Blue Ridge Bankshares, Inc. Announces Fourth Quarter and Full Year 2021 Results
By: Blue Ridge Bankshares Inc.
CHARLOTTESVILLE, Va., Jan. 27, 2022 /PRNewswire/ -- Blue Ridge Bankshares, Inc. (the "Company") (NYSE American: BRBS), the holding company of Blue Ridge Bank, National Association ("Blue Ridge Bank") and BRB Financial Group, Inc., announced today financial results for the quarter and full year ended December 31, 2021. For the fourth quarter of 2021, the Company reported net income of $12.8 million, or $0.68 earnings per diluted common share, compared to $6.8 million, or $0.36 earnings per diluted common share, for the third quarter of 2021, and $5.6 million, or $0.65 earnings per diluted common share, for the fourth quarter of 2020. For the year ended December 31, 2021, the Company reported net income of $52.5 million, or $2.94 earnings per diluted common share, compared to $17.7 million, or $2.07 earnings per diluted common share, for 2020. Earnings per diluted common share for all periods presented is reflective of the 3-for-2 stock split effective April 30, 2021. Net income for 2021 included an after-tax gain of $19.2 million resulting from the second quarter of 2021 sale of over $700 million of loans originated under the Paycheck Protection Program ("PPP"). Net income for all periods presented also reflected merger-related expenses, as further discussed below.
On January 31, 2021, the Company completed the merger of Bay Banks of Virginia, Inc. ("Bay Banks"), the holding company of Virginia Commonwealth Bank, into the Company. Immediately following the completion of the merger, Virginia Commonwealth Bank was merged into Blue Ridge Bank (collectively, the "Bay Banks Merger"). Earnings for the year ended December 31, 2021 included the earnings of Bay Banks from the effective date of the merger.
On January 20, 2022, the Company and FVCBankcorp, Inc. ("FVCB"), the parent company of FVCbank, jointly announced a mutual agreement to terminate their merger agreement, previously announced on July 14, 2021, pursuant to which the companies had agreed to combine in an all-stock merger of equals transaction.
Net income for the fourth and third quarters of 2021 included approximately $135 thousand and $1.1 million, respectively, in after-tax expenses related to the now-terminated FVCB merger, while earnings for the years ended December 31, 2021 and 2020 included approximately $9.4 million and $1.9 million, respectively, in after-tax merger-related expenses resulting from the completed Bay Banks Merger and now-terminated FVCB merger.
"We finished 2021 strong as we look ahead to continued momentum in 2022," said Brian K. Plum, President and Chief Executive Officer. "In addition to double-digit loan growth in the quarter our lending pipeline is the strongest it's been in the bank's history. We anticipate the strong resurgence of loan demand in our geographic markets will continue as activity normalizes following the pandemic."
"We've seen an acceleration of activity in our fintech division," Plum continued. "Our partners are enjoying more opportunities with continued growth in digital bank adoption across segments and industries."
Lastly Plum noted "mortgage profitability fell more than anticipated as meaningful price pressures put a particular strain on our wholesale mortgage division. We're taking steps to ensure an appropriate reaction to market conditions."
The Company continues to grow its partnerships with fintech providers and ended the fourth quarter of 2021 with active partnerships, including Unit, Flexible Finance, Increase, Upgrade, Kashable, Jaris, Aeldra, Grow Credit, MentorWorks, and Marlette. Loans held for sale and loans held for investment related to fintech relationships totaled approximately $25.5 million and $10.3 million as of December 31, 2021 and 2020, respectively, while deposits related to these relationships were approximately $189 million and $42 million as of December 31, 2021 and 2020, respectively. Interest and fee income related to fintech partnerships represented approximately $3.4 million and $680 thousand of revenue for the Company in 2021 and 2020, respectively.
Paycheck Protection Program
During 2021, the Company funded over 20,000 PPP loans with principal balances of approximately $730 million pursuant to the Economic Aid Act, passed at the end of December 2020 ("PPP2 loans"). Of the PPP2 loans, approximately 19,500 with principal balances of $712.6 million were sold on June 28, 2021. Gross proceeds from the sale were $705.9 million, and the Company recorded a pre-tax gain of $24.3 million on the sale after giving effect to $30.9 million of unearned fees, net of deferred costs, and the sale discount. As of December 31, 2021, the Company held $12.4 million of PPP2 loans net of unearned fees and deferred costs of $348 thousand. PPP2 loans, if not forgiven, have a five-year term and a stated interest rate of 1%. As of December 31, 2021, the Company held $18.0 million of PPP loans funded in 2020, pursuant to the Coronavirus Aid, Relief, and Economic Security Act ("PPP1 loans"). PPP1 loans, if not forgiven, have a one- or five-year term, depending on origination date, and a stated interest rate of 1%.
Processing fees, net of costs, and interest income earned by the Company for PPP loans in the amounts of $458 thousand, $713 thousand, and $4.0 million were recognized as interest income in the fourth and third quarters of 2021 and the fourth quarter of 2020, respectively. These amounts for the years ended December 31, 2021 and 2020 were $17.3 million and $10.3 million, respectively. Net processing fees for PPP loans are being recognized over the expected life of these loans, which is one to three years depending on the original loan balance.
The Company's PPP loans are primarily funded using the Federal Reserve Bank's Paycheck Protection Program Liquidity Facility ("PPPLF"). As of December 31, 2021, outstanding advances under the PPPLF were $17.9 million. The PPPLF provided funding for the full amount and term of the PPP loans at a fixed annual cost of 0.35%. PPP loans do not count toward bank regulatory capital ratios.
The Company's mortgage division, which consists of a retail division operating as Monarch Mortgage and a wholesale division operating as LenderSelect Mortgage Group, recorded net income of $15 thousand and $1.6 million for the fourth and third quarters of 2021, respectively. Net income contributed by the Company's mortgage division was $4.7 million and $11.9 million for the years ended December 31, 2021 and 2020, respectively. The decline in net income in 2021 compared to 2020 was primarily attributable to lower pricing of mortgages sold to the secondary market. Mortgage volumes for the fourth and the third quarters of 2021 were $234.5 million and $295.9 million, respectively. Noninterest expenses recorded for the Company's mortgage division were $7.2 million and $8.1 million for the fourth and third quarters of 2021, respectively.
The Company reported total assets of $2.67 billion at December 31, 2021, an increase of $1.17 billion from $1.50 billion at December 31, 2020. The increase in total assets was primarily due to the Bay Banks Merger, which increased assets by $1.22 billion at the effective date of the merger. Loans held for investment, excluding PPP loans, increased $1.05 billion to $1.78 billion at December 31, 2021 from $728.2 million at December 31, 2020. Loan growth, excluding PPP loans, in the fourth quarter of 2021 totaled $52.3 million, an annualized growth rate of 12%.
Total deposits at December 31, 2021 were $2.30 billion, an increase of $1.35 billion from December 31, 2020, of which $1.03 billion were assumed in the Bay Banks Merger at the effective date of the merger. The Company's expanding relationships with fintech partners have resulted in approximately $147 million of deposit growth in the year ended December 31, 2021.
As previously noted, the majority of PPP loans were funded through the PPPLF, resulting in a $263.8 million decrease in Federal Reserve Bank of Richmond ("FRB") advances in 2021. The Company reduced $105.0 million of advances from the Federal Home Loan Bank of Atlanta ("FHLB") in the third and fourth quarters of 2021. In connection with the reduction of FHLB advances, the Company terminated interest rate swaps associated with these advances, as further discussed below. Additionally, the Company redeemed its outstanding subordinated notes with initial aggregate principal balances of $10.0 million and $7.0 million in the second and third quarters of 2021, respectively. The Company assumed $31.9 million of subordinated debt in the Bay Banks Merger as of the effective date of the merger.
Net Interest Income
Net interest income was $20.9 million for the fourth quarter of 2021 compared to $21.1 million for the third quarter of 2021 and $14.0 million for the fourth quarter of 2020. Included in interest income for the fourth and third quarters of 2021 were approximately $458 thousand and $713 thousand in PPP loan fees, net of costs, and interest income, respectively, whereas in the fourth quarter of 2020, PPP loan fees, net of costs, and interest income were $4.0 million. Funding costs for PPP loans under the PPPLF were approximately $46 thousand, $59 thousand, and $284 thousand for the fourth and third quarters of 2021 and fourth quarter of 2020, respectively. Accretion of acquired loan discounts included in interest income in the fourth and third quarters of 2021 was $765 thousand and $112 thousand, respectively, and amortization of purchase accounting adjustments on assumed time deposits and borrowings reducing interest expense was $709 thousand and $886 thousand in the same respective periods.
Net interest income was $92.5 million for the year ended December 31, 2021 compared to $44.5 million for 2020. Net interest income for 2021 included PPP loan fees, net of costs, and interest income of $17.3 million and PPP loan funding costs of $791 thousand, while these amounts in 2020 were $10.3 million and $784 thousand, respectively. Interest income related to accretion of acquired loans was $2.1 million and $1.1 million for the years ended December 31, 2021 and 2020, respectively. Amortization of purchase accounting adjustments on assumed time deposits and borrowings, which reduced interest expense, was $3.3 million and a negligible amount for the same respective periods.
Net interest margin for the fourth quarter of 2021 was 3.39% compared to 3.32% for the third quarter of 2021 and 3.88% for the fourth quarter of 2020. Net interest income from PPP loans had a 1, 1, and 25 basis point positive effect on the Company's net interest margin for the fourth and third quarters of 2021, and fourth quarter of 2020, respectively. Additionally, accretion and amortization of purchase accounting adjustments had a 24 and 16 basis point positive effect on net interest margin for the fourth and third quarters of 2021, respectively. Net interest margin for the years ended December 31, 2021 and 2020 was 3.51% and 3.49%, respectively. Net interest income from PPP loans had an 18 and 12 basis point position effect on net interest margin in the years ended December 31, 2021 and 2020, respectively. Accretion and amortization of purchase accounting adjustments had a 21 and 9 basis point positive effect in the same respective periods.
Continued pressure on asset yields experienced by the Company has been partially offset by the re-pricing of higher priced deposits, the reduction in higher cost subordinated notes, and the reduction of hedged FHLB advances. Costs of deposits were 0.29% for both the fourth and third quarters of 2021 and 0.56% for the fourth quarter of 2020. Total funding costs were 0.42%, 0.43%, and 0.67% for the same respective periods.
Provision for Loan Losses
The Company recorded a provision for loan losses of $117 thousand for the fourth quarter and the full year ended December 31, 2021 compared to provision expense of $2.4 million and $10.5 million for the same respective periods of 2020. In 2020, the Company increased its allowance for loan losses through the application of a qualitative factor in response to potential credit losses as a result of the COVID-19 pandemic. The decline in the Company's allowance for loan losses for the year ended December 31, 2021 was due to the release of the COVID-19 factor, as economic conditions improved, partially offset by organic loan growth, reserves for fintech-related loans, specific reserves for impaired loans, and reserve needs for loans that have migrated from the Company's acquired loan pools.
Noninterest income for the fourth quarter of 2021 was $22.2 million compared to $13.5 million and $18.0 million for the third quarter of 2021 and the fourth quarter of 2020, respectively. Mortgage banking income, including mortgage servicing rights, contributed $5.9 million and $9.5 million of noninterest income in the fourth and third quarters of 2021, respectively, and $16.3 million in the fourth quarter of 2020. During the fourth quarter of 2021, the Company realized gains of $6.2 million on the termination of interest rate swaps that hedged interest rates on certain FHLB advances. Other income in the fourth and third quarters of 2021 included $5.7 million and $1.0 million, respectively, of fair value adjustments for the Company's investments, primarily in certain fintech companies. Noninterest income for the year ended December 31, 2021 and 2020 was $88.0 million and $56.8 million, respectively. Noninterest income in 2021 included the second quarter gain on the sale of PPP loans of $24.3 million.
Noninterest expense for the fourth quarter of 2021 was $25.4 million compared to $25.6 million and $22.9 million for the third quarter of 2021 and fourth quarter of 2020, respectively. Merger-related expenses for the fourth and third quarters of 2021 and the fourth quarter of 2020 were $171 thousand, $1.4 million, and $662 thousand, respectively. Salaries and employee benefit expenses increased $692 thousand in the fourth quarter of 2021 from the third quarter of 2021, primarily due to greater incentive expenses recorded in the fourth quarter and greater headcount to support the growing fintech business, partially offset by lower costs incurred by the Company's mortgage division. Noninterest expense for the year ended December 31, 2021 and 2020 was $112.1 million and $68.4 million, respectively. Included in these amounts were merger-related expenses of $11.9 million and $2.4 million for the same respective periods.
Nonperforming loans, which include nonaccrual loans and loans 90 days or more past due and accruing interest1, totaled $16.1 million at December 31, 2021, representing an increase of $9.5 million from December 31, 2020. The ratio of nonperforming loans to total assets was 0.60% as of December 31, 2021 and 0.44% as of December 31, 2020. The Company's allowance for loan losses was $12.1 million at December 31, 2021, or 0.68% as a percentage of gross loans held for investment, excluding PPP loans, compared to 1.89% at December 31, 2020. The Company holds no allowance for loan losses on PPP loans as they are fully guaranteed by the U.S. government. The decrease in the allowance for loan losses as a percentage of gross loans held for investment since December 31, 2020 was primarily attributable to the loans acquired in the Bay Banks Merger, for which no allowance for loan losses carried over in the merger, as well as the release of the COVID-19 factor, noted previously. Remaining acquired loan discounts related to loans acquired in the Company's completed mergers were $16.2 million as of December 31, 2021 compared to $1.2 million as of December 31, 2020.
1 Excludes purchased credit-impaired loans.
The Company previously announced that on January 5, 2022 its board of directors declared a $0.12 per common share quarterly dividend, payable January 31, 2022 to shareholders of record as of January 19, 2022. Tangible book value per share, a non-GAAP (defined below) measure, was $13.01 and $10.03 as of December 31, 2021 and December 31, 2020, respectively.
Non-GAAP Financial Measures
The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP") and prevailing practices in the banking industry. However, management uses certain non-GAAP measures to supplement the evaluation of the Company's performance. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company's core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP measures are included at the end of this release.
This release of the Company contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of the Company's beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and are typically identified with words such as "may," "could," "should," "will," "would," "believe," "anticipate," "estimate," "expect," "aim," "intend," "plan," or words or phases of similar meaning. The Company cautions that the forward-looking statements are based largely on its expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company's control. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements.
The following factors, among others, could cause the Company's financial performance to differ materially from that expressed in such forward-looking statements: (i) the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; (ii) 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; (iii) the effects of the COVID-19 pandemic, including the adverse impact on the Company's business and operations and on the Company's customers which may result, among other things, in increased delinquencies, defaults, foreclosures and losses on loans; (iv) the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events; (v) the Company's management of risks inherent in its real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of the Company's collateral and its ability to sell collateral upon any foreclosure; (vi) changes in consumer spending and savings habits; (vii) technological and social media changes; (viii) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; (ix) 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 the Company's subsidiary 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; (x) 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; (xi) the impact of changes in laws, regulations and policies affecting the real estate industry; (xii) the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the Securities and Exchange Commission (the "SEC"), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setting bodies; (xiii) the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; (xiv) the willingness of users to substitute competitors' products and services for the Company's products and services; (xv) deposit attrition, operating costs, customer losses and other disruptions to the Company's businesses as a result of the termination of the merger agreement with FVCB; (xvi) the outcome of any legal proceedings that may be instituted against the Company; (xvii) reputational risk and potential adverse reactions of the Company's customers, suppliers, employees or other business partners, including those resulting from the termination of the merger agreement with FVCB; (xviii) the effects of acquisitions the Company may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such transactions; (xix) changes in the level of the Company's nonperforming assets and charge-offs; (xx) the Company's involvement, from time to time, in legal proceedings and examination and remedial actions by regulators; (xxi) potential exposure to fraud, negligence, computer theft and cyber-crime; (xxii) the Company's ability to pay dividends; (xxiii) the Company's involvement as a participating lender in the PPP as administered through the U.S. Small Business Administration; and (xxiv) other risks and factors identified in the "Risk Factors" sections and elsewhere in documents the Company files from time to time with the SEC.
Consolidated Balance Sheets viewable here.