conditions to Complete the Merger (see page [●])116)
Blue Ridge’s and VCB’sBay Banks’ respective obligations to complete the merger are subject to the fulfillment or waiver of certain conditions, including the following:
approval of the Blue Ridge merger proposal and the VCBBay Banks merger proposal by Blue Ridge and VCBBay Banks shareholders, respectively;
approval of the merger by the necessary federal and state regulatory authorities;
the effectiveness of Blue Ridge’s registration statement on FormS-4, of which this joint proxy statement/prospectus is a part;
the absence of any order, decree or injunction of a court or regulatory agency that enjoins or prohibits the completion of the merger;
approval for listing on the NYSE American market of the shares of Blue Ridge common stock to be issued to Bay Banks shareholders upon consummation of the merger;
the accuracy of the other party’s representations and warranties in the merger agreement, subject to the material adverse effect standard in the merger agreement;
the other party’s performance in all material respects of its obligations under the merger agreement; and
the receipt by each party from its respective outside legal counsel of a written legal opinion to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code;Code.
no material adverse effect with respect to the other party shall have occurred; and
the aggregate number of VCB shares held by VCB shareholders who perfect their appraisal rights under the VSCA shall not represent 10% or more of the outstanding shares of VCB common stock.
In addition, Blue Ridge’s obligation to complete the merger is subject to VCB having minimum tangible equity (as defined in the merger agreement) of at least $23.5 million as of the last date of the month ended prior to the completion of the merger. As of June 30, 2019, VCB had tangible equity (measured as defined in the merger agreement) of $25.8 million.
Where the merger agreement and/or law permits, Blue Ridge and VCBBay Banks could choose to waive a condition to its obligation to complete the merger even if that condition has not been satisfied. Any determination whether to waive any condition to the merger or whether to amend this joint proxy statement/prospectus and resolicit shareholder approval as a result of any such waiver (for example, in the case of a waiver of a material condition such that disclosure previously provided would be materially misleading) will be made by Blue Ridge or VCB,Bay Banks, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time. We cannot be certain when, or if, the conditions to the merger will be satisfied or waived or that the merger will be completed.
No Solicitation (see page [●])114)
VCB hasBlue Ridge and Bay Banks have each agreed that it will not directly or indirectly:
initiate, solicit, endorse or knowingly encourage or knowingly facilitate any inquiries, proposals or offers with respect to, or any inquiry, proposal or offer that is reasonably likely to lead to, an “acquisition proposal” (as defined in the merger agreement); or
furnish any confidential or nonpublic information relating to an acquisition proposal; or
engage or participate in any negotiations or discussions concerning an acquisition proposal.
The merger agreement does not, however, prohibit VCBBlue Ridge or Bay Banks from considering an unsolicited bona fide written acquisition proposal from a third party if certain specified conditions are met.
Termination of the Merger Agreement (see page [●])117)
The merger agreement may be terminated, and the merger abandoned, by Blue Ridge and VCBBay Banks at any time before the merger is completed if the boards of directors of both parties vote to do so. In addition, the merger agreement may be terminated, and the merger abandoned, under the following circumstances:
Termination by Blue Ridge or Bay Banks. The merger agreement may be terminated and the merger abandoned, by either party’s board of directors if:
by the Blue Ridge Board or the VCB Board if the merger has not been completed by March 1, 2020July 31, 2021, or such later date as agreed to by the parties in writing, unless the failure to complete the merger by such time was primarily caused by or the result of a breach or failure to perform an obligation under the merger agreement by the terminating party;
approval of the merger by any necessary federal or state regulatory authority has been denied by such regulatory authority and the denial has become final and nonappealable, or any regulatory authority has issued a final, nonappealable injunction permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by the Blue Ridge Boardmerger agreement, unless the denial of such regulatory approval is due to, or materially contributed to by, the VCB Board if failure of the terminating party to perform or observe the covenants or agreements of such party set forth in the merger agreement;
there is a breach by the other party of any representation, warranty, covenant or agreement contained in the merger agreement that would cause the failure of the closing conditions described above, and the breach cannot be or is not cured within 30 days following written notice to the breaching party; or
by the Blue Ridge Board shareholders do not approve the Blue Ridge merger proposal or the Bay Banks shareholders do not approve the Bay Banks merger proposal.
Termination by Blue Ridge. Blue Ridge may terminate the merger agreement if:
at any time before VCB obtains shareholder approval ifthe Bay Banks special meeting, the Bay Banks Board (i) the VCB Board (a) fails to recommend to the VCBBay Banks shareholders that they approve the VCBBay Banks merger proposal, or (b)(ii) withdraws, modifies or changes suchits recommendation in any manner adverse to Blue Ridge;Ridge, or (ii) VCB(iii) approves, adopts, endorses or recommends any acquisition proposal;
at any time before the Bay Banks special meeting, Bay Banks fails to comply in all material respects with its obligations inunder the merger agreement requiring the calling and holding of a meeting of shareholders to consider the VCBBay Banks merger proposal or its obligations regarding thenon-solicitation of other competing offers for certain corporate transactions;offers; or
the Blue Ridge Board determines to enter into a definitive agreement to accept a “superior proposal” (as defined in the merger agreement) which has been received and considered by the Blue Ridge Board orin accordance with the VCB Board if VCB shareholders do not approveapplicable terms of the VCB merger proposal;agreement.
Termination by Bay Banks. Bay Banks may terminate the merger agreement if:
by the VCB Board at any time before the Blue Ridge obtains shareholder approval if (i)special meeting, the Blue Ridge Board (a)(i) fails to recommend to the Blue Ridge shareholders that they approve the Blue Ridge merger proposal, or (b)(ii) withdraws, modifies or changes suchits recommendation in any manner adverse to VCB;Bay Banks, (iii) approves, adopts, endorses or (ii)recommends any acquisition proposal;
at any time before the Blue Ridge special meeting, Blue Ridge fails to comply in all material respects with its obligations inunder the merger agreement requiring the calling and holding of a meeting of shareholders to consider the VCB merger proposal;
by the Blue Ridge Board or the VCB Board if Blue Ridge shareholders do not approve the Blue Ridge merger proposal;
byproposal or its obligations regarding the Blue Ridge Board, if (i) VCB enters into an agreement with any person to merge or consolidate with or acquire VCB, or purchase, lease or otherwise acquire all or substantially allnon-solicitation of the assets of VCB, or purchase or otherwise acquire from VCB securities representing 10% or more of the voting power of VCB or (ii) a tender or exchange offer is commenced for 10% or more of the outstanding shares of VCB common stock, and the VCB Board recommends that VCB’s shareholders tender their shares or otherwise fails to recommend that shareholders reject such offer;other competing offers; or
by the VCBBay Banks Board at any time before VCB obtains shareholder approvaldetermines to change, modify or withdraw its recommendation to the VCB shareholders that they approve the merger agreement and enter into ana definitive agreement with respect to accept a “superior proposal” (as defined in the merger agreement), which has been received and considered by VCBthe Bay Banks Board in complianceaccordance with the applicable terms of the merger agreement.
Termination Fees and Expenses (see page [●])118)
VCB must payIf either Blue Ridge a termination feeor Bay Banks takes any of $1.5 million ifcertain specified, limited actions and the merger agreement is terminated by eitheron that basis, that party under certain specified, limited circumstances.will immediately owe the other party a $4.0 million termination fee. In addition, Blue Ridge must pay VCB a $4.0 million termination fee of $500,000 and reimburse VCB for up to $500,000 of reasonable expenses incurred by VCBis payable in connection with the mergercertain other circumstances if (i) the merger agreement is terminated by VCB underfor certain specified, limited circumstances.reasons and (ii) within 12 months of such termination one of the parties enters into a definitive agreement with respect to an acquisition proposal. The termination and payment circumstances are more fully described elsewhere in this joint proxy statement/prospectus. See “The Merger Agreement – Agreement—Termination Fees” beginning on page [●] and in Article 7 of the merger agreement.117.
In general, whether or not the merger is completed, Blue Ridge and VCBBay Banks will each pay its respective expenses incident to preparing, entering into and carrying out the terms of the merger agreement. The parties will share the costs of printing this joint proxy statement/prospectus and Blue Ridge will pay all filing fees to the SEC and other governmental authorities.
Amendments to Blue Ridge Bylaws (page 101)
In connection with entering into the merger agreement and to facilitate the addition of certain Bay Banks directors to the Blue Ridge Board at the time of the merger, Blue Ridge has agreed to amend its bylaws prior to the merger so that the number of directors that will comprise the full Blue Ridge Board is to be fixed at such number, not to exceed 15 directors, consisting of (i) eight current Blue Ridge directors to be designated by Blue Ridge (after consultation with Bay Banks), including Larry Dees, the Chairman of the Blue Ridge Board, and Brian K. Plum, Blue Ridge’s President and Chief Executive Officer (the “Blue Ridge Directors”), and (ii) seven current Bay Banks directors to be designated by Bay Banks (after consultation with Blue Ridge), including C. Frank Scott, III, the Chairman of the Bay Banks Board, and Randal R. Greene, Bay Banks’ President and Chief Executive Officer (the “Bay Banks Directors”).
The Blue Ridge Directors and the Bay Banks Directors will be split as equally as possible among the three classes of directors to serve staggered terms; provided, however, that Mr. Greene will be designated to serve in the class of directors for a term expiring in 2024. Until the third anniversary of the merger, all vacancies on the Blue Ridge Board created by the cessation of service of a Blue Ridge Director must be filled by a nominee proposed to the nominating committee of the Blue Ridge Board by a majority of the remaining Blue Ridge Directors, and all vacancies on the Blue Ridge Board created by the cessation of service of a Bay Banks Director shall be filled by a nominee proposed to the nominating committee of the Blue Ridge Board by a majority of the remaining Bay Banks Directors. Such bylaw provision may not be modified, amended or repealed during such three-year period other than by a majority of the Bay Banks Directors and a majority of the Blue Ridge Directors.
The forms of the above-described bylaw amendments are set forth in their entirety in Exhibit 1.4(a) to the merger agreement, which is attached to this joint proxy statement/prospectus as Appendix A.
Blue Ridge Special Meeting (see page [●])57)
The Blue Ridge special meeting is scheduled to take place on [●], [●], 2019Thursday, January 21, 2021 at [●] [●].m.,11:00 a.m. local time, at the [●], [●], [●], Virginia.as a virtual meeting. At the special meeting, Blue Ridge shareholders will be asked to vote on:
the Blue Ridge merger proposal; and
the Blue Ridge adjournment proposal.
Holders of Blue Ridge common stock as of the close of business on [●], 2019,December 8, 2020 are entitled to notice of and to vote at the Blue Ridge special meeting. As of the record date, there were [●]5,718,621 shares of Blue Ridge common stock outstanding and entitled to vote held by approximately [●]650 holders of record. Each Blue Ridge shareholder can cast one vote for each share of Blue Ridge common stock owned on the record date.
Each of Blue Ridge’s directors has agreed, subject to several conditions and exceptions, to vote all of his or her shares of Blue Ridge common stock in favor of the Blue Ridge merger proposal. As of the record date, directors of Blue Ridge and their affiliates beneficially owned and are entitled to vote [●]830,055 shares of Blue Ridge common stock, or approximately [●]%14.51% of the total voting power of the shares of Blue Ridge common stock outstanding on that date.
VCBBay Banks Special Meeting (see page [●])61)
The VCBBay Banks special meeting is scheduled to take place on [●], [●], 2019Thursday, January 21, 2021, at [●] [●].m.10:00 a.m., local time, in a virtual meeting format at the [●], [●], [●], Virginia.https://www.cstproxy.com/baybanks/2021. At the special meeting, VCBBay Banks shareholders will be asked to vote on:
the VCBBay Banks merger proposal;
the Bay Banks compensation proposal; and
the VCBBay Banks adjournment proposal.
Holders of VCBBay Banks common stock as of the close of business on [●], 2019,November 30, 2020, are entitled to notice of and to vote at the VCBBay Banks special meeting. As of the record date, there were [●]13,329,695 shares of VCBBay Banks common stock outstanding and entitled to vote held by approximately [●]703 holders of record. Each VCBBay Banks shareholder can cast one vote for each share of VCBBay Banks common stock owned on the record date.
Each of VCB’sBay Banks’ directors has agreed, subject to several conditions and exceptions, to vote all of his or her shares of VCBBay Banks common stock in favor of the VCBBay Banks merger proposal. As of the record date, directors of VCBBay Banks and their affiliates beneficially owned and are entitled to vote [●]961,863 shares of VCBBay Banks common stock, or approximately [●]%7.16% of the total voting power of the shares of VCBBay Banks common stock outstanding on that date.date, of which 855,959 shares, or approximately 6.42% of the total voting power of the shares of Bay Banks common stock outstanding on that date, are subject to an affiliate agreement.
Required Shareholder Votes (see pages [●]58 and [●])62)
Approval of the Blue Ridge merger proposal requires the affirmative vote of more thantwo-thirds of the outstanding shares of Blue Ridge common stock entitled to vote on the merger as of the close of business on [●], 2019,December 8, 2020, the record date for the Blue Ridge special meeting. If you (1) fail to submit a proxy or vote in person atduring the Blue Ridge special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the proposal to approve the merger agreement, it will have the same effect as a vote “AGAINST” the proposal.
Approval of the Blue Ridge adjournment proposal requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote in person atduring the Blue Ridge special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the Blue Ridge adjournment proposal, it will have no effect on the outcome of the vote on such proposals.
Approval of the VCBBay Banks merger proposal requires the affirmative vote of not less thantwo-thirds 60% of the outstanding shares of VCBBay Banks common stock entitled to vote on the merger as of the close of business on [●], 2019,November 30, 2020, the record date for the VCBBay Banks special meeting. If you (1) fail to submit a proxy or vote in person atduring the VCBBay Banks special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the proposal to approve the merger agreement, it will have the same effect as a vote “AGAINST” the proposal.
Approval of the VCB adjournmentBay Banks compensation proposal requires that the votes cast for such proposal exceedaffirmative vote of more than 60% of the votes cast against such proposal.shares represented at the Bay Banks special meeting. If you (1) fail to submit a proxy or vote in person atduring the VCBBay Banks special meeting (2) mark “ABSTAIN” on your proxy or (3)(2) fail to instruct your bank or broker how to vote with respect to the VCBBay Banks compensation proposal, it will have no effect on the outcome of the proposal. If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the proposal.
Approval of the Bay Banks adjournment proposal requires the affirmative vote of more than 60% of the shares represented at the Bay Banks special meeting, whether or not a quorum is present. If you (1) fail to submit a proxy or vote during the Bay Banks special meeting or (2) fail to instruct your bank or broker how to vote with respect to the Bay Banks adjournment proposal, it will have no effect on the outcome of the proposal. If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote on that“AGAINST” the proposal.
No Restrictions on Resale of Blue Ridge Common Stock Received by VCBBay Banks Shareholders (see page [●])105)
All shares of Blue Ridge common stock received by VCBBay Banks shareholders in the merger will be freely tradable, except that shares of Blue Ridge received by persons who are or become affiliates of Blue Ridge for purposes of Rule 144 under the Securities Act may be resold by them only in transactions permitted by Rule 144, or as otherwise permitted under the Securities Act.
Comparative Rights of Shareholders (see page [●])176)
The rights of VCBBay Banks shareholders who continue as Blue Ridge shareholders after the merger will be governed by Virginia law and the articles of incorporation and bylaws of Blue Ridge, which are different from VCB’sBay Banks’ existing articles of incorporation and bylaws. For more information, please see “Comparison of Shareholders’ Rights” beginning on page [●].174.
Risk Factors (see page [●])31)
Before voting at the shareholder meetings, you should carefully consider all of the information contained in this joint proxy statement/prospectus, including the risk factors set forth in the “Risk Factors” section beginning on page [●].31.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BLUE RIDGE
The following table sets forth certain of Blue Ridge’s consolidated financial data as of the end of and for the fiscal years ended December 31, 20182019 and 20172018 and as of and for the sixnine months ended JuneSeptember 30, 20192020 and 2018.2019. The historical consolidated financial information as of the end of and for the fiscal years ended December 31, 20182019 and 20172018 is derived from Blue Ridge’s audited consolidated financial statements. The consolidated financial information as of and for the six-monthnine-month periods ended JuneSeptember 30, 20192020 and 20182019 is derived from Blue Ridge’s unaudited consolidated financial statements. In Blue Ridge’s opinion, such unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of its financial position and results of operations for such periods. Interim results for the sixnine months ended JuneSeptember 30, 20192020 are not necessarily indicative of, and are not projections for, the results to be expected for the full year ending December 31, 2019.2020.
The selected historical financial data below is only a summary and should be read in conjunction with Blue Ridge’s consolidated financial statements and their accompanying notes that are included elsewhere in this joint proxy statement/prospectus.
Six Months Ended June 30, (Unaudited) | Year Ended December 31, | Nine Months Ended September 30, (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2018 | 2017 | 2020 | 2019 | 2019 | 2018 | |||||||||||||||||||||||||
(Amounts in thousands, except per share data) | (Amounts in thousands, except per share data) | |||||||||||||||||||||||||||||||
Results of Operations: | ||||||||||||||||||||||||||||||||
Results of Operations: | ||||||||||||||||||||||||||||||||
Interest income | $ | 14,313 | $ | 10,291 | $ | 22,437 | $ | 18,481 | $ | 38,034 | $ | 22,430 | $ | 30,888 | $ | 22,437 | ||||||||||||||||
Interest expense | 4,261 | 2,229 | 5,152 | 3,931 | 7,537 | 6,943 | 9,520 | 5,152 | ||||||||||||||||||||||||
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Net interest income | 10,052 | 8,062 | 17,285 | 14,550 | 30,497 | 15,487 | 21,368 | 17,285 | ||||||||||||||||||||||||
Provision for loan losses | 895 | 415 | 1,225 | 1,095 | 8,075 | 1,465 | 1,742 | 1,225 | ||||||||||||||||||||||||
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Net interest income after provision for loan losses | 9,157 | 7,647 | 16,060 | 13,455 | 22,422 | 14,022 | 19,626 | 16,060 | ||||||||||||||||||||||||
Noninterest income | 9,282 | 3,918 | 10,123 | 7,799 | 39,270 | 14,255 | 18,796 | 10,123 | ||||||||||||||||||||||||
Noninterest expenses | 15,011 | 8,634 | 20,463 | 15,847 | 45,958 | 23,217 | 32,845 | 20,463 | ||||||||||||||||||||||||
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Income before income taxes | 3,428 | 2,931 | 5,720 | 5,407 | 15,734 | 5,060 | 5,577 | 5,720 | ||||||||||||||||||||||||
Income tax expense | 610 | 614 | 1,147 | 2,057 | 3,618 | 989 | 973 | 1,147 | ||||||||||||||||||||||||
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Net income | $ | 2,818 | $ | 2,317 | $ | 4,573 | $ | 3,350 | $ | 12,116 | $ | 4,071 | $ | 4,604 | $ | 4,573 | ||||||||||||||||
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Financial Condition: | ||||||||||||||||||||||||||||||||
Assets | $ | 721,784 | $ | 460,918 | $ | 539,590 | $ | 424,122 | $ | 1,523,299 | $ | 736,238 | $ | 960,811 | $ | 539,590 | ||||||||||||||||
Loans, net of unearned income | 514,206 | 377,257 | 444,101 | 348,024 | 1,232,302 | 460,878 | 702,480 | 444,101 | ||||||||||||||||||||||||
Deposits | 498,982 | 362,778 | 415,027 | 339,290 | 915,266 | 520,280 | 722,030 | 415,027 | ||||||||||||||||||||||||
Stockholders’ equity | 63,916 | 37,730 | 39,407 | 36,242 | 99,930 | 65,596 | 92,337 | 39,621 | ||||||||||||||||||||||||
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Ratios: | ||||||||||||||||||||||||||||||||
Return on average assets | 0.95 | % | 1.07 | % | 0.95 | % | 0.80 | % | 1.30 | % | 0.85 | % | 0.61 | % | 0.95 | % | ||||||||||||||||
Return on average equity | 11.04 | % | 12.66 | % | 12.02 | % | 9.56 | % | 16.80 | % | 10.26 | % | 6.94 | % | 12.02 | % | ||||||||||||||||
Efficiency ratio | 72.07 | % | 67.02 | % | 69.78 | % | 66.27 | % | 74.49 | % | 82.11 | % | 85.48 | % | 78.16 | % | ||||||||||||||||
Common equity to total assets | 8.86 | % | 8.19 | % | 7.30 | % | 8.55 | % | 6.56 | % | 8.91 | % | 9.61 | % | 7.34 | % | ||||||||||||||||
Tangible common equity / tangible assets | 8.25 | % | 7.45 | % | 6.61 | % | 7.69 | % | ||||||||||||||||||||||||
Asset Quality: | ||||||||||||||||||||||||||||||||
Asset Quality: | ||||||||||||||||||||||||||||||||
Allowance for loan losses | $ | 4,054 | $ | 3,118 | $ | 3,580 | $ | 2,802 | $ | 12,123 | $ | 4,404 | $ | 4,572 | $ | 3,580 | ||||||||||||||||
Non-accrual loans | $ | 4,920 | $ | 6,019 | $ | 5,530 | $ | 7,513 | $ | 3,732 | $ | 5,141 | $ | 4,790 | $ | 5,515 | ||||||||||||||||
Other real estate owned | $ | 243 | $ | 134 | $ | 134 | $ | 207 | $ | — | $ | — | $ | — | $ | 134 | ||||||||||||||||
ALLL / total outstanding loans | 0.79 | % | 0.83 | % | 0.81 | % | 0.81 | % | 0.98 | % | 0.81 | % | 0.65 | % | 0.81 | % | ||||||||||||||||
ALLL /non-performing loans | 76.36 | % | 49.18 | % | 63.21 | % | 35.43 | % | ||||||||||||||||||||||||
NPAs / total outstanding loans | 1.03 | % | 1.68 | % | 1.28 | % | 2.28 | % | ||||||||||||||||||||||||
Net charge-offs / total average outstanding loans | 0.18 | % | 0.06 | % | 0.12 | % | 0.09 | % | ||||||||||||||||||||||||
Provision / total outstanding loans | 0.20 | % | 0.12 | % | 0.30 | % | 0.33 | % | ||||||||||||||||||||||||
Per Share Data: | ||||||||||||||||||||||||||||||||
Earnings per share, basic | $ | 0.73 | $ | 0.84 | $ | 1.64 | $ | 1.22 | ||||||||||||||||||||||||
Earnings per share, diluted | 0.73 | 0.84 | 1.64 | 1.22 | ||||||||||||||||||||||||||||
Cash dividends paid | 0.2850 | 0.2600 | 0.5400 | 0.3200 | ||||||||||||||||||||||||||||
Book value per common share | 14.77 | 13.66 | 14.11 | 13.10 | ||||||||||||||||||||||||||||
Price to earnings ratio, diluted | 14.73 | 10.71 | 10.52 | 13.93 | ||||||||||||||||||||||||||||
Price to book value ratio | 1.46 | 1.32 | 1.22 | 1.30 | ||||||||||||||||||||||||||||
Dividend payout ratio | 39.04 | % | 30.95 | % | 32.93 | % | 26.23 | % | ||||||||||||||||||||||||
Weighted average shares outstanding, basic | 3,821,079 | 2,763,837 | 2,779,090 | 2,751,503 | ||||||||||||||||||||||||||||
Weighted average shares outstanding, diluted | 3,821,079 | 2,763,837 | 2,779,090 | 2,751,503 |
ALLL / non-performing loans | 269.52 | % | 75.29 | % | 88.62 | % | 47.61 | % | ||||||||
NPAs / total outstanding loans | 0.37 | % | 1.08 | % | 0.73 | % | 1.72 | % | ||||||||
Net charge-offs / total average outstanding loans | 0.06 | % | 0.05 | % | 0.02 | % | 0.12 | % | ||||||||
Provision / total outstanding loans | 0.66 | % | 0.27 | % | 0.25 | % | 0.28 | % | ||||||||
Per Share Data: | ||||||||||||||||
Earnings per share, basic | $ | 2.13 | $ | 1.01 | $ | 1.10 | $ | 1.64 | ||||||||
Earnings per share, diluted | 2.13 | 1.01 | 1.10 | 1.64 | ||||||||||||
Cash dividends paid | 0.4275 | 0.4275 | 0.5700 | 0.5400 | ||||||||||||
Book value per common share | 17.47 | 15.09 | 16.32 | 14.11 | ||||||||||||
Price to earnings ratio, diluted | 6.36 | 20.30 | 18.51 | 10.37 | ||||||||||||
Price to book value ratio | 0.78 | 1.36 | 1.25 | 1.21 | ||||||||||||
Dividend payout ratio | 13.38 | % | 42.33 | % | 51.82 | % | 32.93 | % | ||||||||
Weighted average shares outstanding, basic | 5,680,930 | 3,998,267 | 4,146,980 | 2,779,090 | ||||||||||||
Weighted average shares outstanding, diluted | 5,680,930 | 3,998,267 | 4,146,980 | 2,779,090 |
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF VCBBAY BANKS
The following table sets forth certain of VCB’sBay Banks’ consolidated financial data as of the end of and for the fiscal years ended December 31, 20182019 and 20172018 and as of and for the sixnine months ended JuneSeptember 30, 20192020 and 2018.2019. The historical consolidated financial information as of the end of and for the fiscal years ended December 31, 20182019 and 20172018 is derived from VCB’sBay Banks’ audited consolidated financial statements. The consolidated financial information as of and for the six-monthnine-month periods ended JuneSeptember 30, 20192020 and 20182019 is derived from VCB’sBay Banks’ unaudited consolidated financial statements. In VCB’sBay Banks’ opinion, such unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of its financial position and results of operations for such periods. Interim results for the sixnine months ended JuneSeptember 30, 20192020 are not necessarily indicative of, and are not projections for, the results to be expected for the full year ending December 31, 2019.2020. Financial data for the nine months ended September 30, 2020 includes a goodwill impairment charge of $10.4 million (pre-tax) resulting from a second quarter assessment triggered by the adverse effect the deterioration of the macroeconomic environment due to the COVID-19 pandemic has had on the market value of Bay Banks’ common stock and, in particular, Bay Banks’ stock valuation pursuant to the merger. This impairment charge was reported in noninterest expense. Financial data for the nine months ended September 30, 2020 also includes $1.5 million of expenses incurred in connection with the merger.
The selected historical financial data below is only a summary and should be read in conjunction with VCB’sBay Banks’ consolidated financial statements and their accompanying notes that are included elsewhere inincorporated by reference into this joint proxy statement/prospectus.
Six Months Ended June 30, (Unaudited) | December 31, | |||||||||||||||
2019 | 2018 | 2018 | 2017 | |||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||
Results of Operations: | ||||||||||||||||
Interest income | $ | 5,918 | $ | 5,689 | $ | 11,540 | $ | 10,418 | ||||||||
Interest expense | 475 | 442 | 876 | 800 | ||||||||||||
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Net interest income | 5,443 | 5,247 | 10,664 | 9,618 | ||||||||||||
Provision for loan losses | — | (500 | ) | (484 | ) | (600 | ) | |||||||||
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Net interest income after provision for loan losses | 5,443 | 5,747 | 11,148 | 10,218 | ||||||||||||
Noninterest income | 659 | 726 | 1,409 | 1,538 | ||||||||||||
Noninterest expenses | 4,945 | 4,880 | 9,689 | 9,072 | ||||||||||||
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Income before income taxes | 1,157 | 1,593 | 2,868 | 2,684 | ||||||||||||
Income tax expense | 348 | 347 | 618 | 971 | ||||||||||||
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Net income | $ | 809 | $ | 1,246 | $ | 2,250 | $ | 1,713 | ||||||||
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Financial Condition: | ||||||||||||||||
Assets | $ | 247,284 | $ | 250,357 | $ | 245,665 | $ | 248,406 | ||||||||
Loans, net of unearned income | 178,804 | 171,641 | 168,202 | 181,712 | ||||||||||||
Deposits | 220,953 | 220,687 | 211,218 | 208,474 | ||||||||||||
Stockholders’ equity | 24,877 | 25,131 | 23,615 | 24,407 | ||||||||||||
Ratios: | ||||||||||||||||
Return on average assets | 0.47 | % | 0.70 | % | 0.90 | % | 0.71 | % | ||||||||
Return on average equity | 3.17 | % | 4.87 | % | 8.74 | % | 6.89 | % | ||||||||
Efficiency ratio | 75.19 | % | 76.07 | % | 80.19 | % | 77.16 | % | ||||||||
Common equity to total assets | 10.06 | % | 10.04 | % | 9.61 | % | 9.82 | % | ||||||||
Tangible common equity / tangible assets | 10.06 | % | 10.04 | % | 9.61 | % | 9.82 | % | ||||||||
Asset Quality: | ||||||||||||||||
Allowance for loan losses | $ | 1,542 | $ | 1,659 | $ | 1,521 | $ | 2,126 | ||||||||
Non-accrual loans | $ | 74 | $ | 310 | $ | 284 | $ | 486 | ||||||||
Other real estate owned | $ | 87 | $ | 147 | $ | 147 | $ | 141 | ||||||||
ALL / total outstanding loans | 0.86 | % | 0.97 | % | 0.90 | % | 1.17 | % | ||||||||
ALL /non-performing loans | 2083.8 | % | 535.2 | % | 535.5 | % | 437.4 | % | ||||||||
NPAs / total outstanding loans | 0.09 | % | 0.27 | % | 0.26 | % | 0.34 | % | ||||||||
Net charge-offs / total outstanding loans | 0.01 | % | 0.01 | % | 0.07 | % | 0.07 | % | ||||||||
Provision / total outstanding loans | 0.00 | % | -0.29 | % | 0.00 | % | 0.00 | % | ||||||||
Per Share Data: | ||||||||||||||||
Earnings per share, basic | $ | 1.13 | $ | 1.66 | $ | 3.04 | $ | 2.28 | ||||||||
Earnings per share, diluted | 1.13 | 1.66 | 3.04 | 2.28 | ||||||||||||
Cash dividends paid | 0.00 | 0.00 | 0.50 | 0.35 | ||||||||||||
Book value per common share | $ | 34.67 | $ | 33.51 | 32.84 | 32.54 | ||||||||||
Price to earnings ratio, diluted | 25.33 | 9.64 | 11.57 | 15.35 | ||||||||||||
Price to book value ratio | 1.65 | 0.95 | 106 | % | 107 | % | ||||||||||
Dividend payout ratio | 0.00 | % | 0.00 | % | 15.9 | % | 15.30 | % | ||||||||
Weighted average shares outstanding, basic | 717,471 | 750,000 | 739,667 | 750,000 | ||||||||||||
Weighted average shares outstanding, diluted | 717,471 | 750,000 | 739,667 | 750,000 |
Nine Months Ended September 30, (Unaudited) | Year Ended December 31, | |||||||||||||||
2020 | 2019 | 2019 | 2018 | |||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||
Results of Operations: | ||||||||||||||||
Interest income | $ | 36,262 | $ | 37,421 | $ | 50,418 | $ | 43,803 | ||||||||
Interest expense | 9,321 | 11,231 | 15,085 | 10,225 | ||||||||||||
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Net interest income | 26,941 | 26,190 | 35,333 | 33,578 | ||||||||||||
Provision for loan losses | 5,673 | 871 | 1,182 | 1,351 | ||||||||||||
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Net interest income after provision for loan losses | 21,268 | 25,319 | 34,151 | 32,227 | ||||||||||||
Noninterest income | 5,870 | 3,585 | 4,958 | 4,303 | ||||||||||||
Noninterest expenses | 33,408 | 22,668 | 30,402 | 32,119 | ||||||||||||
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| |||||||||
(Loss) income before income taxes | (6,270 | ) | 6,236 | 8,707 | 4,411 | |||||||||||
Income tax expense | 378 | 1,180 | 1,649 | 533 | ||||||||||||
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Net (loss) income | $ | (6,648) | $ | 5,056 | $ | 7,058 | $ | 3,878 | ||||||||
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| |||||||||
Financial Condition: | ||||||||||||||||
Assets | $ | 1,251,582 | $ | 1,112,219 | $ | 1,131,923 | $ | 1,080,617 | ||||||||
Loans, net of unearned income | 1,054,610 | 931,763 | 925,421 | 902,461 | ||||||||||||
Deposits | 1,027,681 | 893,688 | 910,440 | 842,192 | ||||||||||||
Stockholders’ equity | 121,429 | 124,857 | 126,185 | 117,476 | ||||||||||||
Ratios: | ||||||||||||||||
(Loss) return on average assets | (0.73 | )% | 0.61 | % | 0.64 | % | 0.39 | % | ||||||||
(Loss) return on average equity | (7.08 | )% | 5.65 | % | 5.79 | % | 3.36 | % | ||||||||
Efficiency ratio | 101.8 | % | 76.1 | % | 75.5 | % | 82.6 | % | ||||||||
Common equity to total assets | 9.70 | % | 11.23 | % | 11.15 | % | 10.87 | % |
Asset Quality: | ||||||||||||||||
Allowance for loan losses | $ | 12,899 | $ | 7,495 | $ | 7,562 | $ | 7,902 | ||||||||
Non-accrual loans | 17,198 | $ | 7,194 | 4,476 | 5,206 | |||||||||||
Other real estate owned | 1,113 | $ | 2,178 | 1,916 | 3,597 | |||||||||||
ALLL / total outstanding loans | 1.22 | % | 0.80 | % | 0.82 | % | 0.88 | % | ||||||||
ALLL / non-performing loans | 75.0 | % | 104.2 | % | 168.9 | % | 151.8 | % | ||||||||
Nonperforming loans / total outstanding loans | 1.63 | % | 0.77 | % | 0.48 | % | 0.58 | % | ||||||||
Net charge-offs / total average outstanding loans | 0.14 | % | 0.19 | % | 0.17 | % | 0.15 | % | ||||||||
Provision for loan losses / total outstanding loans | 0.54 | % | 0.09 | % | 0.13 | % | 0.15 | % | ||||||||
Per Share Data: | ||||||||||||||||
(Loss) earnings per share, basic | $ | (0.51 | ) | $ | 0.39 | $ | 0.54 | $ | 0.30 | |||||||
(Loss) earnings per share, diluted | (0.51 | ) | 0.39 | 0.54 | 0.30 | |||||||||||
Cash dividends paid | — | — | — | — | ||||||||||||
Book value per common share | 9.10 | 9.36 | 9.51 | 8.90 | ||||||||||||
Price to earnings ratio, diluted | (13.1 | ) | 21.1 | 16.0 | 24.5 | |||||||||||
Price to book value ratio | 73.6 | % | 87.9 | % | 91.0 | % | 82.6 | % | ||||||||
Dividend payout ratio | — | % | — | % | — | % | — | % | ||||||||
Weighted average shares outstanding, basic | 13,075,761 | 13,046,694 | 13,053,080 | 13,057,537 | ||||||||||||
Weighted average shares outstanding, diluted | 13,075,761 | 13,092,367 | 13,111,853 | 13,122,136 |
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information combines the historical consolidated financial position and results of operations of Blue Ridge and VCB,Bay Banks, as an acquisition by Blue Ridge of VCBBay Banks using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of VCBBay Banks will be recorded by Blue Ridge at their respective fair values as of the date the merger is completed. Certain reclassifications have been made to the historical financial statements of VCBBay Banks to conform to the presentation in Blue Ridge’s financial statements.
The unaudited pro forma condensed combined balance sheet gives effect to the merger as if the transaction had occurred on JuneSeptember 30, 2019.2020. The unaudited pro forma condensed combined income statements for the sixnine months ended JuneSeptember 30, 20192020 and the year ended December 31, 20182019 give effect to the merger as if the transaction had occurred on January 1, 2018.2019.
A final determination of the fair values of VCB’sBay Banks’ assets and liabilities, which cannot be made prior to the completion of the merger, will be based on the actual net tangible and intangible assets of VCBBay Banks that exist as of the date of completion of the transaction. Consequently, fair value adjustments and amounts preliminarily allocated to a bargain purchase value or goodwill and identifiable intangibles could change significantly from those allocations used in the unaudited pro forma combined condensed combined consolidated financial statements presented herein and could result in a material change in amortization of acquired intangible assets.
The unaudited pro forma condensed combined financial information included herein is presented for informational purposes only and does not necessarily reflect the financial results of the combined companies had the companies actually been combined at the beginning of the periods presented. The adjustments included in this unaudited pro forma condensed combined financial information are preliminary and may be revised and may not agree to actual amounts recorded by Blue Ridge upon consummation of the merger. This financial information does not reflect the benefits of the expected cost savings and expense efficiencies, opportunities to earn additional revenue, or potential impacts of current market conditions on revenues or asset dispositions, among other factors, and includes various preliminary estimates and expectations that may not materialize and may not necessarily be indicative of the financial position or results of operations that would have occurred if the merger had been consummated on the date or at the beginning of the period indicated or which may be attained in the future.
The unaudited pro forma condensed combined financial information should be read in conjunction with and is qualified in its entirety by reference to the historical consolidated financial statements and related notes thereto of Blue Ridge and its subsidiaries, which are included elsewhere in this joint proxy statement/prospectus, and the historical consolidated financial statements and related notes thereto of VCBBay Banks and its subsidiaries, which are also included elsewhere inincorporated by reference into this joint proxy statement/prospectus.
BLUE RIDGE BANKSHARES, INC. AND BAY BANKS OF VIRGINIA, COMMUNITY BANKSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
As of JuneSeptember 30, 20192020
(Dollars in thousands)
(Dollars in thousands) | Virginia | |||||||||||||||||||||||||||||||
Blue Ridge | Community | Merger | ||||||||||||||||||||||||||||||
Bankshares, Inc. | Bankshares, Inc. | Pro Forma | Pro Forma | Blue Ridge Bankshares, Inc. (As Reported) | Bay Banks of Virginia, Inc. (As Reported) | Merger Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||||||||||
(As Reported) | (As Reported) | Adjustments | Combined |
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ASSETS | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 22,046 | $ | 5,834 | $ | (16,998 | )(a) | $ | 10,882 | $ | 77,596 | $ | 60,811 | $ | — | $ | 138,407 | |||||||||||||||
Securities available for sale, at fair value | 130,283 | 49,355 | (429 | )(b) | 179,209 | 113,889 | 87,853 | — | 201,742 | |||||||||||||||||||||||
Securities held to maturity | 15,204 | — | — | 15,204 | ||||||||||||||||||||||||||||
Restricted stock, at cost | 8,277 | 847 | — | 9,124 | 9,441 | 5,022 | — | 14,463 | ||||||||||||||||||||||||
Loans held for sale | 61,976 | 118 | — | 62,094 | 193,122 | 2,687 | — | 195,809 | ||||||||||||||||||||||||
Loans, net of unearned income | 452,229 | 178,804 | (1,542 | )(c) | 629,491 | 1,039,180 | 1,054,610 | (34,837 | )(a) | 2,058,953 | ||||||||||||||||||||||
Less allowance for loan losses | (4,054 | ) | (1,542 | ) | 1,542 | (d) | (4,054 | ) | (12,123 | ) | (12,899 | ) | 12,899 | (b) | (12,123 | ) | ||||||||||||||||
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Net loans | 448,175 | 177,262 | — | 625,437 | 1,027,057 | 1,041,711 | (21,938 | ) | 2,046,830 | |||||||||||||||||||||||
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Bank premises and equipment, net | 3,367 | 5,039 | 2,708 | (e) | 11,114 | 14,947 | 17,859 | — | 32,806 | |||||||||||||||||||||||
Bank owned life insurance | 8,812 | 6,314 | — | 15,126 | 15,013 | 20,103 | — | 35,116 | ||||||||||||||||||||||||
Other real estate owned, net of valuation allowance | 243 | 87 | — | 330 | — | 1,113 | (956 | )(c) | 157 | |||||||||||||||||||||||
Core deposit intangibles, net | 317 | — | 3,933 | (f) | 4,250 | 1,538 | 1,094 | 2,956 | (d) | 5,588 | ||||||||||||||||||||||
Goodwill | 3,307 | — | 12,287 | (g) | 15,594 | 19,892 | — | — | 19,892 | |||||||||||||||||||||||
Other intangibles | 1,168 | — | — | 1,168 | ||||||||||||||||||||||||||||
Other intangible assets | 4,725 | 845 | — | 5,570 | ||||||||||||||||||||||||||||
Other assets | 18,609 | 2,428 | (1,417 | )(h) | 19,620 | 46,079 | 12,484 | 4,187 | (e) | 62,750 | ||||||||||||||||||||||
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Total assets | $ | 721,784 | $ | 247,284 | $ | 84 | $ | 969,152 | $ | 1,523,299 | $ | 1,251,582 | $ | (15,751 | ) | $ | 2,759,130 | |||||||||||||||
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LIABILITIES | ||||||||||||||||||||||||||||||||
Noninterest-bearing demand deposits | 88,342 | 75,805 | — | 164,147 | 278,584 | 190,843 | — | 469,427 | ||||||||||||||||||||||||
Interest-bearing deposits | 410,641 | 145,148 | (537 | )(i) | 555,252 | 636,682 | 836,838 | — | 1,473,520 | |||||||||||||||||||||||
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Total deposits | 498,983 | 220,953 | (537 | ) | 719,399 | 915,266 | 1,027,681 | — | 1,942,947 | |||||||||||||||||||||||
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Other borrowed funds | 138,200 | 1,000 | — | 139,200 | 459,611 | 58,754 | — | 518,365 | ||||||||||||||||||||||||
Subordinated debt, net of issuance costs | 9,783 | — | — | 9,783 | 24,489 | 31,083 | — | 55,572 | ||||||||||||||||||||||||
Other liabilities | 10,684 | 454 | — | 11,138 | 24,003 | 12,635 | — | 36,638 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Total liabilities | 657,650 | 222,407 | (537 | ) | 879,520 | 1,423,369 | 1,130,153 | — | 2,553,522 | |||||||||||||||||||||||
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STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||
Common stock and surplus | 38,942 | 3,702 | 21,796 | (j) (k) | 64,440 | 66,807 | 102,201 | 3,477 | (f)(g)(h) | 172,485 | ||||||||||||||||||||||
Retained earnings | 24,886 | 21,921 | (21,921 | )(j) | 24,886 | 35,107 | 18,012 | (18,012 | )(f) | 35,107 | ||||||||||||||||||||||
Accumulated other comprehensive income (loss) | 88 | (746 | ) | 746 | (j) | 88 | ||||||||||||||||||||||||||
Accumulated other comprehensive income | (2,210 | ) | 1,216 | (1,216 | )(f) | (2,210 | ) | |||||||||||||||||||||||||
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63,916 | 24,877 | 621 | 89,414 | 99,704 | 121,429 | (15,751 | ) | 205,382 | ||||||||||||||||||||||||
Noncontrolling interest | 218 | — | — | 218 | 226 | — | — | 226 | ||||||||||||||||||||||||
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Total stockholders’ equity | 64,134 | 24,877 | 621 | 89,632 | 99,930 | 121,429 | (15,751 | ) | 205,608 | |||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 721,784 | $ | 247,284 | $ | 84 | $ | 969,152 | $ | 1,523,299 | $ | 1,251,582 | $ | (15,751 | ) | $ | 2,759,130 | |||||||||||||||
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See accompanying notes to condensed consolidated financial statements.
BLUE RIDGE BANKSHARES, INC. AND BAY BANKS OF VIRGINIA, COMMUNITY BANKSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
For the SixNine Months Ended JuneSeptember 30, 20192020
(Dollars and shares in thousands, except per share amounts)
(Dollars and shares in thousands, except per share amounts) | Virginia | |||||||||||||||||||||||||||||||
Blue Ridge | Community | Merger | Pro | |||||||||||||||||||||||||||||
Bankshares, Inc. | Bankshares, Inc. | Pro Forma | Forma | |||||||||||||||||||||||||||||
(As Reported) | (As Reported) | Adjustments | Combined | Blue Ridge Bankshares, Inc. (As Reported) | Bay Banks of Virginia, Inc. (As Reported) | Merger Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||||||||||
Interest and dividend income: | ||||||||||||||||||||||||||||||||
Interest and fees on loans | $ | 12,713 | $ | 4,854 | $ | — | $ | 17,567 | $ | 35,766 | $ | 34,013 | $ | — | $ | 69,779 | ||||||||||||||||
Other interest income | 1,599 | 1,064 | — | 2,663 | 2,268 | 2,249 | — | 4,517 | ||||||||||||||||||||||||
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Total interest and dividend income | 14,312 | 5,918 | — | 20,230 | 38,034 | 36,262 | — | 74,296 | ||||||||||||||||||||||||
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Interest expense: | ||||||||||||||||||||||||||||||||
Interest on deposits | 2,728 | 435 | (90 | )(l) | 3,074 | 4,889 | 7,364 | — | 12,253 | |||||||||||||||||||||||
Other interest expense | 1,533 | 40 | 72 | (m) | 1,645 | 2,648 | 1,957 | — | 4,605 | |||||||||||||||||||||||
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Total interest expense | 4,261 | 475 | (18 | ) | 4,718 | 7,537 | 9,321 | — | 16,858 | |||||||||||||||||||||||
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Net interest income | 10,051 | 5,443 | 18 | 15,512 | 30,497 | 26,941 | — | 57,438 | ||||||||||||||||||||||||
Provision for loan losses | 895 | — | — | 895 | 8,075 | 5,673 | — | 13,748 | ||||||||||||||||||||||||
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Net interest income after provision for loan losses | 9,156 | 5,443 | 18 | 14,617 | 22,422 | 21,268 | — | 43,690 | ||||||||||||||||||||||||
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Noninterest income: | ||||||||||||||||||||||||||||||||
Service charges on deposit accounts | 288 | 443 | 731 | 669 | 529 | — | 1,198 | |||||||||||||||||||||||||
Other service charges, commissions and fees | 1,863 | — | — | 1,863 | 132 | 94 | — | 226 | ||||||||||||||||||||||||
Gains on sales of mortgage loans, net of commissions | 5,161 | 63 | — | 5,224 | ||||||||||||||||||||||||||||
Mortgage income | 35,210 | 2,015 | — | 37,225 | ||||||||||||||||||||||||||||
Other operating income | 1,970 | 153 | — | 2,123 | 3,259 | 3,232 | — | 6,491 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total noninterest income | 9,282 | 659 | — | 9,941 | 39,270 | 5,870 | — | 45,140 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Noninterest expenses: | ||||||||||||||||||||||||||||||||
Salaries and benefits | 9,070 | 2,244 | — | 11,314 | 30,141 | 11,532 | — | 41,673 | ||||||||||||||||||||||||
Occupancy expenses | 931 | 315 | — | 1,246 | 2,653 | 2,510 | — | 5,163 | ||||||||||||||||||||||||
Furniture and equipment expenses | 310 | 136 | — | 446 | ||||||||||||||||||||||||||||
Amortization expense for other intangible assets | 608 | 425 | 900 | (i) | 1,933 | |||||||||||||||||||||||||||
Other expenses | 4,700 | 2,250 | 358 | (n) | 7,308 | 12,555 | 18,941 | — | 31,496 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total noninterest expenses | 15,011 | 4,945 | 358 | 20,314 | 45,957 | 33,408 | 900 | 80,265 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income before income taxes | 3,427 | 1,157 | (340 | ) | 4,245 | 15,735 | (6,270 | ) | (900 | ) | 8,565 | |||||||||||||||||||||
Income tax expense | 609 | 348 | (71 | ) | 886 | 3,618 | 378 | (189 | ) | 3,807 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net income | $ | 2,818 | $ | 809 | $ | (268 | ) | $ | 3,359 | $ | 12,117 | $ | (6,648 | ) | $ | (711 | ) | $ | 4,758 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Earnings per common share, basic | $ | 0.74 | $ | 1.13 | $ | 0.65 | $ | 2.13 | $ | (0.51 | ) | $ | 0.39 | |||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||
Earnings per common share, diluted | $ | 0.74 | $ | 1.13 | $ | 0.65 | $ | 2.13 | $ | (0.51 | ) | $ | 0.39 | |||||||||||||||||||
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|
|
|
| |||||||||||||||||||||||||||
Weighted average common shares outstanding, basic | 3,821 | 717 | 596 | (p) | 5,134 | 5,681 | 13,081 | (6,540 | )(k) | 12,221 | ||||||||||||||||||||||
Weighted average common shares outstanding, diluted | 3,821 | 717 | 596 | (p) | 5,134 | 5,681 | 13,081 | (6,540 | )(k) | 12,221 |
See accompanying notes to condensed consolidated financial statements.
BLUE RIDGE BANKSHARES, INC. AND BAY BANKS OF VIRGINIA, COMMUNITY BANKSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31, 20182019
(Dollars and shares in thousands, except per share amounts)
(Dollars and shares in thousands, except per share amounts) | Virginia | |||||||||||||||||||||||||||||||
Blue Ridge | Community | Merger | Pro | |||||||||||||||||||||||||||||
Bankshares, Inc. | Bankshares, Inc. | Pro Forma | Forma | |||||||||||||||||||||||||||||
(As Reported) | (As Reported) | Adjustments | Combined | Blue Ridge Bankshares, Inc. (As Reported) | Bay Banks of Virginia, Inc. (As Reported) | Merger Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||||||||||
Interest and dividend income: | ||||||||||||||||||||||||||||||||
Interest and fees on loans | $ | 20,479 | $ | 9,441 | $ | — | $ | 29,920 | $ | 27,090 | $ | 46,998 | $ | — | $ | 74,088 | ||||||||||||||||
Other interest income | 1,958 | 2,099 | — | 4,057 | 3,797 | 3,420 | — | 7,217 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total interest and dividend income | 22,437 | 11,540 | — | 33,977 | 30,887 | 50,418 | — | 81,305 | ||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||
Interest on deposits | 3,513 | 812 | (179 | )(l) | 4,146 | 6,209 | 12,075 | — | 18,284 | |||||||||||||||||||||||
Other interest expense | 1,639 | 64 | 143 | (m) | 1,846 | 3,310 | 3,011 | — | 6,321 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total interest expense | 5,152 | 876 | (36 | ) | 5,992 | 9,519 | 15,085 | — | 24,604 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net interest income | 17,285 | 10,664 | 36 | 27,985 | 21,368 | 35,333 | — | 56,701 | ||||||||||||||||||||||||
Provision for (recovery of) loan losses | 1,225 | (484 | ) | — | 741 | 1,742 | 1,182 | — | 2,924 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net interest income after provision for loan losses | 16,060 | 11,148 | 36 | 27,244 | 19,626 | 34,151 | — | 53,777 | ||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Noninterest income: | ||||||||||||||||||||||||||||||||
Service charges on deposit accounts | 635 | 946 | — | 1,581 | 651 | 977 | — | 1,628 | ||||||||||||||||||||||||
Other service charges, commissions and fees | 2,724 | — | — | 2,724 | 4,046 | 115 | — | 4,161 | ||||||||||||||||||||||||
Gains on sales of mortgage loans, net of commissions | 4,541 | 164 | — | 4,705 | 10,387 | 941 | — | 11,328 | ||||||||||||||||||||||||
Other operating income | 2,223 | 299 | — | 2,522 | 3,712 | 2,925 | — | 6,637 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total noninterest income | 10,123 | 1,409 | — | 11,532 | 18,796 | 4,958 | — | 23,754 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Noninterest expenses: | ||||||||||||||||||||||||||||||||
Salaries and benefits | 11,843 | 4,967 | — | 16,810 | 19,328 | 15,597 | — | 34,925 | ||||||||||||||||||||||||
Occupancy expenses | 1,126 | 590 | — | 1,716 | 2,538 | 3,319 | — | 5,857 | ||||||||||||||||||||||||
Furniture and equipment expenses | 488 | 265 | — | 753 | ||||||||||||||||||||||||||||
Amortization expense for other intangible assets | 455 | 674 | 537 | (i) | 1,667 | |||||||||||||||||||||||||||
Other expenses | 7,006 | 3,867 | 4,609 | (n) (o) | 15,482 | 10,524 | 10,813 | 17,256 | (j) | 38,593 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total noninterest expenses | 20,463 | 9,689 | 4,609 | 34,761 | 32,845 | 30,402 | 17,793 | 81,041 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income before income taxes | 5,720 | 2,868 | (4,573 | ) | 4,015 | 5,577 | 8,706 | (17,793 | ) | (3,510 | ) | |||||||||||||||||||||
Income tax expense | 1,147 | 618 | (960 | ) | 805 | 973 | 1,649 | (3,737 | ) | (1,115 | ) | |||||||||||||||||||||
Net (Income) fromnon-controlling interests | (13 | ) | — | — | (13 | ) | (24 | ) | — | (24 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net income | $ | 4,560 | $ | 2,250 | $ | (3,613 | ) | $ | 3,197 | $ | 4,580 | $ | 7,057 | $ | (14,057 | ) | $ | (2,395 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Earnings per common share, basic | $ | 1.64 | $ | 3.04 | $ | 0.78 | $ | 1.09 | $ | 0.54 | $ | (0.22 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Earnings per common share, diluted | $ | 1.64 | $ | 3.04 | $ | 0.78 | $ | 1.09 | $ | 0.54 | $ | (0.22 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Weighted average common shares outstanding, basic | 2,779 | 740 | 596 | (p) | 4,115 | 4,147 | 13,053 | (6,527 | )(k) | 10,674 | ||||||||||||||||||||||
Weighted average common shares outstanding, diluted | 2,779 | 740 | 596 | (p) | 4,115 | 4,147 | 13,112 | (6,556 | )(k) | 10,703 |
See accompanying notes to condensed consolidated financial statements.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
NOTE A – BASIS OF PRESENTATION
On May 14, 2019,August 12, 2020, Blue Ridge entered into the merger agreement with VCB.BAYK, as amended on November 6, 2020. The merger agreement provides that at the effective date of the merger, each outstanding share of common stock of VCBBAYK will be converted into the right to receive at the election of the holder, either $58.00 per share in cash, or 3.050.500 shares of Blue Ridge common stock, no par value, subject to allocation and proration procedures set forth in the merger agreement. These allocation procedures are intended to ensure that 60% of the outstanding shares of VCB common stock will be converted into the right to receive shares of Blue Ridge common stock and 40% of the outstanding shares of VCB common stock will be converted into the right to receive cash.value.
The unaudited pro forma condensed combined financial information of Blue Ridge’sBRBS’s financial condition and results of operations, including per share data, are presented after giving effect to the merger. The pro forma financial information assumes that the merger with VCBBAYK was consummated on January 1, 20182019 for purposes of the unaudited pro forma condensed combined statements of income and on JuneSeptember 30, 20192020 for purposes of the unaudited pro forma condensed combined balance sheet and gives effect to the merger, for purposes of the unaudited pro forma condensed combined statement of income, as if it had been effective during the entire period presented.
The merger will be accounted for using the acquisition method of accounting; accordingly, the difference between the purchase price over the estimated fair value of the assets acquired (including identifiable intangible assets) and liabilities assumed will be recorded as goodwill.goodwill, or the difference between the estimated fair value of the assets acquired and liabilities assumed over the purchase price will be recorded as a bargain purchase.
The pro forma financial information includes estimated adjustments to record the assets and liabilities of VCBBAYK at their respective fair values and represents management’s estimates based on available information. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analysis is performed. The final allocation of the purchase price will be determined after the merger is completed and after completion of a final analysis to determine the fair values of VCB’sBAYK’s tangible, and identifiable intangible, assets and liabilities as of the effective time of the merger.
NOTE B – PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All adjustments are based on current valuations, estimates, and assumptions. Subsequent to the completion of the merger, Blue Ridge will engage an independent third-party valuation firm to determine the fair value of thecertain assets acquired and liabilities assumed which could significantly change the amount of the estimated fair values used in pro forma financial information presented.
(a) | Estimated |
|
|
Elimination of |
Estimated fair value |
|
|
Estimated deferred |
|
Elimination of |
Recognition of the equity portion of the merger consideration. The adjustment to common stock and surplus represents |
|
|
Represents amortization of core deposit premium (see Note D). Premium will be amortized over ten years using the sum-of-years digits method. |
Represents estimated one-time transaction related costs of |
Weighted average basic and diluted shares outstanding were adjusted to effect the transaction. |
NOTE C – PRO FORMA ALLOCATION OF PURCHASE PRICE
The following table shows the pro forma allocation of the consideration paid for VCB’sBAYK’s common equity to the acquired identifiable assets and liabilities assumed and the pro forma goodwill generated from the transaction (unaudited, dollars in thousands):
(In thousands) | ||||||||
Purchase Price: | ||||||||
Fair value of consideration | $ | 42,496 | ||||||
|
| |||||||
Total pro forma purchase price | $ | 42,496 | ||||||
Fair value of assets acquired: | ||||||||
Cash and cash equivalents | $ | 5,834 | ||||||
Securities available for sale | 48,926 | |||||||
Restricted stock, at cost | 847 | |||||||
Net loans | 177,380 | |||||||
Bank premise and equipment | 7,747 | |||||||
Bank owned life insurance | 6,314 | |||||||
OREO, net of valuation allowance | 87 | |||||||
Core deposit intangible | 3,933 | |||||||
Other assets | 1,011 | |||||||
|
| |||||||
Total assets | 252,079 | |||||||
Fair value of liabilities assumed: | ||||||||
Deposits | 220,416 | |||||||
Long-term borrowings | 1,000 | |||||||
Other liabilities | 454 | |||||||
|
| |||||||
Total liabilities | 221,870 | |||||||
Net assets acquired | $ | 30,209 | ||||||
|
| |||||||
Preliminary pro forma goodwill | $ | 12,287 | ||||||
|
|
(In thousands) | ||||||||
Purchase Price: | ||||||||
Fair value of consideration(1) | $ | 100,414 | ||||||
|
| |||||||
Total pro forma purchase price | $ | 100,414 | ||||||
Fair value of assets acquired: | ||||||||
Cash and cash equivalents | $ | 60,811 | ||||||
Securities available for sale | 87,853 | |||||||
Restricted stock, at cost | 5,022 | |||||||
Net loans | 1,022,460 | |||||||
Bank premise and equipment | 17,859 | |||||||
Bank owned life insurance | 20,103 | |||||||
OREO, net of valuation allowance | 157 | |||||||
Core deposit intangible | 4,050 | |||||||
Other assets | 16,671 | |||||||
|
| |||||||
Total assets | 1,234,986 | |||||||
Fair value of liabilities assumed: | ||||||||
Deposits | 1,027,681 | |||||||
Long-term borrowings | 89,837 | |||||||
Other liabilities | 12,635 | |||||||
|
| |||||||
Total liabilities | 1,130,153 | |||||||
Net assets acquired | $ | 104,833 | ||||||
|
| |||||||
Preliminary pro forma goodwill (bargain purchase) | $ | (4,419 | ) | |||||
|
|
(1) | Based on 13,344,104 of Bay Banks’ common stock outstanding as of August 5, 2020 and Blue Ridge’s common stock price of $15.05, the 20-day volume weighted average price of Blue Ridge common stock as of August 10, 2020. |
The following table depicts the sensitivity of the purchase price and resulting goodwill or bargain purchase to changes in the price of Blue Ridge’s common stock at a price of $20.50$15.05, the 20 day volume weighted average price of Blue Ridge common stock as of June 30, 2019:August 10, 2020:
Share Price Sensitivity (unaudited, dollars in thousands) | ||||||||
Purchase Price | Estimated Goodwill | |||||||
Up 20% | $ | 50,995 | $ | 20,786 | ||||
Up 10% | $ | 46,746 | $ | 16,537 | ||||
As presented in proforma | $ | 42,496 | $ | 12,287 | ||||
Down 10% | $ | 38,246 | $ | 8,038 | ||||
Down 20% | $ | 33,997 | $ | 3,788 |
Share Price Sensitivity (unaudited, dollars in thousands) | ||||||||
Purchase Price | Estimated Goodwill | |||||||
Up 20% | $ | 120,497 | $ | 15,664 | ||||
Up 10% | $ | 110,455 | $ | 5,622 | ||||
As presented in proforma | $ | 100,414 | $ | (4,419 | ) | |||
Down 10% | $ | 90,373 | $ | (14,460 | ) | |||
Down 20% | $ | 80,331 | $ | (24,502 | ) |
NOTE D – ESTIMATED AMORTIZATION/ACCRETION OF ACQUISITION ACCOUNTING ADJUSTMENTS
The following table sets forth an estimate of the expected effects of the estimated aggregate acquisition accounting adjustments reflected in the pro forma combined financial statements on the future pre-tax net income of Blue Ridge after the merger with VCB BAYK(unaudited, (unaudited, dollars in thousands):
Discount Accretion (Premium Amortization) | ||||||||||||||||||||||||||||
For the Years Ended December 31, | ||||||||||||||||||||||||||||
2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | ||||||||||||||||||||||
Securities | $ | 143 | $ | 143 | $ | 143 | — | — | — | $ | 429 | |||||||||||||||||
Deposits | (179 | ) | (179 | ) | (179 | ) | — | — | — | (537 | ) | |||||||||||||||||
Core Deposit Intangible | (715 | ) | (644 | ) | (572 | ) | (501 | ) | (429 | ) | (1,072 | ) | (3,933 | ) |
Discount Accretion (Premium Amortization) | ||||||||||||||||||||||||||
For the Years Ended December 31, | ||||||||||||||||||||||||||
2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | ||||||||||||||||||||
Core Deposit Intangible | (537) | (484 | ) | (430 | ) | (376 | ) | (322 | ) | (807 | ) | (2,956 | ) |
The actual effect of purchase accounting adjustments on the future pre-tax income of Blue Ridge will differ from these estimates based on the closing date estimates of fair values and the use of different amortization methods than assumed above.
NOTE E– ESTIMATED COST SAVINGS
Estimated cost savings, expected to approximate 41.1%28.0% of VCB’sBAYK’s annualized pre-tax non-interest expenses, are excluded from the pro forma analysis. Cost savings are estimated to be realized at 100%.
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following table shows per common share data regarding basic and diluted net income, book value and cash dividends per share for (1) Blue Ridge and VCBBay Banks on a historical basis, (2) Blue Ridge after giving effect to the merger and (3) VCBBay Banks on a pro forma equivalent basis. The pro forma basic and diluted net income per share information was computed as if the merger had been completed on January 1, 2018.2019. The pro forma book value per share information was computed as if the merger had been completed on JuneSeptember 30, 2019.2020. The pro forma dividends per share represent Blue Ridge’s historical dividends per share.
The VCBBay Banks pro forma equivalent per share amounts are calculated by multiplying the pro forma combined per share amounts by the exchange ratio of 3.050.5000 for the stockmerger consideration so that the per share amounts equate to the respective values for one share of VCBBay Banks common stock.
The following pro forma information has been derived from and should be read in conjunction with Blue Ridge’s consolidated financial statements and VCB’sBay Banks’ consolidated financial statements for the year ended December 31, 20182019 and the six-monthnine-month period ended JuneSeptember 30, 2019,2020, included elsewhere in, or incorporated by reference into, this joint proxy statement/prospectus. This information is presented for illustrative purposes only. You should not place undue reliance on the pro forma combined or pro forma equivalent amounts as they are not necessarily indicative of the net income per share, book value per share, operating results or financial position that would have occurred if the merger had been completed as of the dates indicated, nor are they necessarily indicative of the future net income per share, book value per share, operating results or financial position of the combined company. The pro forma information, although helpful in illustrating the financial characteristics of Blue Ridge as the surviving company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, the impact of restructuring and merger-related costs, or other factors that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results. The information below should be read in conjunction with the “Unaudited Pro Forma Condensed Combined Financial Information” section beginning on page [●]22 and the historical financial information and the notes thereto for Blue Ridge and VCB,Bay Banks, included elsewhere in, or incorporated by reference into, this joint proxy statement/prospectus.
As of and for the six months ended June 30, 2019 | As of and for the year ended December 31, 2018 | As of and for the Nine Months Ended September 30, 2020 | As of and for the Year Ended December 31, 2019 | |||||||||||||
Blue Ridge Historical | ||||||||||||||||
Net income per common share (basic and diluted) | $ | 0.74 | $ | 1.64 | $ | 2.13 | $ | 1.10 | ||||||||
Book value per common share (basic and diluted) | 14.77 | 14.11 | 17.47 | 16.32 | ||||||||||||
Cash dividends declared per share | 0.29 | 0.54 | 0.4275 | 0.5700 | ||||||||||||
VCB Historical | ||||||||||||||||
Bay Banks Historical | ||||||||||||||||
Net income per common share (basic and diluted) | $ | 1.13 | $ | 3.04 | $ | (0.51 | ) | $ | 0.54 | |||||||
Book value per common share (basic and diluted) | 34.67 | 32.84 | 9.10 | 9.51 | ||||||||||||
Cash dividends declared per share | 0.00 | 0.50 | — | — | ||||||||||||
Pro Forma Combined | ||||||||||||||||
Net income per common share (basic and diluted) | $ | 0.65 | $ | 0.78 | $ | 0.39 | $ | (0.22 | ) | |||||||
Book value per common share (basic and diluted) | 17.46 | 21.78 | 16.82 | 19.26 | ||||||||||||
Cash dividends declared per share | 0.29 | 0.54 | 0.4275 | 0.5700 | ||||||||||||
Pro Forma VCB Equivalent | ||||||||||||||||
Net income per common share (basic and diluted) | $ | 2.00 | $ | 2.37 | ||||||||||||
Book value per common share (basic and diluted) | 53.25 | 66.43 | ||||||||||||||
Cash dividends declared per share | 0.87 | 1.65 |
Pro Forma Bay Banks Equivalent | ||||||||
Net income per common share (basic and diluted) | $ | 0.19 | $ | (0.11 | ) | |||
Book value per common share (basic and diluted) | 8.41 | 9.29 | ||||||
Cash dividends declared per share | 0.21 | 0.29 |
COMPARATIVE MARKET PRICES OF COMMON STOCK
Blue Ridge common stock is listed on the NYSE American under the symbol “BRBS.” Bay Banks common stock is quoted on the OTC Markets Group’s PinkOTCQB marketplace under the symbol “BRBS.“BAYK.” As of [●], 2019,December 8, 2020, there were [●]5,718,621 shares of Blue Ridge common stock outstanding held by [●]approximately 650 holders of record and there were 13,329,695 shares of Bay Banks common stock outstanding held by approximately 703 holders of record. The
As of August 12, 2020, the date preceding the public announcement of the merger, the closing priceprices of Blue Ridge common stock on or before May 13, 2019, the last trading day before the public announcementand Bay Banks common stock were $14.45 and $5.95 per share, respectively. As of the signing of the merger agreement, and [●], 2019,December 8, 2020, the latest practicable date before the date of this joint proxy statement/prospectus, was $21.30 and $[●], respectively. These market quotations reflect inter-dealerthe closing prices without retailmark-up, mark-down or commission and may not necessarily represent actual transactions.
of Blue Ridge plans to apply to list its common stock on the New York Stock Exchange in connection with the merger. Blue Ridge will be required to meet the initial listing requirements of such exchange to be listed. Blue Ridge may not be able to meet those initial requirements, and even if Blue Ridge’sBay Banks common stock is so listed, Blue Ridge may be unable to maintain the listing of its common stock in the future. There can be no assurance that a liquid trading market for Blue Ridge’s common stock will develop or be sustained after the merger.
VCB common stock is quoted on the OTC Markets Group’s Pink marketplace under the symbol “VCBS.” As of [●], 2019, there were [●] shares of VCB common stock outstanding held by [●] holders of record. The closing price of VCB common stock on May 13, 2019, the last trading day before the public announcement of the signing of the merger agreement,$16.11 and on [●], 2019, the latest practicable date before the date of this joint proxy statement/prospectus, was $39.00 and $[●],$8.20 per share, respectively. These market quotations reflect inter-dealer prices, without retailmark-up, mark-down or commission and may not necessarily represent actual transactions. After the completion of the merger, there will be no further trading in VCB common stock.
The following table sets forth the closing prices per share of Blue Ridge common stock, as reported on the NYSE American, and of Bay Banks common stock, as reported on the OTC Markets Group’s PinkOTCQB marketplace on May 13, 2019,as of August 12, 2020, the last trading day before Blue Ridge and VCB announceddate preceding the signingpublic announcement of the merger, agreement, and [●], 2019,as of December 8, 2020, the last trading daylatest practicable date before the date of this joint proxy statement/prospectus, respectively. The table also sets forth the closing prices per share of VCB common stock OTC Markets Group’s Pink marketplace on May 13, 2019 and [●], 2019, respectively.prospectus. The following table also includes the equivalent price per share of VCBBay Banks common stock on those dates. The equivalent per share pricedates, which reflects the value on each date of the Blue Ridge common stock that would have been received by VCBBay Banks shareholders with respect to each share of VCBBay Banks common stock converted into the right to receive stockmerger consideration, if the merger had been completed on those dates, based on the exchange ratio of 3.050.5000 and the closing prices of Blue Ridge common stock.
Blue Ridge Common Stock | VCB Common Stock | Equivalent Market Value per Share of VCB Common Stock | ||||||||||
May 13, 2019 | $ | 21.30 | $ | 39.00 | $ | 64.96 | ||||||
[●], 2019 | [● | ] | [● | ] | [● | ] |
Blue Ridge Common Stock | Bay Banks Common Stock | Equivalent Market Value per Share of Bay Banks Common Stock | ||||||||||
August 12, 2020 | $ | 14.45 | $ | 5.95 | $ | 7.23 | ||||||
December 8, 2020 | $ | 16.11 | $ | 8.20 | $ | 8.06 |
The market quotations for Bay Banks’ common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Bay Banks shareholders are advised to obtain current market quotations for Blue Ridge common stock and Bay Banks common stock. The market value for Blue Ridge common stock will fluctuate between the time the merger agreement was executed, the date of this joint proxy statement/prospectus, the date of the shareholder meetings and the completion of the merger. No assurance can be given concerning the market price of Blue Ridge common stock before or after the effective time of the merger. Changes in the market price of Blue Ridge common stock prior to the completion of the merger may affect the market value of the merger consideration that Bay Banks shareholders will receive. Because the stock consideration exchange ratio is fixed, however, the number of Blue Ridge shares that VCBBay Banks shareholders receive with respect to each share of Bay Banks common stock that is converted into the stock consideration inright to receive the merger consideration will not change. You are advised to obtain current market quotations for Blue Ridge common stock and VCB
After the completion of the merger, there will be no further trading in Bay Banks common stock.
The merger, including the issuance of Blue Ridge common stock and the other transactions contemplated by the merger agreement, involves significant risks. Blue Ridge shareholders and VCBBay Banks shareholders should carefully read and consider the following factors in deciding whether to vote for the merger proposals.
The form of merger consideration that VCB shareholders ultimately receive could be different from the form elected depending on the form of merger consideration elected by other VCB shareholders.
All VCB shareholders will be permitted to make an election as to the form of consideration they wish to receive. The exchange agent will be allowed, subject to limitations set forth in the merger agreement, to adjust the form of consideration that a VCB shareholder will receive in order to ensure that 60% of the outstanding shares of VCB common stock are converted into shares of Blue Ridge common stock and 40% of the outstanding shares of VCB common stock are converted into cash. Consequently, if either the stock consideration or the cash consideration is oversubscribed, VCB shareholders could receive a different form of consideration from the form they elect, which could result in different tax consequences than they had anticipated (including the recognition of gain for federal income tax purposes with respect to the cash received). If VCB shareholders do not make an election, they will receive the merger consideration in cash, shares or a combination of cash and shares as provided for in the merger agreement.
Because the market price of Blue Ridge common stock will fluctuate, VCBBay Banks shareholders cannot be certain of the market value of the stockmerger consideration that they will receive.
Upon completion of the merger, each share of VCBBay Banks common stock will be converted into the right to receive at the election of the holder, either the cash consideration or the stockmerger consideration. The stock consideration exchange ratio of 3.050.5000 shares of Blue Ridge common stock for each share of VCBBay Banks common stock is fixed and will not be adjusted to reflect changes in the market price of either the shares of Blue Ridge common stock or the shares of VCBBay Banks common stock prior to the closing of the merger. As a result, the market value of the stockmerger consideration received by VCBBay Banks shareholders will vary with the market price of Blue Ridge common stock. Blue Ridge’s stock price changes daily as a result of a variety of other factors in addition to the business and relative prospects of Blue Ridge, including general market and economic conditions, industry trends, market assessment of the likelihood that the merger will be completed as anticipated or at all, and the regulatory environment. These factors are beyond Blue Ridge’s control. Therefore, at the time of the VCBBay Banks special meeting, holders of VCBBay Banks common stock will not know or be able to calculate the precise market value of the stockmerger consideration they may receive upon completion of the merger, which could be significantly less than the current market value of Blue Ridge common stock.
Combining Blue Ridge and VCBBay Banks may be more difficult, costly or time-consuming than we expect.
The success of the merger will depend, in part, on Blue Ridge’s ability to realize the anticipated benefits and cost savings from combining the businesses of Blue Ridge and VCB.Bay Banks. To realize such anticipated benefits and cost savings, Blue Ridge must successfully combine the businesses of Blue Ridge and VCBBay Banks in a manner that permits growth opportunities and cost savings to be realized without materially disrupting the existing customer relationships of VCBBay Banks or Blue Ridge or decreasing revenues due to loss of customers. However, to realize these anticipated benefits and cost savings, Blue Ridge must successfully combine the businesses of Blue Ridge and VCB. If Blue Ridge is not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully, or at all, or may take longer to realize than expected.
Blue Ridge and VCBBay Banks have operated, and, until the completion of the merger, will continue to operate, independently. To realize anticipated benefits from the merger,independently, and after the completion of the merger, Blue Ridge will integrate VCB’sBay Banks’ business into its own. The integration process in the merger could result in the loss of key employees, the disruption of each party’s ongoing business, inconsistencies in standards, controls, procedures and policies that may adversely affect adversely either party’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the merger. The loss of key employees could adversely affect Blue Ridge’s ability to successfully conduct its business in the markets in which VCBBay Banks now operates, which could have an adverse effect on Blue Ridge’s financial results and the value of its common stock. If Blue Ridge experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized, fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be disruptions that cause Blue Ridge and VCBBay Banks to lose customers or cause customers to withdraw their deposits from VCB’sBlue Ridge’s or Blue Ridge’sBay Banks’ banking subsidiaries, or other unintended consequences that could have a material adverse effect on Blue Ridge’s results of operations or financial condition after the merger. These integration matters could have an adverse effect on each of VCBBlue Ridge and Blue RidgeBay Banks during this transition period and for an undetermined period after consummation of the merger.
The COVID-19 pandemic could have a material adverse effect on the merger.
The spread of COVID-19 throughout the United States, and the measures taken by national, state and local governmental authorities in the United States attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place orders, and limitations on business activity, including closures, are, among other things, restricting economic activity in the United States and the banking markets in which Blue Ridge and VCBBay Banks operate. These measures have disrupted national and regional supply chains and resulted in declines in asset valuations, increases in unemployment and underemployment levels, declines in liquidity in markets for certain securities, and increases in volatility and periods of disruption in the financial markets, and may continue to have similar effects in the future. It is difficult to predict the impact of the COVID-19 pandemic on the businesses of Blue Ridge and Bay Banks, and there is no guarantee that efforts by Blue Ridge or Bay Banks to address the adverse impacts of the COVID-19 pandemic will be effective. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the continued severity of COVID-19 and actions taken to contain COVID-19 or its impact, among others.
The COVID-19 pandemic could delay and adversely affect the completion of the merger. Each of Blue Ridge and Bay Banks may be required to incur additional costs to remedy disruptions caused by the COVID-19 pandemic. Additional time may be required to process Blue Ridge’s outstanding OCC regulatory application, and the federal bank regulatory agencies may impose additional requirements on Blue Ridge or Bay Banks that must be satisfied prior to completion of the merger.
In addition, some economists and major investment banks have expressed concern that the COVID-19 pandemic could lead to a significant economic recession in the United States. Such a recession and other disruptions in economic and financial markets caused by the COVID-19 pandemic may negatively affect financial institutions for an extended period of time. If such conditions or disruptions continue following completion of the merger, the business, results of operation, financial condition, liquidity and prospects of Blue Ridge as the surviving corporation in the merger may be adversely affected.
Blue Ridge may not be able to effectively integrate the operations of Bay Banks into the operations of Blue Ridge.
The future operating performance of Blue Ridge Bank as the continuing bank following the bank merger will depend, in part, on the success of the bank merger, which is expected to occur as soon as practicable after the merger. The success of the bank merger will, in turn, depend on a number of factors, including Blue Ridge’s ability to (i) integrate the operations and branches of Virginia Commonwealth Bank and Blue Ridge Bank, (ii) retain the deposits and customers of Virginia Commonwealth Bank and Blue Ridge Bank, (iii) control the incremental increase in noninterest expense arising from the merger in a manner that enables Blue Ridge Bank as the continuing bank to improve its overall operating efficiencies and (iv) retain and integrate the appropriate personnel of Bay Banks within the operations of Blue Ridge. The integration of Virginia Commonwealth Bank into Blue Ridge Bank following the bank merger will require the dedication of the time and resources of the banks’ management teams and may temporarily distract the management teams’ attention from the day-to-day business of the banks. If Blue Ridge Bank and Virginia Commonwealth Bank are unable to successfully integrate, Blue Ridge may not be able to realize expected operating efficiencies and eliminate redundant costs.
Blue Ridge and Bay Banks will incur significant transaction and merger-related integration costs in connection with the merger.
Blue Ridge and VCBBay Banks expect to incur significant costs associated with completing the merger and integrating the operations of the two companies. Blue Ridge and VCBBay Banks are continuing to assess the impact of these costs. Although Blue Ridge and VCBBay Banks believe that the elimination of duplicate costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset incremental transaction and
merger-related costs over time, this net benefit may not be achieved in the near term, or at all.
Blue Ridge may If the merger is not be ablecompleted, the parties would have to effectively integrate the operations of Virginia Community Bank and Blue Ridge Bank.
The future operating performance of Blue Ridge and the continuing bank will depend, in part, on the successrecognize these expenses without realizing any of the merger of Virginia Community Bank and Blue Ridge Bank, which is expected to occur as soon as practicable after the merger. The successbenefits of the merger of the banks will, in turn, depend on a number of factors, including Blue Ridge’s ability to (i) integrate the operations and branches of Virginia Community Bank and Blue Ridge Bank, (ii) retain the deposits and customers of Virginia Community Bank and Blue Ridge Bank, (iii) control the incremental increase in noninterest expense arising from the merger in a manner that enables the continuing bank to improve its overall operating efficiencies and (iv) retain and integrate the appropriate personnel of Virginia Community Bank with the operations of Blue Ridge Bank, particularly with regard to VCB’s mortgage operation, as well as reducing overlapping bank personnel. The integration of Virginia Community Bank and Blue Ridge Bank following the subsidiary bank merger will require the dedication of the time and resources of the banks’ management team and may temporarily distract the management teams’ attention from theday-to-day business of the banks. If Blue Ridge Bank and Virginia Community Bank are unable to successfully integrate, Blue Ridge may not be able to realize expected operating efficiencies and eliminate redundant costs.merger.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are burdensome on Blue Ridge or Bay Banks, not presently anticipated or cannot be met.
Before the transactions contemplated by the merger agreement may be completed, various approvals or waivers must be obtained from bank regulatory authorities, including the Federal Reserve, the OCC, and the Virginia Bureau of Financial Institutions. In determining whether to grant these approvals, the applicable regulatory agencies consider a variety of factors, including the competitive impact of the proposal in the relevant geographic and banking markets; financial, managerial and other supervisory considerations of each party; convenience and needs of the communities to be served and the record of insured depository institution subsidiaries under the Community Reinvestment Act of 1977 and related regulations (the “Community Reinvestment Act”); and the effectiveness of the parties in combating money laundering activities. These regulators may impose conditions on the granting of such approvals or request changes to the terms of the merger. Such conditions or changes and the process of obtaining regulatory approvals or waivers could have the effect of delaying completion of the merger or of imposing additional costs or limitations on Blue Ridge following the merger. TheAs of the date of this joint proxy statement/prospectus, Blue Ridge has received regulatory approvalsapproval from the Federal Reserve and the Virginia Bureau of Financial Institutions for the merger. However, the regulatory approval or waiversa waiver from the OCC for the bank merger has not been received as of the date of this joint proxy statement/prospectus. Regulatory approval or a waiver from the OCC for the bank merger may not be received at all, may not be received in a timely fashion or may contain conditions on the completion of the merger that are burdensome,onerous on Blue Ridge or Bay Banks, not anticipated or cannot be met. If the remaining necessary governmental approvalsapproval or waivers containwaiver contains such conditions, the business, financial condition and results of operations of Blue Ridge following the merger may be materially adversely affected. If the consummation of the merger is delayed, including by a delay in receipt of the remaining necessary regulatory approval or a waiver, the business, financial condition and results of operations of Blue Ridge and Bay Banks may be materially adversely affected.
AFailure of the merger to be completed, the termination of the merger agreement, or a significant delay in the completion ofcompleting the merger could negatively impact Blue Ridge and VCB as a combined company.Bay Banks.
The merger agreement is subject to a number of conditions thatwhich must be fulfilled in order to complete the merger. ThoseThese conditions include, among others: (1) approvalto the consummation of the merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the merger is not completed by July 31, 2021, either Blue Ridge or Bay Banks may terminate the merger agreement at any time after that date if the failure of the effective time to occur on or before that date is not caused by any breach of the merger agreement by Blue Ridge shareholders and VCB shareholders, (2) receipt of all required approvals from bank regulatory authorities and expiration of all applicable waiting periods, (3) absence of any statute, rule, regulation, judgment, decree, injunctionthe party electing to terminate the merger agreement, before or other order prohibiting theafter shareholder approval.
Any delay in completion of the merger may have a material adverse effect on Blue Ridge’s and (4) effectiveness ofBay Banks’ business during the registration statement of which this joint proxy statement/prospectus is a part.
If these conditions to the completionpendency of the merger, are not fulfilled when expected and accordingly, the completionon Blue Ridge’s business and results of operations following the merger, is delayed, thedue to potential diversion of management attention from pursuing other opportunities, the constraints contained in the merger agreement on the ability to make significant changes to each company’s ongoing businessBay Banks’ and Blue Ridge’s respective businesses during the pendency of the merger, the incurrence of additional merger-related expenses, and negative reactions by markets and customers. If the merger is not completed, the ongoing business, financial condition and results of operations of each party may be materially adversely affected and the market price of each party’s common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the merger will be completed.
In addition, Blue Ridge’s or Bay Banks’ business may have been adversely impacted by the failure to pursue other marketbeneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. If the merger agreement is terminated and economic factorsa party’s board of directors seeks another merger or business combination, such party’s shareholders cannot be certain that such party will be able to find another company willing to engage in a merger or business combination on more attractive terms than the merger.
Blue Ridge and Bay Banks will be subject to business uncertainties and contractual restrictions while the merger is pending.
Uncertainty about the effect of the merger on employees, customers (including depositors and borrowers), suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of Blue Ridge and Bay Banks. These uncertainties may impair Blue Ridge’s or Bay Banks’ ability to attract, retain and motivate key personnel and customers (including depositors and borrowers) pending the completion of the merger, as such personnel and customers may experience uncertainty about their future roles and relationships with Blue Ridge or Blue Ridge Bank following the merger and the bank merger. Additionally, these uncertainties could cause customers (including depositors and borrowers) to seek to change existing business relationships with Bay Banks or Blue Ridge or fail to extend an existing relationship with Bay Banks or Blue Ridge. Further, competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger and the bank merger.
The merger agreement restricts Blue Ridge and Bay Banks from taking certain actions without the other party’s consent while the merger is pending. These restrictions could have a material adverse effect on the combined company’seach party’s business, financial condition and results of operations.operations, including by limiting the actions that Blue Ridge or Bay Banks may take to address a business uncertainty while the merger is pending.
The fairness opinions received byof Raymond James and Piper Sandler delivered to the respective boards of directors of Blue Ridge and VCB in connection withBay Banks prior to the signing of the amendment to the merger haveagreement will not been, and are not expected to be, updated to reflect changes in circumstances betweenafter the dates of the opinionsopinions.
Prior to the execution of the merger agreement, each of the Blue Ridge Board and the completionBay Banks Board, received an opinion, dated August 12, 2020, as to the fairness of the merger.
The fairnessexchange ratio from a financial point of view. Such opinions rendered by Raymond James, financial advisor to Blue Ridge, and by Sandler O’Neill, financial advisor to VCB, on May 13, 2019, were based upon information available as of that date. Neither opinion reflectstheir respective dates and subject to the limitations and assumptions contained therein. Subsequent changes that may occur or may have occurred after the date on which each respective opinion was delivered, including changes toin the operations and prospects of Blue Ridge or VCB, changes inBay Banks, general market and economic conditions and other factors beyond the control of Blue Ridge or other changes. Any such changesBay Banks, may significantly alter the relative value of Blue Ridge or VCB orBay Banks, including the market prices of shares of Blue Ridgeeach party’s common stock, or VCB common stock by the timevalue of the merger is completed.consideration at the effective time of the merger. The opinions do not speak as of the date the merger will be completedeffective time or as of any date other than the date of such opinions. For a description of the opinion that the Blue Ridge Board received from Blue Ridge’s financial advisor, please see “The Merger – Opinion of Blue Ridge’s Financial Advisor” beginning on page [●]. For a description of the opinion that the VCB Board received from VCB’s financial advisor, please see “The Merger – Opinion of VCB’s Financial Advisor” beginning on page [●].
VCB’sBay Banks’ directors and executive officers have interests in the merger that differ from the interests of VCB’sBay Banks’ other shareholders.
VCBBay Banks shareholders should be aware that certain of VCB’sBay Banks’ directors and executive officers have interests in the merger that are different from, or in addition to, those of VCBBay Banks shareholders generally. The VCBBay Banks Board was fully informed of these interests and thoroughly considered these interests, among other matters, when making its decision to approve the merger agreement and recommend that VCB’sBay Banks’ shareholders vote in favor of approving the VCBBay Banks merger proposal. Among other things, twoBlue Ridge will appoint seven of VCB’sBay Banks’ directors (in addition to A. Pierce Stone, its former(including C. Frank Scott, III, the Chairman of the Bay Banks Board, and Randal R. Greene, Bay Banks’ President and Chief Executive Officer and Chairman) will be appointed to serve on theOfficer) as directors of Blue Ridge Board and the Blue Ridge Bank, board, VCB’s other directors will be offered the opportunity to serve on an advisory board of Blue Ridge, certain of VCB’sBay Banks directors and executive officers hold stock options and restricted stock awards that will vest upon completion of the merger, certain of Bay Banks’ executive officers are expected to continue with Blue Ridge following completion of the merger and twofour of VCB’sBay Banks’ executive officers have entered into employment agreements with Blue Ridge and Blue Ridge Bank that will be effective at the closing of the merger and, in addition, theycertain officers will receive cash severance payments related to change in control provisions in existing transaction bonusemployment agreements. For a more complete description of these interests, see “The Merger – VCB’sMerger—Interests of Bay Banks’ Directors and Officers Have Financial Interests in the Merger” beginning on page [●].97.
The merger agreement limits the ability of VCBBay Banks and Blue Ridge to pursue alternatives to the merger and might discourage competing offers for a higher price or premium.
The merger agreement contains“no-shop” provisions that, subject to limited exceptions, limit the ability of VCBeach of Bay Banks and Blue Ridge to discuss, solicit, facilitate or commit to competing third-party proposals to acquire all or a significant part of VCBBay Banks or Virginia Community Bank.Blue Ridge. In addition, under certain circumstances, if the merger agreement is terminated and VCB,either party, subject to certain restrictions, consummates a similar transaction other than the merger, VCBthat party must pay to Blue Ridgethe other party a termination fee of $1.5$4.00 million. These provisions might discourage a potential competing acquiror that might have an interest
Each of the members of the Blue Ridge Board and the Bay Banks Board, in acquiring alltheir capacities as shareholders of Blue Ridge or a significant percentageBay Banks, respectively, entered into affiliate agreements and agreed to vote their shares of ownershipBlue Ridge common stock and Bay Banks common stock, as applicable, in favor of VCB from considering or proposing the acquisition even if it were prepared to pay consideration with a higher per share market price than that proposedBlue Ridge merger proposal, in the merger. See “The Merger Agreement – Termination Fees” beginning on page [●].
case of Blue Ridge, and VCB will bein favor of the Bay Banks merger proposal, in the case of Bay Banks, and in each case against alternative transactions. As of the close of business on December 8, 2020, the record date for the Blue Ridge special meeting and November 30, 2020, the record date for the Bay Banks special meeting, shares constituting approximately 11.88% of Blue Ridge common stock and 6.42% of the Bay Banks common stock are subject to business uncertainties and contractual restrictions while the merger is pending.affiliate agreements.
Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Blue Ridge and VCB. These uncertainties may impair Blue Ridge’s and VCB’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with Blue Ridge and VCB to seek to change existing business relationships with Blue Ridge and VCB. Retention of certain employees by Blue Ridge and VCB may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles withLitigation against Bay Banks or Blue Ridge, or VCB. If key employees depart becausethe members of issues relating to the uncertainty and difficulty of integrationBay Banks Board or a desire not to remain with Blue Ridge Board, could prevent or VCB, Blue Ridge’s or VCB’s business, ordelay the business of the combined company following the merger, could be harmed. In addition, subject to certain exceptions, Blue Ridge and VCB have each agreed to operate its business in the ordinary course prior to closing and refrain from taking certain specified actions until the merger occurs, which may prevent Blue Ridge or VCB from pursuing attractive business opportunities that may arise prior to completion of the merger. See “The Merger Agreement – Covenants
Purported shareholder plaintiffs may assert legal claims related to the merger. The results of any such potential legal proceeding would be difficult to predict and Agreements” beginning on page [●] forsuch legal proceedings could delay or prevent the merger from being completed in a descriptiontimely manner. The existence of litigation related to the merger could affect the likelihood of obtaining the required approval from Blue Ridge’s and Bay Banks’ shareholders. Moreover, any litigation could be time consuming and expensive, and could divert attention of Blue Ridge’s and Bay Banks’ respective management teams away from their companies’ regular business. Any lawsuit adversely resolved against Bay Banks, Blue Ridge or members of the restrictive covenants applicable toBay Banks Board or Blue Ridge Board, could have a material adverse effect on each party’s business, financial condition and VCB.results of operations.
One of the conditions to the consummation of the merger is the absence of any law, order, decree or injunction (whether temporary, preliminary or permanent) or other action taken by the governmental authority of competent jurisdiction that restricts, enjoins or prohibits or makes illegal the consummation of the transactions contemplated by the merger agreement, including the merger. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a governmental authority issues an order or other directive restricting, prohibiting or making illegal the completion of the transactions contemplated by the merger agreement, including the merger, then such injunctive or other relief may prevent the merger from being completed in a timely manner or at all.
If the merger is completed, VCBBlue Ridge and Bay Banks shareholders will have less influence on the management and policies of Blue Ridge following the merger than they had on VCB beforeBlue Ridge and Bay Banks, respectively, prior to the merger.
After the merger is complete, it is anticipated that approximately 23.3%56% of the shares of Blue Ridge common stock will be held by former shareholders of VCB.Bay Banks. In addition, the Blue Ridge Board currently consists of 15 members, and, upon consummation of the merger, Blue Ridge will add three additional members that are current orhave 15 directors, seven of whom will be former directors of VCB.Bay Banks. Consequently, shareholders of VCBBlue Ridge and Bay Banks will have significantly less influence on the management and policies of Blue Ridge after the merger than they now have on the management and policies of VCB.
The merger may distract management of Blue Ridge and VCB from their other responsibilities.
The merger could cause the respective management groups of Blue Ridge and VCB to focus their time and energies on matters related to the transaction that otherwise would be directed to their business and operations. Any such distraction on the part of either company’s management could affect its ability to service existing business and develop new business and adversely affect the business and earnings of Blue Ridge or VCB before the merger, or the business and earnings of Blue Ridge after the merger.
If the merger does not qualify as a reorganization under Section 368 of the Code, then certain holders of VCB common stock may incur additional U.S. income taxes related to the merger.
As structured, the merger will qualify as a reorganization within the meaning of Section 368 of the Code. However, if the United States Internal Revenue Service (the “IRS”) determines that the merger does not qualify as a reorganization under Section 368 of the Code, then the exchange of VCB common stock pursuant to the merger would be a taxable transaction, regardless of whether a holder of VCB receives cash or Blue Ridge common stock in exchange for that shareholder’s shares of VCB common stock. For holders of VCB common stock that elect to receive solely cash in exchange for their shares of VCB commonBay Banks, respectively.
stock pursuant to the merger (or who receive cash in exchange for their shares of VCB common stock pursuant to a valid exercise of their appraisal rights), the tax consequences will not be different. Each such holder of VCB common stock will recognize gain or loss on the exchange in an amount equal to the difference between the cash received and that holder’s adjusted tax basis in the shares of VCB common stock exchanged therefor. Holders of VCB common stock who elect to receive solely Blue Ridge common stock or a combination of cash and Blue Ridge common stock in the merger, however, may incur additional U.S. income taxes as a result of that exchange. In that case, each such holder of VCB common stock will recognize a gain or loss in an amount equal to the difference between the (i) the sum of the fair market value of cash and the Blue Ridge common stock received by such shareholder in the merger and (ii) such shareholder’s adjusted tax basis in the shares of VCB common stock exchanged therefor.
Risks Related to Blue Ridge’s Business
An investmentThe ongoing COVID-19 pandemic and measures intended to prevent its spread may adversely affect Blue Ridge’s business, financial condition and operations; the extent of such impacts are highly uncertain and difficult to predict.
Global health and economic concerns relating to the COVID-19 outbreak and government actions taken to reduce the spread of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. The pandemic has resulted in federal, state and local authorities, including those who govern the markets in which Blue Ridge operates, implementing numerous measures to try to contain the virus. These measures, including shelter in place orders and business limitations and shutdowns, have significantly contributed to rising unemployment and negatively impacted consumer and business spending.
The COVID-19 outbreak has adversely impacted and is likely to continue to adversely impact Blue Ridge’s workforce and operations and the operations of Blue Ridge’s customers and business partners. In particular, Blue Ridge may experience adverse effects due to a number of operational factors impacting it or its customers or business partners, including but not limited to:
loan losses resulting from financial stress experienced by Blue Ridge’s borrowers, especially those operating in industries hardest hit by government measures to contain the spread of the virus;
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
as a result of the decline in the Federal Reserve’s target federal funds rate, the yield on Blue Ridge’s assets may decline to a greater extent than the decline in Blue Ridge’s common stock involves certain risks, including those described below. The risks discussed below are substantially similarcost of interest-bearing liabilities, reducing Blue Ridge’s net interest margin and spread, and reducing net income;
operational failures, disruptions or inefficiencies due to those which VCB currently faceschanges in Blue Ridge’s normal business practices necessitated by Blue Ridge’s internal measures to protect its employees and government-mandated measures intended to slow the spread of the virus;
possible business disruptions experienced by Blue Ridge’s vendors and business partners in carrying out work that supports Blue Ridge’s operations;
decreased demand for Blue Ridge’s products and services due to economic uncertainty, volatile market conditions and temporary business closures;
potential financial liability, loan losses, litigation costs or reputational damage resulting from Blue Ridge’s origination of loans as an independent companya participating lender in the banking industry. Unless otherwise indicatedPaycheck Protection Program (the “PPP”) as administered through the U.S. Small Business Administration (the “SBA”); and
heightened levels of cyber and payment fraud, as cyber criminals try to take advantage of the disruption and increased online activity brought about by the pandemic.
The extent to which the pandemic impacts Blue Ridge’s business, liquidity, financial condition and operations will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. In addition, the rapidly changing and unprecedented nature of COVID-19 heightens the inherent uncertainty of forecasting future economic conditions and their impact on Blue Ridge’s loan portfolio, thereby increasing the risk that the assumptions, judgments and estimates used to determine the allowance for loan losses and other estimates are incorrect. Further, Blue Ridge’s loan deferral program could delay or make it difficult to identify the extent of asset quality deterioration during the 90-day deferral period. As a result of these and other conditions, the ultimate impact of the pandemic is highly uncertain and subject to change, and Blue Ridge cannot predict the full extent of the impacts on its
business, Blue Ridge’s operations or the global economy as a whole. To the context requires, all referencesextent any of the foregoing risks or other factors that develop as a result of COVID-19 materialize, it could exacerbate the other risk factors discussed in this sectionjoint proxy statement/prospectus, or otherwise materially and adversely affect Blue Ridge’s business, liquidity, financial condition and results of operations.
The outbreak of COVID-19, or the outbreak of another highly infectious or contagious disease, could adversely affect Blue Ridge’s business, financial condition and results of operations.
Blue Ridge’s business is dependent upon the willingness and ability of its customers to “we,” “us”conduct banking and “our” referother financial transactions. Since the beginning of January 2020, the COVID-19 outbreak has caused significant disruption in the financial markets both globally and in the United States. The continuing spread of COVID-19 and the related government actions to mandate or encourage quarantines and social distancing has resulted in a significant decrease in commercial activity nationally and in the Blue Ridge’s markets, and may cause customers, vendors, and counterparties to be unable to meet existing payment or other obligations to Blue Ridge and Blue Ridge Bank.
The national public health crisis arising from the COVID-19 pandemic (and public expectations about it), combined with certain pre-existing factors, including, but not limited to, international trade disputes, inflation risks, and oil price volatility, could further destabilize the financial markets and the markets in which Blue Ridge operates. The resulting impacts on consumers, including the sudden increase in the unemployment rate, is expected to cause changes in consumer and business spending, borrowing needs and saving habits, which will likely affect the demand for loans and other products and services Blue Ridge offers, as well as the creditworthiness of potential and current borrowers. Borrower loan defaults that adversely affect Blue Ridge’s earnings correlate with deteriorating economic conditions, which, in turn, may impact borrowers’ creditworthiness and Blue Ridge Bank’s ability to make loans.
The use of quarantines and social distancing methods to curtail the spread of COVID-19—whether mandated by governmental authorities or recommended as a public health practice—may adversely affect Blue Ridge’s operations as key personnel, employees and customers avoid physical interaction. In response to the COVID-19 pandemic, Blue Ridge Bank as appropriate.has been directing branch customers to use drive-thru windows and online banking services, and many employees are telecommuting. It is not yet known what impact these operational changes may have on Blue Ridge’s financial performance. The continued spread of COVID-19 (or an outbreak of a similar highly contagious disease) could also negatively impact the business and operations of third-party service providers who perform critical services for Blue Ridge’s business.
As a result, if COVID-19 continues to spread or the response to contain the COVID-19 pandemic is unsuccessful, Blue Ridge could experience a material adverse effect on its business, financial condition, and results of operations.
Blue Ridge’s credit standards and itson-going credit credit assessment processes might not protect it from significant credit losses.
Blue Ridge assumes credit risk by virtue of making loans and extending loan commitments and letters of credit. Blue Ridge manages credit risk through a program of underwriting standards, the review of certain credit decisions and a continuous quality assessment process of credit already extended. Blue Ridge’s exposure to credit risk is managed through the use of consistent underwriting standards that emphasize local lending while avoiding highly leveraged transactions, as well as excessive industry and other concentrations. Blue Ridge’s credit administration function employs risk management techniques to help ensure that problem loans and leases are promptly identified. While these procedures are designed to provide Blue Ridge with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.
Blue Ridge’sRidge Bank’s allowance for loan losses may be insufficient and any increases in the allowance for loan losses may have a material adverse effect on Blue Ridge’s financial condition and results of operations.
Blue Ridge Bank maintains an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents Blue Ridge’sRidge Bank’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.
The level of the allowance reflects management’s evaluation of the level of loans outstanding, the level ofnon-performing loans, loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires Blue Ridge Bank to make significant estimates of current credit risks and future trends, all of which may undergo material changes. The outbreak of the COVID-19 pandemic and the unprecedented governmental response have made these subjective judgements even more difficult. Although Blue Ridge Bank believes the allowance for loan losses is a reasonable estimate of known and inherent losses in the loan portfolio, it cannot precisely predict such losses or be certain that the loan loss allowance will be adequate in the future. Deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside Blue Ridge’sRidge Bank’s control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies and Blue Ridge’sRidge Bank’s auditors periodically review its allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. Further, if charge-offs in future periods exceed the allowance for loan losses, Blue Ridge Bank will need additional provisions to increase the allowance for loan losses.
Non-performing assets assets take significant time to resolve and adversely affect Blue Ridge’s results of operations and financial condition.
Blue Ridge’snon-performing assets assets adversely affect its net income in various ways.Non-performing assets, assets, which includenon-accrual loans loans and other real estate owned, were $5.6$4.5 million, or 0.74%0.30% of total assets, as of JuneSeptember 30, 2019.2020. When Blue Ridge receives collateral through foreclosures and similar proceedings, it is required to mark the related loan to the then fair market value of the collateral less estimated selling costs, which may result in a loss. An increased level ofnon-performing assets assets also increases Blue Ridge’s risk profile and may impact the capital levels regulators believe are appropriate in light of such risks. Blue Ridge utilizes various techniques such as workouts, restructurings and loan sales to manage problem assets. Increases in, or negative changes in, the value of these problem assets, the underlying collateral, or in the borrowers’ performance or financial condition, could adversely affect Blue Ridge’s business, results of operations and financial condition. In addition, the resolution ofnon-performing assets assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including generation of new loans. There can be no assurance that Blue Ridge will avoid increases innon-performing loans loans in the future.
Blue Ridge’s focus on lending to small tomid-sized community-based community-based businesses may increase its credit risk.
Most of Blue Ridge’s commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market areas in which Blue Ridge operates negatively impact this important customer sector, Blue Ridge’s results of operations and financial condition may be adversely affected. Moreover, a portion of these loans have been made by Blue Ridge in recent years and the borrowers may not have experienced a complete business or economic cycle. Any deterioration of the borrowers’ businesses may hinder their ability to repay their loans with Blue Ridge, which could have a material adverse effect on its financial condition and results of operations.
Blue Ridge’s concentration in loans secured by real estate may increase its future credit losses, which would negatively affect Blue Ridge’s financial results.
Blue Ridge offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Credit risk and credit losses can increase if its loans are concentrated to borrowers who, as a group, may be uniquely or disproportionately affected by economic or market conditions. As of JuneSeptember 30, 2019,2020, approximately 81.1%53.55% of Blue Ridge’s loans and approximately 76.45% of Bay Banks’ loans are secured by real estate, both residential and commercial, substantially all of which are located in itstheir respective market area.areas. A major change in the region’s real estate market in the regions in which Blue Ridge and Bay Banks operate, resulting in a deterioration in real estate values, or in the local or national economy, including changes caused by rising interest rates,the COVID-19 pandemic, could adversely affect Blue RidgeRidge’s or Bay Banks’ customers’ ability to pay these loans, which in turn could adversely impact Blue Ridge.Ridge or Bay Banks. Risk of loan defaults and foreclosures are inherent in the banking industry, and Blue Ridge tries to limit its exposure to this risk by carefully underwriting and monitoring its extensions of credit. Blue Ridge cannot fully eliminate credit risk, and as a result credit losses may occur in the future.
Blue Ridge has a moderate concentration of credit exposure in commercial real estate and loans with this type of collateral are viewed as having more risk of default.
As of JuneSeptember 30, 2019,2020, Blue Ridge had approximately $182.5$251.2 million in loans secured by commercial real estate, representing approximately 40.4%20.4% of total loans outstanding at that date. As of September 30, 2020, Bay Banks had approximately $358.6 million in loans secured by commercial real estate, representing approximately 34.0% of total loans outstanding at that date. The real estate consists primarily ofnon-owner-operated properties properties and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the owner’s business or the property to service the debt. It may be more difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers’ abilities to repay their loans frequently depends on the successful rental of their properties. Cash flows may be affected significantly by general economic conditions, and a sustained downturn in the local economy or in occupancy rates in the local economy where the property is located could increase the likelihood of default. Because Blue Ridge’s loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in its percentage ofnon-performing loans. loans. An increase innon-performing loans loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on Blue Ridge’s financial condition.
Blue Ridge’s banking regulators generally give commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital as a result of commercial real estate lending growth and exposures, which could have a material adverse effect on Blue Ridge’s results of operations.
A portion of Blue Ridge’s loan portfolio consists of construction and land development loans, and a decline in real estate values and economic conditions would adversely affect the value of the collateral securing the loans and have an adverse effect on Blue Ridge’s financial condition.
At JuneSeptember 30, 2019,2020, approximately 7.2%5.60% of Blue Ridge’s loan portfolio, or $32.7$68.9 million, and approximately 12.56% of Bay Banks’ loan portfolio, or $132.5 million, consisted of construction and land development loans. Construction financing typically involves a higher degree of credit risk than financing on improved, owner-occupied real estate and improved, income producing real estate. Risk of loss on a construction or land development loan is largely dependent upon the accuracy of the initial estimate of the property’s value at completion of construction or development, the marketability of the property, and the bid price and estimated cost (including interest) of construction or development. If the estimate of construction or development costs
proves to be inaccurate, Blue Ridge may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of the value proves to be inaccurate, it may be confronted, at or prior to the maturity of the loan, with a project whose value is insufficient to assure full repayment. When lending to builders and developers, the cost breakdown of construction or development is provided by the builder or developer. Although Blue Ridge’s underwriting criteria are designed to evaluate and minimize the risks of each construction or land development loan, there can be no guarantee that these practices will have safeguarded against material delinquencies and losses to Blue Ridge’s operations. In addition, construction and land development loans are dependent on the successful completion of the projects they finance. Loans secured by vacant or unimproved land are generally riskier than loans secured by improved property. These loans are more susceptible to adverse conditions in the real estate market and local economy.
Blue Ridge’s results of operations are significantly affected by the ability of borrowers to repay their loans.
A significant source of risk for Blue Ridge is the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most of Blue Ridge’s loans are secured but some loans are unsecured. With respect to the secured loans, the collateral securing the repayment of these loans may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in economic, environmental and other conditions, including the impacts of the COVID-19 pandemic, declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, terrorist activity, environmental contamination and other external events. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately collateralized when it is not. Blue Ridge has adopted underwriting and credit monitoring procedures and policies, including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to mitigate the risk of loss. An increase innon-performing loans loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on Blue Ridge’s financial condition and results of operations.
Changes in economic conditions, especially in the areas in which Blue Ridge conducts operations, could materially and negatively affect its business.
Blue Ridge’s business is directly impacted by economic conditions, legislative and regulatory changes, changes in government monetary and fiscal policies, and inflation, all of which are beyond its control. A deterioration in economic conditions, whether caused by global, national or local concerns (including the COVID-19 pandemic), especially within Blue Ridge’s market area, could result in the following potentially material consequences: loan delinquencies increasing; problem assets and foreclosures increasing; demand for products and services decreasing; low cost ornon-interest bearing bearing deposits decreasing; and collateral for loans, especially real estate, declining in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans. AnA continued economic downturn could result in losses that materially and adversely affect Blue Ridge’s business.
Blue Ridge may be adversely impacted by changes in market conditions.
Blue Ridge is directly and indirectly affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. As a financial institution, market risk is inherent in the financial instruments associated with Blue Ridge’s operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt and trading account assets and liabilities. A few of the market conditions that may shift from time to time, thereby exposing Blue Ridge to market risk, include fluctuations in interest rates, equity and futures prices, and price deterioration or changes in value due to changes in market perception or actual credit quality of issuers. Blue Ridge’s investment securities portfolio, in particular, may be impacted by market conditions beyond its control,
including rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, and inactivity or instability in the credit markets. Any changes in these conditions, in current accounting principles or interpretations of these principles could impact Blue Ridge’s assessment of fair value and thus the determination of other-than-temporary impairment of the securities in the investment securities portfolio, which could adversely affect Blue Ridge’s earnings and capital ratios.
Blue Ridge’s business is subject to interest rate risk, and variations in interest rates and inadequate management of interest rate risk may negatively affect financial performance.
Changes in the interest rate environment may reduce Blue Ridge’s profits. It is expected that Blue Ridge will continue to realize income from the differential or “spread” between the interest earned on loans, securities, and other interest-earninginterest earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earninginterest earning assets and interest-bearing liabilities. In addition, loan volume and yields are affected by market interest rates on loans, and risingthe current interest rates generally are associated with a lower volume ofrate environment encourages extreme competition for new loan originations.originations from qualified borrowers. Blue Ridge’s management cannot ensure that it can minimize interest rate risk. While an increase inIf the general level of interest rates maypaid on deposits and other borrowings increase at a faster rate than the loan yieldinterest rates received on loans and theother investments, Blue Ridge’s net interest margin, it mayincome, and therefore earnings, could be adversely affect the ability of certain borrowers with variable rate loans to payaffected. Earnings could also be adversely affected if the interest rates received on loans and principal of their obligations. Also, whenother investments fall more quickly than the difference between long-term interest rates paid on deposits and short-term interest rates is small or when short-term interest rates exceed long-term interest rates, Blue Ridge’s margins may decline and its earnings may be adversely affected.other borrowings. Accordingly, changes in levels of market interest rates could materially and adversely affect the net interest spread, asset quality, loan origination volume and Blue Ridge’s overall profitability.
Following the COVID-19 outbreak, market interest rates have declined significantly, with the 10-year U.S. Treasury bond falling below 1.00% on March 3, 2020 for the first time. Such events also may adversely affect business and consumer confidence, generally, and Blue Ridge and its customers, and their respective suppliers, vendors and processors may be adversely affected. On March 3, 2020, the Federal Open Market Committee (“FOMC”) reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. Subsequently, on March 16, 2020, the FOMC further reduced the target federal funds rate by an additional 100 basis points to 0.00% to 0.25%. These reductions in interest rates and related actions in response to the COVID-19 outbreak may adversely affect Blue Ridge’s financial condition and results of operations.
Blue Ridge’s mortgage banking revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market, any of which could adversely impact Blue Ridge’s profits.
Mortgage banking income, net of commissions, represented approximately 52.8%50.1% of Blue Ridge’s total noninterest income for the year ended December 31, 2018.2019, and approximately 68.5% of Blue Ridge’s total noninterest income for the nine months ended September 30, 2020. The success of Blue Ridge’s mortgage companydivision is dependent upon its ability to originate loans and sell them to investors at or near current volumes. Loan production levels are sensitive to changes in the level of interest rates and
changes in economic conditions. During the recovery from the financial crisis, revenues from mortgage banking increased due to a lowering interest rate environment that resulted in a high volume of mortgage loan refinancing activity. More recently,Subsequently, revenues have beenwere adversely affected by rising interest rates, home affordability and inventory issues, and changing incentives for homeownership. Following the outbreak of the COVID-19 pandemic, mortgage rates have generally fallen, creating the potential for renewed refinancing activity, but economic conditions have also deteriorated. Loan production levels may also suffer if Blue Ridge experiencesthere is a sustained slowdown in the housing markets in which itBlue Ridge conducts business or tightening credit conditions. Any sustained period of decreased activity caused by an economic downturn, fewer refinancing transactions, higher interest rates, housing price pressure or loan underwriting restrictions would adversely affect Blue Ridge’s mortgage originations and, consequently, could significantly reduce its income from mortgage banking activities. As a result, these conditions would also adversely affect Blue Ridge’s results of operations.
Blue Ridge’s liquidity needs could adversely affect results of operations and financial condition.
Blue Ridge’s primary sources of funds are deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including, but not limited to, changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, availability of, and/or access to, sources of refinancing, business closings orlay-offs, pandemics or endemics, inclement weather, natural disasters and international instability. Additionally, deposit levels may be affected by a number of factors, including, but not limited to, rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to customers on alternative investments and general economic conditions. Accordingly, Blue Ridge may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include Federal Home Loan Bank of Atlanta (“FHLB”) advances, sales of securities and loans, federal funds lines of credit from correspondent banks and borrowings from the Federal Reserve Discount Window, as well as additionalout-of-market time time deposits and brokered deposits. While Blue Ridge believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if Blue Ridge continues to grow and experiences increasing loan demand. Blue Ridge may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate.
Blue Ridge may need to raise additional capital in the future and may not be able to do so on acceptable terms, or at all.
Access to sufficient capital is critical in order to enable Blue Ridge to implement its business plan, support its business, expand its operations and meet applicable capital requirements. The inability to have sufficient capital, whether internally generated through earnings or raised in the capital markets, could adversely impact Blue Ridge’s ability to support and to grow its operations. If Blue Ridge grows its operations faster than it generates capital internally, it will need to access the capital markets. Blue Ridge may not be able to raise additional capital in the form of additional debt or equity on acceptable terms, or at all. Blue Ridge’s ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, Blue Ridge’s financial condition and its results of operations. Economic conditions and a loss of confidence in financial institutions may increase Blue Ridge’s cost of capital and limit access to some sources of capital. Further, if Blue Ridge needs to raise capital in the future, it may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a material adverse impact on Blue Ridge’s business, financial condition and results of operations.
Future issuances of Blue Ridge’s common stock could adversely affect the market price of the common stock and could be dilutive.
The Blue Ridge Board, without the approval of shareholders, could from time to time decide to issue additional shares of common stock or shares of preferred stock, which may adversely affect the market price of the shares of common stock and could be dilutive to Blue Ridge’s shareholders. Any sale of additional shares of Blue Ridge’s common stock may be at prices lower than the current market value of Blue Ridge’s shares. In addition, new investors may have rights, preferences and privileges that are senior to, and that could adversely affect, Blue Ridge’s existing shareholders. For example, preferred stock would be senior to common stock in right of dividends and as to distributions in liquidation. Blue Ridge cannot predict or estimate the amount, timing, or nature of its future offerings of equity securities. Thus, Blue Ridge’s shareholders bear the risk of future offerings diluting their stock holdings, adversely affecting their rights as shareholders, and/or reducing the market price of Blue Ridge’s common stock.
Blue Ridge operates in a highly regulated industry and the laws and regulations that govern Blue Ridge’s operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in them or Blue Ridge’s failure to comply with them, may adversely affect Blue Ridge.
Blue Ridge is subject to extensive regulation and supervision that govern almost all aspects of its operations. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on Blue Ridge’s business activities, limit the dividends or distributions that it can pay, restrict the ability of institutions to guarantee its debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in its capital than GAAP.accounting principles generally accepted in the United States of America (“GAAP”). Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs.
Blue Ridge is currently facing increased regulation and supervision of its industry as a result of the financial crisis in the banking and financial markets. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) instituted major changes to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect Blue Ridge in substantial and unpredictable ways. Such additional regulation and supervision has increased, and may continue to increase, Blue Ridge’s costs and limit its ability to pursue business opportunities. Further, Blue Ridge’s failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject it to restrictions on its business activities, fines and other penalties, any of which could adversely affect Blue Ridge’s results of operations, capital base and the price of its securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect Blue Ridge’s business and financial condition.
Recently enacted capital standards, including the rules implementing the Basel III capital framework and certain provisions of the Dodd-Frank Act (the “Basel III Capital Rules”),Rules, may require Blue Ridge and Blue Ridge Bank to maintain higher levels of capital and liquid assets, which could adversely affect Blue Ridge’s profitability and return on equity.
Blue Ridge is subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital that Blue Ridge and Blue Ridge Bank must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines. If Blue Ridge fails to meet these minimum capital guidelines and/or other regulatory requirements, its financial condition would be materially and adversely affected. The rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Act (the “Basel III Capital RulesRules”) require bank holding companies and their subsidiaries to maintain significantly more capital as a result of higher required capital levels and more demanding regulatory capital risk weightings and calculations. While Blue Ridge is exempt from these capital requirements under the Federal Reserve’s interim final rule required by the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”) that expands the applicability of the Federal Reserve’s Small Bank Holding Company Policy Statement (the “SBHC Policy Statement”), Blue Ridge Bank is not exempt and must comply. Blue Ridge Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act of 1950 (the “FDI Act”). Satisfying capital requirements may require Blue Ridge to limit its banking operations, retain net income or reduce dividends to improve regulatory capital levels, which could negatively affect its business, financial condition and results of operations. The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”),EGRRCPA, which became effective May 24, 2018, amended the Dodd-Frank Act to, among other things, provide relief from certain of these requirements. Although the EGRRCPA is still being implemented, Blue Ridge does not expect the EGRRCPA and the related rulemakings to materially reduce the impact of capital requirements on its business.
Regulations issued by the Consumer Financial Protection Bureau (the “CFPB”)CFPB could adversely impact earnings due to, among other things, increased compliance costs or costs due to noncompliance.
The CFPBConsumer Financial Protection Bureau (the “CFPB”) has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. For example, the CFPB issued a final rule, effective January 10, 2014, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms, or to originate “qualified mortgages” that meet specific requirements with respect to terms, pricing and fees. The rule also contains additional disclosure requirements at mortgage loan origination and in monthly statements. The requirements under the CFPB’s regulations and policies could limit Blue Ridge’s ability to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could adversely impact Blue Ridge’s profitability.
Blue Ridge is subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage Blue Ridge’s reputation and otherwise adversely affect its business.
Blue Ridge’s business requires the collection and retention of large volumes of customer data, including personally identifiable information (“PII”) in various information systems that Blue Ridge maintains and in those maintained by third party service providers. Blue Ridge also maintains important internal company data such as PII about its employees and information relating to its operations. Blue Ridge is subject to complex and evolving laws and regulations governing the privacy and protection of PII of individuals (including customers, employees and other third-parties). For example, Blue Ridge’s business is subject to the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”), which, among other things: (i) imposes certain limitations on Blue Ridge’s ability to share nonpublic PII about its customers with nonaffiliated third parties; (ii) requires that Blue Ridge provides certain disclosures to customers about its information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by it with nonaffiliated third parties (with certain exceptions); and (iii) requires that Blue Ridge develops, implements and maintains a written comprehensive information security program containing appropriate safeguards based on Blue Ridge’s size and complexity, the nature and scope of its activities, and the sensitivity of customer information it processes, as well as plans for responding to data security breaches. Various federal and state banking regulators and states have also enacted data breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in the event of a security breach. Ensuring that Blue Ridge’s collection, use, transfer and storage of PII complies with all applicable laws and regulations can increase Blue Ridge’s costs. Furthermore, Blue Ridge may not be able to ensure that customers and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused, Blue Ridge could be exposed to litigation or regulatory sanctions under privacy and data protection laws and regulations. Concerns regarding the effectiveness of Blue Ridge’s measures to safeguard PII, or even the perception that such measures are inadequate, could cause Blue Ridge to lose customers or potential customers and thereby reduce its revenues. Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws and regulations may subject Blue Ridge to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage Blue Ridge’s reputation and otherwise adversely affect its operations, financial condition and results of operations.
The obligations associated with operating as a public company following the merger will require significant resources and management attention and have caused and will continue to cause Blue Ridge to incur additional expenses, which will adversely affect its profitability.
FollowingBlue Ridge became a public company in connection with its acquisition of Virginia Community Bankshares, Inc. (“VCB”) in December 2019. Blue Ridge’s non-interest expenses have increased in 2020 and are expected to increase in the merger, Blue Ridge’snon-interest expenses will increasefuture as a result of the additional accounting, legal and various other additional expenses usually associated with operating as a public company and complying with public company disclosure obligations. As a privately held company prior to December 2019, Blue Ridge iswas not required to comply with certain corporate governance and financial reporting practices and policies required of a publicly traded company. After the merger, Blue Ridge will beis required to comply with the requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Act, stock exchangeNYSE American listing requirements and other applicable securities rules and regulations. The Exchange Act requires, among other things, that Blue Ridge files annual, quarterly, and current reports with respect to its business and operating results with the SEC. Blue Ridge will also beis required to ensure that it has the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. ComplianceDuring 2020, compliance with these rules and regulations will increasehave increased Blue Ridge’s legal and financial compliance costs, makemade some activities more difficult, time-consuming or costly and increaseincreased demand on Blue Ridge’s systems and resources. As a public company, Blue Ridge will, among other things:
prepare and distribute periodic public reports and other stockholder communications inSuch compliance with its obligations under the federal securities laws and applicable stock exchange rules;
create or expand the roles and duties of its board of directors and committees of the board;
institute more comprehensive financial reporting and disclosure compliance functions;
enhance its investor relations function;
establish new internal policies, including those relatingimpact is expected to disclosure controls and procedures; and
involve and retain to a greater degree outside counsel and accountantscontinue in the activities listed above.
These changes will require a significant commitment of additional resources.future. Blue Ridge might not be successful in complying with these obligations and the significant commitment of resources required for complying with them could have a material adverse effect on its business, financial condition, results of operations and cash flows.
Blue Ridge’s business and earnings are impacted by governmental, fiscal and monetary policy over which it has no control.
Blue Ridge is affected by domestic monetary policy. The Federal Reserve regulates the supply of money and credit in the United States and its policies determine in large part Blue Ridge’s cost of funds for lending, investing and capital raising activities and the return it earns on those loans and investments, both of which affect Blue Ridge’s net interest margin. The actions of the Federal Reserve also can materially affect the value of financial instruments that Blue Ridge holds, such as loans and debt securities, and also can affect Blue Ridge’s borrowers, potentially increasing the risk that they may fail to repay their loans. Blue Ridge’s business and earnings also are affected by the fiscal or other policies that are adopted by various regulatory authorities of the United States. Changes in fiscal or monetary policy are beyond Blue Ridge’s control and hard to predict.
Changes in accounting standards could impact reported earnings.
The authorities that promulgate accounting standards, including the Financial Accounting Standards Board (“FASB”), the SEC and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of Blue Ridge’s consolidated financial statements. These changes are difficult to predict and can materially impact how Blue Ridge records and reports its financial condition and results of operations. In some cases, Blue Ridge could be required to apply a new or revised standard retroactively, resulting in the restatement of financial statements for prior periods. Such changes could also require Blue Ridge to incur additional personnel or technology costs. For information regarding recent accounting pronouncements and their effects on Blue Ridge, see “Recent Accounting Pronouncements and Changes”Pronouncements” in Note 262 of Blue Ridge’s audited financial statements for the year ended December 31, 20182019 and Note 2 of Blue Ridge’s unaudited consolidated financial statements for the quarter ended September 30, 2020 included elsewhere in this joint proxy statement/prospectus.
Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on Blue Ridge’s results of operation and financial condition.
Effective internal and disclosure controls are necessary for Blue Ridge to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. Blue Ridge Bank is alreadyalso required to establish and maintain an adequate internal control structure over financial reporting pursuant to FDIC regulations.regulations of
the Federal Deposit Insurance Corporation (“FDIC”). As a public company, Blue Ridge will beis required by the Sarbanes-Oxley Act to design and maintain a system of internal control over financial reporting and, beginning with its second annual report on Form 10-K, include management’s assessment regarding internal control over financial reporting. If Blue Ridge cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of Blue Ridge’s ongoing monitoring of internal control, it may discover material weaknesses or significant deficiencies in its internal control that require remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Blue Ridge’s inability to maintain the operating effectiveness of the controls described above could result in a material misstatement to Blue Ridge’s financial statements or other disclosures, which could have an adverse effect on its business, financial condition or results of operations. In addition, any failure to maintain effective controls in accordance with Section 404 of the Sarbanes-Oxley Act and FDIC regulations or to timely effect any necessary improvement of Blue Ridge’s internal and disclosure controls could, among other things, result in losses from fraud or error, harm Blue Ridge’s reputation or cause investors to lose confidence in its reported financial information, all of which could have a material adverse effect on its results of operation and financial condition.
Blue Ridge qualifies as an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make its common stock less attractive to investors.
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), 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 debt in a three-year period, or if the market value of its common stock held bynon-affiliates exceeds 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. Blue Ridge cannot predict if investors will find its common stock less attractive because it may rely on these exemptions, or if it chooses to rely on additional exemptions in the future. If some investors find Blue Ridge’s common stock less attractive as a result, there may be a less active trading market for its common stock and its stock price may be more volatile.
Blue Ridge also qualifies as a “smaller reporting company,” and the reduced disclosure obligations applicable to smaller reporting companies may makes its common stock less attractive to investors.
Blue Ridge also is a “smaller reporting company,” as defined in federal securities laws, and will remain a smaller reporting company until the fiscal year following the determination that its voting and non-voting common shares held by non-affiliates is more than $250 million measured on the last business day of ourits second fiscal quarter, or its annual revenues are less than $100 million during the most recently completed fiscal year and its voting and non-voting common shares held by non-affiliates is more than $700 million measured on the last
business day of its second fiscal quarter. Similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations, such as an exemption from providing selected financial data and an ability to provide simplified executive compensation information and only two years of audited financial statements. If Blue Ridge is a smaller reporting company at the time it ceases to be an emerging growth company, it may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. If some investors find Blue Ridge’s common stock less attractive because it may rely on these reduced disclosure obligations, there may be a less active trading market for its common stock and its stock price may be more volatile.
Blue Ridge faces strong and growing competition from financial services companies and other companies that offer banking and other financial services, which could negatively affect Blue Ridge’s business.
Blue Ridge encounters substantial competition from other financial institutions in its market area and competition is increasing. Ultimately, Blue Ridge may not be able to compete successfully against current and future competitors. Many competitors offer the same banking services that Blue Ridge offers in its service area. These competitors include national, regional and community banks. Blue Ridge also faces competition from many other types of financial institutions, including finance companies, mutual and money market fund providers, brokerage firms, insurance companies, credit unions, financial subsidiaries of certain industrial corporations, financial technology companies and mortgage companies. Increased competition may result in reduced business for Blue Ridge.
Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain loans and deposits, and range and quality of products and services provided, including new technology-driven products and services. If Blue Ridge is unable to attract and retain banking customers, it may be unable to continue to grow loan and deposit portfolios and its results of operations and financial condition may otherwise be adversely affected.
Combining Blue Ridge and VCB may be more difficult, costly or time-consuming than expected.
The success of Blue Ridge’s acquisition of VCB will depend, in part, on Blue Ridge’s ability to realize the anticipated benefits and cost savings from combining the businesses of Blue Ridge and VCB. To realize such anticipated benefits and cost savings, Blue Ridge must successfully combine the businesses of Blue Ridge and VCB in a manner that permits growth opportunities and cost savings to be realized without materially disrupting existing customer relationships or decreasing revenues due to loss of customers. If Blue Ridge is not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully, or at all, or may take longer to realize than expected.
Until the completion of the merger in December 2019, Blue Ridge and VCB operated independently. To realize anticipated benefits from the merger, Blue Ridge will continue to integrate VCB’s business into its own. The integration process could result in the loss of key employees, the disruption of Blue Ridge’s ongoing business, or inconsistencies in standards, controls, procedures and policies that affect adversely Blue Ridge’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the merger. The loss of key employees could adversely affect Blue Ridge’s ability to conduct business in the markets it entered in connection with its acquisition of VCB, which could have an adverse effect on Blue Ridge’s financial results and the value of its common stock. If Blue Ridge experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized, fully or at all, or may take longer to realize than expected, which could have a material adverse effect on its results of operation and financial condition.
Blue Ridge may not be able to effectively integrate the operations of Blue Ridge Bank and Virginia Community Bank.
The future operating performance of Blue Ridge Bank will depend, in part, on the success of the merger of Blue Ridge Bank and Virginia Community Bank in December 2019. The success of the Blue Ridge Bank and Virginia Community Bank merger depends on a number of factors, including Blue Ridge’s ability to (i) integrate operations and branches, (ii) retain deposits and customers, (iii) control the incremental increase in noninterest expense arising from the merger, and (iv) retain and integrate appropriate personnel and reduce overlapping personnel. The continued integration of Blue Ridge Bank and Virginia Community Bank will require the dedication of the time and resources of Blue Ridge’s management team and may temporarily distract the management team’s attention from the day-to-day business of Blue Ridge and Blue Ridge Bank. If Blue Ridge Bank and Virginia Community Bank are unable to successfully integrate, Blue Ridge Bank may not be able to realize expected operating efficiencies and eliminate redundant costs.
Blue Ridge may not be able to successfully manage its long-term growth, which may adversely affect its results of operations and financial condition.
A key aspect of Blue Ridge’s long-term business strategy is its continued growth and expansion. Blue Ridge’s ability to continue to grow depends, in part, upon its ability to (i) open new branch offices or acquire existing branches or other financial institutions, (ii) attract deposits to those locations, and (iii) identify attractive loan and investment opportunities.
Blue Ridge may not be able to successfully implement its growth strategy if it is unable to identify attractive markets, locations or opportunities to expand in the future, or if Blue Ridge is subject to regulatory restrictions on growth or expansion of its operations. Blue Ridge’s ability to manage its growth successfully also will depend on whether it can maintain capital levels adequate to support its growth, maintain cost controls and asset quality and successfully integrate any businesses Blue Ridge acquires into its organization. As Blue Ridge identifies opportunities to implement its growth strategy by opening new branches or acquiring branches or other banks, it may incur increased personnel, occupancy and other operating expenses. In the case of new branches, Blue Ridge must absorb those higher expenses while it begins to generate new deposits, and there is a further time lag involved in redeploying new deposits into attractively priced loans and other higher yielding assets.
Blue Ridge may consider acquiring other businesses or expanding into new product lines that it believes will help it fulfill its strategic objectives. Blue Ridge expects that other banking and financial companies, some of which have significantly greater resources, will compete with it to acquire financial services businesses. This competition could increase prices for potential acquisitions that Blue Ridge believes are attractive. Acquisitions may also be subject to various regulatory approvals. If Blue Ridge fails to receive the appropriate regulatory approvals, it will not be able to consummate acquisitions that it believes are in its best interests.
When Blue Ridge enters into new markets or new lines of business, its lack of history and familiarity with those markets, clients and lines of business may lead to unexpected challenges or difficulties that inhibit its success. Blue Ridge’s plans to expand could depress earnings in the short run, even if it efficiently executes a growth strategy leading to long-term financial benefits.
Blue Ridge depends on the accuracy and completeness of information about clients and counterparties and Blue Ridge’s financial condition could be adversely affected if it relies on misleading or incorrect information.
In deciding whether to extend credit or to enter into other transactions with clients and counterparties, Blue Ridge may rely on information furnished to it by or on behalf of clients and counterparties, including financial statements and other financial information, which it does not independently verify. Blue Ridge also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend
credit to clients, Blue Ridge may assume that a client’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of that client. Blue Ridge’s financial condition and results of operations could be negatively impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading.
Blue Ridge’s success depends on its management team, and the unexpected loss of any of these personnel could adversely affect operations.
Blue Ridge’s success is, and is expected to remain, highly dependent on its management team, including current VCB officers that will join the management team in connection with the merger.team. This is particularly true because, as a community bank, Blue Ridge depends on the management team’s ties to the community and customer relationships to generate business. Blue Ridge’s growth will continue to place significant demands on management, and the loss of any such person’s services may have an adverse effect upon growth and profitability. If Blue Ridge fails to retain or continue to recruit qualified employees, growth and profitability could be adversely affected.
The success of Blue Ridge’s strategy depends on its ability to identify and retain individuals with experience and relationships in its markets.
In order to be successful, Blue Ridge must identify and retain experienced key management members and sales staff with local expertise and relationships. Competition for qualified personnel is intense and there is a limited number of qualified persons with knowledge of and experience in the community banking and mortgage industry in Blue Ridge’s chosen geographic market. Even if Blue Ridge identifies individuals that it believes could assist it in building its franchise, it may be unable to recruit these individuals away from their current employers. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out Blue Ridge’s strategy is often lengthy. Blue Ridge’s inability to identify, recruit and retain talented personnel could limit its growth and could materially adversely affect its business, financial condition and results of operations.
Blue Ridge relies on other companies to provide key components of its business infrastructure.
Third parties provide key components of Blue Ridge’s business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While Blue Ridge has selected these third-party vendors carefully, it does not control their actions. Any problem caused by these third parties, including poor performance of services, failure to provide services, disruptions in communication services provided by a vendor and failure to handle current or higher volumes, could adversely affect Blue Ridge’s ability to deliver products and services to its customers and otherwise conduct its business, and may harm its reputation. Financial or operational difficulties of a third-party vendor could also hurt Blue Ridge’s operations if those difficulties interface with the vendor’s ability to serve Blue Ridge. Replacing these third-party vendors could also create significant delay and expense. Accordingly, use of such third-parties creates an unavoidable inherent risk to Blue Ridge’s business operations.
The soundness of other financial institutions could adversely affect Blue Ridge.
Blue Ridge’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Blue Ridge has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by Blue Ridge or by other institutions. Many of these transactions expose Blue Ridge to credit risk in the event of default of its counterparty or client. In addition, credit risk may be exacerbated when the collateral held cannot be realized upon or is liquidated at prices insufficient to recover the full amount of the financial instrument exposure due. There is no assurance that any such losses would not materially and adversely affect results of operations.
Blue Ridge is subject to a variety of operational risks, including reputational risk, legal and compliance risk, and the risk of fraud or theft by employees or outsiders.
Blue Ridge is exposed to many types of operational risks, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees, operational errors, clerical or record-keeping errors, and errors resulting from faulty or disabled computer or communications systems.
Reputational risk, or the risk to Blue Ridge’s earnings and capital from negative public opinion, could result from Blue Ridge’s actual or alleged conduct in any number of activities, including lending practices, corporate governance, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect Blue Ridge’s ability to attract and keep customers and employees and can expose it to litigation and regulatory action.
Further, if any of Blue Ridge’s financial, accounting, or other data processing systems fail or have other significant issues, Blue Ridge could be adversely affected. Blue Ridge depends on internal systems and outsourced technology to support these data storage and processing operations. Blue Ridge’s inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of Blue Ridge’s business operations. It could be adversely affected if one of its employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates its operations or systems. Blue Ridge is also at risk of the impact of natural disasters, terrorism and international hostilities on its systems and from the effects of outages or other failures involving power or communications systems operated by others. Blue Ridge may also be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for example, computer viruses or electrical or communications outages), which may give rise to disruption of service to customers and to financial loss or liability. In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although Blue Ridge has policies and procedures in place to verify the authenticity of its customers, it cannot guarantee that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to Blue Ridge’s reputation. If any of the foregoing risks materialize, it could have a material adverse effect on Blue Ridge’s business, financial condition and results of operations.
Pending litigation could result in a judgment against Blue Ridge resulting in the payment of damages.
On August 12, 2019, a former employee of VCB and participant in its Employee Stock Ownership Plan (the “ESOP”) filed a class action complaint against VCB, Virginia Community Bank, and certain individuals associated with the ESOP in the U.S. District Court for the Western District of Virginia, Charlottesville Division (Case No. 3:19-cv-00045-GEC). The complaint alleges, among other things, that the defendants breached their fiduciary duties to ESOP participants in violation of the Employee Retirement Income Security Act of 1974, as amended. The complaint alleges that the ESOP incurred damages “that approach or exceed $12 million.” Blue Ridge automatically assumed any liability of VCB in connection with this litigation as a result of Blue Ridge’s acquisition of VCB. The outcome of this litigation is uncertain, and the plaintiff and other individuals may file additional lawsuits related to the ESOP. The defense, settlement, or adverse outcome of any such lawsuit or claim could have a material adverse financial impact on Blue Ridge.
Blue Ridge may be required to transition from the use of the London Interbank Offered Rate (“LIBOR”)LIBOR index in the future.
Blue Ridge has certain variable-rate loans indexed to LIBOR to calculate the loan interest rate. The United Kingdom Financial Conduct Authority, which regulates LIBOR, has announced that the continued availability of the LIBOR on the current basis is not guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional
reforms to LIBOR may be enacted in the United Kingdom or elsewhere. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR, and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based variable-rate loans, as well as LIBOR-based securities, subordinated notes, trust preferred securities, or other securities or financial arrangements. The implementation of a substitute index or indices for the calculation of interest rates under Blue Ridge’s loan agreements with borrowers, subordinated notes that it has issued, or other financial arrangements may cause Blue Ridge to incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers or other counter-parties over the appropriateness or comparability to LIBOR of the substitute index or indices, any of which could have a material adverse effect on Blue Ridge’s results of operations.
Blue Ridge’s operations may be adversely affected by cyber security risks.
In the ordinary course of business, Blue Ridge collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks. The secure processing, maintenance, and use of this information is critical to operations and Blue Ridge’s business strategy. Blue Ridge has invested in accepted technologies, and continually reviews processes and practices that are designed to protect its networks, computers, and data from damage or unauthorized access. Despite these security measures, Blue Ridge’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged or disclosed. A breach in security could result in legal claims, regulatory penalties, disruption in operations, and damage to Blue Ridge’s reputation, which could adversely affect its business and financial condition. Furthermore, as cyber threats continue to evolve and increase, Blue Ridge may be required to expend significant additional financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any identified information security vulnerabilities.
In addition, multiple major U.S. retailers have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information and other financial or privileged data. Retailer incursions affect cards issued and deposit accounts maintained by many banks, including Blue Ridge.Ridge Bank. Although Blue Ridge’s systems are not breached in retailer
incursions, these events can cause it to reissue a significant number of cards and take other costly steps to avoid significant theft loss to Blue Ridge and its customers. In some cases, Blue Ridge may be required to reimburse customers for the losses they incur. Other possible points of intrusion or disruption not within Blue Ridge’s control include internet service providers, electronic mail portal providers, social media portals, distant-server (cloud) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.
Consumers may increasingly decide not to use banks to complete their financial transactions, which would have a material adverse impact on Blue Ridge’s financial condition and operations.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on Blue Ridge’s financial condition and results of operations.
Blue Ridge’s ability to operate profitably may be dependent on its ability to integrate or introduce various technologies into its operations.
The market for financial services, including banking and consumer finance services, is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, online banking and tele-banking. Blue Ridge’s ability to compete successfully in its market may depend on the extent to which it is able to implement or exploit such technological changes. If Blue Ridge is not able to afford such technologies, properly or timely anticipate or implement such technologies, or effectively train its staff to use such technologies, its business, financial condition or operating results could be adversely affected.
Blue Ridge relies upon independent appraisals to determine the value of the real estate that secures a significant portion of its loans and the value of foreclosed properties carried on its books, and the values indicated by such appraisals may not be realizable if it is forced to foreclose upon such loans or liquidate such foreclosed property.
As indicated above, a significant portion of Blue Ridge’s loan portfolio consists of loans secured by real estate and it also holds a portfolio of foreclosed properties. Blue Ridge relies upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment that adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of Blue Ridge’s loans and the foreclosed properties held by Blue Ridge may be more or less valuable than anticipated. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, Blue Ridge may not be able to recover the outstanding balance of the loan. It may also be unable to sell its foreclosed properties for the values estimated by their appraisals.
Blue Ridge is exposed to risk of environmental liabilities with respect to properties to which it takes title.
In the course of its business, Blue Ridge may foreclose and take title to real estate, potentially becoming subject to environmental liabilities associated with the properties. Blue Ridge may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation andclean-up costs costs or Blue Ridge may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. Costs associated with investigation or remediation activities can be substantial. If Blue Ridge is the owner or former owner of a contaminated site, it may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect Blue Ridge’s business.
Risks Related to Blue Ridge’s Common Stock
Blue Ridge is not obligated to pay dividends and its ability to pay dividends is limited.
Blue Ridge’s ability to make dividend payments on its common stock depends primarily on certain regulatory considerations and the receipt of dividends and other distributions from Blue Ridge Bank. There are various regulatory restrictions on the ability of banks, such as Blue Ridge Bank, to pay dividends or make other payments to their holding companies. Blue Ridge is currently paying a quarterly cash dividend to holders of its common stock at a rate of $0.1425 per share. Although Blue Ridge has historically paid a cash dividend to the holders of its common stock, holders of its common stock are not entitled to receive dividends, and Blue Ridge is not obligated to pay dividends in any particular amounts or at any particular times. Regulatory, economic and other factors may cause the Blue Ridge BoardRidge’s board to consider, among other things, the reduction of dividends paid on its common stock. See “Description of Blue Ridge Capital Stock” on page [●] and “Market for Common Stock and Dividends” on page [●].
Future issuances of Blue Ridge’s common stock could adversely affect the market price of the common stock and could be dilutive.
Following the completion of the merger, the Blue Ridge Board, without the approval of shareholders, could from time to time decide to issue additional shares of common stock or shares of preferred stock, which may adversely affect the market price of the shares of common stock and could be dilutive to Blue Ridge shareholders. Any sale of additional shares of Blue Ridge common stock may be at prices lower than the market value of the shares to be issued in the merger or on terms better than those of the shares to be issued in the merger. In addition, new investors may have rights, preferences and privileges that are senior to, and that could adversely affect, Blue Ridge’s existing shareholders. For example, preferred stock would be senior to common stock in right of dividends and as to distributions in liquidation. Blue Ridge cannot predict or estimate the amount, timing, or nature of its future offerings of equity securities. Thus, Blue Ridge shareholders bear the risk of future offerings diluting their stock holdings, adversely affecting their rights as shareholders, and/or reducing the market price of Blue Ridge common stock.
Blue Ridge common stock currently has a limited trading market and is thinly traded, and a more liquid market for its common stock may not develop, after the merger, which may limit the ability of shareholders to sell their shares and may increase price volatility.
Blue Ridge’s common stock is quotedlisted on the OTC Markets Group’s Pink marketplaceNYSE American market under the symbol “BRBS.” Blue RidgeRidge’s common stock is thinly traded and has substantially less liquidity than the trading markets for many other bank holding companies. Although Blue Ridge intends to apply to listrecently listed its common stock on the New York Stock Exchange in connection with the merger,NYSE American market, Blue Ridge will be required to meet the initial listing requirements of such exchange to be listed. Blue Ridge may not be able to meet those initial listing requirements, and even if Blue Ridge’s common stock is so listed, Blue
Ridge may be unable to maintain the listing of its common stock in the future. In addition, there can be no assurance that an active trading market for shares of Blue Ridge’s common stock will develop or if one develops, that it can be sustained following the merger.sustained. The development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within Blue Ridge’s control. Therefore, Blue Ridge’s shareholders may not be able to sell their shares at the volume, prices, or times that they desire. Shareholders should be financially prepared and able to hold shares for an indefinite period.
In addition, thinly traded stocks can be more volatile than more widely traded stocks. Blue Ridge’s stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These factors include, but are not limited to, changes in analysts’ recommendations or projections, developments related to Blue Ridge’s business and operations, stock performance of other companies deemed to be peers, news reports of trends, concerns, irrational exuberance on the part of investors, and other issues related to the financial services industry. Blue Ridge’s stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to its performance. General market declines or market volatility in the future, especially in the financial institutions sector of the economy, could adversely affect the price of Blue Ridge’s common stock, and the current market price may not be indicative of future market prices.
Blue Ridge’s governing documents and Virginia law contain provisions that may discourage or delay an acquisition of Blue Ridge even if such acquisition or transaction is supported by shareholders.
Certain provisions of Blue Ridge’s articles of incorporation could delay or make a merger, tender offer or proxy contest involving Blue Ridge more difficult, even in instances where the shareholders deem the proposed transaction to be beneficial to their interests. One provision, among others, provides that a plan of merger, share exchange, sale of all or substantially all of Blue Ridge’s assets, or similar transaction must be approved and recommended by the affirmative vote of 80% of the outstanding capital stock of Blue Ridge entitled to vote on the transaction if the transaction is with a corporation, person or entity that is a beneficial owner, directly or indirectly, of more than 5% of the shares of capital stock of Blue Ridge. In addition, certain provisions of state and federal law may also have the effect of discouraging or prohibiting a future takeover attempt in which Blue RidgeRidge’s shareholders might otherwise receive a substantial premium for their shares over then-current market prices. To the extent that these provisions discourage or prevent takeover attempts, they may tend to reduce the market price for Blue Ridge’s common stock.
The rights of holders of Blue RidgeRidge’s common stock are subordinate in some respects to the rights of holders of Blue Ridge’s debt securities.
As of JuneSeptember 30, 2019,2020, Blue Ridge had $10.0$25.0 million of subordinated notes outstanding and may issue more debt securities or otherwise incur debt in the future. The rights of holders of Blue Ridge’s debt to receive payments are superior to the rights of the holders of Blue Ridge’s common stock to receive payments of dividends and payments upon a sale or liquidation of Blue Ridge. In addition, the agreements under which the subordinated notes were issued prohibit Blue Ridge from paying any dividends on its common stock or making any other distributions to its shareholders upon its failure to make any required payment of principal or interest or during the continuance of an event of default under the applicable agreement. Events of default generally consist of,
among other things, certain events of bankruptcy, insolvency or liquidation relating to Blue Ridge. If Blue Ridge were to fail to make a required payment of principal or interest on its subordinated notes, it could have a material adverse effect on the market value of Blue Ridge’s common stock.
An investment in Blue RidgeRidge’s common stock is not an insured deposit.
Blue Ridge’s common stock is not a bank deposit and, therefore, it is not insured against loss by the Federal Deposit Insurance Corporation (the “FDIC”)FDIC or by any other public or private entity. An investment in Blue RidgeRidge’s common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this joint proxy statement/prospectusreport and is subject to the same market forces that affect the price of common stock in any company and, as a result, shareholders may lose some or all of their investment.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This joint proxy statement/prospectus reflects the current views and estimates of future economic circumstances, industry conditions, company performance, and financial results of the management of Blue Ridge and VCB.Bay Banks. These forward-looking statements are subject to a number of factorsrisks and uncertainties which could cause Blue Ridge’s or VCB’sBay Banks’ 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 and VCBBay Banks do 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 transactionmerger between Blue Ridge and VCB,Bay Banks, 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,merger, and (ii) Blue Ridge’s and VCB’sBay Banks’ plans, objectives, expectations and intentions and other statements contained in this joint proxy statement/prospectus that are not historical facts. Other statements identified by words such asincluding, but not limited to, “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 and VCB’sBay Banks’ 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:
fluctuations in the market price of Blue Ridge common stock and the related effect on the market value of the stockmerger consideration that VCBBay Banks shareholders maywill receive upon completion of the merger;
the expected cost savings from the transactionmerger may not be fully realized or may take longer to realize than expected;
the integration of the businesses of Blue Ridge and VCBBay Banks may be more difficult, costly or time-consuming than expected, and could result in the loss of customers;
regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met;
a significant delay in the completion of the merger could negatively affect Blue Ridge and VCBBay Banks as a combined company;
the fairness opinions of Blue Ridge’s and VCB’sBay Banks’ advisors have not been, and are not expected to be, updated to reflect changes in circumstances between the date of the opinions and the shareholder meetings or the completion of the merger;
if the merger is completed, VCBBlue Ridge and Bay Banks shareholders will have less influence on the management and policies of Blue Ridge than they had on VCBBlue Ridge and Bay Banks, respectively, independently before the merger;
business uncertainties and contractual restrictions while the merger is pending;
distraction of VCBBay Banks and Blue Ridge management as a result of the merger;
changesthe strength of the United States economy in general and the strength of the local economies in which we conduct operations;
geopolitical conditions, including acts or threats of terrorism, or actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;
the effects of the COVID-19 pandemic, including the adverse impact on Blue Ridge’s and Bay Banks’ business and operations and on their customers which may result, among other things, in increased delinquencies, defaults, foreclosures and losses on loans;
the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events;
the management of risks inherent in the real estate loan portfolio of Bay Banks and Blue Ridge, and the risk of a prolonged downturn in the real estate market, conditions;which could impair the value of both companies’ collateral and ability to sell collateral upon any foreclosure;
changes in fiscalconsumer spending and savings habits; technological and social media changes;
the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rate, market and regulations;monetary fluctuations;
changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or Blue Ridge Bank or Virginia Commonwealth Bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;
the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;
the impact of changes in laws, regulations and policies affecting the real estate industry;
the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (the “FASB”) or other accounting standards setting bodies;
the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;
the willingness of users to substitute competitors’ products and services for products and services of Blue Ridge and Bay Banks;
the effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;
changes in interest rates, deposit flows, loan demandthe level of nonperforming assets and real estate values;charge-offs of Blue Ridge and Bay Banks;
deteriorationour involvement, from time to time, in asset quality and/orlegal proceedings and examination and remedial actions by regulators;
potential exposure to fraud, negligence, computer theft and cyber-crime;
Blue Ridge’s ability to pay dividends;
Blue Ridge’s involvement as a reduced demand for, or supply of, credit;participating lender in the PPP as administered through the SBA; and
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;
other risks and factors identified in this joint proxy statement/prospectus in the “Risk Factors” section beginning on page [●].31.
On December 15, 2019, Blue Ridge completed its acquisition of VCB. In addition to the factors described above, Blue Ridge’s operations, performance, business strategy and results may be affected by the following factors:
cost savings from the acquisition may not be fully realized or realized within the expected timeframe;
the businesses of Blue Ridge and/or VCB may not be integrated successfully or such integration may be more difficult, time-consuming or more costly than expected;
revenues following the acquisition may be lower than expected; and
customer and employee relationships and business operations may be disrupted by the acquisition.
The COVID-19 pandemic is having a swift and seismic impact on the economy. Recognizing this impact, in March 2020, Blue Ridge quickly pivoted to an aggressive borrower outreach campaign to discuss immediate and foreseeable effects on businesses in its market areas, and these efforts continued throughout the second quarter of 2020. The significant uncertainty surrounding the duration of shutdowns and a return to normal consumer and business behavior make the ultimate outcomes difficult to predict, but Blue Ridge is managing its efforts around a worst-case scenario. Blue Ridge has undertaken substantial efforts to reduce noninterest expense levels, including personnel costs, where feasible. Blue Ridge is also performing a deep review of market and division line profitability. Blue Ridge took advantage of the decline in interest rates triggered by COVID-19 to reduce cost of funds and to restructure and extend liability pricing. Branch operations were redirected to drive-thru and digital channels across the bank in mid-March and resumed normalized branch operations, following appropriate hygienic and distancing guidelines, in early July 2020. Lending focus shifted from loan originations to portfolio maintenance and protection, which includes working with borrowers on loan deferrals.
Blue Ridge is evaluating the possible long-term implications of the response to COVID-19 to its operations, and to the financial services industry as a whole. Blue Ridge believes that the sudden then sustained shift in the conduct of banking business away from branch locations will accelerate the move to digital channels by users of financial services. The potential direction of this consumer behavior will likely generate a substantive impact on Blue Ridge’s strategic planning, and it is reasonable to expect that the value of bricks and mortar locations will likely decline as preferences shift in a world impacted by social distancing.
The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in this joint proxy statement/prospectus. We caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.
BLUE RIDGE SPECIAL MEETING OF SHAREHOLDERS
This section contains information about the Blue Ridge special meeting that has been called to vote upon the matters described below.
Blue Ridge is mailing this joint proxy statement/prospectus on or about [●], 2019,2020, to holders of shares of Blue Ridge common stock at the close of business on [●], 2019,December 8, 2020, which is the record date for the Blue Ridge special meeting. Together with this joint proxy statement/prospectus, Blue Ridge is also sending a notice of the Blue Ridge special meeting and a form of proxy that is solicited by the Blue Ridge Board for use at the Blue Ridge special meeting to be held on [●], 2019Thursday, January 21, 2021 at [●] [●].m.11:00 a.m., local time, at the [●],as a virtual meeting, and at any adjournment or postponement of that meeting.
At the special meeting, Blue Ridge shareholders will be asked to:
1. | Approve the Blue Ridge merger proposal (see “Blue Ridge |
2. | Approve any motion to adjourn the Blue Ridge special meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to achieve a quorum or to approve the Blue Ridge merger proposal (see “Blue Ridge |
Recommendations of the Blue Ridge Board
The Blue Ridge Board unanimously (1) determined that the merger agreement is in the best interests of Blue Ridge and its shareholders, (2) approved and adopted the merger agreement and (3) recommends that Blue Ridge shareholders vote “FOR” the Blue Ridge merger proposal. The Blue Ridge Board also unanimously recommends that Blue Ridge shareholders vote “FOR” the Blue Ridge adjournment proposal.
The Blue Ridge Board has fixed the close of business on [●], 2019December 8, 2020 as the record date for determining the shareholders entitled to notice of and to vote at the Blue Ridge special meeting or any postponement or adjournment thereof. Accordingly, Blue Ridge shareholders are only entitled to notice of and to vote at the Blue Ridge special meeting if they were record holders of Blue Ridge common stock at the close of business on the record date. On the record date, there were [●]5,718,621 shares of Blue Ridge common stock outstanding, held by approximately [●]650 holders of record.
To have a quorum that permits Blue Ridge to conduct business at the Blue Ridge special meeting, it needs the presence, whether in person via the Internet or by proxy, of the holders of Blue Ridge common stock representing a majority of the shares outstanding on the record date and entitled to vote. Each Blue Ridge shareholder is entitled to one vote for each outstanding share of Blue Ridge common stock held by such shareholder as of the close of business on the record date.
Holders of shares of Blue Ridge common stock present in person via the Internet at the Blue Ridge special meeting but not voting, and shares of Blue Ridge common stock for which Blue Ridge has received proxies indicating that its holders have abstained, will be counted as present at the Blue Ridge special meeting for purposes of determining whether there is a quorum for transacting business. With respect to shares held in “street name,” the holders of record have the authority to vote shares for which their customers do not provide voting
instructions only on certain “routine” items. In the case of“non-routine” items, the institution holding street name shares cannot vote the shares if it has not received voting instructions. These are considered to be “brokernon-votes.” Since there are no “routine” items to be voted on at the Blue Ridge special meeting, nominee record holders of Blue Ridge common stock that do not receive voting instructions from the beneficial owners of such shares will not be able to return a proxy card with respect to such shares; as a result, these shares will not be considered present at the Blue Ridge special meeting and will not count towards the satisfaction of a quorum.
Vote Required for the Blue Ridge Merger Proposal (Proposal No. 1)
Approval of the Blue Ridge merger proposal requires the affirmative vote of more thantwo-thirds of the shares of Blue Ridge common stock outstanding on the record date and entitled to vote.Accordingly, abstentions and brokernon-votes will have the same effect as votes against the Blue Ridge merger proposal. In addition, a failure to vote Blue Ridge shares by proxy or in person will have the same effect as a vote against the Blue Ridge merger proposal.
Vote Required for the Adjournment Proposal (Proposal No. 2)
The approval of the adjournment proposal requires that the votes cast for the proposal exceed the votes cast against the proposal, whether or not a quorum is present.
Abstentions and brokernon-votes will not count as votes cast and will have no effect for purposes of determining whether the adjournment proposal has been approved.
Stock Ownership of Blue Ridge Directors and Executive Officers
As of the record date, directors and executive officers of Blue Ridge and their affiliates beneficially owned [●]830,055 shares of Blue Ridge common stock, representing approximately [●]%14.51% of the aggregate voting power of Blue Ridge shares entitled to vote at the Blue Ridge special meeting. All of Blue Ridge’s directors have entered into affiliate agreements pursuant to which, subject to certain exceptions, they have agreed to vote their shares of Blue Ridge common stock in favor of the Blue Ridge merger proposal. As of the close of business on December 8, 2020, the record date for the Blue Ridge special meeting, shares constituting 11.88% of Blue Ridge common stock were subject to the affiliate agreements.
By Mail
A proxy card is enclosed for the use of Blue Ridge shareholders. To submit a proxy by mail, complete, sign, and date the enclosed proxy card and, if the Blue Ridge shareholder is a shareholder of record, return it as soon as possible in the enclosed postage-paid envelope. Street name shareholders should refer to the information card provided by his or her bank, broker, or other nominee. When the enclosed proxy card is returned properly executed, the shares of Blue Ridge common stock represented by it will be voted at the Blue Ridge special meeting in accordance with the instructions contained therein.
If the accompanying proxy card is returned properly executed without an indication as to how to vote, the Blue Ridge common stock represented by each such proxy will be voted at the Blue Ridge special meeting as follows: (1) “FOR” the Blue Ridge merger proposal (Proposal No. 1) and (2) “FOR” the Blue Ridge adjournment proposal (Proposal No. 2).
If the Blue Ridge special meeting is postponed or adjourned, all proxies will be voted at the postponed or adjourned Blue Ridge special meeting in the same manner as they would have been voted at the originally scheduled Blue Ridge special meeting except for any proxies that have been properly withdrawn or revoked.
By Internet or Telephone
You may vote your shares via the Internet, by accessing the site listed on the enclosed proxy card and following the instructions, or by telephone, by calling the toll-free number listed on the enclosed proxy card on a touch-tone phone and following the recorded instructions.
Street name shareholders may also be eligible to vote their shares over the Internet or by telephone, by following the voting instructions provided by the bank, broker or other nominee that holds the shares, using the Internet address or telephone number provided on the voting instruction card (if the bank, broker or other nominee provides this voting method).
Your vote is important! Please complete, sign, date, and return promptly the proxy card in the enclosed postage-paid envelope (or follow the instructions to vote your shares via the Internet or by telephone) whether or not you plan to attend the Blue Ridge special meeting in person.via the Internet.
Voting in PersonElectronically During the Meeting
If a Blue Ridge shareholder wishes to vote in person atduring the Blue Ridge special meeting, a ballot will be provided at the meeting.such shareholder should visit www.meetingcenter.io/205738032. However, street name shareholders must obtain a legal proxy, executed in such shareholder’s favor, fromfollow the instructions provided by the holder of record to be able to vote those shares at the meeting.
If you are not a shareholder of record, you must register in advance to attend the special meeting virtually on the Internet. To register to attend the Blue Ridge special meeting, you must submit proof of your proxy power (legal proxy) reflecting your holdings along with your name and email address to Blue Ridge’s transfer agent, Computershare, Inc. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on January 15, 2021.
You will receive a confirmation of your registration by email after Computershare, Inc. receives your registration materials. Requests for registration should be directed to Computershare, Inc. at the following:
By email: | Forward the email from your broker or other custodian, or attach an image of your legal proxy, to legalproxy@computershare.com | |
By mail: | Computershare, Inc. Blue Ridge Bankshares, Inc. Legal Proxy P.O. Box 43001 Providence, RI 02940-3001 |
Any Blue Ridge shareholder giving a proxy may change or revoke it at any time before the polls are closed for voting at the Blue Ridge special meeting. If a Blue Ridge shareholder grants a proxy with respect to the shareholder’s Blue Ridge shares and then attends the Blue Ridge special meeting in person via the Internet, such attendance at the Blue Ridge special meeting or at any adjournment or
postponement of the Blue Ridge special meeting will not automatically revoke the proxy. A Blue Ridge shareholder of record may change or revoke a proxy by:
timely delivering a later-dated proxy or a written notice of revocation;
voting via the Internet or telephone as of a date subsequent to the initial Internet or telephone vote; or
attending the Blue Ridge special meeting and voting in personduring the meeting (attendance at the Blue Ridge special meeting will not itself revoke a proxy).
If a Blue Ridge shareholder chooses the first method, he or she must submit the new proxy or notice of revocation to the Corporate Secretary of Blue Ridge, 17 West Main Street, Luray, Virginia 22835, so that it is received by the Corporate Secretary no later than the beginning of the Blue Ridge special meeting or, if the Blue Ridge special meeting is adjourned or postponed, before the adjourned or postponed meeting is actually held.
If a Blue Ridge shareholder is a street name shareholder, he or she must follow the instructions found on the voting instruction card provided by his or her bank, broker, or other nominee, or contact his or her bank, broker, or other nominee, in order to change or revoke a previously given voting instruction.
If assistance is needed in changing or revoking a proxy, please contact Amanda G. Story, Blue Ridge’s Corporate Secretary, at 17 West Main Street, Luray, Virginia 22835, or at (540)743-6521.
This solicitation is made on behalf of the Blue Ridge Board, and Blue Ridge will pay the costs of soliciting and obtaining proxies, including the cost of reimbursing brokers and other custodians, nominees, and fiduciaries for their expenses incurred in forwarding these proxy materials to Blue Ridge shareholders. Proxies may be solicited, without extra compensation, by Blue Ridge’s directors, officers, and employees in person or by mail, telephone or other electronic means. In addition, Blue Ridge has engaged Regan & Associates, Inc. to assist it in the distribution and solicitation of proxies for a fee of approximately $11,000.$20,000.
Proposal No. 1 – 1—Approval of the Merger
At the Blue Ridge special meeting, Blue Ridge shareholders will be asked to approve the Blue Ridge merger proposal providing for the merger of VCBBay Banks with and into Blue Ridge. Blue Ridge shareholders should read this joint proxy statement/prospectus carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus asAppendix A.
After careful consideration, the Blue Ridge Board, by a unanimous vote of all directors, approved the merger agreement and the merger, and determined that the merger is advisable and in the best interests of Blue Ridge and its shareholders. See “The Merger – Merger—Blue Ridge’s Reasons for the Merger; Recommendation of the Blue Ridge Board” for a more detailed discussion of the recommendation of the Blue Ridge Board.
THE BLUE RIDGE BOARD UNANIMOUSLY RECOMMENDS THAT BLUE RIDGE SHAREHOLDERS
VOTE “FOR” THE BLUE RIDGE MERGER PROPOSAL.
Proposal No. 2 – 2—Adjournment of the Special Meeting
If Blue Ridge does not receive a sufficient number of votes to constitute a quorum of the Blue Ridge common stock or approve the Blue Ridge merger proposal, it may propose to adjourn the special meeting for the purpose of soliciting additional proxies to establish such quorum or approve the merger agreement. Blue Ridge does not currently intend to propose adjournment of the special meeting if there are sufficient votes to approve such proposal. If approval of the proposal to adjourn the special meeting for the purpose of soliciting additional proxies is submitted to the Blue Ridge shareholders for approval, the approval requires that the votes cast for the proposal exceed the votes cast against the proposal, whether or not a quorum is present.
THE BLUE RIDGE BOARD UNANIMOUSLY RECOMMENDS THAT BLUE RIDGE SHAREHOLDERS
VOTE “FOR” THE BLUE RIDGE ADJOURNMENT PROPOSAL.
VCBBAY BANKS SPECIAL MEETING OF SHAREHOLDERS
This section contains information about the VCBBay Banks special meeting that has been called to vote upon the matters described below.
VCBBay Banks is mailing this joint proxy statement/prospectus on or about [●], 2019,2020, to holders of shares of VCBBay Banks common stock at the close of business on [●], 2019,November 30, 2020, which is the record date for the VCBBay Banks special meeting. Together with this joint proxy statement/prospectus, VCBBay Banks is also sending a notice of the VCBBay Banks special meeting and a form of proxy that is solicited by the VCBBay Banks Board for use at the VCBBay Banks special meeting to be held on [●], 2019Thursday, January 21, 2021, at [●]:10:00 [●].m.a.m., local time, in a virtual meeting format at [●],https://www.cstproxy.com/baybanks/2021, and at any adjournment or postponement of that meeting.
At the special meeting, VCBBay Banks shareholders will be asked to:
1. | Approve the |
2. | Approve the Bay Banks compensation proposal (see “Bay Banks Proposals—Proposal No. 2—Approval of the Compensation Proposal” on page 64); and |
3. | Approve any motion to adjourn the |
Recommendations of the VCBBay Banks Board
The VCBBay Banks Board unanimously (1) determined that the merger agreement is in the best interests of VCBBay Banks and its shareholders, (2) approved and adopted the merger agreement and (3) recommends that VCBBay Banks shareholders vote “FOR” the VCBBay Banks merger proposal. The VCBBay Banks Board also unanimously recommends that VCBBay Banks shareholders vote “FOR” the VCBBay Banks compensation proposal and “FOR” Bay Banks adjournment proposal.
The VCBBay Banks Board has fixed the close of business on [●], 2019November 30, 2020 as the record date for determining the shareholders entitled to notice of and to vote at the VCBBay Banks special meeting or any postponement or adjournment thereof. Accordingly, VCBBay Banks shareholders are only entitled to notice of and to vote at the VCBBay Banks special meeting if they were record holders of VCBBay Banks common stock at the close of business on the record date. On the record date, there were [●]13,329,695 shares of VCBBay Banks common stock outstanding, held by approximately [●]703 holders of record.
To have a quorum that permits VCBBay Banks to conduct business at the VCBBay Banks special meeting, it needs the presence, whether in person via the Internet or by proxy, of the holders of VCBBay Banks common stock representing a majority60% of the shares outstanding on the record date and entitled to vote. A VCBBay Banks shareholder is entitled to one vote for each outstanding share of VCBBay Banks common stock held as of the close of business on the record date.
Holders of shares of VCBBay Banks common stock present in person atattending the VCBvirtual Bay Banks special meeting but not voting, and shares of VCBBay Banks common stock for which VCBBay Banks has received proxies indicating that its holders have abstained, will be counted as present at the VCBBay Banks special meeting for purposes of determining
whether there is a quorum for transacting business. With respect to shares held in “street name,” the holders of record have the authority to vote shares for which their customers do not provide voting instructions only on certain routine items. In the case ofnon-routine items, items, the institution holding street name shares cannot vote the shares if it has not received voting instructions. These are considered to be “broker“broker non-votes.” Since there are no routine items to be voted on at the VCBBay Banks special meeting, nominee record holders of VCBBay Banks common stock that do not receive voting instructions from the beneficial owners of such shares will not be able to return a proxy card with respect to such shares; as a result, these shares will not be considered present at the VCBBay Banks special meeting and will not count towards the satisfaction of a quorum.
Vote Required for the VCBBay Banks Merger Proposal (Proposal No. 1)
Approval of the VCBBay Banks merger proposal requires the affirmative vote of not less thantwo-thirds 60% of the shares of VCBBay Banks common stock outstanding on the record date and entitled to vote.Accordingly, abstentions and brokernon-votes will have the same effect as votes against the VCBBay Banks merger proposal. In addition, a failure to vote VCBBay Banks shares by proxy or in personduring the meeting will have the same effect as a vote against the VCBBay Banks merger proposal.
Vote Required for the AdjournmentBay Banks Compensation Proposal (Proposal No. 2)
The approvalApproval of the adjournmentBay Banks compensation proposal requires that the votes cast foraffirmative vote of more than 60% of the proposal exceedshares represented at the Bay Banks special meeting. Abstentions will be counted as present at the Bay Banks special meeting and, accordingly, will have the same effect as votes cast against the Bay Banks compensation proposal.
Abstentions and broker Broker non-votes will not count as votes cast forand a failure to vote Bay Banks shares by proxy or againstduring the adjournment proposal andmeeting will have no effect for purposes of determining whether the Bay Banks compensation proposal has been approved.
Vote Required for the Adjournment Proposal (Proposal No. 3)
The approval of the Bay Banks adjournment proposal requires the affirmative vote of more than 60% of the shares represented at the Bay Banks special meeting, whether or not a quorum is present. Abstentions will be counted as present at the Bay Banks special meeting and, accordingly, will have the same effect as votes against the Bay Banks adjournment proposal. Broker non-votes and a failure to vote Bay Banks shares by proxy or during the meeting will have no effect for purposes of determining whether the Bay Banks adjournment proposal has been approved.
Stock Ownership of VCBBay Banks Directors and Executive Officers
As of the record date, directors and executive officers of VCBBay Banks and their affiliates beneficially owned [●]1,025,742 shares of VCBBay Banks common stock, representing approximately [●]%7.63% of the aggregate voting power of VCBBay Banks shares entitled to vote at the VCBBay Banks special meeting. All of VCB’sBay Banks’ directors have entered into affiliate agreements pursuant to which, subject to certain exceptions, they have agreed to vote their shares of VCBBay Banks common stock in favor of the VCBBay Banks merger proposal. As of the close of business on November 30, 2020, the record date for the Bay Banks special meeting, shares constituting approximately 6.42% of Bay Banks common stock were subject to the affiliate agreements.
By Mail
A proxy card is enclosed for the use of VCBBay Banks shareholders. To submit a proxy by mail, complete, sign, and date the enclosed proxy card and, if the VCBBay Banks shareholder is a shareholder of record, return it as soon as possible in the enclosed postage-paid envelope. Street name shareholders should refer to the information card provided by his or her bank, broker, or other nominee. When the enclosed proxy card is returned properly executed, the shares of VCBBay Banks common stock represented by it will be voted at the VCBBay Banks special meeting in accordance with the instructions contained therein.
If the accompanying proxy card is returned properly executed without an indication as to how to vote, the VCBBay Banks common stock represented by each such proxy will be voted at the VCBBay Banks special meeting as follows: (1) “FOR” the VCBBay Banks merger proposal (Proposal No. 1), (2) “FOR” the Bay Banks compensation proposal (Proposal No. 2) and (2)(3) “FOR” the VCBBay Banks adjournment proposal (Proposal No. 2)3).
If the VCBBay Banks special meeting is postponed or adjourned, all proxies will be voted at the postponed or adjourned VCBBay Banks special meeting in the same manner as they would have been voted at the originally scheduled VCBBay Banks special meeting except for any proxies that have been properly withdrawn or revoked.
By Internet, Smartphone or TelephoneTablet
You may vote your shares via the Internet, by accessing the site listed on the enclosed proxy card and following the instructions, or by telephone,smartphone or tablet, by callingscanning the toll-free number listedQR code on the enclosed proxy card on a touch-tone phone and following the recorded instructions.
Street name shareholders may also be eligible to vote their shares over the Internet or by telephone or other electronic means, by following the voting instructions provided by the bank, broker or other nominee that holds the shares using the Internet address or telephone number provided on the voting instruction card (if the bank, broker or other nominee provides this voting method).
Your vote is important! Please complete, sign, date, and return promptly the proxy card in the enclosed postage-paid envelope (or follow the instructions to vote your shares via the Internet or by telephone)smartphone or tablet) whether or not you plan to attend the VCBBay Banks special meeting in person.online.
Voting in Person during the Meeting
IfBay Banks shareholders of record may attend the Bay Banks special meeting online and vote electronically during the meeting by visiting https://www.cstproxy.com/baybanks/2021 and entering the 12 digit control number included on the enclosed proxy card.
Street name shareholders must contact Bay Banks’ transfer agent, Continental Stock Transfer & Trust Company, at the telephone number or e-mail address below for specific instructions on how to receive a VCB shareholder wishescontrol number and access the meeting online. To be able to vote in person atelectronically during the VCB special meeting, a ballot will be provided at the meeting. However, street name shareholders also must obtain a legal proxy, executed in such shareholder’s favor, from the holder of record, such as a broker, bank or other nominee. Please allow up to be able48 hours prior to vote those sharesthe special meeting to process a control number.
Shareholders of record who do not have a control number, or street name shareholders who wish to receive a control number to access the Bay Banks special meeting, should contact Continental Stock Transfer & Trust Company at the meeting.(917) 262-2373 or proxy@continentalstock.com.
Any VCBBay Banks shareholder giving a proxy may change or revoke it at any time before the polls are closed for voting at the VCBBay Banks special meeting. If a VCBBay Banks shareholder grants a proxy with respect to the shareholder’s VCBBay Banks shares and then attends the VCBBay Banks special meeting in person,online, such attendance at the VCBBay Banks special meeting or at any adjournment or postponement of the VCBBay Banks special meeting will not automatically revoke the proxy. A VCBBay Banks shareholder of record may change or revoke a proxy by:
timely delivering a later-dated proxy or a written notice of revocation;
voting via Internet, smartphone or telephonetablet as of a date subsequent to the initial Internet, smartphone or telephonetablet vote; or
attending the VCBBay Banks special meeting online and voting in person (attendanceduring the meeting (virtual attendance at the VCBBay Banks special meeting will not itself revoke a proxy).
If a VCBBay Banks shareholder chooses the first method, he or she must submit the new proxy or notice of revocation to the Corporate Secretary of VCBBay Banks at 114 Industrial Drive, Louisa,1801 Bayberry Court, Suite 101, Richmond, Virginia 23093,23226, so that it is received by the Corporate Secretary no later than the beginning of the VCBBay Banks special meeting or, if the VCBBay Banks special meeting is adjourned or postponed, before the adjourned or postponed meeting is actually held.
If a VCBBay Banks shareholder is a street name shareholder, he or she must follow the instructions found on the voting instruction card provided by his or her bank, broker, or other nominee, or contact his or her bank, broker, or other nominee, in order to change or revoke a previously given voting instruction.
If assistance is needed in changing or revoking a proxy, please contact Amy M. Schick,Pamela A. Varnier, Corporate Secretary, at 114 Industrial Drive, Louisa,1801 Bayberry Court, Suite 101, Richmond, Virginia 23093, bye-mail at amy.schick@vacmbk.com,23226, or by telephone at (540)(757) 967-2111.414-9808, ext. 5756.
This solicitation is made on behalf of the VCBBay Banks Board, and VCBBay Banks will pay the costs of soliciting and obtaining proxies, including the cost of reimbursing brokers and other custodians, nominees, and fiduciaries for their expenses incurred in forwarding these proxy materials to VCBBay Banks shareholders. Proxies may be solicited, without extra compensation, by VCB’sBay Banks’ directors, officers, and employees in person or by mail, telephone or other electronic means. In addition, VCBBay Banks has engaged Regan & Associates, Inc. to assist it in the distribution and solicitation of proxies for a fee of approximately $4,500.$20,000.
VCBBay Banks shareholders are entitled to appraisal rights under Virginia law in connection with the merger. For information on how to exercise and perfect your appraisal rights, please see “The Merger – Merger–Appraisal Rights” beginning on page [●].101.
Proposal No. 1 – 1—Approval of the Merger
At the VCBBay Banks special meeting, VCBBay Banks shareholders will be asked to approve the merger agreement proposal providing for the merger of VCBBay Banks with and into Blue Ridge. VCBBay Banks shareholders should read this joint proxy statement/prospectus carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus asAppendix A.
After careful consideration, the VCBBay Banks Board, by a unanimous vote of all directors, approved the merger agreement and the merger, and determined that the merger is advisable and in the best interests of VCBBay Banks and its shareholders. See “The Merger – VCB’sMerger–Bay Banks’ Reasons for the Merger; Recommendation of the VCBBay Banks Board” for a more detailed discussion of the recommendation of the VCBBay Banks Board.
THE VCBBAY BANKS BOARD UNANIMOUSLY RECOMMENDS THAT VCBBAY BANKS SHAREHOLDERS
VOTE “FOR” THE VCBBAY BANKS MERGER PROPOSAL.
Proposal No. 2 – 2—Compensation Proposal
In accordance with Section 14A of the Exchange Act, Bay Banks is providing its shareholders with the opportunity to cast a nonbinding advisory vote on the compensation that may be payable to its named executive officers in connection with the merger, the value of which is set forth in the table included in the section of this joint proxy statement/prospectus captioned “The Merger - Potential Payments and Benefits to Bay Banks Named
Executive Officers in Connection with a Change in Control.” As required by Section 14A of the Exchange Act, Bay Banks is asking its shareholders to vote on the adoption of the following resolution:
“RESOLVED, that the compensation that may be paid to Bay Banks’ named executive officers in connection with the merger, as disclosed in the table in the section of the joint proxy statement/prospectus statement captioned “The Merger—Potential Payments and Benefits to Bay Banks Named Executive Officers in Connection with a Change in Control,” including the associated narrative discussion, are hereby APPROVED.”
The vote on specified compensation that may be payable in connection with the merger is a vote separate and apart from the vote to approve the merger agreement. Accordingly, a shareholder may vote to approve such specified compensation and vote not to approve the merger agreement and vice versa. Because the vote to approve such specified compensation is advisory in nature only, it will not be binding on either Bay Banks or Blue Ridge. Accordingly, because Bay Banks may be contractually obligated to pay the compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the merger agreement is approved and the merger is consummated and regardless of the outcome of the advisory vote.
Bay Banks shareholders should carefully review the section entitled “The Merger—Interests of Bay Banks’ Directors and Officers in the Merger” for information regarding changes that may occur to certain merger-related compensation of Bay Banks’ executive officers.
THE BAY BANKS BOARD UNANIMOUSLY RECOMMENDS THAT BAY BANKS SHAREHOLDERS VOTE “FOR” THE BAY BANKS COMPENSATION PROPOSAL.
Proposal No. 3—Adjournment of the Special Meeting
If VCBBay Banks does not receive a sufficient number of votes to constitute a quorum of the VCBBay Banks common stock or approve the Bay Banks merger agreement,proposal, it may propose to adjourn the special meeting for the purpose of soliciting additional proxies to establish such quorum or approve the Bay Banks merger agreement. VCBproposal. Bay Banks does not currently intend to propose adjournment of the special meeting if there are sufficient votes to approve the Bay Banks merger agreement. If approval of the proposal to adjourn the special meeting for the purpose of soliciting additional proxies is submitted to the VCB shareholders for approval, the approval requires that the votes cast for such proposal exceed the votes cast against such proposal.
THE VCBBAY BANKS BOARD UNANIMOUSLY RECOMMENDS THAT VCBBAY BANKS SHAREHOLDERS
VOTE “FOR” THE VCBBAY BANKS ADJOURNMENT PROPOSAL.
The following is a discussion of the merger. This summary may not contain all of the information about the merger that is important to you. Holders of Blue Ridge common stock and VCBBay Banks common stock should read carefully this joint proxy statement/prospectus in its entirety, including the appendices, for more detailed information concerning the merger and the merger agreement. In particular, you are directed to the merger agreement, including the exhibits thereto, copies of which are attached asAppendix A and are incorporated in this joint proxy statement/prospectus by reference.
As partThe Bay Banks Board and management of have periodically explored and discussed strategic options available to Bay Banks for maintaining its considerationcompetitiveness and assessment of VCB’s long-term alternatives, prospects and strategies, the VCB Board has periodically discussed and reviewed strategic opportunities to maximize value for its shareholders.increasing shareholder value. These opportunitiesdiscussions have included, among other alternatives, continuing as an independent institution, growing internally or affiliatingthings, exploring the merger and acquisition environment for financial institutions and a potential business combination involving Bay Banks. In April 2017, Bay Banks completed a “mergers of equals” transaction with another institution.Virginia BanCorp, Inc. After the acquisition and integration of Virginia BanCorp, from time to time Randal R. Greene, the President and Chief Executive Officer of Bay Banks, was contacted by representatives of larger financial institutions to inquire about Bay Banks’ interest in a merger transaction. Mr. Greene informed the Bay Banks Board of these preliminary inquiries, but such discussions did not result in any proposals that the Bay Banks Board could recommend to Bay Banks’ shareholders.
Similarly, the Blue Ridge Board and management have, from time to time, engaged in long-term strategic reviews and considered ways to enhance shareholder value and Blue Ridge’s performance in light of industry and market conditions, including through potential strategic transactions such as an acquisition of another financial institution.
With an understanding that size and scale may provide increased long-term shareholder value, the VCB Board and management continued in 2017 to evaluate strategic options, includingOn January 8, 2020, a possible merger or other strategic combination with anotherlarger financial institution or financial industry partner. Among other benefits, the VCB Board believed that a potential merger or strategic combination would likely achieve economies(“Company A”) submitted an unsolicited written nonbinding indication of scaleinterest to absorb increased regulatory compliance costs and additional operating costs. From time to time, VCB had been approached by other financial institutions and other financial industry firms looking to enter or expand in and around the central Virginia market. In consideration of these factors, in April 2017, VCB began exploring a strategic transaction with Atlantic Bay Mortgage Group L.L.C. (“Atlantic Bay”), a privately owned national mortgage lender. In July 2017, VCB announced plans to merge with Atlantic Bay in anall-stock deal. The deal initially was expected to close in the fourth quarter of 2017; however, in August 2018 the time frame for closing the transaction remained unclear, and the parties mutually decided to withdraw their merger applications and terminate the transaction. Following the terminationacquire 100% of the issued and outstanding shares of Bay Banks’ common stock at a value of $10.00 per share, or approximately $134.0 million in aggregate merger consideration. The merger consideration offered consisted of a choice of cash, Company A’s common stock or preferred stock, or a mix of cash and stock. Such offer was based on Company A’s limited preliminary assessment of Bay Banks and subject to its due diligence investigation of the company and its operations. On the date the indication of interest was delivered, the closing price of Bay Banks’ common stock was $8.96 per share. Bay Banks’ management shared the indication of interest with Atlantic Bay, managementlegal counsel at Williams Mullen and the VCB Board focused on building value by remaining independent; however, VCB continued to be approached by other financial institutions looking to enter or expand in and around the central Virginia market. The VCB Board continued reviewing and assessing the company’s long-term strategic goals and opportunities, all with a focus on enhancing shareholder value.
To assist the VCB Board in its continuing review of strategic goals and opportunities (including potential strategic alternatives), on February 7, 2019, the VCB Board invited representatives of Piper Sandler O’Neill,& Co., a nationally known and experienced investment banking firm focused on financial institutions.
On January 23, 2020, the Bay Banks Board held a special meeting at which Company A’s indication of interest was discussed. Representatives of Piper Sandler and Williams Mullen were present. Representatives of Piper Sandler provided information on the then current market conditions in the banking industry, recent merger and acquisition activity, a possible valuation of Bay Banks’ franchise in a business combination transaction, and a list of other financial institutions that it believed may have an interest in a transaction with Bay Banks. Representatives of Williams Mullen provided an overview of director fiduciary duties and standards of director conduct under Virginia law in the context of Company A’s unsolicited offer, specifically, and strategic alternatives available to Bay Banks from a legal perspective. Following discussion, the Bay Banks Board determined that Company A’s indication of interest should be reviewed and considered carefully. The Bay Banks Board also determined that it was in the best interest of Bay Banks and its shareholders for the Bay Banks Board to receive information from other financial institutions that may be interested in a business combination with Bay Banks, and authorized Mr. Greene and C. Frank Scott, III, the Chairman of the Bay Banks Board, to have exploratory discussions with certain financial institutions concerning a business combination transaction. The Bay Banks Board approved the engagement of Piper Sandler to serve as financial advisor in connection with exploring a potential transaction, including with Company A, and authorized management to work with Piper Sandler towards obtaining pertinent information from parties interested in combining with Bay Banks. Bay Banks executed an engagement letter with Piper Sandler on January 28, 2020.
Over the following weeks, Messrs. Greene and Scott contacted and held initial and high-level discussions with representatives of several financial institutions, including Blue Ridge, regarding their institutions and the possibility of a business combination with Bay Banks.
At a February 5, 2020 special meeting of the Bay Banks Board, Mr. Greene informed the board that he and Mr. Scott had been in contact with several potential merger candidates. Representatives of Piper Sandler were asked to attend the VCB Board’smeeting, and provided and reviewed an updated presentation on peer banks and stock trading metrics, a net present value analysis of Bay Banks’ common stock, a summary of recent merger transactions of banks with asset sizes ranging from $750.0 million to $1.25 billion, and an overview of Company A and its January 8 offer. In addition, the Bay Banks Board reviewed an initial list of other potential merger partners that representatives of Piper Sandler and management had begun to develop. During the Piper Sandler presentation, the Bay Banks Board discussed with representatives of Piper Sandler the bank merger environment in general, certain potential merger partners and Company A’s offer. The meeting concluded with the Bay Banks Board supporting management continuing to have exploratory discussions with certain financial institutions, with the assistance of Piper Sandler.
On February 19, 2020, Mr. Greene met with Brian K. Plum, President and Chief Executive Officer of Blue Ridge. The two had a high-level discussion about the banking landscape and how a strategic planning meeting. Overcombination could be advantageous to the past several years, VCB has worked withshareholders of both organizations.
On February 20, 2020, the Bay Banks Board held a regular meeting at which representatives of Piper Sandler O’Neill on a variety of strategic initiatives, including reviewing capital and analyzing strategic alternatives. Sandler O’Neill also served as financial advisor to VCB in the terminated Atlantic Bay transaction.Williams Mullen were present. During the meeting, the VCBBay Banks Board and representatives of Piper Sandler O’Neill discussed updates to the then current banking environment and recent merger transactions in the banking and financial services industry. The VCBBay Banks Board also reviewed an updated list of potential merger partners developed by management and representatives of Piper Sandler using certain criteria including (i) the ability and flexibility to pay a varietypremium to the then current stock price of strategic alternatives, including VCB’s prospects for organic growth on a stand-alone basisBay Banks, (ii) interest in the market areas in which Bay Banks does business, and a strategic merger with another financial institution. Following this discussion and in consideration of many(iii) potential operating synergies. At the conclusion of the same factors that leddiscussion, the VCBBay Banks Board authorized representatives of Piper Sandler to enter intosolicit the Atlanticfinancial institutions on the list regarding a potential business combination with Bay transaction, the VCBBanks. The Bay Banks Board formally engaged Sandler O’Neill and directed executivealso instructed management, in coordination with Piper Sandler, O’Neill, to prepare a confidential information memorandum that could be used to provide information about VCBBay Banks to potential merger partners and to populate an onlineelectronic data room to facilitate the performance of due diligence by potential merger partners.
The VCBAlso at the February 20, 2020 meeting, the Bay Banks Board noted that it was not under any obligation to proceed with a transaction should the distribution of the confidential information memorandum not generate the desired results in terms of valuation and other factors that it determined to be in the best interests of VCBBay Banks and its shareholders. From late February 2020 through mid-March 2020, representatives of Piper Sandler O’Neill contacted 1838 financial institutions regarding their interest in a potential strategic transaction. FifteenBecause Bay Banks already had received an indication of interest from Company A, Bay Banks determined not to include Company A in this additional outreach process. Of those institutions contacted, 16 candidates, including Blue Ridge, entered into confidentiality agreements and then obtainedin order to access to athe virtual data room containing the confidential information memorandum and extensive financial and operating information on VCB. TenBay Banks. Out of thosethe 16 candidates includingwho signed confidentiality agreements, four actually accessed the data room. Blue Ridge submittedsigned a non-bindingnon-disclosure agreement on February 25, 2020 and on February 26, 2020 received the confidential information memorandum and was granted access to the electronic data room. The confidential information memorandum provided that indications of interest were due to VCBPiper Sandler by March 22, 2019.18, 2020.
On March 6, 2020, Messrs. Greene and Plum met as a follow up to prior discussions and to deepen an understanding about business lines, leadership, opportunities, and strategies for the future, and how a potential combination may facilitate the attainment of key goals of both companies. Both agreed to set another meeting for additional discussion and the introduction of the Chairman of each company to meet.
On March 9, 2020, Messrs. Greene and Scott met with Mr. Plum and Larry Dees, Chairman of the Blue Ridge Board. The parties held a high-level discussion around backgrounds and philosophies, prospects for the future and the banking market generally, as well as the general attractiveness of a potential combination of the two banks.
During the course of the foregoing process, the seriousness of the COVID-19 pandemic increased significantly in the United States. In the first two weeks of March, states of emergency were declared by certain governors, including Virginia, and President Trump declared a national emergency on March 13, 2020. Interest rates fell dramatically as the Federal Reserve reduced the target federal funds rate by 150 basis points. The stock markets experienced extreme volatility, and most publicly-traded companies suffered significant decreases in their stock prices. From the launch date of the process on February 25 to March 18, when indications of interest were due, the SNP 500 fell 25.7%, the Nasdaq Bank Stock Index decreased 37.6% and Bay Banks’ common stock was down 34.5%.
At a regular meeting of the Blue Ridge Board on March 20, 2019,18, 2020, the Blue Ridge Board discussed a potential transaction with VCBBay Banks with Blue Ridge management and representatives of Raymond James, a nationally recognized investment banking firm. At the meeting, the Blue Ridge Board reviewed and discussed a draft of anon-binding nonbinding indication of interest to acquire VCB and a pro forma analysis of the combined companies, both of which were provided to the Blue Ridge Board in advance of the meeting. Representatives of Raymond James were present by telephone and reviewed the financial analysis of the key terms of the potential acquisition, including a discussion of the financial modeling and underlying assumptions of the transaction. Blue Ridge management discussed the benefits of a partnership between Blue Ridge and VCB,Bay Banks, the culture of both companies, the purchase
price and form of consideration, corporate structure, contingencies, board of directors and employee matters, executive officer retention, timing, and required approvals. Following thorough discussion, the Blue Ridge Board authorized Blue Ridge management to submit thenon-binding nonbinding indication of interest to the VCBBay Banks Board and, if selected by Bay Banks to do so, proceed with additional due diligence of VCB.Bay Banks.
AOn March 18, 2020, Bay Banks received preliminary written nonbinding indications of interest from three of the 16 financial institutions that signed a confidentiality agreement. Blue Ridge and another financial institution (“Company B”) provided indications of interest that included a range of exchange ratios, and the third financial institution (“Company C”) presented a specific exchange ratio. The indications of interest also outlined non-financial terms for a merger transaction. All were subject to further due diligence by the potential merger partners.
On March 20, 2020, a special meeting of the VCBBay Banks Board was held on March 26, 2019, with representatives of Sandler O’Neill present by telephone and with representatives from the law firm Hunton Andrews Kurth, LLP (“Hunton”), legal counsel for VCB, also present by telephone, to review all of the indications of interest. Representatives of HuntonPiper Sandler and Williams Mullen were present at the meeting. Representatives of Piper Sandler provided the Bay Banks Board with an overview of the proposal process, and presented an analysis of the three indications of interest received on March 18 from a financial point of view. Representatives of Piper Sandler then reviewed with the board its fiduciary duties under Virginia law in the context of a proposed merger. The VCB Board reviewed the proposals in detail with extensive discussion regarding the history of the interested partiesfinancial institutions and their stock performance,pro-forma and a preliminary pro forma impact analysis of the combined companies, and opportunities and risks for VCB shareholderscertain financial measures under each of the 10 proposals. Oneindications of interest if a transaction was completed. The Blue Ridge proposal consisted of 100% stock consideration with a range of exchange ratios of 0.4440 to 0.4813 and nine of the proposals consisted of mixed cash and stock consideration, with percentages ranging from 50% stock to 90% stock and withan implied per share consideration ranging from $51.25$7.15 to $60.00.
The VCB Board, after discussions with representatives of Sandler O’Neill, identified the top four proposals primarily$7.75, based on their aggregate value, the history of the interested parties and theirits closing stock performance and pro forma analyses of the combined companies. The Blue Ridge proposal consisted of mixed consideration with 60% stock and 40% cash. The cash portion of the consideration was fixed at $53.00 per shareprice on March 18, 2020, with an aggregate valueconsideration ranging from approximately $94.8 million to $102.8 million. Company B offered consideration of $38 million. The other institutions that submitted the leading non-binding indications of interest to VCB are referred to as Institution A, Institution B and Institution C. Institution A’s proposal consisted of mixed consideration with 70%80-100% stock and 30% cash. The cash portion per share ranged from $53.00 - $56.00 with an aggregate value of $38 to $40.2 million. Institution B’s proposal consisted of mixed consideration with 80% stock and 20% cash. The cash portion per share was fixed at $60.00 with an aggregate value of $43 million. Institution C’s proposal consisted of mixed consideration with 50% stock and 50% cash. The cash portion per share ranged from $53.00 - $58.00 with an aggregate value of $38 to 41.6 million. The VCB Board also evaluated a variety of factors for each proposal, including the (a) implied per share consideration (b) ratioranging from $5.43 to $6.04 based on its closing stock price on March 18, 2020, with an aggregate consideration ranging from approximately $72.0 million to $80.0 million. The proposal from Company C consisted of 100% stock consideration and an implied per share consideration to VCB’s tangible equity value, (c) ratio of $6.08 based on its closing stock price to last twelve months earningson March 18, 2020, with an aggregate consideration of approximately $80.6 million. The per share (d) core deposit premium, (e) ownership percentageclosing price of Bay Banks’ common stock on March 18, 2020 was $5.76. Although Company A’s indication of interest had expired in accordance with its terms and the combined companystock markets had suffered dramatic declines since January 8, for comparative purposes Piper Sandler also included information on a possible range of values that VCB shareholders would maintain, (f) pro forma dividends per share, (g) ratio of buyer’s stock price to its tangible book value, (h) VCB’s familiarity with buyer and any existing commercial relationships and (i) perceived ability to complete the transactionit believed
Company A could propose if it was still interested in acquiring Bay Banks. The Bay Banks Board engaged in a timely manner.
After consideringhigh level discussion on the merits of each ofthe three offers and determined to give the proposals and after discussions with representatives of Sandler O’Neill and of Hunton,additional consideration over the VCBMarch 20 weekend.
At a March 23, 2020 special meeting, the Bay Banks Board instructed Sandler O’Neill to invite Blue Ridge, Institution A, Institution B and Institution C to conduct additional due diligencecontinued its discussion on VCB, includingon-site due diligence visits with VCB’s management, and to submit revisednon-bindingthe indications of interest the company received on March 18. A representative from Williams Mullen was present at the meeting. Given the unprecedented and rapidly changing nature of the COVID-19 outbreak, the Bay Banks Board also invited a representative from a second financial advisory firm serving the community bank industry (not Piper Sandler) to VCB byattend this meeting and provide another perspective on COVID-19’s impact on the market and the financial industry. The financial advisor stated that the effect on the stock market was substantial, with significant declines across all industries, and that bank stocks were hit particularly hard as investors became concerned about borrowers’ ability to pay and low interest rates further reducing earnings. The advisor also noted that most merger activity had been suspended as companies were focused on assessing the impact of COVID-19 on their own operations and implementing business continuity plans, and that parties who were in merger discussions may also be pausing due to concerns about credit quality given the current unsettled environment. The financial advisor then left the board meeting.
The Bay Banks Board further considered the March 18 indications of interest and Company A’s interest in Bay Banks, as well as the significant market changes and unsettled business environment as a result of COVID-19. Due primarily to the distressed business environment and unprecedented operating conditions in dealing with the pandemic, including rising unemployment, increasing requests for loan deferrals and complying with stay at home orders, the Bay Banks Board determined that it would not be in the best interest of shareholders to further pursue a transaction at that time.
On April 26, 2019.8, 2020, Company A submitted another unsolicited written nonbinding indication of interest to acquire Bay Banks. The offer was essentially the same as the January 8 indication of interest except that Company A had reduced its offer to $6.75 for each Bay Banks share, or approximately $90.0 million in aggregate merger consideration. Bay Banks’ management shared the indication of interest with Piper Sandler and Williams Mullen.
From March 26, 2019, toOn April 26, 2019,21, 2020, the four financial institutions conductedBay Banks Board held a comprehensive due diligence review of VCB, including meetings with executive management of VCBspecial meeting to discuss various matters. During this time, Blue Ridge management conducted additional diligenceCompany A’s April 8 indication of VCB, continued its financial analysisinterest. Representatives of a transaction with VCBPiper Sandler and determined thatWilliams Mullen were present at the benefitsmeeting. Representatives of such a transaction warranted moving forward in the process. At a regularly scheduled meeting of the Blue Ridge Board and strategic planning committee on April 17, 2019, managementPiper Sandler provided an update on the statusthen current market conditions, reporting that there was still volatility and uncertainty in the markets, and bank stocks had continued to perform poorly since the last time the board had met. Representatives of Piper Sandler also reviewed Company A’s April 8 offer and noted that it was basically within the same valuation range as the January 8 offer, based on the current stock prices of Company A and Bay Banks. Representatives of Williams Mullen reminded the Bay Banks Board of the fiduciary duties’ discussion during the January 23 board meeting, and again provided information on the standards of director conduct under Virginia law when evaluating merger offers. The Bay Banks Board engaged in a thorough discussion of market conditions and Company A’s revised offer. Among other things, the board discussed the prolonged uncertainty, volatility and business impacts of the COVID-19 pandemic on Bay Banks and its customers, as well as the significant management attention required to be devoted to the company’s operations from a business continuity perspective due to COVID-19. In light of these conditions, the Bay Banks Board instructed management to update the company’s strategic financial plan to address the current environment and determined that more time and information would be needed to assess Company A’s offer. The Bay Banks Board also directed management to contact Company A to request an extension of its offer deadline.
On May 8, 2020, Messrs. Greene and Scott contacted a representative of Company A, who agreed to such extension. Mr. Greene also suggested that an in-person meeting with the Company A representative may be an appropriate next step, and Company A’s representative tentatively agreed and informed Messrs. Greene and Scott that he would contact them at a later time with open dates for a meeting. The representative of Company A did not contact Messrs. Greene and Scott after this conversation to suggest meeting dates and a meeting never occurred.
Also during May 2020, Mr. Plum contacted Mr. Greene by phone. The two discussed the current state of the banking market and their banks and determined to remain in contact to continue informal discussions regarding a combination.
At a June 3, 2020 special meeting of the Bay Banks Board, management presented an updated three-year strategic financial plan and projected outlook for the company, and members of the board asked questions of and received answers from management on the financial plan. The Bay Banks Board also reviewed the actions taken since receiving Company A’s January 8 indication of interest, including the process in February and March of soliciting interest from other financial institutions and the results of such process. The Bay Banks Board and management also engaged in a substantial review and discussion of strategic alternatives, including Bay Banks’ prospects for organic growth on a stand-alone basis and a combination with another financial institution. The review included a discussion of Company A’s April 8 indication of interest and the nonbinding indication of interest submitted by Blue Ridge, which was the proposal with the highest offer in mid-March. Mr. Greene also provided information to the Bay Banks Board about several preliminary conversations he had recently with Mr. Plum. In addition, representatives of Piper Sandler were present at the meeting and presented an update on the banking market, a net present value analysis of Bay Banks, and a high-level analysis of a potential transactioncombination with Blue Ridge. The Bay Banks Board and its due diligence of VCB.management discussed how the business operating environment for banks during the COVID-19 pandemic, while still challenging, had become more settled since the board meeting on March 23. Following thatsubstantial discussion, the Blue RidgeBay Banks Board authorized Blue Ridge management to work toward preparingexplore negotiations with Blue Ridge’s management for the purpose of entering into a revisednon-bindingnonbinding indication of interest between the companies relating to submit to VCB by April 26, 2019.a merger transaction.
On April 26, 2019,June 8, 2020, Messrs. Greene and Plum met to discuss the state of matters in the macroeconomy and the impact of COVID-19 on their respective companies. The two agreed that based on market conditions and the impact of COVID-19 it made sense to continue conversations around a strategic combination to provide additional scale and resources.
On June 18, 2020, the Bay Banks Board held a regular meeting at which representatives of Piper Sandler and Williams Mullen were present. The following significant terms of the March 18, 2020 nonbinding indication of interest from Blue Ridge were again reviewed: (i) the exchange ratio range of 0.4440 to 0.4813 would result in an implied per share consideration of $7.06 to $7.66 based on Blue Ridge’s stock price on June 18, 2020; (ii) Bay Banks shareholders would own 51-53% of the combined company; (iii) the board of directors of the combined company would consist of seven Blue Ridge directors and five Bay Banks directors; (iv) the change in control arrangements in place for Bay Banks officers would be honored; and (v) the combined bank headquarters would be in Richmond. Representatives of Piper Sandler presented and reviewed stand-alone projections for Bay Banks and Blue Ridge and a pro forma financial model for a combination of Bay Banks and Blue Ridge, based on publicly available information and other information obtained from the companies. The representatives of Piper Sandler discussed with the Bay Banks Board that the transaction would likely be considered a merger of equals and, although Bay Banks is larger in terms of asset size and its shareholders would own more than 50% of the combined company, based on the financial information available, including that Blue Ridge’s stock was then trading at higher multiples, the acquirer would likely be Blue Ridge. The representatives of Piper Sandler informed the Bay Banks Board that this structure is not unusual, and similar transactions were reviewed. Representatives of Piper Sandler noted that Piper Sandler does not as a matter of practice provide any legal or accounting advice. The business advantages of the transaction were also highlighted, such as a more significant Virginia franchise, a combined company with total assets of over $2 billion providing greater economies of scale, opportunities for increased non-interest income, and a strengthened capital position providing the opportunity for future growth. Upon completion of the Piper Sandler presentation and after management discussion, the Bay Banks Board determined that it needed additional time to review the materials and information presented and discussed in order to make a more informed decision. The Bay Banks Board also directed management and Piper Sandler to request that Blue Ridge increase and fix the exchange ratio at 0.5200 and that the combined board be increased to 13 directors, with Bay Banks having six director representatives.
On June 29, 2020, a special meeting of the Blue Ridge Board was held with representatives of Raymond James present by telephone. Representatives of Raymond James reviewed updated financial aspects of the proposed transaction and an updated non-bindingnonbinding indication of interest. Blue Ridge management discussed with the Blue Ridge Board the results of due diligence performed to date and the changes from the initial indication of interest that had been submitted to VCB. Blue Ridge’s revised indication of interest increased the cash portion of the merger consideration to $58.00 per share.Bay Banks. Following thorough discussion, the Blue Ridge Board authorized Blue Ridge management to submit thea revisednon-binding nonbinding indication of interest to the VCBBay Banks Board on the terms discussed during the meeting.
OfAt a June 29, 2020 special meeting, the four candidates invited to perform additional due diligence and submit aBay Banks Board reviewed the revisednon-binding indication of interest three candidates, includingthat Blue Ridge submittednon-binding indicationsdelivered on June 29, 2020. Mr. Greene updated the Bay Banks Board on discussions regarding the proposed terms of the transaction that he had with Mr. Plum since the last board meeting. Representatives of Piper Sandler attended the meeting and reviewed the changes of Blue Ridge’s offer from its March 18, 2020 nonbinding indication of interest, to VCB on April 26, 2019. Institution C elected not to continue withwhich were as follows: (i) the process. The three revised proposals consisted of mixed cash and stock consideration, with percentages ranging from 60% stock to 80% stock and with aggregate implied per share consideration ranging from $55.00 to $60.68. The Blue Ridge revised proposal consisted of mixed consideration with 60% stock and 40% cash, with cash consideration of $58.00 per share and a fixed exchange ratio (withoutincreased from a cap or collar)range of 0.4440-0.4813 to 0.5000 (no range), which increased the post-merger ownership for Bay Banks shareholders from 52-53% to 54%; (ii) the representation of Bay Banks directors on the combined company’s board of directors was increased from five to six; and (iii) director and officer “tail” insurance coverage was increased from five to six years. The Bay Banks Board was informed by representatives of Piper Sandler that resultedthe new exchange ratio was essentially 5-10% higher in price and represented an aggregate implied purchase price of $60.68 per share and an aggregate value of $43.5 million$7.76 based on the closing price of Blue Ridge’s common stock on AprilJune 26, 2019. Institution A’s aggregate2020. Representatives of Piper Sandler also noted that the offered merger consideration was approximately a 28-30% premium over the recent trading prices of Bay Banks common stock and implied purchase price was $57.98a $0.29 per share resultingdividend. Representatives of Williams Mullen were present at the meeting and provided certain publicly available information on a lawsuit regarding the employee stock ownership plan (“ESOP”) of VCB that Blue Ridge inherited as a result of its acquisition of VCB in an aggregate valueDecember 2019. Representatives of $41.6 million basedWilliams Mullen also informed the board that it had represented Blue Ridge in that merger, had a conflict of interest with respect to advising Bay Banks about ESOP litigation and that it was advisable for Bay Banks to seek independent legal representation relating to the litigation. After discussion, the Bay Banks Board approved and accepted the terms of Blue Ridge’s June 26 nonbinding indication of interest and authorized management to execute the same. The Bay Banks Board also instructed management to move forward with thorough due diligence on Blue Ridge, including with respect to Blue Ridge’s loan portfolio and the closing priceESOP lawsuit.
Throughout the month of Institution A’s stockJuly 2020, Blue Ridge conducted a comprehensive due diligence review of Bay Banks, including meetings with executive management of Bay Banks to discuss various matters, continued financial analysis of a transaction with Bay Banks, and review of third-party consultant’s report on April 26, 2019. Institution B’s aggregate implied purchase price was $55.00 per share resulting in an aggregate value of $39.5 million based on the closing price of Institution B’s stock on April 26, 2019.Bay Bank’s loan portfolio.
AOn July 16, 2020, Bay Banks held a special meeting of the VCBBay Banks Board. Representatives of Piper Sandler, Williams Mullen and the law firm of Kaufman & Canoles, P.C. (“K&C”) were present. Mr. Greene informed the Bay Banks Board that Bay Banks’ due diligence on Blue Ridge commenced after the indication of interest was heldexecuted. He also mentioned that Bay Banks and Blue Ridge hired an independent third-party consultant to conduct a review of each company’s loan portfolio, and that the review should be completed within two weeks. Representatives of Williams Mullen provided an overview of employment agreements between Bay Banks and certain officers and the impact the merger may have on April 30, 2019those arrangements. Mr. Greene stated that in response to the Bay Banks Board’s request for outside legal counsel to assist with due diligence related to the litigation involving Virginia Community’s ESOP, K&C was engaged. The representatives of Sandler O’Neill and of HuntonK&C then reviewed the present to review the revised indications of interest. A representative of Sandler O’Neill presented a financial analysis of Blue Ridge, Institution A and Institution B, andstatus of the proposed merger consideration described incase, each of their proposals.the allegations in the lawsuit, what K&C believed to be potential and factual defenses with respect to each allegation, insurance coverage, and its assessment of the lawsuit and potential damages. The Sandler O’Neill representative also presented a net present value analysisBay Banks Board asked questions of, VCB on a stand-alone basis utilizing internal financial projections for VCB forand received answers from, K&C with respect to the year ending December 31, 2019, as well as an estimated long-term annual earnings per share growth rate forESOP lawsuit. At the years thereafter, as provided by senior managementconclusion of VCB. Hunton representatives discussed the purpose for the meeting, and the legal standards and responsibilities of the directors with regard to matters before them. The VCBBay Banks Board considered at length whether or notauthorized management to move forward with the negotiation of a merger transaction, the merits of stock versus cash and percentages of mixed consideration, and the risks and benefits of continuing the process with only one of the parties. The VCB Board determined that the Blue Ridge proposal represented the best combination of high valuation and low execution risk relative to the other proposals because (a) the Blue Ridge proposal had the highest aggregate implied purchase price and aggregate value, (b) Blue Ridge required a relatively short 30-day exclusivity period, (c) Blue Ridge projected that the transaction would close in the fourth quarter of calendar year 2019 and (d) VCB management’s familiarityagreement with Blue Ridge’s management based on their existing purchasing card commercial relationship. Following this discussion, the VCB BoardRidge.
authorized management to advance the merger discussions withOn July 21, 2020, representatives of Blue Ridge and to grant Blue Ridge aBay Banks met 30-dayin-person period of exclusivity to conduct additional due diligence of, and negotiate a definitive merger agreement with VCB. On May 3, 2019, VCBask questions regarding, each party’s loan portfolio and Blue Ridge entered into a letter of intent containing a30-day exclusivity period.lending operations.
On May 4, 2019, Williams Mullen,July 27, 2020, Troutman Pepper Hamilton Sanders LLP (“Troutman Pepper”), legal counsel for Blue Ridge, delivered a draft of a proposed definitive merger agreement containing the proposed complete terms of the transaction. During the period from May 4, 2019 through May 13, 2019,August 12, 2020, the parties and their legal counsel exchanged drafts and negotiated changes to the draft merger agreement in an effort to resolve all open issues and to reach a final definitive merger agreement. The parties engaged in discussions regarding various transaction terms, including the composition of the board of directors of the combined company, the circumstances under which the VCB Board would have the right to entertain superior third-party offers prior to the closing of the merger, the circumstances under which each of the VCB Board and the Blue Ridge Board can change their recommendations to their respective shareholders that they approve the merger, the termination fee that would be payable by each of VCB and Blue Ridge if the merger agreement is terminated under certain circumstances, the period of time that Blue Ridge commits to maintain the compensation for continuing VCB employees at no less than pre-merger levels, the circumstances under which certain former VCB employees are entitled to severance from the combined company, the threshold for the VCB minimum tangible equity value closing condition, the affirmative and negative covenants that would be applicable to each of VCB and Blue Ridge prior to the closing of the merger and the customary representations and warranties of each of VCB and Blue Ridge. During this time, management of the parties and their respective financial advisors continued discussions and additional due diligence on both VCBBay Banks and Blue Ridge was performed. Among other things, Blue Ridge populated a virtual data room to facilitate the performance of due diligence of it by VCB. The parties also provided drafts of their respective disclosure schedules to the merger agreement and discussed other aspects of the proposed transaction and merger integration issues. During this period, Blue Ridge also negotiated the terms of the employment agreements to be entered into between Blue Ridge and Blue Ridge Bank and each of A. Preston Moore Jr., VCB’sRandal R. Greene, Bay Banks’ President and Chief Executive Officer, and Thomas M. Crowder, VCB’sJudy C. Gavant, Bay Banks’ Executive Vice President and Chief Financial Officer, and Chief Operating Officer,Susan S. Pittman, Executive Vice President of Virginia Commonwealth Bank, each to be effective upon the consummation of the proposed merger. Messrs. MooreMr. Greene, Ms. Gavant and CrowderMs. Pittman, as well as other Bay Banks officers with employment or change in control agreements with Bay Banks, were advised by separate independent counsel in connection with the employment agreements.
Also on July 27, 2020, the Bay Banks Board held a special meeting at which management provided an update on the status of the merger negotiations and Bay Banks’ due diligence review of Blue Ridge to date. Representatives from the independent third-party consulting firm engaged by Bay Banks’ management to conduct a review and analysis on Blue Ridge’s loan portfolio were present and reported its findings to the Bay Banks Board. Management commented on Blue Ridge’s loan portfolio and reviewed a comparison of the loan portfolios of the two companies. A report on Blue Ridge’s mortgage operations was also provided to the Bay Banks Board.
On May 10, 2019,July 28, 2020, representatives of Blue Ridge and Bay Banks, with the VCBassistance of their respective financial and legal advisors, gathered by phone to review business, financial and other information regarding each company. During these meetings, members of management of each of the companies, with the assistance of their advisors, engaged in a series of discussions and asked and answered questions regarding, each company’s respective businesses.
At an August 3, 2020 special meeting of the Bay Banks Board, management provided an update on the status of the merger negotiations and Bay Banks’ continued due diligence investigation of Blue Ridge’s operations.
On the afternoon of August 12, 2020, the Bay Banks Board held a special meeting to discussconsider the draft merger agreement and related issues. Also present were representativesterms of Sandler O’Neill and Hunton. Hunton representatives discussed the purpose for the meeting and the legal standards and responsibilities of the directors with regard to the matters before them. The purpose of the meeting was to provide the VCB Board with an opportunity to review, consider, and discuss the potential merger. Hunton representatives reviewed the draft merger agreement and related ancillary documents with the VCB Board, copies of which were delivered to each director prior to the meeting, and responded to questions, and engaged in discussion, regarding various transaction terms, including the circumstances under which the VCB Board would have the right to entertain superior third-party offers prior to the closing of the merger, the termination fee that would be payable by VCB if the merger agreement were terminated under certain circumstances, and the affirmative and negative covenants that would be applicable to VCB and Virginia Community Bank prior to the closing of the merger. Hunton representatives also walked the VCB Board through the remaining open points in the draft merger agreement and related ancillary documents and received guidance on those items from management and the VCB Board. VCB management and representatives of Hunton also reported on the status of their due diligence review of Blue Ridge. A Sandler O’Neill representative reviewed with the VCB Board the background of the process which had been undertaken to that point, and presented a financial analysis of Blue Ridge and of the proposed merger consideration.
On the afternoon of May 13, 2019, the VCB Board held a special telephonic meeting to further consider the proposed merger with Blue Ridge. Representatives of Sandler O’Neill and Hunton also joinedAt the meeting, by telephone. Representativesrepresentatives of Piper Sandler O’Neill deliveredreviewed and discussed with the Bay Banks Board its financial analyses of Bay Banks, Blue Ridge and the proposed merger. Piper Sandler rendered its oral opinion to the VCBBay Banks Board, its oral opinion, which was subsequently confirmed in writing by delivery of Piper Sandler’s written opinion dated August 12, 2020, to the effect that, based onas of August 12, 2020 and subject to the procedures followed, assumptions limitations,made, matters considered and qualifications and conditions set forth inlimitations on the review undertaken by Piper Sandler, O’Neill written opinion, as of that date, the merger consideration to be receivedexchange ratio in the proposed merger by VCB common shareholders was fair, from a financial point of view, to such holders. Hunton representatives then requestedthe holders of Bay Banks common stock. See ��—Opinion of Bay Banks’ Financial Advisor.”
Representatives of Williams Mullen also were present at the meeting and received confirmation fromdiscussed with the directors that eachBay Banks Board the legal standards applicable to its decisions and actions with respect to its consideration of the directors present hadproposed merger. Williams Mullen reviewed in detail the draftproposed merger agreement resolutions and other ancillary material providedrelated transaction documents, copies of which were delivered to each director before the directors prior to the special meeting, and addressed additional questions. Hunton representatives also reiteratedinformed the Bay Banks Board that pursuant tothe terms of the merger agreement,had been finalized between the directors would need to sign shareholder support agreements, which would require them to vote their shares in favorparties. Following extensive review, discussion and consideration of the merger. Thereafter,presentations from Piper Sandler and Williams Mullen, and after considering the VCB Board received and considered resolutions concerning the transaction. The membersproposed terms of the VCB Board unanimously approved the merger agreement and transactions set forth thereinother transaction documents, the Bay Banks Board unanimously voted to approve the merger, approve and authorized Mr. Moore to execute and deliveradopt the merger agreement, and takedirected Mr. Greene to finalize and execute a definitive merger agreement on the other actions necessary to effectterms presented at the transaction.meeting.
On
Also on the afternoon of May 13, 2019,August 12, 2020, the Blue Ridge Board held a special meeting to consider the proposed merger with VCB. The purpose of the meeting was to provide the Blue Ridge Board with an opportunity to review, consider, and discuss the potential merger and the merger agreement. Management reviewed for the Blue Ridge Board the progress of its negotiations with VCBBay Banks and reported on the status of its due diligence review of VCB.Bay Banks. Representatives from Raymond James and Williams MullenTroutman Pepper also joined this meeting and provided an update on the status of merger discussions. Also atFollowing discussion, the meeting, representatives of Raymond James reviewed itspresented their financial analysis ofwith respect to the terms ofexchange ratio in the proposed merger pursuant to the merger includingagreement and rendered the merger consideration, and deliveredoral opinion of Raymond James to the Blue Ridge Board (in its oral opinion (which was subsequently confirmed in writing)capacity as such), to the effect that, as of August 12, 2020 and based onupon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations describedon the scope of the review undertaken by Raymond James as set forth in its opinion, the exchange ratio in the opinion,proposed merger pursuant to the merger considerationagreement was fair, from a financial point of view, to Blue Ridge. See “—Opinion of Blue Ridge’s Financial Advisor.”
Representatives of Williams MullenTroutman Pepper also discussed with the Blue Ridge Board the legal standards of conduct applicable to its deliberations, decisions and actions with respect to its consideration of the proposed merger and reviewed in detail the proposed merger agreement and related agreements, copies of which were delivered to each director before the meeting. Following extensive review and discussion and consideration of the presentations from Raymond James and Williams Mullen,Troutman Pepper, the Blue Ridge Board unanimously voted to approve the merger, approve and adopt the merger agreement and directed Brian K. Plum, President and Chief Executive Officer of Blue Ridge, to finalize and execute a definitive merger agreement on the terms presented at the meeting.
VCBBay Banks and Blue Ridge executed the merger agreement the evening of May 13, 2019August 12, 2020 and publicly announced the transaction before the stock markets opened on the morning of May 14, 2019August 13, 2020 in a press release issued jointly by Blue Ridge and VCB.Bay Banks.
Blue Ridge’s Reasons for the Merger; Recommendation of the Blue Ridge Board
In reaching its determination to approve and adopt the merger agreement, and to recommend the merger agreement to Blue Ridge shareholders, the Blue Ridge Board consulted with Blue Ridge’s management and its financial and legal advisors, and considered a number of factors, including the following:
its knowledge of VCB’sBay Banks’ financial condition, earnings, business operations and prospects, taking into account the results of Blue Ridge’s extensive due diligence investigation of VCBBay Banks and its loan portfolio;
the strategic opportunities associated with expansion into complementary geographic markets in central Virginia and the Piedmont Triad of Virginia in which VCBBay Banks operates, and the ability to leverage the relocation of Blue Ridge’s relocation of itsand Blue Ridge Bank’s headquarters to Charlottesville, Virginia and Richmond, Virginia, respectively, to continue its expansion into attractive, high growth markets;
the advantages of being part of a larger institution with over $800 millionnearly $2.5 billion in assets, including a better ability to leverage overhead costs and the potential for operating efficiencies and increased profitability, particularly in light of the regulatory and competitive environments and the effects of continued rapid consolidation in the financial services industry generally;
the compatibility of Blue Ridge’s business, operations and culture with those of VCB, including the opportunity for further growth in complementary lines of business such as purchase and credit cards, payroll, insurance, mortgage,for diversification of revenue composition, including expanded opportunities for lending and qualified intermediary services;
the attractiveness of VCB’s low cost funding base to support future growth;fee income;
the expectation that the combined company will be better positioned to compete and grow its business and will have superior future earnings and prospects compared to Blue Ridge on an independent basis;
the greater potential for increased liquidity in the market for common stock and higher trading multiples of tangible book value and earnings per share of the combined company compared to an institution of Blue Ridge’s current size;
Blue Ridge’s expectations and analyses of the financial metrics of the merger, including potential cost saving opportunities, expected earnings per share accretion and manageable dilution toprojected tangible book value accretion of approximately 3.75 years;over 7.0%;
the financial analyses and other information presentedanalysis prepared by Raymond James to the Blue Ridge Board with respect to the merger and the opinion delivered to the Blue Ridge Board (in its capacity as such) by Raymond James on August 12, 2020, and based upon and subject to the effect that,assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Raymond James in preparing the opinion, as ofto the date of that opinion, the merger consideration was fair to Blue Ridgefairness, from a financial point of view;view, of the exchange ratio in the merger pursuant to the merger agreement to Blue Ridge, as more fully described below in the section titled “—Opinion of Blue Ridge’s Financial Advisor”;
the corporate governance and social aspects of the merger, including relative representation on the board of directors of the combined company and the added strength and depth of experience of the members of VCB’sBay Banks’ management team who will join Blue Ridge’s management team following the merger;
the proportionate equity ownership of legacy Blue Ridge shareholders in the combined company;
the anticipated impact on the communities served by Blue Ridge and VCB,Bay Banks, and the increased ability to serve the communities and its customer base with responsive commercial banking services and a larger branch network;
the likelihood that the merger will be completed on a timely basis, including the likelihood that the merger will receive all necessary regulatory approvals in a timely manner; and
the ability of Blue Ridge’s management team to successfully integrate and operate the businesses of Blue Ridge and VCBBay Banks after the merger.
The Blue Ridge Board also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberation of the proposed transaction, including, without limitation, the following:
the challenges of integrating VCB’sBay Banks’ business, operations and employees with those of Blue Ridge;
the risk that the benefits and cost savings sought in the merger would not be fully realized;
the substantial merger and integration related expenses, estimated at approximately $3.2 million after tax;
the risk that the merger would not be consummated;
the effect of the public announcement of the merger on Blue Ridge’s customer relationships and its ability to retain employees;
the unique operating challenges and risks posed by the ongoing COVID-19 pandemic and ongoing responses thereto; and
the risks of the type and nature described under “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”
In the judgment of the Blue Ridge Board, the potential benefits of the merger outweigh these considerations.
The preceding discussion of the information and factors considered by the Blue Ridge Board is not intended to be exhaustive, but, rather, includes all of the material factors considered by it in connection with its evaluation of the merger. In reaching its determination to approve and adopt the merger agreement and recommend that Blue Ridge shareholders approve the merger agreement, the Blue Ridge Board did not quantify, rank or otherwise assign any relative or specific weights to the factors considered in reaching that determination. In addition, the Blue Ridge Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Moreover, in considering
the information and factors described above, individual directors may have given differing weights to different factors. The Blue Ridge Board based its determination on the totality of the information presented.
The Blue Ridge Board unanimously determined that the merger agreement is in the best interests of Blue Ridge and its shareholders. Accordingly, the Blue Ridge Board unanimously approved and adopted the merger agreement and unanimously recommends that shareholders vote “FOR” the Blue Ridge merger proposal.
Opinion of Blue Ridge’s Financial Advisor
Blue Ridge retained Raymond James to act as its investment bankingfinancial advisor in connection with Blue Ridge’s consideration of a possible acquisition of VCB.on July 13, 2020. Blue Ridge selected Raymond James as a financial advisor because it is a globally-recognized investment banking firm offering a full range of investment banking services to its clients. In the ordinary course of its investment banking business, Raymond James is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.
Pursuant to that engagement, the Blue Ridge Board requested that Raymond James deliveredevaluate the fairness, from a financial point of view, to Blue Ridge of the exchange ratio in the merger pursuant to the merger agreement.
At the August 12, 2020 meeting of the Blue Ridge Board, representatives of Raymond James rendered its oral opinion dated August 12, 2020 to the Blue Ridge Board which was subsequently confirmed in writing,(in its capacity as such), as to the fairness, as of May 13, 2019, andsuch date, from a financial point of view, to Blue Ridge of the exchange ratio in the merger pursuant to the merger agreement, based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Raymond James in preparing the opinion, as to the fairness of the merger consideration, from a financial point of view, to Blue Ridge. Raymond James provided its opinion for the information and assistance of the Blue Ridge Board (in its capacity as such) in connection with its consideration of the financial terms of the merger and the opinion relates only to the fairness of the merger consideration, from a financial point of view, to Blue Ridge. Raymond James’ opinion does not address the underlying business decisions of Blue Ridge to engage in the merger, the form or structure of the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for Blue Ridge, or the effect of any other transaction in which Blue Ridge might engage. Neither Raymond James’ opinion nor the summarypreparation of its opinion and the related analyses set forth in this joint proxy statement/prospectus are intended to be, and do not constitute, advice or a recommendation to the Blue Ridge Board or any shareholder as to how to act or vote with respect to the merger or related matters.opinion.
The full text of the written opinion of Raymond James is attached as Appendix B to this joint proxy statement/prospectus and is incorporated by reference herein.prospectus. The summary of the opinion of Raymond James set forth in this documentjoint proxy statement/prospectus is qualified in its entirety by reference to the full text of thesuch written opinion. Holders of Blue Ridge common stock are urged to read thethis opinion carefully in its entirety. The opinion of Raymond James’ opinionJames speaks only as of the date of the opinion. Raymond James’ opinion and does not reflect any developments that may occur or may have occurred after the date of its opinion and prior to the completion of the merger.
Raymond James provided its opinion for the information of the Blue Ridge Board (in its capacity as such) in connection with, and for purposes of, its consideration of the exchange ratio in the merger pursuant to the merger agreement and its opinion only addresses whether the exchange ratio in the merger pursuant to the merger agreement was fair, from a financial point of view, to Blue Ridge. The opinion of Raymond James does not address any other term or aspect of the merger agreement or the merger contemplated thereby. The Raymond James opinion does not constitute a recommendation to the Blue Ridge Board or to any holder of Blue Ridge common stock as to how the Blue Ridge Board, such shareholder or any other person should vote or otherwise act with respect to the merger or any other matter. Raymond James does not express any opinion as to the likely trading range of Blue Ridge common stock following the merger, which may vary depending on numerous factors that generally impact the price of securities or on the financial condition of Blue Ridge at that time.
In connection with its review of the proposed merger and the preparation of its opinion, Raymond James, among other things:
reviewed the financial terms and conditions as stated in the draft dated August 8, 2020 of the merger agreement dated May 11, 2019;agreement;
reviewed certain information related to the historical condition and prospects of Blue Ridge and Bay Banks, as made available to Raymond James by or on behalf of Blue Ridge, including, but not limited to, (a) financial projections for each of Blue Ridge and Bay Banks certified by the management of Blue Ridge (together, the “Projections”) and (b) certain forecasts and estimates of potential cost savings,
operating efficiencies, revenue effects, and other pro forma financial adjustments then-expected to result from the merger, as prepared by management of Blue Ridge (the “Pro Forma Financial Adjustments”); |
reviewed Blue Ridge’s and Bay Banks’ (a) audited financial statements for the fiscal years ended December 31, 2019, December 31, 2018 and December 31, 2017; and (b) unaudited financial statements for the six month period ended June 30, 2020;
reviewed Blue Ridge’s and VCB’s audited and unaudited financial statements;
reviewed Blue Ridge’s and VCB’sBay Banks’ recent public filings and certain other publicly available information regarding Blue Ridge and VCB;
reviewed certain information related to the historical, current and future operations, financial condition and prospects of VCB and Blue Ridge made available to Raymond James by Blue Ridge, including, but not limited to, (a) financial projections prepared by the management of Blue Ridge relating to VCB for the periods ending December 31, 2019 through December 31, 2023, as approved for Raymond James’ use by Blue Ridge, which are referred to in this section as the “Projections”, and (b) certain forecasts and estimates of potential cost savings, operating efficiencies, revenue effects, and other synergies expected to result from the merger, all as prepared by management of Blue Ridge, which are referred to in this section as the “Synergies”;Bay Banks;
reviewed the financial and operating performance of Blue Ridge and Bay Banks and those of other selected public companies that Raymond James deemed to be relevant;
considered the publicly available financial terms of certain transactions Raymond James deemed to be relevant;
reviewed the currentthen-current and historical market prices and trading volume for Blue Ridge’s public shares,Ridge common stock and for Bay Banks common stock, and the currentthen-current market prices of the publicly traded securities of certain other companies that Raymond James deemed to be relevant;
compared the relative contributions of Blue Ridge and Bay Banks to certain financial statistics of the combined company on a pro forma basis;
reviewed certain potential pro forma financial effects of the merger on earnings per share, capitalization and financial ratios of Blue Ridge;
conducted such other financial studies, analyses and inquiries and considered such other information and factors as Raymond James deemed appropriate;
reviewed such other financial studies, analyses and inquiries and such other information and factors as Raymond James deemed appropriate;
reviewedreceived a certificate dated May 12, 2019, addressed to Raymond James from a member of senior management of Blue Ridge regarding, among other things, the accuracy of financialthe information, data and dataother materials (financial or otherwise) provided to, or discussed with, Raymond James by or on behalf of Blue Ridge; and
discussed with members of the senior management of each of Blue Ridge and Bay Banks certain information relating to the aforementioned and any other matters which Raymond James deemed relevant to its inquiry forincluding, but not limited to, the purposespast and then-current business operations of its opinion.Blue Ridge and Bay Banks, respectively, and the financial condition and future prospects and operations of Blue Ridge and Bay Banks, respectively.
With Blue Ridge’sRidge’s consent, Raymond James has assumed and relied upon the accuracy and completeness of all information supplied by or on behalf ofBlue Ridge, or otherwise reviewed by or discussed with Raymond James, and Raymond James has undertaken nodid not undertake any duty or responsibility to, nor did Raymond James, independently verify any of such information. Raymond James has not made or obtained an independent appraisal of the assets, the collateral securing assets or the liabilities (contingent or otherwise) of VCB or Blue Ridge, nor has Raymond James been furnished with any such evaluations or appraisals. Raymond James is not an expert in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowance for loan losses or any other reserves; accordingly Raymond James has assumed that such allowances and reserves are in the aggregate adequate to cover such losses and comply fully with applicable law, regulatory policy and sound banking practices as of May 13, 2019. Raymond James renders no opinion or evaluation on the collectability of any assets or the future performance of any loans of Blue Ridge, VCB or any of their respective subsidiaries. Furthermore, Raymond James has undertakenundertook no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which VCB or Blue Ridge isor Bay Banks was a party or may behave been subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which VCB or Blue Ridge isor Bay Banks was a party or may bebecome subject. With Blue Ridge’s consent, thisthe opinion makesof Raymond James made no assumption concerning, and therefore doesdid not consider, the potential effects of any such litigation, claims or investigations or possible assertionsassertions. Raymond James did not make or obtain an independent appraisal of claims, outcomesthe assets or damages arising outliabilities (contingent or otherwise) of any such matters.Blue Ridge or of Bay Banks. With respect to the Projections, Pro Forma Financial Adjustments, and any other information and data provided to or otherwise reviewed by or discussed with Raymond James, Raymond James, has, with Blue Ridge’s consent, assumed that the Projections, Pro Forma Financial Adjustments and such other information and data have beenwere reasonably prepared in good faith on bases reflecting the best currentlythen-currently available estimates and judgments of management of Blue Ridge and Raymond James has relied upon Blue Ridge to advise Raymond James promptly if any information previously provided became inaccurate or was required to be updated during the period of its review. Accordingly,With respect to the future estimates of potential cost savings, operating efficiencies, revenue effects, one-time costs and other financial adjustments expected to
result from the merger (the “Synergies”) underlying the Pro Forma Financial Adjustments, Raymond James, with Blue Ridge’s consent, assumed that they will be realized in rendering its opinion, Raymond James’ reliance upon Blue Ridge management as to the reasonablenessamounts and achievability of such information includes reliance uponat the judgments and assessments of Blue Ridge and Blue Ridge management with respect to such differences.time periods indicated thereby. Raymond James expressesexpressed no opinion with respect to the Projections, or the assumptions on which they are based. Furthermore, upon the advice of management of Blue Ridge, Raymond James has assumed that the estimated Synergies reviewed by Raymond James have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the management of Blue Ridge and that the Synergies will be realized in the amounts and the time periods indicated thereby, and Raymond James expresses no opinion with respect to suchPro Forma Financial Adjustments, Synergies or the assumptions on which they arewere based. Raymond James relied upon and assumed without independent verification, that the final form of the merger agreement would be substantially similar to the draft reviewed by Raymond James, and that the merger willwould be consummated in accordance with the terms of the merger agreement without waiver or amendment of any conditions thereto and without adjustment to the merger consideration.thereto. Furthermore, Raymond James has assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement arewere true and correct and that each such party willwould perform all of the covenants and agreements required to be performed by it under the merger agreement without waiver or modification.being waived. Raymond James has relied upon and assumed, without independent verification, that (i) the merger willwould be consummated in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory andor other consents and approvals necessary for the consummation of the merger willwould be obtained and that no delay, limitations, restrictions or conditions willwould be imposed or amendments, modifications or waivers made that would have an effect on the merger, VCB,Bay Banks or Blue Ridge that would be material to its analysesanalysis or this opinion.
Raymond James expressesexpressed no opinion as to the underlying business decision to effect the merger, the structure or tax consequences of the merger, or the availability or advisability of any alternatives to the merger. Raymond James provided advice to Blue Ridge with respect to the proposed merger. Raymond James did not, however, recommend any specific amount of consideration or that any specific consideration constituted the only appropriate consideration for the merger. Raymond James did not solicit indications of interest with respect to a transaction involving Blue Ridge nor did Raymond James advise Blue Ridge with respect to its strategic alternatives. The opinion of Raymond James did not express any opinion as to the likely trading range of Bay Banks common stock or Blue Ridge common stock following announcement or consummation of the merger, which have varied or may vary depending on numerous factors that generally impact the price of securities or on the financial condition of Bay Banks and Blue Ridge at that time. The Raymond James opinion iswas limited to the fairness, of the merger consideration, from a financial point of view, of the exchange ratio in the merger pursuant to the merger agreement to Blue Ridge.
Raymond James expressesexpressed no opinion with respect to any other reasons legal,(legal, business, or otherwise,otherwise) that may support the decision of the Blue Ridge Board to approve or consummate the merger. Furthermore, no opinion, counsel or interpretation iswas intended by Raymond James on matters that require legal, accounting, regulatory or tax advice. It isRaymond James assumed that such opinions, counsel or interpretations havehad been or willwould be obtained from the appropriate professional sources. Furthermore, Raymond James has relied, with the consent of Blue Ridge, on the fact that Blue Ridge has beenwas assisted by legal, accounting and tax advisors, and, Raymond James has, with the consent of Blue Ridge, relied upon and assumed the accuracy and completeness of the assessments by Blue Ridge and its advisors, as to all legal, accounting and tax matters with respect to Blue Ridge, Bay Banks and the merger, including, without limitation, that the merger willwould qualify as a reorganization within the meaning of Section 368(a) of the Code.Internal Revenue Code of 1986, as amended. Raymond James was not an expert in the evaluation of allowances for loan and lease losses and had not independently verified such allowances or reviewed or examined any individual loan or credit files. Raymond James assumed, with Blue Ridge’s consent, that the allowance for loan and lease losses (i) set forth in the respective financial statements of each of Blue Ridge and Bay Banks were adequate to cover such losses, (ii) would be adequate on a pro forma basis for the combined entity and (iii) complied fully with applicable law, regulatory policy and sound banking practices as of the date of such financial statements.
In formulating its opinion, Raymond James has considered only what it understood to be the merger consideration to be paidreceived by Blue Ridge, and Raymond James did not consider, and it expresses nodid not express an opinion on, the fairness of the amount or nature of any compensation to be paid or payable to any of VCB’sthe officers, directors or employees of Blue Ridge, or such class of such persons, in connection with the merger whether relative to the compensation payableconsideration to be received by Blue Ridge or otherwise. Raymond James haswas not been requested to opine as to, and its opinion doesdid not
express an opinion as to or otherwise address, among other things: (i)(1) the fairness of the merger to the holders of any class of securities, creditors or other constituencies of Blue Ridge, or VCB, or to any other party, except and only to the extent expressly set forth in the last sentence of its opinion or (ii)(2) the fairness of the merger to any one class or group of Blue Ridge’s VCB’s, or any other party’s security holders or other constituenciesconstituents vis-à-vis any other class or group of Blue Ridge’s VCB’s, or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration to be received in the merger amongst or within such classes or groups of security holders or other constituents). Raymond James is not expressing anyexpressed no opinion as to the impact of the merger on the solvency or viability of Blue Ridge or VCBBay Banks or the ability of Blue Ridge VCB, or their respective subsidiariesBay Banks to pay their respective obligations when they come due.
The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. Accordingly, Raymond James believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create an incomplete or potentially misleading view of the process underlying its analyses and opinion. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before May 10, 2019, and is not necessarily indicative of current market conditions.
Material Financial Analyses
The following summarizes the material financial analyses reviewed by Raymond James with the Blue Ridge Board at its meeting on August 12, 2020, which material was considered by Raymond James in rendering its opinion. No company or transaction used in the analyses described below is identical or directly comparable to Blue Ridge VCB or Bay Banks.
Contribution Analysis. Raymond James analyzed the relative contribution of Blue Ridge and Bay Banks to certain financial and operating metrics for the pro forma combined company resulting from the merger, in each case, as provided by Blue Ridge management. The financial and operating metrics included: (i) total assets, excluding PPP loans; (ii) gross loans, excluding PPP loans; (iii) total deposits; (iv) tangible common equity; (v) shareholders equity; (vi) estimated 2020 pre-tax, pre-provision (“PTPP”) net income, excluding estimated PPP fees and excluding a $10 million pre-tax goodwill impairment in 2020 for Bay Banks (“Goodwill Impairment”); and (vii) estimated 2021 PTPP net income, excluding estimated PPP fees. The relative contribution analysis did not give effect to any Synergies as a result of the merger. The results of this analysis are summarized in the table below:
Relative Contribution | ||||||||||||
Blue Ridge | Bay Banks | Implied Exchange Ratio | ||||||||||
Total Assets (Excl. PPP) | 51.3 | % | 48.7 | % | 0.41x | |||||||
Gross Loans (Excl. PPP) | 44.7 | % | 55.3 | % | 0.53x | |||||||
Total Deposits | 49.0 | % | 51.0 | % | 0.45x | |||||||
Tangible Common Equity | 37.7 | % | 62.3 | % | 0.71x | |||||||
Shareholders Equity | 44.2 | % | 55.8 | % | 0.54x | |||||||
2020E Pre-Tax, Pre-Provision Income (Excl. PPP Fees) | 54.8 | % | 45.2 | % | 0.36x | |||||||
2021E Pre-Tax, Pre-Provision Income (Excl. PPP Fees) | 52.5 | % | 47.5 | % | 0.39x | |||||||
Exchange Ratio in the Merger | 0.50x |
Discounted Cash Flow Analysis. Raymond James performed a discounted cash flow analysis of Blue Ridge and Bay Banks based on the Projections. Consistent with the periods included in the Projections, Raymond James used estimated calendar year 2025 as the final year for the analysis and applied multiples, ranging from 11.0x to 13.0x, to estimated calendar year 2025 earnings in order to derive a range of estimated terminal values for Blue Ridge and Bay Banks in 2024. Raymond James arrived at this range by using the median of the historical 2-year price to next twelve month EPS multiple for the NASDAQ Bank Index of approximately 12.0x and added 1.0x to get the high of that range and subtracted 1.0x to get the low of that range.
For Blue Ridge and Bay Banks, Raymond James used discount rates ranging from 12.50% to 15.50%. Raymond James arrived at its discount rate range by using the 2019 Duff & Phelps Valuation Handbook to estimate their respective discount rates at approximately 14.0% and then added 1.5% to get the high of that range and subtracted
1.5% to get the low of that range of estimated discount rates. Raymond James reviewed the ranges of implied per share values indicated by the discounted cash flow analysis for each of Blue Ridge and Bay Banks and calculated a range of implied exchange ratios by dividing the maximum implied per share value of Blue Ridge common stock by the minimum implied per share value of Bay Banks common stock to calculate the maximum implied exchange ratio, and by dividing the minimum implied per share value of Blue Ridge common stock by the maximum implied per share value of Bay Banks common stock to calculate the minimum implied exchange ratio. The results of the discounted cash flow analysis are summarized in the table below:
Implied Per Share Value | Implied Exchange Ratio | |||||||||||||||||||||||||
Blue Ridge | Bay Banks | |||||||||||||||||||||||||
Low | High | Low | High | Low/High | High/Low | |||||||||||||||||||||
Net Income Terminal Multiple | $ | 18.81 | $ | 25.02 | $ | 9.38 | $ | 11.60 | 0.37x | - | 0.62x | |||||||||||||||
Exchange Ratio in the Merger | 0.50x |
Selected Public Companies AnalysisAnalysis. . Raymond James reviewed certain data for selected companies with publicly traded equity securities that it deemed relevant for its analysis. The selected groups representgroup represents companies Raymond James believed to be relevant to VCB.each of Blue Ridge and Bay Banks. Raymond James selected certain public companies that: (i) are headquartered in the Southeastern United States (Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia);North Carolina; and (ii) have total assets between $200$750 million and $400 million; (iii) have a$3.5 billion. The aforementioned financial characteristics were shown for the bank subsidiary if consolidated data was unavailable, and the financial characteristics were based on the most recent last twelve months (“LTM”month period reported as of June 30, 2020, except for Southern BancShares (N.C.)pre-tax return on average assets (“ROAA”) between 0.75%, Inc., Burke & Herbert Bank & Trust, and 1.50%; (iv) have aFirst Bancorp Inc., for which the most recent quarter (“MRQ”) tangible common equity (“TCE”) ratio greater than 8.0%; and (v) have MRQnon-performing assets (“NPAs”) / total assetsfinancial data was as of less than 2.00%.March 31, 2020. The selected group excludes targets of announced mergers. No company used in the analysis described below is identical or directly comparable to VCB.either Blue Ridge or Bay Banks. The selected public companies Raymond James deemed relevant and their corresponding multiples include the following:
Selected Companies for VCB
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Raymond James calculated various financial multiples for each selected public company, including: closing price per share on May 10, 2019 compared to (i) tangible book value (“TBV”) per share at MRQ as shown by S&P Global Market Intelligence; and (ii) LTM core operating earnings per share (“core EPS”) as shown by S&P Global Market Intelligence. Raymond James reviewed the mean, median, 25th percentile, and 75th percentile relative valuation multiples of the selected public companies. The results of the selected companies analysis for VCB are summarized below:
Price / | Price PTPP EPS | Price /2021 PTPP EPS | ||||||||||
| % | — | ||||||||||
| % | — | ||||||||||
| % | 4.23x | ||||||||||
| % | — | ||||||||||
| % | 7.85x | ||||||||||
First Bancorp, Inc. | 217 | % | — | — | ||||||||
C&F Financial Corporation | 75 | % | — | — | ||||||||
John Marshall Bancorp, Inc. | 80 | % | — | — | ||||||||
FVCBankcorp, Inc. | 79 | % | 5.55x | 4.86x | ||||||||
Community Bankers Trust Corporation | 74 | % | 4.95x | 5.85x | ||||||||
MainStreet Bancshares, Inc. | 78 | % | 5.21x | 5.44x | ||||||||
National Bankshares, Inc. | 92 | % | 7.94x | 8.76x | ||||||||
Peoples Bancorp of North Carolina, Inc. | 74 | % | — | — | ||||||||
Select Bancorp, Inc. | 83 | % | 8.62x | 6.85x | ||||||||
Old Point Financial Corporation | 70 | % | — | — | ||||||||
Chesapeake Financial Shares, Inc. | 80 | % | — | — | ||||||||
Eagle Financial Services, Inc. | 86 | % | — | — | ||||||||
UB Bancorp | 83 | % | — | — | ||||||||
F & M Bank Corporation | 76 | % | — | — | ||||||||
First National Corporation | 84 | % | — | — | ||||||||
Bank of the James Financial Group, Inc. | 71 | % | — | — |
Raymond James calculated various financial multiples for each selected public company, includingprice per share at close on August 10, 2020 compared to: (i) basic tangible book value (“TBV”) per share at June 30, 2020,
per S&P Global Market Intelligence; (ii) estimated 2020 PTPP earnings per share (“EPS”), as shown by mean street consensus estimates per S&P Global Market Intelligence; and (iii) estimated 2021 PTPP EPS, as shown by mean street consensus estimates per S&P Global Market Intelligence. All financial multiples—TBV per share, 2020E PTPP EPS, and 2021E PTPP EPS—greater than two standard deviations away from the unadjusted mean were considered not meaningful. Raymond James reviewed the 75th percentile, mean, median, and 25th percentile relative valuation multiples of the selected public companies. The results of the selected companies’ analysis for each of Blue Ridge and Bay Banks are summarized below:
Blue Ridge Multiples | Bay Banks Multiples | |||||||||||||||
25th Pctl. | 75th Pctl. | 25th Pctl. | 75th Pctl. | |||||||||||||
Tangible Book Value | 76 | % | 86 | % | 76 | % | 86 | % | ||||||||
2020E PTPP EPS (Excl. PPP Fees) | 5.1 | x | 7.2 | x | 5.1 | x | 7.2 | x | ||||||||
2021E PTPP EPS (Excl. PPP Fees) | 5.1 | x | 7.3 | x | 5.1 | x | 7.3 | x |
Taking into account the results of the selected public companies analysis, Raymond James applied the mean, median 25th75th and 75th25th percentiles of the price to tangible book value per share ratio and earnings per share multiples to corresponding financial data for VCB.each of Blue Ridge and Bay Banks. Raymond James reviewed the ranges of implied per share values and then compared thosecalculated a range of implied exchange ratios by dividing the higher implied per share values to the merger consideration, which was assumed to have a value of $59.23 per share based on VCB’s shareholders’ right to receive, at the election of the VCB shareholder, (i) 3.05 shares of Blue Ridge common stockby the lower implied per share value of VCB common stock or (ii) $58.00 in cashBay Banks to calculate the implied exchange ratio, and by dividing the lower implied per share value of VCB common stock with a final 60% common stock / 40% cash allocation mix. For purposesBlue Ridge by the higher implied per share value of valuingBay Banks to calculate the stock consideration, Raymond James utilized Blue Ridge’s 10 day volume weighted average price of $19.69 as of May 10, 2019.low implied exchange ratio. The results of the selected public companies analysis are summarized below:
Price / MRQ TBV | Price / LTM Core EPS | |||||||
Mean | $ | 34.19 | $ | 35.85 | ||||
Median | $ | 33.55 | $ | 35.67 | ||||
25th Percentile | $ | 31.46 | $ | 30.67 | ||||
75th Percentile | $ | 36.14 | $ | 40.09 | ||||
Merger Consideration | $ | 59.23 | $ | 59.23 |
Implied Per Share Value | Implied Exchange Ratio | |||||||||||||||||||||||||||
Blue Ridge | Bay Banks | |||||||||||||||||||||||||||
Low | High | Low | High | Low/High |
| High/Low | ||||||||||||||||||||||
Tangible Book Value | $ | 9.67 | $ | 10.95 | $ | 6.75 | $ | 7.64 | 0.62x | - | 0.79x | |||||||||||||||||
2020E PTPP EPS (Excl. PPP Fees) | $ | 13.10 | $ | 18.54 | $ | 4.62 | $ | 6.54 | 0.25x | - | 0.50x | |||||||||||||||||
2021E PTPP EPS (Excl. PPP Fees) | $ | 14.47 | $ | 20.64 | $ | 5.61 | $ | 8.01 | 0.27x | - | 0.55x | |||||||||||||||||
Exchange Ratio in the Merger | 0.50x |
Selected Transaction Analysis. Raymond James analyzed publicly available information relating to selected transactions announced since (i) January 1, 2018 involving targets headquartered in the United States or (ii) January 1, 2017 involving targets headquartered in Southeastern United States (Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia), in each case, with target assets between $200 million and $400 million, targetpre-tax ROAA between 0.75% and 1.50%, target TCE ratio greater than 8.0%, and target NPAs / total assets of less than 2.00%. Financial data for the selected targets was based on the most recent last twelve months reported prior to announcement of the respective transaction. The selected national and regional transactions (with respective transaction announcement dates shown) used in the analysis included:
Selected National Transactions
Acquisition of Partnership Community Bancshares Inc. by Bank First National Corp. (1/23/19)
Acquisition of LBC Bancshares Inc. by Colony Bankcorp Inc. (12/18/18)
Acquisition of FNB Bancshares of Central AL Inc. by BankFirst Capital Corp. (11/15/18)
Acquisition of First Prestonsburg Bancshares Inc. by Peoples Bancorp Inc. (10/29/18)
Acquisition of Merchants Holding Co. by Bank of Commerce Holdings (10/4/18)
Acquisition of Monument Bancorp Inc. by Citizens & Northern Corp. (9/28/18)
Acquisition of Comanche National Corp. by Spirit of Texas Bancshares Inc. (7/19/18)
Acquisition of Foothills Bancorp Inc. by SmartFinancial Inc. (6/27/18)
Acquisition of Richland State Bancorp Inc. by Bus. First Bancshares Inc. (6/4/18)
Acquisition of MNB Bancorp by Independent Bank Corp. (5/29/18)
Acquisition of Americas United Bank by Bank of Southern California NA (2/22/18)
Acquisition of Westbound Bank by Guaranty Bancshares Inc. (1/29/18)
Selected Regional Transactions
Acquisition of LBC Bancshares Inc. by Colony Bankcorp Inc. (12/18/18)
Acquisition of FNB Bancshares of Central AL Inc. by BankFirst Capital Corp. (11/15/18)
Acquisition of Foothills Bancorp Inc. by SmartFinancial Inc. (6/27/18)
Acquisition of Southwest Banc Shares Inc. by First Bancshares Inc. (10/24/17)
Acquisition of Mountain Valley Bancshares Inc. by Piedmont Bancorp Inc. (3/17/17)
Acquisition of Jefferson Bankshares Inc. by HCBF Holding Co. (1/20/17)
Raymond James examined valuation multiples of transaction value compared to the target companies’ (i) most recent quarter TBV per share as shown by S&P Global Market Intelligence; (ii) LTM net income; and (iii) premium to tangible book value divided by core deposits (total deposits less time deposits greater than $250,000). Raymond James reviewed the mean, median, 25th percentile and 75th percentile relative valuation multiples of the selected transactions and compared them to corresponding valuation multiples for VCB implied by the merger consideration. Furthermore, Raymond James applied the mean, median, 25th percentile and 75th percentile relative valuation multiples to VCB’s MRQ tangible book value, LTM net income, and MRQ core deposits to determine the implied equity price per share and then compared those implied equity values per share to the merger consideration, which was assumed to have a value of $59.23 per share based on VCB’s shareholders’ right to receive, at the election of the VCB shareholder, (i) 3.05 shares of Blue Ridge common stock per share of VCB common stock or (ii) $58.00 in cash per share of VCB common stock with a final 60% common stock / 40% cash allocation mix. For purposes of valuing the stock consideration, Raymond James utilized Blue Ridge’s 10 day volume weighted average price of $19.69 as of May 10, 2019. The results of the selected national and regional transactions analyses, respectively, are summarized below:
National Selected Transactions
Price / MRQ TBV | Price / LTM Net Income | Prem. / Core Deposits | ||||||||||
Mean | 178 | % | 21.0 | x | 8.5 | % | ||||||
Median | 184 | % | 19.5 | x | 8.6 | % | ||||||
25th Percentile | 159 | % | 17.6 | x | 7.3 | % | ||||||
75th Percentile | 192 | % | 24.7 | x | 9.7 | % | ||||||
Merger Consideration | 180 | % | 18.9 | x | 9.2 | % | ||||||
Price / MRQ TBV | Price / LTM Net Income | Prem. / Core Deposits | ||||||||||
Mean | $ | 58.45 | $ | 65.90 | $ | 57.43 | ||||||
Median | $ | 60.69 | $ | 61.10 | $ | 57.65 | ||||||
25th Percentile | $ | 52.40 | $ | 55.15 | $ | 53.90 | ||||||
75th Percentile | $ | 63.13 | $ | 77.59 | $ | 60.83 | ||||||
Merger Consideration | $ | 59.23 | $ | 59.23 | $ | 59.23 |
Regional Selected Transactions
Price / MRQ TBV | Price / LTM Net Income | Prem. / Core Deposits | ||||||||||
Mean | 170 | % | 22.0 | x | 7.5 | % | ||||||
Median | 171 | % | 20.6 | x | 7.7 | % | ||||||
25th Percentile | 158 | % | 18.8 | x | 5.9 | % | ||||||
75th Percentile | 186 | % | 25.0 | x | 9.3 | % | ||||||
Merger Consideration | 180 | % | 18.9 | x | 9.2 | % |
Price / MRQ TBV | Price / LTM Net Income | Prem. / Core Deposits | ||||||||||
Mean | $ | 56.00 | $ | 69.10 | $ | 54.57 | ||||||
Median | $ | 56.24 | $ | 64.59 | $ | 55.14 | ||||||
25th Percentile | $ | 52.05 | $ | 58.91 | $ | 49.93 | ||||||
75th Percentile | $ | 61.25 | $ | 78.26 | $ | 59.51 | ||||||
Merger Consideration | $ | 59.23 | $ | 59.23 | $ | 59.23 |
Pro Forma Discounted Cash Flow Analysis. Raymond James performed a discounted cash flow analysis to estimate an illustrative range for the implied equity value of VCB based on the Projectionspro forma combined entity, taking into account the cost savings and Synergies. Consistent withrelated expenses expected to result from the periods included in the Projections,merger as well as certain purchase accounting adjustments. In this analysis, Raymond James used calendar year 2023 as the final yearProjections for each of Blue Ridge and Bay Banks, and the Pro Forma Financial Adjustments, each of which was provided by Blue Ridge management and approved by it for the analysis and applied multiples, ranging from 11.0x to 13.0x, to calendar year 2023 earnings in order to derive a range of terminal values for VCB in 2023.
For VCB,use by Raymond James, usedand Raymond James assumed discount rates ranging from 13%12.50% to 15%15.50%. Raymond James arrived at its discount rate rangesrange by using the 20182019 Duff & Phelps Valuation Handbook.Handbook to estimate the pro forma company’s discount rate at approximately 14.0% and then added 1.5% to get the high of that range and subtracted 1.5% to get the low of that range of estimated discount rates. The range of values was derived by adding (i) the present value of the estimated excess cash flows that the pro forma combined entity could generate over the period from December 31, 2020 through December 31, 2024 and (ii) the present value of the pro forma combined entity’s implied terminal value at the end of such period, in each case applying the estimated Pro Forma Financial Adjustments. Raymond James reviewedassumed that the pro forma combined entity would maintain a tangible common equity to tangible assets ratio of 8.00% and would retain sufficient earnings to maintain that level. In calculating the terminal value of the pro forma combined entity, Raymond James applied a range of per share prices derived in11.0x to 13.0x the pro forma combined entity’s estimated 2025 earnings. Raymond James arrived at this range by using the median of the historical 2-year price to next twelve month EPS multiple for the NASDAQ Bank Index of approximately 12.0x and added 1.0x to get the high of that range and subtracted 1.0x to get the low of that range. This discounted cash flow analysis and compared themresulted in an illustrative range of implied values of $23.31 to the merger consideration, which was assumed to have a value of $59.23 per$29.98 for each share based on VCB’s shareholders’ right to receive, at the election of the VCB shareholder, (i) 3.05 shares of Blue Ridge common stock per share of VCB common stock or (ii) $58.00 in cash per share of VCB common stock with a final 60% common stock / 40% cash allocation mix. For purposes of valuing the stock consideration, Raymond James utilized Blue Ridge’s 10 day volume weighted average price of $19.69 as of May 10, 2019. proposed merger.
The results of the discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are summarized inhighly dependent on the table below:assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The above analysis did not purport to be indicative of the actual values or expected values of the pro forma combined entity.
Pro Forma Impact Analysis. For informational purposes only, Raymond James performed a pro forma financial impact analysis that combined projected balance sheet and 2021 and 2022 estimated EPS information of Blue Ridge and Bay Banks. Using (i) closing balance sheet estimates as of December 31, 2020 for each of Blue Ridge and Bay Banks; (ii) financial forecasts and projections of each of Blue Ridge and Bay Banks for the year ending 2021 and the year ending 2022; and (iii) pro forma assumptions (including, without limitation, the cost savings expected to result from the merger, as well as the purchase accounting adjustments), each of which were provided by Blue Ridge management. Raymond James analyzed the estimated financial impact of the merger on certain projected financial results. This analysis indicated that the merger could be accretive to Blue Ridge’s estimated tangible book value per share at December 31, 2020, and accretive to Blue Ridge’s estimated 2021 and 2022 earnings per share. For all of the above analyses, the actual results achieved by the pro forma company following the merger may vary from the projected results, and the variations may be material.
Implied Per Share Value | ||||||||
VCB | ||||||||
Low | High | |||||||
Net Income Terminal Multiple | $ | 76.15 | $ | 92.28 | ||||
Merger Consideration | $ | 59.23 |
Additional ConsiderationsConsiderations.. The preparation of ana fairness opinion regarding fairness from a financial point of view is a complex process and is not susceptible to a partial analysis or summary description. Raymond James believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering the analyses taken as a whole, would create an incomplete view of the process underlying its opinion. In addition, Raymond James considered the results of all such analyses and did not assign relative weights to any of the analyses, but rather made qualitative judgments as to significance and relevance of each analysis and factor, so the ranges of valuations resulting from any particular analysis described above should not be construedtaken to be the view of Raymond James as to the actual value of VCB.Blue Ridge.
In performing its analyses, Raymond James made numerous assumptions with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond the control of Blue Ridge. The analyses performed by Raymond James are not necessarily indicative of actual values, trading values or actual future results which might be achieved, all of which may be significantly more or less favorable than suggested by such analyses. TheseSuch analyses were provided to the Blue Ridge Board (solely in each director’s(in its capacity as such) and were prepared solely as part of the analysis of Raymond James of the fairness, of the merger consideration, from a financial point of view, to Blue Ridge.Ridge of the exchange ratio in the proposed merger pursuant to the merger agreement. The analyses do not purport to be appraisals or to reflect the prices at which companies may actually be sold, and such estimates are inherently subject to uncertainty. The opinion of Raymond James was one of many factors taken into account by the Blue Ridge Board in making its determination to approve the merger. Neither Raymond James’ opinion nor the analyses described above should be viewed as determinative of the Blue Ridge Board’s noror Blue Ridge management’s views with respect to Blue Ridge, VCBBay Banks or the merger. Raymond James provided advice to Blue Ridge with respect to the proposed merger. Raymond James did not, determine the amount of consideration,however, recommend any specific amount of consideration to the Blue Ridge Board or recommend that any specific consideration constituted the only appropriate consideration for the merger. Blue Ridge placed no limits on the scope of the analysesanalysis performed, or opinion expressed, by Raymond James.
The Raymond James opinion was necessarily based upon market, economic, financial and other circumstances and conditions existing and disclosed to it as of May 10, 2019,August 12, 2020, and any material change in such circumstances and conditions may affect the
opinion of Raymond James, but Raymond James does not have any obligation to update, revise or reaffirm that opinion. As the Blue Ridge Board was aware, the credit, financial and stock markets had been experiencing unusual volatility and Raymond James expressed no opinion or view as to any potential effects of such volatility on the merger, Blue Ridge, or Bay Banks and the Raymond James opinion did not purport to address potential developments in any such markets. As the Blue Ridge Board was aware, there was significant uncertainty as to the potential direct and indirect business, financial, legal, economic and social implications and consequences of the spread of the coronavirus and associated illnesses and the actions and
measures that countries, governments, regulatory agencies, central banks, international financing and funding organizations, stock markets, businesses and individuals may take to address the spread of the coronavirus and associated illnesses including, without limitation, those actions and measures pertaining to fiscal or monetary policies, legal and regulatory matters and the credit, financial and stock markets (collectively, the “Pandemic Effects”). Raymond James expressed no opinion or view as to the potential impact of the Pandemic Effects on its opinion.analysis, its opinion, the merger, Blue Ridge or Bay Banks. Raymond James relied upon and assumed, without independent verification, that, other than as had been disclosed to Raymond James, there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of Blue Ridge or VCBof Bay Banks since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Raymond James that would be material to its analyses or its opinion, and that there was no information or any facts that would make any of the information reviewed by Raymond James incomplete or misleading in any material respect.
For its services as financial advisor to Blue Ridgewill pay Raymond James a fee for advisory services in connection with the merger equal to $1,250,000 (inclusive of a retainer fee of $50,000 paid when Raymond James will receivewas engaged, a transactionfee of $150,000 paid when Raymond James delivered its opinion, and a fee of $500,000 of which $25,000 was due and payable upon execution of an engagement letter with Raymond James, $125,000 was due and payable upon execution ofpaid when the merger agreement $150,000 was due and payable when Raymond James rendered its opinion and the remainderexecuted), of which $550,000 is contingent upon successful completionthe closing of the merger. Blue Ridge hasalso agreed to reimburse Raymond James for its reasonable expenses incurred in connection with its services, including the fees and expenses of its counsel, and will indemnify Raymond James against certain liabilities arising out of its engagement.
Raymond James is actively involved in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations and similar transactions. Raymond James has provided certain services to Blue Ridge in the previous two years, including having served as sole placement agent in connection with the private offering of Blue Ridge common stock in February 2019. Raymond James has not provided any investment banking services to, or received any fees from, VCB in the two years preceding the date of its opinion. However, in the two years preceding the date of its opinion, Raymond James has provided fixed income and sales trading services to VCB and has received compensation related to these activities. In the ordinary course of business, Raymond James may trade in the securities of Blue Ridge and Bay Banks for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. Raymond James provided certain services to Blue Ridge in the previous two years, including (i) having served as sole financial advisor for Blue Ridge’s purchase of Virginia Community Bankshares, Inc. in May 2019, for which Raymond James received fees of approximately $500,000, and (ii) having served as sole placement agent for a common equity private placement in February 2019, for which Raymond James received fees of approximately $440,000. Raymond James may provide investment banking, financial advisory and other financial services to Blue Ridge and/or VCBBay Banks or other participants in the merger in the future, for which Raymond James may receive compensation, although as of the date of Raymond James’ opinion, there was no agreement to do so.compensation.
VCB’sBay Banks’ Reasons for the Merger; RecommendationRecommendations of the VCBBay Banks Board
After careful consideration, the Bay Banks Board has determined that the merger agreement, including the merger and the other transactions contemplated thereby, is in the best interests of Bay Banks and its shareholders.
In reaching its decision to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, and to recommend that itsBay Banks shareholders approve the merger agreement, the VCBBay Banks Board consultedevaluated the merger agreement and the merger in consultation with VCBBay Banks’ management, as well as itsBay Banks’ financial and legal advisors, and considered a number of factors, including, among others, the following material factors:principal factors which are not presented in order of priority:
the review undertaken by the VCBBay Banks Board and management with respect to the strategic alternatives available to VCB;
the business strategy of VCBBay Banks and its prospects for the future as an independent institution, including the risks inherent in successful execution of its strategic plan, its projected financial results, and expectations relating to the proposed merger with Blue Ridge;
a review of the challenges facing VCB in the current competitive, economic, financial and regulatory climate, and the potential benefits of aligning VCB with a larger organization;strategic alternatives available to Bay Banks;
the consistency ofexpectation that the merger will create the fourth largest community bank headquartered in Virginia, with VCB’s long-term strategic plan to seek profitable future expansion, leading to opportunities for growthnearly $2.5 billion in overall shareholder valueassets, and enhanced liquidity for VCB shareholders;the benefits of increased scale, cost savings, and operating efficiencies;
the strategic opportunities associated with merging Bay Banks and Blue Ridge, including complementary geographical markets and lines of business that will provide enhanced capabilities, a reviewmore diverse revenue stream and a platform for expansion of growth opportunities;
the historical financial statementsability of Bay Banks’ shareholders to benefit from the combined company’s potential growth and condition of VCBstock appreciation, and certain other internal information, primarily financial in nature, relating to the business,expectation that the combined company will have superior future earnings and balance sheet of VCB;prospects compared to Bay Banks’ earnings and prospects on an independent basis;
the fact that Blue Ridge’s common stock is listed on the NYSE American, and the expectation that the combined company will offer greater potential for increased liquidity for its shareholders versus Bay Banks on a standalone basis;
a review of the historical financial statements and condition of Blue Ridge and certain other information, primarily financial in nature, relating to the business, earnings, and financial condition and prospects of Blue Ridge and its ability to successfully complete the merger;
merger and provide increased value to Bay Banks shareholders following the fact that VCB’s core processing contract will be coming up for long-term renewal inmerger, taking into account the first quarterresults of 2020;
a review and discussions with VCB management and its advisors concerning theBay Banks’ due diligence examinationinvestigation of VCB by Blue Ridge;
a review of the prospects, challenges and discussions with VCB managementrisks facing Bay Banks in the current competitive, economic, financial and its advisors concerningregulatory climate, including the due diligence examinationlow interest rate environment, accelerating pace of Blue Ridge by VCB;
technological change in the fact thatbanking industry, increased operating costs resulting from regulatory and compliance mandates, and the merger would combine two establishedand the ability of a larger institution to address these challenges and compete in the banking franchises to create a bank that is expected to have over $800 million in assets;environment;
the complementary nature of the businesses of VCB and Blue Ridge, the anticipated improved opportunities for VCBproducts, customers and communities served by VCB, the opportunities for VCB’s employees and the familiaritymarkets of the two management teams resulting from their collaboration on a payment card program;companies, which Bay Banks believes should provide the opportunity to mitigate risks, including areas within the banks’ respective loan portfolios disproportionately affected by the COVID-19 pandemic, and increase potential returns;
the financial strengthfact that the aggregate transaction value would be approximately $100.4 million, estimated as of Blue Ridge based on its historical earnings and its capital position;August 12, 2020;
the financial and other terms of the merger agreement, including the exchange ratio,merger consideration, deal protection and termination fee provisions, which it reviewed with its outside financial and legal advisors;
the fact that the transaction value would be approximately $42.5 million,executive management team of the combined company, including Mr. Greene as President and Chief Operating Officer and Ms. Gavant as Chief Financial Officer, will represent a deeply experienced and talented management team with an implied price per sharea shared vision of VCB common stock of approximately $59.23 based on the10-day volume weighted average price of Blue Ridge common stock priorcommitment to announcement;customers;
the form and amountprovisions of the merger consideration, includingagreement setting forth the ability of VCB shareholders who desire to do so to participate in the future performancecorporate governance of the combined company, including that the combined company’s board of directors would be comprised of seven legacy Blue Ridge directors and six legacy Bay Banks directors (now amended to eight legacy Blue Ridge directors and seven legacy Bay Banks directors), which the potential synergies resulting fromBay Banks Board believes will enhance the merger;likelihood that the strategic benefits that Bay Banks expects to achieve as a result of the merger will be realized;
the abilitycompatibility of Bay Banks’ and Blue Ridge’s culture and similar commitments to the communities they serve and the customer relationships they foster;
the likelihood that Blue Ridge will be able to complete a merger transaction from a financial and regulatory perspective;
the fact that Blue Ridge agreed to use commercially reasonable efforts to have its common stock, including the shares issued to VCB shareholders in connection with the merger, approved for listing on the New York Stock Exchange or The Nasdaq Stock Market;
the regulatory and other approvals required in connection with the merger and the expectation that such regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions; and
the financial analyses and opinion of Sandler O’NeillPSC delivered to the VCBBay Banks Board on May 13, 2019,August 12, 2020, to the effect that, as of that date, and based upon and subject to the conditions, limitations, qualifications and assumptions set forth in the opinion, the merger consideration to be received in the merger by VCB common shareholdersexchange ratio was fair, from a financial point of view, to such shareholders.the common shareholders of Bay Banks.
The VCBBay Banks Board also considered a varietynumber of potential risks and other potentially negative factors concerninguncertainties associated with the merger in connection with its deliberations on the merger, including, without limitation, the following, which are not intended to be exhaustive and are not presented in any relative order of importance:priority:
the fact that VCBBay Banks would be prohibited from soliciting acquisition proposals after execution of the merger agreement, and the possibility that, while it was not viewed as precluding other proposals, the $1,500,000 termination fee payable to Blue Ridge upon the termination of the merger agreement under certain circumstances could potentially discourage certain other potential acquirers from making a competing offer to acquire VCB;
VCB will lose the autonomy and local strategic decision-making capability associated with being an independent financial institution;
the potential impact on VCB’s employees and the customers and communities served by VCB;
$4.0 million termination fee payable to Blue Ridge upon the termination of the merger agreement under certain circumstances could potentially discourage certain other potential acquirers from making a competing offer to acquire Bay Banks; |
the potential risks and costs associated with integrating the VCBBay Banks and Blue RidgeRidge’s businesses, operations and workforces;
the risk that potential benefits and synergies sought in the merger may not be realized or may not be realized within the expected time period,periods;
the impacts of and uncertainty surrounding the risks associated with the integration of the two companies;COVID-19 pandemic on Blue Ridge, Bay Banks and U.S. financial markets;
the fact that certain of VCB’sBay Banks’ directors and executive officers have other interests in the merger that are different from, or in addition to, their interests as VCB shareholders. SeeBay Banks shareholders, as described in more detail in the section entitled “—VCB’sInterests of Bay Banks Directors and Executive Officers Have Financial Interests in the Merger” beginning on page [●];
the possibility that the merger and the integration process could result in employee attrition and have a negative effect on business and customer relationships;
the fact that, while VCBBay Banks expects that the merger will be consummated, there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, including the risk that certain regulatory approvals, the receipt of which are conditions to the closing of the merger, might not be obtained, and as a result, the merger may not be completed;
while the merger is pending, VCB’sBay Banks’ officers and employees will have to focus extensively on actions required to complete the merger, which could divert their attention from VCB’sBay Banks’ business, and VCBBay Banks will incur substantial costs even if the merger is not consummated;
while the merger is pending, VCBBay Banks will be subject to certain customary restrictions on the conduct of its business, which may delay or prevent it from pursuing business opportunities that may arise, or preclude it from taking actions that would be advisable if it was to remain independent;
the significant risks and costs involved in connection with entering into and completing the merger, or failing to complete the merger in a timely manner, or at all, including as a result of any failure to obtain required regulatory approvals, such as the risk and costs relating to diversion of management and employee attention from other strategic opportunities and operational matters, potential employee attrition, and the potential effect on business and customer relationships; and
the possibility of litigation in connection with the merger.merger; and
other risks described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”
The foregoing discussion of the information and factors considered by the VCBBay Banks Board is not intended to be exhaustive, but, rather, includes the material factors considered by the VCBBay Banks Board. In reaching its decision to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the VCBBay Banks Board did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The VCBBay Banks Board considered all these factors as a whole, including discussiondiscussions with, and questioning of, VCB’sBay Banks’ management and VCB’sBay Banks’ financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.
For the reasons set forth above, the VCB Board has unanimously approveddetermination to approve the merger agreement and the transactions contemplated thereby, including the merger.
This explanation of the Bay Banks Board’ reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”
The Bay Banks Board unanimously determined that the merger agreement is advisable and in the best interests of VCBBlue Ridge and its shareholdersshareholders. Accordingly, the Bay Banks Board unanimously approved and adopted the merger agreement and unanimously recommends that the shareholders vote “FOR” the VCBBay Banks merger proposal.
Opinion of VCB’sBay Banks’ Financial Advisor
VCBBay Banks retained Piper Sandler O’Neill to act as financial advisor to the VCBBay Banks Board in connection with VCB’sBay Banks’ consideration of a possible business combination. Bay Banks selected Piper Sandler O’Neillto act as its financial advisor because Piper Sandler is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Piper Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.
Piper Sandler O’Neill acted as financial advisor to the Bay Banks Board in connection with the proposed transactionmerger and participated in certain of the negotiations leading to the execution of the merger agreement. At the May 13, 2019August 12, 2020 meeting at which the VCBBay Banks Board considered and discussed the terms ofmerger and the merger agreement, and the merger,Piper Sandler O’Neill delivered to the VCBBay Banks Board its oral opinion, which was subsequently confirmed in writing on May 13, 2019,August 12, 2020, to the effect that, as of such date, the merger consideration provided for in the merger agreementexchange ratio was fair to the holders of VCBBay Banks common stock from a financial point of view.The full text of Sandler O’Neill’sPiper Sandler’s opinion is attached asAppendix C to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of VCBBay Banks common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.
Sandler O’Neill’s opinion speaks only as of the date of the opinion.ThePiper Sandler’s opinion was directed to the VCBBay Banks Board in connection with its consideration of the merger agreement and the merger agreement and does not constitute a recommendation to any shareholder of VCBBay Banks as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger agreement and the merger. Sandler O’Neill’smerger agreement. Piper Sandler’s opinion was directed only as to the fairness, from a financial point of view, of the merger considerationexchange ratio to the holders of VCBBay Banks common stock and doesdid not address the underlying business decision of VCBBay Banks to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for VCBBay Banks or the effect of any other transaction in which VCBBay Banks might engage. Piper Sandler O’Neillalso did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of VCBBay Banks or Blue Ridge, or any class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder, including the merger consideration to be received by the holders of VCB common stock. Sandler O’Neill’sshareholder. Piper Sandler’s opinion was approved by itsPiper Sandler’s fairness opinion committee.
In connection with its opinion, Piper Sandler O’Neill reviewed and considered, among other things:
an execution copya draft of the merger agreement;agreement, dated August 12, 2020;
certain publicly available financial statements and other historical financial information of VCBBay Banks that Piper Sandler O’Neill deemed relevant;
audited financial statements for VCB for the year ending December 31, 2018, as provided by the senior management of VCB;
certain publicly available financial statements and other historical financial information of Blue Ridge that Piper Sandler O’Neill deemed relevant;
certain internal financial projections for VCB for the year ending December 31, 2019, as well as an estimated long-term annual earnings per share growth rate for the years thereafter and estimated dividends per shareBay Banks for the years ending December 31, 20192020 through December 31, 2023,2024, as provided by the senior management of VCB;Bay Banks;
certain internal financial projections for Blue Ridge for the yearyears ending December 31, 2019,2020 through December 31, 2022, as well as an estimated long-term annual net income and earnings per shareasset growth ratesrate for the years thereafter and estimated dividends per share for the years ending December 31, 2019 through December 31, 2023, as provided by the senior management of Blue Ridge;
years ending December 31, 2023 and December 31, 2024 and estimated dividends per share for the years ending December 31, 2020 through December 31, 2024, as provided by the senior management of Blue Ridge; |
the pro forma financial impact of the merger on Blue Ridge based on certain assumptions relating to transaction expenses, purchase accounting adjustments, transaction expenses, and cost savings, as well as estimated net income for VCBcertain adjustments to Bay Banks’ loan loss provision expense for the years ending December 31, 20202021 through December 31, 2022,2024, as provided by the senior management of Blue Ridge;
the relative contribution of assets, equity and earnings of Bay Banks and Blue Ridge (collectively,to the “Pro Forma Assumptions”);combined entity, as well as their respective business models, deposit bases, branch locations and opportunities for synergies and cost savings as a result of the merger, as discussed with the senior management of Bay Banks;
the publicly reported historical price and trading activity for VCBBay Banks common stock and Blue Ridge common stock, including a comparison of certain stock markettrading information for VCBBay Banks common stock and Blue Ridge common stock and certain stock indices, as well as similar publicly available information for certain similarother companies, the securities of which are publicly traded;
a comparison of certain financial and market information for VCBBay Banks and Blue Ridge with similar financial institutions for which information was publicly available;
the financial terms of certain recent business combinations in the bank and thrift industry (on a regional and nationwide basis), to the extent publicly available;
the current market environment generally and the banking environment in particular; and
such other information, financial studies, analyses and investigations and financial, economic and market criteria as Piper Sandler O’Neill considered relevant.
Piper Sandler O’Neill also discussed with certain members of the senior management of VCBBay Banks and its representatives the business, financial condition, results of operations and prospects of VCBBay Banks and held similar discussions with certain members of the senior management of Blue Ridge and its representatives regarding the business, financial condition, results of operations and prospects of Blue Ridge.
In performing its review, Piper Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed byPiper Sandler O’Neill from public sources, that was provided to Piper Sandler O’Neill by VCB orBay Banks, Blue Ridge or their respective representatives, or that was otherwise reviewed by Piper Sandler, O’Neill, and Piper Sandler O’Neill assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Piper Sandler O’Neill relied on the assurances of the respective senior managements of VCBBay Banks and Blue Ridge that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading.misleading in any respect material to its analyses. Piper Sandler O’Neill was not asked to perform and did not undertake an independent verification of any of such information and Piper Sandler O’Neill did not assume any responsibility or liability for the accuracy or completeness thereof. Piper Sandler O’Neill did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of VCBBay Banks or Blue Ridge or any of their respective subsidiaries, nor wasRidge. Piper Sandler O’Neill furnished with any such evaluations or appraisals. Sandler O’Neill rendered no opinion on, or evaluation onof, the collectability of any assets or the future performance of any loans of VCBBay Banks or Blue Ridge. Piper Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of VCBBay Banks or Blue Ridge, or of the combined entity after the merger, and Piper Sandler O’Neill did not review any individual credit files relating to VCBBay Banks or Blue Ridge. Piper Sandler O’Neill assumed, with VCB’sBay Banks’ consent, that the respective allowances for loan losses for both VCBBay Banks and Blue Ridge were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.
In preparing its analyses, Piper Sandler O’Neill used certain internal financial projections for VCB for the year ending December 31, 2019, as well as an estimated long-term annual earnings per share growth rate for the years thereafter and estimated dividends per shareBay Banks for the years ending December 31, 20192020 through December 31, 2023,2024, as provided by the senior management of VCB.Bay Banks. In addition, Piper Sandler O’Neill used certain internal financial projections for Blue Ridge for the yearyears ending December 31, 2019,2020 through December 31, 2022, as well as an estimated long-term annual net income and earnings per shareasset growth rates for the years thereafter and estimated dividends per sharerate for the years ending December 31, 20192023 and December 31, 2024 and estimated dividends per share
for the years ending December 31, 2020 through December 31, 2023,2024, as provided by the senior management of Blue Ridge. Piper Sandler O’Neill also received and used in its pro forma analyses certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, as well as certain adjustments to Bay Banks’ loan loss provision expense for the Pro Forma Assumptions,years ending December 31, 2021 through December 31, 2024, as provided by the senior managementmanagements of Blue Ridge. With respect to the foregoing information, the respective senior managements of VCBBay Banks and Blue Ridge confirmed to Piper Sandler O’Neill that such information reflected the best currently available projections, estimates and judgmentsjudgements of those respective senior managements as to the future financial performance of VCBBay Banks and Blue Ridge, respectively, and the other matters covered thereby, andPiper Sandler O’Neill assumed that the future financial performanceresults reflected in such information would be achieved. Piper Sandler O’Neill expressed no opinion as to such information,estimates or judgements, or the assumptions on which such information wasthey were based. Piper Sandler O’Neill also assumed that there had been no material change in the respectiveBay Banks’ or Blue Ridge’s assets, financial condition, results of operations, business or prospects of VCB or Blue Ridge since the date of the most recent financial statements made available to Piper Sandler. Piper Sandler O’Neill. Sandler O’Neill assumed in all respects material to Sandler O’Neill’sits analyses that VCBBay Banks and Blue Ridge would remain as going concerns for all periods relevant to Sandler O’Neill’sits analyses.
Piper Sandler O’Neill also assumed, with VCB’sBay Banks’ consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on VCB,Bay Banks, Blue Ridge, or the merger or any
related transactions, and (iii) the merger and any related transactions would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. Finally, with VCB’sBay Banks’ consent, Piper Sandler O’Neill relied upon the advice that VCBBay Banks received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. Piper Sandler O’Neill expressed no opinion as to any such matters.
Sandler O’Neill’sPiper Sandler’s opinion was necessarily based on financial, economic, regulatory, economic, market and other conditions as in effect on, and the information made available to Piper Sandler O’Neill as of, the date of its opinion.thereof. Events occurring after the date of its opinionthereof could materially affect Sander O’Neill’sPiper Sandler’s opinion. Piper Sandler O’Neill didhas not undertakeundertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. Piper Sandler O’Neill expressed no opinion as to the trading value of VCBBay Banks common stock or Blue Ridge common stock at any time or what the value of Blue Ridge common stock wouldwill be once it is actually received by the holders of VCBBay Banks common stock.
In rendering its opinion, Piper Sandler O’Neill performed a variety of financial analyses. The summary below is not a complete description of all the analyses underlying Sandler O’Neill’sPiper Sandler’s opinion or the presentation made by Piper Sandler O’Neill to the VCBBay Banks Board, but is a summary of allthe material analyses performed and presented by Sandler O’Neill.Piper Sandler. The summary includes information presented in tabular format.In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Piper Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’sPiper Sandler’s comparative analyses described below is identical to VCBBay Banks or Blue Ridge and no transaction is
identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of VCBBay Banks and Blue Ridge and the companies to which they are beingwere compared. In arriving at its opinion, Piper Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, Piper Sandler O’Neill made qualitative judgments as to the significance and relevance of each analysis and factor. Piper Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Piper Sandler O’Neill made its determination as to the fairness of the merger considerationexchange ratio to the holders of Bay Banks common stock on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.
In performing its analyses, Piper Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of VCB,Bay Banks, Blue Ridge and Sandler O’Neill.Piper Sandler. The analyses performed by Piper Sandler O’Neill are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Piper Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the VCBBay Banks Board at its May 13, 2019August 12, 2020 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’sPiper Sandler’s analyses do not necessarily reflect the value of VCBBay Banks common stock or Blue Ridge common stock or the prices at which VCB common stockBay Banks or Blue Ridge common stock may be sold at any time. The analyses of Piper Sandler O’Neill and its opinion were among a number of factors taken into consideration by the VCBBay Banks Board in making its determination to approve the merger agreement and the analyses described below should not be viewed as determinative of the merger consideration or the decision of the VCBBay Banks Board or management with respect to the fairness of the merger. The type and amount of consideration payable in the merger were determined through negotiations between VCB and Blue Ridge.exchange ratio.
Summary of Proposed Merger Consideration and Implied Transaction Metrics.Metrics
Piper Sandler O’Neill reviewed the financial terms of the proposed merger. As set forth inPursuant to the terms of the merger agreement, at the effective time of the merger each share of Bay Banks common stock of VCB issued and outstanding immediately prior to the effective time of the merger, except for certain shares of VCB common stock as set forth in the merger agreement, shall become and be converted into the right to receive at the election0.5000 of the holder thereof, either (i) $58.00 in cash, or (ii) 3.05 sharesa share of common stock of Blue Ridge common stock; provided, however, that the merger agreement provides, generally, that 60% of the total number of shares of VCB common stock issued and outstanding prior to the effective time shall be converted into the stock consideration and 40% of such shares shall be converted into the cash consideration in accordance with the allocation procedures set forth in the merger agreement.Ridge. Based on the closing price per share of Blue Ridge common stock on May 10, 2019August 11, 2020 of $21.30$14.63 and 717,471based upon 13,344,104 shares of VCBBay Banks common stock outstanding and 222,460 Bay Banks options outstanding with a weighted average exercise price of $7.83, Piper Sandler O’Neill calculated an aggregate implied transaction value of approximately $44.6 million, or an implied transaction price per share of $62.18.$97.8 million. Based upon financial information for VCBBay Banks as of or for the last twelve months (“LTM”) ended December 31, 2018June 30, 2020 and internal earnings per share projections for VCB for the year ending
December 31, 2019, as provided by the senior managementclosing price of VCB,Bay Banks’ common stock on August 11, 2020, Piper Sandler O’Neill calculated the following implied transaction metrics:
Transaction Price | ||||
| ||||
| % | |||
Transaction Price | % | |||
Transaction Price / Bay Banks June 30, 2020 LTM Earnings per Share¹ | 17.4 | x | ||
Transaction Price / Bay Banks 2020E Earnings per Share² | 20.6 | x | ||
Transaction Price / Bay Banks 2021E Median Analyst GAAP Earnings per Share² | 11.4 | x | ||
Tangible Book Premium / Core Deposits³ | -2.8 | % | ||
Tangible Book Premium / Core Deposits | ||||
| % | |||
Premium to | % |
1) | Excludes the after-tax impact of Bay Banks goodwill impairment of $9.8 million in Q2 2020 |
2) | As provided by Bay Banks management |
3) | Core |
4) | Core |
Contribution Analysis
Piper Sandler reviewed the relative contributions of Bay Banks and Blue Ridge to the pro forma balance sheet and income of the combined entity. This analysis excluded mark-to-market and other transaction-related adjustments. The results of this analysis are set forth in the following table, which also compares the results of this analysis with the implied pro forma ownership percentages of Bay Banks and Blue Ridge shareholders in the combined company:
Bay Banks | Blue Ridge | |||||||||||||||
$ value in millions | ||||||||||||||||
Balance Sheet: | $ | % | $ | % | ||||||||||||
Net Loans | $ | 1,041 | 47.5 | % | $ | 1,151 | 52.5 | % | ||||||||
Net Loans, Excluding PPP | $ | 985 | 55.2 | % | $ | 801 | 44.8 | % | ||||||||
Total Assets | $ | 1,238 | 43.7 | % | $ | 1,595 | 56.3 | % | ||||||||
Total Deposits | $ | 1,007 | 51.0 | % | $ | 966 | 49.0 | % | ||||||||
Total Equity | $ | 120 | 55.7 | % | $ | 95 | 44.3 | % | ||||||||
Tangible Common Equity | $ | 118 | 62.3 | % | $ | 72 | 37.7 | % | ||||||||
Earnings: | ||||||||||||||||
Year-to-date Pre-tax Pre-Provision Net Revenue¹ | $ | 6.8 | 34.1 | % | $ | 13.0 | 65.9 | % | ||||||||
Year-to-date Net Income² | $ | 1.6 | 18.9 | % | $ | 7.1 | 81.1 | % | ||||||||
2020E Net Income² | $ | 4.6 | 28.7 | % | $ | 11.5 | 71.3 | % | ||||||||
2021E Net Income² | $ | 8.4 | 41.7 | % | $ | 11.7 | 58.3 | % | ||||||||
Market Valuation: | ||||||||||||||||
Market Capitalization as of 8/11/2020 | $ | 80 | 49.1 | % | $ | 83 | 50.9 | % | ||||||||
Pro Forma Ownership to Common Shareholders | 53.8 | % | 46.2 | % |
1) |
|
2) | Excludes after-tax impact of Bay Banks goodwill impairment of $9.8 million in Q2 2020 |
Stock Trading History.History
Piper Sandler O’Neill reviewed the publicly available historical reported trading prices of Bay Banks common stock price performance of VCBand Blue Ridge common stock for theone-one-year and three-year periods ended May 10, 2019.August 11, 2020. Piper Sandler O’Neill then compared the relationship between the stock price performance of VCB common stock to stock price movements in the VCB Peer Groupprice of Blue Ridge common stock and Bay Banks common stock, respectively, to movements in their peer group (as described below) as well as certain stock indices.
VCB One-Year Stock Price Performance
| ||||||||
Beginning May 10, 2018 | Ending May 10, 2019 | |||||||
VCB | 100 | % | 116.4 | % | ||||
VCB Peer Group | 100 | % | 95.1 | % | ||||
NASDAQ Bank Index | 100 | % | 88.0 | % | ||||
S&P 500 Index | 100 | % | 105.8 | % | ||||
VCB Three-Year Stock Price Performance
| ||||||||
Beginning May 10, 2018 | Ending May 10, 2019 | |||||||
VCB | 100 | % | 132.8 | % | ||||
VCB Peer Group | 100 | % | 131.8 | % | ||||
NASDAQ Bank Index | 100 | % | 135.7 | % | ||||
S&P 500 Index | 100 | % | 138.2 | % |
Sandler O’Neill also reviewed the historical stock price performance of Blue Ridge common stock for theone-One-Year and three-year periods ended May 10, 2019. Sandler O’Neill then compared the relationship between the stock price performance of Blue Ridge common stock to stock price movements in the Blue Ridge Peer Group (as described below) as well as certain stock indices.Stock Performance
Blue Ridge One-Year Stock Price Performance
| ||||||||||||||||
Beginning May 10, 2018 | Ending May 10, 2019 | Beginning Value August 11, 2019 | Ending Value August 11, 2020 | |||||||||||||
Bay Banks | 100 | % | 74.0 | % | ||||||||||||
Blue Ridge | 100 | % | 118.3 | % | 100 | % | 74.1 | % | ||||||||
Blue Ridge Peer Group | 100 | % | 94.5 | % | ||||||||||||
Peer Group | 100 | % | 70.8 | % | ||||||||||||
S&P 500 Index | 100 | % | 114.2 | % | ||||||||||||
NASDAQ Bank Index | 100 | % | 88.0 | % | 100 | % | 81.5 | % | ||||||||
S&P 500 Index | 100 | % | 105.8 | % | ||||||||||||
Blue Ridge Three-Year Stock Price Performance
| ||||||||||||||||
Beginning May 10, 2018 | Ending May 10, 2019 | |||||||||||||||
Blue Ridge | 100 | % | 178.5 | % | ||||||||||||
Blue Ridge Peer Group | 100 | % | 141.0 | % | ||||||||||||
NASDAQ Bank Index | 100 | % | 135.7 | % | ||||||||||||
S&P 500 Index | 100 | % | 138.2 | % |
Three-Year Stock Performance
Beginning Value August 11, 2017 | Ending Value August 11, 2020 | |||||||
Bay Banks | 100 | % | 63.1 | % | ||||
Blue Ridge | 100 | % | 99.7 | % | ||||
Peer Group | 100 | % | 72.3 | % | ||||
S&P 500 Index | 100 | % | 136.6 | % | ||||
NASDAQ Bank Index | 100 | % | 80.7 | % |
Comparable Company Analyses.Analyses
Piper Sandler O’Neill used publicly available information to compare selected financial information for VCBBay Banks and Blue Ridge with a group of financial institutions selected by Sandler O’Neill (the “VCB Peer Group”).Piper Sandler. The VCB Peer Group consisted of publicly-traded banksBay Banks and Blue Ridge peer group included publicly traded bank and thrifts headquartered in Virginia, and North Carolina, South Carolina and Tennessee with total assets between $150$750 million and $500 million, excluding announced merger targets and mutual holding companies.$2.0 billion as of August 12, 2020 (the “Peer Group”)¹. The VCB Peer Group consisted of the following companies:
Bank of the James Financial Group, Inc. | FVCBankcorp, Inc. | |
Benchmark Bankshares, Inc. | GrandSouth Bancorporation | |
C&F Financial | John Marshall Bancorp, Inc. | |
Chesapeake Financial Shares, Inc. | MainStreet Bancshares, Inc. | |
CoastalSouth Bancshares, Inc. | Mountain Commerce Bancorp, Inc. | |
Community Bankers Trust Corporation | National Bankshares, Inc. | |
Eagle Financial Services, Inc. | Old Point Financial Corporation | |
F & M Bank | Parkway Acquisition Corp. | |
Fauquier Bankshares, Inc. | Peoples Bancorp of North Carolina, Inc. | |
First Community Corporation | Security Federal Corp. | |
First Farmers and Merchants Corporation | Select Bancorp, Inc. | |
First National Corporation | South Atlantic Bancshares, Inc. | |
First Reliance Bancshares, Inc. | Virginia National Bankshares Corporation |
1) | Excludes CNB Corporation and UB Bancorp due to undisclosed shares outstanding and First Citizens Bancshares, Inc. due to financial information only available as of 12/31/2019. |
The analysis compared publicly available financial informationdata for VCB as of or for the period ended December 31, 2018Bay Banks and Blue Ridge with the corresponding publicly available data for the VCB Peer Group as of or for the periodlast twelve months ended March 31, 2019 (or, if data as of or for the period ended March 31, 2019 was not publicly available, as of or for the period ended December 31, 2018),June 30, 2020 (unless otherwise noted) with pricing data as of May 10, 2019.August 11, 2020. The table below sets forth the data for VCBBay Banks, Blue Ridge, and the high,median, mean, low median and meanhigh data for the VCB Peer Group.
VCB Peer Group Analysis
| ||||||||||||||||||||
VCB | VCB Peer Group Median | VCB Peer Group Mean | VCB Peer Group Low | VCB Peer Group High | ||||||||||||||||
Total assets ($mm) | 246 | 312 | 335 | 201 | 448 | |||||||||||||||
Loans / Deposits (%) | 79.4 | 91.3 | 89.9 | 66.7 | 104.8 | |||||||||||||||
Non-performing assets(1) / Total assets (%) | 0.87 | 0.95 | 1.30 | 0.14 | 3.12 | |||||||||||||||
Tangible common equity/Tangible assets (%) | 9.61 | 10.40 | 10.68 | 5.86 | 14.60 | |||||||||||||||
Tier 1 leverage ratio (%) | 10.52 | 10.81 | 11.29 | 8.05 | 14.54 | |||||||||||||||
Total risk-based capital ratio (%) | 13.57 | 14.71 | 15.93 | 12.25 | 23.98 | |||||||||||||||
CRE / Total risk-based capital ratio (%) | 208.5 | (2) | 166.1 | 164.1 | 48.5 | 285.4 | ||||||||||||||
LTM return on average assets (%) | 0.91 | 0.92 | 0.78 | -0.28 | 1.63 | |||||||||||||||
LTM return on average equity (%) | 9.37 | 8.34 | 7.71 | -3.59 | 16.60 | |||||||||||||||
LTM Net interest margin (%) | 4.50 | 3.81 | 3.86 | 3.34 | 4.58 | |||||||||||||||
LTM Efficiency ratio (%) | 78.9 | 72.0 | 73.5 | 56.5 | 94.3 | |||||||||||||||
Price/Tangible book value (%) | 119 | 106 | 108 | 82 | 138 | |||||||||||||||
Price/LTM earnings per share (x) | 12.8 | 12.0 | 13.6 | 8.6 | 26.2 | |||||||||||||||
Current dividend yield (%) | 2.6 | 1.5 | 1.8 | 0.0 | 6.2 | |||||||||||||||
Market value ($mm) | 29 | 35 | 36 | 5 | 66 |
|
|
Sandler O’Neill used publicly available information to perform a similar analysis for Blue Ridge and a group of financial institutions selected by Sandler O’Neill (the “Blue Ridge Peer Group”). The Blue Ridge Peer Group consisted of publicly-traded banks and thrifts headquartered in Virginia, North Carolina and the District of Columbia with total assets between $500 million and
$750 million, excluding announced merger targetsBay Banks and companies with undisclosed common shares outstanding. The Blue Ridge Peer Group consisted of the following companies:Comparable Company Analysis ¹
Bay Banks | Blue Ridge | Peer Group Median | Peer Group Mean | Peer Group Low | Peer Group High | |||||||||||||||||||
Total assets ($M) | 1,238 | 1,595 | 1,108 | 1,206 | 763 | 1,983 | ||||||||||||||||||
Loans / Deposits (%) | 104.6 | 106.8 | 86.6 | 84.4 | 60.6 | 104.0 | ||||||||||||||||||
Loan Loss Reserves / Gross Loans | 1.14 | 0.71 | 0.97 | 1.07 | 0.67 | 2.39 | ||||||||||||||||||
Nonperforming Assets / Total Assets (%) | 1.38 | 0.25 | 0.53 | 0.54 | 0.04 | 1.39 | ||||||||||||||||||
Tangible Common Equity/Tangible Assets (%)² | 9.58 | 4.56 | 9.52 | 9.38 | 7.79 | 13.17 | ||||||||||||||||||
Tier 1 Leverage Ratio (%) | 10.25 | 7.39 | 9.81 | 9.81 | 8.14 | 13.42 | ||||||||||||||||||
Total Risk-Based Capital Ratio (%) | 13.38 | 12.05 | 13.8 | 14.31 | 10.79 | 21.51 | ||||||||||||||||||
CRE / Total Risk-Based Capital Ratio (%)³ | 295.9 | 256.3 | 216.3 | 239.5 | 139.9 | 409.4 | ||||||||||||||||||
LTM Return on Average Assets (%) | -0.37 | 4 | 0.92 | 0.93 | 0.92 | 0.59 | 1.33 | |||||||||||||||||
LTM Return on Average Equity (%) | -3.41 | 4 | 10.76 | 8.76 | 8.87 | 3.76 | 13.82 | |||||||||||||||||
LTM Net Interest Margin (%) | 3.30 | 3.32 | 3.69 | 3.72 | 3.05 | 5.04 | ||||||||||||||||||
LTM Efficiency Ratio (%) | 67.6 | 72.6 | 69.5 | 67.4 | 43.4 | 83.0 | ||||||||||||||||||
Price/Tangible Book Value (%) | 67 | 115 | 81 | 82 | 71 | 98 | ||||||||||||||||||
Price/LTM Earnings per Share (x) | NM | 9.0 | 9.5 | 10.0 | 6.9 | 18.4 | ||||||||||||||||||
Current Dividend Yield (%) | 0.0 | 3.9 | 2.8 | 2.5 | 0.0 | 5.2 | ||||||||||||||||||
Market Value ($M) | 80 | 83 | 85 | 91 | 47 | 170 |
The analysis compared publicly available financial information for Blue Ridge as of or for the period ended March 31, 2019 with the corresponding publicly available data for the Blue Ridge Peer Group as of or for the period ended March 31, 2019 (or, if data as of or for the period ended March 31, 2019 was not publicly available, as of or for the period ended December 31, 2018), with pricing data as of May 10, 2019. The table below sets forth the data for Blue Ridge and the high, low, median and mean data for the Blue Ridge Peer Group:
Blue Ridge Peer Group Analysis
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Blue Ridge | Blue Ridge Peer Group Median | Blue Ridge Peer Group Mean | Blue Ridge Peer Group Low | Blue Ridge Peer Group High | ||||||||||||||||
Total assets ($mm) | 575 | 655 | 641 | 522 | 705 | |||||||||||||||
Loans / Deposits (%) | 101.5 | 90.6 | 88.0 | 62.7 | 95.3 | |||||||||||||||
Non-performing assets(1) / Total assets (%) | 0.89 | (2) | 0.95 | 1.44 | 0.43 | 2.94 | ||||||||||||||
Tangible common equity/Tangible assets (%) | 10.10 | 8.87 | 8.79 | 5.44 | 11.29 | |||||||||||||||
Tier 1 leverage ratio (%) | 9.35 | (2) | 9.46 | 10.07 | 8.64 | 12.19 | ||||||||||||||
Total risk-based capital ratio (%) | 12.74 | (2) | 13.65 | 14.05 | 11.78 | 16.89 | ||||||||||||||
CRE / Total risk-based capital ratio (%) | 243.4 | (2) | 203.5 | 184.85 | 42.0 | 289.0 | ||||||||||||||
LTM return on average assets (%) | 0.93 | 0.81 | 0.89 | 0.14 | 2.24 | |||||||||||||||
LTM return on average equity (%) | 11.23 | 9.50 | 8.87 | 1.83 | 16.41 | |||||||||||||||
LTM Net interest margin (%) | 3.79 | 3.90 | 4.00 | 3.47 | 4.68 | |||||||||||||||
LTM Efficiency ratio (%) | 76.4 | 75.3 | 74.6 | 58.8 | 90.5 | |||||||||||||||
Price/Tangible book value (%) | 160 | 128 | 120 | 79 | 147 | |||||||||||||||
Price/LTM earnings per share (x) | 13.3 | 13.7 | 13.8 | 5.9 | 21.9 | |||||||||||||||
Current dividend yield (%) | 2.7 | 0.0 | 1.1 | 0.0 | 3.0 | |||||||||||||||
Market value ($mm) | 92 | 64 | 67 | 34 | 102 |
Note: Blue Ridge Peer Group data not pro forma for pending or recently completed acquisitions.
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Bank level financial data used when holding company information was unavailable. |
2) | Financial data as of March 31, |
3) | For banks that have adopted the community bank leverage ratio, the ratio reflects Tier 1 Capital plus ALLL in lieu of Total Risk Based Capital |
4) | Excluding the after-tax impact of Bay Banks’ goodwill impairment of $9.8 million in Q2 2020, LTM Return on Average Assets and Return on Average Equity would have been 0.48% and 4.36%, respectively |
Analysis of Selected Nationwide Merger Transactions. Sandler O’Neill reviewed a group of nationwide merger and acquisition transactions involving U.S. banks and thrifts (the “Nationwide Transactions”). The Nationwide Transactions group consisted of transactions with disclosed deal values announced between January 1, 2018 and May 10, 2019 involving targets with total assets between $200 million and $300 million, excluding Wintrust Financial Corp’s acquisition of Chicago Shore Corp. due to the transaction value being dependent on the appreciated value of the building acquired in the transaction. The Nationwide Transactions group was composed of the following transactions:
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Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to last-twelve-months earnings per share, transaction price to tangible book value per share, core deposit premium andone-day market premium. Sandler O’Neill compared the indicated transaction multiples for the merger to the high, low, mean and median multiples of the Nationwide Transactions group.
VCB/ Blue Ridge | Nationwide Transactions Median | Nationwide Transactions Mean | Nationwide Transactions Low | Nationwide Transactions High | ||||||||||||||||
Transaction price/ LTM Earnings per share: | 20.5x | 22.2x | 22.8x | 9.3x | 36.7x | |||||||||||||||
Transaction price/Tangible book value per share: | 189 | % | 171 | % | 168 | % | 63 | % | 289 | % | ||||||||||
Core deposit premium: | 10.7 | % | 11.8 | % | 12.5 | % | 0.8 | % | 31.4 | % | ||||||||||
1-day market premium: | 59.4 | % | 24.9 | % | 27.3 | % | 11.7 | % | 48.1 | % |
Analysis of Selected Regional Merger Transactions. Sandler O’Neill also reviewed a regional group of merger and acquisition transactions involving U.S. banks and thrifts headquartered in Virginia, West Virginia, North Carolina, the District of Columbia, or Maryland (the “Regional Transactions”). The Regional Transactions group consisted of transactions announced between January 1, 2017 and May 10, 2019 involving targets with total assets between $100 million and $750 million. The Regional Transactions group was composed of the following transactions:
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Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to last-twelve-months earnings per share, transaction price to tangible book value per share, core deposit premium andone-day market premium. Sandler O’Neill compared the indicated transaction multiples for the merger to the high, low, mean and median multiples of the Regional Transactions group.
VCB/ Blue Ridge | Regional Transactions Median | Regional Transactions Mean | Regional Transactions Low | Regional Transactions High | ||||||||||||||||
Transaction price/LTM earnings per share: | 20.5x | 25.3x | 25.4x | 11.1x | 39.3x | |||||||||||||||
Transaction price/Tangible book value per share: | 189 | % | 156 | % | 156 | % | 99 | % | 235 | % | ||||||||||
Core deposit premium: | 10.7 | % | 7.6 | % | 9.1 | % | 2.6 | % | 23.6 | % | ||||||||||
1-day market premium: | 59.4 | % | 26.0 | % | 28.7 | % | -64.2 | % | 101.8 | % |
Net Present Value Analyses.
Piper Sandler O’Neill performed an analysis that estimated the net present value per share of VCBBay Banks common stock assuming VCBBay Banks performed in accordance with certain internal financial projections for VCB for the year ending December 31, 2019, as well as an estimated long-term annual earnings per share growth rate for the years thereafter and estimated dividends per shareBay Banks for the years ending December 31, 20192020 through December 31, 2023,2024, as provided by the senior management of VCB.Bay Banks. To approximate the terminal value of a share of VCBBay Banks common stock at December 31, 2023,2024, Piper Sandler O’Neill applied price to 20232024 earnings per share multiples ranging from 10.0x8.0x to 15.0x13.0x and price tomultiples of December 31, 20232024 tangible book value per share multiples ranging from 85%70% to 135%110%. The terminal values were then discounted to present values using different discount rates ranging from 10.0%9.0% to 15.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of VCBBay Banks common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of VCBBay Banks common stock of $26.28$4.43 to $47.41$9.27 when applying multiples of earnings per share and $24.04$4.52 to $45.70$9.17 when applying multiples of tangible book value per share.value.
Earnings Per Share Multiples
Discount Rate | 10.0x | 11.0x | 12.0x | 13.0x | 14.0x | 15.0x | ||||||||||||||||||
10.0% | $ | 32.26 | $ | 35.29 | $ | 38.32 | $ | 41.35 | $ | 44.38 | $ | 47.41 | ||||||||||||
11.0% | $ | 30.94 | $ | 33.84 | $ | 36.74 | $ | 39.65 | $ | 42.55 | $ | 45.46 | ||||||||||||
12.0% | $ | 29.68 | $ | 32.47 | $ | 35.25 | $ | 38.03 | $ | 40.81 | $ | 43.60 | ||||||||||||
13.0% | $ | 28.49 | $ | 31.16 | $ | 33.83 | $ | 36.49 | $ | 39.16 | $ | 41.83 | ||||||||||||
14.0% | $ | 27.36 | $ | 29.92 | $ | 32.48 | $ | 35.03 | $ | 37.59 | $ | 40.15 | ||||||||||||
15.0% | $ | 26.28 | $ | 28.73 | $ | 31.19 | $ | 33.64 | $ | 36.10 | $ | 38.55 |
Discount Rate | 8.0x | 9.0x | 10.0x | 11.0x | 12.0x | 13.0x | ||||||||||||||||||
9.0% | $ | 5.71 | $ | 6.42 | $ | 7.13 | $ | 7.85 | $ | 8.56 | $ | 9.27 | ||||||||||||
10.0% | 5.47 | 6.15 | 6.83 | 7.51 | 8.20 | 8.88 | ||||||||||||||||||
11.0% | 5.24 | 5.89 | 6.54 | 7.20 | 7.85 | 8.51 | ||||||||||||||||||
12.0% | 5.02 | 5.64 | 6.27 | 6.90 | 7.53 | 8.15 | ||||||||||||||||||
13.0% | 4.81 | 5.41 | 6.01 | 6.61 | 7.21 | 7.82 | ||||||||||||||||||
14.0% | 4.61 | 5.19 | 5.77 | 6.34 | 6.92 | 7.50 | ||||||||||||||||||
15.0% | 4.43 | 4.98 | 5.53 | 6.08 | 6.64 | 7.19 |
Tangible Book Value Per Share Multiples
Discount Rate | 85% | 95% | 105% | 115% | 125% | 135% | 70% | 80% | 90% | 100% | 110% | |||||||||||||||||||||||||||||||||
9.0% | $ | 5.83 | $ | 6.67 | $ | 7.50 | $ | 8.33 | $ | 9.17 | ||||||||||||||||||||||||||||||||||
10.0% | $ | 29.49 | $ | 32.73 | $ | 35.97 | $ | 39.22 | $ | 42.46 | $ | 45.70 | 5.59 | 6.38 | 7.18 | 7.98 | 8.78 | |||||||||||||||||||||||||||
11.0% | $ | 28.29 | $ | 31.39 | $ | 34.50 | $ | 37.60 | $ | 40.71 | $ | 43.81 | 5.35 | 6.11 | 6.88 | 7.64 | 8.41 | |||||||||||||||||||||||||||
12.0% | $ | 27.14 | $ | 30.12 | $ | 33.10 | $ | 36.07 | $ | 39.05 | $ | 42.02 | 5.13 | 5.86 | 6.59 | 7.32 | 8.06 | |||||||||||||||||||||||||||
13.0% | $ | 26.06 | $ | 28.91 | $ | 31.76 | $ | 34.62 | $ | 37.47 | $ | 40.32 | 4.92 | 5.62 | 6.32 | 7.02 | 7.72 | |||||||||||||||||||||||||||
14.0% | $ | 25.03 | $ | 27.76 | $ | 30.50 | $ | 33.23 | $ | 35.97 | $ | 38.70 | 4.71 | 5.39 | 6.06 | 6.73 | 7.41 | |||||||||||||||||||||||||||
15.0% | $ | 24.04 | $ | 26.67 | $ | 29.29 | $ | 31.92 | $ | 34.54 | $ | 37.16 | 4.52 | 5.17 | 5.81 | 6.46 | 7.11 |
Piper Sandler O’Neill also considered and discussed with the VCBBay Banks Board how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income.earnings. To illustrate this impact, Piper Sandler O’Neill performed a similar analysis, assuming VCB’s net incomeBay Banks’ earnings varied from 15% above projectionsestimates to 15% below projections.estimates. This analysis resulted in the following range of per share values for VCBBay Banks’ common stock, applying the price to 20232024 earnings per share multiples range of 10.0x8.0x to 15.0x13.0x referred to above and a discount rate of 13.16%12.24%.
Earnings Per Share Multiples
Annual Budget Variance | 10.0x | 11.0x | 12.0x | 13.0x | 14.0x | 15.0x | ||||||||||||||||||||||||||||||||||||||||||
Annual Estimate Variance | 8.0x | 9.0x | 10.0x | 11.0x | 12.0x | 13.0x | ||||||||||||||||||||||||||||||||||||||||||
(15.0%) | $ | 24.33 | $ | 26.58 | $ | 28.84 | $ | 31.09 | $ | 33.34 | $ | 35.59 | $ | 4.22 | $ | 4.76 | $ | 5.29 | $ | 5.82 | $ | 6.35 | $ | 6.87 | ||||||||||||||||||||||||
(10.0%) | $ | 25.66 | $ | 28.04 | $ | 30.43 | $ | 32.81 | $ | 35.20 | $ | 37.58 | 4.48 | 5.04 | 5.60 | 6.16 | 6.72 | 7.28 | ||||||||||||||||||||||||||||||
(5.0%) | $ | 26.98 | $ | 29.50 | $ | 32.02 | $ | 34.53 | $ | 37.05 | $ | 39.57 | 4.73 | 5.32 | 5.91 | 6.50 | 7.09 | 7.68 | ||||||||||||||||||||||||||||||
0.0% | $ | 28.31 | $ | 30.96 | $ | 33.61 | $ | 36.26 | $ | 38.91 | $ | 41.56 | 4.98 | 5.60 | 6.22 | 6.84 | 7.47 | 8.09 | ||||||||||||||||||||||||||||||
5.0% | $ | 29.63 | $ | 32.41 | $ | 35.20 | $ | 37.98 | $ | 40.76 | $ | 43.54 | 5.23 | 5.88 | 6.53 | 7.19 | 7.84 | 8.49 | ||||||||||||||||||||||||||||||
10.0% | $ | 30.96 | $ | 33.87 | $ | 36.79 | $ | 39.70 | $ | 42.62 | $ | 45.53 | 5.47 | 6.16 | 6.84 | 7.53 | 8.21 | 8.90 | ||||||||||||||||||||||||||||||
15.0% | $ | 32.28 | $ | 35.33 | $ | 38.38 | $ | 41.42 | $ | 44.47 | $ | 47.52 | 5.72 | 6.44 | 7.15 | 7.87 | 8.58 | 9.30 |
Piper Sandler O’Neill also performed an analysis that estimated the net present value per share of Blue Ridge common stock, assuming Blue Ridge performed in accordance with certain internal financial projections for Blue Ridge for the yearyears ending December 31, 2019,2020 through December 31, 2022, as well as an estimated long-term annual net income and earnings per shareasset growth ratesrate for the years thereafterending December 31, 2023 and December 31, 2024 and estimated dividends per share for the years ending December 31, 20192020 through December 31, 2023,2024, as provided by the senior management of Blue Ridge. To approximate the terminal value of a share of Blue Ridge common stock at December 31, 2023,2024, Piper Sandler O’Neill applied price to 20232024 earnings per share multiples ranging from 10.0x8.0x to 15.0x13.0x and price to
multiples of December 31, 20232024 tangible book value per share multiples ranging from 100%70% to 150%110%. The terminal values were then discounted to present values using different discount rates ranging from 10.0%9.0% to 15.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Blue Ridge common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of Blue Ridge common stock of $18.65$13.71 to $33.48$26.90 when applying multiples of earnings per share and $13.65$9.50 to $24.12$17.56 when applying multiples of tangible book value per share.value.
Earnings Per Share Multiples
Discount Rate | 10.0x | 11.0x | 12.0x | 13.0x | 14.0x | 15.0x | 8.0x | 9.0x | 10.0x | 11.0x | 12.0x | 13.0x | ||||||||||||||||||||||||||||||||||||
9.0% | $ | 17.42 | $ | 19.31 | $ | 21.21 | $ | 23.11 | $ | 25.00 | $ | 26.90 | ||||||||||||||||||||||||||||||||||||
10.0% | $ | 23.06 | $ | 25.14 | $ | 27.23 | $ | 29.31 | $ | 31.39 | $ | 33.48 | 16.72 | 18.53 | 20.35 | 22.17 | 23.98 | 25.80 | ||||||||||||||||||||||||||||||
11.0% | $ | 22.08 | $ | 24.07 | $ | 26.07 | $ | 28.06 | $ | 30.05 | $ | 32.04 | 16.05 | 17.79 | 19.53 | 21.27 | 23.01 | 24.75 | ||||||||||||||||||||||||||||||
12.0% | $ | 21.16 | $ | 23.06 | $ | 24.96 | $ | 26.87 | $ | 28.77 | $ | 30.67 | 15.42 | 17.09 | 18.76 | 20.42 | 22.09 | 23.76 | ||||||||||||||||||||||||||||||
13.0% | $ | 20.28 | $ | 22.10 | $ | 23.92 | $ | 25.74 | $ | 27.56 | $ | 29.38 | 14.82 | 16.42 | 18.02 | 19.62 | 21.22 | 22.81 | ||||||||||||||||||||||||||||||
14.0% | $ | 19.44 | $ | 21.18 | $ | 22.93 | $ | 24.67 | $ | 26.41 | $ | 28.15 | 14.25 | 15.78 | 17.32 | 18.85 | 20.38 | 21.92 | ||||||||||||||||||||||||||||||
15.0% | $ | 18.65 | $ | 20.32 | $ | 21.98 | $ | 23.65 | $ | 25.32 | $ | 26.99 | 13.71 | 15.18 | 16.65 | 18.12 | 19.59 | 21.06 |
Tangible Book Value Per Share Multiples
Discount Rate | 150% | 170% | 190% | 210% | 230% | 250% | ||||||||||||||||||
10.0% | $ | 16.82 | $ | 18.28 | $ | 19.74 | $ | 21.20 | $ | 22.66 | $ | 24.12 | ||||||||||||
11.0% | $ | 16.12 | $ | 17.51 | $ | 18.91 | $ | 20.30 | $ | 21.70 | $ | 23.09 | ||||||||||||
12.0% | $ | 15.45 | $ | 16.79 | $ | 18.12 | $ | 19.45 | $ | 20.79 | $ | 22.12 | ||||||||||||
13.0% | $ | 14.82 | $ | 16.10 | $ | 17.37 | $ | 18.65 | $ | 19.92 | $ | 21.20 | ||||||||||||
14.0% | $ | 14.22 | $ | 15.44 | $ | 16.66 | $ | 17.88 | $ | 19.10 | $ | 20.32 | ||||||||||||
15.0% | $ | 13.65 | $ | 14.82 | $ | 15.99 | $ | 17.16 | $ | 18.33 | $ | 19.49 |
Discount Rate | 70% | 80% | 90% | 100% | 110% | |||||||||||||||
9.0% | $ | 11.99 | $ | 13.38 | $ | 14.78 | $ | 16.17 | $ | 17.56 | ||||||||||
10.0% | 11.52 | 12.85 | 14.19 | 15.52 | 16.85 | |||||||||||||||
11.0% | 11.08 | 12.35 | 13.63 | 14.91 | 16.18 | |||||||||||||||
12.0% | 10.65 | 11.88 | 13.10 | 14.32 | 15.55 | |||||||||||||||
13.0% | 10.25 | 11.42 | 12.60 | 13.77 | 14.94 | |||||||||||||||
14.0% | 9.87 | 10.99 | 12.12 | 13.24 | 14.37 | |||||||||||||||
15.0% | 9.50 | 10.58 | 11.66 | 12.74 | 13.82 |
Piper Sandler O’Neill also considered and discussed with the VCBBay Banks Board how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income.earnings. To illustrate this impact, Piper Sandler O’Neill performed a similar analysis assuming Blue Ridge’s net incomeearnings varied from 15% above estimates to 15% below estimates. This analysis resulted in the following range of per share values for Blue Ridge common stock, applying the price to 20232024 earnings per share multiples range of 10.0x8.0x to 15.0x13.0x referred to above and a discount rate of 13.16%12.24%.
Earnings Per Share Multiples
Annual Budget Variance | 10.0x | 11.0x | 12.0x | 13.0x | 14.0x | 15.0x | ||||||||||||||||||||||||||||||||||||||||||
Annual Estimate Variance | 8.0x | 9.0x | 10.0x | 11.0x | 12.0x | 13.0x | ||||||||||||||||||||||||||||||||||||||||||
(15.0%) | $ | 17.43 | $ | 18.96 | $ | 20.50 | $ | 22.04 | $ | 23.58 | $ | 25.11 | $ | 13.32 | $ | 14.73 | $ | 16.13 | $ | 17.54 | $ | 18.95 | $ | 20.35 | ||||||||||||||||||||||||
(10.0%) | $ | 18.33 | $ | 19.96 | $ | 21.59 | $ | 23.21 | $ | 24.84 | $ | 26.47 | 13.98 | 15.47 | 16.96 | 18.45 | 19.94 | 21.43 | ||||||||||||||||||||||||||||||
(5.0%) | $ | 19.24 | $ | 20.95 | $ | 22.67 | $ | 24.39 | $ | 26.11 | $ | 27.82 | 14.64 | 16.22 | 17.79 | 19.36 | 20.93 | 22.50 | ||||||||||||||||||||||||||||||
0.0% | $ | 20.14 | $ | 21.95 | $ | 23.76 | $ | 25.56 | $ | 27.37 | $ | 29.18 | 15.31 | 16.96 | 18.61 | 20.27 | 21.92 | 23.58 | ||||||||||||||||||||||||||||||
5.0% | $ | 21.04 | $ | 22.94 | $ | 24.84 | $ | 26.74 | $ | 28.64 | $ | 30.54 | 15.97 | 17.70 | 19.44 | 21.18 | 22.91 | 24.65 | ||||||||||||||||||||||||||||||
10.0% | $ | 21.95 | $ | 23.94 | $ | 25.93 | $ | 27.91 | $ | 29.90 | $ | 31.89 | 16.63 | 18.45 | 20.27 | 22.09 | 23.91 | 25.73 | ||||||||||||||||||||||||||||||
15.0% | $ | 22.85 | $ | 24.93 | $ | 27.01 | $ | 29.09 | $ | 31.17 | $ | 33.25 | 17.29 | 19.19 | 21.10 | 23.00 | 24.90 | 26.80 |
Piper Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.
Pro Forma MergerTransaction Analysis.
Piper Sandler O’Neill analyzed certain potential pro forma effects of the merger on Blue Ridge assuming the merger closes at the end of the fourth calendar quarter of 2019. In performing its analysis,on December 31, 2020. Piper Sandler O’Neill utilized the Pro Forma Assumptions,following information and assumptions: (a) certain internal financial projections for Bay Banks for the years ending December 31, 2020 through December 31, 2024, as provided by the senior management of Bay Banks, (b) certain internal financial projections for Blue Ridge for the years ending December 31, 2020 through December 31, 2022, as well as an estimated long-term annual net income and asset growth rate for the years ending December 31, 2023 and December 31, 2024 and estimated dividends per share for the years ending December 31, 2020 through December 31, 2024, as provided by the senior management of Blue Ridge, and (c) certain assumptions relating to transaction expenses, purchase accounting adjustments, and cost savings, as well as certain adjustments to Bay Banks’ loan loss provision expense for the years ending December 31, 2021 through December 31, 2024, as provided by the senior management of Blue Ridge. The analysis indicated that the merger could be accretive to Blue Ridge’s estimated earnings per share (excludingone-time transaction costs and expenses) in the years ended December 31, 2020,ending December 31, 2021 andthrough December 31, 20222024 and dilutiveaccretive to Blue Ridge’s estimated tangible book value per share at closing.close and at December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.
In connection with this analysis, Piper Sandler O’Neill considered and discussed with the VCBBay Banks Board how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the transaction,merger, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.
Sandler O’Neill’sPiper Sandler’s Relationship.
Piper Sandler O’Neill actedis acting as VCB’sBay Banks’ financial advisor in connection with the merger and will receive a fee for such services in an amount equal to 1.75%$1,300,000, a significant portion of the aggregate merger consideration, which fee was approximately $0.8 million at the time of announcement of the merger and is contingent upon the closingconsummation of the merger. Piper Sandler O’Neill also received a $250,000 fee of $150,000 forfrom Bay Banks upon rendering its opinion, which opinion fee will be credited in full towards the transactionportion of the advisory fee which will become payable to Piper Sandler O’Neill on the day of closingupon consummation of the merger. VCBBay Banks has also agreed to indemnify Piper Sandler O’Neill against certain claims and liabilities arising out of Sandler O’Neill’sPiper Sandler’s engagement and to reimburse Piper Sandler O’Neill for certain of Sandler O’Neill’sits out-of-pocket expenses incurred in connection with Piper Sandler’s engagement.
In the two years preceding the date its opinion, Piper Sandler O’Neill’s engagement. Sandler O’Neill has provided certain other investment banking services to VCBBay Banks. In summary, Piper Sandler (i) provided specific and general advisory services in 2018 and 2019 for which Piper Sandler received aggregate fees of $100,000, and (ii) acted as placement agent in connection with the offer and sale of Bay Banks subordinated debt in 2019 for which Piper Sandler received approximately $825,000 in fees and expense reimbursement. In the two years preceding the date of its opinion. Most recently,opinion, Piper Sandler O’Neill acted as financial advisor to VCB in connection with its proposed merger with Atlantic Bay, which transaction was ultimately terminated in August 2018. Sandler O’Neill did not provide anyprovided certain investment banking services to Blue RidgeRidge. In summary, Piper Sandler acted as financial advisor in the two years preceding the dateconnection with Blue Ridge’s capital raising activities in 2020 for which Piper Sandler received a fee of its opinion.$300,000. In the ordinary course of Sandler O’Neill’sPiper Sandler’s business as a broker-dealer, Piper Sandler O’Neill may purchase securities from and sell securities to VCB,Bay Banks and Blue Ridge and their respective affiliates.Ridge. Piper Sandler O’Neill may also actively trade the equity and debt securities of VCB,Bay Banks and Blue Ridge and its affiliates for Sandler O’Neill’sPiper Sandler’s own account and for the accounts of Sandler O’Neill’sPiper Sandler’s customers.
Certain Unaudited Prospective Financial Information
Blue Ridge and VCBBay Banks do not as a matter of course make public projections as to future performance, revenues, earnings or other financial results due to, among other reasons, the inherent uncertainty of the
underlying assumptions and estimates. However, Blue Ridge and VCBBay Banks are including in this joint proxy statement/prospectus certain unaudited prospective financial information that was made available to or discussed with the parties’ respective financial advisors in connection with the merger. The inclusion of this information should not be regarded as an indication that any of Blue Ridge, VCB,Bay Banks, Raymond James or Piper Sandler, O’Neill, their respective representatives or any other recipients of this information considered, or now considers, it to be necessarily predictive of actual or future results, or that it should be construed as financial guidance, and it should not be relied on as such.
This information was prepared solely for internal use and is subjective in many respects. While presented with numeric specificity, the unaudited prospective financial information reflects numerous estimates and assumptions made with respect to business, economic, market, competition, regulatory and financial conditions and matters specific to Blue Ridge’s and VCB’sBay Banks’ respective business, all of which are difficult to predict and many of which are beyond Blue Ridge’s and VCB’sBay Banks’ control. The unaudited prospective financial information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Blue Ridge and VCBBay Banks can give no assurance that the unaudited prospective financial information and the underlying estimates and assumptions will be realized. In addition, since the unaudited prospective financial information covers multiple years, such information by its nature becomes less predictive with each successive year. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited prospective financial information to be inaccurate include, but are not limited to, risks and uncertainties relating to Blue Ridge’s and VCB’sBay Banks’ business, industry performance, general business and economic conditions, competition and adverse changes in applicable laws, regulations or rules, and the various risks similar to those set forth in the “Risk Factors” section beginning on page [●].31.
The unaudited prospective financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the unaudited prospective financial information requires significant estimates and assumptions that make it inherently less comparable to the similarly titled GAAP measures in Blue Ridge’s and VCB’sBay Banks’ historical GAAP financial statements. Neither Blue Ridge’s or VCB’sBay Banks’ auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability.
Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared. Blue Ridge and VCBBay Banks can give no assurance that, had the unaudited prospective financial information been prepared as of the date of this joint proxy statement/prospectus, similar estimates and assumptions would be used. Blue Ridge and VCBBay Banks do not intend to, and disclaim any obligation to, make publicly available any update or other revision to the unaudited prospective financial information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions. The unaudited prospective financial information does not take into account the possible financial and other effects on either Blue Ridge or VCB,Bay Banks, as applicable, of the merger and does not attempt to predict or suggest future results of Blue Ridge after giving effect to the merger. The unaudited prospective financial information does not give effect to the merger, including the impact of negotiating or executing the merger agreement, the expenses that may be incurred in connection with completing the merger, the potential synergies that may be achieved by Blue Ridge as a result of the merger, the effect on either Blue Ridge or VCB,Bay Banks, as applicable, of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions that would likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed or not taken in anticipation of the merger. Further, the unaudited
prospective financial information does not take into account the effect on either Blue Ridge or VCB,Bay Banks, as applicable, of any possible failure of the merger to occur. None of Blue Ridge, VCB,Bay Banks, Raymond James or Piper Sandler O’Neill or their respective affiliates, officers, directors, advisors or other representatives has made, makes or is authorized in the future to make any representation to any Blue Ridge or VCBBay Banks shareholder or other person regarding Blue Ridge’s or VCB’sBay Banks’ ultimate performance compared to the information contained in the unaudited prospective financial information or that the projected results will be achieved.
In light of the foregoing, and considering that the special meetings will be held many months after the unaudited prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, Blue Ridge and VCBBay Banks shareholders are cautioned not to place unwarranted reliance on such information, and Blue Ridge and VCBBay Banks urge all shareholders to review Blue Ridge’s and VCB’sBay Banks’ financial statements and other information contained elsewhere in this joint proxy statement/prospectus for a description of Blue Ridge’s and VCB’sBay Banks’ business and financial results.
For purposes of Sandler O’Neill’s VCBPiper Sandler’s Bay Banks net present value analysis performed in connection with Sandler O’Neill’sPiper Sandler’s opinion, Piper Sandler O’Neill used certain internal financial projections for VCB for the year ending December 31, 2019, as well as an estimated long-term annual earnings per share growth rate for the years thereafter and estimated dividends per shareBay Banks for the years ending December 31, 20192020 through December 31, 2023,2024, as provided by the senior management of VCB.Bay Banks. The following table summarizes this unaudited prospective financial information for the fiscal years ended in the periods presented with respect to VCBBay Banks as used by Sandler O’Neill:Piper Sandler:
12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | ||||||||||||||||
Net Income ($000s) | $ | 2,514 | $ | 2,715 | $ | 2,932 | $ | 3,167 | $ | 3,420 | ||||||||||
Earnings Per Share ($) | 3.50 | 3.78 | 4.09 | 4.41 | 4.77 | |||||||||||||||
Dividends Per Share ($) | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 |
12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | 12/31/2024 | ||||||||||||||||
Net Income ($000s) | $ | (5,146 | ) | $ | 8,371 | $ | 10,200 | $ | 12,131 | $ | 14,064 | |||||||||
Net Income Excluding Goodwill Writedown ($000s) | 4,638 | |||||||||||||||||||
Earnings Per Share ($) | (0.39 | ) | $ | 0.64 | $ | 0.78 | $ | 0.93 | $ | 1.07 | ||||||||||
Dividends Per Share ($) | — | — | — | — | — |
For purposes of Sandler O’Neill’sPiper Sandler’s Blue Ridge net present value analysis performed in connection with Sandler O’Neill’sPiper Sandler’s opinion, Piper Sandler O’Neill used certain internal financial projections for Blue Ridge for the yearyears ending December 31, 2019,2020 through December 31, 2022, as well as an estimated long-term annual net income and earnings per shareasset growth ratesrate for the years thereafter, and estimated dividends per share for the years ending December 31, 20192020 through December 31, 2023,2024, as provided by the senior management of Blue Ridge. The following table summarizes this unaudited prospective financial information for the periods presented with respect to Blue Ridge as used by Sandler O’Neill:Piper Sandler:
12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | ||||||||||||||||
Net Income ($000s) | $ | 8,007 | $ | 9,570 | $ | 11,280 | $ | 12,800 | $ | 14,526 | ||||||||||
Earnings Per Share ($) | 1.97 | 2.21 | 2.61 | 2.96 | 3.35 | |||||||||||||||
Dividends Per Share ($) | 0.57 | 0.58 | 0.59 | 0.60 | 0.61 |
For purposes of Sandler O’Neill’s pro forma merger analysis performed in connection with Sandler O’Neill’s opinion, Sandler O’Neill used estimated net income for VCB for the years ending December 31, 2020, December 31, 2021 and December 31, 2022, as provided by the senior management of Blue Ridge. The following table summarizes this unaudited prospective financial information for the periods presented with respect to VCB as used by Sandler O’Neill:
12/31/2020 | 12/31/2021 | 12/31/2022 | ||||||||||
Net Income ($000s) | $ | 2,600 | $ | 2,700 | $ | 2,900 |
12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | 12/31/2024 | ||||||||||||||||
Net Income ($000s) | $ | 11,500 | $ | 11,726 | $ | 13,484 | $ | 14,832 | $ | 16,334 | ||||||||||
Earnings Per Share ($) | 2.02 | 2.05 | 2.36 | 2.59 | 2.86 | |||||||||||||||
Dividends Per Share ($) | 0.58 | 0.59 | 0.60 | 0.61 | 0.62 |
For purposes of Raymond James’ discounted cash flow analysis performed in connection with Raymond James’ opinion, Raymond James used certain financial projections prepared by the management of Blue Ridge relating to VCBBay Banks for the periods ending December 31, 20192020 through December 31, 2023.2024. The following table
summarizes this unaudited prospective financial information with respect to VCBBay Banks as used by Raymond James:
12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | 12/31/2024 | |||||||||||||||||||||||||||||||
Standalone Tangible Assets ($000s) | $ | 273,681 | $ | 295,575 | $ | 319,222 | $ | 344,759 | $ | 372,340 | $ | 1,242,500 | $ | 1,283,200 | $ | 1,377,800 | $ | 1,476,400 | $ | 1,581,000 | ||||||||||||||||||||
Net Income ($000s) | 2,514 | 2,715 | 2,932 | 3,167 | 3,420 | 4,600 | 8,400 | 10,200 | 12,100 | 14,100 |
VCB’sInterests of Bay Banks’ Directors and Officers Have Financial Interests in the Merger
In considering the recommendation of the VCBBay Banks Board that you approve the merger, you should be aware that VCB’sBay Banks’ directors and executive officers have interests that are different from, or are in addition to, those of VCBBay Banks shareholders generally. The VCBBay Banks Board was aware of these interests and considered them, among other matters, in reaching its decisions to approve the merger agreement and to recommend that you vote in favor of approving the merger agreement.
Appointment of Individuals to the Boards of Directors of Blue Ridge
Pursuant to the merger agreement, Blue Ridge will appoint twoseven of Bay Banks’ directors (including C. Frank Scott, III, the Chairman of VCB, as well as A. Pierce Stone, VCB’s formerthe Bay Banks Board, and Randal R. Greene, Bay Banks’ President and Chief Executive Officer and Chairman,Officer) as directors of Blue Ridge and Blue Ridge Bank effective upon consummation of the merger. Subject to the Blue Ridge Board’s compliance with its fiduciary duties, Blue Ridge and Blue Ridge Bank also will nominate and recommend these individuals for reelection to the Blue Ridge Board at the first annual meeting of shareholders following the effective time of the merger.
The merger agreement provides that the twofive individuals to be appointed as directors of Blue Ridge in(in addition to Mr. Stone,Messrs. Scott and Greene) will be chosen by mutual agreement ofBay Banks after consultation with Blue Ridge and VCB. Blue Ridge and VCBRidge. Bay Banks currently intendintends to select Andrew C. HolzwarthElizabeth H. Crowther, Richard A. Farmar, III, Julien G. Patterson, Randolph N. Reynolds, Jr. and Mark W. SiskVance H. Spilman as the two VCBfive additional Bay Banks directors to be appointed as directors of Blue Ridge and Blue Ridge Bank.
As directors of Blue Ridge and Blue Ridge Bank, Messrs. Holzwarth, SiskScott, Farmar, Patterson, Reynolds and StoneSpilman and Ms. Crowther will be compensated in accordance with Blue Ridge’s director compensation policy as then in effect. Mr. Greene will not receive director compensation as he will be an officer of Blue Ridge and will be compensated under the terms of his employment agreement with Blue Ridge. For more information, see “Information about Blue Ridge—Ridge–Board of Directors and Director Compensation” beginning on page [●].
Appointment of Individuals to Advisory Boards of Blue Ridge Bank
Blue Ridge Bank currently intends to offer eachnon-executive director of VCB who is not appointed to the Blue Ridge Board upon consummation of the merger the opportunity to join an advisory board of Blue Ridge Bank. Members of Blue Ridge Bank’s advisory boards generally receive $100 for attendance at each advisory board meeting.134.
Change of Control Payments under Current VCB Transaction Bonus Agreements
VCB currently has written transaction bonus agreements with A. Preston Moore, Jr., its President and Chief Executive Officer, and Thomas M. Crowder, its Executive Vice President, Chief Financial Officer and Chief Operating Officer. These agreements provide that, upon a change of control, VCB shall pay a transaction bonus to such officer equal to 2.95 times the sum of (i) such officer’s then-current base salary and (ii) such officer’s annual bonus for the fiscal year preceding the change of control. The estimated transaction bonuses payable to Mr. Moore and Mr. Crowder are $787,650 and $595,600, respectively; however, these agreements also provide that the payments to Mr. Moore and Mr. Crowder will be reduced if these payments and any payments or benefits payable to them under other agreements or plans would constitute “excess parachute payments” under Section 280G of the Code. In that event, the total payments and benefits will be reduced to the maximum amount that can be paid without the payments or benefits constituting “excess parachute payments.”
Employment with Blue Ridge Bank Following the Merger
Blue Ridge has agreed to appoint Mr. MooreGreene to serve as President – Central Virginia Regionand Chief Operating Officer of Blue Ridge and President and Chief Executive Officer of Blue Ridge Bank, and Mr. CrowderMs. Gavant to serve as Executive Vice President – Card Divisionand Chief Financial Officer of Blue Ridge and Blue Ridge Bank, C. Rodes Boyd, Jr. to serve as Executive Vice President of Blue Ridge and Executive Vice President and Chief Lending Officer of Blue Ridge Bank, bothand Ms. Pittman to serve as Executive Vice President, Northern Neck Market of Blue Ridge Bank, all effective upon consummation of the merger. In connection with entering into the merger, agreement,Blue Ridge and Blue Ridge Bank have entered into employment agreements with Messrs. Greene and Boyd and Ms. Gavant and Blue Ridge Bank has entered into an employment agreementsagreement with Messrs. Moore and Crowder thatMs. Pittman, each of which will be effective upon consummation of the merger.
Employment Agreement with A. Preston Moore, Jr.Mr. Greene. Mr. Moore’sGreene’s employment agreement provides for a term running through Blue Ridge’s 2024 annual meeting of three years,shareholders, unless terminated earlier in accordance with the terms of the agreement. The employment agreement provides for a minimum base salary of $225,000$492,000 per year. FollowingMr. Greene will have the consummationopportunity to earn up to 30% of the merger,his base salary under a short-term incentive plan and up to 30% of his base salary under a long-term incentive plan. In addition, for 2021, Mr. MooreGreene will receive a restricted stock award for 6,000 sharescash bonus of at least $50,000 in recognition of his increased responsibility in overseeing the integration of Blue Ridge common stock that vests ratably on the first, second and third anniversaries of the effective time of the merger. He also will be entitled to receive cash bonus payments in amounts, if any, determined byBay Banks and Blue Ridge Bank pursuantand Virginia Commonwealth Bank. Mr. Greene will also be provided a split dollar life insurance benefit of $2,000,000 to its bonus program for officers and to participate in Blue Ridge Bank’s employee benefit plans and programs for which he will be eligible.a beneficiary of his designation.
Mr. Moore’sGreene’s employment agreement provides for benefits in the event of a termination of his employment by Blue Ridge without “Cause” or by him, including for “Good Reason” (as those terms are defined in the employment agreement).In such cases, Mr. Greene will be entitled to receive his then-current base salary for the remainder of the term of his agreement and a welfare continuance benefit. Mr. Greene’s entitlement to the foregoing severance payments is subject to his execution of a release and waiver of claims against Blue Ridge and Blue Ridge Bank and his compliance with the restrictive covenants provided in his employment agreement.
Mr. Greene’s employment agreement contains restrictive covenants relating to the protection of confidential information, non-disclosure, non-competition and non-solicitation. The non-compete and non-solicitation covenants generally continue for a period of 24 months following the expiration of the employment agreement.
Employment Agreement with Ms. Gavant. Ms. Gavant’s employment agreement provides for a two-year term, unless terminated earlier in accordance with the terms of the agreement. The employment agreement provides for a minimum base salary of $260,000 per year. Ms. Gavant will have the opportunity to earn annual cash bonus payments in such amounts and at such times as may be determined by the Blue Ridge Board.
Ms. Gavant’s employment agreement provides for benefits in the event of a termination of her employment by Blue Ridge without “Cause” or by her for “Good Reason” (as those terms are defined in the employment agreement).In such cases, Ms. Gavant will be entitled to receive her then-current base salary for the lesser of the remainder of the term of her agreement and the period of time she has been employed by Blue Ridge and Bay Banks and a welfare continuance benefit. Ms. Gavant’s entitlement to the foregoing severance payments is subject to her execution of a release and waiver of claims against Blue Ridge and Blue Ridge Bank and her compliance with the restrictive covenants provided in her employment agreement.
Ms. Gavant’s employment agreement contains restrictive covenants relating to the protection of confidential information, non-disclosure, non-competition and non-solicitation. The non-compete and non-solicitation covenants generally continue for a period of 12 months following the expiration of the employment agreement.
Employment Agreement with Ms. Pittman. Ms. Pittman’s employment agreement provides for a two-year term, unless terminated earlier in accordance with the terms of the agreement. The employment agreement provides for a minimum base salary of $210,000 per year. Ms. Pittman will have the opportunity to earn annual cash bonus payments in such amounts and at such times as may be determined by the board of directors of Blue Ridge Bank. In addition, Ms. Pittman will receive a cash bonus of $200,000 in recognition of her increased responsibility in overseeing the integration of Blue Ridge and Bay Banks and Blue Ridge Bank and Virginia Commonwealth Bank. Ms. Pittman will also be provided a split dollar life insurance benefit of $1,000,000 to a beneficiary of her designation.
Ms. Pittman’s employment agreement provides for benefits in the event of a termination of her employment by Blue Ridge without “Cause” or by her for “Good Reason” (as those terms are defined in the employment agreement).In such cases, Ms. Pittman will be entitled to receive her then-current base salary for the lesser of the remainder of the term of her agreement and the period of time she has been employed by Blue Ridge Bank and Virginia Commonwealth Bank and a welfare continuance benefit. Ms. Pittman’s entitlement to the foregoing severance payments is subject to her execution of a release and waiver of claims against Blue Ridge and Blue Ridge Bank and her compliance with the restrictive covenants provided in her employment agreement.
Ms. Pittman’s employment agreement contains restrictive covenants relating to the protection of confidential information, non-disclosure, non-competition and non-solicitation. The non-compete and non-solicitation covenants generally continue for a period of 12 months following the expiration of the employment agreement.
Employment Agreement with Mr. Boyd. Mr. Boyd’s employment agreement provides for a two-year term, unless terminated earlier in accordance with the terms of the agreement. The employment agreement provides for a minimum base salary of $240,000 per year. Mr. Boyd will have the opportunity to earn an annual cash bonus
equal to 25% of base salary, and will be entitled to participate in other benefit plans and programs as in effect from time to time. In addition, on consummation of the merger, Mr. Boyd will receive a cash bonus of $400,000 and a restricted stock award of 7,000 shares of Blue Ridge stock, vesting 50% on December 31 in each of 2021 and 2022. Mr. Boyd will also receive a deferred compensation plan providing for a maximum benefit of $200,000, subject to vesting. On the date the conversion of the core operating systems of Blue Ridge Bank and Virginia Commonwealth Bank is complete, Mr. Boyd will receive a payment in the amount of $25,000.
Mr. Boyd’s employment agreement provides for benefits in the event of a termination of his employment by Blue Ridge without “Cause” or by him for “Good Reason” (as those terms are defined in the employment agreement). In such cases, Mr. MooreBoyd will be entitled to receive his then-current base salary for the remainder of the term of his agreement any unpaid annual bonus that he would have received for the year prior to his termination had he remained employed, and a cash payment equal to the monthly cost of COBRA coverage if he elected such coverage for the lesser of the remainder of the term ofwelfare continuance benefit, and his agreementrestricted stock award and 18 months.deferred compensation plan benefit will vest. Mr. Moore’sBoyd’s entitlement to the foregoing severance payments is subject to his execution of a release and waiver of claims against Blue Ridge and Blue Ridge Bank and his compliance with the restrictive covenants provided in his employment agreement.
Mr. Moore’sBoyd’s employment agreement contains restrictive covenants relating to the protection of confidential information,non-disclosure,non-competition andnon-solicitation. Thenon-compete andnon-solicitation covenants generally continue for a period of 2412 months following the expiration of the employment agreement or, if his employment is terminated for any reason during the term of the agreement, the longer of 24 months following such termination or three years from the effective time of the merger.
Employment Agreement with Thomas M. Crowder. Mr. Crowder’s employment agreement is substantially the same as Mr. Moore’s employment agreement, except that Mr. Crowder’s minimum base salary will be $175,000 per year, and he will receive a restricted stock award for 5,000 shares of Blue Ridge common stock.agreement.
Indemnification and Insurance
Blue Ridge has agreed to indemnify the officers and directorsadvance expenses to any person who has rights to indemnification or advancement of VCBexpenses from Bay Banks or any of its subsidiaries against certain liabilities arising before the effective time of the merger. Blue Ridge also has agreed for a period of five years after the effective time of the merger to purchase a six-year“tail” directors’ and officers’ liability insurance policy providing for terms and conditions no less favorable than VCB’sBay Banks’ existing insurance, for the current directors and officers of VCB,Bay Banks, subject to a cap on the cost of such policy equal to 300% of the current amount expended by VCB.Bay Banks.
Merger Consideration to Be Received by VCBBay Banks Directors and Executive Officers in Exchange for Their Shares of VCBBay Banks Common Stock
As noted in “Security Ownership of Certain Beneficial Owners and Management of VCB,Bay Banks,” the directors and executive officers of VCBBay Banks beneficially own shares of VCBBay Banks common stock. As a result, like all other VCBBay Banks shareholders, these directors and officers will be
entitled to receive merger consideration upon the consummation of the merger. As a result of the merger, each share of VCBBay Banks common stock will be converted into the right to receive at the election of the holder, $58.00 in cash or 3.05 shares0.5000 of Blue Ridge common stock. Additionally, like other VCBBay Banks shareholders, these directors and officers will receive cash in lieu of fractional shares.
Certain directors and executive officers of Bay Banks also hold Bay Banks stock options and restricted stock. These equity-based awards, whether held by directors and executive officers of Bay Banks or other Bay Banks shareholders, will be treated in the merger as described under “Treatment of Bay Banks Stock Options and Other Equity-Based Awards.”
Potential Payments and Benefits to Bay Banks Named Executive Officers in Connection with a Change in Control
The information set forth in the following table is intended to comply with Item 402(t) of the SEC’s Regulation S-K, which requires disclosure of information about the payments and benefits that each of Bay Banks’ named executive officers will or may receive in connection with the merger, assuming: (i) that the effective time of the merger is October 2, 2020, which is the assumed date of the closing solely for purposes of the disclosure in this section; (ii) a per share price of Bay Banks common stock of $6.59, which is the average closing price per share of Bay Banks common stock as quoted on the OTC Markets Group’s OTCQB marketplace over the first five
business days following the first public announcement of the merger on August 13, 2020; and (iii) that the employment agreement of each of Bay Banks’ named executive officers is terminated and liquidated immediately following the assumed effective time of October 2, 2020. The amounts below do not include the value of benefits in which the named executive officers are vested without regard to the occurrence of a change in control. The amounts below are estimates based on multiple assumptions that may or may not actually occur, and as a result of such assumptions, the actual amounts, if any, to be received by a named executive officer of Bay Banks may differ materially from the amounts shown below.
Mr. Jenkins retired as Executive Vice President of Bay Banks effective January 1, 2020. Given his retirement, Mr. Jenkins will not receive any compensation based on, or otherwise relating to, the merger.
Golden Parachute Compensation
Named Executive Officer | Cash ($)(1) | Equity ($)(2) | Total ($) | |||||||||
Randal R. Greene (4) | $ | 2,212,564 | $ | 218,788 | $ | 2,431,352 | ||||||
C. Frank Scott, III | $ | 866,958 | $ | 135,767 | $ | 1,002,725 | ||||||
Douglas F. Jenkins, Jr. | — | — | — |
(1) | Cash. The amounts in this column reflect cash payments that the named executive officer would be entitled to receive in liquidation of the severance benefits payable under the executive’s employment agreement with Bay Banks in the event of a termination without “cause” or a resignation by the executive for “good reason” that occurs within one year after a change of control (double-trigger). Immediately prior to the effectiveness of the merger, Bay Banks will terminate these employment agreements and pay a cash sum of $2,005,564 in the case of Mr. Greene and $752,010 in the case of Mr. Scott, and each of Messrs. Greene and Scott will execute a general release of claims with respect to Bay Banks and Virginia Commonwealth Bank. The amounts in this column also reflect the annual cash bonus payable for 2020 assuming consummation of the merger ($207,000 for Mr. Greene and $114,948 for Mr. Scott), which may be greater than the cash bonus payable for 2020 absent the merger. |
(2) | Equity. The amounts in this column reflect the value of shares of restricted stock (33,200 shares for Mr. Greene and 20,602 shares for Mr. Scott) that will vest as of the effectiveness of the merger (single trigger). The amounts in this column assume that no new equity awards have been granted to the named executive officers following the date of the merger agreement. |
Blue Ridge has agreed to appoint Mr. Greene to serve as President and Chief Operating Officer of Blue Ridge and President and Chief Executive Officer of Blue Ridge Bank. See “Bay Banks’ Directors and Officers Have Financial Interests in the Merger—Employment with Blue Ridge Bank Following the Merger—Employment Agreement with Randal R. Greene” for more information about the terms of Mr. Greene’s employment by Blue Ridge.
Blue Ridge’s Board of Directors and Management Following Completion of the Merger
The directors of Blue Ridge in office immediatelyPursuant to the merger agreement, at or prior to the effective time of the merger, the Blue Ridge Board will cause the number of directors to comprise the full Blue Ridge Board to be fixed at 15. Following the effective time of the merger, the Blue Ridge Board will consist of (i) eight current Blue Ridge directors to be designated by Blue Ridge (after consultation with Bay Banks), including Larry Dees, the Chairman of the Blue Ridge Board, and Brian K. Plum, Blue Ridge’s President and Chief Executive Officer, and (ii) seven current Bay Banks directors to be designated by Bay Banks (after consultation with Blue Ridge), including C. Frank Scott, III, the Chairman of
the Bay Banks Board, and Randal R. Greene, Bay Banks’ President and Chief Executive Officer. In addition to Messrs. Dees and Plum, Blue Ridge currently intends to select Robert S. Janney, William W. Stokes, Hunter H. Bost, Mensel D. Dean, Carolyn J. Woodruff and Andrew C. Holzwarth as the Blue Ridge directors to continue serving as directors of Blue Ridge afterand Blue Ridge Bank. In addition to Messrs. Scott and Greene, Bay Banks currently intends to select Elizabeth H. Crowther, Richard A. Farmar, III, Julien G. Patterson, Randolph N. Reynolds, Jr. and Vance H. Spilman as the merger. additional Bay Banks directors to be appointed as directors of Blue Ridge and Blue Ridge Bank.
The Blue Ridge and Bay Banks directors will be split as equally as possible among the three classes of Blue Ridge directors to serve staggered terms; provided, however, that Mr. Greene will be designated to serve in the class of directors for a term expiring in 2024. Subject to compliance by the Blue Ridge Board with its fiduciary duties, Blue Ridge will nominate and recommend each Bay Banks director for reelection to the Blue Ridge Board at the first annual meeting of the shareholders of Blue Ridge following the effective time of the merger, and Blue Ridge’s proxy materials with respect to such annual meeting will include the recommendation of the Blue Ridge Board that its shareholders vote to reelect each Bay Banks director to the same extent as recommendations are made with respect to other directors on the Blue Ridge Board.
Except as described below, the executive officers of Blue Ridge immediately prior to the merger will continue serving in their current positions as the executive officers of Blue Ridge after the merger. Blue Ridge has agreed to appoint Mr. Greene to serve as President and Chief Operating Officer of Blue Ridge and President and Chief Executive Officer of Blue Ridge Bank, Ms. Gavant to serve as Executive Vice President and Chief Financial officer of Blue Ridge and Blue Ridge Bank, Ms. Pittman to serve as Executive Vice President, Northern Neck Market of Blue Ridge Bank and Mr. Boyd to serve as Executive Vice President of Blue Ridge and Executive Vice President and Chief Lending Officer of Blue Ridge Bank. Blue Ridge’s current Chief Financial Officer, Amanda G. Story, will serve as Blue Ridge’s Chief Accounting Officer. For more information, including biographical information for the current directors and executive officers of Blue Ridge, see the sections entitled “Information about Blue Ridge—Ridge–Board of Directors and Director Compensation” and “Information about Blue Ridge—Ridge–Executive Officers of Blue Ridge” beginning on pages [●]134 and [●],139, respectively.
Amendment to Blue Ridge Bylaws
In connection with entering into the merger agreement and to facilitate the addition of certain Bay Banks directors to the Blue Ridge BankBoard at the time of the merger, Blue Ridge has agreed to amend its bylaws prior to the merger so that the number of directors that will appoint twocomprise the full Blue Ridge Board is to be fixed at such number, not to exceed 15 directors, consisting of VCB, as well as A. Pierce Stone, VCB’s former(i) eight current Blue Ridge directors to be designated by Blue Ridge (after consultation with Bay Banks), including Larry Dees, the Chairman of the Blue Ridge Board, and Brian K. Plum, Blue Ridge’s President and Chief Executive Officer (the “Blue Ridge Directors”), and Chairman, as directors of Blue Ridge and Blue Ridge Bank effective upon consummation of the merger. Blue Ridge and VCB currently intend to select Andrew C. Holzwarth and Mark W. Sisk as the two VCB(ii) seven current Bay Banks directors to be appointed as directorsdesignated by Bay Banks (after consultation with Blue Ridge), including C. Frank Scott, III, the Chairman of the Bay Banks Board, and Randal R. Greene, Bay Banks’ President and Chief Executive Officer (the “Bay Banks Directors”).
The Blue Ridge Directors and the Bay Banks Directors will be split as equally as possible among the three classes of directors to serve staggered terms; provided, however, that Mr. Greene will designated to serve in the class of directors for a term expiring in 2024. Until the third anniversary of the merger, all vacancies on the Blue Ridge Bank. For more information, including biographical information for Messrs. Holzwarth, Sisk and Stone, see “Information about VCB—Board created by the cessation of service of a Blue Ridge Director must be filled by a nominee proposed to the nominating committee of the Blue Ridge Board by a majority of the remaining Blue Ridge Directors, and Director Compensation” beginningall vacancies on page [●].
In addition,the Blue Ridge will appoint Mr. MooreBoard created by the cessation of service of a Bay Banks Director shall be filled by a nominee proposed to serve as President – Central Virginia Regionthe nominating committee of the Blue Ridge BankBoard by a majority of the remaining Bay Banks Directors. Such bylaw provision may not be modified, amended or repealed during such three-year period other than by a majority of the Bay Banks Directors and Mr. Crowder to serve as Executive Vice President – Card Divisiona majority of the Blue Ridge Bank, both effective upon consummationDirectors.
The forms of the merger.above-described bylaw amendments are set forth in their entirety in Exhibit 1.4(a) to the merger agreement, which is attached to this joint proxy statement/prospectus as Appendix A.
Blue Ridge’s common stock is quotedlisted on the OTC Market Group’s Pink marketplaceNYSE American under the symbol “BRBS.” VCBBay Banks common stock is quoted on the OTC Market Group’s PinkOTCQB marketplace under the symbol “VCBS.“BAYK.”
Blue Ridge planshas agreed to apply to list its common stock, including the newly issued shares issuable pursuant to the merger agreement, on the New York Stock ExchangeNYSE American in connection with the merger.
Blue Ridge
Blue Ridge shareholders are not entitled to dissenters’ or appraisal rights in connection with the merger.
VCBBay Banks
VCBBay Banks shareholders will have the right to assert appraisal rights with respect to the merger and demand in writing to be paid the fair value of their shares of VCBBay Banks common stock under applicable provisions of Virginia law following consummation of the merger by Blue Ridge. In order to exercise and perfect appraisal rights, you must generally give written notice of your intent to demand payment for your shares to VCBBay Banks before the vote is taken on the merger at the VCBBay Banks special meeting and you must not vote in favor of the merger. A copy of the applicable Virginia statutory provisions is included in this joint proxy statement/prospectus asAppendix D.
The following is only a summary of the rights of a dissenting VCBBay Banks shareholder, is not a complete statement of law pertaining to appraisal rights under the VSCA, and is qualified in its entirety by reference to the full text of the provisions of the VSCA pertaining to appraisal rights, a copy of which is attached asAppendix D hereto and incorporated into this discussion by reference. If you intend to exercise your right to dissent, you should carefully review the following summary and comply with all requirements of the VSCA. You should also consult with your attorney. No further notice of the events giving rise to appraisal rights will be furnished to you by Blue Ridge or VCB.Bay Banks.
The VSCA provides in detail the procedure you must follow if you wish to exercise your appraisal rights. In summary, to exercise appraisal rights:
you must deliver to VCBBay Banks before the vote on the merger agreement is taken at the special meeting of VCB,Bay Banks, written notice of your intent to demand payment for your shares if the merger is completed; and
you must not vote your shares in favor of the merger agreement at the VCBBay Banks special meeting.
In other words, you do not have to vote against the merger agreement, or even vote at all, in order to exercise appraisal rights, but you may not vote in favor of the merger agreement, and in all cases you must give the required written notice. If you fail to satisfy these requirements, you will not be entitled to exercise appraisal rights or to receive payment for your shares under the provisions of the VSCA pertaining to appraisal rights. Even if you vote against the merger agreement (either in person or by proxy), you still must send the required notice of intent in order to exercise appraisal rights. You should remember that, as described in the section entitled, “VCB“Bay Banks Special Meeting of Shareholders—Shareholders – Voting of Proxies,” beginning on page [●],62, if you return a signed proxy card but fail to provide instructions as to the manner in which your shares are to be voted, you will be considered to have voted in favor of the merger agreement and you will not be able to assert appraisal rights. If you do not return a proxy card or otherwise vote at all at the VCBBay Banks special meeting, you will not be treated as waiving your appraisal rights as long as you have given the required notice of intent as described above.
If you intend to assert your appraisal rights, your notice of intent should be mailed or delivered to VCB’sBay Banks’ Corporate Secretary at VCB’sBay Banks’ corporate office located at 114 Industrial Drive, Louisa,1801 Bayberry Court, Suite 101, Richmond, Virginia 23093,23226, or it may be hand delivered to VCB’sBay Banks’ Corporate Secretary at the VCBBay Banks special meeting (before the voting on the merger agreement begins). Notice of intent is effective at the earliest of the following:
when received by VCBBay Banks at its address prior to the VCBBay Banks special meeting;
five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postage prepaid and correctly addressed to VCBBay Banks at its address prior to the VCBBay Banks special meeting; or
on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and if the receipt is signed by or on behalf of VCBBay Banks prior to the VCBBay Banks special meeting.
If you deliver a timely notice of intent, do not vote in favor of the merger agreement and the merger agreement is approved by VCBBay Banks shareholders at the VCBBay Banks special meeting (or at any adjournment of the VCBBay Banks special meeting) and the merger becomes effective, then, within 10 days following the effective time, Blue Ridge, as the company surviving the merger, will deliver you a written notice called an appraisal notice, by first-class mail, postage prepaid, to your address shown in VCB’sBay Banks’ current record of shareholders, as long as you have satisfied the requirements to exercise appraisal rights. The appraisal notice will include another copy of the provisions of the VSCA pertaining to appraisal rights and will:
include a form you can use for demanding payment that will (i) specify the first date of any announcement to VCBBay Banks shareholders and Blue Ridge shareholders of the terms of the merger, (ii) require you to certify whether you acquired beneficial ownership of your shares of VCBBay Banks common stock before that date, and (iii) require you to certify that you did not vote for or consent to the merger as to the class or series of shares for which appraisal is sought;
state where your VCBBay Banks share certificates are required to be deposited and the date by which those certificates must be deposited;
specify where the form described above must be delivered and the date by which Blue Ridge must receive the form (which may not be fewer than 40 nor more than 60 days after the date the appraisal notice was delivered), and state that you will have waived the right to demand appraisal with respect to your shares unless the form is received by Blue Ridge by such date;
state Blue Ridge’Ridge’s estimate of the fair value of the shares;
state that, if requested in writing, Blue Ridge will provide to the shareholder, within 10 days after the date by which Blue Ridge must receive the form, the number of shareholders who return the forms by the specified date and the total number of shares owned by them; and
state the date by which the notice to withdraw must be received, which date must be within 20 days after the date by which Blue Ridge must receive the form.
After receipt of the appraisal notice, you must deliver to Blue Ridge a written payment demand and, in the case of certificated shares, deposit your VCBBay Banks share certificates with Blue Ridge by the date set forth in and in accordance with the terms and conditions of the appraisal notice and certify whether you acquired beneficial ownership of your shares of VCBBay Banks common stock before the announcement date. Otherwise, you will not be entitled to payment for your shares. Additionally, if you were not the beneficial owner of your shares of VCBBay Banks common stock on the announcement date as set forth in the appraisal notice, Blue Ridge may elect to withhold payment. If you deliver a payment demand, certify your beneficial ownership and deposit your share certificates as required by the appraisal notice, you will lose all rights as a VCBBay Banks shareholder unless you withdraw your payment demand by the date specified in the appraisal notice.
Within 30 days after the form is due, Blue Ridge will pay you (provided that you have satisfied all requirements to exercise appraisal rights) the amount Blue Ridge estimates to be the fair value of your shares, plus interest
accrued to the date of payment. Blue Ridge’ payment will be accompanied by:
the annual financial statements of Blue Ridge, which shall be as of a date ending not more than 16 months before the date of payment, or, if such annual financial statements are not available, Blue Ridge shall provide reasonably equivalent financial information;
the latest available quarterly financial statements of Blue Ridge;
a statement of Blue Ridge’ estimate of the fair value of the shares, which estimate must equal or exceed Blue Ridge’ estimate given in the appraisal notice; and
a statement of your right to demand further payment if you are not satisfied with the payment and that failure to demand further payment within a specified time will be deemed acceptance of Blue Ridge’s estimate as full payment.
If you believe that the amount paid by Blue Ridge, or the amount of Blue Ridge’s payment offer in the case of after-acquired shares, as described above is less than the fair value of your shares of VCBBay Banks common stock or that the interest due is incorrectly calculated, then you may notify Blue Ridge in writing of your own estimate of the fair value of your shares of VCBBay Banks common stock and may demand payment of your estimate plus interest. A shareholder offered payment with respect to his or her after-acquired shares and who is dissatisfied with that offer must reject the offer and demand payment of the shareholder’s estimate of the fair value of the shares plus interest. If you fail to take any such action within the 30 days after Blue Ridge makes or offers payment for your shares, you will be deemed to have waived your rights to demand payment and shall be entitled only to the payment of fair value as calculated by Blue Ridge.
If you have taken all required actions and your demand for payment remains unsettled, Blue Ridge may file a lawsuit within 60 days after receiving the payment demand and petition the appropriate circuit court to determine the fair value of the shares and accrued interest. If Blue Ridge does not begin the action within the60-day period, it will pay each shareholder who asserts appraisal rights whose demand remains unsettled the amount demanded. In the court proceeding described above, the court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. In addition, Blue Ridge will make all shareholders who assert appraisal rights whose demands remain unsettled parties to the proceeding. Each shareholder who asserts appraisal rights made a party to the proceeding must be served with a copy of the complaint and will be entitled to judgment for the amount, if any, by which the court finds the fair value of his shares to exceed the amount paid by Blue Ridge, plus interest, or for the value, plus accrued interest, of his after-acquired shares for which Blue Ridge elected to withhold payment.
The court will determine the cost of any court proceeding, including reasonable compensation and reimbursement of expenses for appraisers appointed by the court. Those costs will be assessed against Blue Ridge unless the court determines that some or all of the shareholders who assert appraisal rights acted arbitrarily, vexatiously or not in good faith in demanding payment, in which event the court may assess costs against those shareholders. The court may assess the expenses of the respective parties against Blue Ridge if it finds that it did not substantially comply with the requirements of the statutes, or against any party who acted arbitrarily, vexatiously or not in good faith in asserting or defending against appraisal rights. If the court finds that the expenses incurred by any shareholder who asserts appraisal rights were of substantial benefit to other shareholders similarly situated, the court may direct that such expenses be paid out of the amounts awarded the shareholders who asserted appraisal rights who were benefited. If a shareholder who asserts appraisal rights must bring an action against Blue Ridge to require it to pay the amount Blue Ridge estimates to be the fair value of the shares, plus interest and the shareholder is successful, the court will assess expenses against Blue Ridge.
Regulatory Approvals Required for the Merger
Blue Ridge and VCBBay Banks have agreed to use their best efforts to obtain all regulatory approvals required to consummate the transactions contemplated by the merger agreement, which include the approval of the Federal Reserve, the OCC, and the Virginia Bureau of Financial Institutions. As of the date of this joint proxy statement/prospectus, we have filed applications with the regulatory authorities but have not yet received the required regulatory approvals. The merger cannot proceed without these regulatory approvals. It is presently contemplated that if any additional governmental approvals or actions are
required, such approvals or actions will be sought. AlthoughEven after Blue Ridge and VCB expect to obtain allBay Banks have received the necessary regulatory approvals, there can be no assurance as to if and when these regulatory approvals will be obtained. There can likewise be no assurance that the United States Department of Justice or any state attorney general will not attempt to challenge the merger on antitrust grounds, and, if such a challenge is made, there can be no assurance as to its result.
A regulatory body’s approval may contain termsOn or impose conditions, restrictions or requirements which theabout October 9, 2020, Blue Ridge Board reasonably determines in good faith would have a material adverse effect on Blue Ridge and its subsidiaries as a whole, taking into account the consummation of the merger. If approval of this nature occurs, Blue Ridge may elect not to consummate the merger. The companies can give no assurance thatfiled the required regulatory approvals will be obtained on terms that satisfyapplications with the conditions to closingFederal Reserve and the Virginia Bureau of Financial Institutions seeking approval of the merger, and on or withinabout the time frame contemplated bysame date, Blue Ridge Bank filed the required application with the OCC seeking approval of the bank merger. As of the date of this joint proxy statement/prospectus, Blue Ridge has received regulatory approval from the Federal Reserve and VCB. See “The Merger Agreement – Conditionsthe Virginia Bureau of Financial Institutions for the merger.
As of the date of this joint proxy statement/prospectus, Blue Ridge Bank has not yet received the required approval from the OCC for the bank merger. While Blue Ridge does not know of any reason why Blue Ridge Bank would not be able to Completeobtain the Merger” beginning on page [●].remaining necessary regulatory approval in a timely manner, Blue Ridge cannot be certain when or if the remaining regulatory approval will be received or as to the nature of any conditions imposed.
The merger will be accounted for under the acquisition method of accounting pursuant to GAAP. Under the acquisition method of accounting, the assets and liabilities of VCBBay Banks as of the effective time of the merger will be recorded at their respective fair values and added to those of Blue Ridge. Any excess of purchase price over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Financial statements of Blue Ridge issued after the merger will reflect these fair values, but will not be restated retroactively to reflect the historical financial position or results of operations of VCBBay Banks before the merger date.
Resales of Blue Ridge Common Stock
All shares of Blue Ridge common stock to be issued to VCBBay Banks shareholders in the merger will be freely transferable under the Securities Act, except shares issued to any shareholder who is an “affiliate” of Blue Ridge as defined by Rule 144 under the Securities Act. These affiliates may only sell their shares in transactions permitted by Rule 144 under the Securities Act or as otherwise permitted under the Securities Act. “Affiliates” typically include directors, executive officers and those who control, are controlled by or are under common control with Blue Ridge and may include significant shareholders of Blue Ridge. The executive officers and directors of VCBBay Banks who continue in such capacities with Blue Ridge upon completion of the merger are expected to be deemed affiliates of Blue Ridge as of the closing date of the merger.
Material United States Federal Income Tax Consequences
TheSubject to the limitations, assumptions and qualifications described herein, in the opinion of each of Troutman Pepper Hamilton Sanders LLP and Williams Mullen, counsel to Blue Ridge and Bay Banks, respectively, the following discussion summarizesaddresses the material U.S. federal income tax consequences relating to the merger to a U.S. holder (as defined below) of merger. The discussion is based upon the Code, its legislative history, applicable Treasury Regulations promulgated thereunder, existing administrative interpretations and court decisions currently in effect. Any of these authorities could be repealed, overruled, modified or subject to differing interpretation at any time after the date of this joint proxy statement/prospectus, and any such change could be applied retroactively. This discussion does not address any tax consequences under state, local or foreign laws or federal laws other than those pertaining to income tax.
This discussion assumes that you hold your shares of VCBBay Banks common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion is for general information only and does not address all aspects of federal income taxation that may be important to you in light of your particular circumstances or if you are subject to certain rules, such as those rules relating to:
shareholders who are not U.S. holders (as defined below);
pass-through entities and investors in such entities;
banks, thrifts and certain other financial institutions;
tax-exempt organizations and entities, including pension plans, individual retirement accounts and employee stock ownership plans;
regulated investment companies or real estate investment trusts;
insurance companies;
persons subject to alternative minimum tax;
persons having a functional currency other than the U.S. dollar;
U.S. expatriates;
traders in securities that elect to apply amark-to-market method of accounting;
persons that hold their shares of VCBreceives Blue Ridge common stock as part of a hedge, appreciated financial position, straddle, integrated, conversion, or constructive sale transaction, or other risk reduction transaction;
dealers or brokers in securities, commodities or currencies;
holders who actually or constructively own more than 5% of VCB common stock;
ratings with respectpursuant to the Community Reinvestment Act; andmerger.
shareholders who acquired their shares of VCB common stock through the exercise of employee stock options or similar derivative securities or otherwise as compensation.
For purposes of this discussion, the terma “U.S. holder” meansis a beneficial owner of VCBBay Banks common stock thatand is, for U.S. federal income tax purposes, (1) an individual citizen or resident of the United States, (2) a corporation (or entity or an arrangement treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia, (3) a trust if (a) a court within the United States is able to exercise primary supervision over theits administration of the trust and one or more U.S. persons (as defined in Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of thesuch trust, or (b) such trust was in existence on August 20, 1996 and has made a valid election to continue to be treated as a U.S. person for U.S. federal income tax purposes, or (4) an estate, the income of which is includiblesubject to U.S. federal income tax regardless of its source.
This discussion applies only to U.S. holders who hold their shares of Bay Banks common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment) and exchange those shares for shares of Blue Ridge common stock in the merger. Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to U.S. holders in light of their particular circumstances and does not apply to U.S. holders subject to special treatment under the U.S. federal income tax laws (such as, for example, dealers or brokers in securities, commodities or foreign currencies; traders in securities that elect to apply a mark-to-market method of accounting; banks and certain other financial institutions; insurance companies; regulated investment companies and real estate investment trusts; tax-exempt organizations; holders of Bay Banks common stock subject to the alternative minimum tax provisions of the Code; S corporations; partnerships or other pass-through entities (or investors in S corporations, partnerships or other pass-through entities); holders of Bay Banks common stock whose functional currency is not the U.S. dollar; holders who hold shares of Bay Banks common stock as part of a “hedge,” “straddle,” “constructive sale” or “conversion transaction” (as such terms are used in the Code) or other integrated investment; holders of Bay Banks common stock who exercise appraisal rights; persons who purchased their shares of Bay Banks common stock as part of a wash sale; or holders required to accelerate the recognition of any item of gross income for U.S. federal income tax purposes regardlesswith respect to Blue Ridge common stock as a result of its source.
TheThis discussion does not address any tax consequences arising under any U.S. state or local, or foreign laws, the Medicare contribution tax, the alternative minimum tax or under any U.S. federal laws other than U.S. federal income tax consequences of a person that is a partner oflaws (such as estate or gift tax laws).
If an entity or an arrangement treated as a partnership for U.S. federal income tax purposes that holds shares of VCBBay Banks common stock, the tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Partners in such partnerships holding our shares should consult their tax advisors about theAny entity treated as a partnership for U.S. federal income tax consequences of exchanging shares of VCB common stock for shares of Blue Ridge common stock and/or cash pursuant to the merger.
Tax consequences of the merger, generally
As structured, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Based on the merger qualifying as a “reorganization” within the meaning of Section 368(a) of the Code, if you hold shares of VCBpurposes that holds Bay Banks common stock, and exchange those shares of VCB common stock pursuant to the merger, your tax consequences will depend upon the form of consideration that you receive in exchange for those shares. It is also a condition to VCB’s obligation to complete the merger that VCB receive a tax opinion from Hunton Andrews Kurth LLP, dated the closing date of the merger, to the effect that, on the basis of facts, representations and assumptions set forth or referred toany partners in such opinion, the merger will constitute a reorganization within the meaning of Section 368(a) of the Code. It is a conditionpartnership, are strongly urged to Blue Ridge’s obligation to complete the merger that Blue Ridge receive an opinion from Williams Mullen, dated the closing date of the Merger, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the merger will constitute a reorganization within the meaning of Section 368(a) of the Code. Theseconsult their own tax opinions are and will be based on representation letters provided by VCB and Blue Ridge and on customary factual assumptions. Blue Ridge and VCB each has the ability to waive the condition to obtain a legal opinion. Neither Blue Ridge nor VCB currently intends to waive this opinion condition to its obligation to consummate the merger. If either Blue Ridge or VCB waives this opinion condition after the registration statement of which this joint proxy statement/prospectus forms a part is declared effective by the SEC, and ifadvisors about the tax consequences of the merger to VCB shareholders have materially changed, Blue Ridgethem.
This discussion, and VCB will recirculate appropriate soliciting materialsthe tax opinions referred to resolicitbelow, is based upon the votesCode, the U.S. Treasury regulations promulgated thereunder and judicial and administrative authorities, rulings, and decisions, all as in effect on the date of this joint proxy statement/prospectus. These authorities may change, possibly with retroactive effect, and any such change could affect the accuracy of the Blue Ridgestatements and VCB shareholders. None of theconclusions set forth in this discussion. The opinions described abovebelow will not be binding on the IRS, or any court. VCBBlue Ridge and Blue RidgeBay Banks have not sought and will not seek any ruling from the IRS regarding any matters relating to the merger, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations or assumptions upon which thosethe opinions are based are inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected. The remainder
Determining the actual tax consequences of this discussion is based on the merger qualifyingto you may be complex and will depend on your specific situation and on factors that are not within our control. You are strongly urged to consult with your own tax advisor as a “reorganization” withinto the meaning of Section 368(a)specific tax consequences of the Code.merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any U.S. federal, state and local, foreign and other tax laws and of changes in those laws.
In addition, in connection withU.S. Federal Income Tax Consequences of the effectiveness of this registration statement, of which this proxy statement/prospectus forms a part, each of Hunton Andrews Kurth LLP and Williams Mullen has delivered its opinionMerger Generally
Subject to the effect that, on the basis of the facts, representations,limitations, assumptions and exclusions set forth in such opinion and certificates obtained from officers of VCB and Blue Ridge: (i)qualifications described herein, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code;Code. Accordingly, and (ii)as discussed in greater detail below, except with respect to cash received in lieu of a fractional share interest in Blue Ridge common stock, no gain or loss will be recognized by holders of Bay Banks common stock in the following discussion constitutes theirmerger. Blue Ridge has received a legal opinion asfrom Troutman Pepper Hamilton Sanders LLP, and Bay Banks has received a legal opinion from Williams Mullen, each to the material United States federal income tax consequenceseffect that the merger will constitute a reorganization within the meaning of Section 368(a) of the merger to holders of VCB common stock. Neither of theseCode.
These opinions is bindingare based on the IRS or the courts, and neither VCB norrepresentations by Blue Ridge intends to request a ruling from the IRS regarding the United States federal income tax consequences of the merger. Consequently, no assurance is given that the IRS will not assert, or that a court would not sustain, a position contrary to any of those set forth below. In addition, ifand Bay Banks, as well as certain covenants and undertakings by Blue Ridge and Bay Banks and customary assumptions. If any of the representations, covenants, undertakings, or assumptions upon which suchis incorrect, incomplete, inaccurate or is violated, the validity of the opinions are based are inconsistent withdescribed above may be affected and the actual facts, the United StatesU.S. federal income tax consequences of the merger could be adversely affected.differ materially from those described in this joint proxy statement/prospectus.
Tax consequences to holders of VCB common stock who receive solely Blue Ridge common stock for their shares of VCB common stock
If you are a holder of VCB common stock who elects to receive solely Blue Ridge common stock in exchange for your shares of VCB common stock pursuantAccordingly, subject to the merger, you will not recognize any gain or losslimitations and qualifications set forth herein and in the opinions described above, for U.S. federal income tax purposes, (except forwhen a U.S. holder of Bay Banks common stock receives Blue Ridge common stock and cash instead of fractional shares of Blue Ridge common stock, if any, in the merger, such U.S. holder will not recognize gain or loss, except with respect to cash received instead of a fractional shareshares of Blue Ridge common stock).See“–Tax consequences to holders of VCB common stock who receive cash in lieu of fractional shares” below.(as discussed below).
The aggregate tax basis of the Blue Ridge common stock that a U.S. holder receives in the merger, including any fractional shares deemed received and redeemed for cash as described below, will equal such U.S. holder’s aggregate adjusted tax basis in the shares of Bay Banks common stock that it surrenders in the merger. The holding period for the shares of Blue Ridge common stock that a U.S. holder receives in the merger (including any fractional shares of Blue Ridge common stock deemed received and exchanged for cash, as discussed below) will equal the aggregate tax basis of the VCB common stock for which it is exchanged, decreased by the amount of basis allocated to the fractional share deemed received and then redeemed. The holding period of Blue Ridge common stock received in exchangeredeemed for shares of VCB common stock (including fractional shares of Blue Ridge common stock deemed received and redeemedcash as described below) will include the holding period of the VCB common stock for which it is exchanged. If a U.S. holder has differing tax bases or differing holding periods in respect of shares of VCB common stock, the U.S. holder should consult its tax advisor prior to the exchange with regard to identifying the bases or holding periods of the particular shares of Blue Ridge common stock received in the merger.
Tax consequences to holders of VCB common stock who receive solely cash for their shares of VCB common stock or who elect to exercise appraisal rights
If you are a holder of VCB common stock who elects to receive solely cash in exchange for your shares of VCB common stock pursuant to the merger or who receives cash in exchange for your shares of VCB common stock by making a valid election to exercise appraisal rights, you will recognize gain or loss in an amount equal to the difference between the amount of cash that you receive and the adjusted tax basis of your shares of VCB common stock exchanged therefor. The gain or loss should be capital gain or capital loss and will be long-term capital gain or loss if you owned the exchanged shares of VCB common stock for more than one year as of the effective time of the merger. In general, long-term capital gains fornon-corporate taxpayers may be eligible for a reduced tax rate. The deductibility of capital losses is subject to limitations. In addition, gains and losses recognized on the exchange of your shares of VCB common stock pursuant to the merger may be subject to the net investment income tax. See “– Net Investment Income Tax” below.
If you actually, indirectly or constructively hold shares of Blue Ridge common stock immediately prior to the merger, you should be aware that in certain circumstances there is a possibility that all or a portion of the cash you receive in exchange for your shares of VCB common stock pursuant to the merger could be recharacterized as dividend income. Each holder of VCB common stock is strongly encouraged to consult its tax advisor as to the possibility that all or a portion of the cash payment received will be treated as dividend income and to read the section entitled “–Tax consequences to holders of VCB common stock who receive Blue Ridge common stock and cash” below.
Tax consequences to holders of VCB common stock who receive Blue Ridge common stock and cash
If you are a holder of VCB common stock who elects to exchange your shares of VCB common stock for shares of Blue Ridge common stock and cash, you generally will recognize gain (but not loss) with respect to such cash in an amount equal to the lesser of (1) the excess, if any, of the sum of the cash received and the fair market value of the shares of Blue RidgeBay Banks common stock received pursuant to the merger over your adjusted tax basis in your shares of VCB common stock surrendered, or (2) the amount of cash you received in exchange for your shares of VCB common stock pursuant to the merger. If you acquired different blocks of VCB common stock at different times or at different prices, gain or loss must be calculated separately for each identifiable block of shares of VCB common stock surrenderedthat such U.S. holder surrenders in the merger. You should consult your tax advisor regarding the manner in which cash and shares of Blue Ridge common stock should be allocated among different blocks of your VCB common stock surrendered in the merger and the manner in which gain or loss should be determined. Any recognized gain generally will be treated as capital gain and will be long-term capital gain if, as of the effective time of the merger, your holding period with respect to the shares of VCB common stock surrendered exceeds one year.
The aggregate tax basis of your shares of Blue Ridge common stock received (including any fractional shares deemed received and exchanged for cash) by you in exchange for your shares of VCB common stock pursuant to the merger will be equal to the aggregate tax basis of your shares of VCB common stock surrendered, reduced by the amount of cash received by you in exchange for your VCB common stock pursuant to the merger (other than cash received in lieu of a fractional share of Blue Ridge common stock) and increased by the amount of gain, if any, recognized by you on the exchange (other than any gain or dividend income recognized on the receipt of cash for a fractional share of Blue Ridge common stock) on the exchange. The holding period of the shares of Blue Ridge common stock you receive in the merger (including any fractional shares deemed received and exchanged for cash) will include your holding period of the shares of VCB common stock surrendered in the merger. If you acquired different blocks of VCB common stock at different times or at different prices, the basis and holding period of each block of Blue Ridge common stock you receivea U.S. holder receives will be determined on ablock-for-block basis depending on the basis and holding period of the blocks of VCBBay Banks common stock exchanged for such block of Blue Ridge common stock. YouU.S. holders should consult yourtheir tax advisoradvisors regarding the manner in which cash and the shares of Blue Ridge common stock should be allocated among your sharesdifferent blocks of VCBtheir Bay Banks common stock and the manner in which the above rules would apply to your particular circumstances. In addition, gains and losses recognized on the exchange of your shares of VCB common stock pursuant to the merger may be subject to the net investment income tax. See “– Net Investment Income Tax” below.
In some cases, if you actually or constructively own shares of Blue Ridge common stock (other than the shares of Blue Ridge common stock received as consideration in connection with the merger), the recognized gain could be treated as having the effect of the distribution of a dividend under the tests set forth in Section 302 of the Code, in which case such gain would be treated as dividend income to the extent of your ratable share of accumulated earnings and profits (as calculated for U.S. federal income tax purposes). In general, the determination of whether such gain recognized will be treated as capital gain or has the effect of a distribution of a dividend depends upon whether and to what extent the exchange reduces the holder’s deemed percentage ownership of Blue Ridge common stock. For purposes of determining whether the VCB shareholder’s receipt of cash has the effect of a distribution of a dividend, the shareholder will be treated as if such shareholder first exchanged all of such shareholder’s VCB common stock solely in exchange for shares of Blue Ridge common stock and then Blue Ridge immediately redeemed a portion of that stock for the cash that the shareholder actually receivedsurrendered in the merger (referred to herein as the “deemed redemption”). Receiptmerger.
Cash Instead of cash will generally not have the effect of a dividend to a holder of VCB common stock if such receipt is, with respect to such shareholder, “not essentially equivalent to a dividend” or “substantially disproportionate” with respect to the shareholder (or with respect to a shareholder receiving only cash, who does not actually or constructively own any shares of Blue Ridge common stock following the merger). As noted above under“--Tax consequences to holders of VCB common stock who receive solely cash for their shares of VCB common stock or who elect to exercise appraisal rights” above, the foregoing rules may apply to an holder of VCB common stock receiving only cash in the merger if such shareholder actually or constructively owns shares of Blue Ridge common stock following the merger. However, in addition to the tests described above, the deemed redemption will not result in dividend treatment if it constitutes a “complete termination” of such shareholder’s interest, which would apply if such shareholder does not actually or constructively own any shares of Blue Ridge common stock following the merger. Because the rules are complex and the possibility of dividend treatment depends upon each VCB shareholder’s particular circumstances, including the application of constructive ownership rules under Section 318 of the Code, holders of VCB common stock are strongly encouraged to consult their tax advisors regarding the application of the foregoing rules to their particular circumstances.
Tax consequences to holders of VCB common stock who receive cash in lieu of fractional sharesFractional Shares
If you are a U.S. holder of VCB common stock and, as a result of the merger, you receivereceives cash in lieuinstead of a fractional share of Blue Ridge common stock, we expect your receipt of such cashthe U.S. holder will be treated as ifhaving received such fractional share of Blue Ridge common stock pursuant to the merger and then as having received cash in exchange for such fractional share of Blue Ridge common stock. As a result, such U.S. holder generally will recognize gain or loss equal to the difference between the amount of cash received instead of a fractional share and the U.S. holder’s basis in the fractional share of Blue Ridge common stock had been distributed to youit is treated as part of the merger, and then redeemed by Blue Ridge in exchange for the cash actually distributed in lieu of the fractional share, with the redemption generally qualifyingreceiving as an “exchange” under Section 302 of the Code. Consequently, youset forth above. Such gain or loss generally will recognizebe capital gain or loss with respect toand will be long-term capital gain or loss if, as of the cash received in lieueffective time of athe merger, the holding period for such fractional share measured by(including the holding period of shares of Bay Banks common stock surrendered therefor) exceeds one year. The deductibility of capital losses is subject to limitations.
Exchange Solely for Cash upon Exercise of Dissenters’ Rights. If a U.S. holder receives solely cash in exchange for shares of Bay Banks common stock upon its proper exercise of dissenters’ rights, such U.S. holder generally will recognize gain or loss equal to the difference between the amount of cash received and the taxU.S. holder’s basis allocated toin the fractional share exchanged therefor. Anyits shares of Bay Banks common stock. Such gain or loss generally will be capital gain or loss recognized by you as a result of the receipt of cash in lieu of fractional shares of Blue Ridge common stock under the above discussionand will be long-term capital gain or loss if, you have held your shares of VCB common stock for more than one year as of the effective time of the merger. In general, long-term capital gainsmerger, the holding period fornon-corporate taxpayers may be eligible for a reduced tax rate. such shares exceeds one year. The deductibility of capital losses is subject to limitations. In addition, gains and losses recognized on the exchange of your shares of VCB common stock pursuant to the merger may be subject to the net investment income tax. See “– Net Investment Income Tax” below.
Net Investment Income Tax
Certainnon-corporate holders of VCB common stock with taxable incomes over certain threshold amounts, including individuals and certain estates and trusts, may be subject to an additional 3.8% tax on all or a portion of their “net investment income.” This tax amounts to an additional 3.8% tax on the lesser of (i) the U.S. holder’s “net investment income” for the relevant taxable year and (ii) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which, in the case of an individual, will be between $125,000 and $250,000, depending on the individual’s circumstances). Net investment income may include dividends and net gains from the disposition of shares of stock, including gains or dividends recognized by holders of VCB common stock as a result of exchanging their shares of VCB common stock for cash and, if applicable, Blue Ridge common stock pursuant to the merger agreement. Holders of VCB common stock are urged to consult their own tax advisors regarding the potential applicability of the net income tax to them and the implications of the net investment income tax.
Tax consequences to VCB and Blue Ridge
Each of Blue Ridge and VCB will be a party to the merger within the meaning of Section 368(b) of the Code. Neither VCB nor Blue Ridge will recognize gain or loss for U.S. federal income tax purposes as a result of the merger.
Backup Withholding and Information Reporting Requirements
Non-corporateU.S. holders of VCBBay Banks common stock other thanmay, under certain exempt recipients, maycircumstances, be subject to information reporting and backup withholding (currently at a rate of 24%) on any cash payments received in connection with the merger. Such a U.S. holder generally will not be subject to backup withholding, at a rate of 24% with respect to any cash payment received inhowever, if the merger in lieu of fractional shares. However, backup withholding will not apply to any U.S. holder that either (a) holder:
furnishes a correct taxpayer identification number, and certifies that itthe U.S. holder is not subject to backup withholding on the Form W-9or (b)applicable successor form and otherwise proves to Blue Ridge and its exchange agentcomplies with all the applicable requirements of the backup withholding rules; or
provides proof that the U.S. holder is otherwise exempt from backup withholding.
Any amounts withheld from payments to U.S. holders of Bay Banks common stock under the backup withholding rules are not an additional tax and generally will be allowed as a refund or credit against thesuch U.S. holder’s applicable U.S. federal income tax liability, provided the holderrequired information is timely furnishes the required informationfurnished to the IRS.
In addition, U.S. holders of VCBBay Banks common stock are required to retain permanent records and make such records available to any authorized IRS officers and employees. The records should includeconsult their own tax advisors regarding the numberapplication of shares of VCB stock exchanged, the number of shares of Blue Ridge stock received, the fair market value and tax basis of VCB shares exchangedbackup withholding based on their particular circumstances and the availability of, and procedure for, obtaining an exemption from backup withholding.
Certain Reporting Requirements
If you are a U.S. holder’s tax basis in theholder that receives Blue Ridge common stock received. If a U.S. holder of VCB common stock that exchanges such stock for Blue Ridge common stock isin the merger and are considered a “significant holder” with respectholder,” you will be required (1) to VCB, the U.S. holder is required to includefile a statement with respect to the exchange on or with theyour U.S. federal income tax return ofproviding certain facts pertinent to the U.S. holder for the year of the exchange. A U.S. holder of VCB common stock will be treated as a significant holder in VCB if the U.S. holder’s ownership interest in VCB is five percent (5%) or more of VCB’s issued and outstanding common stock or if the U.S. holder’smerger, including your tax basis in, the shares of VCB stock exchanged is one million dollars ($1,000,000) or more. The statement must be prepared in accordance with Treasury Regulation Section1.368-3 and must be entitled “STATEMENT PURSUANT TO§1.368-3 BY [INSERT NAME AND TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A SIGNIFICANT HOLDER”. The statement must include the names and employer identification numbers of VCB and Blue Ridge, the date of the merger, and the fair market value of, the Bay Banks common stock that you surrendered, and (2) to retain permanent records of these facts relating to the merger. You are a “significant holder” if, immediately before the merger, you (a) owned at least 5% (by vote or value) of the outstanding stock of Bay Banks, or (b) owned Bay Banks securities with a tax basis of VCB shares exchanged (determined immediately before the merger).$1.0 million or more.
The foregoingThis discussion of certain material U.S. federal income tax discussionconsequences is for general information purposes only a summary. Itand is not intended to be, and shouldmay not be construed as, tax advice. Holders of VCBBay Banks common stock are urged to consult their independent tax advisors with respect to the application of U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the U.S. federal estate or gift tax rules, or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty.
The following summary describes certain aspects of the merger, including the terms of the merger agreement that the respective management teams of Blue Ridge and VCBBay Banks believe are material. The merger agreement is attached to this joint proxy statement/prospectus asAppendix A and is incorporated by reference ininto this joint proxy statement/prospectus. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.
The merger agreement provides for the merger of VCBBay Banks with and into Blue Ridge, with Blue Ridge as the surviving corporation. The separate existence of VCBBay Banks shall cease upon completion of the merger, and Blue Ridge will continue to exist as a Virginia corporation. As soon as practicable after the merger, Virginia CommunityCommonwealth Bank will be merged with and into Blue Ridge Bank, with Blue Ridge Bank as the surviving bank. Blue Ridge Bank will continue to exist as a national banking association and a wholly ownedwholly-owned subsidiary of Blue Ridge.
The articles of incorporation and bylaws of Blue Ridge as in effect immediately prior to the effective time of the merger will be the articles of incorporation and bylaws of Blue Ridge after the merger. The articles of association and bylaws of Blue Ridge Bank in effect immediately prior to the effective time of the subsidiary merger will be the articles of association and bylaws of Blue Ridge Bank after the merger. The merger agreement provides that Blue Ridge and Blue Ridge Bank will amend their respective bylaws prior to the effective times of the merger and the subsidiary merger, respectively, to effect the changes described in the merger agreement. See “The Merger – Amendments to Blue Ridge Bylaws.”
Under the terms of the merger agreement, at the effective time of the merger, each issued and outstanding share of VCBBay Banks common stock will be converted into the right to receive at the election of the holder, either:
$58.00 per share in cash; or
3.050.5000 shares of Blue Ridge common stock.
If you are a VCB shareholder, you have the opportunity to elect the form of consideration to be received for all shares of VCB common stock held by you, subject to allocation and proration procedures set forth in the merger agreement and described in this joint proxy statement/prospectus. These allocation procedures are intended to ensure that 60% of the outstanding shares of VCB common stock will be converted into the right to receive shares of Blue Ridge common stock and 40% of the outstanding shares of VCB common stock will be converted into the right to receive cash. Any merger consideration is subject to ratable proration, as described below under “—Cash or Stock Election for VCB Shareholders.”
If you are a VCB shareholder, the form of the consideration ultimately received by you will depend upon the election, allocation and proration procedures described below and the choices of other VCB shareholders, and may be different from what you elect.
In lieu of fractional shares, Blue Ridge will issue cash to holders of VCBBay Banks common stock in an amount (without interest and rounded to the nearest cent) determined by multiplying such fraction by the average of the closing priceprices of Blue Ridge common stock quoted on the OTC Markets Group’s Pink marketplaceNYSE American market for the 10 full trading daydays ending on the trading immediately preceding (but not including) the effective time of the merger on which there were reported trades in Blue Ridge common stock.merger.
Closing and Effective Time of Merger
The merger will be completed only if certainthe conditions to closing described in the merger agreement are satisfied or waived by the applicable party. The merger will close on either the fifth business day following the completion of the conditions to closing set forth in the merger agreement, or another mutually agreed upon date. The merger will become effective upon the issuance of a certificate of merger by the Virginia State Corporation Commission, or such other date and time as may be set forth in the articles of merger filed with the Virginia State Corporation Commission.Commission, subject to the receipt of regulatory approval from the OCC and shareholder approvals and satisfaction or waiver of other closing conditions. Neither Blue Ridge nor VCBBay Banks can predict, however, the actual date on which the merger will be completed because it is subject to factors beyond each company’s control, including whether or when the parties’ respective shareholders’ approvals and outstanding regulatory approvalsapproval will be received, if at all.
Cash or Stock Election for VCB Shareholders
If you are a VCB shareholder, an election form is being sent to you in a separate mailing, permitting you:
to elect to receive shares of Blue Ridge common stock in exchange for shares of VCB common stock held by you, plus cash in lieu of any fractional share interest,
to elect to receive cash in exchange for shares of VCB common stock held by you, or
to indicate that you make no election with respect to the consideration to be received by you in exchange for your shares of VCB common stock.
The VCB shares to be converted in accordance with the merger agreement are referred to below as (a) stock election shares, (b) cash election shares and (c) no election shares. VCB shareholders will also be permitted to make mixed elections, wherein a portion of their shares will be stock election shares and the remainder will be cash election shares.
In order to make an effective election, you must send in your properly completed election form to the exchange agent no later than[●], Eastern time, on[●], 2019, the election deadline. If you either (a) do not submit a properly completed election form by the election deadline or (b) revoke your election form prior to the election deadline and do not resubmit a properly completed election form by the election deadline, the shares of VCB common stock held by you will be designated no election shares.
All elections must be made on the election form. To make an effective election with respect to your shares of VCB common stock, you must, in accordance with the election form, properly complete and return the election form to the exchange agent designated by Blue Ridge to receive these materials.
If you have a particular preference as to the form of consideration to be received for your shares of VCB common stock, you must make an election, because shares as to which an election has been made will be given priority in allocating the selected consideration over shares for which no election was made. The VCB Board, the Blue Ridge Board, and their financial advisors make no recommendation as to whether VCB shareholders should elect to receive the cash consideration or the stock consideration in the merger. You must make your own decision with respect to your election, bearing in mind the tax consequences of the election you choose. See “The Merger—Material United States Federal Income Tax Consequences” beginning on page on[●].
All elections by VCB shareholders are subject to the allocation and proration procedures described in the merger agreement. These procedures are intended to ensure that 60% of the outstanding shares of VCB common stock will be converted into the right to receive Blue Ridge common stock and the remaining 40% of the outstanding shares of VCB common stock will be converted into the right to receive cash.
It is unlikely that elections will be made in the exact proportions provided for in the merger agreement. As a result, the merger agreement describes procedures to be followed if VCB shareholders in the aggregate elect to receive stock consideration in exchange for more or fewer than 60% of the outstanding shares of VCB common stock. These procedures are summarized below.
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The above-described allocation will be made by Blue Ridge’s exchange agent within five business days after the completion of the merger.
The VCB Board, the Blue Ridge Board, and their financial advisors make no recommendations as to whether VCB shareholders should elect to receive cash or Blue Ridge common stock in the merger. Each VCB shareholder must make his or her own decision with respect to such election.
No guarantee can be made that you will receive the amounts of cash or stock you elect. As a result of the allocation procedures and other limitations outlined in this joint proxy statement/prospectus and in the merger agreement, you may receive Blue Ridge common stock or cash in amounts that vary from the amounts you elected to receive.
Procedures for Exchanging VCBBay Banks Stock Certificates
On or before the closing date of the merger, Blue Ridge will cause to be deposited with the exchange agent the number of shares of Blue Ridge common stock for the stockmerger consideration to be delivered in the merger (which, at the election of Blue Ridge, may be certificates ornon-certificated shares), cash equal to the aggregate amount of the cash consideration payable in the merger and cash instead of any fractional shares that would otherwise be issued to VCBBay Banks shareholders in the merger.
Within five business days
As promptly as practicable after the effective time of the merger, Blue Ridge will cause the exchange agent completes the allocation procedures described above, the exchange agent willto send transmittal materials to each holder of a certificate for VCBBay Banks common stock for use in exchanging VCBBay Banks stock certificates for the merger consideration. The exchange agent will deliver the merger consideration allocated to each VCBBay Banks shareholder, and a check instead of any fractional shares, promptly once it receives the properly completed transmittal materials, together with certificates representing a holder’s shares of VCBBay Banks common stock.
VCBBay Banks stock certificates shouldnot be returned with the enclosed proxy card. They alsoBay Banks shareholders shouldnot be forwarded refer to the transmittal materials sent by the exchange agent until you receive a transmittal letter following completionfor details regarding return of the merger.Bay Banks stock certificates.
VCBBay Banks stock certificates may be exchanged for the merger consideration with the exchange agent for up to nine months after the completion of the merger. At the end of that period, any Blue Ridge stock certificates and cash deposited with the exchange agents that remains unclaimed by former Bay Banks shareholders will be returned to Blue Ridge. AnyThereafter, any holders of VCBBay Banks stock certificates who have not exchanged their certificates will be entitled to look only to Blue Ridge, and only as general creditors of Blue Ridge, for the merger consideration and any cash to be received instead of fractional shares of Blue Ridge common stock.
Please be aware that you will not receive the merger consideration you are entitled to until you return your properly completed transmittal materials and your VCBBay Banks common stock. No interest will be paid or accrued on any cash constituting merger consideration (including cash in lieu of fractional shares)shares during this time. Until you exchange your VCBBay Banks stock certificates for the merger consideration, you will not receive any dividends or other distributions in respect of shares of Blue Ridge common stock, to the extent you receive Blue Ridge common stock in the merger.stock. Once you exchange your VCBBay Banks stock certificates for the merger consideration, you will receive, without interest, any dividends or distributions with a record date after the effective time of the merger and payable with respect to any shares of Blue Ridge common stock, as well as any dividends with respect to VCBBay Banks stock declared before the effective time of the merger but unpaid.
If your VCBBay Banks stock certificate has been lost, destroyed, stolen or destroyed,is otherwise missing, you may receive a new stock certificatebe entitled to the merger consideration, dividends or distributions upon the making of an affidavit of that fact.compliance with reasonable conditions imposed by Blue Ridge pursuant to applicable law and as required by Blue Ridge’s standard policy. Blue Ridge may require you to post a bond in a reasonable amount as an indemnity against any claim that may be made against Blue Ridge with respect to the lost, destroyed, stolen or destroyed VCBotherwise missing Bay Banks stock certificate.
NeitherNone of the exchange agent, Blue Ridge, nor VCB, norBay Banks, or any other person,subsidiary of Blue Ridge or Bay Banks will be liable to any former holder of VCBBay Banks stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.
Treatment of Bay Banks Stock Options and Other Equity-Based Awards
As of November 30, 2020, Bay Banks had stock options to purchase an aggregate of 219,960 shares of Bay Banks common stock, of which 195,793 were exercisable. At the effective time of the merger, each Bay Banks stock option, whether vested or unvested, then issued and outstanding under an equity or equity-based compensation plan of Bay Banks (a “Bay Banks stock plan”) will be converted into a stock option to purchase, on the same terms and conditions as were applicable under such Bay Banks stock option, shares of Blue Ridge common stock in a number equal to the shares subject to such Bay Banks stock option multiplied by the exchange ratio, with any fractional shares rounded down to the next lower whole number of shares. The exercise price per share of each newly issued Blue Ridge stock option will be equal to the exercise price per share of Bay Banks common stock subject to such Bay Banks stock option divided by the exchange ratio, rounded up to the next whole cent. Notwithstanding the foregoing, each Bay Banks stock option that is intended to qualify as an “incentive stock option” will be adjusted if necessary in accordance with Treasury Regulation Section 1.424-1(a) and all other Bay Banks stock options will be adjusted if necessary in a manner that maintains the option’s exemption from Section 409A of the Code.
As of November 30, 2020, Bay Banks had 133,673 restricted stock awards granted under a Bay Banks stock plan that was unvested or contingent. At the effective time of the merger, each Bay Banks restricted stock award that is unvested or contingent and outstanding immediately prior to the effective time will vest fully and be converted into the right to receive the merger consideration with respect to each share of Bay Banks common stock underlying such Bay Banks restricted stock award.
At the effective time of the merger, Blue Ridge will assume the Bay Banks stock plans, and will have the right, but not the obligation to make additional grants or awards under the Bay Banks stock plans.
Representations and Warranties
The merger agreement contains reciprocal representations and warranties relating to Blue Ridge’s and VCB’sBay Banks’ respective businesses, including:
corporate organization, standing and power, and subsidiaries;
requisite corporate authority to enter into the merger agreement and to complete the contemplated transactions;
capital structure;
financial statements and regulatory reports filed with governmental agencies, including the SEC and accounting controls;bank regulatory agencies;
internal control over financial reporting and disclosure controls and procedures;
absence of certain changes or events and absence of certain undisclosed liabilities;
material contracts;
legal proceedings and compliance with applicable laws;
tax matters and tax treatment of merger;
ownership and leasehold interests in properties;
labor, employment and employee benefit matters;
insurance;
loan portfolio, allowance for loan losses and mortgage loanbuy-backs;
environmental matters;
books and records;
intellectual property;
derivative instruments;
brokered deposits;
investment securities;
takeover laws and provisions;
transactions with affiliates and related parties;
brokers and finders fees;
engagement of financial advisors;
opinions of financial advisors;
fiduciary accounts;
information systems and security; and
Community Reinvestment Act ratings.
With the exception of certain representations that must be true and correct in all material respects or true and correct in all respects, no representation will be deemed untrue or incorrect as a consequence of the existence or absence of any fact, event or circumstance unless that fact, event or circumstance, individually or taken together with all other facts, events or circumstances, has had or is reasonably likely to have a material adverse effect (as defined in the merger agreement) on the party making the representation.
The representations described above and included in the merger agreement were made for purposes of the merger agreement and are subject to qualifications and limitations agreed to by the parties in connection with negotiating the terms of the merger agreement. In addition, certain representations and warranties were made as of a specific date and may be subject to a contractual standard of materiality different from what might be viewed as material to shareholders. In some cases, the representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the merger agreement. Although neither Blue Ridge nor VCBBay Banks believes that the disclosure schedules contain information that the federal securities laws require to be publicly disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached merger agreement. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone as characterizations of the actual state of facts, but instead should be read only in conjunction with the information provided elsewhere in this joint proxy statement/prospectus and in the documents incorporated by reference into this joint proxy statement/prospectus. See “Additional Information” beginning on page i for a description of where you can find this information.
Blue Ridge and VCBBay Banks have made customary agreements that place restrictions on them until the completion of the merger. In general, Blue Ridge and VCBBay Banks are required to (i) conduct their respective businesses in the ordinary and usual course consistent with past practice, (ii) practice. In addition, Blue Ridge and Bay Banks may not:
take noany action that would affect adversely or delay the ability to obtain the required approvals and consents for the merger, perform the covenants and agreements under the merger agreement or complete the merger on a timely basis, (iii) take no action that would prevent the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code and (iv) take no action that would make any of its representations and warranties untrue, taking into account the material adverse effect standard set forth in the merger agreement.basis;
VCB has also agreed that, with certain exceptions, it will not, and will not permit any of its subsidiaries to, without the prior written consent of Blue Ridge:
amend, modify or repeal any articles of incorporation, bylaws or other similar governing instruments;instruments, except as provided for in the merger agreement;
other than pursuant to stock options outstanding on the date of the merger agreement, (i) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of capital stock or any rights with respect thereto, (ii) enter into any agreement with respect to the foregoing or (iii) issue or grant any stock options, restricted stock, stock appreciation rights, restricted stock units or similar stock-based rights;
enter into, amend or renew any employment, consulting, severance, change in control, bonus, salary continuation or similar agreements or arrangements with any of its directors, officers or employees, or grant any salary or wage increase or increase any employee benefit (including by making incentive or bonus payments), except for (i) normal individual merit increases in compensation of up to 2.5%salary or wages to employees in the ordinary course of business consistent with past practice (other than executive officers), (ii) payment of discretionary spot bonuses from the accruedof $5,000 or less to an employee bonus pool(other than an executive officer), and (iii) in the ordinary coursecase of businessBlue Ridge and after consultation with Bay Banks, entering into employment agreements in order to recruit new senior level employees in a manner that is consistent in all material respects with past practice or (iii) incentive-based commissions or compensation to one loan originator and one investment professional of VCB Services Inc. and to employees engaged in selling mortgage products and services in the ordinary course of business;practice;
enter into, establish, adopt, amend, terminate or make any contributions to (except to satisfy contractual obligations as previously disclosed to Blue Ridgemay be required by applicable law or to comply with the requirementsterms of the merger agreement)any benefit plan) any pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other
purchase, stock bonus, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive, welfare contract, plan or arrangement, or any trust agreement related thereto, in respect of any directors, officers or employees, including without limitation taking any action that accelerates, or the lapsing of restrictions with respect to, the vesting or exercise of any benefits payable |
in the case of Bay Banks, exchange, cancel, borrow from, surrender, or increase or decrease the death benefit provided under, or otherwise amend or terminate, any existing bank or corporate owned life insurance covering any current or former employee, other than any increase in the death benefit in the ordinary course of business consistent with past practice;practice, or any such change that is required by law;
incur any material obligation, indebtedness or liability, make any pledge or encumber or dispose of any of its material assets, except in the ordinary course of its business and substantially on arm’s length terms;
hire any personterms, except as an employee of VCB or promote any employee, except (i) to satisfy certain existing contractual obligations and (ii) persons hired or promoted to fill any employee ornon-executive officer vacancies whose employment is terminable at will and who are not subject to or eligible for severance or similar benefits or payments that would become payable as a result ofspecifically permitted by the merger;merger agreement;
other than dividends from VCB’s wholly-owned subsidiaries to it or another of its wholly-owned subsidiaries, make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on any shares of its capital stock or directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock; provided, however that Blue Ridge may declare and VCB will coordinate regarding the declaration ofpay quarterly dividends such that VCB shareholders will receive, prior to the effective time of the merger, a cash dividend in such amount that, together with any cash dividendon outstanding shares of Blue Ridge common stock at a rate not to which such holders are expected to be entitled between the effective time of the merger and December 31, 2019, shall equal $0.50exceed $0.1425 per share of VCB common stock;per quarter;
make any material investment in or acquisition of any other person other than its wholly-owned subsidiaries, except with respect to VCB’s investment portfolio or by way of foreclosures or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith in the ordinary and usual course of business;
implement or adopt any change in its tax or financial accounting principles, practices or methods, including reserving methodologies, other than as may be required by GAAP, regulatory accounting guidelines, or applicable law, or as recommended by VCB’sits outside auditor;
make, change or revoke any material tax election, change an annual tax accounting period, adopt or change any material tax accounting method, file any amended material tax return, enter into any closing agreement with respect to taxes, or settle any tax claim, audit, assessment or dispute or surrender any right to claim a refund of material taxes;
enter intotake any new line of business or change its investment, risk and asset liability management and other banking and operating policiesaction that are material to it and its subsidiaries, takenwould prevent the merger from qualifying as a whole, except as required by then applicable market conditions;reorganization within the meaning of Section 368(a) of the Code;
take any action that would make any of its representations and warranties untrue, taking into account the material adverse effect standard set forth in the merger agreement;
fail to materially follow its existing policies or practices with respect to managing exposure to interest rate and other risk, or fail to use commercially reasonable means to avoid any material increase in its aggregate exposure to interest rate risk;
enter into any new line of business or change its lending, investment, underwriting, risk and asset liability management and other banking and operating policies that are material to it and its subsidiaries, taken as a whole;
(i) make, renew, restructure or otherwise modify any loans other than loans made or acquiredthat would result in the ordinary courseaggregate amount of business consistent with past practicethe total lending relationship to any one borrower and that have (A)its affiliates to exceed $8,000,000 or, if the total lending relationship to any one borrower and its affiliates is in excess of $8,000,000 as of the casedate of unsecured loans, a principal balance of $250,000the merger agreement, to make, renew, restructure or less or (B) in the case of secured loans, a principal balance of $1.5 million or less,otherwise modify any loan for such borrower and its affiliates; (ii) except in the ordinary course of its business, take any action that would result in any discretionary release of collateral or guarantees or otherwise restructure the amounts set forth in the preceding clauseof any loans; or (iii) enter into any loan securitizationmake, renew, restructure or create any special purpose funding entity;
make any material changes to its policies and practices with respect to underwriting, pricing, originating, acquiring, selling, servicing or buying or selling rights to service loans, or to its hedging practices and policies, in each case except as required by a regulatory agency;
acquire any loan participation exceeding $8,000,000; (iv) make, renew, restructure or otherwise modify any loan that exceeds its internal lending limits such that the loan would require approval by its loan committee, credit policy committee or similar committee; or (v) enter into any loan securitization or create any special purpose funding entity; |
(i) enter into modify, materially amend, terminate, cancel or extend any material agreement, or expressly waive any material benefits thereunder other than in the ordinary course of business consistent with past practicelease or for the termination of a material agreement upon the expiration of its term;license relating to real property, personal property, data security or cybersecurity, data processing, electronic banking, mobile banking or bankcard functions; (ii) purchase or otherwise acquire any investment securities or enter into any derivative contract other than as provided in VCB’sits’ currently existing investment policies and in accordance with prudent investment policies in the ordinary course of business consistent with past practice;business; or (iii) make any capital expenditures in the aggregate in excess of $100,000$500,000 and other than expenditures necessary to maintain existing assets in good repair in the ordinary course of business consistent with past practice;repair;
materially restructure or materially change its investment securities or derivatives portfolio or its interest rate exposure, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported or purchase any investment security rated below investment grade, in all cases except as provided in VCB’s currently existing investment policies and in accordance in the ordinary course of business consistent with past practice;
settle any material claim, suit, action or proceeding, except as previously disclosed to Blue Ridge or in the ordinary course of business consistent with past practice involving a settlement in an amount and for consideration not in excess of $50,000$200,000 and that would not impose any material restriction on the business of it or its subsidiaries or Blue Ridge after the merger;
take any other action that would make any representation or warranty in the merger agreement untrue; or
agree to take any of the actions prohibited by the preceding bullet points.
Blue Ridge has also agreed that, with certain exceptions, it will not, and will not permit anyto assume, as of its subsidiaries to, without the prior written consenteffective time of VCB:
amend any articles of incorporation, bylaws or other similar governing instruments;
except for issuances or grants with respect to not more than 25,000 shares of Blue Ridge common stock in the ordinary course of business consistent with past practice, (i) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of capital stock or any rights with respect thereto, (ii) enter into any agreement with respect to the foregoing or (iii) issue or grant any stock options, restricted stock, stock appreciation rights, restricted stock units or similar stock-based rights;
incur any material obligation, indebtedness or liability, make any pledge or encumber or dispose of any of its material assets, except in the ordinary course of its business and substantially on arm’s length terms;
other than customary quarterly dividends in the ordinary course of business consistent with past practice and dividends from Blue Ridge’s wholly-owned subsidiaries to it or another of its wholly-owned subsidiaries, make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on any shares of its capital stock or directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock;
make any material investment or acquisition that reduces its regulatory capital such that it would likely result in the regulatory approvals not being obtained or reduces its funds such that it would no longer have all funds necessary to consummate the merger, the due and pay thepunctual payment of Bay Banks’ outstanding $7.0 million aggregate principal amount of cash consideration, except with respect to Blue Ridge’s investment portfolio or by way6.50% Subordinated Note Due May 28, 2025 and its outstanding $25.0 million aggregate principal amount of foreclosures or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business;5.625% Fixed-to-Floating Rate Subordinated Note Due 2029.
implement or adopt any change in its tax or financial accounting principles, practices or methods, including reserving methodologies, other than as may be required by GAAP, regulatory accounting guidelines or applicable law, or as recommended by Blue Ridge’s outside auditor;
make, change or revoke any material tax election, change an annual tax accounting period, adopt or change any material tax accounting method, file any amended material tax return, enter into any closing agreement with respect to taxes, or settle any tax claim, audit, assessment or dispute or surrender any right to claim a refund of material taxes;
enter into any new line of business that Blue Ridge estimates will impact its consolidated annual net income by more than 20%;
fail to materially follow its existing policies or practices with respect to managing exposure to interest rate and other risk, or fail to use commercially reasonable means to avoid any material increase in its aggregate exposure to interest rate risk.
make any material changes to its policies and practices with respect to underwriting, pricing, originating, acquiring, selling, servicing or buying or selling rights to service loans, or to its hedging practices and policies;
materially restructure or materially change its investment securities or derivatives portfolio or its interest rate exposure, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported or purchase any investment security rated below investment grade, in all cases except as provided in Blue Ridge’s currently existing investment policies and in accordance in the ordinary course of business consistent with past practice; or
agree to take any of the actions prohibited by the preceding bullet points.
Blue Ridge and VCBBay Banks have each agreed to call a special meeting of shareholders, as soon as reasonably practicable, after the registration statement of which this joint proxy statement/prospectus forms a part is declared effective, for the purpose of obtaining the required shareholder votes on the proposals described in this joint proxy statement/prospectus, and have each agreed to use their reasonable best efforts to hold the meetings on the same date. In addition, Blue Ridge and VCBBay Banks have each agreed to use their reasonable best efforts to obtain from their shareholders the required shareholder votes in favor of the Blue Ridge merger proposal or VCBBay Banks merger proposal, respectively, and include the appropriate approval recommendations of each of their boards of directors in this joint proxy statement/prospectus, unless there has been an “intervening event” (as described in the merger agreement and described below) or, with respect to VCB it has received an acquisition proposal from a third party that qualifies as a “superior proposal” as described and under the circumstances set forth in the next section (“—–Agreement Not to Solicit Other Offers”).
For purposes of the merger agreement, an “intervening event” means, with respect to Blue Ridge or VCB, a material event or circumstance that was not known to its respective board of directors prior to the execution of the merger agreement (or if known, the consequences of which were not known), which event or circumstance, or any material consequence thereof, becomes known to the respective board of directors prior to the receipt of shareholder approval. The following events, either alone or in combination, will not be deemed to constitute an intervening event: (1) with respect to VCB, the receipt, existence or terms of an acquisition proposal or any matter relating thereto or consequence thereof, (2) developments or changes after the date of the merger agreement in the banking industry; (3) any change in and of itself, in the price, or change in trading volume, of VCB common stock or Blue Ridge common stock, but not including any underlying causes thereof; or (4) the fact in and of itself that VCB or Blue Ridge meets or exceeds (or fails to meet or exceed) internal or published estimates, projections, forecasts or predictions for any period. In addition, Blue Ridge or VCB may not take any actions in connection with an intervening event pursuant to the merger agreement unless it gives the other party at least five business days’ prior written notice of its intention to take such action and a reasonable description of the event or circumstances giving rise to its determination to take such action, and at the end of such notice period, its board of directors takes into account any amendment or modification to the merger agreement proposed by the other party and, after consultation with outside counsel, determines in good faith that it would nevertheless be more likely than not to result in a violation of its fiduciary duties under applicable law to continue to recommend that shareholders approve the respective merger proposal.
Agreement Not to Solicit Other Offers
VCB hasBlue Ridge and Bay Banks have each agreed that, while the merger agreement is in effect, it will not directly or indirectly:
initiate, solicit, endorse or knowingly encourage or knowingly facilitate any inquiries, proposals or offers with respect to or any inquiry, proposal or offer that is reasonably likely to lead to, an “acquisition proposal” (as defined in the merger agreement and described below); or
furnish any confidential or nonpublic information relating to an acquisition proposal; or
engage or participate in any negotiations or discussions concerning an acquisition proposal.proposal
For purposes of the merger agreement, an “acquisition proposal” means, other than transactions contemplated by the merger agreement, any offer, proposal or inquiry relating to, or any third party indication of interest in, any of the following transactions involving VCBBlue Ridge, Bay Banks or Virginia Community Bank:their respective subsidiaries:
a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction;transaction involving a party or its subsidiaries whose assets, individually or in the aggregate, constitute more than 10% of the consolidated assets of the party;
any acquisition or purchase, direct or indirect, ofof: (x) 10% or more of the consolidated assets of VCBa party and its subsidiaries or (y) 10% or more of any class of equity or voting securities of VCBa party or its subsidiaries whose assets, individually or in the aggregate, constitute more than 10% or more of the consolidated assets of VCB;the party; or
any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in a third party beneficially owning 10% or more of any class of equity or voting securities of VCBa party or its subsidiaries whose assets, individually or in the aggregate, constitute more than 10% or more of the consolidated assets of VCB.the party.
Under the merger agreement, however, if VCBa party receives an unsolicited, bona fide written acquisition proposal, VCBthe party may engage in negotiations or discussions with or provide nonpublic information to the person or entity making the acquisition proposal if:
the VCB Boardapplicable board of directors receives the proposal prior to the VCBapplicable special meeting;
the VCB Boardapplicable board of directors concludes in good faith, after consultation with outside legal counsel, that the failure to take such actions would be morereasonably likely than not to result in a violation of its fiduciary duties to its shareholders under applicable law;
the VCB Boardapplicable board of directors also concludes in good faith, after consultation with outside legal counsel and financial advisors, that the acquisition proposal constitutes or is reasonably likely to lead to a “superior proposal” (as defined in the merger agreement and described below); and
VCBthe applicable party receives from the person or entity making the proposal an executed confidentiality agreement, which confidentiality agreement does not provide such person or entity with any exclusive right to negotiate with VCB.the applicable party and will contain terms no less restrictive than the terms of the confidentiality agreement between Blue Ridge and Bay Banks.
VCBEach party has agreed to advise Blue Ridgethe other party within 24 hours following receipt of any acquisition proposal, including a description of the material terms and conditions of the proposal (including the identity of the proposing party), and to keep Blue Ridgethe other party apprised of any related developments, discussions and negotiations on a reasonably current basis.
For purposes of the merger agreement, a “superior proposal” means an unsolicited, bona fide written acquisition proposal made by a person or entity that the VCB Boardapplicable board of directors concludes in good faith, after consultation with its outside financial and outside legal advisors, taking into account all legal, financial, regulatory, timing and other aspects of the acquisition proposal, including the likelihood of obtaining financing and of receiving all required regulatory approvals, is:
and including the terms and conditions of the merger agreement (as it may be proposed in writing to be amended by the applicable party) would, if consummated, result in a transaction that is more favorable to the shareholders of VCB,the applicable party, from a financial point of view, than the transaction contemplated by the merger agreement; andagreement as it may be proposed to be amended.
reasonably capable of being completed in accordance with its terms.
For the purposes of the definition of “superior proposal,” the term “acquisition proposal” has the same meaning as described above, except the reference to “10% or more” is changed to be a reference to “a majority”“50% or more” and an “acquisition proposal” can only refer to a transaction involving VCBBlue Ridge, Bay Banks or Virginia Community Bank.one of their banking subsidiaries.
In general, whether or not the merger is completed, Blue Ridge and VCBBay Banks will each pay its respective expenses incident to preparing, entering into and carrying out the terms of the merger agreement. The parties will share the costs of printing this joint proxy statement/prospectus, and Blue Ridge will pay all filing fees to the SEC and other governmental authorities. Further, VCBBay Banks and Blue Ridge have agreed to pay a fee to the other if the merger agreement is terminated under certain circumstances. See “The Merger Agreement – “–Termination of the Merger Agreement” beginning on page [●].116.
Blue Ridge has agreed to indemnify the officers and directorsadvance expenses to any person who has rights to indemnification or advancement of VCBexpenses from Bay Banks or any of its subsidiaries against certain liabilities arising before the effective time of the merger. Blue Ridge also has agreed for a period of five years after the effective time of the merger, to maintain in effect VCB’s existing directors’ and officers’ liability insurance policy or purchase a substitutesix-year “tail” insurance policy providing for terms and conditions no less favorable than VCB’sBay Banks’ existing insurance, for the current directors and officers of VCB,Bay Banks, subject to a cap on the cost of such policy equal to 300% of the current amount expended by VCB.Bay Banks.
Conditions to Complete the Merger
The respective obligations of Blue Ridge and VCBBay Banks to complete the merger are subject to the fulfillment or waiver of certain conditions, including the following:
approval of the Blue Ridge merger proposal and the VCBBay Banks merger proposal by shareholders of Blue Ridge and VCB,Bay Banks, respectively;
approval of the merger by the necessary federal and state regulatory authorities;
Blue Ridge’s registration statement on FormS-4, of which this joint proxy statement/prospectus is a part, is declared effective by the SEC under the Securities Act and continues to remain effective;
the absence of any order, decree or injunction of a court or regulatory agency that enjoins or prohibits the completion of the merger;
approval for listing on the NYSE American market of the shares of Blue Ridge common stock to be issued to Bay Banks shareholders following the effective time of the merger;
the accuracy of the other party’s representations and warranties in the merger agreement, subject to the material adverse effect standard in the merger agreement;
the other party’s performance in all material respects of its obligations under the merger agreement;
the receipt by Blue Ridge from Williams Mullen,Troutman Pepper, Blue Ridge’s outside legal counsel, and the receipt by VCBBay Banks from Hunton Andrews Kurth LLP, VCB’sWilliams Mullen, Bay Banks’ outside legal counsel, of written legal opinions to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code; and
no material adverse effect with respect to the other party shall have occurred.
In addition, Blue Ridge’s obligation to complete the merger is subject to the following conditions: (i) the aggregate number of VCB shares held by VCB shareholders who perfect their appraisal rights under the VSCA shall not represent 10% or more of the outstanding shares of VCB common stock and (ii) VCB having minimum tangible equity (as defined in the merger agreement) of at least $23.5 million as of the last date of the month ended prior to the completion of the merger. As of June 30, 2019, VCB had tangible equity (measured as defined in the merger agreement) of $25.8 million.
Where the merger agreement and/or law permits, Blue Ridge and VCBBay Banks could choose to waive a condition to its obligation to complete the merger even if that condition has not been satisfied. Any determination whether to waive any condition to the merger or whether to amend this joint proxy statement/prospectus and resolicit shareholder approval as a result of any such waiver (for example, in the case of a waiver of a material condition such that disclosure previously provided would be materially misleading) will be made by Blue Ridge or VCB,Bay Banks, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.
We cannot be certain when, or if, the conditions to the merger will be satisfied or waived or that the merger will be completed.
Termination of the Merger Agreement
In the event of termination, the merger agreement will become null and void, except that certain provisions thereof relating to fees and expenses (including the obligation to pay the termination fee described below in certain circumstances) and confidentiality of information exchanged between the parties will survive any such termination.
Termination by Blue Ridge and VCBBay Banks. The merger agreement may be terminated and the merger abandoned by Blue Ridge and VCB,Bay Banks, at any time before the merger is completed, by mutual consent of the parties.
Termination by Blue Ridge or VCBBay Banks. The merger agreement may be terminated and the merger abandoned, by either party’s board of directors if:
the merger has not been completed by March 1, 2020,July 31, 2021, or such later date as agreed to by the parties in writing, unless the failure to complete the merger by such time was primarily caused by or the result of a breach or failure to perform an obligation under the merger agreement by the terminating party;
approval of the merger by any necessary federal or state regulatory authority has been denied by such regulatory authority and the denial has become final and nonappealable or regulatory authority of competent jurisdiction has issued a final, nonappealable injunction permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by the merger agreement unless the denial of such regulatory approval is due to, or materially contributed to by, the failure of the terminating party to perform or observe the covenants or agreements of such party set forth in the merger agreement;
there is a breach by the other party of any representation, warranty, covenant or agreement contained in the merger agreement that would cause the failure of the closing conditions described above, and the breach cannot be or is not cured within 30 days following written notice to the breaching party; or
the VCB shareholders do not approve the VCB merger proposal or the Blue Ridge shareholders do not approve the Blue Ridge merger proposal or the Bay Banks shareholders do not approve the Bay Banks merger proposal.
In addition, either Blue Ridge or Bay Banks may terminate the merger agreement at any time prior to its special meeting to change, modify or withdraw its recommendation to the Blue Ridge or Bay Banks shareholders, as applicable, that they approve the merger agreement and enter into an agreement with respect to a superior proposal, as defined in the merger agreement and described above, which has been received and considered by the applicable board of directors in compliance with the applicable terms of the merger agreement, provided that (i) the terminating party has notified non-terminating party, at least four business days in advance, that it intends to terminate the merger agreement in order to accept such superior proposal, (ii) during such four-day period, the terminating party will negotiate in good faith, to the extent the non-terminating party so desires, to amend the terms and conditions of the merger agreement so that the acquisition proposal ceases to be a superior proposal, (iii) at the end of such four-day period, the terminating party’s board of directors has determined in good faith (after consultation with its outside legal counsel and financial advisor), and after considering the changes, if any, proposed by the non-terminating party to the terms and conditions of the merger agreement, that such acquisition proposal continues to constitute a superior proposal, and (iv) in the event of any material change to the material terms of such superior proposal, the terminating party in each case will provide the non-terminating party with an additional notice and two business day notice period. See “–Termination Fees” beginning on page 117.
Termination by Blue Ridge. Blue Ridge may terminate the merger agreement at any time before the VCBBay Banks special meeting if:
the VCBBay Banks Board (i) fails to recommend to the VCBBay Banks shareholders that they approve the VCBBay Banks merger proposal, or (ii) withdraws, modifies or changes its recommendation in any manner adverse to Blue Ridge;Ridge, or (iii) approves, adopts, endorses or recommends any acquisition proposal; or
VCBBay Banks fails to comply in all material respects with its obligations under the merger agreement requiring the calling and holding of a meeting of shareholders to consider the VCBBay Banks merger proposal or its obligations regarding thenon-solicitation of other competing offers.
In addition, Blue Ridge may terminate the merger agreement if (i) VCB or Virginia Community Bank, without Blue Ridge’s prior written consent, enters into an agreement with any person to acquire, merge or consolidate with VCB or Virginia Community Bank, purchase, lease or otherwise acquire all or substantially all of the assets of VCB or Virginia Community Bank, or purchase or otherwise acquire directly from VCB securities representing 10% or more of the voting power of VCB, or (ii) a tender offer or exchange offer for 10% or more of the outstanding shares of VCB common stock is commenced (other than by Blue Ridge or any of its subsidiaries), and the VCB Board recommends that the shareholders of VCB tender their shares in such tender or exchange offer or otherwise fails to recommend that such shareholders reject such offer.
Termination by VCBBay Banks. VCBBay Banks may terminate the merger agreement at any time before the Blue Ridge special meeting if:
the Blue Ridge Board (i) fails to recommend to the Blue Ridge shareholders that they approve the Blue Ridge merger proposal, or (ii) withdraws, modifies or changes its recommendation in any manner adverse to VCB;Bay Banks, (iii) approves, adopts, endorses or recommends any acquisition proposal; or
Blue Ridge fails to comply in all material respects with its obligations under the merger agreement requiring the calling and holding of a meeting of shareholders to consider the Blue Ridge merger proposal.proposal or its obligations regarding the non-solicitation of other competing offers.
In addition, VCB may terminateTermination Fees
If either Blue Ridge or Bay Banks takes any of the following actions and the merger agreement at any time prioris terminated on that basis, that party (the “fee paying party”) will immediately owe the other party (the “fee receiving party”) a $4.0 million termination fee:
the fee paying party (i) fails to the VCB special meetingrecommend to change, modify or withdraw its recommendation to the VCB shareholders that they approve the applicable merger proposal, (ii) withdraws, modifies or changes its recommendation in any manner adverse to the fee receiving party, (iii) approves, adopts, endorses or recommends any acquisition proposal;
the fee paying party fails to comply in all material respects with its obligations under the merger agreement requiring the calling and holding of a meeting of shareholders to consider the applicable merger proposal or its obligations regarding the non-solicitation of other competing offers; or
the fee paying party determines prior to its special meeting to enter into an agreement with respect to a superior proposal, as defined in the merger agreement and described above, which has been received and considered by VCBthe applicable board of directors in compliance with the applicable terms of the merger agreement, provided that (i) VCB has notified Blue Ridge, at least four business days in advance, that it intends to terminate the merger agreement in order to accept such superior proposal, (ii) during suchfour-day period, VCB will negotiate in good faith, to the extent Blue Ridge so desires, to amend the terms and conditions of the merger agreement so that the acquisition proposal ceases to beagreement.
In addition, a superior proposal, (iii) at the end of suchfour-day period, the VCB Board has determined in good faith (after consultation with its outside legal counsel and financial advisor), and after considering the changes, if any, proposed by Blue Ridge to the terms and conditions of the merger agreement, that such acquisition proposal continues to constitute a superior proposal, and (iv) in the event of any material change to the material terms of such superior proposal, VCB in each case will provide Blue Ridge with an additional notice and two business day notice period.
In the event of termination, the merger agreement will become null and void, except that certain provisions thereof relating to fees and expenses (including the obligation to pay the termination fee described below in certain circumstances) and confidentiality of information exchanged between the parties will survive any such termination.
Termination Fee Paid to Blue Ridge. The merger agreement provides that VCB must pay Blue Ridge a $1.5$4.0 million termination fee (inclusive of Blue Ridge’s fees and expenses)is payable in certain other circumstances if (i) the merger agreement is terminated by Blue Ridge underfor specified reasons and (ii) within 12 months of such termination one of the following circumstances:
the VCB Board (i) fails to recommend to the VCB shareholders that they approve the VCB merger proposal, or (ii) withdraws, modifies or changes its recommendation in any manner adverse to Blue Ridge;
VCB fails to comply in all material respects with its obligations in the merger agreement requiring the calling and holding of a meeting of shareholders to consider the VCB merger proposal or its obligations regarding thenon-solicitation of other competing offers; or
VCB or Virginia Community Bankparties (the “fee paying party”) enters into ana definitive agreement with any person other than Blue Ridge, withoutrespect to an acquisition proposal. Specifically, the prior written consent of Blue Ridge, to acquire, merge or consolidate with VCB or Virginia Community Bank, purchase, lease or otherwise acquire all or substantially all of the assets of VCB or Virginia Community Bank or purchase or otherwise acquire directly from VCB securities representing 10% or more of the voting power of VCB, or if a tender offer or exchange offer for 10% or more of the outstanding shares of VCB common stock is commenced (other than by Blue Ridge or any of its subsidiaries), and the VCB Board recommends that the shareholders of VCB tender their shares in such tender or exchange offer or otherwise fails to recommend that such shareholders reject such offer.
In addition, VCBfee paying party will be subjectobligated to pay the sameother party (the “fee receiving party”) the termination fee if the merger agreement is terminated by Blue Ridge or VCB under the following circumstances:if:
an acquisition proposal or intent to make an acquisition proposal with respect to VCBthe fee paying party is publicly announcedcommunicated to or otherwise communicated or made known to the shareholders, senior management or board of directors of VCB, andthe fee paying party, or publicly announced;
thereafter, the merger agreement is terminated by Blue Ridge if VCB is in breach of any representation, warranty, covenant or agreement contained in the merger agreement that would cause the failure of the closing conditions described above;terminated:
an acquisition proposal or intent to make an acquisition proposal with respect to VCB is publicly announced or otherwise communicated or made known to the shareholders, and the merger agreement is terminated (i) by Blue Ridge or VCBeither party because the merger has not been completed by March 1, 2020July 31, 2021 and the fee paying party has not obtained shareholder approval of the merger by that date;
by the fee receiving party due to breaches of representations, warranties or (ii)covenants by Blue Ridgethe fee paying party; or VCB
by either party if the VCBfee paying party’s shareholders did not approvehave voted against approving the VCB merger proposal;merger; and
in either case above, before the date that iswithin 12 months after the date of termination of the merger agreement, termination date, VCBthe fee paying party enters into ana definitive agreement or completes a transaction with respect to anany acquisition proposal (whether or not the same acquisition proposal as that referred to above, but in any case the term “acquisition proposal” means the same as described above, except the references to “10% or more” are changed to references to “25% or more”).
Furthermore, VCB must pay Blue Ridge the termination fee in order to enter into an agreement with respect to a superior proposal in compliance with the terms of the merger agreement.
Termination Fee Paid to VCB. The merger agreement provides that Blue Ridge must pay VCB a termination fee of $500,000 and reimburse VCB for up to $500,000 of reasonable expenses incurred by VCB in connection with the merger if the merger agreement is terminated by VCB under the following circumstances:
the Blue Ridge Board (i) fails to recommendwas originally communicated to the Blue Ridge shareholders that they approve the Blue Ridge merger proposal,fee paying party or (ii) withdraws, modifies or changes its recommendation in any manner adverse to VCB; ormade public).
Blue Ridge fails to comply in all material respects with its obligations in the merger agreement requiring the calling and holding of a meeting of shareholders to consider the Blue Ridge merger proposal.
Any termination fee that becomes payable pursuant to the merger agreement will be paid by wire transfer of immediately available funds to an account designated by Blue Ridge. If VCB fails to timely pay the termination fee to Blue Ridge, VCB also will be obligated to pay the costs and expenses incurred by Blue Ridge to collect such payment, together with interest.
Amendment and Waiver of the Merger Agreement
Any term or provision of the merger agreement may be waived in writing at any time by the party that is, or whose shareholders are, entitled to the benefits thereof, and the merger agreement may be amended or supplemented by a written instrument duly executed by the parties hereto at any time, whether before or after the date of the VCBBay Banks special meeting or the Blue Ridge special meeting, except with respect to statutory requirements and requisite approvals of shareholders and regulatory agencies.
Affiliate and Director Noncompetition Agreements
Affiliate Agreements. The directors of Blue Ridge and VCBBay Banks have entered into affiliate agreements pursuant to which they have agreed to vote all of their shares in favor of the Blue Ridge merger proposal and VCBBay Banks merger proposal, respectively, subject to several conditions and exceptions.
The affiliate agreements prohibit, subject to limited exceptions, the directors of Blue Ridge and VCBBay Banks from selling, transferring, pledging, encumbering or otherwise disposing of any shares of Blue Ridge and VCBBay Banks stock, respectively. The affiliate agreements terminate upon the earlier to occur of the completion of the merger or the termination of the merger agreement in accordance with its terms.
Noncompetition Agreements. Each of the VCBBay Banks directors who will become a member of the Blue Ridge Board, the Blue Ridge Bank board of directors or an advisory board of Blue Ridge Bank is expected to enter into a noncompetition agreement with Blue Ridge prior to the effective time of the merger. The agreements state that for the longer of 24 months following the effective time of the merger or the period that the director is serving as a member of the Blue Ridge Board, the Blue Ridge Bank board of
directors or an advisory board of Blue Ridge Bank described above, the director will not (i) become a member of the board of directors or an advisory board of, or be an organizer of, or be a 5% or more shareholder of, any entity engaging in a business that is competitive with Blue Ridge in its market area or (ii) in any individual or representative capacity whatsoever, knowingly induce any individual to terminate his or her employment with Blue Ridge or its affiliates.
The following provides additional information regarding Blue Ridge and should be read in conjunction with Blue Ridge’s financial statements and the notes thereto beginning on pageF-1 and the other information related to Blue Ridge included elsewhere herein.
General Description of Blue Ridge’s Business
Blue Ridge is a bank holding company headquartered in Luray,Charlottesville, Virginia. It provides commercial and consumer banking and financial services through its wholly-owned bank subsidiary, Blue Ridge Bank, National Association, (for the purposes of this section only, the “bank”), and itsnon-bank financial financial services affiliates. Blue Ridge was incorporated under the laws of the Commonwealth of Virginia in July 1988 in connection with the holding company reorganization of Blue Ridge Bank, which was completed in July 1988.
Blue Ridge Bank is a federally chartered national bank headquartered in Martinsville, Virginia that traces its roots to Page Valley Bank of Virginia, which opened for business in 1893. The bankBlue Ridge Bank currently operates ninefourteen full-service banking offices in central Virginia and one in north-central North Carolina.
As of JuneSeptember 30, 2019,2020, Blue Ridge had total consolidated assets of approximately $721.8 million,$1.5 billion, total consolidated loans of approximately $514.2 million,$1.23 billion, total consolidated deposits of approximately $499.0$915.3 million and consolidated shareholders’ equity of approximately $64.1$99.9 million.
Blue Ridge Bank serves businesses, professionals and consumers with a wide variety of financial services, including retail and commercial banking, investment services, mortgage banking and payroll processing. Products include checking accounts, savings accounts, money market accounts, cash management accounts, certificates of deposit, individual retirement accounts, commercial and industrial loans, residential mortgages, commercial mortgages, home equity loans, consumer installment loans, investment accounts, insurance, credit cards, online banking, telephone banking and mobile banking. Deposits of the bankBlue Ridge Bank are insured by the Deposit Insurance Fund (the “DIF”) of the FDIC.
The bank’sBlue Ridge Bank’s primary source of revenue is interest income from its lending activities. The bank’sBlue Ridge Bank’s other major sources of revenue are interest and dividend income from investments, interest income from its interest-earning deposit balances in other depository institutions, mortgage banking income, transactions and fee income from its lending and deposit activities, and income associated with payroll processing services. The bank’sBlue Ridge Bank’s major expenses are interest on deposits and general and administrative expenses such as employee compensation and benefits, federal deposit insurance premiums, data processing expenses and office occupancy expenses.
As a Virginia-chartered bank holding company incorporated under the laws of the Commonwealth of Virginia, Blue Ridge is subject to regulation by the Federal Reserve and the Bureau of Financial Institutions of the Virginia SCC.State Corporation Commission (the “Virginia SCC”). Blue Ridge Bank’s primary regulator is the OCC.
On May 28, 2020, Blue Ridge entered into a Subordinated Note Purchase Agreement under which Blue Ridge issued a subordinated note with a principal amount of $15,000,000 (the “2020 Note”). The 2020 Note has a maturity date of June 1, 2030. The 2020 Note bears interest, payable on the 1st of June and December of each year, commencing December 1, 2020, at a fixed rate of 6.00% per year for the first five years, and thereafter will bear a floating interest rate of SOFR plus 587 basis points. The 2020 Note is not convertible into common stock or preferred stock and is not callable by the holder. The Company has the right to redeem the 2020 Note, in whole or in part, without premium or penalty, at any interest payment date on or after June 1, 2025 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 Blue Ridge,
the holder of the 2020 Note may declare the principal amount of the 2020 Note to be due and immediately payable. The 2020 Note is an unsecured, subordinated obligation of Blue Ridge and will rank junior in right of payment to Blue Ridge’s existing and future senior indebtedness. The 2020 Note qualifies as Tier 2 capital for regulatory reporting.
On December 31, 2019, Blue Ridge, through Blue Ridge Bank, acquired LenderSelect Mortgage Group (“LenderSelect”) based in Richmond, Virginia for an aggregate purchase price of $720,489. The purchase price was allocated to an amortizing intangible asset. LenderSelect offers wholesale and third party residential mortgage origination services to other financial institutions and credit unions.
On May 13, 2019, Blue Ridge and Virginia Community Bankshares, Inc., based in Louisa, Virginia, entered into a definitive agreement pursuant to which VCB agreed to merge into Blue Ridge, with Blue Ridge as the survivor in the merger. Blue Ridge completed its acquisition of VCB on December 15, 2019. Also on December 15, 2019, VCB’s Virginia chartered subsidiary bank, Virginia Community Bank, merged with and into Blue Ridge Bank. Blue Ridge acquired total assets of approximately $242.5 million and assumed total liabilities of approximately $219.2 million in the acquisition. Pursuant to the terms of the agreement, each share of VCB common stock was converted into the right to receive either $58.00 in cash or 3.05 shares of Blue Ridge’s common stock at the election of each VCB shareholder. The agreement contained allocation and proration procedures ensuring that 60% of VCB’s outstanding shares were converted into Blue Ridge’s common stock and 40% of VCB’s outstanding shares were converted into cash. In the merger, Blue Ridge issued 1,312,919 shares of its common stock and made cash payments to VCB shareholders that totaled $16,646,540 in the aggregate.
On February 1, 2019, Blue Ridge, through Blue Ridge Bank, acquired a 35% ownership interest in Hammond Insurance Agency, Incorporated for an aggregate purchase price of $1,018,500. The purchase price was allocated to goodwill in the amount of $612,500 and an amortizing intangible asset of $406,000.
On October 4, 2017, Blue Ridge, through Blue Ridge Bank, acquired an 80% ownership interest in MoneyWise Payroll Solutions (“MoneyWise), a payroll management services company located in Charlottesville, Virginia, for an aggregate price of $800,000. The purchase price was allocated to an amortizing intangible asset.
On March 30, 2016, Blue Ridge and River Bancorp, Inc. (“River”), based in Martinsville, Virginia, entered into a definitive agreement pursuant to which River mergedagreed to merge into Blue Ridge, with Blue Ridge as the surviving company.survivor in the merger. Blue Ridge completed its acquisition of River on October 20, 2016. Blue Ridge acquired total assets of approximately $114.0 million and assumed total liabilities of approximately $103.0 million in the acquisition. Pursuant to the terms of the agreement, each share of River common stock was converted into the right to receive either $16.57 in cash or 0.8143 shares of Blue RidgeRidge’s common stock at the election of each River shareholders.shareholder. The agreement contained allocation and proration procedures ensuring that 70% of River’s outstanding shares were converted into Blue RidgeRidge’s common stock and 30% of River’s outstanding shares were converted into cash. In the merger, Blue Ridge issued 423,246 shares of its common stock and made cash payments to River shareholders that totaled $3,692,772 in the aggregate. On December 9, 2016, Blue Ridge’s Virginia chartered subsidiary bank merged with and into River’s national bank subsidiary and the surviving bank was renamed Blue Ridge Bank, National Association.
On November 20, 2015, Blue Ridge entered into a Subordinated Note Purchase Agreement under which it issued an aggregate of $10.0 million offixed-to-floating rate rate subordinated notes (the “Notes”) to certain accredited investors. The Notes have a maturity date of December 1, 2025 and bear interest at the rate of 6.75% per year until December 1, 2020, at which date the rate will reset quarterly, equal to LIBORthe London Interbank Offered Rate (“LIBOR”) determined on the determination date of the applicable interest period plus 512.8 basis points. Interest on the Notes is payable semi-annually on December 1 and June 1 of each year through December 1, 2020 and quarterly thereafter on March 1, June 1, September 1 and December 1 of each year through the maturity date or early redemption date. The Notes are not convertible into common stock or preferred stock, and are not callable by the holders. Blue Ridge 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 Blue Ridge, 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 Blue Ridge and rank junior in right of payment to Blue Ridge’s existing and future senior indebtedness. The Notes qualify as Tier 2 capital for regulatory reporting.
In December 2015, with the proceeds from the issuance of the Notes, Blue Ridge redeemed all $4.5 million of its outstanding SeniorNon-Cumulative Perpetual Perpetual Preferred Stock, Series A. Such preferred stock was originally issued to the U.S. Department of the Treasury under the Small Business Lending Fund.
The principal executive offices of Blue Ridge are located at 17 West Main Street, Luray,1807 Seminole Trail, Charlottesville, Virginia 22835, and its telephone number is (540)743-6521.
Blue Ridge files annual, quarterly and current reports, proxy statements and other information with the SEC. Blue Ridge’s SEC filings are filed electronically and are available to the public over the Internet at the SEC’s website at http://www.sec.gov. Blue Ridge’s website can be accessed at https://www.mybrb.com. Blue Ridge makes its SEC filings available through this website under “Investor Relations,” “Financial Documents,” “Documents” as soon as practicable after filing or furnishing the material to the SEC. Copies of documents can also be obtained free of charge by writing Blue Ridge’s Corporate Secretary at 17 West Main Street, Luray, Virginia 22835, or by calling (540) 743-6521. Information contained on Blue Ridge’s website does not constitute part of, and is not incorporated into, this joint proxy statement/prospectus.report or any other filing the Blue Ridge’s common stock is traded onRidge makes with the OTC Markets Group’s Pink marketplace under the symbol “BRBS.”SEC.
Market Area
The bankBlue Ridge Bank currently has branches in Charlottesville, Culpepper, Drakes Branch, Fredericksburg, Gordonsville, Harrisonburg, Louisa, Luray, Martinsville, McGaheysville,Mineral, Orange, Shenandoah, Stuart, and Stuart,Zion Crossroads, Virginia and also does business as Carolina State Bank in Greensboro, North Carolina. Interstates 64 and 81, and major Routes 29 and 33, all pass through the bank’sBlue Ridge Bank’s trade area and provide efficient access to other regions of the stateVirginia, North Carolina and beyond. Blue Ridge’s primary market area covers a significant portion of central Virginia and north-central North Carolina. Additionally, Blue Ridge has mortgage operations in Virginia, Maryland, North Carolina, Delaware and Florida.South Carolina.
Products and Services
Mortgage Loans on Real Estate. Blue Ridge’s mortgage loans on real estate comprise the largest segment of its loan portfolio. The majority of the bank’sBlue Ridge’s real estate loans are mortgages on owner-occupiedone-to-four family residential properties, including both fixed-rate and adjustable-rate structures. Residential mortgages are underwritten and documented within the guidelines of theand regulations of the OCC. Home equity lines of credit are also offered. Construction loans with a12-month term are another component of the bank’sBlue Ridge’s portfolio. Underwritten at 80% loan to value and to qualified builders and individuals, these loans are disbursed as construction progresses and verified by bankBlue Ridge inspection. Blue Ridge also offers commercial loans that are secured by real estate. These loans are also typically written at a maximum of 80% loan to value.
Blue Ridge offers secondary market residential loan origination. Through the bank,Blue Ridge Bank, customers may apply for home mortgages that are underwritten in accordance with the guidelines of either the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association (“Fannie Mae”). These loans are then sold into the secondary market on aloan-by-loan basis, basis, usually directly to Fannie Mae. The bankBlue Ridge Bank earns origination and servicing fees from this service.
Commercial and Industrial Loans. Commercial lending activities of Blue Ridge include small business loans, asset-based loans, and other secured and unsecured loans and lines of credit. Commercial and industrial loans
may entail greater risk than residential mortgage loans, and are therefore underwritten with strict risk management standards. Among the criteria for determining the borrower’s ability to repay is a cash flow analysis of the business and business collateral.
Consumer Loans. As part of its full range of services, Blue Ridge’s consumer lending services include automobile and boat financing,lending, home improvement loans, credit cards and unsecured personal loans. These consumer loans historically entail greater risk than loans secured by real estate, but also generate a higher return.
Consumer Deposit Services. Consumer deposit products offered by Blue Ridge include checking accounts, savings accounts, money market accounts, certificates of deposit, online banking, mobile banking and electronic statements.
Commercial Banking Services. Blue Ridge offers a variety of services to commercial customers. These services include analysis checking, cash management deposit accounts, wire services, direct deposit payroll service, online banking, telephone banking, remote deposit and a full line of commercial lending options. The bankBlue Ridge Bank also offers Small Business AdministrationSBA loan products under the 504 Program whichand the PPP. The 505 Program provides long-term funding for commercial real estate and long-lived equipment. This allows commercial customers to obtain favorable rate loans for the development of business opportunities, while providing the bankBlue Ridge Bank with a partial guarantee of the outstanding loan balance. The PPP, which was authorized under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), provides small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt.
Competition
The financial services industry is highly competitive. Blue Ridge competes for loans, deposits and financial services directly with other bank and nonbank institutions located within its markets, internet-based banks,out-of-market banks banks and bank holding companies that advertise or otherwise serve its markets, along with money market and mutual funds, brokerage houses, mortgage companies, and insurance companies or other commercial entities that offer financial services products. Competition involves efforts to retain current customers and to obtain new loans and deposits, and differentiators include the scope and type of services offered, interest rates paid on deposits and charged on loans, and the customer service experience. Many of Blue Ridge’s competitors enjoy competitive advantages, including greater financial resources, a wider geographic presence, more accessible branch office locations, the ability to offer additional services, more favorable pricing alternatives and lower origination and operating costs. Blue Ridge believes that its competitive pricing, personalized service and community involvement enable it to effectively compete in the communities in which it operates.
Blue Ridge, through its subsidiaries, owns or leases buildings and office space that are used in the normal course of business. The headquarters of Blue Ridge is located at 17 West Main Street, Luray,1807 Seminole Trail, Charlottesville, Virginia 22835, in a building ownedleased by the bank.Bank. The headquarters of the bankBlue Ridge Bank is located at 1 East Market Street, Martinsville, Virginia 24112 in a building leased by the bank.Bank.
Unless otherwise noted, the properties listed below are owned by Blue Ridgethe Company and its subsidiaries as of JuneSeptember 30, 2019.2020.
17 West Main Street, Luray, Virginia 22835
1 East Market Street, Martinsville, Virginia 24112 (leased)
1807 Seminole Trail, Charlottesville, Virginia 22901 (leased)
563 Neff Avenue, Suite B, Harrisonburg, Virginia 22801 (leased)
9972 Spotswood Trail (Route 33), McGaheysville, Virginia 22840 (leased)
600 South Third Street, Shenandoah, Virginia 22849
4677 Main Street, Drakes Branch, Virginia 23937 (leased)
48 Animal Clinic Road, Stuart, Virginia (leased)
3202 Northline Avenue, Greensboro, North Carolina (leased)
408 East Main Street, Louisa, Virginia 23093
10645 Courthouse Road, Fredericksburg, Virginia 22407
701 South Main Street, Culpepper, Virginia 22701
169 North Madison Road, Orange, Virginia 22960
430 Mineral Avenue, Mineral, Virginia 23117
10050 Three Notch Road, Troy, Virginia 22974
104 South Main Street, Gordonsville, Virginia 22942 (leased)
Blue Ridge’s properties are maintained in good operating condition and Blue Ridge believes the properties are suitable and adequate for its operational needs.
Blue Ridge had 173331 full-time and 23 part-time employees as of JuneSeptember 30, 2019.2020. None of its employees isare represented by any collective bargaining unit and Blue Ridge believes that relations with its employees are good.
In the ordinary course of its operations, Blue Ridge expects to beis a party to various legal proceedings. At present,As of the date of this joint proxy/prospectus, there are no pending or threatened proceedings against Blue Ridge, other than as set forth below, that, if determined adversely, would have a material effect on the business, results of operations, or financial position of Blue Ridge.
On August 12, 2019, a former employee of VCB and participant in its employee stock ownership plan (or “ESOP”) filed a class action complaint against VCB, Virginia Community Bank, and certain individuals associated with the ESOP in the U.S. District Court for the Western District of Virginia, Charlottesville Division (Case No. 3:19-cv-00045-GEC). The complaint alleges, among other things, that the defendants breached their fiduciary duties to ESOP participants in violation of the Employee Retirement Income Security Act of 1974, as amended. The complaint alleges that the ESOP incurred damages “that approach or exceed $12 million.” Blue Ridge automatically assumed any liability of VCB in connection with this litigation as a result of Blue Ridge’s acquisition of VCB. Blue Ridge believes the claims are without merit.
Blue Ridge and Blue Ridge Bank are extensively regulated under federal and state law. The following information describes certain aspects of that regulation applicable to Blue Ridge and Blue Ridge Bank and does not purport to be complete. Proposals to change the laws, regulations, and policies governing the banking industry are frequently raised in U.S. Congress, in state legislatures, and before the various bank regulatory agencies. The likelihood and timing of any changes and the impact such changes might have on Blue Ridge and Blue Ridge Bank are impossible to determine with any certainty. A change in applicable laws, regulations or policies, or a change in the way such laws, regulations or policies are interpreted by regulatory agencies or courts, may have a material impact on the business, operations, and earnings of Blue Ridge and Blue Ridge Bank.
Blue Ridge Bankshares, Inc.
Blue Ridge Bankshares, Inc. is qualified as a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and is registered as such with the Federal Reserve. As a bank holding company, Blue Ridge is subject to supervision, regulation and examination by the Federal Reserve and is required to file various reports and additional information with the Federal Reserve. Blue Ridge is also registered under the bank holding company laws of Virginia and is subject to supervision, regulation and examination by the Virginia SCC.
Under the GLB Act, a bank holding company may elect to become a financial holding company and thereby engage in a broader range of financial and other activities than are permissible for traditional bank holding companies. In order to qualify for the election, all of the depository institution subsidiaries of the bank holding company must be well capitalized, well managed, and have achieved a rating of “satisfactory” or better under the Community Reinvestment Act (the “CRA”). Financial holding companies are permitted to engage in activities that are “financial in nature” or incidental or complementary thereto as determined by the Federal Reserve. The GLB Act identifies several activities as “financial in nature,” including insurance underwriting and sales, investment advisory services, merchant banking and underwriting, and dealing or making a market in securities. Blue Ridge has not elected to become a financial holding company and has no immediate plans to become a financial holding company.
Blue Ridge Bank, National Association
Blue Ridge Bank is a federally chartered national bank and is a member of the Federal Reserve System.bank. As a national bank, Blue Ridge Bank is subject to supervision, regulation and examination by the OCC and is required to file various reports and additional information with the OCC. The OCC has primary supervisory and regulatory authority over the operations of Blue Ridge Bank. Because Blue Ridge Bank accepts insured deposits from the public, it is also subject to examination by the FDIC.
Depository institutions, including Blue Ridge Bank, are subject to extensive federal and state regulations that significantly affect their businessbusinesses and activities. Regulatory bodies have broad authority to implement standards and initiate proceedings designed to prohibit depository institutions from engaging in unsafe and unsound banking practices. The standards relate generally to operations and management, asset quality, interest rate exposure, and capital. The bank regulatory agencies are authorized to take action against institutions that fail to meet such standards.
As with other financial institutions, the earnings of Blue Ridge Bank are affected by general economic conditions and by the monetary policies of the Federal Reserve. The Federal Reserve exerts a substantial influence on interest rates and credit conditions, primarily through open market operations in U.S. Government securities, setting the reserve requirements of member banks, and establishing the discount rate on member bank borrowings. The policies of the Federal Reserve have a direct impact on loan and deposit growth and the interest rates charged and paid thereon. They also impact the source, cost of funds, and the rates of return on investments. Changes in the Federal Reserve’s monetary policies have had a significant impact on the operating results of Blue Ridge Bank and other financial institutions and are expected to continue to do so in the future.
The Dodd-Frank Act
On July 21, 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act significantly restructured the financial regulatory regime in the United States and has had a broad impact on the financial services industry as a result of the significant regulatory and compliance changes required under the act. A summary of certain provisions of the Dodd-Frank Act is set forth below:
Increased Capital Standards. The federal banking agencies are required to establish minimum leverage and risk-based capital requirements for banks and bank holding companies. Among other things, the Dodd-Frank Act increased such requirements. See “Capital“—Capital Requirements” below.
Deposit Insurance. The Dodd-Frank Act made permanent the $250,000 deposit insurance limit for insured deposits. Amendments to the FDI Act also revised the assessment base against which an insured depository institution’s deposit insurance premiums paid to the Deposit Insurance Fund (the “DIF”)DIF are calculated. Under the amendments, the assessment base is no longer the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity during the assessment period. Additionally, the Dodd-Frank Act made changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. The Dodd-Frank Act also provides that depository institutions may pay interest on demand deposits.
The Consumer Financial Protection Bureau. The Dodd-Frank Act created the CFPB. The CFPB is charged with establishing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. See “Consumer“—Consumer Financial Protection” below.
Compensation Practices. The Dodd-Frank Act provides that the appropriate federal regulators must establish standards prohibiting as an unsafe and unsound practice any compensation plan of a bank holding company or bank that provides an insider or other employee with “excessive compensation” or that could lead to a material financial loss to such firm. In June 2010, prior to the Dodd-Frank Act, the federal bank regulatory agencies promulgated the Interagency Guidance on Sound Incentive Compensation Policies, which requires that financial institutions establish metrics for measuring the impact of activities to achieve incentive compensation with the related risk to the financial institution of such behavior.
Recent Amendments to the Dodd-Frank Act. The EGRRCPA, which became effective May 24, 2018, amended the Dodd-Frank Act to provide regulatory relief for certain smaller and regional financial institutions.institutions, such as Blue Ridge and Blue Ridge Bank. The EGRRCPA, among other things, provides financial institutions with less than $10 billion in total consolidated assets with relief from certain capital requirements and exempts banks with less than $250 billion in total consolidated assets from the enhanced prudential standards and thecompany-run and and supervisory stress tests required under the Dodd-Frank Act.The Dodd-Frank Act has had, and may in the future have, a material impact on Blue Ridge’s operations, particularly through increased compliance costs resulting from new and possible future consumer and fair lending regulations. The future changes resulting from the Dodd-Frank Act may affect the profitability of business activities, require changes to certain business practices, impose more stringent regulatory requirements or otherwise adversely affect the business and financial condition of Blue Ridge and Blue Ridge Bank. These changes may also require Blue Ridge to invest significant management attention and resources to evaluate and make necessary changes to comply with new statutory and regulatory requirements.
Deposit Insurance
The deposits of Blue Ridge Bank are insured up to applicable limits by the DIF and are subject to deposit insurance assessments to maintain the DIF. On April 1, 2011, the deposit insurance assessment base changed from total deposits to average total assets minus average tangible equity, pursuant to a rule issued by the FDIC as required by the Dodd-Frank Act. Effective
July 1, 2016, the FDIC changed its deposit insurance pricing to a “financial ratios method” based on CAMELS“CAMELS” composite ratings to determine assessment rates for small established institutions with less than $10 billion in assets. The CAMELS rating system is a supervisory rating system designed to take into account and reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk (“CAMELS”). CAMELS composite ratings set a maximum assessment for CAMELS 1 and 2 rated banks, and set minimum assessments for lower rated institutions.
The FDIC’s “reserve ratio” of the DIF to total industry deposits reached its 1.15% target effective June 30, 2016. On March 15, 2016, the FDIC implemented by final rule certain Dodd-Frank Act provisions by raising the DIF’s minimum reserve ratio from 1.15% to 1.35%. The FDIC imposed a 4.5 basis point annual surcharge on insured
depository institutions with total consolidated assets of $10 billion or more. The new rule granted credits to smaller banks for the portion of their regular assessments that contributed to increasing the reserve ratio from 1.15% to 1.35%. The 1.35% target was achieved in the third quarter of 2018. In 20182019 and 2017,2018, Blue Ridge recorded expense of $250,319$420,733 and $192,454,$250,319, respectively, for FDIC insurance premiums.
In addition, all FDIC insured institutions arewere required to pay assessments to the FDIC at an annual rate of approximately one basis point of insured deposits to fund interest payments on bonds issued by the Financing Corporation, an agency of the federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continueFund, until the Financing Corporation bonds maturematured during 2019.
Capital Requirements
The Federal Reserve, the OCC and the FDIC have issued substantially similar capital guidelinesrequirements applicable to all banks and bank holding companies. In addition, those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth.
Effective January 1, 2015, Blue Ridge and Blue Ridge Bank became subject to the rules implementing the Basel III Capital Rules. The Basel III Capital Rules require Blue Ridge and Blue Ridge Bank to comply with the following minimum capital ratios: (i) a ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. Thephase-in of of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The Tier 1 and total capital to risk-weighted asset ratios of Blue Ridge were 11.32%6.59% and 14.27%10.87%, respectively, as of JuneSeptember 30, 2019,2020, thus exceeding the minimum requirements. The common equity Tier 1 capital ratio ofwas 6.59% and 10.87% for Blue Ridge was 11.32% and 11.35% for Blue Ridge Bank was 11.13% as of JuneSeptember 30, 2019.2020. The Tier 1 and total capital to risk-weighted asset ratios of Blue Ridge Bank were 11.13%11.35% and 11.98%12.60%, respectively, as of JuneSeptember 30, 20192020, also exceeding the minimum requirements.
With respect to Blue Ridge Bank, the “prompt corrective action” regulations pursuant to Section 38 of the FDIAFDI Act were also revised, effective as of January 1, 2015, to incorporate a common equity Tier 1 capital ratio and to increase certain other capital ratios. To be well capitalized under the revised regulations, a bank must have the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of at least 6.5%; (ii) a Tier 1 capital to risk-weighted assets ratio of at least 8.0%; (iii) a total capital to risk-weighted assets ratio of at least 10.0%; and (iv) a leverage ratio of at least 5.0%. Blue Ridge Bank exceeded the thresholds to be considered well capitalized as of JuneSeptember 30, 2019.2020.
The Basel III Capital Rules also changed the risk weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight for certain high volatility commercial real estate acquisition, development and construction loans and nonresidential mortgage loans that are 90 days past due or otherwise onnon-accrual status, status, a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancelable, a 250% risk weight for mortgage servicing rights and deferred tax assets that are not deducted from capital, and increased risk-weights for equity exposures.
In December 2017, the Basel Committee on Banking Supervision published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
Among other things, these standards revise the standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the proposed framework, these standards will generally be effective on January 1, 2022, with an aggregate output floorphasing-in through through January 1, 2027. Under the current capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to Blue Ridge. The impact of Basel IV on Blue Ridge and Blue Ridge Bank will depend on the manner in which it is implemented by the federal bank regulatory agencies.
On August 28, 2018, the Federal Reserve issued an interim final rule required by the EGRRCPA that expands the applicability of the Federal Reserve’s SBHC Policy Statement to bank holding companies with total consolidated assets of less than $3 billion (up from the prior $1 billion threshold). Under the SBHC Policy Statement, qualifying bank holding companies have additional flexibility in the amount of debt they can issue and are also exempt from the Basel III Capital Rules (subsidiary depository institutions of qualifying bank holding companies are still subject to capital requirements). Blue Ridge currently has less than $3 billion in total consolidated assets and would likely qualify under the revised SBHC Policy Statement. However, Blue Ridge does not currently intend to issue a material amount of debt or take any other action that would cause its capital ratios to fall below the minimum ratios required by the Basel III Capital Rules.
On November 21, 2018,September 17, 2019, the federal banking agencies jointly issued a proposedfinal rule required by the EGRRCPA that would permitpermits qualifying banks and bank holding companies that have less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio that would be applied using less complex leverage calculations (commonly referred to as the community bank leverage ratio or “CBLR”). Under the proposed rule, which became effective on January 1, 2020, banks and bank holding companies that opt into the CBLR framework and maintain a CBLR of greater than 9% wouldare not be subject to other risk-based and leverage capital requirements under the Basel III Capital Rules and would be deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. The rule isThese CBLR rules were modified in proposed form so the contentresponse to COVID-19. See “— Coronavirus Aid, Relief, and scope of the final rule, and its impact onEconomic Security Act” below. Blue Ridge and Blue Ridge Bank (if any), cannot be determined.is evaluating whether to opt in to the CBLR framework.
Dividends
Blue Ridge’s principal source of cash flow, including cash flow to pay dividends to its shareholders, is dividends it receives from Blue Ridge Bank. Statutory and regulatory limitations apply to Blue Ridge Bank’s payment of dividends to Blue Ridge. As a general rule, the amount of a dividend may not exceed, without prior regulatory approval, the sum of net income in the calendar year to date and the retained net earnings of the immediately preceding two calendar years. A depository institution may not pay any dividend if payment would cause the institution to become “undercapitalized” or if it already is “undercapitalized.” The OCC may prevent the payment of a dividend if it determines that the payment would be an unsafe and unsound banking practice. The OCC also has advised that a national bank should generally pay dividends only out of current operating earnings. In addition, under the current supervisory practices of the Federal Reserve, Blue Ridge should inform and consult with the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to Blue Ridge’s capital structure.
Permitted Activities
As a bank holding company, Blue Ridge is limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include greater convenience, increased competition, and gains in
efficiency. Possible adverse effects include undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.
Banking Acquisitions; Changes in Control
The BHC Act requires, among other things, the prior approval of the Federal Reserve in any case where a bank holding company proposes to (i) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding company. In determining whether to approve a proposed bank acquisition, the Federal Reserve will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s performance under the CRA and its compliance with fair housing and other consumer protection laws.
Subject to certain exceptions, the BHC Act and the Change in Bank Control Act, together with the applicable regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company acquiring “control” of a bank or bank holding company. A conclusive presumption of control exists if an individual or company acquires the power, directly or indirectly, to direct the management or policies of an insured depository institution or to vote 25% or more of any class of voting securities of any insured depository institution. A rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of voting securities of an insured depository institution and either the institution has registered its securities with the SEC under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or no other person will own a greater percentage of that class of voting securities immediately after the acquisition.
In addition, Virginia law requires the prior approval of the Virginia SCC for (i) the acquisition of more than 5% of the voting shares of a Virginia bank or any holding company that controls a Virginia bank, or (ii) the acquisition by a Virginia bank holding company of a bank or its holding company domiciled outside Virginia.
Source of Strength
Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, Blue Ridge is expected to commit resources to support Blue Ridge Bank, including at times when Blue Ridge may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bankBlue Ridge Bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
The Federal Deposit Insurance Corporation Improvement Act
Under FDICIA,the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), the federal bank regulatory agencies possess broad powers to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institution is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” as defined by the law.
Reflecting changes under the new Basel III capital requirements, the relevant capital measures that became effective on January 1, 2015 for prompt corrective action are the total capital ratio, the common equity Tier 1 capital ratio, the Tier 1 capital ratio and the leverage ratio. A bank will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a common equity Tier 1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any capital directive order; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a common equity Tier 1 capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 4.0% or greater and is not “well capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a common equity Tier 1 capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%; (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a common equity Tier 1 capital ratio less than 3.0%, a Tier 1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 3.0%; and (v) “critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes. Management believes, as of JuneSeptember 30, 2019,2020, Blue Ridge met the requirements for being classified as “well capitalized.”
As described above, on November 21, 2018,September 17, 2019, the federal banking agencies jointly issued a proposedfinal rule required by the EGRRCPA that would permitpermits qualifying banks and bank holding companies that have less than $10 billion in consolidated assets to elect to opt into the CBLR framework. Banks optingUnder the rule, which became effective on January 1, 2020, banks and bank holding companies that opt into the CBLR framework and maintainingmaintain a CBLR of greater than 9% would be deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. The rule isThese CBLR rules were modified in proposed form soresponse to the contentCOVID-19 pandemic. See “— Coronavirus Aid, Relief, and scope of the final rule, and its impact onEconomic Security Act” below. Blue Ridge and Blue Ridge Bank (if any), cannot be determined.is evaluating whether to opt in to the CBLR framework.
As required by FDICIA, the federal bank regulatory agencies also have adopted guidelines prescribing safety and soundness standards relating to, among other things, internal controls and information systems, internal audit systems, loan documentation, credit underwriting, and interest rate exposure. In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. In addition, the agencies adopted regulations that authorize, but do not require, an institution whichthat has been notified that it is not in compliance with safety and soundness standard to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the prompt corrective action provisions described above.
Branching
Pursuant to the Dodd-Frank Act, national and state-chartered banks may open an initial branch in a state other than its home state (e.g., a host state) by establishing a de novo branch at any location in such host state at which a bank chartered in such host state could establish a branch. Applications to establish such branches must still be filed with the appropriate primary federal bank regulatory agency and state bank regulatory authorities may require applications or notices.
Transactions with Affiliates
Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of Blue Ridge Bank to engage in transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan transactions with an affiliate generally must be collateralized and certain transactions between Blue Ridge Bank and its affiliates, including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to Blue Ridge Bank, as those prevailing for comparable nonaffiliated transactions. In addition, Blue Ridge Bank generally may not purchase securities issued or underwritten by affiliates.
Loans to executive officers, directors or to any person who directly or indirectly, or acting through or in concert with one or more persons, owns, controls or has the power to vote more than 10% of any class of voting
securities of a bank, are subject to Sections 22(g) and 22(h) of the Federal Reserve Act and their corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act relating to the prohibition on personal loans to executives (which exempts financial institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act). Among other things, these loans must be made on terms substantially the same as those prevailing on transactions made to unaffiliated individuals and certain extensions of credit to those persons must first be approved in advance by a disinterested majority of the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of those individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed Blue Ridge Bank’s unimpaired capital and unimpaired surplus. Section 22(g) of the Federal Reserve Act identifies limited circumstances in which Blue Ridge Bank is permitted to extend credit to executive officers.
Consumer Financial Protection
Blue Ridge is subject to a number of federal and state consumer protection laws that extensively govern its relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, laws governing flood insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws, and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. If Blue Ridge fails to comply with these laws and regulations, it may be subject to various penalties. Failure to comply with consumer protection requirements may also result in failure to obtain any required bank regulatory approval for merger or acquisition transactions Blue Ridge may wish to pursue or being prohibited from engaging in such transactions even if approval is not required.
The Dodd-Frank Act centralized responsibility for consumer financial protection by creating a new agency, the CFPB, and giving it responsibility for implementing, examining, and enforcing compliance with federal consumer protection laws. The CFPB focuses on (i) risks to consumers and compliance with the federal consumer financial laws, (ii) the markets in which firms operate and risks to consumers posed by activities in those markets, (iii) depository institutions that offer a wide variety of consumer financial products and services, and(iv) non-depository companies companies that offer one or more consumer financial products or services. The CFPB has broad rule making authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests. The CFPB can issuecease-and-desist orders orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction.
Community Reinvestment Act
The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the bank’s record in meeting the credit needs of the communities served by the bank, including low and moderate income neighborhoods. Furthermore, such assessment is also required of banks that have applied, among other things, to merge or consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch. In the case of a bank holding company applying for approval to
acquire a bank or bank holding company, the record of each subsidiary bank of the applicant bank holding company is subject to assessment in considering the application. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial“substantial non-compliance.” Blue Blue Ridge Bank was rated “satisfactory” in its most recent CRA evaluation.
Anti-Money Laundering Legislation
Blue Ridge is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA Patriot Act of 2001. Among other things, these laws and regulations require Blue Ridge to take steps to prevent the use of Blue Ridge for facilitating the flow of illegal or illicit money, to report large currency transactions, and to file suspicious activity reports.
Blue Ridge is also required to carry out a comprehensive anti-money laundering compliance program. Violations can result in substantial civil and criminal sanctions. In addition, provisions of the USA Patriot Act require the federal bank regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.
Office of Foreign Assets Control
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) is responsible for administering and enforcing economic and trade sanctions against specified foreign parties, including countries and regimes, foreign individuals and other foreign organizations and entities. OFAC publishes lists of prohibited parties that are regularly consulted by Blue Ridge in the conduct of its business in order to assure compliance. Blue Ridge is responsible for, among other things, blocking accounts of, and transactions with, prohibited parties identified by OFAC, avoiding unlicensed trade and financial transactions with such parties and reporting blocked transactions after their occurrence. Failure to comply with OFAC requirements could have serious legal, financial and reputational consequences for Blue Ridge.
Privacy Legislation
Several recent laws, including the Right to Financial Privacy Act, and related regulations issued by the federal bank regulatory agencies, also provide new protections against the transfer and use of customer information by financial institutions. A financial institution must provide to its customers information regarding its policies and procedures with respect to the handling of customers’ personal information. Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.
Incentive Compensation
In June 2010, the federal bank regulatory agencies issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging excessive risk-taking. The Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of a financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.
Section 956 of the Dodd-Frank Act requires the federal banking agencies and the Securities and Exchange CommissionSEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal
shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. The federal banking agencies issued such proposed rules in March 2011 and issued a revised proposed rule in June 2016 implementing the requirements and prohibitions set forth in Section 956. The revised proposed rule would apply to all banks, among other institutions, with at least $1 billion in average total consolidated assets for which it would go beyond the existing Interagency Guidance on Sound Incentive Compensation Policies to (i) prohibit certain types and features of incentive-based compensation arrangements for senior executive officers, (ii) require incentive-based compensation arrangements to adhere to certain basic principles to avoid a presumption of encouraging inappropriate risk, (iii) require appropriate board or committee oversight, (iv) establish minimum recordkeeping, and (v) mandate disclosures to the appropriate federal banking agency. The comment period for these proposed rules has closed and final rules have not yet been published.
The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as Blue Ridge, that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’sinstitution��s ability to make acquisitions and take other actions. Enforcement actions may be taken against a financial institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the institution’s safety and soundness and the financial institution is not taking prompt and effective measures to correct the deficiencies. As of JuneSeptember 30, 2019,2020, Blue Ridge had not been made aware of any instances ofnon-compliance with with the final guidance.
Ability-to-Repay and and Qualified Mortgage Rule
Pursuant to the Dodd-Frank Act, the CFPB issued a final rule effective on January 10, 2014, amending Regulation Z as implemented by the Truth in Lending Act, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay in one of two ways. The first
alternative requires the mortgage lender to consider the following eight underwriting factors when making the credit decision: (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the covered transaction; (iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthlydebt-to-income ratio ratio or residual income; and (viii) credit history. Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied theability-to-repay requirements. requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with theability-to-repay rules, rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance. Blue Ridge is predominantly an originator of compliant qualified mortgages.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also
expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If Blue Ridge fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.
Coronavirus Aid, Relief, and Economic Security Act
In response to the COVID-19 pandemic, President Trump signed into law the CARES Act on March 27, 2020. Among other things, the CARES Act included the following provisions impacting financial institutions:
Legal Lending Limit Waiver. The CARES Act permits the OCC to waive legal lending limits to any particular borrower (i) with respect to loans to nonbank financial companies or (ii) upon a finding by the OCC that such exemption is in the public interest, with respect to any other borrower, in each case until the earlier of the termination date of the national emergency or December 31, 2020.
Community Bank Leverage Ratio. The CARES Act directs federal banking agencies to adopt interim final rules to lower the threshold under the CBLR from 9% to 8% and to provide a reasonable grace period for a community bank that falls below the threshold to regain compliance, in each case until the earlier of the termination date of the national emergency or December 31, 2020. In April 2020, the federal bank regulatory agencies issued two interim final rules implementing this directive. One interim final rule provides that, as of the second quarter 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also establishes a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.
Temporary Troubled Debt Restructurings (“TDRs”) Relief. The CARES Act allows banks to elect to suspend requirements under GAAP for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a TDR, including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national emergency or December 31, 2020. Federal banking agencies are required to defer to the determination of the banks making such suspension.
Small Business Administration Paycheck Protection Program. The CARES Act created the SBA’s PPP. Under the PPP, $349 billion was authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt. The loans are provided through participating financial institutions, such as Blue Ridge Bank, that process loan applications and service the loans.
Future Legislation and Regulation
Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which Blue Ridge and Blue Ridge Bank operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue
business opportunities in an efficient manner. A change in statutes, regulations or regulatory policies applicable to Blue Ridge or Blue Ridge Bank could have a material adverse effect on the business, financial condition and results of operations of Blue Ridge and Blue Ridge Bank.
Certain Relationships and Related Transactions
Some of the directors and officers of Blue Ridge and directors to be appointed to serve on the Blue Ridge Board and Blue Ridge Bank board from VCB are at present, as in the past, customers of Blue Ridge, and Blue Ridge has had, and expects to have in the future, banking relationships in the ordinary course of its business with directors, officers, principal shareholders, and their associates, on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to Blue Ridge. These transactions do not involve more than the normal risk of collectability or present other unfavorable features. The aggregate outstanding balance of loans to directors, directors to be appointed to serve on the Blue Ridge Board and Blue Ridge Bank board from VCB, executive officers, and their associates, as a group, at December 31, 2018September 30, 2020 totaled $5.7$8.1 million or 14.39%8.13% of Blue Ridge’s equity capital at that date.
There are no legal proceedings to which any director, officer, or principal shareholder, or any affiliate thereof, is a party that would be material and adverse to Blue Ridge.
Blue Ridge has not adopted a formal policy that covers the review and approval of related person transactions by the Blue Ridge Board. The Blue Ridge Board, however, does review all such transactions that are proposed to it for approval. During such a review, the Blue Ridge Board will consider, among other things, the related person’s relationship to Blue Ridge, the facts and circumstances of the proposed transaction, the aggregate dollar amount of the transaction, the related person’s relationship to the transaction, and any other material information. Blue Ridge’s Governance Committee also has the responsibility to review significant conflicts of interest involving directors or executive officers.
Board of Directors and Director Compensation
General. The business and affairs of Blue Ridge are managed under the direction of the Blue Ridge Board in accordance with the VSCA and Blue Ridge’s articles of incorporation and bylaws. Members of the Blue Ridge Board are kept informed of Blue Ridge’s business through discussions with the Chairman of the Board, the President and Chief Executive Officer and other officers, by reviewing materials provided to them and by participating in meetings of the Blue Ridge Board and its committees.
Directors of Blue Ridge.The following biographical information discloses each director’s age and business experience, including the specific skills or attributes that qualify each director for service on the Blue Ridge Board, and the year that each individual was first elected to the Blue Ridge Board.
Class I Directors (Term Expiring 2021)
Hunter H. Bost52,, 54, has served as a director of Blue Ridge since 2016. He is a private investor and real estate developer based in Durham, North Carolina. Previously, Mr. Bost served on the boards of directors of River Bancorp, Inc. (“River”) and its subsidiaries, River Community Bank and 1st Medallion Mortgage Corporation, prior to River’s merger with Blue Ridge in 2016. He also served as Chairman of River. Mr. Bost spent over 10 years in New York at Electra Partners, Merrill Lynch, and Price Waterhouse (now PwC). He has served on severalnon-profit boards, boards, including Hábitat Para La Humanidad Guatemala, Teachers2Teachers Global, and both the Board of Visitors and the International Studies Advisory Board at the University of North Carolina at Chapel Hill. Mr. Bost was a Morehead Scholar at the University of North Carolina at Chapel Hill, where he received a Bachelor of Arts in Economics and a Master of Accounting. Additionally, he has a Master of Business Administration from the MIT Sloan School of Management and a Master of Public Administration from Harvard University’s Kennedy School of Government. Mr. Bost brings to the Blue Ridge Board broad experience in real estate and investing along with a community service focus.
Mensel D. Dean, Jr.,73, 75, has served as a director of Blue Ridge since 2013. He is a former partner at the accounting firm PBMares, LLP and has over 50 years of public accounting experience, consulting clients in numerous industries. Mr. Dean is an U.S. Army veteran with service during the Vietnam War. He is a graduate of Bridgewater College with a Bachelor of Science in Business Administration. Mr. Dean is a Certified Public Accountant licensed in the Commonwealth of Virginia. Mr. Dean brings to the Blue Ridge Board extensive accounting and consulting experience, and broad-based knowledge of businesses operating in the Bank’s markets.
Larry Dees71,, 72, has served as a director of Blue Ridge since 1992 and as Chairman of the Blue Ridge Board since 2010. In 2013, he retired from a solo accounting and tax practice in Luray, Virginia that he operated for 28 years. He was previously at Draffin & Tucker, LLP, a full-service accounting firm based in Albany, Georgia. Mr. Dees is a U.S. Army veteran with service during the Vietnam War. He is a graduate of the University of Georgia with a Bachelor of Business Administration in Accounting and a Master of Accountancy. Mr. Dees is a Certified Public Accountant licensed in the Commonwealth of Virginia. Mr. Dees brings to the Blue Ridge Board extensive accounting experience and institutional knowledge of Blue Ridge and Blue Ridge Bank gained through his long service as a director and as Chairman.
James E. Gander, II61,, 62, has served as a director of Blue Ridge since 1994. He is a beef cattle and crop farmer operating on a farm in Page County, Virginia continuously owned and operated by his family since 1754. He is a graduate of James Madison University with a Bachelor of Arts in English. Mr. Gander brings to the Blue Ridge Board experience in the agricultural industry, providing insight into issues facing farmers and landowners.
Robert S. Janney70,, 71, has served as a director and General Counsel of Blue Ridge since 2000. He has been engaged in the general practice of law at the firm of Janney & Janney, PLC in Luray, Virginia since 1974. Mr. Janney has served on the counsel of the Virginia State Bar and as Chairman of the General Practices Session of the Virginia State Bar. He is a graduate of the University of Virginia College of Arts and Sciences with a major in Government and high honors as well as a graduate of the University of Virginia School of Law. Mr. Janney brings to the Blue Ridge Board his legal background and experience, which provides insight, among other things, in matters of corporate governance.
A. Pierce Stone, 79, joined the Blue Ridge Board following Blue Ridge’s acquisition of VCB in December 2019. Mr. Stone previously served as VCB’s President, Chief Executive Officer and Chairman of the Board for forty years before his retirement in 2016. During Mr. Stone’s career, he was a founding director of the Virginia Bankers Bank, a former director of the Virginia Bankers Association, a former director and past president of Virginia Association of Community Banks and a former director and past president of the Independent Community Bankers of America. Mr. Stone holds a Bachelor of Science degree from the University of South Carolina. Mr. Stone brings to the Blue Ridge Board the extensive skills and experience gained in his long career in banking, including institutional knowledge of VCB and its markets.
Carolyn J. Woodruff63,, 65, has served as a director of Blue Ridge since 2019. She is the President of Woodruff Family Law Group in Greensboro, North Carolina. She is a Certified Public Accountant licensed in the state of North Carolina. She has been a trailblazeris an expert in the area of business valuation and is a frequent writer and lecturer on business valuation and federal taxation. She is an instrument-rated multi-engine airplane pilot. Ms. Woodruff graduated from Duke University School of Law with High Honors where she served as Research and Managing Editor of the Duke Law Review. Ms. Woodruff brings to the Blue Ridge Board experience and knowledge in business valuation and taxation, which provides a unique perspective, particularly in evaluating strategic acquisitions and related matters.
Class II Directors (Term Expiring 2022)
Elise Peters Carey,33, has served as a director of Blue Ridge since 2019. She is the current President of Bethany Medical Center, the largest independent provider of medical services in the Triad of North Carolina. She is also President of Peters Holdings and Peters Development. She is the Director of the Lenny Peters Foundation, anon-profit organization that supports the Triad and communities around the world. Previously she held various strategic planning and finance positions at American Express and Capital One Bank. Mrs. Carey began her career consulting financial institutions on market data, treasury services, and capital management. She holds a Master of Business Administration and a Bachelor of Science in Economics from the Wharton School and the University of Pennsylvania.
Robert B. Burger, Jr.,69, 70, has served as a director of Blue Ridge since 2017. Previously, he was a director of River Community Bank prior to River’s merger with Blue Ridge in 2016. He is a fifth-generation funeral
director, who retired after 45 years of service. Mr. Burger was appointed to the Virginia Board of Funeral Directors and Embalmers by Governor Mark Warner in 2004 and served a second term having been appointed by Governor Tim Kaine in 2008. He was a past President of the Longwood University Foundation Board, a past President and life member of the Farmville Jaycees and the Collinsville Jaycees and is a life member of the Virginia Jaycees. He formerly served as President of the Bassett Volunteer Fire Department and the Bassett Kiwanis Club. Currently, he serves as a board member of the New College Institute, Martinsville, Virginia, having been appointed by Governor Terry McAuliffe in 2016. Mr. Burger is a graduate of Campbell University with a Bachelor of Business Administration and graduated from John Tyler Community College with an Associate degree in Mortuary Science.
Kenneth E. Flynt70,, 72, has served as a director of Blue Ridge since 2016. He is a former President and Chief Executive Officer of 1st Medallion Mortgage Corporation, having retired in 2008. Mr. Flynt presently serves as Associate Dean of the College of Business at Western Carolina University (“WCU”). He is also Chairman of the Haywood County (North Carolina) Chamber of Commerce, Chairman of the Pinnacle Enterprise Fund, and Vice Chairman of the Economic Development Committee of Haywood County. He is past Finance Committee chairman of Main Street United Methodist Church in Kernersville, North Carolina, past regional president of the Board of Advisors of the WCU College of Business and a past chairman of the Kernersville Chamber of Commerce. Mr. Flynt was a founder and Chief Executive Officer of several financial institutions for a total of 20 years. He holds a Bachelor of Science in Economics and Finance (magna cum laude) from WCU and a Master of Economics from North Carolina State University. Mr. Flynt brings to the Blue Ridge Board comprehensive knowledge of the mortgage lending industry, providing insight into our mortgage division.
Brian K. Plum39,, 40, has served as a director of Blue Ridge since 2014 and as President and Chief Executive Officer of Blue Ridge and Blue Ridge Bank since December 2014. Mr. Plum previously held the positions with Blue Ridge and Blue Ridge Bank of Executive Vice President from 2010 to 2014, Chief Financial Officer from 2007 to 2014 and Chief Administrative Officer in 2014. Before joining Blue Ridge in 2007, he served in several positions with the accounting firm PBMares, LLP in Harrisonburg, Virginia. Mr. Plum is a graduate of Eastern Mennonite University with a Bachelor of Science in Accounting and Economics, of James Madison University with Master of Science in Accounting, and of the Darden School of Business at the University of Virginia with a Master of Business Administration. Mr. Plum is a Certified Public Accountant licensed in the Commonwealth of Virginia.
Gary R. Shook,59, has served Mr. Plum brings to the Blue Ridge Board management and accounting experience as a directorwell as his institutional knowledge of Blue Ridge since 2019 and as Chief Operating Officer of Blue Ridge since April 2018. Mr. Shook has been the President and Chief Banking Officer of Blue Ridge Bank since April 2018. He previously served as a director of Access National Bank and Access National Corporation (“Access”), President of the Middleburg Bank Division, Chairman and Chief Executive Officer of Middleburg Investment Group, and Chairman of Middleburg Trust Company from April 2017 to April 2018. From May 2010 until Middleburg Financial Corporation (“Middleburg”) merged with Access in April 2017, Mr. Shook servedgained through his role as President and Chief Executive OfficerOfficer.
Mark W. Sisk, 60, joined the Blue Ridge Board following Blue Ridge’s acquisition of VCB in December 2019. Since 1999, Mr. Sisk has been President and as a directorOwner of Middleburg. Prior to joining Middleburg, he was Senior Vice President of Fauquier Bankshares, Inc. Mr. Shook has served as a director of the Loudoun County Chamber of Commerce, Vice Chairman of the Fauquier Chamber of Commerce, Chairman of the Bluemont Concert Series, President of the Rotary Club of Warrenton and Senior Warden and Vestryman of St. James’ Episcopal Church. He serves as a director andCurtis Brokerage Services located in Fredericksburg, Virginia. Curtis Brokerage Services is a past Chairman of the Virginia Bankers Association. He is Chairman of the Government Relations Committee of the Virginia Bankers Association and chairs the American Bankers Association’s Voter Education Fund. He is a Trustee and member of the Executive Committee of the Virginia Foundationbrokerage firm for Independent Colleges, and a director and Audit Chair of Shrine Mont, The Cathedral Shrine of the Transfiguration and Conference Center.trucking/motor freight transportation. Mr. Shook currently serves as President of the Charlottesville chapter of CAV Angels, an association of University of Virginia alumni interested in early cycle investments. Mr. ShookSisk holds a Bachelor of Artsbusiness degree from Virginia Commonwealth University and has previously been professionally licensed to sell Series 6 securities, property, casualty and life insurance as well as real estate. Mr. Sisk brings to the UniversityBlue Ridge Board management experience as well as his broad knowledge of Virginia.brokerage services, insurance, and real estate.
Class III Directors (Term Expiring 2020)2023)
John H.H. Graves,Andrew C. Holzwarth58,, 48, joined the Blue Ridge Board following Blue Ridge’s acquisition of VCB in December 2019. He will stand for election at the Annual Meeting for a three-year term. Mr. Holzwarth has served as President of the Southern Region of Stanley Martin Homes, a directorMid-Atlantic residential home builder, since 2013. He was the President and Owner of Piedmont Realty and Construction from 2009 until its acquisition by Stanley Martin Homes in 2013. He holds a bachelor’s degree from Pennsylvania State University and a Master of Business Administration from the University of Virginia, Darden School of Business. Mr. Holzwarth brings to the Blue Ridge since 2010. Mr. Graves has served as the President, Chief Executive Officer and ChairmanBoard knowledge of the board of directors of the Luray Caverns Corporation since 2008, after previously serving the companyreal estate industry, particularly in various leadership roles. Mr. Graves served 26 years in the U.S. Army National Guard, retiring as Lt. Colonel in 2006. He is a graduate of James Madison University with a Bachelor of Fine Arts.Blue Ridge Bank’s primary market areas.
William W. Stokes56,, 57, has served as a director of Blue Ridge since 2012. Mr. Stokes has been the Chief Financial Officer ofBio-Cat, Inc., a high-quality enzyme manufacturer based in the Charlottesville, Virginia area, since 2009. He previously spent over 20 years in commercial banking, including as a Senior Vice President and Area Executive for the Charlottesville market for StellarOne Bank (now Atlantic Union Bank) and its predecessor, Second Bank and Trust. Mr. Stokes is a graduate of North Carolina State University with a Bachelor of Arts in Accounting. Mr. Stokes brings to the Blue Ridge Board his background in banking along with accounting experience and knowledge of the manufacturing industry.
Malcolm R. Sullivan, Jr.,73, 74, has served as a director of Blue Ridge since 2007. He is owner and Chairman of Sullivan Mechanical Contractors, Inc., a73-year-old contracting firm based in Shenandoah, Virginia. He also manages the Sullivan Group, a commercial rental and lease business. Mr. Sullivan has served his local community in various capacities and is currently on the board of the Page County Technical Center Foundation. He has also served as local, state and national President of the American Subcontractors Association and was designated Man of the Year in 1990 by the Engineering News Record. He is a graduate of Elon College with a Bachelor of Fine Arts in English. Mr. Sullivan brings to the Blue Ridge Board management experience, leadership skills, knowledge of the Bank’s markets, and a community service focus.
Donald R. Vaughan66,, 68, has served as a director of Blue Ridge since 2019. He is a Greensboro, North Carolina attorney with more than 30 years of experience. He served in the North Carolina Senate and as Mayor Pro Tem and City Councilman for the City of Greensboro. He served on the State Banking Commission and the North Carolina Courts Commission. Mr. Vaughan previously served on the local bank boards of Wells Fargo, Wachovia, and SouthTrust. He was the 2018 Citizen Lawyer of the Year as presented by the North Carolina Bar Association. Mr. Vaughan holds a Bachelor of Arts with Highest Honors from the University of North Carolina at Chapel Hill, a Master of Public Administration from American University, and a Juris Doctor from Wake Forest University, where he was a member of the Wake Forest Law Review. He is an adjunct professor at Wake Forest Law School and Elon Law School.
Board Independence.The Blue Ridge Board in its business judgment has determined that 1315 of its 1516 members are independent as that term is defined by the New York Stock Exchange. Mr. Plum and Mr. Shook werewas not determined to be independent due to their positionshis position as an executive officersofficer of Blue Ridge.
In addition, the Blue Ridge Board considered the following transactions between Blue Ridge and certain of its directors or their affiliates to determine whether such director wasin determining that Mr. Janney is independent under the above standards:standards, the Board considered that Mr. Janney is a partner in the law firm of Janney & Janney, PLC and provides legal services through his law firm to Blue Ridgethe Company from time to time.
Director Compensation.Compensation
The following table shows the compensation earned by each of thenon-employee directors directors of the Blue Ridge Board during 2018.2019.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Total ($) | Fees Earned or Paid in Cash ($) | Total ($) | |||||||||||||||
O.R. Barham, Jr. (1) | 12,400 | — | 12,400 | |||||||||||||||||
Hunter H. Bost | 15,650 | 15,650 | 17,050 | 17,050 | ||||||||||||||||
Robert B. Burger | 16,150 | — | 16,150 | |||||||||||||||||
Elise Peters Carey (2) | — | — | — | |||||||||||||||||
Robert B. Burger, Jr. | 17,900 | 17,900 | ||||||||||||||||||
Elise Peters Carey(1) | 13,150 | 13,150 | ||||||||||||||||||
Mensel D. Dean, Jr. | 13.950 | — | 13.950 | 18,250 | 18,250 | |||||||||||||||
Larry Dees | 20,500 | — | 20,500 | 23,700 | 23,700 | |||||||||||||||
Kenneth E. Flynt | 17,000 | — | 17,000 | 17,400 | 17,400 | |||||||||||||||
James E. Gander II | 16,400 | — | 16,400 | |||||||||||||||||
James E. Gander, II | 17,400 | 17,400 | ||||||||||||||||||
John H.H. Graves | 14,800 | — | 14,800 | 17,400 | 17,400 | |||||||||||||||
Andrew C. Holzwarth(2) | 1,200 | 1,200 | ||||||||||||||||||
Robert S. Janney | 15,550 | — | 15,550 | 19,950 | 19,950 | |||||||||||||||
Richard L. Masincup (3) | 16,450 | 16,450 | 6,700 | 6,700 | ||||||||||||||||
Mark W. Sisk(2) | 1,200 | 1,200 | ||||||||||||||||||
William W. Stokes | 14,350 | — | 14,350 | 16,700 | 16,700 | |||||||||||||||
Malcolm R. Sullivan Jr. | 15,850 | — | 15,850 | |||||||||||||||||
Donald R. Vaughan (2) | — | — | — | |||||||||||||||||
Carolyn J. Woodruff (2) | — | — | — | |||||||||||||||||
A. Pierce Stone(2) | 1,200 | 1,200 | ||||||||||||||||||
Malcolm R. Sullivan, Jr. | 18,000 | 18,000 | ||||||||||||||||||
Donald R. Vaughan(1) | 13,000 | 13,000 | ||||||||||||||||||
Carolyn J. Woodruff(1) | 14,000 | 14,000 |
(1) |
|
|
(2) | Messrs. Holzwarth, Sisk and Stone were appointed to the Board on December 15, 2019. |
(3) | Mr. Masincup retired from the |
In Non-employee2019, non-employee directors directors of Blue Ridge receivereceived a $7,200 annual retainer, with the exception of the Chairman, who receivesreceived a $12,000 annual retainer. They also receivereceived $600 for each regular meeting of the Blue Ridge Board attended and $250 for each committee meeting attended, withother than the committee chairmen, receiving $400.who received $400 for each committee meeting attended. Additionally, directors receivereceived $500 for attending any special meeting of the board.Blue Ridge Board. Mr. Plum and Mr. Shook, as executive officers of Blue Ridge,the Company, are not separately compensated for their service on the boards of Blue Ridge and Blue Bank. Mr. Shook resigned from all positions with Blue Ridge Bank.and Blue Ridge Bank effective as of the close of business on June 5, 2020.
Beginning January 1, 2020, non-employee directors of Blue Ridge receive a $14,400 annual retainer, with the exception of the Chairman, who receives a $24,000 annual retainer. They can elect to receive the annual retainer in cash or stock. They also receive 600 shares of stock per year, awarded on January 1st and vesting on December 31st of the same year, provided attendance requirements are met and the director remains in continuous service with Blue Ridge through the specified vesting date. Additionally, directors who chair a Board committee receive an annual retainer of $1,200.
Compensation Committee Interlocks and Insider Participation. None of the members of the Blue Ridge’s compensation committee will beRidge Compensation Committee is or will havehas been an officer or employee of Blue Ridge or any of its subsidiaries. In addition, none of Blue Ridge’s executive officers serves or has served as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving as one of Blue Ridge’s directors or on its compensation committee.Compensation Committee.
Executive Officers of Blue Ridge
The executive officers of Blue Ridge are as follows:
Brian K. Plum – President and Chief Executive Officer. Mr. Plum is also a director of Blue Ridge. Information about his background and experience is set forth above.
Gary R. ShookJames W. McCarty, Jr. – Chief OperatingAdministrative Officer. Mr. McCarty, 50, has been Chief Administrative Officer. Mr. Shook is also a director of Blue Ridge. Information about his backgroundRidge Bank since January 2020. Prior to joining Blue Ridge, Mr. McCarty had served as Executive Vice President and experience is set forth above.Chief Administrative Officer of Eagle Financial Services, Inc. and Bank of Clarke County since 2008. Mr. McCarty served as Vice President and Chief Financial Officer of Eagle Financial Services, Inc. from 1997 to 2008 and as Senior Vice President and Chief Financial Officer of Bank of Clarke County from 2000 to 2008. He holds a Bachelor of Science from Virginia Tech and a Master of Business Administration from Shenandoah University.
Amanda G. Story – Chief Financial Officer. Ms. Story, 37,38, has been Chief Financial Officer of Blue Ridge and Blue Ridge Bank since February 2014. Ms. Story joined Blue Ridge after serving as Senior Accountant with Brown, Edwards & Company, LLP (formerly S.B. Hoover & Company, LLP), an accounting firm in Harrisonburg, Virginia, from 2006 to January 2014. Ms. Story is a graduate of Bridgewater College, receiving a Bachelor of Arts in Business Administration with a concentration in Accounting.
Principles and Objectives of Blue Ridge’s Compensation Program.Blue Ridge’s executive compensation program is designed to attract and retain highly skilled and motivated executive officers who will manage Blue Ridge in a manner to promote its growth and profitability and advance the interest of its shareholders. Additional objectives of Blue Ridge’s executive compensation program include the following:
to align executive pay with shareholders’ interests;
to recognize individual initiative and achievements; and
to deter excessive risk taking.
Blue Ridge’s executive compensation program consists of base salaries, cash payments in the form of discretionary annual bonuses, cash payments under an annual cash incentive program, equity compensation in the form of restricted stock awards, and other benefits and perquisites.
How Executive Pay Levels are Determined.Blue Ridge’s executive compensation programs are administered by or under the direction of its Compensation Committee. The Compensation Committee makes recommendations to the Blue Ridge Board for all decisions regarding the compensation of Blue Ridge’s executive officers, and the Blue Ridge Board either approves, modifies, or rejects these recommendations.
In determining the compensation of its executive officers, the Blue Ridge Compensation Committee evaluates total overall compensation, as well as the mix of salary, cash bonuses, equity compensation, retirement benefits and other benefits, using a number of factors including the following:
Blue Ridge’s financial, operating, and competitive performance measured by attainment of strategic objectives and operating results on a standalone basis and relative to peer companies;
the duties, responsibilities and performance of each executive officer of Blue Ridge, including the achievement of identified goals for the year as they pertain to the areas of Blue Ridge’s operations for which the executive is personally responsible and accountable;
historical cash and other compensation levels; and
comparative industry market data to assess compensation competitiveness.
The role of Blue Ridge’s Chief Executive Officer in determining executive compensation is limited to input in the performance evaluation of the other named“named executive officers.officers” of Blue Ridge. Blue Ridge’s Chief Executive Officer has no input in the determination of his own compensation.compensation, which is determined by the Blue Ridge Board after receiving a recommendation by the Compensation Committee. Likewise, the other named executive officers have no role in the determination of their own compensation. Blue Ridge’s named executive officers for 2020 are identified in the Summary Compensation Table below.
The Blue Ridge Compensation Committee retains the services of CT Executive Benefits Group (“CTEBG”), an independent compensation consultant without any previous relationship with management or Blue Ridge. CTEBG attends a majority of Blue Ridge Compensation Committee meetings to provide the Compensation Committee and Blue Ridge Board advice on compensation trends and issues. CTEBG also provides an annual compensation study comparing Blue Ridge’s compensation practices and amounts to a peer group of similar banks. The compensation study includes executive and board compensation. The Compensation Committee incorporates the advice of CTEBG in all of its decision-making processes and recommendations to the Blue Ridge Board.
Summary Compensation Table
The following table sets forth information regarding the compensation paid tofor services rendered by the named executive officers of Blue Ridge during the years presented.
Name and Principal Position | Year | Salary | Bonus | Stock Awards (1) | Non-Equity Incentive Plan Compensation (2) | All Other Compensation (3) | Total | Year | Salary | Bonus(1) | Stock Awards(2) | Non-Equity Incentive Plan Compensation(3) | All Other Compensation(4) | Total | ||||||||||||||||||||||||||||||||||||||||||
Brian K. Plum | 2018 | $ | 300,000 | — | $ | 216,000 | $ | 22,011 | $ | 35,571 | $ | 573,582 | 2019 | $ | 300,000 | $ | 41,000 | $ | — | $ | 9,000 | $ | 23,403 | $ | 373,403 | |||||||||||||||||||||||||||||||
President and CEO | 2017 | $ | 300,000 | $ | 60,000 | $ | 132,000 | — | $ | 19,500 | $ | 511,500 | 2018 | $ | 300,000 | $ | — | $ | 216,000 | $ | 22,011 | $ | 35,571 | $ | 573,582 | |||||||||||||||||||||||||||||||
Gary R. Shook (4) | 2018 | $ | 184,167 | $ | 25,000 | $ | 108,000 | $ | 35,190 | $ | 6,900 | $ | 359,257 | |||||||||||||||||||||||||||||||||||||||||||
Gary R. Shook(5) | 2019 | $ | 260,000 | $ | — | $ | — | $ | 3,900 | $ | 24,045 | $ | 287,945 | |||||||||||||||||||||||||||||||||||||||||||
Chief Operating Officer | 2018 | $ | 184,167 | $ | 25,000 | $ | 108,000 | $ | 35,190 | $ | 6,900 | $ | 359,257 | |||||||||||||||||||||||||||||||||||||||||||
Amanda G. Story | 2018 | $ | 122,700 | — | $ | 18,000 | $ | 6,773 | $ | 19,099 | $ | 166,572 | 2019 | $ | 125,200 | $ | 13,427 | $ | 10,750 | $ | 6,573 | $ | 14,126 | $ | 170,079 | |||||||||||||||||||||||||||||||
Chief Financial Officer | 2017 | $ | 120,000 | $ | 5,000 | $ | 22,000 | — | $ | 13,142 | $ | 160,142 | 2018 | $ | 122,700 | $ | — | $ | 18,000 | $ | 6,773 | $ | 19,099 | $ | 166,572 |
(1) | Consists of discretionary performance bonuses earned in the year indicated and paid in following year. |
(2) | The amounts represent the grant date fair value of the awards calculated in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation. Awards consist of time-based restricted stock that vest over a period of five years. Assumptions used in the calculation of these amounts are included in Note |
The amounts represent cash payments under |
The amounts represent Blue |
Mr. Shook joined Blue Ridge as Chief Operating Officer on April 15, 2018. The 2018 amounts reflect compensation he earned during the remainder of 2018. Mr. Shook resigned from all positions with Blue Ridge and Blue Ridge Bank effective as of the close of business on June 5, 2020. |
Outstanding Equity Awards.The following table provides certain information on the value of restricted stock previously awarded to Blue Ridge’s named executive officers as of December 31, 2018.2019.
Outstanding Equity Awards at FiscalYear-End
Stock Awards | Stock Awards | |||||||||||||||||||||||
Name | Grant Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested (1) | Grant Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested(1) | ||||||||||||||||||
Brian K. Plum | July 1, 2018 | 12,000 | (2) | $ | 207,000 | July 1, 2018 | 10,800 | (2) | $ | 226,260 | ||||||||||||||
July 1, 2017 | 8,100 | (2) | $ | 139,725 | July 1, 2017 | 7,200 | (2) | $ | 150,840 | |||||||||||||||
Gary R. Shook | July 1, 2018 | 6,000 | (2) | $ | 103,500 | |||||||||||||||||||
Gary R. Shook(3) | July 1, 2018 | 5,400 | (2) | $ | 113,130 | |||||||||||||||||||
Amanda G. Story | July 1, 2018 | 1,000 | (2) | $ | 17,250 | July 1, 2019 | 500 | (2) | $ | 10,475 | ||||||||||||||
July 1, 2017 | 1,350 | (2) | $ | 23,288 | July 1, 2018 | 900 | (2) | $ | 18,855 | |||||||||||||||
July 1, 2017 | 1,200 | (2) | $ | 25,140 |
(1) | The market value of unearned shares that have not vested is based on the closing sales price of Blue Ridge’s common stock on December 31, |
(2) | The restricted stock awards vest 10% per year on the first, second and third anniversaries of the grant date, 20% on the fourth anniversary of the grant date, and 50% on the fifth anniversary of the grant date, provided that the executive has remained continuously employed with Blue Ridge through the applicable vesting date. |
(3) | Mr. Shook resigned from all positions with Blue Ridge and Blue Ridge Bank effective as of the close of business on June 5, 2020. |
Equity Incentive Plan.
The Blue Ridge maintainsBoard has adopted, and Blue Ridge’s shareholders have approved, the Blue Ridge Bankshares, Inc. Equity Incentive Plan which was designedin order to promote the interests of Blue Ridge and its shareholders by strengthening Blue Ridge’s ability to attract, motivate and retain qualified key personnel, provide employees, with a proprietary interest indirectors and consultants upon whose judgment, initiative and efforts the financial success and growth of the business of Blue Ridge as an incentive to contribute to its success, and reward employees for outstanding performance andlargely depend. The following is a summary of the attainmentkey provisions of goals. It was adopted by the plan, including important features that enable Blue Ridge Board effective April 1, 2017 andto maintain sound governance practices in granting awards:
The following types of awards will expire on April 1, 2027. The plan providesbe available for issuance under the granting ofplan: nonstatutory stock options; stock appreciation rights; restricted awards, which include restricted stock awards, incentive andnon-qualified stock options, restricted stock unitsunits; and other stock-based awards toperformance share awards.
All employees, directors and directors. It authorizes the issuanceconsultants of up toBlue Ridge and its subsidiaries are eligible participants.
A total of 400,000 shares of Blue Ridge common stock.stock are reserved for issuance under the plan. The number of shares available for issuance under the plan is subject to adjustment to reflect stock splits, stock dividends and similar events.
No awards may be granted under the plan after April 1, 2027, the termination date of the plan.
The Blue Ridge Compensation Committee administers the plan, identifies which participants will be granted awards, and determines the terms and conditions applicable to the awards. To date, the Blue Ridge Compensation Committee has only issued shares of restricted stock under the plan. The value of the stock awarded is based on the fair market value of Blue Ridge’s common stock at the time of the grant. Blue Ridge recognizes compensation expense equal to the value of such awards over the applicable vesting period.
Annual Cash Incentive Program.Program
Blue Ridge maintains an annual cash incentive program that provides for awards based on the performance of Blue Ridge in five key areas: risk management, asset quality, held-for-investment loan growth, noninterest demand deposit account growth, and net income. Each named executive officer of Blue Ridge is eligible to participate in the plan. Each of the foregoing areas has assigned weights for each officer and, on an annual basis,
the Blue Ridge Compensation Committee determines the metrics pursuant to which bonuses ultimately will be paid to such officers, with a target award of 15% of base salary. The amounts earned under the plan may be modified, reduced or eliminated in the discretion of the Blue Ridge Compensation Committee based on Blue Ridge’s performance and other factors. Minimum targets must be achieved to earn awards with respect to asset quality, held-for-investment loan growth, noninterest demand deposit account growth, and net income, and maximum award amounts are capped for asset quality, held-for-investment loan growth, and net income to mitigate the risk of any actions taken by management that could inflate short-term incentives for personal benefit that do not align with good corporate governance or the long-term financial and operational health of Blue Ridge.
Other Benefit Plans.
Supplemental Executive Retirement Plan. Blue Ridge previously entered into supplemental executive retirement plan agreements with Mr. Plum and Ms. Story. The agreements were terminated in 2017 and Blue Ridge made cash payments in 2018 to Mr. Plum ($12,814) and Ms. Story ($5,488) equal to the amounts Blue Ridge had accrued for such agreements. Prior to their termination, such agreements provided for retirement benefits payable as a monthly annuity for a15-year period upon attainment of retirement age.
401(k) Plan. Blue Ridge has a contributory 401(k) plan. All salaried employees of Blue Ridge are eligible to participate beginning after 12 months of service. Participants can elect to contribute up to 95% of their compensation, provided that the amount contributed does not exceed the maximum amount allowed by law. Blue Ridge matches 100% of the first 5% of compensation contributed by each participant. Employees become 100% vested in Blue Ridge’s match after six years of service. Distributions to participants are made at death, retirement or other termination of employment. Normal retirement age is considered 65 and early retirement is considered 55 with 10 years of service.
Employee Stock Ownership Plan. Blue Ridge has an 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 Blue Ridge Board and may include both the matching component to employees’ elective deferrals into the 401(k) plan and discretionary profit contributions. The ESOP held a total of 79,800 shares of Blue Ridge’s common stock at December 31, 2019 and December 31, 2018. All shares issued to and held by the plan are considered outstanding in the computation of earnings per share. The ESOP or Blue Ridge is required to purchase shares from separated employees at a price determined by a third-party appraisal.
Employment and Change in Control Agreements.
Securing the continued service of key executives is essential to the successful future of Blue Ridge. Employment agreements and change in control agreements can assist Blue Ridge by attracting and retaining key executives. Below is a description of the current agreements that Blue Ridge has with its named executive officers.
Employment Agreement with Brian K. Plum.Mr. Plum’s employment agreement was entered into on November 1, 2011 and the initial term expired on December 31, 2013. The agreement was renewed for successivetwo-year periods beginning on January 1, 2014. The agreement will continue to renew for additionaltwo-year periods on January 1st1st of each even numbered year unless Blue Ridge gives notice of nonrenewal at least 12 months prior to the expiration of the then current term. Pursuant to the agreement, Mr. Plum is entitled to receive an annual base salary as determined by the Blue Ridge Board. His current base salary is $300,000.$400,000. Mr. Plum is entitled to cash bonuses and stock-based awards in such amounts as may be determined by the Blue Ridge Board in accordance with the terms and conditions of the applicable incentive plans in effect from time to time. Pursuant to his agreement, Mr. Plum may only be terminated by Blue Ridge with the approval of at leasttwo-thirds of the Blue Ridge Board. If Mr. Plum is terminated without “cause” (as defined in his agreement), he will be entitled to continuation of his base salary and benefits for a period of 12 months following his termination. Mr. Plum is subject to customarynon-competition andnon-solicitation restrictions for a period of one year after termination of his employment for any reason; provided, however, that if Blue Ridge elects not to
renew his employment agreement, Mr. Plum will not be subject to such restrictions following the expiration of the agreement.
Change in Control Agreement with Brian K. Plum. Mr. Plum’s change in control agreement was entered into on January 1, 2011 and the initial term expired on December 31, 2013. The agreement was renewed for successiveone-year periods beginning on January 1, 2014. The agreement will continue to renew for additionalone-year periods on January 1st1st of each year unless Blue Ridge gives notice of nonrenewal at least 90 days prior to the expiration of the then current term. Under the terms of the agreement, Blue Ridge or its successor must continue to employ Mr. Plum for a term of three years after the date of a change in control of Blue Ridge. During such period, Mr. Plum is entitled to retain commensurate authority, responsibilities, and compensation benefits. The agreement requires Blue Ridge or its successor to pay Mr. Plum a base salary at least equal to his base salary for the year immediately prior to the change in control, and a bonus at least equal to the annual bonus paid prior to the change in control. If Mr. Plum’s employment is terminated during the three-year period other than for “cause” or “disability” (as defined in his agreement), or if he terminates his employment because a material term of his contract is breached by Blue Ridge or its successor, he will be entitled to alump-sum cash payment within 30 days after the date of termination. This lump sum amount will be equal to the sum of his annual base salary, annual bonus and equivalent benefits.
Change in Control Agreement with Amanda G. Story. In connection with her appointment as Chief Financial Officer, Ms. Story signed an offer letter from Blue Ridge dated February 1, 2014. The letter outlines the general terms of Ms. Story’sat-will employment with Blue Ridge. In addition, the letter provides for a change in control benefit in the event that Ms. Story’s employment with Blue Ridge is terminated following a change in control of Blue Ridge that results in a reduction in her responsibilities, title or compensation. The change in control benefit will be equal to her last 12 months of base salary prior to the change in control.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BLUE RIDGE
The following presents Blue Ridge’s management’s discussion and analysis of Blue Ridge’s consolidated financial condition and the results of Blue Ridge’s operations. This discussion should be read in conjunction with Blue Ridge’s consolidated financial statements and the notes thereto appearing elsewhere in this joint proxy statement/prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Blue Ridge assumes no obligation to update any of these forward-looking statements, except to the extent required by law. In this discussion, all references to per share data of Blue Ridge for periods ending on or before June 30, 2017 have been adjusted to reflect a 3 for 2 stock split that occurred in August 2017.
General
The accounting principles Blue Ridge applies under 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 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.comment, including the adverse impact COVID-19 could have on the loan portfolio which is difficult to assess at this time. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.
Allowance for Loan Losses—Acquired Loans
Acquired loans accounted for under ASC 310-20.Subsequent to the acquisition date, Blue Ridge establishes its allowance for loan losses through a provision for loan losses based upon an evaluation process that is similar to its evaluation process used for originated loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers, among other factors, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that warrant recognition in determining Blue Ridge’s allowance for loan losses.
Purchased Credit-Impaired Loans. Purchased credit-impaired (“PCI”) loans, which are the loans acquired in Blue Ridge’s acquisition of Virginia Community Bank, are loans acquired at a discount (that is due, in part, to credit quality). These loans are initially recorded at fair value (as determined by the present value of expected future cash flows) with no allowance for loan losses. Blue Ridge accounts for interest income on all loans acquired at a discount (that is due, in part, to credit quality) based on the acquired loans’ expected cash flows. The acquired loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flow. The difference between the cash flows expected at acquisition and the investment in the loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool. Increases in expected cash flows subsequent to the acquisition are recognized prospectively through adjustment of the yield on the pool over its remaining life, while decreases in expected cash flows are recognized as impairment through a loss provision and an increase in the allowance for loan losses. Therefore, the allowance for loan losses on these impaired pools reflect only losses incurred after the acquisition (representing the present value of all cash flows that were expected at acquisition but currently are not expected to be received).
Blue Ridge periodically evaluates the remaining contractual required payments due and estimates of cash flows expected to be collected. These evaluations, performed quarterly, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. Changes in the contractual required payments due and estimated cash flows expected to be collected may result in changes in the accretable yield and non-accretable difference or reclassifications between accretable yield and the non-accretable difference. On an aggregate basis, if the acquired pools of PCI loans perform better than originally expected, Blue Ridge would expect to receive more future cash flows than originally modeled at the acquisition date. For the pools with better than expected cash flows, the forecasted increase would be recorded as an additional accretable yield that is recognized as a prospective increase to Blue Ridge’s interest income on loans.
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 investmentDepending 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.
Investment Securities Available-for-Sale
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)Act), 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 in non-convertible debt in a three-year period, or if the market value of its common stock held by non-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.
Announced Merger
On August 13, 2020, Blue Ridge and Bay Banks (OTC: BAYK) announced the signing of the merger agreement pursuant to which the companies will combine in an all-stock merger with Blue Ridge as the surviving company. At or immediately following consummation of the merger, Virginia Commonwealth Bank, the wholly-owned commercial banking subsidiary of Bay Banks, will be merged with and into Blue Ridge Bank, with Blue Ridge Bank as the surviving bank. Under the terms of the merger agreement, Bay Banks shareholders will receive 0.5000 shares of Blue Ridge’s common stock for each share of Bay Banks common stock they own. Bay Banks shareholders will own approximately 54% and the Blue Ridge shareholders will own approximately 46% of the combined company. The combined company and bank will operate under the Blue Ridge name and will trade under the ticker symbol “BRBS” on the NYSE American stock exchange. Subject to customary closing conditions, including regulatory and shareholder approvals, the merger is expected to close in the first quarter of 2020. Additional information on the merger can be found elsewhere in this joint proxy statement/prospectus.
Comparison of Financial Condition at JuneSeptember 30, 20192020 and December 31, 20182019
Total assets at JuneSeptember 30, 20192020 were $721.8 million,$1.5 billion, an increase of $182.2$562.5 million or 33.8%58.5%, from $539.6$960.8 million at December 31, 2018.2019. 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 asin addition to increases in cash and due from banks and other assets. Investment securities totaled $153.8 million at June 30, 2019, an increase of $95.0 million, or 161.7% 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 $62.0$193.1 million as of JuneSeptember 30, 2019,2020, an increase of $32.8$137.5 million, or 112.0%247.1% compared to $29.2$55.6 million at December 31, 2018, while loans2019. This growth was driven by increased origination volume in the mortgage division due to a lower rate environment, expansion of the retail mortgage business line, and the addition of the wholesale mortgage business line in late 2019. Loans held for investment totaled $452.2 million$1.04 billion as of JuneSeptember 30, 2019,2020, an increase of $37.4$392.3 million, or 9.0%60.7% compared to $414.8$646.8 million at December 31, 2018.2019. This increase was due to loans originated as part of the PPP beginning in the second quarter of 2020, which totaled $362 million at September 30, 2020. Cash and due from banks increased $17.6 million to $77.6 million at September 30, 2020 compared to $60.0 million at December 31, 2019. Other assets totaled $20.3$49.3 million at JuneSeptember 30, 2019,2020, an increase of $10.0$27.8 million, or 98.3%129.6% compared to $10.3$21.5 million as of December 31, 2018.2019. Investment securities decreased $5.6 million, or 4.3%, to $123.3 million at September 30, 2020 compared to $128.9 million at December 31, 2019. The increasedecrease is attributable to paydowns in other assets was primarily due to the implementation of ASUNo. 2016-02,Leases (Topic 842) and the recording of aright-of-use asset on the balance sheet for property leased for branches and offices.bond portfolio.
The allowance for loan losses increased by $474 thousand$7.6 million during the first sixnine months of 20192020 to $4.1$12.1 million, or 0.90%1.2% of total loans held for investment as of JuneSeptember 30, 2019,2020, compared to $3.6$4.6 million, or 0.86%0.71% of total loans held for investment as of December 31, 2018, reflective of2019. Imbedded in the growthloans held for investment balance is the credit mark on the loan portfolio acquired in Blue Ridge’s loan portfolio.merger with VCB as part of the acquisition accounting. This credit mark totaled $1.3 million and $2.2 million at September 30, 2020 and December 31, 2019, respectively.
At JuneSeptember 30, 2019,2020, total liabilities were $657.7 million,$1.4 billion, an increase of $157.7$554.9 million, or 31.5%63.9% compared to $500.0$868.5 million at December 31, 2018.2019. The increase in liabilities was concentrated in total deposit growth of $84.0$193.2 million, or 20.2%26.8%, to $499.0$915.3 million as of JuneSeptember 30, 20192020 compared to $415.0$722.0 million at December 31, 2018. FHLB2019. Included in this deposit growth are funds retained from customers as part of the PPP. Additionally, other borrowings increased $65.1$334.7 million, or 89.0% from $138.2268.2% to $459.5 million at Juneas of September 30, 20192020 compared to $73.1$124.8 million at December 31, 2018. Additionally, other2019. This increase was due to borrowings from the Federal Reserve Paycheck Protection Program Liquidity Facility to fund loans originated under the PPP. Other liabilities totaled $10.7$24.0 million as of JuneSeptember 30, 2019,2020, an increase of $8.6$12.2 million, or 414.6%102.7%, compared to $2.1$11.8 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.2019.
Total shareholders’ equity increased by $24.5$7.6 million to $64.1$99.9 million at JuneSeptember 30, 20192020 compared to $39.6$92.3 million at December 31, 2018.2019. The increase is attributable to net income during the first nine months of 2020 partially offset by changes in shareholders’ equity was due primarilyother comprehensive income related to unrealized losses in the sale of 1.5 million shares of Blue Ridge’s common stock in a private placement to accredited investors. Net proceeds from the sale amounted to $22.2 million.
Comparison of Financial Condition at December 31, 2018 and December 31, 2017
Total assets increased by $115.5 million in 2018, or 27.2%, from $424.1 million at December 31, 2017 to $539.6 million at December 31, 2018. The increase in total assets is primarily attributed to an increase in both the loans held for sale and loans held for investment portfolios. Loans held for sale increased $12.0 million, or 69.8% during 2018, from $17.2 million at December 31, 2017 to $29.2 million at December 31, 2018. Loans held for investment increased $84.1 million, or 25.4% during 2018, from $330.8 million at December 31, 2017, to $414.9 million at December 31, 2018. Blue Ridge’s loansecurities portfolio represents its largest asset class and contributoras well as unrealized losses related to interest income. Blue Ridge’s investment securities portfolio represents its second largest asset class and contributor to interest income and is generally maintained as a source of liquidity. In 2018, the available for sale investment portfolio increased by $5.5 million, or 16.8%, from $32.6 million at December 31, 2017, to $38.0 million at December 31, 2018. The held to maturity investment portfolio increased by $2.4 million, or 17.9%, from $13.2 million at December 31, 2017, to $15.6 million at December 31, 2018.rate swaps.
The allowance for loan losses increased by $777 thousand during 2018 to $3.6 million, or 0.86% of total loans held for investment as of December 31, 2018, compared to $2.8 million, or 0.85% of total loans held for investment as of December 31, 2017, reflective of the strong growth in Blue Ridge’s loan portfolio.
At December 31, 2018, total liabilities were $500.0 million, an increase of $112.3 million, or 28.9% compared to $387.7 million at December 31, 2017. The increase in liabilities was concentrated in FHLB borrowings, which increased $37.1 million to $73.1 million at December 31, 2018, and deposits, which increased $75.7 million to $415.0 million as of December 31, 2018.
Shareholders’ equity increased by $3.2 million in 2018, or 8.7%, from $36.4 million at December 31, 2017 to $39.6 million at December 31, 2018, primarily due to an increase in retained earnings of $3.1 million.
Comparison of Results of OperationOperations for the SixThree and Nine Months Ended JuneSeptember 30, 20192020 and 20182019
For the sixthree months ended JuneSeptember 30, 2019,2020, Blue Ridge reported net income of $2.8$5.0 million, equal to basic and diluted income per common share of $0.73.$0.88. For the sixthree months ended JuneSeptember 30, 2018,2019, net income was $2.3$1.3 million and both basic and diluted earnings per share were $0.84.$0.29.
For the nine months ended September 30, 2020, Blue Ridge reported net income of $12.1 million, equal to basic and diluted income per common share of $2.13. For the nine months ended September 30, 2019, net income was $4.1 million, equal to basic and diluted income per common share of $1.01.
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’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’s principal interest 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 FHLB advances. Generally, changes in net interest income are measured by the net interest rate spread and the net interest margin. The net interest rate spread is equal to the difference between the average rate earned on interest earning assets and the average rate incurred on interest-bearing liabilities. The net interest margin represents the difference between interest income and interest expense calculated as a percentage of average earning assets.
The following table shows the average balance sheets for the first sixnine months of 2019ended September 30, 2020 compared to the first sixnine months of 2018.ended September 30, 2019. 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.
Six Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, 2019 | June 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) | $ | 80,254 | $ | 1,344 | 3.35 | % | $ | 45,621 | $ | 744 | 3.26 | % | ||||||||||||
Tax-free investments (2) | 8,600 | 127 | 3.57 | % | 9,846 | 153 | 3.76 | % | ||||||||||||||||
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Total securities | 88,854 | 1,471 | 3.46 | % | 55,467 | 897 | 3.51 | % | ||||||||||||||||
Interest-bearing deposits in other banks | 14,465 | 124 | 1.71 | % | 10,270 | 45 | 0.87 | % | ||||||||||||||||
Federal funds sold | 331 | 4 | 2.41 | % | 1,130 | 9 | 1.66 | % | ||||||||||||||||
Loans held for sale | 39,260 | 770 | 3.92 | % | 10,931 | 226 | 4.13 | % | ||||||||||||||||
Loans held for investment (3) | 432,878 | 11,944 | 5.52 | % | 339,570 | 9,114 | 5.37 | % | ||||||||||||||||
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Total interest-earning assets | 575,788 | 14,313 | 4.98 | % | 417,368 | 10,291 | 4.95 | % | ||||||||||||||||
Less allowance for loan losses | (3,811 | ) | (2,923 | ) | ||||||||||||||||||||
Totalnon-interest earning assets | 32,384 | 20,326 | ||||||||||||||||||||||
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Total assets | $ | 604,361 | $ | 434,771 | ||||||||||||||||||||
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Liabilities & Shareholders’ equity | ||||||||||||||||||||||||
Interest-bearing demand and savings deposits | $ | 154,389 | $ | 737 | 0.95 | % | $ | 126,237 | $ | 330 | 0.52 | % | ||||||||||||
Time deposits | 197,819 | 1,991 | 2.01 | % | 162,364 | 1,229 | 1.51 | % | ||||||||||||||||
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Total interest-bearing deposits | 352,208 | 2,728 | 1.48 | % | 288,601 | 1,559 | 1.02 | % | ||||||||||||||||
FHLB advances and other borrowings | 102,525 | 1,533 | 2.99 | % | 43,947 | 670 | 3.05 | % | ||||||||||||||||
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Total interest-bearing liabilities | 454,733 | 4,261 | 1.87 | % | 332,548 | 2,229 | 1.34 | % | ||||||||||||||||
Demand deposits and other liabilities | 98,793 | 65,708 | ||||||||||||||||||||||
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Total liabilities | 553,526 | 398,256 | ||||||||||||||||||||||
Shareholders’ equity | 50,835 | 36,515 | ||||||||||||||||||||||
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Total liabilities and shareholders’ equity | $ | 604,361 | $ | 434,771 | ||||||||||||||||||||
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Interest rate spread | 3.11 | % | 3.61 | % | ||||||||||||||||||||
Net interest income and margin | $ | 10,052 | 3.49 | % | $ | 8,062 | 3.86 | % | ||||||||||||||||
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Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | |||||||||||||||||||||||
(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) | $ | 105,716 | $ | 1,841 | 2.32 | % | $ | 100,453 | $ | 2,384 | 3.16 | % | ||||||||||||
Tax-free investments (2) | 6,276 | 145 | 3.07 | % | 8,153 | 221 | 3.61 | % | ||||||||||||||||
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Total securities | 111,992 | 1,986 | 2.36 | % | 108,606 | 2,605 | 3.20 | % | ||||||||||||||||
Interest-bearing deposits in other banks | 118,094 | 305 | 0.34 | % | 17,852 | 218 | 1.63 | % | ||||||||||||||||
Federal funds sold | 673 | 2 | 0.39 | % | 338 | 6 | 2.37 | % | ||||||||||||||||
Loans held for sale | 113,016 | 2,420 | 2.86 | % | 46,800 | 1,333 | 3.80 | % | ||||||||||||||||
Loans held for investment (3) | 873,937 | 33,346 | 5.09 | % | 441,569 | 18,307 | 5.53 | % | ||||||||||||||||
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Total interest-earning assets | 1,217,712 | 38,059 | 4.17 | % | 615,165 | 22,469 | 4.87 | % | ||||||||||||||||
Less allowance for loan losses | (6,207 | ) | (3,953 | ) | ||||||||||||||||||||
Total non-interest earning assets | 101,524 | 31,742 | ||||||||||||||||||||||
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Total assets | $ | 1,313,029 | $ | 642,954 | ||||||||||||||||||||
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Liabilities & Shareholders’ equity | ||||||||||||||||||||||||
Interest-bearing demand and savings deposits | $ | 341,402 | $ | 1,192 | 0.47 | % | $ | 165,481 | $ | 1,194 | 0.96 | % | ||||||||||||
Time deposits | 263,755 | 3,697 | 1.87 | % | 210,448 | 3,297 | 2.09 | % | ||||||||||||||||
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Total interest-bearing deposits | 605,157 | 4,889 | 1.08 | % | 375,929 | 4,491 | 1.53 | % | ||||||||||||||||
FHLB advances and other borrowings | 328,779 | 2,648 | 1.07 | % | 113,989 | 2,452 | 2.87 | % | ||||||||||||||||
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Total interest-bearing liabilities | 933,936 | 7,537 | 1.08 | % | 489,918 | 6,943 | 1.89 | % | ||||||||||||||||
Demand deposits and other liabilities | 285,121 | 102,033 | ||||||||||||||||||||||
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Total liabilities | 1,219,057 | 591,951 | ||||||||||||||||||||||
Shareholders’ equity | 93,972 | 51,003 | ||||||||||||||||||||||
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Total liabilities and shareholders’ equity | $ | 1,313,029 | $ | 642,954 | ||||||||||||||||||||
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Interest rate spread | 3.09 | % | 2.98 | % | ||||||||||||||||||||
Net interest income and margin | $ | 30,522 | 3.34 | % | $ | 15,526 | 3.36 | % | ||||||||||||||||
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(1) | Annualized. |
(2) | Computed on a fully taxable equivalent basis. |
(3) | Non-accrual loans have been included in the computations of average loan balances. |
The increase in average interest-earning assets was primarily driven by an increase in average loans held for investment securities and averagefrom the acquisition of VCB in the latter part of the fourth quarter of 2019, in addition to loans and resulted
originated as part of the PPP beginning in increased interest incomethe second quarter of 2020. Additionally, there was a significant increase in interest-bearing deposits in other banks due to obtaining additional liquidity during the first six monthsuncertainty surrounding COVID-19, in addition to funds retained from customers as a result of 2019.the PPP. Total interest income increased by $4.0$6.3 million, or 39.1%77.9% for the three-month period ended September 30, 2020 as compared to the three-month period ended September 30, 2019, and increased $15.6 million, or 69.6%, for thesix-month nine-month period ended JuneSeptember 30, 20192020 as compared to the same period in 2018.2019.
Interest expense increaseddecreased by $2.0 million,$67 thousand, or 91.2%2.5%, to $4.3$2.6 million for the sixthree months ended JuneSeptember 30, 20192020 as compared to $2.3$2.7 million during the first sixthree months of 2018.ended September 30, 2019. Interest expense for the nine-month period ended September 30, 2020 increased $594 thousand, or 8.6%, compared to the nine-month period ended September 30, 2019. Average interest bearing-liabilities increased by 36.7%104.4% for thesix-month three-month period ended JuneSeptember 30, 2019,2020, as compared to the same period in 2018, and2019. This increase was primarily due to obtaining borrowings under the average cost of fundsFederal Reserve Paycheck Protection Program Liquidity Facility, which were used to fund loans originated under the PPP. Average interest bearing-liabilities increased to 1.87% duringby 90.6% for the first six months of 2019,nine-month period ended September 30, 2020, as compared to 1.34% during the first six months of 2018.same period in 2019.
Net interest income for thesix-month three-month period ended JuneSeptember 30, 20192020 was $10.1$11.8 million as compared to $8.1$5.4 million for the same period in 2018,2019, an increase of 24.7%$6.4 million, or 117.6%. Net interest income for the nine-month period ended September 30, 2020 was $30.5 million as compared to $15.5 million for the same period in 2019, an increase of $15.0 million, or 96.9%. The increase in net interest income during the period is primarily attributedattributable to an increase of $93.0 million in average loans held for investment and an increase in average loans held for sale outstanding of $28.3 millionearning assets from the acquisition of VCB in late 2019, and significant efforts to realign the balance sheet as a result of downward rate movements that occurred in 2020. Additionally, included in net interest income are net fees recognized for PPP, which are being recognized over the estimated expected lives of the PPP loans. Average earning assets increased $602.5 million to $1.2 billion for the nine-month period ended JuneSeptember 30, 20192020 compared to $615.2 million for the samenine month period in 2018.
ended September 30, 2019. Interest income and expense are affected by changes in interest rates, by changes in the volumes of earning assets and interest-bearing liabilities, and by changes in the mix of these assets and liabilities. The following rate-volume variance analysis shows theyear-to-date changes in the components of net interest income as of Junefor the nine months ended September 30, 20192020 compared to Junethe nine months ended September 30, 2018.2019.
Six Months Ended June 30, | ||||||||||||||||||||||||
2019 vs. 2018 | Nine Months Ended September 30, 2020 vs. 2019 | |||||||||||||||||||||||
Increase/ (Decrease) Due to | Total Increase/ (Decrease) | Increase/ (Decrease) Due to | Total Increase/ (Decrease) | |||||||||||||||||||||
(Dollars in thousands) | Volume | Rate | Volume | Rate | ||||||||||||||||||||
Interest Income | ||||||||||||||||||||||||
Taxable investments | $ | 565 | $ | 35 | $ | 600 | $ | 125 | $ | (667 | ) | $ | (542 | ) | ||||||||||
Tax-free investments | (23 | ) | (3 | ) | (26 | ) | (51 | ) | (26 | ) | (77 | ) | ||||||||||||
Interest bearing deposits in other banks | 18 | 61 | 79 | 1,222 | (1,135 | ) | 87 | |||||||||||||||||
Federal funds sold | (6 | ) | 1 | (5 | ) | 6 | (10 | ) | (4 | ) | ||||||||||||||
Loans available for sale | 584 | (40 | ) | 544 | 1,886 | (799 | ) | 1,087 | ||||||||||||||||
Loans held for investment | 2,506 | 324 | 2,830 | 17,926 | (2,887 | ) | 15,039 | |||||||||||||||||
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Total interest income | $ | 3,644 | $ | 378 | $ | 4,022 | $ | 21,114 | $ | (5,524 | ) | $ | 15,590 | |||||||||||
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Interest Expense | ||||||||||||||||||||||||
Interest-bearing demand and savings deposits: | $ | 74 | $ | 333 | $ | 407 | $ | 1,270 | $ | (1,272 | ) | $ | (2 | ) | ||||||||||
Time deposits | 268 | 494 | 762 | 835 | (434 | ) | 401 | |||||||||||||||||
FHLB advances and other borrowings | 892 | (29 | ) | 863 | 4,620 | (4,425 | ) | 195 | ||||||||||||||||
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Total interest expense | 1,234 | 798 | 2,032 | 6,725 | (6,131 | ) | 594 | |||||||||||||||||
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Change in Net Interest Income | $ | 2,410 | $ | (420 | ) | $ | 1,990 | $ | 14,389 | $ | 607 | $ | 14,996 | |||||||||||
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Provision for Loan Losses. The provision for loan losses was $895 thousand during thesix-month period ended June 30, 2019 as compared to $415 thousand during the six months ended June 30, 2018. Net charge-offs for such periods amounted to $421 thousand during the period ended June 30, 2019$4.0 million and $99 thousand in net charge-offs$8.1 million for the periodthree and nine month periods ended JuneSeptember 30, 2018. The increase in2020, respectively. In comparison, the provision for loan losses was $570 thousand and $1.5 million during the first six months ofthree and nine month periods ended September 30, 2019, comparedrespectively. Net charge-offs amounted to $83 thousand and $524 thousand for the three and nine month periods ended September 30, 2020, respectively, and $219 thousand and $640 thousand for the three and nine month periods ended September 30, 2019, respectively. The increased provisioning in 2020 is related to the likecontinued uncertainty surrounding COVID-19 deferred loans and borrower ability to resume repayment once the deferral period in 2018 was due to overall loan portfolio growth as well as changes in portfolio mix.ends.
Non-Interest IncomeIncome.. Blue Ridge’snon-interest income sources include deposit service charges and other fees, gains/lossesresidential mortgage banking income, gains on salessale of mortgages,U.S. Department of Agriculture guaranteed loans, and income from bank-owned life insurance (“BOLI”).insurance. Non-interest income totaled $9.3$17.8 million for the sixthree months ended JuneSeptember 30, 2019,2020, compared to $3.9$5.0 million for the like period in 2018.2019, an increase of $12.8 million, or 256.9%. Non-interest income increased $25.0 million, or 175.5%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase innon-interest income was primarily due to an increaseincreased volume at the mortgage division resulting in the recognition of $4.4$16.0 million in income related to the origination and sale of held for sale mortgages and a $700 thousand gain on life insurance proceedsfor the three months ended September 30, 2020 compared to $3.9 million for the three months ended September 30, 2019, an increase of $12.1 million, or 306.9%. Blue Ridge recognized $35.2 million in income related to BOLI.the origination and sale of held for sale mortgages for the nine months ended September 30, 2020 compared to $11.0 million for the nine months ended September 30, 2019, an increase of $24.2 million, or 221.1%. Included in mortgage income beginning in 2020 is income recognized as part of retaining mortgage servicing rights, which amounted to $1.6 million and $3.2 million for the three and nine month periods ended September 30, 2020, respectively.
Non-Interest Expense.Non-interest expense totaled $15.0$18.8 million and $46.0 million for thesix-month period three and nine months ended JuneSeptember 30, 20192020, respectively, as compared to $8.6$8.2 million and $23.2 million for the same period in 2018, a 73.9% increase. Thisthree and nine months ended September 30, 2019, respectively, an increase wasof $10.6 million, or 129.2%, and $22.7 million, or 97.9%, respectively. These increases were primarily due to an increase in salaries and employee benefits of $4.4$6.8 million, or 93.1%133.9%, for the three month period ended September 30, 2020 compared to the three month period ended September 30, 2019, and an increase of $15.9 million, or 113.0%, for the nine month period ended September 30, 2020 compared to the nine month period ended September 30, 2019. The primary driver of these increases relates to the employees retained in the acquisitions of VCB and LenderSelect Mortgage Group, a wholesale mortgage business, at the end of 2019 in addition to the additional hires needed to keep up with increased mortgage demand. Increased mortgage volume has also resulted in increased commission expense being recognized in 2020 as compared to like periods in 2019. Occupancy expenses increased $295 thousand to $922 thousand for the three-month period ended September 30, 2020, compared to $627 thousand for the three-month period ended September 30, 2019, an increase inof 46.9%. Occupancy expenses increased $786 thousand, or 42.1%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Increased occupancy expenses are primarily a result of $538additional leased locations to support the mortgage division. Data processing costs increased $262 thousand to $1.2$675 thousand for the three-month period ended September 30, 2020 as compared to $413 thousand for the same period in 2019, an increase of 63.5%. Data processing costs increased $731 thousand to $1.8 million for thesix-month nine-month period ended JuneSeptember 30, 2019,2020 as compared to $702 thousand of$1.1 million for the likesame period in 2018. Other contractual services also2019. These increases in data processing costs are due to additional core processing expenses related to onboarding the VCB customer base in the merger, carryover core integration expenses related to the acquisition of VCB, and additional data processing costs associated with increased $562 thousandvolume in the mortgage division. Legal, issuer, and regulatory filing fees increased $1.2 million and $1.1 million for the three and nine month periods ended September 30, 2020. These increases are largely due to $742 thousand at June 30, 2019 from $180 thousand at June 30, 2018 as a result ofmerger related expenses associated with the pending merger to Virginia Community.with Bay Banks.
Income Tax ExpenseExpense.. During the sixthree and nine months ended JuneSeptember 30, 2019,2020, Blue Ridge recognized a provision for income taxes of $610 thousand,$1.7 million and $3.6 million, respectively, for an effective tax rate of 17.8%25.2% and 23.0%, as compared to a provision of $615$379 thousand and $989 thousand for the three and nine months ended
September 30, 2019, for an effective tax rate of 21.0%23.2% and 19.6%, respectively. The higher tax rates in 2020 are due to merger expenses, a portion of which are considered non-deductible. The lower tax rate for the periodnine months ended June 30, 2018.September 2019 was due to nontaxable proceeds from bank owned life insurance policies received in second quarter 2019.
Comparison of Results of Operations for the Years Ended December 31, 20182019 and 20172018
For the year ended December 31, 2018,2019, Blue Ridge reported net income of $4.6$4.8 million, compared to $3.5$4.6 million reported during 2017.for 2018. Basic and diluted earnings per share were $1.14 in 2019 compared to $1.64 in 2018 compared to $1.22 in 2017.2018.
Net Interest Income. Net interest income is the excess of interest earned on loans and investments over the interest paid on deposits and borrowings and is Blue Ridge’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.
Net interest income was $21.4 million for the year ended December 31, 2019, compared to $17.3 million for the year ended December 31, 2018, compared to $14.6 million2018. Net interest margin was 3.48% for the year ended December 31, 2017. Net interest margin was2019 compared to 3.88% for the year ended December 31, 2018 compared to 3.73% at December 31, 2017.2018. The increase in net interest income in 20182019 was primarily due to continued growth in the loan portfolio in addition to significant growth in the investment portfolio.
The following table shows the average balance sheets for each of the years ended December 31, 2019, 2018 2017 and 2016.2017. In addition, the amounts of interest earned on interest-earning assets, with related yields, and interest expense on interest-bearing liabilities, with related rates, are shown.
For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Taxable investments (1) | $ | 46,940 | $ | 1,574 | 3.35 | % | $ | 36,031 | $ | 1,132 | 3.14 | % | $ | 29,056 | $ | 890 | 3.06 | % | $ | 103,698 | $ | 3,286 | 3.17 | % | $ | 46,940 | $ | 1,574 | 3.35 | % | $ | 36,031 | $ | 1,132 | 3.14 | % | ||||||||||||||||||||||||||||||||||||
Tax-free investments (1) | 9,497 | 353 | 3.72 | % | 7,951 | 336 | 4.22 | % | 8,307 | 376 | 4.53 | % | 7,832 | 285 | 3.64 | % | 9,497 | 353 | 3.72 | % | 7,951 | 336 | 4.22 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total securities | 56,437 | 1,927 | 3.42 | % | 43,982 | 1,468 | 3.34 | % | 37,363 | 1,266 | 3.39 | % | 111,530 | 3,571 | 3.20 | % | 56,437 | 1,927 | 3.42 | % | 43,982 | 1,468 | 3.34 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits in other banks | 9,051 | 75 | 0.83 | % | 17,040 | 146 | 0.85 | % | 10,682 | 40 | 0.38 | % | 15,530 | 266 | 1.71 | % | 9,051 | 75 | 0.83 | % | 17,040 | 146 | 0.85 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Federal funds sold | 882 | 17 | 1.93 | % | 1,552 | 17 | 1.08 | % | 1,154 | 13 | 1.13 | % | 313 | 10 | 3.06 | % | 882 | 17 | 1.93 | % | 1,552 | 17 | 1.08 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans available for sale | 18,381 | 786 | 4.28 | % | 15,583 | 505 | 3.24 | % | 16,985 | 458 | 2.70 | % | 53,148 | 1,940 | 3.65 | % | 18,381 | 786 | 4.28 | % | 15,583 | 505 | 3.24 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans held for investment (including loan fees) (2) | 360,872 | 19,693 | 5.46 | % | 312,435 | 16,430 | 5.26 | % | 263,456 | 11,753 | 4.46 | % | 458,927 | 25,150 | 5.48 | % | 360,872 | 19,693 | 5.46 | % | 312,435 | 16,430 | 5.26 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total interest-earning assets | 445,623 | 22,498 | 5.05 | % | 390,592 | 18,566 | 4.75 | % | 329,640 | 13,530 | 4.10 | % | 639,448 | 30,937 | 4.84 | % | 445,623 | 22,498 | 5.05 | % | 390,592 | 18,566 | 4.75 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Less allowance for loan losses | (3,580 | ) | (2,802 | ) | (2,013 | ) | (4,572 | ) | (3,580 | ) | (2,802 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total noninterest earning assets | 21,597 | 20,079 | 15,890 | 41,611 | 21,597 | 20,079 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total assets | $ | 463,640 | $ | 407,869 | $ | 343,517 | $ | 676,487 | $ | 463,640 | $ | 407,869 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Liabilities and shareholders’ equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing demand and savings deposits | $ | 133,431 | $ | 814 | 0.61 | % | $ | 115,455 | $ | 490 | 0.42 | % | $ | 91,459 | $ | 416 | 0.45 | % | $ | 170,251 | $ | 1,663 | 0.98 | % | $ | 133,431 | $ | 814 | 0.61 | % | $ | 115,455 | $ | 490 | 0.42 | % | ||||||||||||||||||||||||||||||||||||
Time deposits | 165,317 | 2,698 | 1.63 | % | 159,202 | 2,238 | 1.41 | % | 129,071 | 1,454 | 1.13 | % | 216,313 | 4,546 | 2.10 | % | 165,317 | 2,698 | 1.63 | % | 159,202 | 2,238 | 1.41 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total interest-bearing deposits | 298,748 | 3,512 | 1.18 | % | 274,657 | 2,728 | 0.99 | % | 220,530 | 1,870 | 0.85 | % | 386,564 | 6,209 | 1.61 | % | 298,748 | 3,512 | 1.18 | % | 274,657 | 2,728 | 0.99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Other borrowings | 53,509 | 1,640 | 3.06 | % | 37,168 | 1,203 | 3.24 | % | 44,973 | 1,211 | 2.69 | % | 121,201 | 3,310 | 2.73 | % | 53,509 | 1,640 | 3.06 | % | 37,168 | 1,203 | 3.24 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total interest-bearing liabilities | 352,257 | 5,152 | 1.46 | % | 311,825 | 3,931 | 1.26 | % | 265,503 | 3,081 | 1.16 | % | 507,765 | 9,519 | 1.87 | % | 352,257 | 5,152 | 1.46 | % | 311,825 | 3,931 | 1.26 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Other noninterest bearing liabilities | 73,552 | 60,787 | 49,150 | 108,728 | 73,552 | 60,787 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 37,831 | 35,257 | 28,864 | 59,994 | 37,831 | 35,257 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total liabilities and shareholders’ equity | $ | 463,640 | $ | 407,869 | $ | 343,517 | $ | 676,487 | $ | 463,640 | $ | 407,869 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Interest rate spread | 3.59 | % | 3.49 | % | 2.94 | % | 2.96 | % | 3.59 | % | 3.49 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income and margin | $ | 17,346 | 3.88 | % | $ | 14,635 | 3.73 | % | $ | 10,449 | 3.14 | % | $ | 21,418 | 3.34 | % | $ | 17,346 | 3.88 | % | $ | 14,635 | 3.73 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Computed on a fully taxable equivalent basis. |
(2) | Non-accrual loans have been included in the computations of average loan balances. |
Interest income and expense are affected by changes in interest rates, by changes in the volumes of earning assets and interest-bearing liabilities, and by changes in the mix of these assets and liabilities. The following rate-volume variance analysis shows theyear-to-year changes in the components of net interest income.income:
2018 compared to 2017 | 2017 compared to 2016 | 2019 compared to 2018 | 2018 compared to 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Increase/(Decrease) Due to | Total Increase/ (Decrease) | Increase/(Decrease) Due to | Total Increase/ (Decrease) | Increase/(Decrease) Due to | Total Increase/ (Decrease) | Increase/(Decrease) Due to | Total Increase/ (Decrease) | |||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Volume | Rate | Volume | Rate | Volume | Rate | Volume | Rate | ||||||||||||||||||||||||||||||||||||||||
Interest Income | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable investments | $ | 366 | $ | 76 | $ | 442 | $ | 219 | $ | 23 | $ | 242 | $ | 1,904 | $ | (192 | ) | $ | 1,712 | $ | 366 | $ | 76 | $ | 442 | |||||||||||||||||||||||
Tax-free investments | 57 | (40 | ) | 17 | (15 | ) | (26 | ) | (41 | ) | (62 | ) | (6 | ) | (68 | ) | 57 | (40 | ) | 17 | ||||||||||||||||||||||||||||
Interest bearing deposits in other banks | (66 | ) | (4 | ) | (70 | ) | (237 | ) | 342 | 105 | 54 | 137 | 191 | (66 | ) | (4 | ) | (70 | ) | |||||||||||||||||||||||||||||
Federal funds sold | (13 | ) | 13 | — | 4 | — | 4 | (11 | ) | 4 | (7 | ) | (13 | ) | 13 | — | ||||||||||||||||||||||||||||||||
Loans available for sale | 120 | 161 | 281 | (45 | ) | 93 | 48 | 1,486 | (332 | ) | 1,154 | 120 | 161 | 281 | ||||||||||||||||||||||||||||||||||
Loans held for investment | 2,643 | 619 | 3,262 | 2,576 | 2,102 | 4,678 | 5,350 | 107 | 5,457 | 2,643 | 619 | 3,262 | ||||||||||||||||||||||||||||||||||||
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Total interest income | $ | 3,107 | $ | 825 | $ | 3,932 | $ | 2,502 | $ | 2,534 | $ | 5,036 | $ | 8,721 | $ | (282 | ) | $ | 8,439 | $ | 3,107 | $ | 825 | $ | 3,932 | |||||||||||||||||||||||
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Interest Expense | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing demand and savings deposits: | $ | 110 | $ | 213 | $ | 323 | $ | 102 | (28 | ) | $ | 74 | $ | 225 | $ | 625 | $ | 850 | $ | 110 | 213 | $ | 323 | |||||||||||||||||||||||||
Time deposits | 100 | 361 | 461 | 424 | 361 | 785 | 832 | 1,015 | 1,847 | 100 | 361 | 461 | ||||||||||||||||||||||||||||||||||||
FHLB advances and other borrowings | 501 | (64 | ) | 437 | (253 | ) | 244 | (9 | ) | 2,074 | (404 | ) | 1,670 | 501 | (64 | ) | 437 | |||||||||||||||||||||||||||||||
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Total interest expense | 711 | 510 | 1,221 | 273 | 577 | 850 | 3,131 | 1,236 | 4,367 | 711 | 510 | 1,221 | ||||||||||||||||||||||||||||||||||||
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Change in Net Interest Income | $ | 2,396 | $ | 315 | $ | 2,711 | $ | 2,229 | $ | 1,957 | $ | 4,186 | $ | 5,590 | $ | (1,518 | ) | $ | 4,072 | $ | 2,396 | $ | 315 | $ | 2,711 | |||||||||||||||||||||||
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Provision for Loan Losses. The provision for loan losses was $1.7 million during the year ended December 31, 2019 as compared to $1.2 million during the year ended December 31, 2018 as compared to $1.1 million during the year ended December 31, 2017.2018. Net charge-offs for such periods amounted to $448$750 thousand during the year ended December 31, 20182019 and $306$448 thousand in net charge-offs for the periodyear ended December 31, 2017.2018. The increase in the provision for loan losses during 20182019 compared to the like period in 20172018 was due to overall loan portfolio growth as well as changes in portfolio mix.
Non-Interest IncomeIncome. . Blue Ridge’snon-interest income sources include deposit service charges and other fees, gains/losses on sales of mortgages, and income from BOLI.bank owned life insurance. Non-interest income totaled $10.1$18.8 million for the year ended December 31, 2018,2019, compared to $8.0$10.1 million for the like period in 2017.2018. The increase innon-interest income was largely due to an increase of $1.6$7.2 million related to the origination and sale of held for sale mortgages. Additionally, earnings on investment in life insurance increased $735 thousand largely due to Blue Ridge receiving life insurance proceeds. The following table provides detail for non-interest income for the years ended December 31, 2019 and 2018:
For the Years Ended December 31, | ||||||||
Non-Interest Income (in thousands) | 2019 | 2018 | ||||||
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Service charges on deposit accounts | $ | 651 | $ | 635 | ||||
Earnings on investment in life insurance | 936 | 200 | ||||||
Mortgage brokerage income | 4,046 | 2,724 | ||||||
Gain on sale of mortgages | 10,387 | 4,541 | ||||||
Gain on disposal of assets | 1 | 1 | ||||||
Gain on sale of securities | 451 | 5 | ||||||
Loss on sale of OREO | (43 | ) | — | |||||
Gain on sale of guaranteed USDA loans | 298 | — | ||||||
Small business investment company fund income | 49 | 208 | ||||||
Payroll processing income through MoneyWise Payroll Solutions | 980 | 1,015 | ||||||
Interchange income | 642 | 513 | ||||||
Insurance income | 97 | — | ||||||
Credit mark recovery income | 200 | 200 | ||||||
Other income | 101 | 81 | ||||||
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Total Non-interest Income | $ | 18,796 | $ | 10,123 | ||||
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Non-Interest Expense. Non-interest expense totaled $20.5$32.8 million for the year ended December 31, 20182019 as compared to $15.8$20.5 million for the same period in 2017,2018, a 29.1%60.5% increase. This was primarily due to an increase in salaries and employee benefits of $3.2$7.5 million, or 36.3%63.2%, which was a result of Blue Ridge hiring individuals in key positions to expand its team, in addition to hiring individuals to lead its new branch in Greensboro, North Carolina, and expanding its mortgage operations in Northern Virginia.
For the Years Ended December 31, | ||||||||
Non-Interest Expense (in thousands) | 2019 | 2018 | ||||||
Salaries and employee benefits | $ | 19,328 | $ | 11,843 | ||||
Occupancy and equipment expenses | 2,538 | 1,614 | ||||||
Data processing | 1,902 | 1,111 | ||||||
Legal and other professional fees | 1,778 | 413 | ||||||
Advertising expense | 810 | 485 | ||||||
Communications | 441 | 401 | ||||||
Debit card expenses | 363 | 290 | ||||||
Directors fees | 231 | 190 | ||||||
Audits and accounting fees | 258 | 143 | ||||||
FDIC insurance expense | 420 | 250 | ||||||
Other contractual services | 382 | 347 | �� | |||||
Other taxes and assessments | 661 | 551 | ||||||
Printing, postage, stationery, and supplies | 444 | 405 | ||||||
Education, dues, travel, meals and entertainment | 806 | 521 | ||||||
Amortization expense | 489 | 602 | ||||||
Mortgage loan funding/underwriting/closing | 670 | 311 | ||||||
Insurance expense | 153 | 123 | ||||||
Mortgage reserve expense | 327 | 53 | ||||||
Other expenses | 844 | 864 | ||||||
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Total Non-interest Expense | $ | 32,845 | $ | 20,464 | ||||
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Income Tax Expense.During the year ended December 31, 2018,2019, Blue Ridge recognized a provision for income taxes of $826 thousand, for an effective tax rate of 14.8%, as compared to a provision of $1.1 million, for an effective tax rate of 20.1%, as compared to a provision of $2.1 million, for an effective tax rate of 38.0% for the year ended December 31, 2017. The decline in Blue Ridge’s effective tax rate from 2017 is primarily due to the Tax Cuts and Jobs Act of 2017, which reduced the federal statutory rate to 21% beginning in 2018.
Analysis of Financial Condition
Loan Portfolio. Blue Ridge makes loans to individuals as well as to commercial entities. Specific loan terms vary as to interest rate, repayment and collateral requirements based on the type of loan requested and the creditworthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by Blue Ridge. All loans are underwritten within specific lending policy guidelines that are designed to maximize Blue Ridge’s profitability within an acceptable level of business risk.
The following table sets forth the distribution of Blue Ridge’s loan portfolio at the dates indicated by category of loan and the percentage of loans in each category to total loans.
At June 30, | At December 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | At September 30, 2020 | At December 31, 2019 | ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
Commercial and financial | $ | 48,243 | 10.66 | % | $ | 49,076 | 11.81 | % | $ | 49,956 | 15.06 | % | $ | 444,718 | 42.50 | % | $ | 77,728 | 12.00 | % | ||||||||||||||||||||
Agricultural | 140 | 0.03 | % | 216 | 0.05 | % | 314 | 0.09 | % | |||||||||||||||||||||||||||||||
Real estate – construction, commercial | 18,028 | 3.98 | % | 14,666 | 3.53 | % | 11,502 | 3.47 | % | 49,884 | 4.77 | % | 38,039 | 5.87 | % | |||||||||||||||||||||||||
Real estate – construction, residential | 14,681 | 3.24 | % | 15,102 | 3.63 | % | 8,136 | 2.45 | % | 19,001 | 1.82 | % | 26,778 | 4.14 | % | |||||||||||||||||||||||||
Real estate – mortgage, commercial | 164,472 | 36.33 | % | 150,513 | 36.22 | % | 111,796 | 33.71 | % | 272,778 | 26.05 | % | 251,824 | 38.89 | % | |||||||||||||||||||||||||
Real estate – mortgage, residential | 165,557 | 36.57 | % | 149,856 | 36.06 | % | 119,795 | 36.14 | % | 210,679 | 20.13 | % | 208,494 | 32.20 | % | |||||||||||||||||||||||||
Real estate – mortgage, farmland | 3,833 | 0.84 | % | 4,179 | 1.01 | % | 4,656 | 1.40 | % | 4,176 | 0.40 | % | 5,507 | 0.85 | % | |||||||||||||||||||||||||
Consumer installment loans | 37,817 | 8.35 | % | 31,979 | 7.69 | % | 25,478 | 7.68 | % | 45,144 | 4.31 | % | 39,202 | 6.05 | % | |||||||||||||||||||||||||
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Gross loans | 452,771 | 100.00 | % | 415,587 | 100.00 | % | 331,633 | 100.00 | % | 1,046,380 | 100.00 | % | 647,572 | 100.00 | % | |||||||||||||||||||||||||
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Less: Unearned Income | (541 | ) | (719 | ) | (829 | ) | (7,200 | ) | (738 | ) | ||||||||||||||||||||||||||||||
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Gross loans, net of unearned income | 452,230 | 414,868 | 330,804 | 1,039,180 | 646,834 | |||||||||||||||||||||||||||||||||||
Less: Allowance for loan losses | (4,054 | ) | (3,580 | ) | (2,802 | ) | (12,123 | ) | (4,572 | ) | ||||||||||||||||||||||||||||||
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Net loans | $ | 448,176 | $ | 411,288 | $ | 328,002 | $ | 1,027,057 | $ | 642,262 | ||||||||||||||||||||||||||||||
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Loans and leases held for sale | $ | 61,976 | $ | 29,233 | $ | 17,220 | $ | 193,122 | $ | 55,646 | ||||||||||||||||||||||||||||||
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(not included in totals above) |
At December 31, | At December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | 2014 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||||||||
Commercial and financial | $ | 50,520 | 15,75 | % | $ | 30,325 | 14.61 | % | $ | 25,510 | 13.64 | % | $ | 49,956 | 15.06 | % | $ | 50,520 | 15.75 | % | $ | 30,325 | 14.61 | % | ||||||||||||||||||||||||
Agricultural | 896 | 0.28 | % | 257 | 0.12 | % | 194 | 0.10 | % | 314 | 0.09 | % | 896 | 0.28 | % | 257 | 0.12 | % | ||||||||||||||||||||||||||||||
Real estate – construction, commercial | 17,737 | 5.53 | % | 13,890 | 6.69 | % | 11,449 | 6.12 | % | 11,502 | 3.47 | % | 17,737 | 5.53 | % | 13,890 | 6.69 | % | ||||||||||||||||||||||||||||||
Real estate – construction, residential | 5,126 | 1.60 | % | 3,305 | 1.59 | % | 2,224 | 1.19 | % | 8,136 | 2.45 | % | 5,126 | 1.60 | % | 3,305 | 1.59 | % | ||||||||||||||||||||||||||||||
Real estate – mortgage, commercial | 109,750 | 34.21 | % | 59,845 | 28.84 | % | 60,585 | 32.39 | % | 111,796 | 33.71 | % | 109,750 | 34.21 | % | 59,845 | 28.84 | % | ||||||||||||||||||||||||||||||
Real estate – mortgage, residential | 116,014 | 36.15 | % | 84,317 | 40.64 | % | 76,400 | 40.85 | % | 119,795 | 36.14 | % | 116,014 | 36.15 | % | 84,317 | 40.64 | % | ||||||||||||||||||||||||||||||
Real estate – mortgage, farmland | 4,514 | 1.41 | % | 5,144 | 2.48 | % | 6,148 | 3.29 | % | 4,66 | 1.40 | % | 4,514 | 1.41 | % | 5,144 | 2.48 | % | ||||||||||||||||||||||||||||||
Consumer installment loans | 16,281 | 5.07 | % | 10,413 | 5.03 | % | 4,536 | 2.42 | % | 25,478 | 7.68 | % | 16,281 | 5.07 | % | 10,413 | 5.03 | % | ||||||||||||||||||||||||||||||
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Gross loans | 320,838 | 100.00 | % | 207,496 | 100.00 | % | 187,046 | 100.00 | % | 331,633 | 100.00 | % | 320,838 | 100.00 | % | 207,496 | 100.00 | % | ||||||||||||||||||||||||||||||
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Less: Unearned Income | (1,210 | ) | (212 | ) | (201 | ) | (829 | ) | (1,210 | ) | (212 | ) | ||||||||||||||||||||||||||||||||||||
Gross loans, net of unearned income | 319,628 | 207,284 | 186,845 | 330,804 | 319,628 | 207,284 | ||||||||||||||||||||||||||||||||||||||||||
Less: Allowance for loan losses | (2,013 | ) | (2,347 | ) | (2,121 | ) | (2,802 | ) | (2,013 | ) | (2,347 | ) | ||||||||||||||||||||||||||||||||||||
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Net loans | $ | 317,615 | $ | 204,937 | $ | 184,724 | $ | 328,002 | $ | 317,615 | $ | 204,937 | ||||||||||||||||||||||||||||||||||||
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Loans and leases held for sale | $ | 24,656 | $ | 9,315 | $ | — | ||||||||||||||||||||||||||||||||||||||||||
Loans and leases held for sale (not included in totals above) | $ | 17,220 | $ | 24,656 | $ | 9,315 | ||||||||||||||||||||||||||||||||||||||||||
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(not included in totals above) |
The following table sets forth the repricing characteristics and sensitivity to interest rate changes of ourBlue Ridge’s loan portfolio at JuneSeptember 30, 20192020 and December 31, 2018.2019 (dollars in thousands).
June 30, 2019 | One Year or Less | Between One and Five Years | After Five Years | Total | ||||||||||||||||||||||||||||
September 30, 2020 | One Year or Less | Between One and Five Years | After Five Years | Total | ||||||||||||||||||||||||||||
Commercial and financial | $ | 12,241 | $ | 16,431 | $ | 19,571 | $ | 48,243 | $ | 294,114 | $ | 110,833 | $ | 39,771 | $ | 444,718 | ||||||||||||||||
Agricultural | 103 | 37 | — | 140 | ||||||||||||||||||||||||||||
Real estate – construction, commercial | 7,609 | 8,762 | 1,657 | 18,028 | 13,990 | 25,434 | 10,460 | 49,884 | ||||||||||||||||||||||||
Real estate – construction, residential | 14,681 | — | — | 14,681 | 18,503 | 498 | — | 19,001 | ||||||||||||||||||||||||
Real estate – mortgage, commercial | 20,077 | 58,860 | 85,535 | 164,472 | 18,484 | 138,958 | 115,336 | 272,778 | ||||||||||||||||||||||||
Real estate – mortgage, residential | 8,904 | 20,018 | 136,635 | 165,557 | 10,082 | 40,798 | 159,799 | 210,679 | ||||||||||||||||||||||||
Real estate – mortgage, farmland | 147 | 1,782 | 1,904 | 3,833 | 214 | 2,048 | 1,914 | 4,176 | ||||||||||||||||||||||||
Consumer installment loans | 757 | 28,813 | 8,247 | 37,817 | 1,000 | 37,016 | 7,128 | 45,144 | ||||||||||||||||||||||||
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Gross loans | $ | 64,519 | $ | 134,703 | $ | 253,549 | $ | 452,771 | $ | 356,387 | $ | 355,585 | $ | 334,408 | $ | 1,046,380 | ||||||||||||||||
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Fixed-rate loans | $ | 51,081 | $ | 124,834 | $ | 143,607 | $ | 319,522 | $ | 326,630 | $ | 327,778 | $ | 149,129 | $ | 803,537 | ||||||||||||||||
Floating-rate loans | 13,438 | 9,869 | 109,942 | 133,249 | 29,757 | 27,807 | 185,279 | 242,843 | ||||||||||||||||||||||||
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Net loans | $ | 64,519 | $ | 134,703 | $ | 253,549 | $ | 452,771 | ||||||||||||||||||||||||
Gross loans | $ | 356,387 | $ | 355,585 | $ | 334,408 | $ | 1,046,380 | ||||||||||||||||||||||||
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December 31, 2018 | One Year or Less | Between One and Five Years | After Five Years | Total | ||||||||||||||||||||||||||||
Commercial and financial | $ | 11,880 | $ | 19,583 | $ | 17,613 | $ | 49,076 | ||||||||||||||||||||||||
Agricultural | 183 | 33 | — | 216 | ||||||||||||||||||||||||||||
Real estate – construction, commercial | 6,987 | 6,412 | 1,267 | 14,666 | ||||||||||||||||||||||||||||
Real estate – construction, residential | 15,102 | — | — | 15,102 | ||||||||||||||||||||||||||||
Real estate – mortgage, commercial | 21,403 | 52,743 | 76,367 | 150,513 | ||||||||||||||||||||||||||||
Real estate – mortgage, residential | 11,353 | 18,291 | 120,212 | 149,856 | ||||||||||||||||||||||||||||
Real estate – mortgage, farmland | 723 | 1,494 | 1,962 | 4,179 | ||||||||||||||||||||||||||||
Consumer installment loans | 787 | 23,378 | 7,814 | 31,979 | ||||||||||||||||||||||||||||
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Gross loans | $ | 68,418 | $ | 121,934 | $ | 225,235 | $ | 415,587 | ||||||||||||||||||||||||
Fixed-rate loans | $ | 52,431 | $ | 115,860 | $ | 126,942 | $ | 295,233 | ||||||||||||||||||||||||
Floating-rate loans | 15,987 | 6,074 | 98,293 | 120,354 | ||||||||||||||||||||||||||||
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Net loans | $ | 68,418 | $ | 121,934 | $ | 225,235 | $ | 415,587 | ||||||||||||||||||||||||
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December 31, 2019 | One Year or Less | Between One and Five Years | After Five Years | Total | ||||||||||||
Commercial and financial | $ | 22,807 | $ | 28,022 | $ | 26,899 | $ | 77,728 | ||||||||
Real estate – construction, commercial | 14,133 | 18,160 | 5,746 | 38,039 | ||||||||||||
Real estate – construction, residential | 26,279 | 499 | — | 26,778 | ||||||||||||
Real estate – mortgage, commercial | 28,085 | 125,687 | 98,052 | 251,824 | ||||||||||||
Real estate – mortgage, residential | 11,237 | 41,062 | 156,195 | 208,494 | ||||||||||||
Real estate – mortgage, farmland | 445 | 1,453 | 3,609 | 5,507 | ||||||||||||
Consumer installment loans | 3,154 | 30,870 | 5,178 | 39,202 | ||||||||||||
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Gross loans | $ | 106,140 | $ | 245,753 | $ | 295,679 | $ | 647,572 | ||||||||
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Fixed-rate loans | $ | 70,659 | $ | 223,941 | $ | 133,914 | $ | 428,514 | ||||||||
Floating-rate loans | 35,481 | 21,812 | 161,765 | 219,058 | ||||||||||||
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Gross loans | $ | 106,140 | $ | 245,753 | $ | 295,679 | $ | 647,572 | ||||||||
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Blue Ridge prepares a quarterly analysis of the allowance for loan losses, with the objective of quantifying portfolio risk into a dollar amount of inherent losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged against income and decreased by loanscharged-off (net of recoveries, if any). Management’s periodic evaluation of the adequacy of the allowance 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 coversnon-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.
Blue Ridge follows applicable guidance within the Financial Accounting Standards Board Accounting Standards Codification.issued by FASB. 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.
Loans are evaluated fornon-accrual status when principal or interest is delinquent for 90 days or more and are placed onnon-accrual status when a loan is specifically determined to be impaired. Any unpaid interest previously accrued on those loans is reversed from income. Any interest payments subsequently received are recognized as income or amortized over the life of the refinanced loan depending on the specific circumstances. Interest payments received on loans, where management believes a potential for loss remains, are applied as a reduction of the loan principal balance.
Management believes that the allowance for loan losses is adequate. There can be no assurance, however, that adjustments to the provision for loan losses will not be required in the future. Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in Blue Ridge’s market area; the impact of COVID-19;or changes in the circumstances of particular borrowers are criteria that could change and make adjustments to the provision for loan losses necessary.
The following table presents a summary of the provision and allowance for loan losses for the periods indicated:
Six Months Ended June 30, 2019 | Year Ended December 31, | Nine Months Ended September 30, 2020 | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | 2016 | 2015 | 2014 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||||
Allowance, beginning of period | $ | 3,580 | $ | 2,803 | $ | 2,013 | $ | 2,347 | $ | 2,121 | $ | 2,071 | $ | 4,572 | $ | 3,580 | $ | 2,803 | $ | 2,013 | $ | 2,347 | $ | 2,121 | ||||||||||||||||||||||||
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Charge-Offs | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 79 | $ | 6 | $ | — | $ | 1,019 | $ | 28 | $ | — | $ | — | $ | (43 | ) | $ | 6 | $ | — | $ | 1,019 | $ | 28 | |||||||||||||||||||||||
Real estate, construction | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Real estate, mortgage | 3 | 13 | 71 | — | — | 1 | — | (4 | ) | 13 | 71 | — | — | |||||||||||||||||||||||||||||||||||
Consumer and other loans | 425 | 545 | 365 | 306 | 91 | 23 | (787 | ) | (914 | ) | 545 | 365 | 306 | 91 | ||||||||||||||||||||||||||||||||||
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Total charge-offs | 507 | 564 | 436 | 1,325 | 119 | 24 | (787 | ) | (961 | ) | 564 | 436 | 1,325 | 119 | ||||||||||||||||||||||||||||||||||
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Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | (8 | ) | — | (35 | ) | (1 | ) | — | — | 34 | — | — | (35 | ) | (1 | ) | — | |||||||||||||||||||||||||||||||
Real estate, construction | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Real estate, mortgage | — | (12 | ) | (1 | ) | — | — | — | — | 6 | (12 | ) | (1 | ) | — | — | ||||||||||||||||||||||||||||||||
Consumer and other loans | (78 | ) | (104 | ) | (95 | ) | (64 | ) | (25 | ) | (4 | ) | 229 | 205 | (104 | ) | (95 | ) | (64 | ) | (25 | ) | ||||||||||||||||||||||||||
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Total recoveries | (86 | ) | (116 | ) | (131 | ) | (65 | ) | (25 | ) | (4 | ) | 263 | 211 | (116 | ) | (131 | ) | (65 | ) | (25 | ) | ||||||||||||||||||||||||||
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Net charge-offs | 421 | 448 | 305 | 1,260 | 94 | 20 | (524 | ) | (750 | ) | 448 | 305 | 1,260 | 94 | ||||||||||||||||||||||||||||||||||
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Provision for loan losses | 895 | 1,225 | 1,095 | 926 | 320 | 70 | 8,075 | 1,742 | 1,225 | 1,095 | 926 | 320 | ||||||||||||||||||||||||||||||||||||
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Allowance, end of period | $ | 4,054 | $ | 3,580 | $ | 2,803 | $ | 2,013 | $ | 2,347 | $ | 2,121 | $ | 12,123 | $ | 4,572 | $ | 3,580 | $ | 2,803 | $ | 2,013 | $ | 2,347 | ||||||||||||||||||||||||
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Ratio of net charges-offs to average total loans outstanding during period | 0.07 | % | 0.12 | % | 0.09 | % | 0.48 | % | 0.05 | % | 0.01 | % | 0.06 | % | 0.02 | % | 0.12 | % | 0.09 | % | 0.48 | % | 0.05 | % | ||||||||||||||||||||||||
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The allowance for loan losses includes specific and additional allowances for impaired loans and a general allowance applicable to all loan categories; however, management has allocated the allowance by loan type to provide an indication of the relative risk characteristics of the loan portfolio. The allocation is an estimate and should not be interpreted as an indication that charge-offs will occur in these amounts, or that the allocation indicates future trends, and does not restrict the usage of the allowance for any specific loan or category. The
allocation of the allowance at the end of the period indicated,September 30, 2020 and December 31, 2019, 2018, 2017, 2016 and 2015, and as a percent of the applicable loan segment, is as follows:
June 30, | December 31, | September 30, | December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | 2019 | % of Loans | 2018 | % of Loans | 2017 | % of Loans | 2016 | % of Loans | 2015 | % of Loans | 2014 | % of Loans | 2020 | % of Loans | 2019 | % of Loans | 2018 | % of Loans | 2017 | % of Loans | 2016 | % of Loans | 2015 | % of Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 561 | 1.2 | % | $ | 568 | 1.2 | % | $ | 494 | 0.9 | % | $ | 573 | 1.1 | % | $ | 471 | 1.6 | % | $ | 469 | 1.8 | % | $ | 2,048 | 0.5 | % | $ | 842 | 1.1 | % | $ | 568 | 1.2 | % | $ | 494 | 0.9 | % | $ | 573 | 1.1 | % | $ | 471 | 1.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Real estate – construction, commercial | 136 | 0.8 | % | 111 | 0.8 | % | 92 | 0.8 | % | 83 | 0.5 | % | 232 | 1.7 | % | 212 | 1.9 | % | 752 | 1.5 | % | 220 | 0.6 | % | 111 | 0.8 | % | 92 | 0.8 | % | 83 | 0.5 | % | 232 | 1.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate – construction, residential | 52 | 0.4 | % | 56 | 0.4 | % | 36 | 0.5 | % | 10 | 0.2 | % | 21 | 0.7 | % | 15 | 0.7 | % | 142 | 0.8 | % | 60 | 0.2 | % | 56 | 0.4 | % | 36 | 0.5 | % | 10 | 0.2 | % | 21 | 0.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate – mortgage, commercial | 1,405 | 0.9 | % | 1,183 | 0.8 | % | 809 | 0.7 | % | 533 | 0.5 | % | 668 | 1.1 | % | 732 | 1.2 | % | 4,234 | 1.6 | % | 1,602 | 0.6 | % | 1,183 | 0.8 | % | 809 | 0.7 | % | 533 | 0.5 | % | 668 | 1.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate – mortgage, residential | 478 | 0.3 | % | 431 | 0.3 | % | 405 | 0.3 | % | 289 | 0.3 | % | 465 | 0.6 | % | 469 | 0.6 | % | 1,239 | 0.3 | % | 509 | 0.2 | % | 431 | 0.3 | % | 405 | 0.3 | % | 289 | 0.3 | % | 465 | 0.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Agricultural and farmland | 12 | 0.3 | % | 13 | 0.3 | % | 12 | 0.2 | % | 8 | 0.1 | % | 15 | 0.3 | % | 17 | 0.3 | % | 17 | 0.5 | % | 9 | 0.2 | % | 13 | 0.3 | % | 12 | 0.2 | % | 8 | 0.1 | % | 15 | 0.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer installment | 1,410 | 3.8 | % | 1,218 | 3.8 | % | 954 | 3.8 | % | 517 | 3.2 | % | 476 | 4.6 | % | 207 | 4.6 | % | 3,691 | 8.2 | % | 1,330 | 3.4 | % | 1,218 | 3.8 | % | 954 | 3.8 | % | 517 | 3.2 | % | 476 | 4.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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$ | 4,054 | 0.9 | % | $ | 3,580 | 0.9 | % | $ | 2,803 | 0.9 | % | $ | 2,013 | 0.6 | % | $ | 2,347 | 1.1 | % | $ | 2,121 | 1.1 | % | $ | 12,123 | 1.2 | % | $ | 4,752 | 0.7 | % | $ | 3,580 | 0.9 | % | $ | 2,803 | 0.9 | % | $ | 2,013 | 0.6 | % | $ | 2,347 | 1.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
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Non-performing Assets. Non-performing assets consist ofnon-accrual loans; loans past due 90 days and still accruing interest, and other real estate owned (foreclosed properties). The level ofnon-performing assets decreased by $2.1$0.66 million during the first sixnine months of 20192020 to $5.6$4.5 million as of JuneSeptember 30, 2019,2020, compared to $5.2 million at December 31, 2019 and $7.7 million at December 31, 2018 and $7.8 million at December 31, 2017.2018. Blue Ridge has established specific loan loss reserves on impaired loans equal to the estimated collateral deficiency (if any), plus the cost of sale of the underlying collateral, as applicable.
Loans are placed innon-accrual status when in the opinion of management the collection of additional interest is unlikely or a specific loan meets the criteria fornon-accrual status established by regulatory authorities. No interest is taken into income onnon-accrual loans. A loan remains onnon-accrual status until the loan is current as to both principal and interest or the borrower demonstrates the ability to pay and remain current, or both.
Foreclosed real properties include properties that have been substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties, which are held for resale, are carried at fair value, including a reduction for the estimated selling expenses.
The following is a summary of information pertaining to risk elements andnon-performing assets:
June 30, 2019 | December 31, | |||||||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||
Non-accrual loans | $ | 4,920 | $ | 5,515 | $ | 7,496 | $ | 787 | $ | 384 | $ | 131 | ||||||||||||
Loans past due 90 days and still accruing | 404 | 2,005 | 73 | 433 | 22 | 116 | ||||||||||||||||||
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Totalnon-performing loans | $ | 5,324 | $ | 7,520 | $ | 7,569 | $ | 1,220 | $ | 406 | $ | 247 | ||||||||||||
Other real estate owned | 243 | 134 | 207 | 611 | 70 | 210 | ||||||||||||||||||
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Totalnon-performing assets | $ | 5,567 | $ | 7,654 | $ | 7,776 | $ | 1,831 | $ | 476 | $ | 457 | ||||||||||||
Allowance for loan losses to total loans held for investment | 0.90 | % | 0.86 | % | 0.85 | % | 0.63 | % | 1.13 | % | 1.14 | % | ||||||||||||
Allowance for loan losses tonon-performing loans | 76.15 | % | 47.61 | % | 37.02 | % | 165.00 | % | 578.08 | % | 858.70 | % | ||||||||||||
Non-performing loans to total loans held for investment | 1.18 | % | 1.81 | % | 2.29 | % | 0.38 | % | 0.20 | % | 0.13 | % | ||||||||||||
Non-performing assets to total assets | 0.74 | % | 1.42 | % | 1.89 | % | 0.44 | % | 0.18 | % | 0.19 | % | ||||||||||||
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(Dollars in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||
Non-accrual loans | $ | 3,732 | $ | 4,790 | $ | 5,515 | $ | 7,496 | $ | 787 | $ | 384 | ||||||||||||
Loans past due 90 days and still accruing | 766 | 369 | 2,005 | 73 | 433 | 22 | ||||||||||||||||||
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Total non-performing loans | $ | 4,498 | $ | 5,159 | $ | 7,520 | $ | 7,569 | $ | 1,220 | $ | 406 | ||||||||||||
Other real estate owned | — | — | 134 | 207 | 611 | 70 | ||||||||||||||||||
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Total non-performing assets | $ | 4,498 | $ | 5,159 | $ | 7,654 | $ | 7,776 | $ | 1,831 | $ | 476 | ||||||||||||
Allowance for loan losses to total loans held for investment | 1.17 | % | 0.71 | % | 0.86 | % | 0.85 | % | 0.63 | % | 1.13 | % | ||||||||||||
Allowance for loan losses to non-performing loans | 269.52 | % | 88.62 | % | 47.61 | % | 37.02 | % | 165.00 | % | 578.08 | % | ||||||||||||
Non-performing loans to total loans held for investment | 0.43 | % | 0.80 | % | 1.81 | % | 2.29 | % | 0.38 | % | 0.20 | % | ||||||||||||
Non-performing assets to total assets | 0.30 | % | 0.54 | % | 1.42 | % | 1.89 | % | 0.44 | % | 0.18 | % | ||||||||||||
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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 Blue Ridge’s investment securitiesavailable-for-sale was $130.3$113.9 million at JuneSeptember 30, 2019,2020, an increase of $92.2$5.3 million or 242.4%4.9% from $38.0$108.6 million at December 31, 2019. Investment securities held-to-maturity totaled $12.2 million at December 31, 2019 and $15.6 million at December 31, 2018. InvestmentBlue Ridge had no investment securitiesheld-to-maturity at JuneSeptember 30, 2019 totaled $15.2 million, $15.6 million at December 31, 2018, $13.2 million at December 31, 2017, and $12.9 million at December 31, 2016. Securities2020, as all such securities were transferred to available-for-sale in the investment portfolio classified asheld-to-maturity are those securities that Blue Ridge has the intent and ability to hold to maturity and are carried at amortized cost.
At December 31, 2018, Blue Ridge had total investment securitiesavailable-for-salesecond quarter of $38.0 million, an increase of $5.4 million, or 16.8% from $32.6 million at December 31, 2017. Blue Ridge purchased $11.6 million in investment securitiesavailable-for-sale to offset redemptions and sales of $5.3 million and to enhance the yield of the portfolio during 2018.2020.
As of JuneSeptember 30, 2019,2020 and December 31, 2018 and 2017,2019, the majority of the investment securities portfolio consisted of securities rated A to AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. Investment securities that were pledged to secure public deposits totaled $15.1 million, $16.8$13.3 million and $13.6$11.8 million at JuneSeptember 30, 2019, December 31, 20182020 and December 31, 2017,2019, respectively.
Blue Ridge completes reviews for other-than-temporary impairment at least quarterly. At JuneSeptember 30, 2019,2020, December 31, 20182019 and December 31, 2017,2018, 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 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. Blue Ridge 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.
No other-than-temporary impairment has been recognized for the securities in Blue Ridge’s investment portfolio as of JuneSeptember 30, 2019,2020, December 31, 2018,2019 and December 31, 2017.2018.
Blue Ridge holds restricted investments in equities of the Federal Reserve Bank of Richmond (“FRB”), FHLB, and through its correspondent bank, Community Banker’sBankers’ Bank (“CBB”). At JuneSeptember 30, 2020, Blue Ridge owned $5.8 million of FHLB stock, $2.2 million of FRB stock, and $248 thousand of CBB stock. At December 31, 2019, Blue Ridge owned $6.4$6.0 million of FHLB stock, $963 thousand of FRB stock, and $168$248 thousand of CBB stock. At December 31, 2018, Blue Ridge owned $3.5 million of FHLB stock, $813 thousand of FRB stock, and $168 thousand of CBB stock. At December 31, 2017, Blue Ridge owned $1.9 million of FHLB stock, $813 thousand of FRB stock, and $168 thousand of CBB stock.
The following table reflects the composition of Blue Ridge’s investment portfolio, at amortized cost, at JuneSeptember 30, 20192020 and December 31, 2019, 2018 2017, and 2016.2017.
December 31, | ||||||||||||||||||||||||||||||||
June 30, 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||
(Dollars in thousands) | Balance | Percent of total | Balance | Percent of total | Balance | Percent of total | Balance | Percent of total | ||||||||||||||||||||||||
Held-to maturity | ||||||||||||||||||||||||||||||||
State and municipal | $ | 15,204 | 10.5 | % | $ | 15,565 | 28.6 | % | $ | 13,206 | 28.6 | % | $ | 12,972 | 32.5 | % | ||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||
State and municipal | — | — | 1,000 | 1.8 | % | 1,321 | 2.8 | % | 1,323 | 3.3 | % | |||||||||||||||||||||
U. S. Treasury and agencies | 3,374 | 2.3 | % | 3,375 | 6.2 | % | 3,375 | 7.3 | % | 3,375 | 8.5 | % | ||||||||||||||||||||
Mortgage backed securities | 121,019 | 83.4 | % | 28,976 | 53.3 | % | 22,910 | 49.6 | % | 16,985 | 42.5 | % | ||||||||||||||||||||
Corporate bonds | 5,552 | 3.8 | % | 5,477 | 10.1 | % | 4,826 | 10.5 | % | 4,600 | 11.5 | % | ||||||||||||||||||||
Equity securities | — | — | — | — | 556 | 1.2 | % | 679 | 1.7 | % | ||||||||||||||||||||||
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Total investments | $ | 145,149 | 100.0 | % | $ | 54,393 | 100.0 | % | $ | 46,194 | 100.0 | % | $ | 39,934 | 100.0 | % | ||||||||||||||||
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December 31, | ||||||||||||||||||||||||||||||||
September 30, 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||
(Dollars in thousands) | Balance | Percent of total | Balance | Percent of total | Balance | Percent of total | Balance | Percent of total | ||||||||||||||||||||||||
Held-to maturity | ||||||||||||||||||||||||||||||||
State and municipal | $ | — | — | % | $ | 12,192 | 10.1 | % | $ | 15,565 | 28.6 | % | $ | 13,206 | 28.6 | % | ||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||
State and municipal | 13,792 | 12.2 | % | — | — | % | 1,000 | 1.8 | % | 1,321 | 2.8 | % | ||||||||||||||||||||
U. S. Treasury and agencies | 2,500 | 2.2 | % | 2,500 | 2.1 | % | 3,375 | 6.2 | % | 3,375 | 7.3 | % | ||||||||||||||||||||
Mortgage backed securities | 79,263 | 69.8 | % | 94,983 | 79.0 | % | 28,976 | 53.3 | % | 22,910 | 49.6 | % | ||||||||||||||||||||
Corporate bonds | 17,930 | 15.8 | % | 10,554 | 8.8 | % | 5,477 | 10.1 | % | 4,826 | 10.5 | % | ||||||||||||||||||||
Equity securities | — | — | — | — | — | — | % | 556 | 1.2 | % | ||||||||||||||||||||||
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Total investments | $ | 113,485 | 100.0 | % | $ | 120,229 | 100.0 | % | $ | 54,393 | 100.0 | % | $ | 46,194 | 100.0 | % | ||||||||||||||||
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The following tables present the amortized cost of Blue Ridge’s investment portfolio by their stated maturities, as well as the weighted average yields for each of the maturity ranges at JuneSeptember 30, 20192020 and December 31, 2018.2019.
At June 30, 2019 | At September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Within One Year | One to Five Years | Five to Ten Years | Over Ten Years | Within One Year | One to Five Years | Five to Ten Years | Over Ten Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | ||||||||||||||||||||||||||||||||||||||||||||||||
Held-to maturity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
State and municipal | $ | 461 | 3.1 | % | $ | 3,597 | 3.1 | % | $ | 3,761 | 3.7 | % | $ | 7,385 | 3.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U. S. Treasury and agencies | — | — | 1,000 | 1.9 | % | 2,374 | 2.3 | % | — | — | $ | — | — | $ | — | — | $ | 2,500 | 0.9 | % | $ | — | — | |||||||||||||||||||||||||||||||||||||||||
State and municipal | 590 | 1.1 | % | 1,636 | 2.2 | % | 4,925 | 2.2 | % | 6,642 | 1.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage backed securities | — | — | — | — | 1,703 | 1.7 | % | 119,316 | 2.4 | % | — | — | — | — | 13,470 | 1.9 | % | 65,792 | 2.2 | % | ||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | — | 1,500 | 6.5 | % | 3,825 | 5.8 | % | 227 | 7.0 | % | — | 3,350 | 5.5 | % | 14,350 | 5.4 | % | 230 | 6.9 | % | ||||||||||||||||||||||||||||||||||||||||||||
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Total investments | $ | 461 | $ | 6,097 | $ | 11,663 | $ | 126,928 | $ | 590 | $ | 4,986 | $ | 35,245 | $ | 72,664 | ||||||||||||||||||||||||||||||||||||||||||||||||
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At December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Within One Year | One to Five Years | Five to Ten Years | Over Ten Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Held-to maturity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
State and municipal | $ | 302 | 2.8 | % | $ | 4,089 | 3.1 | % | $ | 2,688 | 3.8 | % | $ | 8,486 | 3.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
State and municipal | 500 | 3.9 | % | 500 | 4.9 | % | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
U. S. Treasury and agencies | — | — | 500 | 1.8 | % | 2,875 | 2.3 | % | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage backed securities | — | — | — | — | 1,922 | 1.8 | % | 27,054 | 2.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | — | 1,500 | 5.2 | % | 3,750 | 6.5 | % | 227 | 7.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total investments | $ | 802 | $ | 6,589 | $ | 11,235 | $ | 35,767 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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At December 31, 2019 | ||||||||||||||||||||||||||||||||
Within One Year | One to Five Years | Five to Ten Years | Over Ten Years | |||||||||||||||||||||||||||||
(Dollars in thousands) | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | Amortized Cost | Weighted Average Yield | ||||||||||||||||||||||||
Held-to maturity | ||||||||||||||||||||||||||||||||
State and municipal | $ | 461 | 2.7 | % | $ | 2,584 | 3.3 | % | $ | 3,764 | 3.5 | % | $ | 5,385 | 3.5 | % | ||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||
State and municipal | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
U. S. Treasury and agencies | — | — | 1,000 | 2.0 | % | 1,500 | 2.1 | % | — | — | ||||||||||||||||||||||
Mortgage backed securities | — | — | — | — | 8,417 | 3.5 | % | 86,639 | 2.9 | % | ||||||||||||||||||||||
Corporate bonds | — | 1,500 | 6.5 | % | 8,750 | 4.5 | % | 229 | 6.3 | % | ||||||||||||||||||||||
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Total investments | $ | 461 | $ | 5,084 | $ | 22,431 | $ | 92,253 | ||||||||||||||||||||||||
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Deposits. The principal sources of funds for Blue Ridge are core deposits (demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits and certificates of deposit), primarily from its market area. Blue Ridge’s deposit base includes transaction accounts, time and savings accounts and other accounts that customers use for cash management purposes and which provide Blue Ridge with a source of fee income and cross-marketing opportunities as well as alow-cost source of funds. Time and savings accounts, including money market deposit accounts, also provide a relatively stablelow-cost source of funding. Please refer to the average balance tables under “Net Interest Income” for information regarding the average balance of deposits, and average rates paid.
Approximately 46.9%28.5% of Blue Ridge’s deposits at JuneSeptember 30, 20192020 were made up of time deposits, which are generally the most expensive form of deposit because of their fixed rate and term, as compared to 40.9%36.1% and 47.8%40.9% at December 31, 20182019 and December 31, 2017,2018, respectively.
The following tables provide a summary of Blue Ridge’s deposit base at the dates indicated and the maturity distribution of certificates of deposit of $100,000 or more as of the end of the periods indicated:
June 30, 2019 | December 31, | September 30, 2020 | December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Balance | Average Rate | Balance | Average Rate | Balance | Average Rate | Balance | Average Rate | Balance | Average Rate | Balance | Average Rate | Balance | Average Rate | Balance | Average Rate | ||||||||||||||||||||||||||||||||||||||||||||||||
Noninterest-bearing demand | $ | 88,342 | — | $ | 88,265 | — | $ | 61,388 | — | $ | 60,138 | — | $ | 278,584 | — | $ | 177,819 | — | $ | 88,265 | — | $ | 61,388 | — | ||||||||||||||||||||||||||||||||||||||||
Interest-bearing – checking, savings and money market | 176,541 | 0.93 | % | 157,000 | 0.87 | % | 115,888 | 0.40 | % | 119,429 | 0.38 | % | 376,326 | 0.36 | % | 283,256 | 0.80 | % | 157,000 | 0.87 | % | 115,888 | 0.40 | % | ||||||||||||||||||||||||||||||||||||||||
Time deposits $100,000 or more | 172,201 | 2.36 | % | 109,004 | 2.02 | % | 101,853 | 1.33 | % | 100,780 | 1.41 | % | 182,267 | 1.86 | % | 178,121 | 2.24 | % | 109,004 | 2.02 | % | 101,853 | 1.33 | % | ||||||||||||||||||||||||||||||||||||||||
Other time deposits | 61,898 | 1.78 | % | 60,758 | 1.58 | % | 60,161 | 1.31 | % | 60,527 | 1.21 | % | 78,089 | 1.55 | % | 82,834 | 1.70 | % | 60,758 | 1.58 | % | 60,161 | 1.31 | % | ||||||||||||||||||||||||||||||||||||||||
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Total deposits | $ | 498,982 | $ | 415,027 | $ | 339,290 | $ | 340,874 | $ | 915,266 | $ | 722,030 | $ | 415,027 | $ | 339,290 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Maturities of Time Deposits ($100,000 or greater)
(Dollars in thousands) | June 30, 2019 | December 31, 2018 | December 30, 2017 | September 30, 2020 | December 31, 2019 | December 30, 2018 | ||||||||||||||||||
Maturing in: | ||||||||||||||||||||||||
3 months or less | $ | 32,290 | $ | 8,155 | $ | 3,889 | $ | 32,029 | $ | 28,455 | $ | 8,155 | ||||||||||||
Over 3 months through 6 months | 23,578 | 19,265 | 17,596 | 24,411 | 24,646 | 19,265 | ||||||||||||||||||
Over 6 months through 12 months | 22,519 | 20,867 | 18,433 | 31,467 | 28,922 | 20,867 | ||||||||||||||||||
Over 12 months | 93,814 | 60,717 | 61,935 | 94,360 | 96,098 | 60,717 | ||||||||||||||||||
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$ | 172,201 | $ | 109,004 | $ | 101,853 | $ | 182,267 | $ | 178,121 | $ | 109,004 | |||||||||||||
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Brokered and listing service deposits made up of both certificate of deposits and money market demand accounts totaled $65.2$52.0 million at JuneSeptember 30, 2019,2020, an increase of $41.7$2.2 million from $23.5$49.8 million at December 31, 2018.2019. At December 31, 2017, these third-party deposits totaled $25.0 million.
Borrowings: The following table provides information on the balances and interest rates on total borrowings for the periods indicated:
(Dollars in thousands) | June 30, 2019 | At December 31, | September 30, 2020 | At December 31, | ||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||
FHLB borrowings | $ | 138,200 | $ | 73,100 | $ | 35,957 | $ | 32,457 | $ | 115,000 | $ | 124,800 | $ | 73,100 | $ | 35,957 | ||||||||||||||||
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Weighted average interest rate | 2.54 | % | 2.47 | % | 1.50 | % | 1.32 | % | 0.24 | % | 1.92 | % | 2.47 | % | 1.50 | % | ||||||||||||||||
Federal Reserve Paycheck Protection Program Liquidity Facility | $ | 344,476 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Weighted average interest rate | 0.35 | % | — | % | — | % | — | % |
FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in Blue Ridge’s residential, multifamily and commercial real estate mortgage loan portfolios as well as selected investment portfolio securities.
Federal Reserve borrowings through the Paycheck Protection Program Liquidity Facility are secured by loans Blue Ridge Bank originated under the PPP.
LiquidityLiquidity.. Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers. Blue Ridge must be able to meet these needs by obtaining funding from depositors or other lenders or by convertingnon-cash items into cash. The objective of Blue Ridge’s liquidity management program is to ensure that it always has sufficient resources to meet the demands of depositors and borrowers. Stable core deposits and a strong capital position provide the base for Blue Ridge’s liquidity position. Blue Ridge believes it has demonstrated its ability to attract deposits because of Blue Ridge’s convenient branch locations, personal service, technology and pricing.
In addition to deposits, Blue Ridge 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. Blue Ridge is a member of the Promontory Interfinancial Network (“Promontory”), which allows banking customers to access FDIC insurance protection on deposits through Blue Ridge which exceed FDIC insurance limits. Blue Ridge also hasone-way authority with Promontory for both their CDARsCertificate of Deposit Account Registry Service and ICSInsured Cash Sweep products which provides Blue Ridge the ability to access additional wholesale funding as needed. Blue Ridge also maintains secured lines of credit with the FRB and the FHLB for which Blue Ridge can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces Blue Ridge’s reliance on any one source for funding.
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.
Blue Ridge has established a formal liquidity contingency plan which provides guidelines for liquidity management. For Blue Ridge’s liquidity management program, it first determines Blue Ridge’s current liquidity position and then forecasts liquidity based on anticipated changes in the balance sheet. In this forecast, Blue Ridge expects to maintain a liquidity cushion. Blue Ridge also stress tests its liquidity position under several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushion and for liquidity cushions for each stress scenario have been established. Blue Ridge believes that it has sufficient resources to meet its liquidity needs.
Blue Ridge had a credit line available of $172.2$475.1 million with the FHLB with an outstanding balance of $138.2$135.0 million, including $115.0 million in advances and $20.0 million representing a letter of credit for use as pledging to the Commonwealth of Virginia to secure public deposits, as of JuneSeptember 30, 2019,2020, leaving the remaining credit availability of $34.0$340.1 million at JuneSeptember 30, 2019.2020. As of December 31, 20182019 and 2017,2018, the outstanding balance of borrowings with the FHLB totaled $124.8 million and $73.1 million, and $35.9respectively.
Blue Ridge utilized the Federal Reserve Paycheck Protection Program Liquidity Facility to fully fund loans originated under the Paycheck Protection Program, which are used as collateral for the liquidity facility. The balance of these borrowings was $344.5 million respectively.at September 30, 2020.
Blue Ridge had four unsecured federal fund lines available with correspondent banks for overnight borrowing totaling $21$38.0 million at June 30, 2020, $21.0 million at December 31, 2019 and $21 million at December 31, 2018. The outstanding balance on these lines was $125 thousand at September 30, 2020 and zero at, December 31, 2019 and December 31, 2018, and $19 million at December 31, 2017. These lines were not drawn upon at June 30, 2019, December 31, 2018 or 2017.2018.
Liquidity is essential to Blue Ridge’s business. Blue Ridge’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 Blue Ridge 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 Blue Ridge. Blue Ridge’s ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events. Blue Ridge monitors its liquidity position daily through cash flow forecasting and monthly testing against minimum policy ratios and believes its level of liquidity and capital is adequate to conduct the business of Blue Ridge.
Capital. Capital adequacy is an important measure of financial stability and performance. Blue Ridge’s objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence.
Regulatory agencies measure capital adequacy utilizing a formula that considers the individual risk profile of the financial institution. The minimum capital requirements for Blue Ridge Bank are: (i) a common equity Tier 1 (“CET1”) capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total risk-based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Additionally, a capital conservation buffer requirement of 2.5% of risk-weighted assets is designed to absorb losses during periods of economic stress and is applicable to Blue Ridge Bank’s CET1 capital, Tier 1 capital and total capital ratios. Including the conservation buffer, Blue Ridge Bank currently considers itsBank’s minimum capital ratios to beare as follows: 7.00% for CET1; 8.50% for Tier 1 capital; and 10.50% for Total Risk-Based capital. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation. Blue Ridge Bank was considered “well capitalized” for regulatory purposes at JuneSeptember 30, 2019,2020, December 31, 20182019 and December 31, 2017.2018.
As noted above, regulatory capital levels for Blue Ridge Bank meet those established for “well capitalized” institutions. While Blue Ridge Bank is currently considered “well capitalized,” itBlue Ridge may from time to time find it necessary to access the capital markets to meet Blue Ridge’s growth objectives or capitalize on specific business opportunities.
The following table shows the minimum capital requirement and the capital position at JuneSeptember 30, 20192020 and December 31, 20182019 and 20172018 for Blue Ridge Bank.
Minimum Ratios | Minimum Ratios | |||||||||||||||||||||||||||||||||||||||
June 30, 2019 | December 31, 2018 | December 31, 2017 | To be “Adequately Capitalized” | To be “Well Capitalized” | September 30, 2020 | December 31, 2019 | December 31, 2018 | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | |||||||||||||||||||||||||||||||
Total Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||||||||||||||||||
Consolidated | 14.3 | % | 10.8 | % | 12.7 | % | N/A | N/A | 10.87 | 10.8 | % | 10.8 | % | N/A | N/A | |||||||||||||||||||||||||
Bank | 12.0 | % | 12.1 | % | 14.6 | % | 8.0 | % | 10.5 | % | 12.60 | 12.1 | % | 12.1 | % | 8.0 | % | 10.5 | % | |||||||||||||||||||||
Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||||||||||||||||||
Consolidated | 11.3 | % | 9.9 | % | 11.8 | % | N/A | N/A | 6.59 | 9.9 | % | 9.9 | % | N/A | N/A | |||||||||||||||||||||||||
Bank | 11.1 | % | 11.2 | % | 13.7 | % | 6.0 | % | 8.5 | % | 11.35 | 11.2 | % | 11.2 | % | 6.0 | % | 8.5 | % | |||||||||||||||||||||
Tier 1 Capital (to Average Assets): | ||||||||||||||||||||||||||||||||||||||||
Consolidated | 8.6 | % | 8.3 | % | 8.7 | % | N/A | N/A | 4.37 | 8.3 | % | 8.3 | % | N/A | N/A | |||||||||||||||||||||||||
Bank | 8.1 | % | 8.9 | % | 10.3 | % | 4.0 | % | 5.0 | % | 7.88 | 8.9 | % | 8.9 | % | 4.0 | % | 5.0 | % | |||||||||||||||||||||
Common Equity Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||||||||||||||||||
Consolidated | 11.3 | % | 9.9 | % | 11.8 | % | N/A | N/A | 6.59 | 9.9 | % | 9.9 | % | N/A | N/A | |||||||||||||||||||||||||
Bank | 11.1 | % | 11.2 | % | 13.7 | % | 4.5 | % | 7.0 | % | 11.35 | 11.2 | % | 11.2 | % | 4.5 | % | 7.0 | % |
September 30, 2020 | December 31, 2019 | December 31, 2018 | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||
Total Capital (to Risk Weighted Assets): | ||||||||||||||||||||
Bank | 12.60 | % | 11.96 | % | 12.1 | % | 10.50 | % | 10.00 | % | ||||||||||
Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||
Bank | 11.35 | % | 11.28 | % | 11.2 | % | 8.50 | % | 8.00 | % | ||||||||||
Tier 1 Capital (to Average Assets): | ||||||||||||||||||||
Bank | 7.88 | % | 8.08 | % | 8.9 | % | 6.50 | % | 5.00 | % | ||||||||||
Common Equity Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||
Bank | 11.35 | % | 11.28 | % | 11.2 | % | 7.00 | % | 6.50 | % |
Standby letters of credit are conditional commitments issued by Blue Ridge to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers; Blue Ridge generally holds collateral supporting these commitments. In the event the customer does not perform in accordance with the terms of the agreement with the third party, Blue Ridge would be required to fund the commitment. The maximum potential amount of future payments Blue Ridge could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, Blue Ridge would be entitled to seek recovery from the customer. The maximum potential amount of future advances on standby letters of credit available through Blue Ridge at JuneSeptember 30, 2020, December 31, 2019 and December 31, 2018, and 2017, totaled $1.3$6.5 million, $641 thousand and $1.6 million, and $610 thousand, respectively.
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. Blue Ridge evaluates each customer’s credit worthiness on acase-by-case basis. The amount of collateral obtained, if deemed necessary by Blue Ridge upon 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 at JuneSeptember 30, 2020, December 31, 2019 and December 31, 2018 and 2017 totaled $68.3$139.1 million, $107.7 million and $65.2 million, and $39.3 million, respectively.
As a financial institution, Blue Ridge is exposed to various business risks, including interest rate risk. Interest rate risk is the risk to earnings and value arising from volatility in market interest rates. Interest rate risk arises from timing differences in the repricing and maturities of interest-earning assets and interest-bearing liabilities, changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay loans and depositors’ ability to redeem certificates of deposit before maturity, changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion, and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR. Blue Ridge’s goal is to maximize net interest income without incurring excessive interest rate risk. Management of net interest income and interest rate risk must be consistent with the level of capital and liquidity that Blue Ridge maintains. Blue Ridge manages interest rate risk through an asset and liability committee (“ALCO”). ALCO is responsible for managing Blue Ridge’s interest rate risk in conjunction with liquidity and capital management.
Blue Ridge employs an independent consulting firm to model its interest rate sensitivity. Blue Ridge uses a net interest income simulation model as its primary tool to measure interest rate sensitivity. Many assumptions are developed based on expected activity in the balance sheet. For maturing assets, assumptions are created for the redeployment of these assets. For maturing liabilities, assumptions are developed for the replacement of these funding sources. Assumptions are also developed for assets and liabilities that could reprice during the modeled time period. These assumptions also cover how Blue Ridge expects rates to change onnon-maturity deposits such as interest checking, money market checking, savings accounts as well as certificates of deposit. Based on inputs that include the current balance sheet, the current level of interest rates and the developed assumptions, the model then produces an expected level of net interest income assuming that market rates remain unchanged. This is considered the base case. Next, the model determines what net interest income would be based on specific changes in interest rates. The rate simulations are performed for atwo-year period and include ramped rate changes of down 100 basis points to 300 basis points and up 100 basis points to 400 basis points. In both the up and down scenarios, the model assumes a parallel shift in the yield curve. The results of these simulations are then compared to the base case.
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 Blue Ridge’s interest rate risk position over a historical time frame for comparison purposes.
At JuneSeptember 30, 2020, Blue Ridge’s asset/liability position was considered to be asset sensitive based on its interest rate sensitivity model. At December 31, 2019, Blue Ridge’s asset/liability position was considered to be a balanced rateslightly asset sensitive position based on its interest rate sensitivity model. Blue Ridge’s net interest income would increase by 6.8% in an up 100 basis point scenario and would increase 7.3% in an up 400 basis point scenario over aone-year time frame. In thetwo-year time horizon, Blue Ridge’s net interest income would increase by 8.6% in an up 100 basis point scenario and would increase by 14.4% in an up 400 basis point scenario. At June 30, 2019, all interest rate risk stress tests measures were within Blue Ridge’s board policy established limits in each of the increased rate scenarios.
Additional information on the Blue Ridge’s interest rate sensitivity for a static balance sheet over aone-year time horizon as of June 30,December 31, 2019 can be found below.
Interest Rate Risk to Earnings (Net Interest Income) | Interest Rate Risk to Earnings (Net Interest Income) | Interest Rate Risk to Earnings (Net Interest Income) | ||||||
June 30, 2019 | ||||||||
December 31, 2019 | December 31, 2019 | |||||||
Change in interest rates (basis points) | Percentage change in net interest income | Percentage change in net interest income | ||||||
+400 | 7.3 | % | 19.1 | % | ||||
+300 | 6.7 | % | 16.5 | % | ||||
+200 | 6.6 | % | 14.2 | % | ||||
+100 | 6.8 | % | 12.0 | % | ||||
0 | — | — | ||||||
-100 | 2.4 | % | 2.0 | % | ||||
-200 | -4.7 | % | -5.9 | % | ||||
-300 | -6.0 | % |
Economic value of equity or (“EVE”), measures the period end market value of assets less the market value of liabilities and the change in this value as rates change. It models simultaneous parallel shifts in market interest rates, implied by the forward yield curve. The EVE model calculates the market value of capital by taking the present value of all asset cash flows less the present value of all liability cash flows.
The interest rate risk to capital at June 30,December 31, 2019 is shown below and reflects that Blue Ridge’s market value of capital is in a slightly liabilityasset sensitive position in which an increase in short-term interest rates is expected to generate lowerhigher market values of capital. At June 30,December 31, 2019, all EVE stress tests measures were within Blue Ridge’s board policy established limits.
Interest Rate Risk to Capital | Interest Rate Risk to Capital | Interest Rate Risk to Capital | ||||||
June 30, 2019 | ||||||||
December 31, 2019 | December 31, 2019 | |||||||
Change in interest rates (basis points) | Percentage change in economic value of equity | Percentage change in economic value of equity | ||||||
+400 | 2.5 | % | 9.01 | % | ||||
+300 | 3.0 | % | 7.38 | % | ||||
+200 | 4.1 | % | 6.60 | % | ||||
+100 | 5.6 | % | 5.63 | % | ||||
0 | — | — | ||||||
-100 | 6.0 | % | 2.04 | % | ||||
-200 | 4.5 | % | 1.97 | % | ||||
-300 | 13.3 | % |
INFORMATION ABOUT VCBBAY BANKS
The following provides additional information regarding VCBBay Banks and should be read in conjunction with VCB’sBay Banks’ financial statements and the notes thereto beginning on pageF-[●] and the other information related to VCBBay Banks included elsewhere hereinin this joint proxy statement/prospectus or incorporated by reference herein. See “Additional Information” and Incorporation of Certain Documents by Reference.”.
General Description of VCB’sBay Banks’ Business
VCB was incorporated under the laws of the Commonwealth ofBay Banks is a Virginia on June 6, 1984, to serve as thecorporation and bank holding company that conducts substantially all of its operations through its subsidiaries, Virginia Community Bank.Commonwealth Bank and VCB Financial Group. Virginia Commonwealth Bank opened for business in 1930 as Bank of Lancaster and partners with the communities it serves to deliver banking and financial services.
Virginia CommunityCommonwealth Bank was incorporated under the laws of the Commonwealth of Virginia asis a state-chartered bank, on June 6, 1984,headquartered in Richmond, Virginia, and commenced operations on September 10, 1976.a member of the Federal Reserve System. Virginia CommunityCommonwealth Bank has 17 banking offices located throughout the greater Richmond region of Virginia, the Northern Neck region of Virginia, Middlesex County, and the Hampton Roads region of Virginia. Virginia Commonwealth Bank serves businesses, professionals, and consumers with a wide variety of financial services, including retail and commercial banking, and mortgage banking. Products include checking accounts, savings accounts, money market accounts, cash management accounts, certificates of deposit, individual retirement accounts, commercial and industrial loans, residential mortgages, commercial mortgages, home equity loans, consumer installment loans, insurance, credit cards, online banking, telephone banking, and mobile banking. A substantial amount of Virginia Commonwealth Bank’s deposits are interest bearing, and the majority of Virginia Commonwealth Bank’s loan portfolio is secured by real estate. Deposits of Virginia Commonwealth Bank are insured by the DIF of the FDIC up to applicable limits.
On April 1, 2017, Bay Banks completed a merger with Virginia Community Bank engages in a general commercial banking business, emphasizing the banking needs of individuals, professionals and small tomedium-sized businesses in its primary service area. VCB offers a full range of deposit services and short to medium-term commercial and other loans, as well as various other services from seven branch offices in Louisa, Orange, Mineral, Culpeper, Troy, Fredericksburg and Gordonsville, BanCorp Inc. (“Virginia and its commercial office in Charlottesville, Virginia. Virginia Community Bank’s corporate headquarters is located at 114 Industrial Drive, Louisa, Virginia 23093.
VCB’s only business at this time is ownership of Virginia Community Bank and its primary source of income is any dividends that are declared and paid by Virginia Community Bank on its common stock. Throughout this section of the joint proxy statement/prospectus, results of operations will relate to Virginia Community Bank’s operations, unless a specific reference is made to VCB and its operating results other than through Virginia Community Bank’s business and activities.
VCB is registered asBanCorp”), a bank holding company conducting substantially all of its operations through its subsidiary, Virginia Commonwealth Bank. Immediately following the Company’s merger with the Federal Reserve under theVirginia BanCorp, Virginia BanCorp’s subsidiary bank was merged with and into Bank Holdingof Lancaster. Bank of Lancaster then changed its name to Virginia Commonwealth Bank.
VCB Financial Group provides management services for personal and corporate trusts, including estate planning, estate settlement, trust administration, and investment and wealth management services. Products and services include estate planning and settlement, 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.
Virginia Commonwealth Bank has one wholly-owned subsidiary, Bay Services Company, Act of 1956, as amended,Inc., a Virginia corporation organized in 1994 (“Bay Services”). Bay Services owns an interest in Infinex Investments, Inc., which provides brokerage services and the bank holding company laws of Virginia. VCB operates under the rules and regulations of, and is subject to examinationinvestment products that are marketed by the FDIC and the Virginia Bureau ofVCB Financial Institutions. VCB is also subject to certain regulations of the Federal Reserve Bank of Richmond governing the reserves to be maintained against deposits and other matters.
Deposits are the primary source of funds for Virginia Community Bank’s lending and other investing activities. Virginia Community Bank attracts both short-term and long-term deposits from the general public by offering a variety of accounts and rates, including savings accounts, negotiable order of withdrawal accounts, money market demand accounts, noninterest-bearing accounts, and fixed interest rate certificates with varying maturities. Deposit flows are greatly influenced by economic conditions, the general level of interest rates, competition, and other factors. Virginia Community Bank’s primary sources of revenue are interest and fee income from its lending and investing activities.
VCB’s business strategy is to focus on organic growth, primarily in the central Virginia area, generated by small businesses, professionals, andnon-profit organizations. VCB executes this strategy by concentrating its efforts on commercial banking (loans and deposits), treasury management, and select ancillary lines of business. VCB’s retail efforts are focused on the owners and employees of small businesses and on the retail consumer.Group.
As of JuneSeptember 30, 2019, VCB reported $247.3 million2020, Bay Banks had total assets of assets, $178.8 million$1.25 billion, deposits of loans, $221.0 million$1.03 billion, and shareholders’ equity of deposits, and $24.9 million of stockholders’ equity, equal to 10.06% of total assets.
The principal executive offices of VCB$121.4 million. Bay Banks’ headquarters are located at 114 Industrial Drive, Louisa,in Richmond, Virginia, 23093, and its telephone number is (540)(804) 967-2111.404-9668. VCB’sBay Banks’ website can be accessed at www.virginiacommunitybank.com.is www.baybanks.com. Information contained on VCB’sBay Banks’ website doesis not constitutea part of and is notor incorporated into this joint proxy statement/prospectus.report or any other filing Bay Banks makes with the SEC.
CompetitionThrough Virginia Commonwealth Bank and Market Area
Virginia Community Bank’s currentVCB Financial Group, Bay Banks provides a wide variety of financial services to its customers in its market areas. The primary market area is central Virginia. Virginia Community Bank generally competes with other financial institutions through the selection of banking products and services offered, the pricing of services, the level of service provided the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered.
Commercial banking in centralby Virginia is extremely competitive. Virginia Community Bank competes in and around its market area with some of the largest banking organizations in Virginia and the country. Many of these competing banks have capital resources and legal lending limits substantially in excess of those available to Virginia Community Bank. Many of these competitors also have broader geographic markets and substantially greater resources and lending limits than Virginia Community Bank and offer certain services that Virginia Community Bank does not currently provide. In addition, many of these banking competitors have numerous branch offices located throughout the extended market area of Virginia Community Bank which may provide these competitors with an advantage in geographic convenience that Virginia Community Bank does not have at present. Many of Virginia Community Bank’s competitors are also able to provide more services and make greater use of media advertising. Therefore, in its market area, Virginia Community Bank has significant competition for deposits and loans from other depository institutions.
Other financial institutions such as consumer finance companies, credit unions, insurance companies, brokerage companies, small loan companies and other financial institutions with varying degrees of regulatory restrictions compete vigorously for a share of the financial services market. Credit unions have been permitted to expand their membership criteria and expand their loan services to include such traditional bank services as commercial lending. These entities pose an increasing challenge to VCB’s efforts to serve the markets traditionally served by banks. VCB expects competition to continue to be significant.
Bank holding companies and commercial banks, such as VCB and Virginia CommunityCommonwealth Bank are subject to extensive supervision and regulation by federal and state agencies. Certain material elements of this regulatory environment, including minimum leverage rules, which require banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk weighted” assets, are discussed in “VCB’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” thatsummarized as follows.
VCB owns or leases buildings and office space that are used in the normal course of business. The principal executive offices of VCB are located at 114 Industrial Drive, Louisa, Virginia 23093, in a building owned by VCB. Additionally, Virginia Community Bank operates eight additional offices in the following locations:
408 East Main Street, Louisa, Virginia 23093 (owned)
430 Mineral Avenue, Mineral, Virginia 23117 (owned)
10050 Three Notch Road, Troy, Virginia 22974 (owned)
169 Madison Road, Orange, Virginia 22960 (owned)
10645 Courthouse Road, Fredericksburg, Virginia 22407 (owned)
701 South Main Street, Culpeper, Virginia 22701 (owned)
944 Glenwood Station Lane, Charlottesville, Virginia 22901 (owned)
104 South Main Street, Gordonsville, Virginia 22942 (leased)
As of the record date, there were [●] shares of VCB common stock outstanding held by approximately [●] holders of record. No shares of VCB preferred stock were outstanding.
VCB’s common stock is traded on the OTC Markets Group’s Pink marketplace under the symbol “VCBS.”
Virginia Community Bank had 60 full-time equivalent employees, as of June 30, 2019. None of Virginia Community Bank’s employees are represented by any unions or similar groups, and they have not experienced any type of strike or labor dispute. VCB and Virginia Community Bank consider their relationships with employees to be good.
In the ordinary course of operations, VCB expects to be a party to various legal proceedings. At present, there are no pending or threatened proceedings against VCB other than as set forth below that, if determined adversely, would have a material effect on the business, results of operations, or financial position of VCB.
On August 12, 2019, a former employee of VCB and participant in its Employee Stock Ownership Plan (the “ESOP”) filed a class action complaint against VCB, Virginia Community Bank, and certain individuals associated with the ESOP in the U.S. District Court for the Western District of Virginia, Charlottesville Division (Case No. 3:19-cv-00045-GEC). The complaint alleges, among other things, that the defendants breached their fiduciary duties to ESOP participants in violation of the Employee Retirement Income Security Act of 1974, as amended. The complaint alleges that the ESOP incurred damages “that approach or exceed $12 million.” VCB believes the claims are without merit.
Certain Relationships and Related Transactions
VCB has had, and expects to have in the future, banking transactions in the ordinary course of its business with certain of its current directors, executive officers, principal shareholders and other related persons. All loans included in those transactions during 2018 were made in the ordinary course of VCB’s business on substantially the same terms, including interest rates, repayment terms and collateral, as those prevailing at the time those loans were made for comparable transactions with persons not related to VCB, and those loans did not involve more than the normal risk of collectability or present other unfavorable features.
VCB has not adopted a formal policy that covers the review and approval of related person transactions by the VCB Board. The VCB Board, however, does review all such transactions that are proposed to it for approval. During such a review, the VCB Board will consider, among other things, the related person’s relationship to VCB, the facts and circumstances of the proposed transaction, the aggregate dollar amount of the transaction, the related person’s relationship to the transaction, and any other material information.
BoardReal Estate Loans. Virginia Commonwealth Bank’s mortgage loans on real estate comprise the largest type of Directorsits loan portfolio. A large portion of Virginia Commonwealth Bank’s real estate loans are mortgages on one-to-four family residential properties, with both fixed and Director Compensationadjustable interest rate terms, and the majority of these are owner-occupied. Owner-occupied residential mortgages are underwritten and documented within the guidelines of the regulations of the Federal Reserve. Home equity lines of credit are also offered. Virginia Commonwealth Bank also offers secondary market residential loan origination, whereby home mortgages are underwritten in accordance with the guidelines of Freddie Mac or Fannie Mae or other secondary market purchasers. These loans are then sold into the secondary market on a loan-by-loan basis, usually directly to Freddie Mac, Fannie Mae, or other secondary market participants. Virginia Commonwealth Bank earns origination fees on sold loans and may retain servicing rights and earn servicing fees from these loans.
Virginia Commonwealth Bank offers construction, land, and land development loans. These loans are to individuals and qualified builders and are generally for the acquisition or improvement of land and/or the construction and/or improvement of personal residences or commercial properties. Underwritten typically at a maximum of 80% loan to value, funds under these loans are disbursed as construction progresses, subject to verification by Virginia Commonwealth Bank’s inspection.
Virginia Commonwealth Bank offers commercial real estate loans that are secured by income-producing or owner-occupied real estate. These mortgages are typically written at a maximum of 80% loan to value. Commercial mortgages on owner-occupied properties represent real estate loans where the business or business owner occupies all or substantially all of the property and the primary source of repayment is the cash flows from the business occupying the property.
DirectorsCommercial and Industrial Loans. Virginia Commonwealth Bank offers commercial and industrial loans, which are typically for the financing of VCB.Set forth below is certain biographical information of the current directors of VCB, including theequipment and/or inventory or accounts receivable. Commercial and industrial lending includes small business experienceloans, asset based loans, and other specific skills that qualify each director to serve on the VCB Board. Blue Ridgesecured and VCB currently intend to select Mr. Holzwarthunsecured loans and Mr. Sisk as the two VCB directors to be appointed as directorslines of Blue Ridgecredit. Commercial and Blue Ridge Bank following the merger. Certain biographical information regarding Mr. Stone, VCB’s former President, Chief Executive Officer and Chairman, is also set forth below. Mr. Stone will also be appointed as a director of Blue Ridge and Blue Ridge Bank following the merger. With respect to Blue Ridge, each of Messrs. Holzwarth, Sisk and Stone is independent as that term is defined by the New York Stock Exchange.
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Director Compensation. Each of VCB’s directors is paid a fee of $1,000 for attendance at each meeting of the VCB Board. Directors are not paid any fee for attendance at meetings of committees of the VCB Board. The following table shows the compensation earned by VCB’s directors for their services during 2018.
Name | Fees earned or paid in cash ($) | Total ($) | ||||||
Mark W. Sisk | 12,000 | 12,000 | ||||||
William Cannon(1) | 12,000 | 12,000 | ||||||
Thomas M. Crowder(2) | 2,000 | 2,000 | ||||||
John Hodge(3) | 8,000 | 8,000 | ||||||
Andrew C. Holzwarth | 12,000 | 12,000 | ||||||
A. Preston Moore, Jr. | 12,000 | 12,000 | ||||||
H.B. Sedwick, III | 12,000 | 12,000 | ||||||
Ronald Spicer(4) | 12,000 | 12,000 | ||||||
Pamela H. Stone | 12,000 | 12,000 | ||||||
Gregory K. Wolfrey | 12,000 | 12,000 |
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Compensation Committee Interlocks and Insider Participation.None of the members of VCB’s Salary/Benefits Committee will be or will have been an officer or employee of VCB or any of its subsidiaries. In addition, none of VCB’s executive officers serves or has served as a member of the board of directors, compensation committee orindustrial loans may entail greater risk than other board committee performing equivalent functions of any entity that has one or more executive officers serving as one of VCB’s directors or on its Salary/Benefits Committee.
VCB’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following presents VCB management’s discussion and analysis of VCB’s financial condition and results of operations and should be read in conjunction with the financial statements and related notes contained elsewhere in this joint proxy statement/prospectus. The discussion is provided to assist in the understanding and evaluation of VCB’s financial condition and its results of operations as of and for the periods indicated. VCB has no material operations other than its ownership of Virginia Community Bank. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from those anticipated in these forward-looking statements as a result of various factors including but not limited to many of the factors described more fully in “Risk Factors” beginning on page [●] and “Cautionary Statement Regarding Forward-Looking Statements” on page [●].
Critical Accounting Policies
VCB’s accounting principles follow and its methods of applying these principles conform with GAAP and to general practices within the banking industry. VCB’s accounting and reporting policies are fundamental to the methods by which it records and reports its financial condition and results of operations. Management must make significant assumptions and estimates and exercise significant judgment in selecting and applying many of these accounting and reporting policies so they comply with GAAP and reflect management’s judgment of the most appropriate manner to report VCB’s financial condition and results. In some cases, management must select a policy from two or more alternatives, any of which may be reasonable under the circumstances, which may result in VCB reporting materially different results than would have been reported under a different alternative.
VCB considers the accounting policies below to be significant accounting policies. The estimates and assumptions VCB uses are based on historical experience and various other factorsloans, and are believed to be reasonable undertherefore underwritten with strict risk management standards. Among the circumstances.
Allowancecriteria for Loan Losses.VCB’s judgment in determining the adequacy of the allowance for loan losses is based on evaluations of the collectability of loans. These evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrower’s ability to pay, overall portfolio quality, and review of specific problem loans. In determining the adequacyrepay is a cash flow analysis of the allowance for loan losses, VCB’s management estimates the probable losses in the existing portfolio through consideration of factors including, but not limited to, past loan loss experience, estimated losses in significant credits, current nationalbusiness and local economic conditions, including unemployment rates, and the ability and experience of lending management and collections personnel. The allowance is composed of general reserves and specific reserves. General reserves are determined by applying loss percentages to segments of the portfolio. The loss percentages are based on each segment’s historical loss experience and adjustment factors for conditions in VCB’s internal and external environment. All loans considered to be impaired and other classified loans are evaluated on an individual basis. The combination of these results are compared quarterly to the recorded allowance for loan losses and material differences are adjusted by increasing or decreasing the provision for loan losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.business collateral.
Management believes the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future adjustments to the allowance may be necessary based on changes in economic conditions. In addition, bank regulators, as an integralConsumer Loans. As part of their examination process, periodically review VCB’s allowance for loan losses. Such regulators may require VCB to recognize adjustments to the allowance based on their judgmentsits range of information available to them at the timeservices, Virginia Commonwealth Bank’s consumer lending services include automobile and boat financing, home improvement loans, credit cards, and unsecured personal loans. These consumer loans historically entail greater risk than loans secured by real estate, but generate a higher rate of their examination.return.
Fair Value.Consumer Deposit Services. VCB’s impaired loans, foreclosed assets and investment securities are measured at “fair value,” the determination of which requires VCB’s management to make assumptions, estimates and judgments. When a loan is considered impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. In addition, other real estate is
carried at the lower of cost or “fair value,” less cost to sell, following foreclosure. “Fair value” is defined by GAAP “as the price that would be received to sell an asset … in an orderly transaction between market participants at the measurement date.” GAAP further defines an “orderly transaction” as “a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets … it is not a forced transaction (for example, a forced liquidation or distress sale).”
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Generally accepted accounting standards define fair value, establish a framework for measuring fair value, require certain disclosures about fair values, and establish a hierarchy for determining fair value measurements. The hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The fair value hierarchy is as follows:
Level 1 Inputs- Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs- Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These mightConsumer deposit products include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rate, volatilities, prepayment speeds, credit risks, etc.).
Level 3 Inputs- Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of VCB’s financial assets and financial liabilities carried at fair value. VCB’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While VCB’s management believes VCB’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.
Financial assets measured at fair value on a recurring basis include the following:
Securities Available for Sale.The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Comparison of Financial Condition at June 30, 2019 and December 31, 2018
Total assets at June 30, 2019 were $247.3 million, an increase of $1.6 million or 1%, from $245.7 million at December 31, 2018. The increase in assets was primarily driven by growth in deposits that were deployed in overnight invested cash and loans, offset by a reduction in investment securities. Investment securities totaled $49.4 million as of June 30, 2019, a decline of $8.4 million, or 14.5% compared to $57.8 million at December 31, 2018. The decline in investment securities was offset by growth in overnight invested cash and loans. Total loans at June 30, 2019 were $178.8 million, an increase of $10.6 million, or 6.3%, from $168.2 million at December 31, 2018.
The allowance for loan losses increased by $21 thousand during the first six months of 2019 to $1.5 million, or 0.86% of total loans as of June 30, 2019, compared to $1.5 million, or 0.90% of total loans as of December 31, 2018.
At June 30, 2019, total liabilities were $222.4 million, an increase of $0.3 million, or 0.1% compared to $222.1 million at December 31, 2018. The increase in liabilities was primarily attributable to growth in deposits of $9.8 million, partially offset by reductions in federal funds purchased and Federal Home Loan Bank (“FHLB”) advances in the amounts of $7.4 million and $2.0 million, respectively. Total deposits at June 30, 2019 were $221.0 million, an increase of $9.8 million, or 5.0% compared to $211.2 million at December 31, 2018.
Total stockholders’ equity increased by $1.3 million to $24.9 million at June 30, 2019 compared to $23.6 million at December 31, 2018. The increase in total stockholders’ equity was due primarily to a reduction of $506 thousand from unrealized losses in VCB’s available for sale investment securities portfolio and an increase in retained earnings of $809 thousand, driven by currentyear-to-date net income.
Comparison of Financial Condition at December 31, 2018 and December 31, 2017
Total assets decreased by $2.7 million in 2018, or 1.1%, from $248.4 million at December 31, 2017 to $245.7 million at December 31, 2018. The decrease in total assets was primarily attributed to a reduction in the loan portfolio of 7.5% during 2018, from $181.7 million at December 31, 2017 to $168.2 million at December 31, 2018. VCB’s loan portfolio represents its largest asset class and contributor to interest income. VCB’s investment securities portfolio represents its second largest asset class and contributor to interest income and is generally maintained as a source of liquidity. In 2018, the available for sale investment portfolio increased by $9.9 million or 20.7%, from $47.9 million at December 31, 2017, to $57.8 million at December 31, 2018.
The allowance for loan losses decreased by $605 thousand during 2018 to $1.5 million, or 0.90% of total loans as of December 31, 2018, compared to $2.1 million, or 1.17% of total loans as of December 31, 2017. The decrease in loan loss reserves as a percent of total loans between 2017 and 2018 was due to the strong credit quality of VCB’s loan portfolio, as well as the declining size of the loan portfolio, resulting in a net recovery of loan loss provision expense in both periods.
At December 31, 2018, total liabilities were $222.1 million, a decrease of $1.9 million, or 0.84% compared to $224.0 million at December 31, 2017. The decrease in liabilities was concentrated in reduction in federal funds purchased as ofyear-end, which decreased $3.7 million to $7.4 million at December 31, 2018 and deposits, which increased $2.8 million to $211.2 million as of December 31, 2018.
Total stockholders’ equity decreased by $792 thousand in 2018, or 3.24%, from $24.4 million at December 31, 2017 to $23.6 million at December 31, 2018. This reduction in total stockholders’ equity was primarily due to two separate events, first the termination of VCB’s ESOP in the fourth quarter of 2018 and, second, the repurchase of shares by VCB in excess of issuance of new shares in connection with the termination of the ESOP resulting in a reduction of paid in capital of $1.3 million during this period. Also, the accumulated other comprehensive income (loss) reduced by $1.4 million as a result of additional unrealized losses related to securities available for sale during 2018. These negative adjustments to total stockholders’ equity totaled $2.7 million and were offset partially by the addition of retained earnings of $1.9 million in 2018.
Comparison of Results of Operation for the Six Months Ended June 30, 2019 and 2018
For the six months ended June 30, 2019, VCB reported net income of $809 thousand. Basic and diluted earnings per share were $1.13. For the six months ended June 30, 2018, net income was $1.2 million and both basic and diluted earnings per share were $1.66.
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 VCB’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. VCB’s principal interest 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”) andchecking accounts, savings accounts, money market accounts, certificates of deposit, and FHLB advances. Generally, changes in net interest income are measured by the net interest rate spread and the net interest margin. The net interest rate spread is equal to the difference between the average rate earned on interest earning assets and the average rate incurred on interest-bearing liabilities. The net interest margin represents the difference between interest income and interest expense calculated as a percentage of average earning assets.
The following table shows the average balance sheets for the first six months of 2019 compared to the first six months of 2018. 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.
Six Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, 2019 | June 30, 2018 | |||||||||||||||||||||||
(Dollars in thousands) | Average Balance | Interest Income- Expense | Average Yields / Rates (1) | Average Balance | Interest Income- Expense | Average Yields / Rates (1) | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Securities available for sale, at fair value (2) | $ | 47,458 | $ | 989 | 4.17 | % | $ | 40,430 | $ | 969 | 4.79 | % | ||||||||||||
Restricted equity securities | 1,612 | 12 | 1.49 | % | 1,870 | 13 | 1.39 | % | ||||||||||||||||
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Total securities | 49,070 | 1,001 | 4.08 | % | 42,300 | 982 | 4.64 | % | ||||||||||||||||
Interest-bearing deposits in other banks and federal funds sold | 4,854 | 63 | 2.60 | % | 2,311 | 22 | 1.90 | % | ||||||||||||||||
Loans (3) | 173,023 | 4,854 | 5.61 | % | 177,646 | 4,685 | 5.27 | % | ||||||||||||||||
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Total interest-earning assets | 226,947 | 5,918 | 5.22 | % | 222,257 | 5,689 | 5.12 | % | ||||||||||||||||
Less allowance for loan losses | (1,524 | ) | (1,889 | ) | ||||||||||||||||||||
Totalnon-interest earning assets | 23,855 | 27,258 | ||||||||||||||||||||||
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Total assets | $ | 249,278 | $ | 247,626 | ||||||||||||||||||||
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Liabilities & Stockholders’ equity | ||||||||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||||||||
NOW accounts | $ | 26,694 | $ | 37 | 0.28 | % | $ | 25,139 | $ | 35 | 0.28 | % | ||||||||||||
Savings accounts | 36,215 | �� | 54 | 0.30 | % | 35,183 | 52 | 0.30 | % | |||||||||||||||
Money market accounts | 43,665 | 111 | 0.51 | % | 41,153 | 91 | 0.44 | % | ||||||||||||||||
Time deposits | 33,299 | 233 | 1.40 | % | 35,163 | 222 | 1.26 | % | ||||||||||||||||
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Total interest-bearing deposits | 139,873 | 435 | 0.62 | % | 136,638 | 400 | 0.59 | % | ||||||||||||||||
Federal funds purchased | 408 | 9 | 4.41 | % | 1,230 | 15 | 2.44 | % | ||||||||||||||||
FHLB advances | 2,967 | 31 | 2.09 | % | 4,000 | 27 | 1.35 | % | ||||||||||||||||
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Total interest-bearing liabilities | 143,248 | 475 | 0.66 | % | 141,868 | 442 | 0.62 | % | ||||||||||||||||
Demand deposits and other liabilities | 80,485 | 80,154 | ||||||||||||||||||||||
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Total liabilities | 223,733 | 220,022 | ||||||||||||||||||||||
Stockholders’ equity | 25,545 | 25,604 | ||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 249,278 | $ | 247,626 | ||||||||||||||||||||
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Interest rate spread | 4.56 | % | 4.50 | % | ||||||||||||||||||||
Net interest margin | $ | 5,443 | 4.80 | % | $ | 5,247 | 4.72 | % | ||||||||||||||||
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The increase in interest earned from interest-earning assets was primarily driven by an increase in average yield on loans due to the rise in short term rates and the effect it had on the floating rate loans in the first six months of 2019 versus the first six months of 2018.
Interest expense increased by $33 thousand, or 7.5%, to $475 thousand for the six months ended June 30, 2019 as compared to $442 thousand during the six months ended of 2018. Average interest bearing-liabilities increased by 0.97% for the six month period ended June 30, 2019, as compared to the same period in 2018, and the average cost of liabilities increased by 4 basis points to 0.66% during the first six months of 2019, compared to 0.62% during the first six months of 2018.
Net interest income for the six month period ended June 30, 2019 was $5.4 million as compared to $5.2 million for the same period in 2018, an increase of 3.7%. The increase in net interest income during the period is primarily attributed to an increase of 0.34% in yield from the loan portfolio for the same period in 2018.
Interest income and expense are affected by changes in interest rates, by changes in the volumes of earning assets and interest-bearing liabilities, and by changes in the mix of these assets and liabilities. For purposes of the table below, changes attributable to both rate and volume that cannot be segregated have been proportionately allocated to both rate and volume. The following rate-volume variance analysis shows theyear-to-date changes in the components of net interest income as of June 30, 2019 compared to June 30, 2018.
Six Months Ended June 30, | ||||||||||||
2019 vs. 2018 | ||||||||||||
Increase/ (Decrease) Due to | Total Increase/ (Decrease) | |||||||||||
(Dollars in thousands) | Volume | Rate | ||||||||||
Interest Income | ||||||||||||
Securities | $ | 156 | $ | (137 | ) | $ | 19 | |||||
Loans | (125 | ) | 294 | 169 | ||||||||
Interest bearing deposits in other banks and federal funds sold | (2 | ) | 43 | 41 | ||||||||
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Total interest income | $ | 29 | $ | 200 | $ | 229 | ||||||
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Interest Expense | ||||||||||||
Interest-bearing deposits: | ||||||||||||
NOW accounts | $ | 2 | $ | — | $ | 2 | ||||||
Savings accounts | 2 | — | 2 | |||||||||
Money market accounts | 6 | 14 | 20 | |||||||||
Time deposits | (12 | ) | 23 | 11 | ||||||||
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Total interest-bearing deposits | $ | (2 | ) | $ | 37 | $ | 35 | |||||
Federal funds purchased | (15 | ) | 9 | (6 | ) | |||||||
FHLB advances | (16 | ) | 20 | 4 | ||||||||
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Total interest expense | (33 | ) | 66 | 33 | ||||||||
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Change in Net Interest Income | $ | 62 | $ | 134 | $ | 196 | ||||||
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Provision for Loan Losses. The provision for loan losses was $0 during the six month period ended June 30, 2019 as compared to a recovery of loan losses of $500 thousand during the six months ended June 30, 2018. Net recoveries amounted to $21 thousand for the six month period ended June 30, 2019, compared to $24 thousand during the same period ended June 30, 2018.
Non-Interest Income. VCB’snon-interest income sources include deposit service charges and other fees, gains/losses on sales of assets and securities, and income from bank-owned life insurance (“BOLI”).Non-interest income totaled $659 thousand for the six month period ended June 30, 2019, compared to $726 thousand for the same period in 2018. The decrease of $67 thousand innon-interest income during this period was due to a decrease innon-sufficient funds (“NSF”) fees of $16 thousand, a reduction in gain on sale of mortgage loans of $27 thousand, a decrease of gain on sale of investment securities of $33 thousand, an increase on loss on sale of other real estate owned of $60 thousand, and reduced interest rate payments on the BOLI of $4 thousand, offset by an increase in othernon-interest income of $73 thousand.
Non-Interest Expense. Non-interest expense totaled $4.9 million for the six month period ended June 30, 2019 as compared to $4.9 million for the same period in 2018, a 1.3% increase. The increase of $65 thousand during this period was primarily attributable to an increase of professional fees of $276 thousand and an increase in other expenses of $239 thousand, partially offset by a reduction in salary and employee benefits of $305 thousand and a reduction in communication expenses of $149 thousand.
The following is a select summary of VCB’snon-interest expense during the first six months of 2019, compared to the first six months of 2018:
Six Months ended June 30, | ||||||||||||||||
(Dollars in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Salaries and employee benefits | $ | 2,244 | $ | 2,549 | $ | (305 | ) | -12.0 | % | |||||||
Occupancy | 315 | 296 | 19 | 6.4 | % | |||||||||||
FDIC insurance assessment | 45 | 60 | (15 | ) | -25.0 | % | ||||||||||
Communications | 142 | 291 | (149 | ) | -51.2 | % | ||||||||||
Professional fees | 721 | 445 | 276 | 62.0 | % | |||||||||||
Other operating expenses | 1,478 | 1,239 | 239 | 19.3 | % | |||||||||||
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Totalnon-interest expenses | $ | 4,945 | $ | 4,880 | $ | 65 | 1.3 | % | ||||||||
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Income Tax Expense. During the six months ended June 30, 2019, VCB recognized a provision for income taxes of $348 thousand, for an effective tax rate of 30.1%, as compared to a provision of $347 thousand, for an effective tax rate of 21.8% for the period ended June 30, 2018. The increase in the effective tax rate is attributable to merger-related expenses at the holding company level that are not deemed deductible for tax purposes.
Comparison of Results of Operations for the Years Ended December 31, 2018 and 2017
For the year ended December 31, 2018, VCB reported net income of $2.3 million, compared to $1.7 million reported for the year ended December 31, 2017. Basic and diluted earnings per share were $3.04 in 2018 compared to $2.28 in 2017.
Net Interest Income. Net interest income is the excess of interest earned on loans and investments over the interest paid on deposits and borrowings, and is VCB’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.
Net interest income was $10.7 million for the year ended December 31, 2018, compared to $9.6 million for the year ended December 31, 2017. Net interest margin was 4.59% for the year ended December 31, 2018 compared to 4.27% at December 31, 2017. The increase in net interest income in 2018 was primarily due to a result of higher yielding assets.
The following table shows the average balance sheets for each of the years ended December 31, 2018, and 2017. In addition, the amounts of interest earned on interest-earning assets, with related yields, and interest expense on interest-bearing liabilities, with related rates, are shown.
2018 | 2017 | |||||||||||||||||||||||
(Dollars in thousands) | Average Balance | Interest Income- Expense | Average Yields / Rates | Average Balance | Interest Income- Expense | Average Yields / Rates | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Securities available for sale (1) | $ | 44,177 | $ | 1,755 | 3.97 | % | $ | 37,925 | $ | 1,424 | 3.75 | % | ||||||||||||
Restricted securities | 1,781 | 289 | 16.2 | % | 1,826 | 35 | 1.91 | % | ||||||||||||||||
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Total securities | 45,958 | 2,044 | 4.52 | % | 39,751 | 1,272 | 3.19 | % | ||||||||||||||||
Interest-bearing deposits in other banks and federal funds sold | 11,159 | 55 | 0.49 | % | 10,151 | 23 | 0.22 | % | ||||||||||||||||
Loans (2) | 175,174 | 9,441 | 5.39 | % | 175,471 | 9,123 | 5.19 | % | ||||||||||||||||
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Total interest earning assets | 232,291 | $ | 11,540 | 4.97 | % | 225,373 | $ | 10,418 | 4.62 | % | ||||||||||||||
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Less allowance for loan losses | (1,729 | ) | (2,540 | ) | ||||||||||||||||||||
Totalnon-interest earning assets | 18,489 | 12,709 | ||||||||||||||||||||||
Total assets | $ | 249,051 | $ | 240,622 | ||||||||||||||||||||
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Liabilities & Stockholders’ equity | ||||||||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||||||||
NOW accounts | $ | 25,421 | $ | 74 | 0.29 | % | $ | 24,039 | $ | 54 | 0.22 | % | ||||||||||||
Savings accounts | 35,564 | 107 | 0.30 | % | 33,260 | 99 | 0.30 | % | ||||||||||||||||
Money market accounts | 41,868 | 184 | 0.44 | % | 44,393 | 179 | 0.40 | % | ||||||||||||||||
Time deposits | 34,559 | 447 | 1.29 | % | 35,644 | 413 | 1.16 | % | ||||||||||||||||
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Total interest-bearing deposits | 137,412 | 812 | 0.59 | % | 137,336 | 745 | 0.54 | % | ||||||||||||||||
FHLB Advances/ Federal funds purchased | 4,352 | 64 | 1.47 | % | 4,379 | 55 | 1.26 | % | ||||||||||||||||
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Total interest-bearing liabilities | 141,764 | 876 | 0.62 | % | 141,715 | 800 | 0.56 | % | ||||||||||||||||
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Demand deposits and other liabilities | 81,558 | 74,060 | ||||||||||||||||||||||
Total liabilities | 223,322 | 215,775 | ||||||||||||||||||||||
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Stockholders’ equity | 25,729 | 24,847 | ||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 249,051 | $ | 240,622 | ||||||||||||||||||||
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Interest rate spread | 4.35 | % | 4.06 | % | ||||||||||||||||||||
Net interest margin | $ | 10,664 | 4.59 | % | $ | 9,618 | 4.27 | % | ||||||||||||||||
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Comparing the year ended December 31, 2018 to 2017, the increase in interest earned from interest-earning assets was driven by a combination of an increase in total earning assets and an increase in the average yield on those earning assets. The increase in yield associated with securities is attributable to an increase in both volume and rate. The increase in yield associated with loans is attributable to an increase in rate, partially offset by a slight decrease in volume.
Interest expense increased by $76 thousand, or 0.06%, to $876 thousand for the year ended December 31, 2018 as compared to $800 thousand during the year ended December 31, 2017. Average interest-bearing liabilities increased by only $49 thousand for the year ended December 31, 2018, as compared to the year ended 2017, and the average cost of liabilities increased by 6 basis points to 0.62% during the year ended 2018, compared to 0.56% during the twelve months of 2017.
Net interest income for the year ended December 31, 2018 was $10.7 million compared to $9.6 million during the year ended 2017, an increase of 11.5%. The increase in net interest income during the period was primarily attributed to an increase of 35 basis points in yield from earning assets while the cost of liabilities only increased by 6 basis points during 2018.
Interest income and expense are affected by changes in interest rates, by changes in the volumes of earning assets and interest-bearing liabilities, and by changes in the mix of these assets and liabilities. The following rate-volume variance analysis shows the year over year changes in the components of net interest income for the years ended December 31, 2018 and December 31 2017.
2018 compared to 2017 | ||||||||||||
Increase/(Decrease) Due to | Total Increase/ (Decrease) | |||||||||||
(Dollars in thousands) | Volume | Rate | ||||||||||
Interest Income | ||||||||||||
Securities | $ | 281 | $ | 491 | $ | 772 | ||||||
Loans | 246 | 72 | 318 | |||||||||
Interest bearing deposits in other banks and federal funds sold | 5 | 27 | 32 | |||||||||
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Total interest income | $ | 532 | $ | 590 | $ | 1,122 | ||||||
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Interest Expense | ||||||||||||
Interest-bearing deposits: | ||||||||||||
NOW accounts | $ | 4 | $ | 16 | $ | 20 | ||||||
Savings accounts | 8 | — | 8 | |||||||||
Money market accounts | (11 | ) | 16 | 5 | ||||||||
Time deposits | (16 | ) | 50 | 34 | ||||||||
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Total interest-bearing deposits | (15 | ) | 82 | 67 | ||||||||
Federal funds purchased | 5 | 10 | 15 | |||||||||
FHLB advances | (15 | ) | 9 | (6 | ) | |||||||
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Total interest expense | (25 | ) | 101 | 76 | ||||||||
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Change in Net Interest Income | $ | 557 | $ | 489 | $ | 1,046 | ||||||
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Provision for (recovery of) loan losses. VCB recorded a recovery of loan losses for the year ended December 31, 2018 of $484 thousand. VCB also recorded a recovery of loan losses of $600 thousand for the year ended December 31, 2017. Net charge offs to the allowance in 2018 were $121 thousand compared to a net recovery of $132 thousand in 2017. VCB analyzes the adequacy of its allowance for loan losses quarterly and has a policy to maintain sufficient reserves to absorb potential loan losses as it relates to the historical modeling and level ofnon-performing loans.
Non-Interest Income. VCB’snon-interest income sources include deposit service charges and other fees, gains/losses on sales of assets and securities, and income from BOLI. Totalnon-interest income decreased $129 thousand, or 8.3%, from $1.5 million in 2017, to $1.4 million in 2018. This was primarily driven by reduced income from BOLI of $14 thousand during 2018 and the fact that no gains in sale of held real estate occurred in 2018 versus gains of $66 thousand in 2017.
Non-Interest Expense. Non-interest expense increased 6.8%, from $9.1 million in 2017 to $9.7 million in 2018. The increase was mostly attributable to increases in salaries and benefits of $680 thousand offset by reductions in FDIC insurance assessments of $40 thousand and professional fees of $59 thousand.
Following is a summary of VCB’snon-interest expense at December 31, 2018 compared to December 31, 2017:
(Dollars in thousands) | 2018 | 2017 | $ Change | % Change | ||||||||||||
Salaries and employee benefits | $ | 4,967 | $ | 4,287 | $ | 680 | 15.8 | % | ||||||||
Occupancy | 590 | 555 | 35 | 6.3 | % | |||||||||||
FDIC insurance assessment | 80 | 120 | (40 | ) | (33.0 | )% | ||||||||||
Communications | 486 | 545 | (59 | ) | (10.8 | )% | ||||||||||
Other real estate owned expenses | 7 | 10 | (3 | ) | (30.0 | )% | ||||||||||
Professional fees | 888 | 1,174 | (286 | ) | (24.3 | )% | ||||||||||
Other operating expenses | 2,671 | 2,381 | 290 | 12.2 | % | |||||||||||
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Totalnon-interest expenses | $ | 9,689 | $ | 9,072 | $ | 617 | 6.8 | % | ||||||||
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Income Taxes. VCB recorded income tax expense of $618 thousand for the year ended December 31, 2018, for an effective tax rate of 21.5%, compared to an income tax expense of $971 thousand for the year ended December 31, 2017 and an effective tax rate of 36.1%. The reduction in the 2018 effective tax rate is primarily the result of the introduction of the new lower corporate tax rates approved by Congress and effective for 2018.
Analysis of Financial Condition
Loan Portfolio. VCB makes loans to individuals as well as to commercial entities. Specific loan terms vary as to interest rate, repayment and collateral requirements based on the type of loan requested and the creditworthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by VCB, however there have been some loan pool purchases that represent loans originated in out of market locations. All loans are underwritten within specific lending policy guidelines that are designed to maximize VCB’s profitability within an acceptable level of business risk.
The following table sets forth the distribution of VCB’s loan portfolio at the dates indicated by category of loan and the percentage of loans in each category to total loans.
June 30, 2019 | December 31, | |||||||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||
Real Estate Construction | $ | 25,712 | 14.4 | % | $ | 20,381 | 12.1 | % | $ | 30,298 | 16.7 | % | ||||||||||||
Commercial Real Estate | 71,631 | 40.1 | % | 66,654 | 39.6 | % | 63,464 | 34.9 | % | |||||||||||||||
Residential Real Estate | 35,020 | 19.6 | % | 34,710 | 20.6 | % | 41,303 | 22.7 | % | |||||||||||||||
Commercial and Industrial | 26,377 | 14.8 | % | 23,758 | 14.2 | % | 22,070 | 12.2 | % | |||||||||||||||
Other | 20,064 | 11.2 | % | 22,699 | 13.5 | % | 24,577 | 13.5 | % | |||||||||||||||
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Gross loans | 178,804 | 100 | % | 168,202 | 100 | % | 181,712 | 100 | % | |||||||||||||||
Less: Allowance for loan losses | (1,542 | ) | (1,521 | ) | (2,126 | ) | ||||||||||||||||||
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Net loans | $ | 177,262 | $ | 166,681 | $ | 179,586 | ||||||||||||||||||
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The following table sets forth the repricing characteristics and sensitivity to interest rate changes of our loan portfolio as of June 30, 2019, December 31, 2018 and December 31, 2017.
(Dollars in thousands) June 30, 2019 | One year or less | Between one and five years | After five years | Total | ||||||||||||
Real estate construction | $ | 11,002 | $ | 12,887 | $ | 1,823 | $ | 25,712 | ||||||||
Commercial real estate | 11,316 | 55,855 | 4,460 | 71,631 | ||||||||||||
Residential real estate | 7,964 | 21,210 | 5,846 | 35,020 | ||||||||||||
Commercial and Industrial | 13,706 | 11,305 | 1,366 | 26,377 | ||||||||||||
Other | 7,757 | 5,894 | 6,413 | 20,064 | ||||||||||||
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Gross loans | 51,745 | 107,151 | 19,908 | 178,804 | ||||||||||||
Fixed-rate loans | $ | 29,305 | $ | 101,659 | $ | 19,908 | $ | 150,872 | ||||||||
Floating-rate loans | 22,440 | 5,492 | — | 27,932 | ||||||||||||
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Gross loans | $ | 51,745 | $ | 107,151 | $ | 19,908 | $ | 178,804 | ||||||||
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(Dollars in thousands) December 31, 2018 | One year or less | Between one and five years | After five years | Total | ||||||||||||
Real estate construction | $ | 12,610 | $ | 6,610 | $ | 1,161 | $ | 20,381 | ||||||||
Commercial real estate | 8,248 | 44,925 | 13,481 | 66,654 | ||||||||||||
Residential real estate | 6,266 | 21,636 | 6,808 | 34,710 | ||||||||||||
Commercial and Industrial | 9,142 | 12,723 | 1,893 | 23,758 | ||||||||||||
Other | 762 | 3,855 | 18,082 | 22,699 | ||||||||||||
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Gross loans | 37,028 | 89,749 | 41,425 | 168,202 | ||||||||||||
Fixed-rate loans | $ | 21,284 | $ | 84,654 | $ | 23,528 | $ | 129,466 | ||||||||
Floating-rate loans | 15,744 | 5,095 | 17,897 | 38,736 | ||||||||||||
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Gross loans | $ | 37,028 | $ | 89,749 | $ | 41,425 | $ | 168,202 | ||||||||
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(Dollars in thousands) December 31, 2017 | One year or less | Between one and five years | After five years | Total | ||||||||||||
Real estate construction | $ | 24,524 | $ | 4,591 | $ | 1,183 | $ | 30,298 | ||||||||
Commercial real estate | 8,448 | 46,400 | 8,616 | 63,464 | ||||||||||||
Residential real estate | 7,106 | 25,193 | 9,004 | 41,303 | ||||||||||||
Commercial and Industrial | 9,265 | 10,932 | 1,873 | 22,070 | ||||||||||||
Other | 570 | 3,704 | 20,303 | 24,577 | ||||||||||||
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Gross loans | 49,913 | 90,820 | 40,979 | 181,712 | ||||||||||||
Fixed-rate loans | $ | 29,920 | $ | 84,607 | $ | 24,073 | $ | 138,600 | ||||||||
Floating-rate loans | 19,993 | 6,213 | 16,906 | 43,112 | ||||||||||||
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Gross loans | $ | 49,913 | $ | 90,820 | $ | 40,979 | $ | 181,712 | ||||||||
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Asset Quality—Provision and Allowance for Loan Losses. VCB makes provisions for loan losses in amounts deemed necessary to maintain the allowance for loan losses at an appropriate level. The provision for loan losses is determined based upon VCB’s estimate of the amount required to maintain an adequate allowance for loan losses reflective of the risks in VCB’s loan portfolio. VCB’s provision for and recovery of loan losses during the first six months of 2019 and 2018 was $0 and $500 thousand, respectively. VCB recorded a recovery of loan losses for the years ended December 31, 2018 and 2017 of $484 thousand and $600 thousand, respectively. The $0 provision for loan losses during the first six months of 2019 as compared to the same period in 2018 was due to a lack of overall growth in the loan portfolio, as well as low levels ofnon-accrual loans andnon-performing assets.Non-accrual loans as of June 30, 2019 totaled $74 thousand, compared to $284 thousand as of December 31, 2018 and $486 thousand as of December 31, 2017. The allowance for loan losses as of June 30, 2019 totaled $1.5 million, compared to $1.5 million as of December 31, 2018 and $2.1 million as of December 31, 2017.
VCB prepares a quarterly analysis of the allowance for loan losses, with the objective of quantifying portfolio risk into a dollar amount of inherent losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged against income and decreased by loanscharged-off (net of recoveries, if any). Management’s periodic evaluation of the adequacy of the allowance is based on VCB’s past loan loss experience, known and inherent risks in the loan 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 coversnon-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.
VCB follows applicable guidance within the Financial Accounting Standards Board Accounting Standards Codification. 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, less costs to sell, if the loan is collateral dependent.
Loans are evaluated fornon-accrual status when principal or interest is delinquent for 90 days or more and are placed onnon-accrual status when a loan is specifically determined to be impaired. Any unpaid interest previously accrued on those loans is reversed from income. Any interest payments subsequently received are recognized as income or amortized over the life of the refinanced loan depending on the specific circumstances. Interest payments received on loans, where management believes a potential for loss remains, are applied as a reduction of the loan principal balance.
Management believes that the allowance for loan losses is adequate. There can be no assurance, however, that adjustments to the provision for loan losses will not be required in the future. Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in VCB’s market area; or changes in the circumstances of particular borrowers are criteria that could change and make adjustments to the provision for loan losses necessary.
The following table presents a summary of the provision and allowance for loan losses for the periods indicated:
(Dollars in thousands) | Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||
Allowance, beginning of period | $ | 1,521 | $ | 2,126 | $ | 2,594 | ||||||
Total charge-offs | (68 | ) | (211 | ) | (114 | ) | ||||||
Total recoveries | 89 | 90 | 246 | |||||||||
Provision for (recovery of) loan losses | — | (484 | ) | (600 | ) | |||||||
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Allowance, end of period | $ | 1,542 | $ | 1,521 | $ | 2,126 | ||||||
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Ratio of net charges-offs to average total loans outstanding during period | (0.01 | )% | 0.07 | % | (0.08 | )% | ||||||
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The allowance for loan losses includes specific and additional allowances for impaired loans and a general allowance applicable to all loan categories; however, management has allocated the allowance by loan type to provide an indication of the relative risk characteristics of the loan portfolio. The allocation is an estimate and
should not be interpreted as an indication that charge-offs will occur in these amounts, or that the allocation indicates future trends, and does not restrict the usage of the allowance for any specific loan or category. The allocation of the allowance at the end of the period indicated, and as a percent of the applicable loan segment, is as follows:
June 30, | December 31, | |||||||||||||||||||||||
(Dollars in thousands) | 2019 | % of Loans | 2018 | % of Loans | 2017 | % of Loans | ||||||||||||||||||
Real Estate Construction | $ | 125 | 0.07 | % | $ | 109 | 0.07 | % | $ | 156 | 0.09 | % | ||||||||||||
Commercial Real Estate | 485 | 0.27 | % | 485 | 0.29 | % | 548 | 0.30 | % | |||||||||||||||
Residential Real Estate | 243 | 0.14 | % | 243 | 0.14 | % | 296 | 0.16 | % | |||||||||||||||
Commercial and Industrial | 159 | 0.09 | % | 147 | 0.08 | % | 491 | 0.27 | % | |||||||||||||||
Other loans | 530 | 0.30 | % | 537 | 0.32 | % | 635 | 0.35 | % | |||||||||||||||
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$ | 1,542 | 0.86 | % | $ | 1,521 | 0.90 | % | $ | 2,126 | 1.17 | % | |||||||||||||
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Non-performing Assets. Non-performing assets consist ofnon-accrual loans; loans past due 90 days and still accruing interest, and other real estate owned (foreclosed properties). The level ofnon-performing assets decreased by $270 thousand during the six months of 2019 to $161 thousand as of June 30, 2019, compared to $431 thousand at December 31, 2018 and $627 thousand at December 31, 2017. VCB has established specific loan loss reserves on impaired loans equal to the estimated collateral deficiency (if any), plus the cost of sale of the underlying collateral, as applicable. As of June 30, 2019, December 31, 2018, and December 31, 2017, VCB had no loans 90 days or more past due that were still accruing interest.
Loans are placed innon-accrual status when in the opinion of management the collection of additional interest is unlikely or a specific loan meets the criteria fornon-accrual status established by regulatory authorities. No interest is taken into income onnon-accrual loans. A loan remains onnon-accrual status until the loan is current as to both principal and interest or the borrower demonstrates the ability to pay and remain current, or both.
Foreclosed real properties include properties that have been substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties, which are held for resale, are carried at the lower of cost or fair market value, including a reduction for the estimated selling expenses. VCB held foreclosed property totaling $87 thousand at June 30, 2019, $147 thousand at December 31, 2018, and $141 thousand at December 31, 2017.
The following table summarizes VCB’snon-performing assets as of the dates indicated:
(Dollars in thousands) | June 30, 2019 | December 31, 2018 | December 31, 2017 | |||||||||
Non-accrual loans | $ | 74 | $ | 284 | $ | 486 | ||||||
Loans past due 90 days and still accruing | — | — | — | |||||||||
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Totalnon-performing loans | $ | 74 | $ | 284 | $ | 486 | ||||||
Other real estate owned | 87 | 147 | 141 | |||||||||
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Totalnon-performing assets | $ | 161 | $ | 431 | $ | 627 | ||||||
Allowance for loan losses to total loans | 0.86 | % | 0.90 | % | 1.17 | % | ||||||
Allowance for loan losses tonon-performing loans | 20.8x | 5.3x | 4.4x | |||||||||
Non-performing loans to total loans | 0.04 | % | 0.29 | % | 0.44 | % | ||||||
Non-performing assets to total assets | 0.07 | % | 0.17 | % | 0.25 | % | ||||||
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Problem assets not included innon-performing assets Accruing troubled debt restructurings | $ | 2,315 | $ | 1,719 | $ | 1,938 | ||||||
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Investment Securities Portfolio. The investment securities 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 securities portfolio classified as securities available 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. VCB had no securities classified asheld-to-maturity during any of the periods presented. VCB recognized a loss on sale of securities available for sale of $12 thousand during the six months ended June 30, 2019 and a gain on sale of securities available for sale of $21 thousand during the six months ended June 30, 2018. For the year ended December 31, 2018, gross gains on the sales of available for sale securities were $21 thousand, while gross losses were $0. For the year ended December 31, 2017, gross gains on the sales of available for sale securities were $59 thousand, while gross losses were $30 thousand. At June 30, 2019, VCB’s total investment in available for sale securities was $49.4 million, compared to $57.8 million at December 31, 2018. The following table provides information regarding the composition of the investment securities portfolio as of the dates indicated:
Investment Securities Portfolio | ||||||||||||||||||||||||
June 30, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
(Dollars in thousands) | Fair Value | Percent of total | Fair Value | Percent of total | Fair Value | Percent of total | ||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||
Treasury bills | $ | 9,995 | 20.3 | % | $ | 9,996 | 17.3 | % | $ | 9,994 | 20.8 | % | ||||||||||||
Municipal securities | — | 0.0 | % | 4,092 | 7.1 | % | 6,360 | 13.3 | % | |||||||||||||||
Mortgage-backed securities | 5,331 | 10.8 | % | 5,347 | 9.3 | % | 1,143 | 2.4 | % | |||||||||||||||
Non-agency collateralized loan obligations | 18,781 | 38.1 | % | 18,503 | 32.0 | % | 8,922 | 18.6 | % | |||||||||||||||
Corporate bonds | 15,248 | 30.9 | % | 19,091 | 33.0 | % | 20,153 | 42.0 | % | |||||||||||||||
Tax exempt securities | — | 0.0 | % | 757 | 1.3 | % | 1,369 | 2.9 | % | |||||||||||||||
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$ | 49,355 | 100.0 | % | $ | 57,786 | 100.0 | % | $ | 47,941 | 100.0 | % | |||||||||||||
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The following tables present fair values and the related unrealized losses in the investment securities portfolio, with the information aggregated by investment category and by the length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated:
(Dollars in thousands) | Less than 12 months | One to five years | Five to ten years | Greater than ten years | Total | |||||||||||||||||||||||||||||||||||
June 30, 2019 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 1,348 | $ | (1 | ) | $ | 1,530 | $ | (11 | ) | $ | — | $ | — | $ | — | $ | — | $ | 2,878 | $ | (12 | ) | |||||||||||||||||
Non-agency Collateralized loan obligations | 6,827 | (58 | ) | 10,014 | (150 | ) | — | — | — | — | 16,841 | (208 | ) | |||||||||||||||||||||||||||
Corporate bonds | 5,552 | (447 | ) | 5,624 | (398 | ) | — | — | — | — | 11,176 | (845 | ) | |||||||||||||||||||||||||||
Treasury bills | 9,995 | (3 | ) | — | — | — | — | — | — | 9,995 | (3 | ) | ||||||||||||||||||||||||||||
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Total | $ | 23,722 | $ | (509 | ) | $ | 17,168 | $ | (559 | ) | $ | — | $ | — | $ | — | $ | — | $ | 40,890 | $ | (1,068 | ) | |||||||||||||||||
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(Dollars in thousands) | Less than 12 months | One to five years | Five to ten years | Greater than ten years | Total | |||||||||||||||||||||||||||||||||||
December 31. 2018 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 1,987 | $ | (29 | ) | $ | 936 | $ | (19 | ) | $ | — | $ | — | $ | — | $ | — | $ | 2,923 | $ | (48 | ) | |||||||||||||||||
Municipal securities | — | — | 2,338 | (21 | ) | — | — | — | — | 2,338 | (21 | ) | ||||||||||||||||||||||||||||
Non-agency collateralized loan obligations | 16,563 | (483 | ) | — | — | — | — | — | — | 16,563 | (483 | ) | ||||||||||||||||||||||||||||
Corporate bonds | 8,986 | (565 | ) | 7,600 | (500 | ) | — | — | — | — | 16,586 | (1,065 | ) | |||||||||||||||||||||||||||
Treasury bills | 9,996 | (3 | ) | — | — | — | — | — | — | 9,996 | (3 | ) | ||||||||||||||||||||||||||||
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Total | $ | 37,532 | $ | (1,080 | ) | $ | 10,874 | $ | (540 | ) | $ | — | $ | — | $ | — | $ | — | $ | 48,406 | $ | (1,620 | ) | |||||||||||||||||
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(Dollars in thousands) | Less than 12 months | One to five years | Five to ten years | Greater than ten years | Total | |||||||||||||||||||||||||||||||||||
December 31, 2017 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 1,292 | $ | (6 | ) | $ | 541 | $ | (8 | ) | $ | — | $ | — | $ | — | $ | — | $ | 1,833 | $ | (14 | ) | |||||||||||||||||
Municipal securities | 9,971 | (195 | ) | — | — | — | — | — | — | 9,971 | (195 | ) | ||||||||||||||||||||||||||||
Non-agency collateralized loan obligations | 9,994 | (1 | ) | — | — | — | — | — | — | 9,994 | (1 | ) | ||||||||||||||||||||||||||||
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Total | $ | 21,257 | $ | (202 | ) | $ | 541 | $ | (8 | ) | $ | — | $ | — | $ | — | $ | — | $ | 21,798 | $ | (210 | ) | |||||||||||||||||
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As of June 30, 2019, December 31, 2018, and December 31, 2017, investments with an unrealized loss position of 12 months or greater represented 11, 12, and 1 securities, respectively. All loss positions were less than 10% of the value of the security, and/or related to investments that were rated as investment grade. No impairment has been recognized on any securities in a loss position because of management’s intent and ability to hold the securities to scheduled maturity or call dates. Management considers the impairment to not be other than temporary.
At June 30, 2019, December 31, 2018, and December 31, 2017, securities with carrying values of $3.3 million, $3.7 million, and $4.1 million and market values of $3.3 million, $3.7 million, and $4.2 million, respectively, were pledged as collateral to secure public deposits and for other purposes.
Deposits. The principal sources of funds for VCB are core deposits (demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits and certificates of deposit) from VCB’s market area. VCB’sdeposit. Virginia Commonwealth Bank offers numerous services and access to its customers, including telephone banking, online banking, mobile banking, mobile deposit, base includes transaction accounts, timeelectronic statements, and savings accounts and other accounts that customers use foridentity theft protection.
Commercial Banking Services. Virginia Commonwealth Bank offers a variety of services to commercial customers. These services include analysis checking, cash management purposesdeposit accounts, wire services, direct deposit payroll service, lockbox service, positive pay, online banking, telephone banking, remote deposit, and a full line of commercial lending options. Virginia Commonwealth Bank also offers Small Business Administration loan products under the 504 Program, which provide VCB with a source of fee income and cross-marketing opportunities as well as alow-cost source of funds. Please refer to the average balance tables under “Net Interest Income”provides long-term funding for information regarding the average balance of deposits, and average rates paid.
Approximately 14.9% of VCB’s deposits at June 30, 2019 were made up of time deposits, which are generally the most expensive form of deposit because of their fixed rate and term, as compared to 15.8% at December 31, 2018 and 16.8 % December 31, 2017.
The following tables provide a summary of VCB’s deposit base at the average cost of deposits by type for the dates indicated and the maturity of time deposits of $100,000 or more as of the end of the periods indicated.
June 30, 2019 | December 31, | |||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
(Dollars in thousands) | Average Balance | Interest Rate | Average Balance | Interest Rate | Average Balance | Interest Rate | ||||||||||||||||||
Noninterest-bearing demand deposits | $ | 79,406 | — | $ | 80,739 | — | $ | 72,677 | — | |||||||||||||||
Interest-bearing demand deposits: | ||||||||||||||||||||||||
NOW accounts | 26,694 | 0.28 | % | 25,421 | 0.25 | % | 24,039 | 0.23 | % | |||||||||||||||
Money market accounts | 43,665 | 0.50 | % | 41,866 | 0.37 | % | 44,393 | 0.40 | % | |||||||||||||||
Savings accounts | 36,215 | 0.30 | % | 35,564 | 0.30 | % | 33,260 | 0.29 | % | |||||||||||||||
Time deposits | 33,299 | 1.40 | % | 34,559 | 1.30 | % | 35,644 | 1.16 | % | |||||||||||||||
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Total deposits | $ | 219,279 | 0.40 | % | $ | 218,149 | 0.37 | % | $ | 210,013 | 0.35 | % | ||||||||||||
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Maturities of Time Deposits ($100,000 or greater)
(Dollars in thousands) | June 30, 2019 | December 31, 2018 | December 31, 2017 | |||||||||
Maturing in: | ||||||||||||
3 months or less | $ | 1,745 | $ | 1,240 | $ | 1,620 | ||||||
Over 3 months through 6 months | 1,935 | 1,735 | 1,210 | |||||||||
Over 6 months through 12 months | 2,564 | 3,409 | 2,162 | |||||||||
Over 12 months | 8,931 | 9,171 | 11,555 | |||||||||
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Total | $ | 15,175 | $ | 15,555 | $ | 16,547 | ||||||
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Borrowings: The following table provides information on the balances and interest rates on total borrowings for the periods indicated:
(Dollars in thousands) | June 30, 2019 | December 31, 2018 | December 31, 2017 | |||||||||
FHLB borrowings | $ | 1,000 | $ | 3,000 | $ | 4,000 | ||||||
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Weighted interest rate at end of period | 1.18 | % | 1.43 | % | 1.17 | % |
FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in VCB’s residential, multifamily and commercial real estate mortgage loan portfolios.
Liquidity: VCB currently has no business other than that of VCB and does not currently have any material funding commitments unrelatedlong-lived equipment. This allows commercial customers to that business. VCB’s principal sources of funds forobtain favorable rate loans investments and general operations are deposits from its primary market area, principal and interest payments on loans, and proceeds from maturing investment securities. Its principal funding commitments are for the originationdevelopment of business opportunities, while providing Virginia Commonwealth Bank with a partial guarantee of the outstanding loan balance.
Purchased Loans. Virginia Commonwealth Bank acquired certain purchased loan pools as part of its merger with Virginia Bancorp. From time to time, Virginia Commonwealth Bank purchases whole or partial loans through various reputable institutions and the payment of maturing deposits, and the payment for checks drawn upon it. VCB’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts dueparticipations from other financial institutions, including Compass Bank, our primary correspondent bank and the Federal Reserve Bank of Richmond. The levels of such assets are dependent on VCB’s lending, investment and operating activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and loan demand, both current and anticipated. At June 30, 2019, VCB’s cash and cash equivalents totaled $5.8 million, compared to $5.1 million at December 31, 2018 and $5.1 million at December 31, 2017.
VCB had a credit line available of $16.9 million with the Federal Home Loan Bank of Atlanta with an outstanding balance of $1.0 million as of June 30, 2019, leaving the remaining credit availability of $15.9 million at June 30, 2019. As of December 31, 2018 and 2017, the outstanding balance of borrowings with the FHLB totaled $3.0 million and $4.0 million, respectively.
VCB had an unsecured federal fund line available with correspondent banks totaling $16.3 million available for overnight borrowing at June 30, 2019, December 31, 2018, and December 31, 2017. This line was not drawn upon at June 30, 2019, December 31, 2018 or 2017.
VCB monitors its liquidity position daily through cash flow forecasting and monthly testing against minimum policy ratios. VCB believes its level of liquidity and capital is adequate to conduct the business of VCB.
Capital. The Federal Reserve has established guidelines with respect to the maintenance of appropriate levels of capital by state member banks. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk weighted” assets. At June 30, 2019, the Bank was in full compliance with these guidelines, as follows:
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June 30, 2019 | December 31, 2018 | December 31, 2017 | To be “Adequately Capitalized” | To be “Well Capitalized” | ||||||||||||||||
Total Capital (to Risk Weighted Assets): | ||||||||||||||||||||
Consolidated | 13.1 | % | 13.0 | % | 12.3 | % | 8.0 | % | 10.0 | % | ||||||||||
Bank | 13.5 | % | 13.6 | % | 12.6 | % | 8.0 | % | 10.0 | % | ||||||||||
Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||
Consolidated | 11.9 | % | 12.3 | % | 11.3 | % | 6.0 | % | 8.0 | % | ||||||||||
Bank | 12.7 | % | 12.8 | % | 11.7 | % | 6.0 | % | 8.0 | % | ||||||||||
Tier 1 Capital (to Total Assets): | ||||||||||||||||||||
Consolidated | 10.4 | % | 10.1 | % | 9.9 | % | 4.0 | % | 5.0 | % | ||||||||||
Bank | 10.5 | % | 10.5 | % | 10.2 | % | 4.0 | % | 5.0 | % | ||||||||||
Common Equity Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||
Consolidated | 11.9 | % | 12.3 | % | 11.3 | % | 4.5 | % | 6.5 | % | ||||||||||
Bank | 12.7 | % | 12.8 | % | 11.7 | % | 4.5 | % | 6.5 | % |
Off-Balance Sheet Activities
Unused commitments and standby letters of credit are consideredoff-balance sheet items that can be converted to actual extension of credits at some point in the future. Standby letters of credit are conditional commitments issued by VCB to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers; VCB generally holds collateral supporting these commitments. In the event the customer does not perform in accordance with the terms of the agreement with the third party, VCB would be required to fund the commitment. There are also unused loan commitments that represent potential additional loan balances that are approved and available for draw down by borrowers at some point in the future. The maximum potential amount of future advances on standby letters of credit available through VCB at June 30, 2019, December 31, 2018 and 2017, totaled $4.6 million, $4.6 million and $4.2 million, respectively. The approved commitments to extend credit that was available but unused at June 30, 2019, December 31, 2018 and 2017 totaled $37.6 million, $28.9 million and $37.9 million, respectively.
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. VCB evaluates each customer’s credit worthiness on acase-by-case basis. The amount of collateral obtained, if deemed necessary by VCB upon 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.
Interest Rate Risk Management
VCB uses an interest income simulation model to measure and monitor interest rate risk. Interest rate risks both upward trending and downward trending with interest rate shocks of +/- 100, 200, 300, and 400 basis points are applied to VCB’s current mix of investments, loans, deposits and other funding sources. The resulting percentage change in VCB’s net interest income sensitivity and VCB’s Economic Value of Equity sensitivity is compared to VCB’s established policy limits. Following is a summary of the results of VCB’s rate shock analysis as of June 30, 2019, compared to policy limits for changes in net interest income as well as net portfolio value.
Rates up 100 basis points | Rates up 200 basis points | Rates up 300 basis points | Rates up 400 basis points | |||||||||||||
Annual % Change Net Interest Income | +6.43 | % | +12.95 | % | +19.50 | % | +26.09 | % | ||||||||
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Bank Policy Limit | -5.00 | % | -10.00 | % | -10.00 | % | -20.00 | % | ||||||||
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Annual % Change Net Portfolio Value | +8.53 | % | +16.62 | % | +24.22 | % | +32.43 | % | ||||||||
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Bank Policy Limit | -10.00 | % | -18.00 | % | -18.00 | % | -25.00 | % | ||||||||
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Rates down 100 basis points | Rates down 200 basis points | Rates down 300 basis points | Rates down 400 basis points | |||||||||||||
Annual % Change Net Interest Income | -8.98 | % | -17.45 | % | -23.12 | % | -27.32 | % | ||||||||
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Bank Policy Limit | -5.00 | % | -10.00 | % | -10.00 | % | -20.00 | % | ||||||||
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Annual % Change Net Portfolio Value | -12.18 | % | -24.46 | % | -20.88 | % | -12.25 | % | ||||||||
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Bank Policy Limit | -10.00 | % | -18.00 | % | -18.00 | % | -25.00 | % |
Based on this analysis VCB is asset sensitive. Management constantly monitors its interest rate risk and has a defined plan in place to manage this risk.
Certain shortcomings are inherent in this method of analysis. For example, although certain assets and liabilities may have similar maturities orre-pricing periods, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate residential and commercial mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the loan. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase.
DESCRIPTION OF BLUE RIDGE CAPITAL STOCK
The following description of the material terms of Blue Ridge’s capital stock does not purport to be complete and is subject to, and qualified in its entirety by reference to, its articles of incorporation and its bylaws. Copies of the full text of Blue Ridge’s articles of incorporation and bylaws are exhibits to the registration statement that contains this joint proxy statement/prospectus. See “Additional Information” beginning on page i.Information.”
The authorized capital stock of Blue Ridge consists of (i) 10,000,00025,000,000 shares of common stock, no par value per share, and (ii) 250,000 shares of preferred stock, par value $50.00 per share. As of the record date of the Blue Ridge special meeting, [●], 2019,December 8, 2020, there were [●]5,718,621 shares of common stock issued and outstanding held by approximately [●]650 holders of record and no shares of preferred stock issued and outstanding. As of [●], 2019,December 8, 2020, there were no options outstanding to purchase shares of Blue Ridge common stock and [●]110,205 shares subject to unvested restricted stock awards, all granted under Blue Ridge’s equity compensation plans.
General. Each share of Blue Ridge common stock has the same relative rights as, and is identical in all respects to, each other share of its common stock. Blue Ridge’s common stock is tradedlisted on the OTC Markets Group’s Pink marketplaceNYSE American under the symbol “BRBS.” The transfer agent for Blue Ridge’s common stock is Computershare, Inc., 250 Royall Street, Canton, Massachusetts 02021.
Voting Rights. The holders of Blue Ridge common stock are entitled to one vote per share and, in general, a majority of votes cast with respect to a matter is sufficient to authorize action upon routine matters. Directors are elected by a plurality of the votes cast, and shareholders do not have the right to accumulate their votes in the election of directors.
Dividends. Blue Ridge’s shareholders are entitled to receive dividends or distributions that the Blue Ridge Board may declare out of funds legally available for those payments. The payment of distributions by Blue Ridge is subject to the restrictions of Virginia law applicable to the declaration of distributions by a corporation. A Virginia corporation generally may not authorize and make distributions if, after giving effect to the distribution, it would be unable to meet its debts as they become due in the usual course of business or if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if it were dissolved at that time, to satisfy the preferential rights of shareholders whose rights are superior to the rights of those receiving the distribution. In addition, the payment of distributions to shareholders is subject to any prior rights of outstanding preferred stock.
As a bank holding company, Blue Ridge’s ability to pay dividends is affected by the ability of Blue Ridge Bank, its bank subsidiary, to pay dividends to the holding company. The ability of Blue Ridge Bank, as well as Blue Ridge, to pay dividends in the future is, and could be further, influenced by bank regulatory requirements and capital guidelines.
Liquidation Rights. In the event of any liquidation, dissolution or winding up of Blue Ridge, the holders of shares of its common stock will be entitled to receive, after payment of all debts and liabilities of Blue Ridge and after satisfaction of all liquidation preferences applicable to any preferred stock, all remaining assets of Blue Ridge available for distribution in cash or in kind.
Directors and Classes of Directors. The Blue Ridge Board is divided into three classes, apportioned as evenly as possible, with directors serving staggered three-year terms. Currently, the Blue Ridge Board consists of 1516 directors. Under the VSCA, a director of Blue Ridge may be removed, with or without cause, by shareholders if the number of votes cast to remove such director constitutes a majority of the votes entitled to be cast at an election of directors of the voting group or voting groups by which such director was elected.
No Preemptive Rights; Redemption and Assessment. Holders of shares of Blue Ridge common stock are not be entitled to preemptive rights with respect to any shares that may be issued. Blue Ridge common stock is not subject to redemption or any sinking fund and the outstanding shares are fully paid and nonassessable.
The Blue Ridge Board is empowered to authorize the issuance of shares of preferred stock, in one or more classes or series, at such times, for such purposes and for such consideration as it may deem advisable without shareholder approval. The Blue Ridge Board may fix the designations, voting powers, preferences, participation, redemption, sinking fund, conversion, dividend and other relative rights, qualifications, limitations and restrictions of any such series of preferred stock.
Because the Blue Ridge Board has the power to establish the preferences and rights of each series of preferred stock, it may afford the holders of any series of preferred stock voting, conversion or other rights that could adversely affect the voting power of the holders of Blue Ridge common stock and, under certain circumstances, discourage an attempt by others to gain control of Blue Ridge.
The creation and issuance of any class or series of preferred stock, and the relative rights, designations and preferences of such class or series, if and when established, will depend upon, among other things, the future capital needs of Blue Ridge, then existing market conditions and other factors that, in the judgment of the Blue Ridge Board, might warrant the issuance of preferred stock.
Liability and Indemnification of Directors and Officers
As permitted by the VSCA, Blue Ridge’s articles of incorporation contain provisions that indemnify its directors and officers to the full extent permitted by Virginia law and eliminate the personal liability of directors and officers for monetary damages to the company or its shareholders in excess of one dollar, except to the extent such indemnification or elimination of liability is prohibited by the VSCA. These provisions do not limit or eliminate the rights of Blue Ridge or any stockholder to seek an injunction or any othernon-monetary relief in the event of a breach of a director’s or officer’s fiduciary duty. In addition, these provisions apply only to claims against a director or officer arising out of his or her role as a director or officer and do not relieve a director or officer from liability if he or she engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law.
In addition, Blue Ridge’s articles of incorporation provide for the indemnification of both directors and officers for expenses incurred by them in connection with the defense or settlement of claims asserted against them in their capacities as directors and officers. Blue Ridge has limited its exposure to liability for indemnification of directors and officers by purchasing directors’ and officers’ liability insurance coverage.
Blue Ridge Common Stock Not Insured by the FDIC
Blue Ridge’s common stock is not a deposit or a savings account and is not insured or guaranteed by the FDIC or any other government agency.
Antitakeover Provisions of Blue Ridge’s Articles of Incorporation, Bylaws, and Virginia Law
General.Blue Ridge’s articles of incorporation and bylaws and Virginia law contain provisions that may have the effect of discouraging, delaying, or preventing a change of control of Blue Ridge by means of a tender offer, a proxy fight, open market purchases of shares of its common stock, or otherwise in a transaction not approved by the Blue Ridge Board. These provisions are designed to reduce, or have the effect of reducing, Blue Ridge’s vulnerability to coercive takeover practices and inadequate takeover bids. However, the existence of these provisions could prevent Blue Ridge shareholders from receiving a premium over the then prevailing market
price of Blue Ridge common stock or a transaction that may otherwise be in the best interest of Blue Ridge shareholders. In addition, these provisions make it more difficult for Blue Ridge shareholders, should they choose to do so, to remove the Blue Ridge Board or Blue Ridge’s management.
Blue Ridge’s Articles of Incorporation and Bylaws
Preferred Stock. Blue Ridge’s articles of incorporation authorize the Blue Ridge Board to establish one or more series of preferred stock and to determine, with respect to any series of preferred stock, the preferences, rights, and other terms of such series. See “Description of Blue Ridge Capital Stock –“– Preferred Stock” beginning on page [●].above. Under this authority, the Blue Ridge Board could create and issue a series of preferred stock with rights, preferences, or restrictions that have the effect of discriminating against an existing or prospective holder of Blue Ridge’s capital stock as a result of such holder beneficially owning or commencing a tender offer for a substantial amount of Blue Ridge common stock. One of the effects of authorized but unissued and unreserved shares of preferred stock may be to render it more difficult for, or to discourage an attempt by, a potential acquirer to obtain control of Blue Ridge by means of a merger, tender offer, proxy contest, or otherwise, and thereby protect the continuity of Blue Ridge’s management.
Classified Board of Directors. Blue Ridge’s articles of incorporation and bylaws divide the Blue Ridge Board into three classes, apportioned as evenly as possible, with directors serving staggered three-year terms. As a result, at least two annual meetings of shareholders may be required for the shareholders to replace a majority of the Blue Ridge Board, subject to the shareholders’ ability to remove directors with or without cause by vote of the holders of a majority of Blue Ridge’s outstanding common shares. The classification of the Blue Ridge Board makes it more difficult and time consuming to gain control of the Blue Ridge Board.
Board Vacancies. Virginia law and Blue Ridge’s articles of incorporation and bylaws provide that any vacancy occurring on the Blue Ridge Board may be filled by the remaining members of the board. These provisions may discourage, delay, or prevent a third party from voting to remove incumbent directors and simultaneously gaining control of the Blue Ridge Board by filling the vacancies created by that removal with its own nominees.
Supermajority Voting Provisions. Blue Ridge’s articles of incorporation provide that certain mergers or consolidations, share exchanges, acquisitions of control, sales of all or substantially all of Blue Ridge’s assets, liquidation or dissolution, in each case
with a corporation, person or entity that is the beneficial owner, directly or indirectly, of more than 5% of the shares of capital stock of Blue Ridge outstanding and entitled to vote on the transaction (a “significant shareholder”), must be approved by the affirmative vote of the holders of 80% of the outstanding capital stock of Blue Ridge entitled to vote on the transaction. If such an action does not involve a significant shareholder, it must be approved by the affirmative vote of the holders of more thantwo-thirds of the outstanding capital stock of Blue Ridge entitled to vote on the transaction. The voting provisions described in this paragraph do not apply to any transaction which is approved in advance by a majority of those directors of Blue Ridge (i) who were directors before the corporation, person or entity became a significant shareholder and who are not affiliates of such significant shareholder, and (ii) who became directors of Blue Ridge at the recommendation of the directors referred to in clause (i) above.
Shareholder Meetings. Under its bylaws, special meetings of shareholders may only be called by Blue Ridge’s President or by request in writing stating the purposes thereof delivered to the President and signed by a majority of the directors or by three or more shareholders owning in the aggregate, not less than 20% in interest of the shares of the Blue Ridge capital stock. Under Virginia law, shareholders may only conduct business at special meetings of shareholders that is specified in the notice of the meeting. This provision is designed to afford antitakeover protection by making it more difficult for shareholders to call a special meeting of shareholders to consider a proposed merger or other business combination.
Advance Notification of Shareholder Nominations. Blue Ridge’s bylaws establish advance notice procedures with respect to the nomination of persons for election as directors, other than nominations made by or at the direction of the Blue Ridge Board. Pursuant to Blue Ridge’s bylaws, a shareholder entitled to vote for the election of
directors may nominate persons for election to the Blue Ridge Board by delivering written notice to Blue Ridge’s Corporate Secretary. With respect to an election to be held at an annual meeting of shareholders, its bylaws generally require that such notice be delivered not fewer than 60 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder must be delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. A shareholder wishing to nominate any person for election as a director must provide Blue Ridge with certain information concerning the nominee and the proposing shareholder.
Merger Considerations. The articles of incorporation of Blue Ridge provide that the Blue Ridge Board, when evaluating a transaction that would or may involve a change in control of Blue Ridge, shall consider, among other things, the following factors: the social and economic effects of the proposed transaction on the depositors, employees, suppliers, customers and other constituents of Blue Ridge and on the communities in which Blue Ridge operates or is located, the business reputation of the other party proposing the transaction and the evaluation of the then value of Blue Ridge in a freely negotiated sale and of the future prospects of Blue Ridge as an independent entity. This provision provides the Blue Ridge Board the latitude to consider additional factors, aside from the price of a proposed merger or other business combination, in determining whether the transaction is in the best interests of Blue Ridge and its shareholders.
Virginia Antitakeover Statutes.Virginia has two antitakeover statutes: the Affiliated Transactions Statute and the Control Share Acquisitions Statute.
Affiliated Transactions Statute. Virginia law contains provisions governing affiliated transactions. An affiliated transaction generally is defined as any of the following transactions:
a merger, a share exchange, material dispositions of corporate assets not in the ordinary course of business to or with an interested shareholder (defined as any holder of more than 10% of any class of outstanding voting shares), or any material guarantee of any indebtedness of any interested shareholder;
certain sales or other dispositions of the corporation’s voting shares or any of the corporation’s subsidiaries having an aggregate fair market value greater than 5% of the aggregate fair market value of all outstanding voting shares;
any dissolution of the corporation proposed by or on behalf of an interested shareholder; or
any reclassification, including reverse stock splits, or recapitalization that increases the percentage of outstanding voting shares owned beneficially by any interested shareholder by more than 5%.
In general, these provisions prohibit a Virginia corporation from engaging in affiliated transactions with an interested shareholder for a period of three years following the date that such person became an interested shareholder unless:
the board of directors of the corporation and the holders oftwo-thirds of the voting shares, other than the shares beneficially owned by the interested shareholder, approve the affiliated transaction; or
before the date the person became an interested shareholder, the board of directors approved the transaction that resulted in the shareholder becoming an interested shareholder.
After three years, any such transaction must be at a “fair price,” as statutorily defined, or must be approved by the holders oftwo-thirds of the voting shares, other than the shares beneficially owned by the interested shareholder.
The shareholders of a Virginia corporation may adopt an amendment to the corporation’s articles of incorporation or bylaws opting out of the Affiliated Transactions Statute. Neither Blue Ridge’s articles of incorporation nor its bylaws contain a provision opting out of the Affiliated Transactions Statute.
Control Share Acquisitions Statute. Virginia law also contains provisions relating to control share acquisitions, which are transactions causing the voting strength of any person acquiring beneficial ownership of shares of a Virginia public corporation to meet or exceed certain threshold percentages (20%, 33 1/3% or 50%) of the total votes entitled to be cast for the election of directors. Shares acquired in a control share acquisition have no voting rights unless:
the voting rights are granted by a majority vote of all outstanding shares other than those held by the acquiring person or any officer or employee director of the corporation; or
the articles of incorporation or bylaws of the corporation provide that these Virginia law provisions do not apply to acquisitions of its shares.
The acquiring person may require that a special meeting of the shareholders be held to consider the grant of voting rights to the shares acquired in the control share acquisition.
Under Virginia law, a corporation’s articles of incorporation or bylaws may contain a provision opting out of the Control Share Acquisitions Statute. Neither Blue Ridge’s articles of incorporation nor its bylaws contain a provision opting out of the Control Share Acquisitions Statute.
COMPARISON OF SHAREHOLDERS’ RIGHTS
Blue Ridge and VCBBay Banks each are Virginia corporations subject to the provisions of the VSCA. In addition, the rights of shareholders of Blue Ridge and VCBBay Banks are governed by their respective articles of incorporation and bylaws. Upon completion of the proposed merger, VCBBay Banks shareholders will become shareholders of Blue Ridge and, as such, their shareholder rights will be governed by the articles of incorporation and bylaws of Blue Ridge and will continue to be governed by the VSCA.
The following is a summary of the material differences in the rights of shareholders of Blue Ridge and VCB,Bay Banks, but is not a complete statement of all those differences. Shareholders should read carefully the relevant provisions of the VSCA and the respective articles of incorporation and bylaws of Blue Ridge and VCB.Bay Banks. This summary is qualified in its entirety by reference to the articles of incorporation and bylaws of Blue Ridge and VCBBay Banks and to the provisions of the VSCA.
Authorized Capital Stock
Blue Ridge. Blue Ridge is authorized to issue 10,000,000 shares of common stock, no par value per share, of which [●] shares were issued and outstanding as of the record date for the Blue Ridge special meeting, and 250,000 shares of preferred stock, par value $50.00 per share, of which no shares were issued and outstanding as of the record date for the Blue Ridge special meeting.
Blue Ridge’s articles of incorporation permit the Blue Ridge Board, without shareholder approval, to fix the preferences, limitations and relative rights of its preferred stock and to establish classes or series of such preferred stock and determine the variations between each class or series. Holders of Blue Ridge stock of any class do not have any preemptive right to subscribe to or purchase (i) any shares of capital stock of Blue Ridge, (ii) any securities convertible into such shares, or (iii) any options, warrants or rights to purchase such shares or securities convertible into any such shares.
VCB. VCB is authorized to issue 10,000,000 shares of common stock, par value $5.00 per share, of which [●] shares were issued and outstanding as of the record date for the VCB special meeting, and 400,000 shares of preferred stock, par value $25.00 per share, of which no shares were issued and outstanding as of the record date for the VCB special meeting.
VCB’s articles of incorporation permit the VCB Board, without shareholder approval, to fix the preferences, limitations and relative rights of its preferred stock and to establish classes or series of such preferred stock and determine the variations between each class or series. Holders of VCB stock of any class do not have any preemptive right to subscribe to or purchase (i) any shares of capital stock of VCB, (ii) any securities convertible into such shares, or (iii) any options, warrants or rights to purchase such shares or securities convertible into any such shares.
Dividend Rights
The holders of Blue Ridge and VCB common stock are entitled to share ratably in dividends when and as declared by their respective board of directors out of funds legally available therefor. The articles of incorporation of both Blue Ridge and VCB permit its boards to issue preferred stock with terms set by each board, respectively, which terms may include the right to receive dividends ahead of the holders of the Blue Ridge or VCB common stock. Blue Ridge and VCB do not currently have any outstanding shares of preferred stock.
Voting Rights
The holders of both Blue Ridge and VCB common stock have one vote for each share held on any matter presented for consideration by the holders of common stock at a shareholders meeting. Directors of each of Blue Ridge and VCB are elected by a plurality of the votes cast, and neither company’s shareholders have the right to accumulate their votes in the election of directors.
Directors and Classes of Directors
Blue Ridge. The Blue Ridge Board is divided into three classes, apportioned as evenly as possible, with directors serving staggered three-year terms. The number of directors may be increased or decreased by the Blue Ridge Board in its discretion or by the Blue Ridge shareholders at any shareholder meeting, provided that the number cannot be less than five nor more than 25.
The articles of incorporation of Blue Ridge do not contain a provision regarding the removal of a director by its shareholders. Accordingly, under the VSCA, a director of Blue Ridge may be removed with or without cause by a majority vote of the holders of Blue Ridge’s common stock.
VCB. The VCB Board is not divided into classes, and directors serveone-year terms until the next succeeding annual meeting of the shareholders. The VCB articles of incorporation authorize the VCB Board to set and change the actual number of directors from time to time. Currently, the VCB Board consists of seven directors.
The bylaws of VCB contain a provision authorizing VCB shareholders to remove a director, with or without cause, at a meeting of the shareholders called expressly for that reason, by a vote of the shareholders holding a majority of the shares entitled to vote at an election of the directors.
Antitakeover Provisions
Certain provisions of the VSCA and the articles of incorporation and bylaws of Blue Ridge and VCB may discourage attempts to acquire control of Blue Ridge or VCB, respectively, as further described with respect to Blue Ridge under “Description of Blue Ridge Capital Stock—Antitakeover Provisions of Blue Ridge’s Articles of Incorporation, Bylaws, and Virginia Law.” These provisions also may deter or delay corporate changes of control that the Blue Ridge or VCB boards did not approve.
Blue Ridge | Bay Banks | |
The articles of incorporation of Blue Ridge require that actions such as those set forth above must be approved by the affirmative vote of the holders of more thantwo-thirds of the outstanding capital stock of Blue Ridge entitled to vote on the transaction, unless such transaction is with a corporation, person or entity that is the beneficial owner, directly or indirectly, of more than 5% of the shares of capital stock of Blue Ridge outstanding and entitled to vote on the transaction (a “significant shareholder”). If such a transaction is with a significant shareholder, then the transaction must be approved by the affirmative vote of the holders of 80% of the outstanding capital stock of Blue Ridge entitled to vote on the transaction. The voting provisions described in this paragraph do not apply to any transaction which is approved in advance by a majority of those directors of Blue Ridge (i) who were directors before the corporation, person or entity became a significant shareholder and who are not affiliates of such significant shareholder, and (ii) who became directors of Blue Ridge at the recommendation of the directors referred to in clause (i) above. | The articles of incorporation of | |
Special Meetings of | ||
Blue Ridge | Bay Banks | |
The bylaws of Blue Ridge contain a provision pursuant to which special meetings of the shareholders of Blue Ridge may be called by the President and shall be called upon a request in writing stating the purposes thereof delivered to the President and signed by a majority of the directors or by three or more shareholders owning, in the aggregate, not less than 20% of the outstanding shares of Blue Ridge common stock. | Under Bay Banks’ bylaws, only the Chairman of the Board, the President, or a majority of the Bay Banks Board may call special meetings of shareholders. Under Virginia law, shareholders may only conduct business at special meetings of shareholders that is specified in the notice of the meeting. |
Shareholder | ||
Blue Ridge | Bay Banks | |
The bylaws of Blue Ridge require a shareholder who intends to nominate a candidate for election to the Blue Ridge Board at an annual shareholders meeting to deliver written notice to the Secretary of Blue Ridge not fewer than 60 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder must be delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. A shareholder wishing to nominate any person for election as a director must provide Blue Ridge with certain information concerning the nominee and the proposing shareholder. Such requirements may discourage Blue Ridge’s shareholders from submitting director nominations. |
Bay Banks’ bylaws provide that a Bay Banks shareholder can nominate directors by delivering timely written notice. If the | |
Merger | ||
Blue Ridge | Bay Banks | |
The articles of incorporation of Blue Ridge provide that the Blue Ridge Board, when evaluating a transaction that would or may involve a change in control of Blue Ridge, shall consider, among other things, the following factors: the social and economic effects of the proposed transaction on the depositors, employees, suppliers, customers and other constituents of Blue Ridge and on the communities in which Blue Ridge operates or is located, the business reputation of the other party proposing the transaction and the evaluation of the then value of Blue Ridge in a freely negotiated sale and of the future prospects of Blue Ridge as an independent entity. | Bay Banks’ articles of incorporation do not address similar merger considerations. | |
Antitakeover Statutes. Virginia has two antitakeover statutes in force, the Affiliated Transactions Statute and the Control Share Acquisitions Statute. For more information about these statutes, see “Description of Capital |
Director and Officer Exculpation; Indemnification
Blue Ridge and Bay Banks
The articles of incorporation of Blue Ridge and Bay Banks, respectively, provide that to the full extent that the VSCA permits the limitation or elimination of liability of directors or officers, the directors or officers of Blue Ridge or Bay Banks are not liable to Blue Ridge or Bay Banks, respectively, or their respective shareholders for monetary damages.
The articles of incorporation of Blue Ridge and Bay Banks provide that, to the full extent permitted by the VSCA, each of Blue Ridge and Bay Banks is required to indemnify a director or officer against liabilities and expenses incurred by him or her in any proceeding to which he or she was a party by reason of having been a director or officer, except as are incurred because of his or her willful misconduct or knowing violation of the criminal law. Each of the Blue Ridge Board and Bay Banks Board is empowered, by a majority vote of a quorum of disinterested directors, to contract in advance to indemnify any director or officer, as set forth above.
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BLUE RIDGE
The following table sets forth information as of December 8, 2020 regarding the number of shares of Blue Ridge common stock beneficially owned by each director, each named executive officer and by all directors and executive officers as a group. In addition, the table includes information with respect to persons known to Blue Ridge who own or may be deemed to own more than 5% of Blue Ridge common stock as of December 8, 2020. Unless otherwise indicated, all shares are owned directly and the named person possesses sole voting and sole investment power with respect to all such shares.
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership (1) | Percent of Class | ||||||
Directors and Named Executive Officers: |
| |||||||
Hunter H. Bost | 33,271 | (2) | * | |||||
Robert B. Burger | 12,529 | * | ||||||
Elise Peters Carey | 65,716 | (2) | 1.15 | % | ||||
Mensel D. Dean, Jr. | 48,250 | (2) | * | |||||
Larry Dees | 155,971 | (2) | 2.73 | % | ||||
Kenneth E. Flynt | 21,733 | (2) | * | |||||
James E. Gander II | 17,225 | (2) | * | |||||
Andrew C. Holzwarth | 80,290 | (2) | 1.40 | % | ||||
Robert S. Janney | 72,454 | (2) | 1.26 | % | ||||
Brian K. Plum | 56,935 | (3)(4) | * | |||||
Mark W. Sisk | 79,326 | (2) | 1.39 | % | ||||
William W. Stokes | 9,593 | * | ||||||
A. Pierce Stone | 274,660 | (2) | 4.80 | % | ||||
Amanda G. Story | 10,688 | (3)(4) | * | |||||
Malcolm R. Sullivan Jr. | 13,155 | (2) | * | |||||
Donald R. Vaughan | 7,051 | * | ||||||
Carolyn J. Woodruff | 39,791 | * | ||||||
All of the Company’s directors and executive officers as a group (17 individuals) | 998,638 | (2)(3) | 17.46 | % | ||||
5% Shareholders who are not Directors or Named Executive Officers: | ||||||||
Richard T. Spurzem(5) | 759,541 | (6) | 13.28 | % |
* | Represents less than 1% of outstanding common stock. |
(1) | Based on 5,718,621 shares of Blue Ridge’s common stock outstanding as of December 8, 2020. For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Exchange Act under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security, the power to dispose of or direct the disposition of the security, or the right to acquire beneficial ownership of the security within 60 days. The mailing address of the directors and executive officers |
(2) | Includes shares held by affiliated corporations, spouses, other close relatives and dependent children, or
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