Blue Ridge Bankshares, Inc.
Annual Report 2014

Plain-text annual report

Blue Ridge Bankshares, Inc. 2014Annual Report Subsidiary TO OUR SH HAREHO S OLDERS I am conse share bump enjoy Board slight m pleased to r ecutive year o e in 2013 to $ p in common yed this earnin d and Manage t earnings drag report that Bl of record net i 2.11 per share stock dividen ngs increase d ement are con g during the st lue Ridge Ba income at $2, e in 2014. Th nds, elevating despite absorbi nfident this off tart-up period ankshares, Inc ,029,062, elev he continued g g them by $.1 ing the costs o fice will create . c. continued i vating its earn growth in net 10 per share i of its new Har e long-term v its success in nings per com income allow in 2014, or an arrisonburg off alue, new ban n 2014. The mmon share by wed the Comp n increase of ffice. While, a nking location e Company re y over 20%, f pany to provid f over 29%. as noted in las ns inevitably c th ecorded its 6t er from $1.75 pe nt de a significan The Company y st year’s letter r, a create at least The C and, i was t busin looki lever Company exp in particular, t the result of ness developm ing at deals th raging our cust erienced incre the loan portfo expansion int ment efforts ba hat meet its cr tomizable and easing net inco olio. Net loan to Harrisonbu ank-wide. Wh riteria. We a d responsive ap ome and earni ns grew by nea rg, significant hile seeing sign are not compro pproach that s ings per share arly $31,000,0 t realization o nificant growt omising our c eeks to provid e due to contin 000 during 20 of new oppor th, Blue Ridge credit quality de borrowers a nued success i 014, an increas rtunities in Ch e Bank remain standards to a competitivel in growing its se of over 20% harlottesville, ns true to its c gain new loan ly superior exp balance sheet t, h %. The growth and increased d of commitment o d ns, but instead perience. The C numb effort almo our b intere loan o Company con ber one in 20 ts are positive st 19% and sa balance sheet est income) an opportunities ntinues to plac 14, and will r e; in 2014, a ye avings by ove due to severa nd the strengt will continue ce a strong em remain the nu ear dedicated r 16%, but the al factors, but th of relations to expand, wh mphasis on gro umber one str largely to layi ere is more w most notably hip (and the e hich means it i owing its core rategic goal fo ing the infrastr work to be don y their contribu economic valu is that much m e deposit base or the foresee ructure for suc ne. Nonintere utions to low ue that provid more imperativ e. These effo eable future. ccess, the Ban st DDA and s wer cost of fun des shareholde ve for our core orts were flagg Early indicato nk grew nonin savings are cri nds (and thus ers). We anti e deposits to g ged as priority y e ors from thes y nterest DDA by of itical pieces o improving ne et ur cipate that ou grow. As d contin espec grow appro move prosp discussed abov nue to grow cially during t wth. The Boar oximately $6,0 e, but are hop per, while offe ve and in rec in a prudent he current reg rd moved forw 000,000 in ne eful and conf ering an attract cent years’ co fashion whe gulatory enviro ward with a c w common eq fident that it p tive return to s ommunication re and how a onment and th apital raise in quity. The Bo provides the fo shareholders. s, the Compa appropriate. he advent of B n 2014 for this oard and Man oundational ba any has enjoy In all industr BASEL III, ad s reason. The nagement reco asis on which yed significan ries, especiall dditional capita e end result o gnize the initi h the Compan nt growth, and ly banking, a al is required of the raise is ial dilutive im ny can continu d plans are to o e and even mor to support tha at of an increase o a mpact of such d ue to grow and In las share chang items st year’s annu eholders are in ges; entries in s too numerou ual report Mo ncredibly grat nto new marke us to list. He c onte Layman eful for his le ets, a change created a tough informed you eadership and in the bank n h act to follow u of his intent contributions name, impleme w. We wish M tion to retire s. During his entation and e Monte the best at the end of tenure the Co execution of a in retirement. f 2014. The ompany imple a growth strat Company and d y emented many er tegy, and othe I than great obsta custo nk the Board team and inc acles at every omers, commu of Directors a credible legacy turn we can c unities, and sha and shareholde y, and I believ continue to be areholders, an ers for entrust ve that in an i successful by nd hopefully do ting me as the industry that i y executing a d o it in a fashio e 11th Presiden is more comp disciplined pla on where we e nt of our 122- petitive every an that focuse enjoy ourselve - year old ban day and has n es on deliverin es along the wa a nk. We have new regulatory y ur ng value to ou ay. I kno Bank prom enhan ow each of you k. Make sure mote Blue Rid ncements to th u, as a shareho your accoun dge Bank. Y he value of yo older with dire ts are here, e Your efforts, c ur shares in ou ect ties to our ncourage frie combined wit ur joint invest success, want nds and fami h ours, will ment. ts to help. Ple ly to bank he solidify our p ease always be ere, and alway position for t e an advocate f ys look for op the future and e for Blue Ridg pportunities to o er d offer furthe Pleas 743-6 se always feel 6521 or by e-m free to contac mail at bplum@ ct me with any @mybrb.com. y ideas or que . I would love estions you hav e to hear from ave. I work fo m you. or you. I can b be reached by 0- y phone at 540 Since erely Brian Presi n K. Plum dent/CEO BLUE RIDGE BANKSHARES, INC. FINANCIAL HIGHLIGHTS For The Year Net income Net income available to common stockholders Common stock dividends declared Earnings per common share Dividends per common share At Year End Total assets Total investments Net loans Deposits Total stockholders' equity Common stockholders' equity Book value per common share Number of common stock shares outstanding $ $ $ $ 2014 2,029,062 1,984,062 412,934 2.11 0.44 239,353,596 37,056,056 184,723,649 183,898,642 24,786,488 20,286,488 15.97 1,270,555 2013 1,844,604 1,637,349 318,223 1.75 0.34 214,724,007 47,712,416 153,786,879 168,345,328 19,229,543 14,729,543 15.76 934,539 Key Ratios Return on average assets Return on average equity Return on average common equity Total stockholders' equity to assets Common stockholders' equity to assets Increase in assets Increase in earnings per common share Increase in book value per share 0.89% 9.22% 11.33% 10.36% 8.48% 11.47% 20.57% 1.30% 0.87% 9.78% 11.40% 8.96% 6.86% 3.12% 25.00% 6.12% Financial Statements BLUE RIDGE BANKSHARES, INC. PARENT OF BLUE RIDGE BANK LURAY, VIRGINIA December 31, 2014 CONTENTS Page INDEPENDENT AUDITOR’S REPORT....................................................................................................... 1 FINANCIAL STATEMENTS Consolidated Balance Sheets ........................................................................................................................ 3 Consolidated Statements of Income ............................................................................................................. 4 Consolidated Statements of Comprehensive Income................................................................................... 5 Consolidated Statements of Changes in Stockholders’ Equity.................................................................... 6 Consolidated Statements of Cash Flows ...................................................................................................... 7 Notes to the Consolidated Financial Statements .......................................................................................... 9 INDEPENDENT AUDITOR’S REPORT The Board of Directors Blue Ridge Bankshares, Inc. Luray, Virginia Report on the Financial Statements We have audited the accompanying consolidated financial statements of Blue Ridge Bankshares, Inc. and subsidiaries, which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of income, changes in stockholders’ equity, comprehensive income, and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Your Success is Our Focus 124 Newman Avenue • Harrisonburg, VA 22801-4004 • 540-434-6736 • Fax: 540-434-3097 • www.BEcpas.com Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Blue Ridge Bankshares, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Harrisonburg, Virginia March 6, 2015 CERTIFIED PUBLIC ACCOUNTANTS BLUE RIDGE BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS December 31, 2014 and 2013 ASSETS Cash and due from banks (Note 2) Federal funds sold Investment securities Securities available for sale (at fair value) (Note 3) Securities held to maturity (fair value of $15,374,995 in 2014, $15,407,134 in 2013) (Note 3) Restricted investments Total Investment Securities Loans held for investment (Note 4) Allowance for loan losses (Note 4) Net Loans Held for Investment Bank premises and equipment, net (Note 5) Bank owned life insurance (Note 1) Goodwill (Note 11) Other assets Total Assets LIABILITIES Deposits Demand deposits Noninterest bearing Interest bearing Savings deposits Time deposits (Note 6) Total Deposits Other borrowed funds (Note 7) Other liabilities Total liabilities STOCKHOLDERS’ EQUITY Preferred stock, $50 par value, authorized - 250,000 shares; outstanding - 4,500 shares (Note 8) Common stock, no par value, authorized - 5,000,000 shares; outstanding - 1,270,555 and 934,539, respectively (Note 9) Contributed equity Retained earnings Accumulated other comprehensive income (loss) Unearned ESOP shares Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity The accompanying notes are an integral part of this statement. 3 2014 2013 $ 7,941,884 $ 4,561,708 542,000 545,000 19,937,946 30,406,638 14,965,603 2,152,507 37,056,056 15,411,778 1,894,000 47,712,416 186,844,767 (2,121,118) 155,858,186 (2,071,307) 184,723,649 153,786,879 2,206,817 2,349,745 366,300 4,167,145 1,830,643 2,283,800 366,300 3,637,261 $ 239,353,596 $ 214,724,007 $ 27,877,754 43,447,388 12,239,581 100,333,919 183,898,642 29,893,599 774,867 $ 23,450,958 42,726,208 10,501,484 91,666,678 168,345,328 26,388,861 760,275 214,567,108 195,494,464 225,000 225,000 5,306,408 4,275,000 15,844,755 (264,675) 25,386,488 (600,000) 859,944 4,275,000 14,273,627 (404,028) 19,229,543 - 24,786,488 19,229,543 $ 239,353,596 $ 214,724,007 BLUE RIDGE BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME December 31, 2014 and 2013 INTEREST INCOME Interest and fees on loans held for investment Interest and fees on loans held for sale Interest on federal funds sold Interest and dividends on taxable investment securities Interest and dividends on nontaxable investment securities Total Interest Income INTEREST EXPENSE Interest on savings and interest bearing demand deposits Interest on time deposits Interest on borrowed funds Total Interest Expense Net Interest Income PROVISION FOR LOAN LOSSES Net Interest Income after Provision for Loan Losses OTHER INCOME Service charges on deposit accounts Earnings on investment in life insurance Securities gains Gain on disposal of assets Small business investment company fund income Other noninterest income Total Other Income OTHER EXPENSES Salaries and employee benefits Occupancy and equipment expenses Data processing Audits and examinations Advertising expense Directors fees Debit card expenses Other taxes and assessments Other noninterest expense Total Other Expenses Income before Income Taxes INCOME TAX EXPENSE (Note 14) Net Income 2014 2013 $ 8,168,968 - 3,269 817,229 301,015 9,290,481 185,265 1,086,901 411,945 1,684,111 7,606,370 70,000 7,536,370 279,807 65,945 16,456 - 180,026 440,401 982,635 2,689,071 553,514 430,958 59,220 324,043 131,500 134,197 419,367 956,721 5,698,591 2,820,414 791,352 2,029,062 $ 6,931,126 181,802 2,557 842,515 308,676 8,266,676 166,218 1,029,832 375,709 1,571,759 6,694,917 310,000 6,384,917 298,984 68,500 66,562 110,419 - 451,299 995,764 2,265,760 466,495 366,104 136,944 266,659 103,750 127,829 320,376 772,468 4,826,385 2,554,296 709,692 1,844,604 Dividends to Preferred Stockholders Net Income Available to Common Stockholders Earnings per Common Share Weighted Average Shares Outstanding (45,000) 1,984,062 $ (207,255) 1,637,349 $ $ 2.11 $ 1.75 938,286 936,535 The accompanying notes are an integral part of this statement. 4 BLUE RIDGE BANKSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME December 31, 2014 and 2013 Net Income $ 2,029,062 $ 1,844,604 2014 2013 Other comprehensive income: Gross unrealized gains (losses) arising during the period Adjustment for income tax expense Less: Reclassification adjustment for gains included in net income Adjustment for income tax expense 230,791 (80,582) (699,177) 237,720 150,209 (461,457) (16,456) 5,600 (10,856) (66,562) 22,630 (43,932) Other comprehensive income (loss), net of tax 139,353 (505,389) Comprehensive income $ 2,168,415 $ 1,339,215 The accompanying notes are an integral part of this statement. 5 BLUE RIDGE BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY December 31, 2014 and 2013 Preferred Stock Common Stock Contributed Equity Retained Earnings Accumulated Other Comprehensive Income (Loss) Unearned ESOP Shares Total Balance, December 31, 2012 $ 225,000 $ 938,573 $ 4,275,000 $ 12,954,501 $ 101,361 $ - $ 18,494,435 Comprehensive Net Income Net income Changes in unrealized gains on securities available for sale, net of deferred income tax asset of $260,350 Total Comprehensive Income Common stock purchased and retired (8,200 shares) Issuance of common stock (518 shares) Preferred stock dividends Common stock dividends - - - - - - - - - - (86,281) 7,652 - - - - - - - - - Balance, December 31, 2013 225,000 859,944 4,275,000 14,273,627 Comprehensive Net Income Net income Changes in unrealized gains on securities available for sale, net of deferred income tax liability of $74,982 Total Comprehensive Income Issuance of common stock (336,016 shares), net of capital raise expenses of $258,320 Contingent ESOP liability Preferred stock dividends Common stock dividends - - - - - - - - - - 4,446,464 - - - - - - - - - 1,844,604 - - - - - (207,255) (318,223) (505,389) - - - - - (404,028) 2,029,062 - - - 139,353 - - - (45,000) (412,934) - - - - - (600,000) - - - - - - - - - - - - - 1,844,604 (505,389) 1,339,215 (86,281) 7,652 (207,255) (318,223) 19,229,543 2,029,062 139,353 2,168,415 4,446,464 (600,000) (45,000) (412,934) Balance, December 31, 2014 $ 225,000 $ 5,306,408 $ 4,275,000 $ 15,844,755 $ (264,675) $ (600,000) $ 24,786,488 The accompanying notes are an intergral part of this statement. 6 BLUE RIDGE BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS December 31, 2014 and 2013 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses Deferred income taxes Net decrease in loans held for sale Gain on disposition of assets Securities gains Gain on sale of other real estate owned Depreciation Investment amortization expense, net Amortization of debt refinancing fees (Increase) Decrease in other assets Increase (Decrease) in accrued expenses Increase in carrying value of life insurance investments Total adjustments Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale Purchases of securities held to maturity Proceeds from calls, maturities, sales, paydowns and maturities of securities available for sale Proceeds from calls, maturities, sales, paydowns and maturities of securities held for investment Decrease in federal funds sold Net increase in loans held for investment Purchase of bank premises and equipment Capital calls of SBIC funds and other investments Nonincome distributions from limited liability companies Proceeds from sale of assets (Increase) Decrease in restricted investments Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Net change in demand and savings deposits Net change in time deposits Federal Home Loan Bank advances Federal Home Loan Bank repayments Preferred stock dividends paid Common stock dividends paid Purchase of common stock Issuance of common stock Net Cash Provided by Financing Activities CASH AND CASH EQUIVALENTS Net increase in cash and cash equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year The accompanying notes are an integral part of this statement. 7 2014 2013 $ 2,029,062 $ 1,844,604 70,000 (81,069) - - (16,456) - 249,944 321,469 76,166 (312,307) (4,908) (65,945) 236,894 2,265,956 310,000 163,539 10,792,727 (110,419) (66,562) (2,300) 199,681 758,602 76,169 207,445 100,024 (68,500) 12,360,406 14,205,010 (5,344,809) (220,674) (14,173,080) (3,329,152) 15,573,360 24,369,855 552,905 3,000 (31,006,770) (626,118) (580,114) 368,624 - 4,900 630,621 3,103,000 (28,751,009) (140,179) (162,500) 244,321 208,227 (295,500) (21,275,696) (18,295,396) 6,886,073 8,667,241 19,000,000 (16,171,428) (25,500) (412,934) - 4,446,464 22,389,916 6,069,421 (6,461,741) 55,450,000 (49,471,431) (209,335) (318,223) (86,281) 7,652 4,980,062 3,380,176 4,561,708 7,941,884 $ 889,676 3,672,032 4,561,708 $ BLUE RIDGE BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) December 31, 2014 and 2013 SUPPLEMENTAL INFORMATION Interest Paid Income taxes paid Preferred stock dividends accrued, not paid Real estate acquired by foreclosure 2014 2013 $ 1,675,825 800,000 11,250 70,000 $ 1,588,631 540,000 30,750 175,000 The accompanying notes are an integral part of this statement. 8 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 1. Nature of Operations and Significant Accounting Policies: Nature of Operations: Blue Ridge Bankshares, Inc. ("Company") through Blue Ridge Bank, Inc. ("Bank") operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and The Federal Reserve Bank of Richmond. The Bank provides services to customers located primarily in the Piedmont and Shenandoah Valley regions of the Commonwealth of Virginia. Consolidation Policy: The consolidated financial statements include the accounts of Blue Ridge Bankshares, Inc. and its wholly-owned subsidiaries, Blue Ridge Bank, Inc. and PVB Properties, LLC. All significant intercompany balances and transactions have been eliminated. Use of Estimates in the Preparation of Financial Statements: In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts in those statements. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant changes is the determination of the allowance for loan losses, which is sensitive to changes in local and national economic conditions. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and correspondent balances in other financial institutions. Investment Securities: Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized historical cost. Securities not intended to be held to maturity are classified as available for sale and carried at fair value. Securities available for sale are intended to be used as part of the Company’s asset and liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other similar factors. Amortization of premiums and accretion of discounts on securities are reported as adjustments to interest income using the effective interest method. Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold using the specific identification method. Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security. These gains and losses are credited or charged to shareholders’ equity, whereas realized gains and losses flow through the Company’s current earnings. (Continued) 9 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 1. Nature of Operations and Significant Accounting Policies (Continued): Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan that are carried on the balance sheet net of any unearned discount and the allowance for loan losses. Interest income on loans is based generally on the daily amount of principal outstanding. The accrual of interest on impaired loans is discontinued when, in the opinion of management, the interest income recognized will not be collected. Receipts on impaired loans are applied to principal until the loan is brought current and collection is reasonably assured. Loans are considered past due based on the contractual terms of the loan. Allowance for Loan Losses: The allowance for loan losses is maintained at a level believed to be adequate by management 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 covers non-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. The loss ratio factor is based on average loss history for the current year and two prior years. Qualitative and environmental factors include external risk factors that management believes affect the overall lending environment of the Company. Environmental factors that management of the Company routinely analyze 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. (Continued) 10 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 1. Nature of Operations and Significant Accounting Policies (Continued): There have been no significant changes to the methods used to determine the allowance for loan losses during the years ended December 31, 2014 and 2013. Loan Charge-off Policies: Consumer loans are generally fully or partially charged down to the fair value of collateral securing the asset when the loan is 120 days past due unless the loan is well secured and in the process of collection. All other loans are generally charged down to the net realizable value when the loan is 90 days past due or when current information confirms all or part of a specific loan to be uncollectible. Bank Owned Life Insurance: The Bank owns and is the beneficiary of several single premium life insurance contracts insuring key employees of the Bank. The policies are stated at cash surrender value, with changes in value recorded in income for the year. Small Business Investment Company (SBIC) Fund Income: The Bank has an interest in several Small Business Investment Company funds. The Bank’s obligations to these funds are satisfied in the form of capital calls that occur during the commitment period. Income distributions from these funds are shown as a reduction to the Bank’s principal investment for an approximate period of three years, after which the Bank begins to recognize fifty percent of the distributions as income (if the investment shows profitability) until the investment principal has been recovered. At that time all distributions in excess of initial investment are recognized as income. Advertising Costs: Advertising costs are expensed as incurred. Bank Premises and Equipment: Bank premises and equipment are stated at cost, less any accumulated depreciation. Depreciation is recognized over the estimated useful lives of the assets on a straight-line basis. Maintenance and repairs are charged to operations as incurred. Gains and losses on dispositions are reflected in noninterest income or expense. Income Taxes: Amounts provided for income tax expense are based on income reported for financial statement purposes rather than amounts currently payable under income tax laws. Deferred taxes, which arise principally from temporary differences between the period in which certain income and expenses are recognized for financial accounting purposes and the period in which they affect taxable income, are included in the amounts provided for income taxes. (Continued) 11 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 1. Nature of Operations and Significant Accounting Policies (Continued): Earnings Per Share: Earnings per share are based on the weighted average number of shares outstanding. Financial Instruments: In the ordinary course of business the Bank has entered into commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. Reclassified Amounts: Certain amounts have been reclassified from prior year financial statements to ensure consistent presentation with current year amounts. These reclassifications are for presentation purposes, and have no impact on overall financial information. Subsequent Events: Subsequent events have been evaluated through March 6, 2015, the date the financial statements were available to be issued. Note 2. Cash and Due From Banks The Bank has compensating balance agreements with its correspondent bank and The Federal Reserve Bank of Richmond. The total included in cash and due from banks related to these agreements at December 31, 2014 and 2013 was $275,000. Note 3. Investment Securities The amortized cost and fair values of investment securities are as follows: December 31, 2014 Available for Sale Mortgage backed securities Corporate bonds Equity securities Held to Maturity State and municipal Mortgage backed securities Total Investment Securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value $ 18,940,505 1,032,928 355,816 20,329,249 14,965,424 179 14,965,603 $ 35,294,852 $ $ 41,768 6,106 20,000 67,874 436,306 - 436,306 504,180 $ $ 440,787 18,390 - 459,177 26,914 - 26,914 486,091 $ 18,541,486 1,020,644 375,816 19,937,946 15,374,816 179 15,374,995 $ 35,312,941 (Continued) 12 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 3. Investment Securities (Continued) December 31, 2013 Available for Sale Mortgage backed securities Corporate bonds Equity securities Held to Maturity State and municipal Mortgage backed securities Total Investment Securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value $ 28,427,935 1,975,462 613,731 31,017,128 15,408,700 3,078 15,411,778 $ 46,428,906 $ $ 143,572 20,235 24,345 188,152 343,376 18 343,394 531,546 $ $ 777,170 6,905 14,567 798,642 $ 27,794,337 1,988,792 623,509 30,406,638 348,026 12 348,038 1,146,680 15,404,050 3,084 15,407,134 $ 45,813,772 Proceeds from sales, calls and maturities of available for sale securities during 2014 and 2013 were $15,573,360 and $24,369,855, resulting in gains of $16,456 and $66,562 for 2014 and 2013, respectively. During 2014 and 2013, held to maturity securities with book values of $552,905 and $630,621, respectively, were either called or matured resulting in no gain or loss for both years. Investment securities with an approximate fair value of $7,345,000 and $3,119,000, at December 31, 2014 and 2013, respectively, were pledged to secure public deposits and for other purposes required by law and as collateral for the Bank’s line of credit with the Federal Home Loan Bank of Atlanta. The amortized cost and fair value of investment securities at December 31, 2014, by contractual maturity, are shown on the following page. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Amounts maturing: Within one year After one year through five years After five years through ten years After ten years Equity investments with no maturity Total Securities Available for Sale Amortized Cost Fair Value Securities Held to Maturity Amortized Cost Fair Value $ 532,928 $ 539,034 $ 179 $ 179 589,595 603,505 327,864 333,852 500,000 18,350,910 19,973,433 481,610 17,937,981 19,562,130 6,778,433 7,859,127 14,965,603 6,982,109 8,058,855 15,374,995 355,816 $ 20,329,249 375,816 - $ 19,937,946 $ 14,965,603 - $ 15,374,995 (Continued) 13 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 3. Investment Securities (Continued): Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that securities have been in a continuous loss position is as follows: December 31, 2014 State and Municipal Mortgage backed Corporate bonds Total December 31, 2013 State and Municipal Mortgage backed Corporate bonds Equity securities Total Less than 12 Months Gross Unrealized Losses Fair Value 12 Months or Greater Gross Unrealized Losses Fair Value Total Gross Unrealized Losses Fair Value $ 326,481 $ 3,588,514 - $ 3,914,995 $ (8,519) (59,469) - (67,988) $ 1,235,857 10,671,946 481,610 $ 12,389,413 $ $ (18,395) $ 1,562,338 $ (381,318) (18,390) (418,103) 14,260,460 481,610 $ 16,304,408 $ (26,914) (440,787) (18,390) (486,091) Less than 12 Months Gross Unrealized Losses Fair Value 12 Months or Greater Gross Unrealized Losses Fair Value Total Gross Unrealized Losses Fair Value $ 5,514,512 $ (310,991) (134,941) 5,254,104 (6,905) 993,095 (100) 8,400 $ 11,770,111 $ (452,937) $ 462,965 14,207,225 - 364,155 $ 15,034,345 $ $ (37,035) $ 5,977,477 $ (642,229) - (14,467) (693,731) (348,026) (777,170) (6,905) (14,567) $ 26,804,456 $ (1,146,668) 19,461,329 993,095 372,555 Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. At December 31, 2014, the Company had securities which have depreciated 2.98% in value from the amortized cost. Included in this total are fourteen securities that have been in a continuous loss position for more than twelve months. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability and intent to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other- than-temporary. (Continued) 14 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 4. Loans Receivable and Related Allowance for Loan Losses The following table summarizes the primary segments of the loan portfolio (in thousands): December 31, 2014 Residential loans Commercial real estate loans Individually Evaluated for Impairment Collectively Evaluated for Impairment Total $ 329 $ 70,778 $ 71,107 Non owner-occupied & multi-family Owner-occupied & farmland Construction loans Residential construction Commercial construction & raw land Home equity loans Consumer loans Commercial/farm loans Municipal/other loans Unearned income on loans Total $ 373 - - - - - - 770 - 1,472 $ 41,805 24,556 2,224 11,449 5,293 4,536 14,391 10,542 (201) 185,373 42,178 24,556 2,224 11,449 5,293 4,536 14,391 11,312 (201) 186,845 $ December 31, 2013 Residential loans Commercial real estate loans Individually Evaluated for Impairment Collectively Evaluated for Impairment Total $ 111 $ 61,416 $ 61,527 Non owner-occupied & multi-family Owner-occupied & farmland Construction loans Residential construction Commercial construction & raw land Home equity loans Consumer loans Commercial/farm loans Municipal/other loans Unearned income on loans Total $ - 908 - - - - - - - 1,019 $ 21,612 34,284 809 10,385 2,547 1,510 11,712 10,666 (102) 154,839 21,612 35,192 809 10,385 2,547 1,510 11,712 10,666 (102) 155,858 $ The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. In reviewing risk, management has determined there to be several different risk categories within the loan portfolio. The allowance for loan losses consists of amounts applicable to: (i) the commercial loan portfolio; (ii) the commercial real estate loan portfolio; (iii) the municipal loan portfolio; (iv) the consumer loan portfolio; and, (v) the residential loan portfolio. (Continued) 15 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 4. Loans Receivable and Related Allowance for Loan Losses (Continued) The commercial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The commercial real estate (“CRE”) loan segment includes both non-owner occupied and owner occupied CRE loans, in addition to multifamily residential and commercial real estate construction loans. The municipal loan segment includes loans made to local governments and governmental authorities in the normal course of their operations. The consumer loans consist of motor vehicle loans, savings account loans, personal lines of credit, overdraft loans, other types of secured consumer loans, and unsecured personal loans. The residential loan segment is made up of fixed rate and adjustable rate single-family amortizing term loans, which are primarily first liens, and also includes the Bank’s home equity loan portfolio, which are generally second liens. Management establishes the allowance for loan losses based upon its evaluation of the pertinent factors underlying the types and quality of loans in the portfolio. Commercial loans and commercial real estate loans are reviewed on a regular basis with a focus on larger loans along with loans which have experienced past payment or financial deficiencies. Certain loans including commercial and other loans which are experiencing payment or financial difficulties, loans in industries for which economic trends are negative and loans which are of heightened concern to management are included on the Bank’s “watch list”. Watch list loans, if significant, and larger commercial loans and commercial real estate loans which are 90 days or more past due are selected for impairment testing. These loans are analyzed to determine if they are “impaired”, which means that it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by- case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Bank does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring agreement. Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by- loan basis, with management primarily utilizing the fair value of collateral method, which is required for loans that are collateral dependent. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a monthly basis. The Bank’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. The Bank had $1,475,000 and $1,019,000 in impaired loans as of December 31, 2014 and 2013, respectively. (Continued) 16 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 4. Loans Receivable and Related Allowance for Loan Losses (Continued) Management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow Bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the orderly liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Loans in the Doubtful category have all the weaknesses found in Substandard loans, with the added provision that the weaknesses make collection of debt in full highly questionable and improbable. Any portion of a loan that has been charged off is placed in the Loss category. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with both internal and external oversight. The Bank’s loan officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The loan processing department confirms the appropriate risk grade at origination and monitors all subsequent changes to risk ratings. The Bank’s Loan Committee reviews risk grades when approving a loan and approves all risk rating changes, except those made within the pass risk ratings. The Bank engages an external consultant to conduct loan reviews on an annual basis of all relationships greater than $1,300,000. The internal audit function of the Bank reviews a sample of new loans throughout the year. The Bank’s process requires the review and evaluation of an impaired loan to be updated at least quarterly. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance. The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, and Doubtful within the internal risk rating system as of December 31, 2014 and 2013 (in thousands): Pass Special Mention Substandard Doubtful Total December 31, 2014 Commercial real estate loans Non owner-occupied & multi- family Owner-occupied & farmland Construction loans Residential construction loans Commercial construction & raw land loans Commercial/farm loans Municipal/other loans Purchased Loan Premiums Less: Unearned revenue Total $ 38,867 24,556 $ $ 3,311 - 2,224 11,440 14,359 10,541 101,987 174 (223) $101,938 $ - - 18 771 4,100 - - 4,100 $ - $ - - 9 - - 9 - - 9 $ - $ - 42,178 24,556 - 2,224 - 14 - 14 - - 11,449 14,391 11,312 106,110 174 (223) 14 $ 106,061 (Continued) 17 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 4. Loans Receivable and Related Allowance for Loan Losses (Continued) Pass Special Mention Substandard Doubtful Total December 31, 2013 Commercial real estate loans Non owner-occupied & multi- family Owner-occupied & farmland Construction loans Residential construction loans Commercial construction & raw land loans Commercial/farm loans Municipal/other loans Purchased Loan Premiums Less: Unearned revenue Total $ 18,188 33,530 $ $ 3,424 754 - $ 908 - $ - 21,612 35,192 809 10,140 11,410 9,603 83,680 255 (236) $ 83,699 $ - 233 267 1,063 5,741 - - 5,741 $ - - 809 12 - - 920 - - 920 $ - 35 - 35 - - 35 $ 10,385 11,712 10,666 90,376 255 (236) 90,395 The following table presents (in thousands) the classes of the loan portfolio for which loan performance is the primary credit quality indicator as of December 31, 2014 and 2013: December 31, 2014 Performing loans Non-performing loans Less: Unearned revenue Total December 31, 2013 Performing loans Non-performing loans Less: Unearned revenue Total Residential Loans Home Equity Loans Consumer Loans Total $ $ $ $ 71,009 98 71,107 (106) 71,001 Residential Loans 61,527 - 61,527 (92) 61,435 $ $ $ $ 5,293 - 5,293 (9) 5,284 Home Equity Loans 2,547 - 2,547 (6) 2,541 $ $ $ $ 4,534 2 4,536 (37) 4,499 $ $ 80,836 100 80,936 (152) 80,784 Consumer Loans Total 1,505 5 1,510 (23) 1,487 $ 65,579 5 65,584 (121) $ 65,463 An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio. The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans. Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2014 and 2013 (in thousands): (Continued) 18 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 4. Loans Receivable and Related Allowance for Loan Losses (Continued) December 31, 2014 Current 30-59 Days Past Due 60 - 89 Days Past Due $ 70,872 $ 32 $ Residential loans Commercial real estate loans Non owner-occupied/multi- family Owner-occupied & farmland Construction loans Residential construction loans Commercial construction & 42,178 24,556 2,224 raw land loans Home equity loans Consumer loans Commercial/farm loans Municipal/other loans Unearned income on loans Total 11,449 5,293 4,467 14,360 11,296 (201) $ 186,494 $ - - - - - 45 - - - 77 $ 90 Days+ Past Due Total Past Due Non- Accrual Total Loans $ 105 $ 137 $ 98 $ 71,107 - - - - - 11 - - - 116 $ $ - - - - - 67 - 16 - 220 $ - - - 42,178 24,556 2,224 - - 2 31 - - 11,449 5,293 4,536 14,391 11,312 (201) 131 $ 186,845 - - - - - - 11 - 16 - 27 December 31, 2013 Current 30-59 Days Past Due 60 - 89 Days Past Due 90 Days+ Past Due Total Past Due Non- Accrual Total Loans $ 61,413 $ 95 $ 19 $ Residential loans Commercial real estate loans Non owner-occupied/multi- family Owner-occupied & farmland Construction loans Residential construction loans Commercial construction & 21,612 35,192 809 raw land loans Home equity loans Consumer loans Commercial/farm loans Municipal/other loans Unearned income on loans Total 10,385 2,547 1,501 11,609 10,666 (102) $ 155,632 $ - - - - - 4 82 - - 181 $ - - - - - - - - - 19 $ - - - - - - - - - - - $ 114 $ - - - - - 4 82 - - 200 $ $ - - - - $ 61,527 21,612 35,192 809 - - 5 21 - - 10,385 2,547 1,510 11,712 10,666 (102) 26 $ 155,858 The classes described above provide the starting point for the ALLL analysis. Management tracks the historical net charge-off activity by loan class. A historical charge-off factor is calculated and applied to each class. Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. Other qualitative factors are also considered. (Continued) 19 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 4. Loans Receivable and Related Allowance for Loan Losses (Continued) “Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Management has identified a number of qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The qualitative factors are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources. The Bank’s qualitative factors consist of: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; levels of and trends in the Bank’s borrowers in bankruptcy; trends in volumes and terms of loans; effects of changes in lending policies and strategies; and concentrations of credit from a loan type, industry and/or geographic standpoint. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL. The following tables summarize the primary segments of the ALLL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2014 and 2013. Activity in the allowance is presented for the each of the twelve months ended December 31, 2014 and 2013 (in thousands): ALLL Balance at December 31, 2013 Charge-offs Recoveries Provision ALLL Balance at December 31, 2014 Commercial $ 306 - - 109 $ 415 Individually evaluated for impairment $ - Collectively evaluated for impairment $ 415 Commercial Real Estate Consumer Residential Municipal Total $ $ $ $ 1,073 - - (327) 746 52 694 $ $ $ $ 56 (24) 4 172 208 - 208 $ $ $ $ 322 - - 162 484 45 439 $ $ $ $ 314 - - (46) 268 234 34 $ $ $ $ 2,071 (24) 4 70 2,121 331 1,790 (Continued) 20 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 4. Loans Receivable and Related Allowance for Loan Losses (Continued) ALLL Balance at December 31, 2012 Charge-offs Recoveries Provision ALLL Balance at December 31, 2013 Commercial $ 284 - - 22 $ 306 Individually evaluated for impairment $ - Collectively evaluated for impairment $ 306 Commercial Real Estate Consumer Residential Municipal Total $ $ $ $ 751 - - 322 1,073 63 1,010 $ $ $ $ 43 (34) 13 34 56 - 56 $ $ $ $ 360 - - (38) 322 - 322 $ $ $ $ 344 - - (30) 314 250 64 $ $ $ $ 1,782 (34) 13 310 2,071 313 1,758 The following is a summary of the changes in the allowance for loan losses for the years ended December 31, 2014 and 2013 (in thousands): Balance, beginning Charge-offs Recoveries Provision Balance, ending 2014 2013 $ $ 2,071 (24) 4 70 2,121 $ $ 1,782 (34) 13 310 2,071 The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALLL that is representative of the risk found in the components of the portfolio at any given date. At December 31, 2014 loans with a carrying amount of $47.0 million were pledged to secure short- term and long-term borrowings with the Federal Home Loan Bank. Nonaccrual loans were approximately $131,000 and $26,000 at December 31, 2014 and 2013, respectively. The Bank is not committed to lend additional funds to borrowers whose loans are considered impaired or whose loans have been modified. The Bank had a loan with a balance of approximately $771,000 and $833,000 at December 31, 2014 and 2013 that was involved in bankruptcy litigation. The loan was for the benefit of a municipality. Funds advanced for the loan were held in the custody of the company that declared bankruptcy, resulting in the municipality not taking in its direct possession the full note amount. The municipality has continued to make payments on the note and it was current at December 31, 2014 and 2013. (Continued) 21 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 5. Bank Premises and Equipment Bank premises and equipment are summarized as follows: Buildings and land Furniture, fixtures and equipment Software Total Cost Less: Accumulated depreciation Total, net of depreciation 2014 2,161,858 2,164,393 169,031 4,495,282 2,288,465 2,206,817 $ $ 2013 1,993,632 1,894,732 221,343 4,109,707 2,279,064 1,830,643 $ $ Depreciation expense for 2014 and 2013 was $249,944 and $199,681, respectively. Note 6. Time Deposits The aggregate amounts of certificates of deposit, with a minimum denomination of $100,000 were $59,623,000 and $50,554,000 at December 31, 2014 and 2013, respectively. Time deposits include brokered deposits purchased through the Certificate of Deposit Account Registry Service (CDARS). The balance of these time deposits was approximately $9,478,000 and $15,231,000 at December 31, 2014 and 2013, respectively. As long as the Bank maintains its current rating through CDARS rating service, it may purchase deposits up to 15% of its assets as of the most recent quarter end. At December 31, 2014, the Bank could have purchased up to approximately $35,900,000 in deposits through CDARS. The decision to utilize this funding depends on the Bank’s liquidity needs and the pricing of CDARS deposits compared to other potential funding sources. At December 31, 2014, the scheduled maturities of time deposits are as follows: 2015 2016 2017 2018 2019 2020 and beyond Total Maturities $ 37,668,632 31,697,449 16,715,465 6,859,125 6,474,127 919,121 $ 100,333,919 The Bank has a line of credit from the Federal Home Loan Bank of Atlanta (FHLB) secured by the Bank’s real estate loan portfolio and certain pledged securities. The FHLB will lend up to 25% of the Bank’s total assets at the prior quarter end, subject to certain eligibility requirements, including adequate collateral. At December 31, 2014, the Bank had borrowings from FHLB that totaled $29,585,572. The interest rate on the borrowings range from .40% to 3.95% depending on the structure and maturity. The borrowings at year-end also required the Bank to own $1,524,100 of FHLB’s stock. This amount is included with restricted investments on the consolidated balance sheets. (Continued) 22 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 7. Borrowings During 2012, the Bank refinanced $11,000,000 of its fixed rate debt to take advantage of the low rate interest environment by extending maturities. The refinancing of this debt created fees of approximately $457,000, which were capitalized according to accounting standards and are included on the balance sheet as a reduction of the outstanding principal. This amount is being amortized over the life of the new debt. The principal on FHLB borrowings matures as follows: 2015 2016 2017 2018 2019 Total principal Capitalized refinancing fees FHLB borrowings, net Maturities 2,128,572 7,500,000 - 14,957,000 5,000,000 29,585,572 (291,973) 29,293,599 $ $ At December 31, 2013, the Bank had fixed rate advances from the Federal Home Loan Bank of Atlanta (FHLB) totaling $26,757,000. In December 2014, the Company issued stock as part of a private placement capital raise. The Bank’s Employee Stock Ownership Plan (“ESOP”) purchased stock as part of this raise and borrowed $600,000 from Community Bankers’ Bank to fund the purchase. The loan carries an interest rate of 4.50% and is to be repaid in seven annual installments of principal and interest beginning January 1, 2016. The Company has guaranteed the loan and it is included in other borrowed funds on the consolidated balance sheet. Repayment will come from the Bank’s annual discretionary contribution to the ESOP, as well as the Bank’s matching component to employee’s elective deferrals into the 401(k) plan, the proceeds of which are contributed to the ESOP. The shares purchased with the proceeds of this loan are being used as collateral and are therefore restricted. A prorated portion of the restricted shares will be released each year as the loan is repaid. The Company also pledged securities from its AFS portfolio with an approximate fair value of $263,000. These securities are included in restricted investments on the consolidated balance sheet. In addition the Bank has established lines of credit for federal funds purchases of $5,000,000 with its correspondent bank. The balance was zero at December 31, 2014 and December 31, 2013. Note 8. Preferred Stock The Company is authorized to issue 250,000 shares of preferred stock at a par value of $50 per share. The Company issued 4,500 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series A to the United States Department of Treasury as part of the Small Business Lending Fund (SBLF) program. The shares were issued at $1,000 per share, which is also the liquidation value, for a total issuance of $4,500,000. Dividend rates fluctuated with the amount of qualified small business lending as defined by the SBLF program. As of December 31, 2014, the dividend rate was 1.00%. The dividend rate will become 9.00% during 2016 if the preferred stock is still outstanding. (Continued) 23 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 9. Common Stock The Company has 5,000,000 shares of no par value authorized common stock of which 1,270,555 and 934,539 shares were issued and outstanding at December 31, 2014 and 2013, respectively. Note 10. Other Real Estate Owned (Foreclosed Assets) The Bank had the following amounts in Other Real Estate Owned at December 31, 2014 and 2013: Real Estate Held Land 1-4 Family Estimated Realizable Value 2014 2013 $ $ 140,000 70,000 210,000 $ $ 140,000 - 140,000 The estimated realizable value is the net amount Bank management expects to realize from the sale of the foreclosed upon real estate. The net realizable amount takes into account realtor commissions and other anticipated costs associated with the disposition of real estate. The properties currently held in Other Real Estate Owned were obtained during 2012 and 2014, respectively. Adjustments to reduce the loan balance to net realizable value at the time the property was acquired were made to the Allowance for Loan Losses. Bank Management continues to monitor the properties for changes in value. Any decline in value would be charged to operations. Expenses associated with the maintenance and upkeep of Other Real Estate Owned are recorded as Other Real Estate Expense. The balance of Other Real Estate Owned is included with other assets on the Company’s consolidated balance sheets. Note 11. Goodwill The balance in goodwill is the result of a branch acquisition in Charlottesville in 2011. The Bank purchased the branch in an effort to expand its geographic service area by targeting an attractive market with the potential to provide continued balance sheet growth and new opportunities for the Bank. Bank management will evaluate at least annually the recorded value of the goodwill. In the event the asset suffers a decline in value based on criteria established in governing accounting standards, an impairment will be recorded. Note 12. Disclosures About Fair Value of Financial Instruments In accordance with the requirements of U.S. GAAP, fair value disclosure estimates are being made for like-kind financial instruments. Fair value estimates are based on present value of expected future cash flows, quoted market prices of similar financial instruments, if available, and other valuation techniques. These valuations are significantly affected by the discount rates, cash flow assumptions and risk assumptions used. Therefore, the fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the financial instruments. (Continued) 24 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 12. Disclosures About Fair Value of Financial Instruments (Continued) U.S. GAAP excludes certain items from the disclosure requirements, and accordingly, the aggregate fair value of amounts presented do not represent the underlying value of the Company. Management does not have the intention to dispose of a significant portion of its financial instruments and, therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows. The following table represents the estimates of fair value of financial instruments as of December 31, 2014 and 2013: Financial Assets Cash and short-term investments Federal funds sold Investment Securities Net loans held for investment Accrued interest receivable Bank-owned life insurance $ Financial Liabilities Deposits Other borrowed funds Accrued interest payable 2013 $ 2014 $ Carrying Amount 7,941,884 542,000 37,056,056 184,723,649 786,782 2,349,745 183,898,642 29,893,599 175,842 Fair Value 7,941,884 542,000 37,465,448 192,789,000 786,782 2,349,745 184,899,000 30,383,000 175,842 $ Carrying Amount 4,561,708 545,000 47,712,416 153,786,879 751,464 2,283,800 168,345,328 26,388,861 167,556 Fair Value 4,561,708 545,000 47,707,772 158,381,000 751,464 2,283,800 169,816,000 26,651,000 167,556 The following methods and assumptions are used to estimate the fair value of financial instruments: Cash and short term investments: The carrying amount for cash and short-term investments is a reasonable estimate of fair value. Short-term investments consist of certificates of deposit in other banks. Investment securities: Fair values for investment securities are based on quoted market prices, if available. If market prices are not available, quoted market prices of similar securities are used. Loans held for investment: The fair value of loans held for investment is based on a discounted value of the estimated future cash flow expected to be received through the earlier of the loan payout or the loan repricing date. The interest rate applied in the discounted cash flow method reflects average current rates on similar loans adjusted for relative risk and maturity. Fair values of impaired loans are estimated based on estimates of net realization of underlying collateral. Deposits: The carrying amount is considered a reasonable estimate of fair value for demand and savings deposits and other variable rate deposit accounts. The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using the interest rates currently offered for deposits of similar remaining maturities. Other borrowed funds: The fair value of fixed maturity obligations is estimated by a discounted cash flow method using the interest rates currently offered for borrowings of similar remaining maturities. (Continued) 25 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 12. Disclosures About Fair Value of Financial Instruments (Continued) Accrued interest receivable and payable: The carrying amounts of accrued interest receivable and payable approximate their fair values. Bank-owned life insurance: The carrying and fair value amount of bank-owned life insurance is based on the present value of the receivable from the executive. The cash surrender values of the policies exceed the carrying amounts as of the balance sheet date. Off-balance sheet instruments: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the customers. The amount of fees currently charged on commitments is determined to be insignificant and therefore the fair value and carrying value of off- balance sheet instruments are not shown. Note 13. Fair Value Measurements U.S. GAAP defines fair value, establishes a framework for measuring fair value, establishes a three- level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liabilities, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The following sections provide 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: Securities: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the Company’s securities are considered to be Level 2 securities. (Continued) 26 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 13. Fair Value Measurements (Continued) Fair values of assets and liabilities measured on a recurring basis at December 31, 2014 and 2013 are as follows: Fair Value Measurements at Reporting Date Using Fair Value (Level 1) (Level 2) (Level 3) December 31, 2014 Available for-sale securities Bank-owned life insurance Total $ 19,937,946 $ 2,349,745 $ 22,287,691 $ December 31, 2013 Available for-sale securities Bank-owned life insurance Total $ 30,406,638 $ 2,283,800 $ 32,690,438 $ - - - - - - $ 19,937,946 $ 2,349,745 $ 22,287,691 $ $ 30,406,638 $ 2,283,800 $ 32,690,438 $ - - - - - - Gains and losses (realized and unrealized) included in earnings for the year are reported in noninterest income as follows: December 31, 2014: Total gains included in earnings for the year Change in unrealized gains or losses relating to assets still held at year end December 31, 2013: Total gains included in earnings for the year Change in unrealized gains or losses relating to assets still held at year end $ $ $ $ 16,456 214,335 66,562 (765,741) Fair values of assets measured on a non-recurring basis at December 31, 2014 and 2013 are as follows: Fair Value Measurements at Reporting Date Using Fair Value (Level 1) (Level 2) (Level 3) December 31, 2014 Other real estate owned Impaired loans Total December 31, 2013 Other real estate owned Impaired loans Total $ $ $ $ 210,000 - 210,000 140,000 - 140,000 27 $ $ $ $ (Continued) - - - - - - $ $ $ $ - - - - - - $ $ $ $ 210,000 - 210,000 140,000 - 140,000 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 14. Income Taxes A reconciliation between the amount of total income taxes and the amount computed by multiplying income by the applicable federal income tax rates is as follows: 2014 2013 Income taxes computed at the applicable federal income tax rate Tax exempt municipal income Income from life insurance Other, net Income Tax Expense $ $ 962,147 (151,767) (22,421) 3,393 791,352 The current and deferred components of income tax expense are as follows: Current tax expense Deferred tax expense Income Tax Expense 2014 710,283 81,069 791,352 $ $ $ $ $ $ 874,492 (143,816) (23,290) 2,306 709,692 2013 873,231 (163,539) 709,692 Deferred tax assets have been provided for temporary differences related to the allowance for loan losses, recognition of loan fee income, and deferred compensation agreements. Deferred tax liabilities have been provided for temporary differences related to depreciation and unrealized securities gains. The net deferred tax asset was made up of the following: Deferred tax assets Deferred tax liabilities Net Deferred Tax Asset 2014 2013 $ $ 1,320,122 (385,668) 934,454 $ $ 1,341,723 (254,217) 1,087,506 This amount has been included as part of other assets on the balance sheet. The federal and Virginia income tax returns of the Company for 2011 to 2014 are subject to examination by the Internal Revenue Service and the Virginia Department of Taxation. Note 15. Employee Benefits The Bank has a 401(k) Profit Sharing Plan that covers eligible employees. Employees may make voluntary contributions subject to certain limits based on federal tax laws. The Bank matches 100 percent of an employee’s contribution up to five percent of his or her salary. The Bank’s Board of Directors may make additional contributions at its discretion. Employees become eligible to participate after one year of continuous service and the benefits vest over a five-year period. For the years ended December 31, 2014 and 2013, total expenses attributable to this plan were $78,031 and $73,312, respectively. (Continued) 28 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 15. Employee Benefits (Continued) In 2013, the Company established an Employee Stock Ownership Plan (ESOP) that covers eligible employees. Benefits in the Plan vest over a five-year period. Contributions to the plan are made at the discretion of the Board of Directors, and may include both the matching component to employees’ elective deferrals into the 401(k) plan and discretionary profit contributions. In December 2014, the ESOP borrowed $600,000 and used the proceeds to purchase 42,857 common shares from the Company. Shares purchased with the borrowed funds are allocated and released to participants over the repayment period of the loan using a formula that considers current contributions to service the debt compared to total expected contributions over the amortization period of the loan. As of December 31, 2014, no shares had been released from the suspended shares. Since no payments had been made on the debt and no shares released, the contingent liability of the Company to service this debt of $600,000 is shown as a reduction of stockholders’ equity on the balance sheet. All shares issued and held by the Plan are considered outstanding in the computation of earnings per share. The Plan or the Company is required to purchase shares from separated employees at a price determined by a third party appraisal. The Company recognized discretionary expenses of $60,000 and $51,484 for contributions to the Plan in 2014 and 2013, respectively. The Plan held 53,200 shares of Company stock at December 31, 2014. Note 16. Financial Instruments With Off-Balance-Sheet Risk In the normal course of business, to meet the credit needs of its customers, the Bank has made commitments to extend credit of $10,846,000 and $21,408,000 as of December 31, 2014 and 2013, respectively. These commitments represent a credit risk which is not recognized in the consolidated balance sheet. The Bank uses the same credit policies in making commitments as it does for the loans reflected in the balance sheet. Commitments to extend credit are generally made for a period of one year and interest rates are determined when funds are disbursed. Collateral and other security for the loans are determined on a case-by-case basis. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Note 17. Commitments and Contingencies In the ordinary course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. The commitments include a total of $922,824 for its interest in five Small Business Investment Company funds. The Bank funded $977,176 of its total $2,100,000 investment prior to (SBIC) December 31, 2014, and anticipates capital calls for the remaining amount to occur during the next one to three years. Management does not anticipate any loss resulting from these commitments. Note 18. Lease Commitments The Bank leases real property in McGaheysville, Virginia for a branch that began operations in March 2003. The lease term commenced March 1, 2003 and continues for fifteen years, with five optional one year extensions. Base annual rent, including utilities, is $36,300 or $3,025 per month, adjusted annually for inflation as listed by the Consumer Price Index. (Continued) 29 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 18. Lease Commitments (Continued) The Bank leases real property in Albemarle County, Virginia for a branch that began operations in May 2012. The lease term commenced May 1, 2012 and continues for seven years with two optional five year extensions. Base annual rent, including utilities, is $81,400, or $6,783 per month, increasing at 2% annually. The Bank leases real property in Harrisonburg, Virginia for a branch that began operations in April 2014. The lease term commenced April 1, 2014 and continues for fifteen years with two optional five year extensions. Base annual rent is $43,470, or $3,623 per month, adjusted annually for inflation as listed by the Consumer Price Index. At December 31, 2014, the aggregate future minimum rental commitments (base rents) under this noncancellable operating lease are as follows: For the year ending December 31, 2015 2016 2017 2018 2019 Thereafter Total Annual Payments $ 161,170 161,170 164,275 135,060 74,743 494,213 $ 1,190,631 Rent expense for 2014 and 2013 was $153,568 and $128,548, respectively. Note 19. Concentration of Credit Risk The majority of the Bank’s loans are made to customers in the Bank’s trade area and a substantial portion of the loans are secured by real estate. Accordingly, the ultimate collectibility of the Bank’s loan portfolio is susceptible to changes in local economic conditions including the agribusiness sector and the real estate market. A summary of loans by type is shown in Note 4. Collateral required by the Bank is determined on an individual basis depending on the nature of the loan and the financial condition of the borrower. In addition, investment in state and municipal securities include governmental entities within the Bank’s market area. (Continued) 30 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 20. Transactions With Related Parties During the year, officers and directors and their related interests were customers of and had transactions with the Bank during the normal course of business. These transactions were made on substantially the same terms as those prevailing for other customers and did not involve any abnormal risk. Loan transactions to such related parties are shown in the following schedule: Total loans, beginning of year Changes in related parties Advances Curtailments Total loans, end of year 2014 2013 $ 2,142,000 2,855,000 1,475,000 (859,000) $ 5,613,000 $ $ 1,690,000 900,000 1,512,000 (1,960,000) 2,142,000 The Bank held related party deposits of approximately $3,474,000 and $3,285,000 at December 31, 2014 and 2013, respectively. Note 21. Regulatory Matters The principal source of funds of Blue Ridge Bankshares, Inc. is dividends paid by its subsidiary bank. The various regulatory authorities impose restrictions on dividends paid by a state bank. A state bank cannot pay dividends (without the consent of state banking authorities) in excess of the total net profits (net income less dividends paid) of the current year to date and the combined retained net profits of the previous two years. As of January 1, 2015, Blue Ridge Bank could pay dividends to Blue Ridge Bankshares, Inc. of approximately $3,965,000 without the permission of regulatory authorities. The ability to pay such a dividend would additionally be affected by the subsidiary bank’s capital availability. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2014, that the Bank meets all capital adequacy requirements to which it is subject. (Continued) 31 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 21. Regulatory Matters (Continued) The Bank is considered well capitalized under the regulatory framework for prompt corrective action. To remain categorized as well capitalized, the Bank will have to maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events since the most recent notification that management believes have changed the Bank’s prompt corrective action category. Actual Amount Ratio For Capital Adequacy Purposes Ratio Amount As of December 31, 2014 Total risk based capital (To risk rated assets) Blue Ridge Bankshares $ $ Blue Ridge Bank 27,079 26,491 16.76% $ 16.47% $ 12,922 12,864 Tier I capital (To risk rated assets) Blue Ridge Bankshares $ $ Blue Ridge Bank 24,958 24,480 15.45% $ 15.22% $ Tier I capital (To average assets) Blue Ridge Bankshares $ $ Blue Ridge Bank 24,958 24,480 10.99% $ 10.57% $ 6,461 6,432 9,082 9,262 8% 8% 4% 4% 4% 4% Actual Amount Ratio For Capital Adequacy Purposes Ratio Amount As of December 31, 2013 Total risk based capital (To risk rated assets) Blue Ridge Bankshares $ $ Blue Ridge Bank 21,608 19,933 16.21% $ 15.04% $ 10,662 10,605 Tier I capital (To risk rated assets) Blue Ridge Bankshares $ $ Blue Ridge Bank 19,537 18,271 14.66% $ 13.78% $ Tier I capital (To average assets) Blue Ridge Bankshares $ $ Blue Ridge Bank 19,537 18,271 9.24% $ 8.57% $ 5,331 5,303 8,459 8,531 8% 8% 4% 4% 4% 4% To Be Well Capitalized Under the Prompt Corrective Action Provisions Amount Ratio N/A 16,080 N/A 10% N/A 9,648 N/A 6% N/A 11,578 N/A 5% To Be Well Capitalized Under the Prompt Corrective Action Provisions Amount Ratio N/A 13,257 N/A 10% N/A 7,954 N/A 6% N/A 10,664 N/A 5% $ $ $ $ $ $ (Continued) 32 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 21. Regulatory Matters (Continued) On July 7, 2013 the Federal Reserve Board approved Basel III Final Rule to begin implementation January 1, 2015. The desired overall objective of Basel III is to improve the banking sector’s ability to absorb shocks arising from financial and economic stress. The Final Rule changes minimum capital ratios and raises the Tier 1 Risk Weighted Assets to 6% from 4%. In addition, the new rules will require a bank to maintain a capital conservation buffer that starts at 0.625% beginning in 2016 and reaches 2.50% by 2019. The new rules will be phased in beginning in 2015 with complete compliance required by 2019. Generally, the Basel III Final Rule will require banks to maintain higher levels of common equity and regulatory capital. Note 22. New Accounting Standards In February 2013, ASU No. 2013-02 - Comprehensive Income was issued to improve the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendment was effective for the current reporting period. In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss or a Tax Credit Carryforward Exists. ASU 2013-11 is intended to clarify the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. This presentation had not been addressed in Topic 740 and there was diversity in reporting practices in those instances. ASU 2013-11 requires an unrecognized tax benefit to be presented as a liability and not netted against a deferred tax asset. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. Accounting Standards Update (ASU) No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure was issued by the FASB on January 20, 2014. The amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required. The amendments are effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. (Continued) 33 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 22. New Accounting Standards (Continued) On May 28, 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The core principle of the new guidance is that entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, an entity should apply the following steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the performance obligation is satisfied. The new guidance is effective for the Company’s annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018, early application permitted no earlier than public entity effective date. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures; however, the Company does not currently expect the new guidance to have a material effect on its financial statements. In June 2014, the FASB issued ASU 2014-11 – Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which changes the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Additionally, for repurchase financing arrangements, the amendments of this ASU require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The ASU is effective for the first annual period beginning after December 15, 2014 and interim period beginning after December 15, 2015. Earlier application is not permitted. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements. In August 2014, the FASB issued ASU 2014-14 – Receivables – Troubled Debt Restructurings by Creditors: Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure which requires de-recognition of mortgage loan and recognition of other receivable if the loan has a government guarantee (e.g. FHA/VA) and upon foreclosure if the following is met: 1) the loan has a government guarantee that is not separable from the loan before foreclosure; 2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and, 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. The other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The guidance is effective for annual periods ending after December 15, 2015, and interim periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements. (Continued) 34 BLUE RIDGE BANKSHARES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Note 22. New Accounting Standards (Continued) In January 2014, the Private Company Council (PCC) of the FASB issued ASU 2014-02 Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill which allows an accounting alternative for subsequent measurement of goodwill for private business entities. The guidance allows for amortization of goodwill in lieu of annual impairment testing up to a ten year period or less than ten years if the entity demonstrates that another useful life is more appropriate. An entity that elects the accounting alternative is further required to make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill should be tested for impairment when a triggering event occurs that indicates that the fair value of an entity (or a reporting unit) may be below its carrying amount. The accounting alternative, if elected, should be applied prospectively in annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015 Other accounting standards have been issued by the FASB that are not currently applicable to the Company or are not expected to have a material impact on the Company’s financial statements. (Continued) 35 Board of Directors Mensel D. Dean, Jr. Partner Larry Dees Retired Certified Public Accountant James E. Gander, II Farmer PBMares, LLP John H. H. Graves President/CEO Luray Caverns Corporation Brian K. Plum President/CEO Blue Ridge Bank Robert S. Janney Attorney at Law Janney & Janney, PLC Richard T. Spurzem Real Estate Investor Malcolm R. Sullivan, Jr. Chairman Sullivan Mechanical Contractors, Inc. Officers and Employees Richard L. Masincup Retired Tax Auditor William W. Stokes Chief Financial Officer Bio-Cat, Inc. CORPORATE Operations Cynthia D. Fravel, Vice President Kimberly D. Dinges Patricia B. Painter Pamela G. Seal Compliance Ashley N. Marshall Brandy L. Rothgeb Credit Administration Julie A. Catron, Assistant Vice President Crystal D. Alger Melissa A. Deeds James C. Rushing, III Retail Investments Adam J. Powell, Investment Advisor Management and Administration Brian K. Plum, President/CEO Benjamin T. Horne, IV, Executive Vice President/CLO Amanda G. Story, CFO Ann M. Mann, Chief Compliance Officer Craig H. Richards, Director of Risk Management Timothy C. Peifer, VP – Retail Market Manager R. Steven Landes, VP – Market Development Rebekah F. Painter, Marketing Director Sharon S. Lamb, Assistant Cashier Sharon D. Nauman, Accounting Assistant LURAY Juanita A. Woodward, Office Manager Jason P. Blosser, Director of Dealer Lending Kimberly F. Good, Loan Officer Cheryl E. Petefish, Loan Officer Donna S. Dofflemyer, Loan Officer Miranda D. Cave Jill M. Taylor Betty J. White Brittany L. Eslin Lisa M. Turner SHENANDOAH Timothy W. Bailey, Assistant Vice President Rebecca K. Dovel Brittney D. Hinegardner Paula R. Morris MCGAHEYSVILLE Crystal L. Breeden Burker, Assistant Branch Manager Darlene M. Turner Pamela M. Taylor CHARLOTTESVILLE Kelly A. Potter, Vice President – Commercial Lending Laura S. Breeden, Branch Manager Lisa S. Engstler Cheryl M. Melton HARRISONBURG Jonathan B. Comer, Commercial Lender Aimme M. Knight, Relationship Banker Amy D. Shenk Tina S. Bright 

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