UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-39165
BLUE RIDGE BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia
State or Other Jurisdiction of
Incorporation or Organization
1807 Seminole Trail, Charlottesville, Virginia
Address of Principal Executive Offices
54-1470908
I.R.S. Employer
Identification No.
22901
Zip Code
(540) 743-6521
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, no par value
Trading Symbol(s)
BRBS
Name of each exchange on which registered
NYSE American
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant at June 30, 2021, based on the closing sale price of the registrant’s
common stock on June 30, 2021, was approximately $292,341,611.
The registrant had 18,769,882 shares of common stock, no par value per share, outstanding as of March 7, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Form 10-K will be included in the registrant’s definitive proxy statement for the 2022 annual meeting of
shareholders and incorporated herein by reference or in an amendment to this Form 10-K filed within 120 days after the end of the fiscal year covered by this
Form 10-K.
Auditor Firm Id:
149
Auditor Name:
Elliott Davis, LLC
Auditor Location:
Raleigh, NC, U.S.A.
Item 1:
Business
Item 1A:
Risk Factors
Item 1B:
Unresolved Staff Comments
Item 2:
Properties
Item 3:
Legal Proceedings
Item 4:
Mine Safety Disclosures
PART I
PART II
Item 5:
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Item 6:
[Reserved]
Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A:
Quantitative and Qualitative Disclosures About Market Risk
Item 8:
Financial Statements and Supplementary Data
Item 9:
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A:
Controls and Procedures
Item 9B:
Other Information
Item 9C:
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10:
Directors, Executive Officers and Corporate Governance
Item 11:
Executive Compensation
PART III
Item 12:
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13:
Certain Relationships and Related Transactions, and Director Independence
Item 14:
Principal Accountant Fees and Services
Item 15:
Exhibits and Financial Statement Schedules
Item 16:
Form 10-K Summary
PART IV
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PART I
ITEM 1: BUSINESS
General
Blue Ridge Bankshares, Inc. (the “Company” ) is a bank holding company headquartered in Charlottesville, Virginia. It
provides commercial and consumer banking and financial services through its wholly-owned bank subsidiary, Blue Ridge
Bank, National Association (the “Bank”), and its wealth and trust management subsidiary, BRB Financial Group, Inc. The
Company was incorporated under the laws of the Commonwealth of Virginia in July 1988.
The Bank is a federally chartered national bank with its Main Office in Martinsville, Virginia that traces its roots to Page
Valley Bank of Virginia, which opened for business in 1893. At December 31, 2021, the Bank operated twenty-six full-
service banking offices across its footprint, which stretches from the Shenandoah Valley across the Piedmont region through
Richmond and into the coastal peninsulas and Hampton Roads region of Virginia and north-central North Carolina.
The Bank serves businesses, professionals, consumers, nonprofits, and municipalities with a wide variety of financial
services, including retail and commercial banking, mortgage banking, government guaranteed lending, employee benefit
plans, and payroll processing. Banking products include checking accounts, savings accounts, money market accounts, cash
management accounts, certificates of deposit, individual retirement accounts, commercial and industrial loans, residential
mortgages, commercial mortgages, home equity loans, consumer installment loans, credit cards, online banking, telephone
banking, and mobile banking. Deposits of the Bank are insured by the Deposit Insurance Fund (the “DIF”) of the Federal
Deposit Insurance Corporation (“FDIC”) to the full extent of the limits of the DIF.
As of December 31, 2021, the Company had total assets of approximately $2.67 billion, total gross loans of
approximately $1.93 billion, total deposits of approximately $2.30 billion, and stockholders’ equity of approximately $277.1
million.
In March 2021, the Company’s board of directors approved a three-for-two stock split (“Stock Split”) effected in the
form of a 50% stock dividend on the Company’s common stock outstanding. The shares of common stock relating to the
Stock Split were distributed on April 30, 2021 to shareholders of record as of April 20, 2021. Cash was paid in lieu of
fractional shares based on the closing price of common stock on the record date. References made to outstanding shares or
per share amounts in the consolidated financial statements and disclosures in Part II, Item 7, Management's Discussion &
Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, of this
Form 10-K have been adjusted to reflect the Stock Split for all periods presented, unless otherwise noted.
On January 31, 2021, the Company completed a merger with Bay Banks of Virginia, Inc. (“Bay Banks”), a bank holding
company conducting substantially all its operations through its subsidiaries Virginia Commonwealth Bank and VCB
Financial Group, Inc. Immediately following the Company’s merger with Bay Banks, Virginia Commonwealth Bank was
merged with and into the Bank, while VCB Financial Group, Inc., subsequently renamed BRB Financial Group, Inc. and
referred to herein as the “Financial Group”, became a subsidiary of the Company (collectively, the “Bay Banks Merger”).
Pursuant to the terms of the Bay Banks Merger agreement, each share of Bay Banks common stock was converted into the
right to receive 0.50 shares of the Company’s common stock plus cash in lieu of fractional shares. In the merger, the
Company issued 6,627,558 shares of its common stock and paid $3.4 thousand in lieu of fractional shares. The Bay Banks
Merger added $1.22 billion in assets and $1.03 billion in deposits and expanded the Bank’s operating footprint east through
the greater Richmond region, the Northern Neck region, Middlesex County, and the Hampton Roads region of Virginia.
The Company, through the Financial Group, offers management services for personal and corporate trusts, including
estate planning, estate settlement and trust administration, insurance products, and investment and wealth management.
Payroll processing services are offered through the Bank’s majority owned subsidiary, MoneyWise Payroll Solutions, Inc.
(“MoneyWise Payroll”), and employment benefit services are offered under the trade name BluePoint Benefits. The
Company, through its minority investment in Hammond Insurance Agency, Incorporated (“Hammond Insurance”), offers
property and casualty insurance to individuals and businesses. The Bank’s mortgage banking activities include a retail
mortgage business operating as Monarch Mortgage and a wholesale mortgage business operating as LenderSelect Mortgage
Group (“LenderSelect”). LenderSelect offers wholesale and third-party residential mortgage origination services to other
financial institutions and credit unions.
The Company continues to grow its partnerships with financial technology (fintech) providers and ended the fourth
quarter of 2021 with active partnerships including Unit, Flexible Finance, Increase, Upgrade, Kashable, Jaris, Aeldra, Grow
Credit, MentorWorks, and Marlette. Fintech companies provide technologies to enable the delivery of digital bank services,
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which generate fees and deposits and increase the Bank’s customer reach beyond its traditional branch footprint. Two of the
Company's fintech relationships provide the Bank access to other fintech companies and vastly expand the Bank's customer
reach. Loans held for sale and loans held for investment related to fintech relationships totaled approximately $24.1 million
and $10.3 million as of December 31, 2021 and 2020, respectively, while deposits related to these relationships were
approximately $189 million and $42 million as of December 31, 2021 and 2020, respectively. Interest and fee income related
to fintech partnerships represented approximately $3.4 million and $680 thousand of revenue for the Company in 2021 and
2020, respectively.
The Bank’s primary source of revenue is interest income from its lending activities. The Bank’s other major sources of
revenue are interest and dividend income from investments, interest income from its interest-earning deposit balances in
other depository institutions, mortgage banking income, transactions and fee income from its lending and deposit activities,
including fintech, and income associated with wealth and trust management and payroll processing services. The Bank’s
major expenses are interest on deposits and general and administrative expenses, such as employee salaries and benefits,
federal deposit insurance premiums, data processing expenses, technology costs, and office occupancy expenses.
As a bank holding company incorporated under the laws of the Commonwealth of Virginia, the Company is subject to
regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Bureau of Financial
Institutions of the Virginia State Corporation Commission (the “Virginia SCC”). The Bank’s primary regulator is the Office
of the Comptroller of the Currency (the “OCC”).
On December 31, 2020, the Bank acquired Precision Holdings, LLC (doing business as Precision Benefits & Insurance)
located in Winchester, Virginia, for $340 thousand in cash, and rebranded it as BluePoint Benefits.
On December 31, 2019, the Bank acquired LenderSelect based in Richmond, Virginia, for an aggregate purchase price of
$720 thousand in cash.
On December 15, 2019, the Company completed its acquisition of Virginia Community Bankshares, Inc. (“VCB”), the
bank holding company of Virginia Community Bank based in Louisa, Virginia. Immediately following the merger, Virginia
Community Bank, merged with and into the Bank. Pursuant to the acquisition, the Company acquired total assets of
approximately $242.5 million and assumed total liabilities of approximately $219.2 million. In the merger, the Company
issued 1,312,919 shares of its common stock and made cash payments to VCB shareholders totaling $16.6 million in the
aggregate.
On February 1, 2019, the Bank acquired a 35% ownership interest in Hammond Insurance for an aggregate purchase
price of $1.02 million.
On October 4, 2017, the Bank acquired an 80% ownership interest in MoneyWise Payroll, a payroll management
services company located in Charlottesville, Virginia, for an aggregate price of $800 thousand.
The principal executive offices of the Company are located at 1807 Seminole Trail, Charlottesville, Virginia 22901, and
its telephone number is (540) 743-6521.
The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and
Exchange Commission (“SEC”). The Company’s SEC filings are filed electronically and are available to the public over the
Internet at the SEC’s website at http://www.sec.gov. The Company’s website can be accessed at https://www.mybrb.com.
The Company makes its SEC filings available through this website under “Investor Relations,” “Financial Documents,”
“Documents” as soon as practicable after filing or furnishing the material to the SEC. Copies of documents can also be
obtained free of charge by writing to the Company’s Corporate Secretary at P.O. Box 609, 17 West Main Street, Luray,
market area Virginia 22835, or by calling (540) 743-6521. Information on the Company’s website does not constitute part of,
and is not incorporated into, this report or any other filing the Company makes with the SEC.
The Company qualifies as an “emerging growth company”, as defined in federal securities laws. For as long as it
continues to be an emerging growth company, the Company may take advantage of exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies, including not being
required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved. In addition, as an emerging growth company, the Company has elected to take
advantage of the extended transition period for complying with new or revised accounting standards until those standards
would otherwise apply to a company that is not an issuer (as defined under Section 2(a) of the Sarbanes-Oxley Act), if such
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standards apply to companies that are not issuers. This may make the Company’s financial statements not comparable with
other public companies that are not emerging growth companies or that are emerging growth companies that have opted out
of the extended transition period because of the potential differences in accounting standards used. The Company may be an
emerging growth company for up to five years, although that status is lost sooner if gross revenues exceed $1.07 billion, if it
issues more than $1.0 billion in non-convertible debt in a three-year period, or if the market value of common stock held by
non-affiliates exceeds $700 million as of any June 30 before that time, in which case the Company would no longer be an
emerging growth company as of the following December 31.
Market Area
The Bank currently has branches in Callao, Charlottesville, Chester, Colonial Heights, Culpeper, Fredericksburg,
Gordonsville, Harrisonburg, Hartfield, Henrico, Kilmarnock, Louisa, Luray, Martinsville, Midlothian, Mineral, Montross,
Orange, Petersburg, Richmond, Shenandoah, Suffolk, Virginia Beach, Warsaw, and White Stone, Virginia, and in
Greensboro, North Carolina. Interstates 40, 64, 66, 73, 74, 81, 85, and 95 and ancillary major highways pass through the
Bank’s trade area and provide efficient access to other regions of Virginia, North Carolina, and beyond. The Company’s
primary market area stretches from the Shenandoah Valley across the Piedmont region through Richmond and into the
coastal peninsulas and Hampton Roads region of Virginia and north-central North Carolina. The Company’s retail mortgage
operations are primarily in the Mid-Atlantic and Southern regions of the United States, while the Company's wholesale
mortgage operations are nationwide. The Company’s guaranteed government lending and fintech markets span across the
United States.
Products and Services
Mortgage Loans on Real Estate. The Company’s mortgage loans on real estate comprise the largest segment of its loan
portfolio. Mortgage loans on real estate include family residential properties, 1-4 family investment properties, home equity
loans, commercial properties, and owner-occupied commercial properties. The Company also makes loans on properties
under construction to qualified individuals and builders. These loans are generally for the construction period only and funds
are disbursed as construction progresses and verified by the Company. Loans are for varying terms and may be at fixed or
adjustable interest rates.
Residential Mortgage Loans. Residential mortgages are underwritten and documented within regulatory guidelines. The
Company offers secondary market residential loan origination. Through the Bank, customers may apply for home mortgages
that are generally underwritten in accordance with the guidelines of agencies including the Federal Home Loan Mortgage
Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and Government National Mortgage
Association (“Ginnie Mae”). These loans are then sold into the secondary market on a loan-by-loan basis, usually directly to
Freddie Mac, Fannie Mae, and Ginnie Mae. The Bank earns origination fees and a premium on servicing rights, if the loans
are sold with servicing retained.
Commercial Real Estate Loans. Loans in this category include loans on real estate used for commercial purposes. Loans
in this segment are underwritten to mitigate declines in real estate values, changes in the underlying cash flows from the
properties, and general economic conditions.
Commercial and Industrial Loans. Commercial lending activities of the Company include small business loans, asset-
based loans, and other secured and unsecured loans and lines of credit. Commercial and industrial loans may entail greater
risk than residential mortgage loans, and therefore are underwritten with strict risk management standards. Among the criteria
for determining the borrower’s ability to repay is a cash flow analysis of the business and business collateral.
Guaranteed Government Loans. Loans in this category provide customers access to capital that avoid many of the
challenges of conventional commercial lending. Loans are generally underwritten pursuant to U.S. Small Business
Administration (“SBA”) or U.S. Department of Agriculture (“USDA”) guidelines and afford the Company guarantees under
these programs. The guaranteed portion of government guaranteed loans may be sold, in whole or in part, to secondary
market buyers.
Consumer Loans. The Company’s consumer lending services include automobile lending, home improvement loans,
credit cards, and other unsecured personal loans. These consumer loans historically entail greater risk than loans secured by
real estate and also generate a higher return.
Consumer Deposit Services. Consumer deposit products offered by the Company include checking accounts, savings
accounts, money market accounts, certificates of deposit, online banking, mobile banking, and electronic statements.
Commercial Banking Services. The Company offers a variety of services to commercial customers. These services
include analysis checking, cash management deposit accounts, wire services, direct deposit payroll service, online banking,
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telephone banking, remote deposit, payroll processing, and a full line of commercial lending options. The Company also
offers property and casualty insurance and employee benefit plans and administration.
Wealth and Trust Services. The Company, through the Financial Group, offers management services for personal and
corporate trusts, including estate planning, estate settlement and trust administration, insurance products, and investment and
wealth management.
Banking as a Service. The Company, through the Bank, provides banking as a service ("BaaS") to its fintech partners.
BaaS is a model that provides the fintech partners access to certain of the Bank’s products that are offered to a broad base of
consumers and small businesses through internet-enabled connections.
Competition
The financial services industry is highly competitive. The Company competes for loans, deposits, and financial services
directly with other bank and nonbank institutions, including credit unions, located within its markets, internet-based banks,
out-of-market banks, fintech companies, and bank holding companies that advertise in or otherwise serve its markets, along
with money market and mutual funds, brokerage houses, mortgage companies, and insurance companies or other commercial
entities that offer financial services products. Competition involves efforts to retain current customers and to obtain new
loans and deposits, and differentiators include the scope and type of services offered, interest rates paid on deposits and
charged on loans, and the customer service experience. Many of the Company’s competitors enjoy competitive advantages,
including greater financial resources, a wider geographic presence, more accessible branch office locations, greater
technology, the ability to offer additional services, more favorable pricing alternatives and lower origination and operating
costs. The Company believes that its competitive pricing, personalized service, and community involvement enable it to
effectively compete in the communities in which it operates.
Environmental, Social and Governance
The Company is committed to promoting sound Environmental, Social and Governance (“ESG”) practices through
strong board of directors and management oversight. Management believes ESG initiatives are important to its customers, its
employees, its shareholders, and the communities it serves. The Company’s board of directors approved an executive annual
cash incentive plan for 2022 that incorporates accountability for progress on carbon neutrality and diversity and inclusion
initiatives. The plan provides targets around progress on the Bank's carbon neutrality plan, implementation of a management
diversity program, and the enhancement of ESG disclosures. Executives included in the plan have a material portion of their
incentives at-risk for achievement of these objectives.
Environmental. During 2021, the Company began its initiative to contribute to curtailing the impacts of global climate
change. The Company, through the Bank, joined the Net-Zero Banking Alliance ("NZBA"), a United Nations convened and
industry-led initiative to lead practices and accountability in carbon reduction plans. The Bank will align its operations and its
lending and investment portfolios to achieve net-zero emissions by 2040, while achieving intermediate performance targets
by 2030. Additionally, during 2021, the Bank installed electric vehicle charging stations at two of its branch locations and is
reviewing other locations for accessibility and utilization. The Company has a number of initiatives that are in various stages
of study for feasibility.
Social. The Company’s board of directors and management are committed to employing a diverse workforce and will
develop plans and metrics against which actions will be measured. Measures will also be developed for both lending and
vendor relationships.
As further discussed in the Supervision and Regulation below, the Bank is subject to the Community Reinvestment Act
(the "CRA"), under which the appropriate federal banking agency periodically assesses the Bank’s record in meeting the
credit needs of the communities it serves, including low and moderate income neighborhoods. The Bank has a designated
CRA officer that monitors the Bank’s compliance under this act.
The COVID-19 pandemic imposed strain on the Company’s workforce. The Bank reduced its banking hours during the
critical period of the pandemic allowing employees to have more flexibility to manage their family situations. If the job
function allowed, employees were afforded the opportunity to work from home, and in certain situations, employees could
bring their children to work.
Governance. The Company operates under a strong governance structure, starting with the chairman of the board of
directors that is independent from management. Members of the board of directors routinely undergo evaluations to assess
their effectiveness. Employees operate under policies approved by the Company’s or the Bank’s board of directors and
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complete as many as 33 courses per year, covering topics such as preventing harassment, confidentiality of data, and unfair
banking practices.
Human Capital Resources
The success of the Company is directly attributable to its exceptional and dedicated team of employees. As part of the
Company's strategic plan, management focuses on designing compensation, incentive, and benefit programs to ensure that the
Company is competitive at attracting and retaining top talent in the market, while emphasizing the importance of diversity,
equity, and inclusion. Management believes that the Company's compensation programs offer competitive pay and benefits
including paid time off for vacations and sick leave, a 401(k) plan, an employee stock ownership plan, health, dental, and
vision plans, life and disability coverage, wellness plans, paid training, including tuition reimbursement, and pre-tax flexible
spending accounts. In 2021, the Company paid bonuses ranging from $2,000 to $5,000 to each employee earning less than
$100,000 annually in recognition for the incredible amount of energy they poured into helping tens of thousands of small
businesses obtain much needed funds from the Paycheck Protection Program ("PPP") during the economic crisis brought
upon by the coronavirus ("COVID-19") pandemic. Also in 2021, the Company raised its minimum pay rate from $15 to $17
per hour as part of its commitment to maintain a living wage for all of its employees. Management believes that fostering an
environment that values diversity, equity, and inclusion creates an organization that is able to embrace, leverage, and respect
differences amongst the Company's employees and customers. Management believes that such an environment results in
improved employee morale and higher levels of job satisfaction, which ultimately translates into a better customer
experience.
Management also believes in giving back to the communities in which the Company serves. In 2021, the Company
committed hundreds of thousands of dollars of financial donations to many community organizations and nonprofits
including first responders, colleges and universities, youth athletics, and the arts. In addition, the Company's employees
donate countless hours volunteering in business associations and helping the underserved.
The Company had 513 full-time and 43 part-time employees as of December 31, 2021. None of its employees are
represented by any collective bargaining unit and the Company believes that relations with its employees are good.
Supervision and Regulation
The Company and the Bank are extensively regulated under federal and state law. The following information describes
certain aspects of that regulation applicable to the Company and the Bank and does not purport to be complete. Proposals to
change the laws, regulations, and policies governing the banking industry are frequently raised in the U.S. Congress, in state
legislatures, and before the various bank regulatory agencies. The likelihood and timing of any changes and the impact such
changes might have on the Company and the Bank are impossible to determine with any certainty. A change in applicable
laws, regulations or policies, or a change in the way such laws, regulations, or policies are interpreted by regulatory agencies
or courts, may have a material impact on the business, operations, and earnings of the Company and the Bank.
Blue Ridge Bankshares, Inc.
The Company is qualified as a bank holding company within the meaning of the Bank Holding Company Act of 1956, as
amended (the “BHC Act”), and is registered as such with the Federal Reserve. As a bank holding company, the Company is
subject to supervision, regulation and examination by the Federal Reserve and is required to file various reports and
additional information with the Federal Reserve. The Company is also registered under the bank holding company laws of
Virginia and is subject to supervision, regulations and examination by the Virginia SCC.
Under the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”), a bank holding company may elect to become a financial
holding company and thereby engage in a broader range of financial and other activities than are permissible for traditional
bank holding companies. In order to qualify for the election, all of the depository institution subsidiaries of the bank holding
company must be well capitalized, well managed, and have achieved a rating of “satisfactory” or better under the CRA.
Financial holding companies are permitted to engage in activities that are “financial in nature” or incidental or
complementary thereto as determined by the Federal Reserve. The GLB Act identifies several activities as “financial in
nature,” including insurance underwriting and sales, investment advisory services, merchant banking and underwriting, and
dealing or making a market in securities. The Company has not elected to become a financial holding company and has no
immediate plans to become a financial holding company.
Blue Ridge Bank, National Association
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The Bank is a federally chartered national bank. The Bank is subject to supervision, regulation, and examination by the
OCC and is required to file various reports and additional information with the OCC. The OCC has primary supervisory and
regulatory authority over the operations of the Bank. Because the Bank accepts insured deposits from the public, it is also
subject to examination by the FDIC.
Depository institutions, including the Bank, are subject to extensive federal and state regulations that significantly affect
their businesses and activities. Regulatory bodies have broad authority to implement standards and initiate proceedings
designed to prohibit depository institutions from engaging in unsafe and unsound banking practices. The standards relate
generally to operations and management, asset quality, interest rate exposure, and capital. The bank regulatory agencies are
authorized to take action against institutions that fail to meet such standards.
As with other financial institutions, the earnings of the Bank are affected by general economic conditions and by the
monetary policies of the Federal Reserve. The Federal Reserve exerts a substantial influence on interest rates and credit
conditions, primarily through open market operations in U.S. Government securities, setting the reserve requirements of
member banks, and establishing the discount rate on member bank borrowings. The policies of the Federal Reserve have a
direct impact on loan and deposit growth and the interest rates charged and paid thereon. They also impact the source, cost of
funds, and the rates of return on investments. Changes in the Federal Reserve’s monetary policies have had a significant
impact on the operating results of the Bank and other financial institutions and are expected to continue to do so in the future.
The Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), signed into law in
July 2010, significantly restructured the financial regulatory regime in the United States and has had a broad impact on the
financial services industry as a result of the significant regulatory and compliance changes required under the act.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”), which became
effective May 24, 2018, amended the Dodd-Frank Act to provide regulatory relief for certain smaller and regional financial
institutions, such as the Company and the Bank. The EGRRCPA, among other things, provides financial institutions with less
than $10 billion in total consolidated assets with relief from certain capital requirements and exempts banks with less than
$250 billion in total consolidated assets from the enhanced prudential standards and the company-run and supervisory stress
tests required under the Dodd-Frank Act. The Dodd-Frank Act has had, and may in the future have, a material impact on the
Company’s operations, particularly through increased compliance costs resulting from new and possible future consumer and
fair lending regulations. The future changes resulting from the Dodd-Frank Act may affect the profitability of business
activities, require changes to certain business practices, impose more stringent regulatory requirements, or otherwise
adversely affect the business and financial condition of the Company and the Bank. These changes may also require the
Company to invest significant management attention and resources to evaluate and make necessary changes to comply with
new statutory and regulatory requirements.
Deposit Insurance
The deposits of the Bank are insured up to applicable limits by the DIF and are subject to deposit insurance assessments
to maintain the DIF. The deposit insurance assessment base is based on average total assets minus average tangible equity,
pursuant to a rule issued by the FDIC as required by the Dodd-Frank Act. Deposit insurance pricing is a “financial ratios
method” based on “CAMELS” composite ratings to determine assessment rates for small established institutions with less
than $10 billion in assets. The CAMELS rating system is a supervisory rating system designed to take into account and
reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management
capability, earnings, liquidity, and sensitivity to market risk (“CAMELS”). CAMELS composite ratings set a maximum
assessment for CAMELS 1 and 2 rated banks, and set minimum assessments for lower rated institutions.
The FDIC’s “reserve ratio” of the DIF to total industry deposits reached its 1.15% target effective June 30, 2016. On
March 15, 2016, the FDIC implemented by final rule certain Dodd-Frank Act provisions by raising the DIF’s minimum
reserve ratio from 1.15% to 1.35%. The FDIC imposed a 4.5 basis point annual surcharge on insured depository institutions
with total consolidated assets of $10 billion or more. The new rule granted credits to smaller banks for the portion of their
regular assessments that contributed to increasing the reserve ratio from 1.15% to 1.35%. The 1.35% target was achieved in
the third quarter of 2018. In 2021 and 2020, the Company recorded expense of $1.0 million and $749 thousand, respectively,
for FDIC insurance premiums.
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Capital Requirements
The Federal Reserve, the OCC, and the FDIC have issued substantially similar capital requirements applicable to all
banks and bank holding companies. In addition, those regulatory agencies may from time to time require that a banking
organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth.
The Bank is subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-
Frank Act (the “Basel III Capital Rules”). The Basel III Capital Rules, effective January 1, 2015, require the Company and
the Bank to comply with the following minimum capital ratios: (i) a ratio of common equity Tier 1 to risk-weighted assets of
at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to
risk-weighted assets of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital
conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-
weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital
ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The capital
conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of
common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer face constraints on
dividends, equity repurchases, and compensation, based on the amount of the shortfall. The common equity Tier 1 capital
ratio was 12.49% for the Bank as of December 31, 2021. The Tier 1 and total capital to risk-weighted asset ratios of the Bank
were 12.49% and 13.11%, respectively, as of December 31, 2021. The Tier 1 Leverage ratio for the Bank was 10.05% as of
December 31, 2021.
With respect to the Bank, the “prompt corrective action” regulations pursuant to Section 38 of the FDI Act incorporate a
common equity Tier 1 capital ratio and increase certain other capital ratios. To be well capitalized under these regulations, a
bank must have the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of at least 6.5%; (ii) a Tier 1
capital to risk-weighted assets ratio of at least 8.0%; (iii) a total capital to risk-weighted assets ratio of at least 10.0%; and (iv)
a leverage ratio of at least 5.0%. The Bank exceeded the thresholds to be considered well capitalized as of December 31,
2021.
The Basel III Capital Rules also changed the risk weights of assets to better reflect credit risk and other risk exposures.
These include a 150% risk weight for certain high volatility commercial real estate acquisition, development and construction
loans, and nonresidential mortgage loans that are 90 days past due or otherwise on non-accrual status, a 20% credit
conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not
unconditionally cancelable, a 250% risk weight for mortgage servicing rights and deferred tax assets that are not deducted
from capital, and increased risk-weights for equity exposures.
In December 2017, the Basel Committee on Banking Supervision published standards that it described as the finalization
of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things,
these standards revise the standardized approach for credit risk (including by recalibrating risk weights and introducing new
capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and
provide a new standardized approach for operational risk capital. Under the proposed framework, these standards will
generally be effective on January 1, 2023, with an aggregate output floor phasing-in through January 1, 2027. Under the
current capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions,
and not to the Company. The impact of Basel IV on the Company and the Bank will depend on the manner in which it is
implemented by the federal bank regulatory agencies.
In August 2018, the Federal Reserve issued an interim final rule required by the EGRRCPA that expands the
applicability of the Federal Reserve’s Small Bank Holding Company Policy Statement (the “SBHC Policy Statement”) to
bank holding companies with total consolidated assets of less than $3 billion (up from the prior $1 billion threshold). Under
the SBHC Policy Statement, qualifying bank holding companies have additional flexibility in the amount of debt they can
issue and are also exempt from the Basel III Capital Rules (subsidiary depository institutions of qualifying bank holding
companies are still subject to capital requirements). The Company currently has less than $3 billion in total consolidated
assets and would likely qualify under the revised SBHC Policy Statement. However, the Company does not currently intend
to issue a material amount of debt or take any other action that would cause its capital ratios to fall below the minimum ratios
required by the Basel III Capital Rules.
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In September 2019, the federal banking agencies jointly issued a final rule required by the EGRRCPA that permits
qualifying banks and bank holding companies that have less than $10 billion in consolidated assets to elect to be subject to a
9% leverage ratio that would be applied using less complex leverage calculations (commonly referred to as the community
bank leverage ratio or “CBLR”). Under the rule, which became effective on January 1, 2020, banks and bank holding
companies that opt into the CBLR framework and maintain a CBLR of greater than 9% are not subject to other risk-based
and leverage capital requirements under the Basel III Capital Rules and would be deemed to have met the well capitalized
ratio requirements under the “prompt corrective action” framework. These CBLR rules were modified in response to the
COVID-19 pandemic. See “Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act,
2021” below. The Company has not opted into the CBLR framework.
Dividends
The Company’s principal source of cash flow, including cash flow to pay dividends to its shareholders, is dividends it
receives from the Bank. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Company. As a
general rule, the amount of a dividend may not exceed, without prior regulatory approval, the sum of net income in the
calendar year to date and the retained net earnings of the immediately preceding two calendar years. A depository institution
may not pay any dividend if payment would cause the institution to become “undercapitalized” or if it already is
“undercapitalized.” The OCC may prevent the payment of a dividend if it determines that the payment would be an unsafe
and unsound banking practice. The OCC also has advised that a national bank should generally pay dividends only out of
current operating earnings. In addition, under the current supervisory practices of the Federal Reserve, the Company should
inform and consult with the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings
for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the
Company’s capital structure.
Permitted Activities
As a bank holding company, the Company is limited to managing or controlling banks, furnishing services to or
performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or
order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity
reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include
greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration of
resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the
Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or
control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety,
soundness, or stability of any bank subsidiary of that bank holding company may result from such an activity.
Banking Acquisitions; Changes in Control
The BHC Act requires, among other things, the prior approval of the Federal Reserve in any case where a bank holding
company proposes to (i) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of
any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially
all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding
company. In determining whether to approve a proposed bank acquisition, the Federal Reserve will consider, among other
factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the
projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s performance under the CRA, and
its compliance with fair housing and other consumer protection laws.
Subject to certain exceptions, the BHC Act and the Change in Bank Control Act, together with the applicable
regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any
person or company acquiring “control” of a bank or bank holding company. A conclusive presumption of control exists if an
individual or company acquires the power, directly or indirectly, to direct the management or policies of an insured
depository institution or to vote 25% or more of any class of voting securities of any insured depository institution. A
rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of
voting securities of an insured depository institution and either the institution has registered its securities with the SEC under
Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or no other person will own a greater
percentage of that class of voting securities immediately after the acquisition.
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In addition, Virginia law requires the prior approval of the Virginia SCC for (i) the acquisition of more than 5% of the
voting shares of a Virginia bank or any holding company that controls a Virginia bank, or (ii) the acquisition by a Virginia
bank holding company of a bank or its holding company domiciled outside Virginia.
Source of Strength
Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial
strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. Under this
requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may
not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the
event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory
agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of
payment.
The Federal Deposit Insurance Corporation Improvement Act
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), the federal bank regulatory
agencies possess broad powers to take prompt corrective action to resolve problems of insured depository institutions. The
extent of these powers depends upon whether the institution is “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” as defined by the law.
The final rules implementing the Basel III Capital Rules phased-in over a multi-year schedule and was fully phased-in at
January 1, 2019. Under the rules, banks must hold a capital conservation buffer above the adequately capitalized risk-based
capital ratios of 2.50% for all ratios, except the tier 1 leverage ratio. If a banking organization dips into its capital
conservation buffer, it is subject to limitations on certain activities, including payment of dividends, share repurchases, and
discretionary compensation to certain officers. Management believes, as of December 31, 2021, the Bank met all capital
adequacy requirements to which it is subject.
As required by FDICIA, the federal bank regulatory agencies also have adopted guidelines prescribing safety and
soundness standards relating to, among other things, internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, and interest rate exposure. In general, the guidelines require appropriate systems and
practices to identify and manage the risks and exposures specified in the guidelines. In addition, the agencies adopted
regulations that authorize, but do not require, an institution that has been notified that it is not in compliance with safety and
soundness standard to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable
compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing
other actions of the types to which an undercapitalized institution is subject under the prompt corrective action provisions
described above.
Transactions with Affiliates
Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of the Bank to engage in
transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan transactions with an affiliate
generally must be collateralized and certain transactions between the Bank and its affiliates, including the sale of assets, the
payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as
favorable to the Bank, as those prevailing for comparable nonaffiliated transactions. In addition, the Bank generally may not
purchase securities issued or underwritten by affiliates.
Loans to executive officers, directors, or to any person who directly or indirectly, or acting through or in concert with
one or more persons, owns, controls or has the power to vote more than 10% of any class of voting securities of a bank, are
subject to Sections 22(g) and 22(h) of the Federal Reserve Act and their corresponding regulations (Regulation O) and
Section 13(k) of the Exchange Act relating to the prohibition on personal loans to executives (which exempts financial
institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act). Among other
things, these loans must be made on terms substantially the same as those prevailing on transactions made to unaffiliated
individuals, and certain extensions of credit to those persons must first be approved in advance by a disinterested majority of
the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of those individuals where the
aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus an additional 10%
of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the
aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed the Bank’s unimpaired
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capital and unimpaired surplus. Section 22(g) of the Federal Reserve Act identifies limited circumstances in which the Bank
is permitted to extend credit to executive officers.
Consumer Financial Protection
The Company is subject to a number of federal and state consumer protection laws that extensively govern its
relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the
Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the
Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection
Practices Act, the Service Members Civil Relief Act, laws governing flood insurance, federal and state laws prohibiting
unfair and deceptive business practices, foreclosure laws, and various regulations that implement some or all of the
foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial
institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. If
the Company fails to comply with these laws and regulations, it may be subject to various penalties. Failure to comply with
consumer protection requirements may also result in failure to obtain any required bank regulatory approval for merger or
acquisition transactions the Company may wish to pursue or being prohibited from engaging in such transactions even if
approval is not required.
The Dodd-Frank Act centralized responsibility for consumer financial protection by creating a new agency, the
Consumer Financial Protection Bureau ("CFPB"), and giving it responsibility for implementing, examining, and enforcing
compliance with federal consumer protection laws. The CFPB focuses on (i) risks to consumers and compliance with the
federal consumer financial laws, (ii) the markets in which firms operate and risks to consumers posed by activities in those
markets, (iii) depository institutions that offer a wide variety of consumer financial products and services, and (iv) non-
depository companies that offer one or more consumer financial products or services. The CFPB has broad rule making
authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to
prohibit “unfair, deceptive or abusive” acts and practices. Abusive acts or practices are defined as those that materially
interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take
unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of
consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests. The
CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may
also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or
injunction.
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Community Reinvestment Act
The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the
bank’s record in meeting the credit needs of the communities served by the bank, including low and moderate income
neighborhoods. Furthermore, such assessment is also required of banks that have applied, among other things, to merge or
consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a
branch. In the case of a bank holding company applying for approval to acquire a bank or bank holding company, the record
of each subsidiary bank of the applicant bank holding company is subject to assessment in considering the application. Under
the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-
compliance.” The Bank was rated “satisfactory” in its most recent CRA evaluation.
Anti-Money Laundering Legislation
The Company is subject to several federal laws that are designed to combat money laundering, terrorist financing, and
transactions with persons, companies or foreign governments designated by U.S. authorities (“AML laws”). This category of
laws includes the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986, the USA PATRIOT Act of 2001,
and the Anti-Money Laundering Act of 2020.
The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain
other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and
terrorist financing. The AML laws and their regulations also provide for information sharing, subject to conditions, between
federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism
purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger
applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with
these obligations, the Company has implemented internal practices, procedures, and controls.
Office of Foreign Assets Control
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) is responsible for administering and
enforcing economic and trade sanctions against specified foreign parties, including countries and regimes, foreign
individuals, and other foreign organizations and entities. OFAC publishes lists of prohibited parties that are regularly
consulted by the Company in the conduct of its business in order to assure compliance. The Company is responsible for,
among other things, blocking accounts of, and transactions with, prohibited parties identified by OFAC, avoiding unlicensed
trade and financial transactions with such parties, and reporting blocked transactions after their occurrence. Failure to comply
with OFAC requirements could have serious legal, financial, and reputational consequences for the Company.
Privacy Legislation
Several recent laws, including the Right to Financial Privacy Act, and related regulations issued by the federal bank
regulatory agencies, also provide new protections against the transfer and use of customer information by financial
institutions. A financial institution must provide to its customers information regarding its policies and procedures with
respect to the handling of customers’ personal information. Each institution must conduct an internal risk assessment of its
ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a
customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.
Incentive Compensation
In June 2010, the federal bank regulatory agencies issued the Interagency Guidance on Sound Incentive Compensation
Policies, the final guidance on incentive compensation policies. The guidance is intended to ensure that the incentive
compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging
excessive risk-taking. The Interagency Guidance on Sound Incentive Compensation Policies covers all employees that have
the ability to materially affect the risk profile of a financial institutions, either individually or as part of a group, and is based
upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that
do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with
effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and
effective oversight by the financial institution’s board of directors.
The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines
prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by
providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits or
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that could lead to material financial loss to the entity. The federal banking agencies issued such proposed rules in March 2011
and issued a revised proposed rule in June 2016 implementing the requirements and prohibitions. The revised proposed rule
would apply to all banks, among other institutions, with at least $1 billion in average total consolidated assets for which it
would go beyond the existing Interagency Guidance on Sound Incentive Compensation Policies to (i) prohibit certain types
and features of incentive-based compensation arrangements for senior executive officers, (ii) require incentive-based
compensation arrangements to adhere to certain basic principles to avoid a presumption of encouraging inappropriate risk,
(iii) require appropriate board or committee oversight, (iv) establish minimum recordkeeping, and (v) mandate disclosures to
the appropriate federal banking agency. The comment period for these proposed rules has closed and final rules have not yet
been published.
The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation
arrangements of financial institutions, such as the Company, that are not “large, complex banking organizations.” These
reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the
prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of
examination. Deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’s
ability to make acquisitions and take other actions. Enforcement actions may be taken against a financial institution if its
incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the
institution’s safety and soundness and the financial institution is not taking prompt and effective measures to correct the
deficiencies. As of December 31, 2021, the Company had not been made aware of any instances of non-compliance with the
guidance.
Ability-to-Repay and Qualified Mortgage Rule
Pursuant to the Dodd-Frank Act, the CFPB issued a final rule effective in January 2014, amending Regulation Z as
implemented by the Truth in Lending Act, requiring mortgage lenders to make a reasonable and good faith determination
based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay
the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay in one of two ways.
The first alternative requires the mortgage lender to consider the following eight underwriting factors when making the credit
decision: (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the
covered transaction; (iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related
obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthly debt-to-income ratio or residual
income; and (viii) credit history. Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to
a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage”
is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In
addition, a qualified mortgage generally must meet certain price-based thresholds, and the points and fees paid by a consumer
cannot exceed 3% of the total loan amount. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a
rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced”
(e.g. prime loans) are given a safe harbor of compliance. The Company is predominantly an originator of compliant qualified
mortgages.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that
financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their
risk management processes also address the risk posed by compromised customer credentials, including security measures to
reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates
that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure
the rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive
malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business
operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall
victim to this type of cyber-attack. If the Company fails to observe the regulatory guidance, it could be subject to various
regulatory sanctions, including financial penalties.
In November 2021, the federal banking agencies approved a final rule that, among other things, would require banking
organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident” that rises
to the level of a “notification incident.” The rule also requires bank service providers to notify their banking organization
customers as soon as possible after becoming aware of similar incidents.
The Company’s systems and those of its customers and third-party service providers are under constant threat. Risks and
exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving
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nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking, and other
technology-based products and services by the Company and its customers.
Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act, 2021
In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 and the Consolidated
Appropriations Act, 2021 (“Appropriations Act”) was signed into law on December 27, 2020. Among other things, the
CARES Act and Appropriations Act include the following provisions impacting financial institutions.
Community Bank Leverage Ratio. The CARES Act directed federal banking agencies to adopt interim final rules to
lower the threshold under the CBLR from 9% to 8% and to provide a reasonable grace period for a community bank that falls
below the threshold to regain compliance, in each case until the earlier of the termination date of the national emergency or
December 31, 2020. In October 2020, the federal bank regulatory agencies issued two interim final rules implementing this
directive. The interim final rules provide that, as of the second quarter 2020, banking organizations with leverage ratios of
8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. The leverage ratio
requirement increases to 8.5% effective January 1, 2021 and 9% effective January 1, 2022. The final rules also establish a
two-quarter grace period for qualifying community banking organizations who fail to meet the qualifying criteria, including
the leverage ratio, so long as the banking organization maintains a leverage ratio of 7% or greater effective the second quarter
of 2020, 7.5% effective January 1, 2021, and 8% effective January 1, 2022.
Temporary Troubled Debt Restructurings (“TDRs”) Relief. The CARES Act allowed banks to elect to suspend
requirements under U.S. generally accepted accounting principles (“GAAP”) for loan modifications related to the COVID-19
pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized
as a TDR, including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national
emergency or December 31, 2020. Federal banking agencies are required to defer to the determination of the banks making
such suspension. The Appropriations Act extended this temporary relief until the earlier of 60 days after the termination date
of the national emergency or January 1, 2022.
Paycheck Protection Program. The CARES Act created the PPP, administered by the SBA, and it was extended by the
Appropriations Act. Under the PPP, a total of $953 billion of relief was made available through May 31, 2021, and the
money was authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage
and rent payments, utilities, and interest on other debt. The loans are provided through participating financial institutions,
such as the Bank, that process loan applications and service the loans.
Future Legislation and Regulation
Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state
legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating
in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or
change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or
regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the
regulatory structure under which the Company and the Bank operate and may significantly increase costs, impede the
efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy,
and limit the ability to pursue business opportunities in an efficient manner. A change in statutes, regulations or regulatory
policies applicable to the Company or the Bank could have a material adverse effect on the business, financial condition, and
results of operations of the Company and the Bank.
ITEM 1A: RISK FACTORS
An investment in the Company’s common stock involves certain risks, including those described below. In addition to
the other information set forth in this report, investors in the Company’s securities should carefully consider the factors
discussed below. These factors, either alone or taken together, could materially and adversely affect the Company’s business,
financial condition, liquidity, results of operations, capital position, and prospects. One or more of these could cause the
Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking
statements contained in this report, in which case the trading price of the Company’s securities could decline.
Market Conditions
The COVID-19 pandemic and measures intended to prevent its spread have adversely affected, and may continue to
adversely affect, the Company’s business, financial condition, and operations; the extent of such impacts are highly
uncertain and difficult to predict.
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Global health and economic concerns relating to the COVID-19 pandemic and government actions taken to reduce the
spread of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly
increased economic uncertainty. The pandemic has resulted in federal, state and local authorities, including those who govern
the markets in which the Company operates, implementing numerous measures to try to contain the virus. These measures,
including shelter in place orders and business limitations and shutdowns, have contributed to higher unemployment and have
negatively impacted consumer and business spending during 2020. The COVID-19 pandemic has impacted the Company’s
workforce and operations and the operations of the Company’s customers and business partners. While the spread of
COVID-19 decreased substantially throughout the spring and summer of 2021 and restrictive measures taken by
governments, businesses, and individuals were lifted or eased, the spread of new, more transmissible variants has resulted in
continued economic disruption and uncertainty, interest rate and monetary policy impacts, and trade and supply chain
disruption. New developments as a consequence of the pandemic could cause adverse effects on the Company due to a
number of operational factors impacting it or its customers or business partners, including but not limited to:
loan losses resulting from financial stress experienced by the Company’s borrowers, especially those operating in
industries hardest hit by government measures to contain the spread of the virus;
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
as a result of the decline in the Federal Reserve’s target federal funds rate, the yield on the Company’s assets may
decline to a greater extent than the decline in the Company’s cost of interest-bearing liabilities, reducing the
Company’s net interest margin and spread, and reducing net income;
operational failures, disruptions, or inefficiencies due to changes in the Company’s normal business practices
necessitated by the Company’s internal measures to protect its employees and government-mandated measures
intended to slow the spread of the virus;
business disruptions experienced by the Company’s vendors and business partners in carrying out work that supports
the Company’s operations;
decreased demand for the Company’s products and services due to economic uncertainty, volatile market conditions,
and temporary business closures;
potential financial liability, loan losses, litigation costs, or reputational damage resulting from the Company’s
origination of loans as a participating lender in the PPP administered by the SBA; and
heightened levels of cyber and payment fraud, as cyber criminals try to take advantage of the disruption and
increased online activity brought about by the pandemic.
The extent to which the pandemic impacts the Company’s business, liquidity, financial condition, and operations will
depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, its
duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and
operating conditions resume. In addition, the rapidly changing and unprecedented nature of COVID-19 heightens the inherent
uncertainty of forecasting future economic conditions and their impact on the Company’s loan portfolio, thereby increasing
the risk that the assumptions, judgments, and estimates used to determine the allowance for loan losses and other estimates
are incorrect. As a result of these and other conditions, the ultimate impact of the pandemic is highly uncertain and subject to
change, and the Company cannot predict the full extent of the impacts on its business and operations. To the extent any of the
foregoing risks or other factors that develop as a result of COVID-19 materialize, it could exacerbate the other risk factors
discussed in this section, or otherwise materially and adversely affect the Company’s business, liquidity, financial condition,
and results of operations.
Changes in economic conditions, especially in the areas in which the Company conducts operations, could materially and
negatively affect its business.
The Company’s business is directly impacted by economic conditions, legislative and regulatory changes, changes in
government monetary and fiscal policies, and inflation, all of which are beyond its control. A deterioration in economic
conditions, whether caused by global, national, or local concerns (including the COVID-19 pandemic, rising wages in a tight
labor market, geopolitical uncertainty, and supply chain complications), especially within the Company’s market area, could
result in the following potentially material consequences: loan delinquencies increasing; problem assets and foreclosures
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increasing; demand for products and services decreasing; low cost or non-interest bearing deposits decreasing; and collateral
for loans, especially real estate, declining in value, in turn reducing customers’ borrowing power, and reducing the value of
assets and collateral associated with existing loans. A continued economic downturn could result in losses that materially and
adversely affect the Company’s business.
The Company may be adversely impacted by changes in market conditions.
The Company is directly and indirectly affected by changes in market conditions. Market risk generally represents the
risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. As a financial
institution, market risk is inherent in the financial instruments associated with the Company’s operations and activities,
including loans, deposits, securities, short-term borrowings, long-term debt, and trading account assets and liabilities. A few
of the market conditions that may shift from time to time, thereby exposing the Company to market risk, include fluctuations
in interest rates, equity and futures prices, and price deterioration or changes in value due to changes in market perception or
actual credit quality of issuers. The Company’s investment securities portfolio, in particular, may be impacted by market
conditions beyond its control, including rating agency downgrades of the securities, defaults of the issuers of the securities,
lack of market pricing of the securities, and inactivity or instability in the credit markets. Any changes in these conditions, in
current accounting principles or interpretations of these principles could impact the Company’s assessment of fair value and
thus the determination of other-than-temporary impairment of the securities in the investment securities portfolio, which
could adversely affect the Company’s financial condition, capital ratios, and results of operations.
The Company’s mortgage banking revenue is cyclical and is sensitive to the level of interest rates, changes in economic
conditions, decreased economic activity, and slowdowns in the housing market, any of which could adversely impact the
Company’s profits.
Residential mortgage banking income, net, represented approximately 32.5% of total noninterest income for the year
ended December 31, 2021. The success of the Company’s mortgage division is dependent upon its ability to originate loans
and sell them to investors at or near current volumes. Loan production levels are sensitive to changes in the level of interest
rates and changes in economic conditions. Revenues from mortgage banking have increased due to a lowering interest rate
environment that resulted in a high volume of mortgage loan refinancing activity. Conversely, revenues are adversely
affected by rising interest rates, home affordability and inventory, increases in competitive pressures, and changing incentives
for homeownership. Following the outbreak of the COVID-19 pandemic, mortgage rates have generally fallen, creating the
potential for renewed refinancing activity, but economic conditions have also deteriorated. Loan production levels may suffer
if there is a sustained slowdown in the housing markets in which the Company conducts business or tightening credit
conditions. Any sustained period of decreased activity caused by an economic downturn, fewer refinancing transactions,
higher interest rates, housing price pressure, or loan underwriting restrictions would adversely affect the Company’s
mortgage originations and, consequently, could significantly reduce its income from mortgage banking activities. As a result,
these conditions would also adversely affect the Company’s results of operations.
The Company’s business and earnings are impacted by governmental, fiscal, and monetary policy over which it has no
control.
The Company is affected by domestic monetary policy. The Federal Reserve regulates the supply of money and credit in
the United States and its policies determine in large part the Company’s cost of funds for lending, investing, and capital
raising activities and the return it earns on those loans and investments, both of which affect the Company’s net interest
margin. The actions of the Federal Reserve also can materially affect the value of financial instruments that the Company
holds, such as loans and debt securities, and also can affect the Company’s borrowers, potentially increasing the risk that they
may fail to repay their loans. The Company’s business and earnings also are affected by the fiscal or other policies that are
adopted by various regulatory authorities of the United States. Changes in fiscal or monetary policy are beyond the
Company’s control and hard to predict.
The Company faces strong and growing competition from financial services companies and other companies that offer
banking and other financial services, which could negatively affect the Company’s business.
The Company encounters substantial competition from other financial institutions in its market area and competition is
increasing. Ultimately, the Company may not be able to compete successfully against current and future competitors. Many
competitors offer the same banking services that the Company offers in its service area. These competitors include national,
regional, and community banks. The Company also faces competition from many other types of financial institutions,
including finance companies, mutual and money market fund providers, brokerage firms, insurance companies, credit unions,
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financial subsidiaries of certain industrial corporations, financial technology companies, and mortgage companies. Increased
competition may result in reduced business for the Company.
Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to
bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers.
Areas of competition include interest rates for loans and deposits, efforts to obtain loans and deposits, and range and quality
of products and services provided, including new technology-driven products and services. If the Company is unable to
attract and retain banking customers, it may be unable to continue to grow loan and deposit portfolios and its results of
operations and financial condition may otherwise be adversely affected.
Consumers may increasingly decide not to use banks to complete their financial transactions, which would have a
material adverse impact on the Company’s financial condition and operations.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that
historically have involved banks. For example, consumers can now maintain funds that would have historically been held as
bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid cards. Consumers can also
complete transactions such as paying bills or transferring funds directly without the assistance of banks. The process of
eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss
of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower
cost of deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of
operations.
The Company’s common stock is thinly traded, and a more liquid market for its common stock may not develop, which
may limit the ability of shareholders to sell their shares and may increase price volatility.
The Company’s common stock is listed on the NYSE American market under the symbol “BRBS”. The Company’s
common stock is thinly traded and has substantially less liquidity than the trading markets for many other bank holding
companies. The Company may be unable to maintain the listing of its common stock in the future. In addition, there can be
no assurance that an active trading market for shares of the Company’s common stock will develop or if one develops, that it
can be sustained. The development of a liquid public market depends on the existence of willing buyers and sellers, the
presence of which is not within the Company’s control. Therefore, the Company’s shareholders may not be able to sell their
shares at the volume, prices, or times that they desire. Shareholders should be financially prepared and able to hold shares for
an indefinite period.
In addition, thinly traded stocks can be more volatile than more widely traded stocks. The Company’s stock price has
been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These factors
include, but are not limited to, changes in analysts’ recommendations or projections, developments related to the Company’s
business and operations, stock performance of other companies deemed to be peers, news reports of trends, concerns, and
irrational exuberance on the part of investors, geopolitical uncertainty, and other issues related to the financial services
industry. The Company’s stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to its
performance. General market declines or market volatility in the future, especially in the financial institutions sector of the
economy, could adversely affect the price of the Company’s common stock, and the current market price may not be
indicative of future market prices.
Credit Risk
The Company’s credit standards and its on-going credit assessment processes might not protect it from significant credit
losses.
The Company assumes credit risk by virtue of making loans and extending loan commitments and letters of credit. The
Company manages credit risk through a program of underwriting standards, the review of certain credit decisions, and a
continuous quality assessment process of credit already extended. The Company’s exposure to credit risk is managed through
the use of consistent underwriting standards that emphasize local lending while avoiding highly leveraged transactions, as
well as excessive industry and other concentrations. The Company’s credit administration function employs risk management
techniques to help ensure that problem loans and leases are promptly identified. While these procedures are designed to
provide the Company with the information needed to implement policy adjustments where necessary and to take appropriate
corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.
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The Bank’s allowance for loan losses may be insufficient and any increases in the allowance for loan losses may have a
material adverse effect on the Company’s financial condition and results of operations.
The Bank maintains an allowance for loan losses, which is a reserve established through a provision for loan losses
charged to expense, that represents the Bank’s best estimate of probable losses that have been incurred within the existing
portfolio of loans. The allowance for loan losses is necessary to reserve for estimated loan losses and risks inherent in the
loan portfolio.
The level of the allowance reflects management’s evaluation of the level of loans outstanding, the level of
nonperforming loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of actual
losses charged to the reserve in a given period and assessment of present and anticipated economic conditions. The
determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and
requires the Bank to make significant estimates of current credit risks and future trends, all of which may undergo material
changes. The COVID-19 pandemic and the unprecedented governmental response have made these subjective judgements
even more difficult. Although the Company believes the allowance for loan losses is a reasonable estimate of known and
inherent losses in the loan portfolio, it cannot precisely predict such losses or be certain that the loan loss allowance will be
adequate in the future. Deterioration of economic conditions affecting borrowers, new information regarding existing loans,
identification of additional problem loans and other factors, both within and outside the Bank’s control, may require an
increase in the allowance for loan losses. In addition, bank regulatory agencies and the Bank’s auditors periodically review its
allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan
charge-offs, based on judgments different than those of management. Further, if charge-offs in future periods exceed the
allowance for loan losses, the Bank will need additional provisions to increase the allowance for loan losses.
Nonperforming assets take significant time to resolve and adversely affect the Company’s results of operations and
financial condition.
The Company’s nonperforming assets adversely affect its net income in various ways. Nonperforming assets, which
include nonaccrual loans and loans past due 90 days and still accruing interest (excluding purchased credit-impaired loans
and accruing TDRs) and other real estate owned (“OREO”), were $16.3 million, or 0.61% of total assets, as of December 31,
2021. When the Company receives collateral through foreclosures and similar proceedings, it is required to record the related
loan to the then fair market value of the collateral less estimated selling costs, which may result in a loss. An increased level
of nonperforming assets also increases the Company’s risk profile and may impact the capital levels regulators believe are
appropriate in light of such risks. The Company utilizes various techniques such as workouts, restructurings, and loan sales to
manage problem assets. Increases in, or negative changes in, the value of these problem assets, the underlying collateral, or in
the borrowers’ performance or financial condition, could adversely affect the Company’s business, results of operations, and
financial condition. In addition, the resolution of nonperforming assets requires significant commitments of time from
management and staff, which can be detrimental to the performance of their other responsibilities, including generation of
new loans. There can be no assurance that the Company will avoid increases in non-performing loans in the future.
The Company’s focus on lending to small to mid-sized community-based businesses may increase its credit risk.
Most of the Company’s commercial business and commercial real estate loans are made to small business or middle
market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than
larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market areas
in which the Company operates negatively impact this important customer sector, the Company’s results of operations and
financial condition may be adversely affected. Moreover, a portion of these loans have been made by the Company in recent
years and the borrowers may not have experienced a complete business or economic cycle. Any deterioration of the
borrowers’ businesses may hinder their ability to repay their loans with the Company, which could have a material adverse
effect on its financial condition and results of operations.
The Company’s concentration in loans secured by real estate may increase its future credit losses, which would negatively
affect the Company’s financial results.
The Company offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate,
construction, home equity, consumer and other loans. Credit risk and credit losses can increase if its loans are concentrated to
borrowers who, as a group, may be uniquely or disproportionately affected by economic or market conditions. As of
December 31, 2021, approximately 77.8% of the Company’s loans were secured by real estate, both residential and
commercial, substantially all of which are located in its market area. A major change in the region’s real estate market,
resulting in a deterioration in real estate values, or in the local or national economy, including changes caused by the COVID-
19 pandemic, could adversely affect the Company’s customers’ ability to pay these loans, which in turn could adversely
17
impact the Company. Risk of loan defaults and foreclosures are inherent in the banking industry, and the Company tries to
limit its exposure to this risk by carefully underwriting and monitoring its extensions of credit. The Company cannot fully
eliminate credit risk, and as a result, losses may occur in the future.
The Company has a moderate concentration of credit exposure in commercial real estate and loans with this type of
collateral are viewed as having more risk of default.
As of December 31, 2021, the Company had approximately $701.5 million in loans secured by commercial real estate,
representing approximately 38.8% of total loans outstanding at that date. The real estate consists primarily of non-owner-
occupied properties and other commercial properties. These types of loans are generally viewed as having more risk of
default than residential and owner-occupied real estate loans. They are also typically larger than residential real estate loans
and consumer loans and depend on cash flows from the owner’s business or the property to service the debt. It may be more
difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers
ability to repay their loans frequently depends on the successful rental of their properties. Cash flows may be affected
significantly by general economic conditions, and a sustained downturn in the local economy or in occupancy rates in the
local economy where the property is located could increase the likelihood of default. Because the Company’s loan portfolio
contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these
loans could cause a significant increase in its percentage of nonperforming loans. An increase in nonperforming loans could
result in a loss of earnings from these loans, an increase in the provision for loan losses, and an increase in charge-offs, all of
which could have a material adverse effect on the Company’s financial condition and results of operations.
The Company’s banking regulators generally give commercial real estate lending greater scrutiny, and may require
banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk
management policies, and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital, which
could have a material adverse effect on the Company’s results of operations.
A portion of the Company’s loan portfolio consists of construction and land development loans, and a decline in real
estate values and economic conditions would adversely affect the value of the collateral securing the loans and could have
an adverse effect on the Company’s financial condition.
At December 31, 2021, approximately 11.4% of the Company’s loan portfolio, or $205.4 million consisted of
construction and land development loans. Construction financing typically involves a higher degree of credit risk than
financing on improved, owner-occupied real estate and improved, income producing real estate. Risk of loss on a
construction or land development loan is largely dependent upon the accuracy of the initial estimate of the property’s value at
completion of construction or development, the marketability of the property, and the bid price and estimated cost (including
interest) of construction or development. If the estimate of construction or development costs proves to be inaccurate, the
Company may be required to advance funds beyond the amount originally committed to permit completion of the project. If
the estimate of the value proves to be inaccurate, it may be confronted, at or prior to the maturity of the loan, with a project
whose value is insufficient to assure full repayment. When lending to builders and developers, the cost breakdown of
construction or development is provided by the builder or developer. Although the Company’s underwriting criteria are
designed to evaluate and minimize the risks of each construction or land development loan, there can be no guarantee that
these practices will have safeguarded against material delinquencies and losses to the Company’s operations. In addition,
construction and land development loans are dependent on the successful completion of the projects they finance. Loans
secured by vacant or unimproved land are generally riskier than loans secured by improved property. These loans are more
susceptible to adverse conditions in the real estate market and local economy.
The Company’s results of operations are significantly affected by the ability of borrowers to repay their loans.
A significant source of risk for the Company is the possibility that losses will be sustained because borrowers,
guarantors, and related parties may fail to perform in accordance with the terms of their loan agreements. Most of the
Company’s loans are secured but some loans are unsecured. With respect to the secured loans, the collateral securing the
repayment of these loans may be insufficient to cover the obligations owed under such loans. Collateral values may be
adversely affected by changes in economic, environmental, and other conditions, including the impacts of the COVID-19
pandemic, declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal
government, terrorist activity, environmental contamination, and other external events. In addition, collateral appraisals that
are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately
collateralized when it is not. The Company has adopted underwriting and credit monitoring procedures and policies,
including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to
mitigate the risk of loss. An increase in non-performing loans could result in a net loss of earnings from these loans, an
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increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect
on the Company’s financial condition and results of operations.
The Company depends on the accuracy and completeness of information about clients and counterparties and the
Company’s financial condition could be adversely affected if it relies on misleading or incorrect information.
In deciding whether to extend credit or to enter into other transactions with clients and counterparties, the Company may
rely on information furnished to it by or on behalf of clients and counterparties, including financial statements and other
financial information, which it does not independently verify. The Company also may rely on representations of clients and
counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of
independent auditors. For example, in deciding whether to extend credit to clients, the Company may assume that a client’s
audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of
operations and cash flows of that client. The Company’s financial condition and results of operations could be negatively
impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading.
The Company relies upon independent appraisals to determine the value of the real estate that secures a significant
portion of its loans and the value of foreclosed properties carried on its books, and the values indicated by such appraisals
may not be realizable if it is forced to foreclose upon such loans or liquidate such foreclosed property.
As indicated above, a significant portion of the Company’s loan portfolio consists of loans secured by real estate and it
also holds a portfolio of foreclosed properties. The Company relies upon independent appraisers to estimate the value of such
real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment that
adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value
of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of the Company’s
loans and the foreclosed properties held by the Company may be more or less valuable than anticipated. If a default occurs on
a loan secured by real estate that is less valuable than originally estimated, the Company may not be able to recover the
outstanding balance of the loan. It may also be unable to sell its foreclosed properties for the values estimated by their
appraisals.
The Company is exposed to risk of environmental liabilities with respect to properties to which it takes title.
In the course of its business, the Company may foreclose and take title to real estate, potentially becoming subject to
environmental liabilities associated with the properties. The Company may be held liable to a governmental entity or to third
parties for property damage, personal injury, investigation, and clean-up costs, or the Company may be required to
investigate or clean up hazardous or toxic substances or chemical releases at a property. Costs associated with investigation
or remediation activities can be substantial. If the Company is the owner or former owner of a contaminated site, it may be
subject to common law claims by third parties based on damages and costs resulting from environmental contamination
emanating from the property. These costs and claims could adversely affect the Company’s business.
Mergers and Acquisitions and Growth Strategy
The Company may not be able to successfully manage its long-term growth, which may adversely affect its results of
operations and financial condition.
A key aspect of the Company’s long-term business strategy is its continued growth and expansion. The Company’s
ability to continue to grow depends, in part, upon its ability to (i) open new branch offices or acquire existing branches or
other financial institutions, (ii) attract deposits, and (iii) identify attractive loan and investment opportunities.
The Company may not be able to successfully implement its growth strategy, if it is unable to identify attractive markets,
locations, or opportunities to expand in the future, or if the Company is subject to regulatory restrictions on growth or
expansion of its operations. The Company’s ability to manage its growth successfully also will depend on whether it can
maintain capital levels adequate to support its growth, maintain cost controls and asset quality, maintain regulatory
requirements, and successfully integrate any businesses the Company acquires or partners with into its organization. As the
Company identifies opportunities to implement its growth strategy by opening new branches or acquiring branches or other
banks, it may incur increased personnel, occupancy, and other operating expenses. In the case of new branches, the Company
must absorb those higher expenses while it begins to generate new deposits, and there is a further time lag involved in
redeploying new deposits into attractively priced loans and other higher yielding assets. In the case of business combinations,
the Company may incur significant costs even if the transaction is not completed, experience deposit attrition, customer
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losses, and other disruptions to its business, or fail effectively integrate other banks’ operations or realize the anticipated
benefits or cost savings as a result of a combination.
The Company has acquired and expanded into new product lines and may consider additional acquisitions and expansion
into other businesses that it believes will help it fulfill its strategic objectives. The Company expects that other banking and
financial companies, some of which have significantly greater resources, will compete with it to acquire financial services
businesses. This competition could increase prices for potential acquisitions that the Company believes are attractive.
Acquisitions may also be subject to various regulatory approvals. If the Company fails to receive the appropriate regulatory
approvals, it will not be able to consummate acquisitions that it believes are in its best interests.
When the Company enters into new markets or new lines of business, its lack of history and familiarity with those
markets, clients and lines of business may lead to unexpected challenges or difficulties that inhibit its success. The
Company’s plans to expand could depress earnings in the short run, even if it efficiently executes a growth strategy leading to
long-term financial benefits.
The Company’s strategy also includes growing partnerships with fintech companies, which serve as a source of loan and
deposit growth, fee income, and technology-related solutions for the Bank. These initiatives may require the Bank to employ
additional qualified personnel and additional operational and control systems to oversee and manage operational, legal, and
compliance risks associated with these partnerships. In certain cases, the Company also has made and may continue to make
investments in these third-party fintech companies, which may be unseasoned, unprofitable, or have limited established
operating histories or earnings and may be more vulnerable to financial failure. Any failure to successfully manage these
partnerships and related Bank operations, or the failure of these fintech companies to perform, may subject the Bank to
supervisory or compliance risks, subject the Company to a loss of its investment, or delay or otherwise adversely affect the
Company’s expansion, future financial condition, and results of operations.
Interest Rate Risk
The Company’s business is subject to interest rate risk, and variations in interest rates and inadequate management of
interest rate risk may negatively affect financial performance.
Changes in the interest rate environment may reduce the Company’s profits. It is expected that the Company will
continue to realize income from the differential or “spread” between the interest earned on loans, securities, and other interest
earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected
by the difference between the maturities and repricing characteristics of interest earning assets and interest-bearing liabilities.
In addition, loan volume and yields are affected by market interest rates on loans, and the current interest rate environment
encourages extreme competition for new loan originations from qualified borrowers. The Company’s management cannot
ensure that it can minimize interest rate risk. If the interest rates paid on deposits and other borrowings increase at a faster
rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore
earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and
other investments fall more quickly than the interest rates paid on deposits and other borrowings. Accordingly, changes in
levels of market interest rates could materially and adversely affect the net interest spread, asset quality, loan origination
volume, and the Company’s overall profitability.
Liquidity and Capital
The Company’s liquidity needs could adversely affect results of operations and financial condition.
The Company’s primary sources of funds are deposits and loan repayments. While scheduled loan repayments are a
relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to
repay loans can be adversely affected by a number of factors, including, but not limited to, changes in economic conditions,
adverse trends or events affecting business industry groups, reductions in real estate values or markets, availability of, and/or
access to, sources of refinancing, business closings or lay-offs, pandemics or endemics, inclement weather, natural disasters
and geopolitical uncertainty. Additionally, deposit levels may be affected by a number of factors, including, but not limited
to, rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to customers on
alternative investments and general economic conditions. Accordingly, the Company may be required from time to time to
rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include
Federal Home Loan Bank of Atlanta (“FHLB”) advances, sales of securities and loans, federal funds lines of credit from
correspondent banks, and borrowings from the Federal Reserve Discount Window, as well as additional out-of-market time
deposits and brokered deposits. While the Company believes that these sources are currently adequate, there can be no
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assurance they will be sufficient to meet future liquidity demands, particularly if the Company continues to grow experiences
increasing loan demand or is unable to maintain its deposit base. The Company may be required to slow or discontinue loan
growth, capital expenditures or other investments, liquidate assets, or pay higher rates on deposits should such sources not be
adequate.
The Company may need to raise additional capital in the future and may not be able to do so on acceptable terms, or at
all.
Access to sufficient capital is critical in order to enable the Company to implement its business plan, support its business,
expand its operations, and meet applicable capital requirements. The inability to have sufficient capital, whether internally
generated through earnings or raised in the capital markets, could adversely impact the Company’s ability to support and to
grow its operations. If the Company grows its operations faster than it generates capital internally, it will need to access the
capital markets. The Company may not be able to raise additional capital in the form of additional debt or equity on
acceptable terms, or at all. The Company’s ability to raise additional capital, if needed, will depend on, among other things,
conditions in the capital markets at that time, the Company’s financial condition and its results of operations. Economic
conditions and a loss of confidence in financial institutions may increase the Company’s cost of capital and limit access to
some sources of capital. Further, if the Company needs to raise capital in the future, it may have to do so when many other
financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An
inability to raise additional capital on acceptable terms when needed could have a material adverse impact on the Company’s
business, financial condition, and capital ratios.
Future issuances of the Company’s common stock could adversely affect the market price of the common stock and could
be dilutive.
The Company’s board of directors, without the approval of shareholders, could from time to time decide to issue
additional shares of common stock or shares of preferred stock, which may adversely affect the market price of the shares of
common stock and could be dilutive to the Company’s shareholders. Any sale of additional shares of the Company’s
common stock may be at prices lower than the current market value of the Company’s shares. In addition, new investors may
have rights, preferences, and privileges that are senior to, and that could adversely affect, the Company’s existing
shareholders. For example, preferred stock would be senior to common stock in right of dividends and as to distributions in
liquidation. The Company cannot predict or estimate the amount, timing, or nature of its future offerings of equity securities.
Thus, the Company’s shareholders bear the risk of future offerings diluting their stock holdings, adversely affecting their
rights as shareholders, and/or reducing the market price of the Company’s common stock.
Regulatory capital standards, including the Basel III Capital Rules, may require the Company and the Bank to maintain
higher levels of capital and liquid assets, which could adversely affect the Company’s profitability and return on equity.
The Company is subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts
and types of capital that the Company and the Bank must maintain. From time to time, regulators implement changes to these
regulatory capital adequacy guidelines. If the Company fails to meet these minimum capital guidelines and/or other
regulatory requirements, its financial condition would be materially and adversely affected. The Basel III Capital Rules
require bank holding companies and their subsidiaries to maintain significantly more capital as a result of higher required
capital levels and more demanding regulatory capital risk weightings and calculations. While the Company is exempt from
these capital requirements under the Federal Reserve’s SBHC Policy Statement, the Bank is not exempt and must comply.
The Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to
Section 38 of the FDI Act. Satisfying capital requirements may require the Company to limit its banking operations, reduce
dividends, or raise additional capital to improve regulatory capital levels, which could negatively affect its business, financial
condition, and results of operations. The EGRRCPA, which became effective May 24, 2018, amended the Dodd-Frank Act
to, among other things, provide relief from certain of these requirements. Although the EGRRCPA is still being
implemented, the Company does not expect the EGRRCPA and the related rulemakings to materially reduce the impact of
capital requirements on its business.
The Company is not obligated to pay dividends and its ability to pay dividends is limited.
The Company’s ability to make dividend payments on its common stock depends primarily on certain regulatory
considerations and the receipt of dividends and other distributions from the Bank. There are various regulatory restrictions on
the ability of banks, such as the Bank, to pay dividends or make other payments to their holding companies. Although the
Company has historically paid a cash dividend to the holders of its common stock, holders of its common stock are not
entitled to receive dividends, and the Company is not obligated to pay dividends in any particular amounts or at any
21
particular times. Regulatory, economic, and other factors may cause the Company’s board of directors to consider, among
other things, the reduction of dividends paid on its common stock. See “Business – Supervision and Regulation – Dividends.”
Regulatory and Operational
The Company operates in a highly regulated industry and the laws and regulations that govern the Company’s operations,
corporate governance, executive compensation and financial accounting or reporting, including changes in them or the
Company’s failure to comply with them, may adversely affect the Company.
The Company is subject to extensive regulation and supervision that govern almost all aspects of its operations. These
laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the Company’s
business activities, limit the dividends or distributions that it can pay, restrict the ability of institutions to guarantee its debt,
and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges
to earnings or reductions in its capital than GAAP. Compliance with laws and regulations can be difficult and costly, and
changes to laws and regulations often impose additional compliance costs.
The Company faces increasing regulation and supervision of its industry. The Dodd-Frank Act instituted major changes
to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations, or regulatory policies, or
supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory
guidance, could affect the Company in substantial and unpredictable ways. Such additional regulation and supervision has
increased, and may continue to increase, the Company’s costs and limit its ability to pursue business opportunities. Further,
the Company’s failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference
in interpretation, could subject it to restrictions on its business activities, fines and other penalties, any of which could
adversely affect the Company’s results of operations, capital base and the price of its securities. Further, any new laws, rules
and regulations could make compliance more difficult or expensive or otherwise adversely affect the Company’s business
and financial condition.
Regulations issued by the CFPB could adversely impact earnings due to, among other things, increased compliance costs
or costs due to noncompliance.
The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect
to financial institutions that offer covered financial products and services to consumers. The CFPB has also been directed to
write rules identifying practices or acts that are unfair, deceptive, or abusive in connection with any transaction with a
consumer for a consumer financial product or service, or the offering of a consumer financial product or service. For
example, the CFPB has issued a final rule, requiring mortgage lenders to make a reasonable and good faith determination
based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay
the loan according to its terms, or to originate “qualified mortgages” that meet specific requirements with respect to terms,
pricing and fees. The rule also contains additional disclosure requirements at mortgage loan origination and in monthly
statements. The requirements under the CFPB’s regulations and policies could limit the Company’s ability to make certain
types of loans or loans to certain borrowers or could make it more expensive and/or time consuming to make these loans,
which could adversely impact the Company’s profitability.
The Company is subject to laws regarding the privacy, information security, and protection of personal information and
any violation of these laws or another incident involving personal, confidential, or proprietary information of individuals
could damage the Company’s reputation and otherwise adversely affect its business.
The Company’s business requires the collection and retention of large volumes of customer data, including personally
identifiable information (“PII”) in various information systems that the Company maintains and in those maintained by third-
party service providers. The Company also maintains important internal company data such as PII about its employees and
information relating to its operations. The Company is subject to complex and evolving laws and regulations governing the
privacy and protection of PII of individuals (including customers, employees and other third parties). For example, the
Company’s business is subject to the GLB Act, which, among other things: (i) imposes certain limitations on the Company’s
ability to share nonpublic PII about its customers with nonaffiliated third parties; (ii) requires that the Company provide
certain disclosures to customers about its information collection, sharing, and security practices and afford customers the
right to “opt out” of any information sharing by it with nonaffiliated third parties (with certain exceptions); and (iii) requires
that the Company develop, implement, and maintain a written comprehensive information security program containing
appropriate safeguards based on the Company’s size and complexity, the nature and scope of its activities, and the sensitivity
of customer information it processes, as well as plans for responding to data security breaches. Various federal and state
banking regulators and states have also enacted data breach notification requirements with varying levels of individual,
22
consumer, regulatory, or law enforcement notification in the event of a security breach. Ensuring that the Company’s
collection, use, transfer, and storage of PII complies with all applicable laws and regulations can increase the Company’s
costs. Furthermore, the Company may not be able to ensure that customers and other third parties have appropriate controls
in place to protect the confidentiality of the information that they exchange with us, particularly where such information is
transmitted by electronic means. If personal, confidential, or proprietary information of customers or others were to be
mishandled or misused, the Company could be exposed to litigation or regulatory sanctions under privacy and data protection
laws and regulations. Concerns regarding the effectiveness of the Company’s measures to safeguard PII, or even the
perception that such measures are inadequate, could cause the Company to lose customers or potential customers and thereby
reduce its revenues. Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws
and regulations may subject the Company to inquiries, examinations, and investigations that could result in requirements to
modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage the
Company’s reputation and otherwise adversely affect its operations, financial condition, and results of operations.
Changes in accounting standards could impact reported earnings.
The authorities that promulgate accounting standards, including the Financial Accounting Standards Board (“FASB”),
the SEC and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the
preparation of the Company’s consolidated financial statements. These changes are difficult to predict and can materially
impact how the Company records and reports its financial condition and results of operations. In some cases, the Company
could be required to apply a new or revised standard retroactively, resulting in the restatement of financial statements for
prior periods. Such changes could also require the Company to incur additional personnel or technology costs. For
information regarding recent accounting pronouncements and their effects on the Company, see “Recent Accounting
Pronouncements” in Note 2 of the Company’s audited financial statements as of and for the year ended December 31, 2021.
Failure to maintain effective systems of internal and disclosure controls could have a material adverse effect on the
Company’s results of operation and financial condition.
Effective internal and disclosure controls are necessary for the Company to provide reliable financial reports and
effectively prevent fraud and to operate successfully as a public company. If the Company cannot provide reliable financial
reports or prevent fraud, its reputation and operating results would be harmed. As part of the Company’s ongoing monitoring
of internal controls, it may discover material weaknesses or significant deficiencies in its internal controls that require
remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal controls over financial
reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
The Company’s inability to maintain the operating effectiveness of the controls described above could result in a
material misstatement to the Company’s financial statements or other disclosures, which could have an adverse effect on its
business, financial condition, or results of operations. In addition, any failure to maintain effective controls in accordance
with Section 404 of the Sarbanes-Oxley Act and FDIC regulations or to timely effect any necessary improvement of the
Company’s internal and disclosure controls could, among other things, result in losses from fraud or error, harm the
Company’s reputation, or cause investors to lose confidence in its reported financial information, all of which could have a
material adverse effect on its results of operations and financial condition.
The Company’s success depends on its management team, and the unexpected loss of any of these personnel could
adversely affect operations.
The Company’s success is, and is expected to remain, highly dependent on its management team. The Company’s
growth will continue to place significant demands on management, and the loss of any such person’s services may have an
adverse effect upon growth and profitability. If the Company fails to retain or continue to recruit qualified employees,
growth, and profitability could be adversely affected.
The success of the Company’s strategy depends on its ability to identify and retain individuals with experience and
relationships in its markets.
In order to be successful, the Company must identify and retain experienced key management members and sales staff
with local expertise and relationships. Competition for qualified personnel is intense and there is a limited number of
qualified persons with knowledge of and experience in the community banking and mortgage industry in the Company’s
chosen geographic market. Even if the Company identifies individuals that it believes could assist it in building its franchise,
it may be unable to recruit these individuals away from their current employers. In addition, the process of identifying and
23
recruiting individuals with the combination of skills and attributes required to carry out the Company’s strategy is often
lengthy. The Company’s inability to identify, recruit, and retain talented personnel could limit its growth and could materially
adversely affect its business, financial condition, and results of operations.
The Company relies on other companies to provide key components of its business infrastructure.
Third parties provide key components of the Company’s business operations such as data processing, recording, and
monitoring transactions, online banking interfaces and services, internet connections, and network access. While the
Company has selected these third-party vendors carefully, it does not control their actions. Any problem caused by these third
parties, including poor performance of services, failure to provide services, disruptions in communication services provided
by a vendor and failure to handle current or higher volumes, could adversely affect the Company’s ability to deliver products
and services to its customers and otherwise conduct its business, and may harm its reputation. Financial or operational
difficulties of a third-party vendor could also hurt the Company’s operations if those difficulties interface with the vendor’s
ability to serve the Company. Replacing these third-party vendors could also create significant delay and expense.
Accordingly, use of such third parties creates an unavoidable inherent risk to the Company’s business operations.
The soundness of other financial institutions could adversely affect the Company.
The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and
commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading,
clearing, counterparty, or other relationships. The Company has exposure to many different industries and counterparties, and
routinely executes transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or
questions about, one or more financial services institutions, or the financial services industry generally, have led to market-
wide liquidity problems and could lead to losses or defaults by the Company or by other institutions. Many of these
transactions expose the Company to credit risk in the event of default of its counterparty or client. In addition, credit risk may
be exacerbated when the collateral held cannot be realized upon or is liquidated at prices insufficient to recover the full
amount of the financial instrument exposure due. There is no assurance that any such losses would not materially and
adversely affect results of operations.
The Company is subject to a variety of operational risks, including reputational risk, legal, and compliance risk, and the
risk of fraud or theft by employees or outsiders.
The Company is exposed to many types of operational risks, including reputational risk, legal and compliance risk, the
risk of fraud or theft by employees or outsiders, unauthorized transactions by employees, operational errors, clerical or
record-keeping errors, and errors resulting from faulty or disabled computer or communications systems.
Reputational risk, or the risk to the Company’s earnings and capital from negative public opinion, could result from the
Company’s actual or alleged conduct in any number of activities, including lending practices, corporate governance, and
from actions taken by government regulators and community organizations in response to those activities. Negative public
opinion can adversely affect the Company’s ability to attract and keep customers and employees and can expose it to
litigation and regulatory action.
Further, if any of the Company’s financial, accounting, or other data processing systems fail or have other significant
issues, the Company could be adversely affected. The Company depends on internal systems and outsourced technology to
support these data storage and processing operations. The Company’s inability to use or access these information systems at
critical points in time could unfavorably impact the timeliness and efficiency of the Company’s business operations. It could
be adversely affected if one of its employees causes a significant operational break-down or failure, either as a result of
human error or where an individual purposefully sabotages or fraudulently manipulates its operations or systems. The
Company is also at risk of the impact of natural disasters, terrorism, and international hostilities on its systems and from the
effects of outages or other failures involving power or communications systems operated by others. The Company may also
be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for
example, computer viruses, or electrical or communications outages), which may give rise to disruption of service to
customers and to financial loss or liability. In addition, there have been instances where financial institutions have been
victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions
out of customer accounts. Although the Company has policies and procedures in place to verify the authenticity of its
customers, it cannot guarantee that such policies and procedures will prevent all fraudulent transfers. Such activity can result
in financial liability and harm to the Company’s reputation. If any of the foregoing risks materialize, it could have a material
adverse effect on the Company’s business, financial condition, and results of operations.
24
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect
to ESG practices may impose additional costs on the Company or expose it to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG
practices and disclosure. Investor advocacy groups, investment funds, and influential investors are also increasingly focused
on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and
social justice issues. Increased ESG related compliance costs could result in increases to the Company’s overall operational
costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could
negatively impact the Company’s reputation, ability to do business with certain partners, and the Company’s stock price.
New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory
and voluntary reporting, diligence, and disclosure.
Pending litigation could result in a judgment against the Company resulting in the payment of damages.
On August 12, 2019, a former employee of VCB and participant in its Employee Stock Ownership Plan (the “VCB
ESOP”) filed a class action complaint against VCB, Virginia Community Bank, and certain individuals associated with the
VCB ESOP in the U.S. District Court for the Western District of Virginia, Charlottesville Division (Case No. 3:19-cv-00045-
GEC). The complaint alleges, among other things, that the defendants breached their fiduciary duties to ESOP participants in
violation of the Employee Retirement Income Security Act of 1974, as amended. The complaint alleges that the ESOP
incurred damages “that approach or exceed $12 million.” The Company automatically assumed any liability of VCB in
connection with this litigation as a result of the Company’s acquisition of VCB. The outcome of this litigation is uncertain,
and the plaintiff and other individuals may file additional lawsuits related to the VCB ESOP. The defense, settlement, or
adverse outcome of any such lawsuit or claim could have a material adverse financial impact on the Company. The Company
believes the claims are without merit.
The Company may be required to transition from the use of the LIBOR index in the future.
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks
to submit the rates required to calculate LIBOR. In November 2020, the administrator of LIBOR announced it will consult on
its intention to extend the retirement date of certain offered rates whereby the publication of the one-week and two-month
LIBOR offered rates will cease after December 31, 2021, but the publication of the remaining LIBOR offered rates will
continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, federal bank regulators have
indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021 would create safety
and soundness risks and that they will examine bank practices accordingly. Therefore, the agencies encouraged banks to
cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31,
2021.
Regulators, industry groups, and certain committees (e.g., the Alternative Reference Rates Committee) have, among
other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended
alternatives for certain LIBOR rates (e.g., SOFR, as the recommended alternative to U.S. Dollar LIBOR), and proposed
implementations of the recommended alternatives in floating rate instruments. At this time, it is not possible predict whether
these specific recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the
effect of any such alternatives may be on the value of LIBOR-based variable-rate loans, as well as LIBOR-based securities,
subordinated notes, trust preferred securities, or other securities or financial arrangements. The implementation of a substitute
index or indices for the calculation of interest rates under the Company’s loan agreements with borrowers, subordinated notes
that it has issued, or other financial arrangements may cause the Company to incur significant expenses in effecting the
transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in
disputes or litigation with customers or other counter-parties over the appropriateness or comparability to LIBOR of the
substitute index or indices, any of which could have a material adverse effect on the Company’s results of operations.
The Company’s operations may be adversely affected by cybersecurity risks.
In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business
information and personally identifiable information of its customers and employees in systems and on networks. The secure
processing, maintenance, and use of this information is critical to operations and the Company’s business strategy. The
Company has invested in accepted technologies and continually reviews processes and practices that are designed to protect
its networks, computers, and data from damage or unauthorized access. Despite these security measures, the Company’s
computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error,
malfeasance, or other disruptions. A breach of any kind could compromise systems and the information stored there could be
25
accessed, damaged, or disclosed. A breach in security could result in legal claims, regulatory penalties, disruption in
operations, and damage to the Company’s reputation, which could adversely affect its business and financial condition.
Furthermore, as cyber threats continue to evolve and increase, the Company may be required to expend significant additional
financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any
identified information security vulnerabilities.
In addition, multiple major U.S. companies have experienced data systems incursions reportedly resulting in the thefts of
credit and debit card information, online account information, and other financial or privileged data. These incursions affect
cards issued and deposit accounts maintained by many banks, including the Bank. Although the Company’s systems are not
breached in these incursions, these events can cause it to reissue a significant number of cards and take other costly steps to
avoid significant theft loss to the Company and its customers. In some cases, the Company may be required to reimburse
customers for the losses they incur. Other possible points of intrusion or disruption not within the Company’s control include
internet service providers, electronic mail portal providers, social media portals, distant-server (cloud) service providers,
electronic data security providers, telecommunications companies, and smart phone manufacturers.
The Company’s ability to operate profitably may be dependent on its ability to integrate or introduce various technologies
into its operations.
The market for financial services, including banking and consumer finance services, is increasingly affected by advances
in technology, including developments in telecommunications, data processing, computers, automation, online banking, and
tele-banking. The Company’s ability to compete successfully in its market may depend on the extent to which it is able to
implement or exploit such technological changes. If the Company is not able to afford such technologies, properly or timely
anticipate or implement such technologies, or effectively train its staff to use such technologies, its business, financial
condition, or operating results could be adversely affected.
Severe weather, natural disasters, acts of war or terrorism, geopolitical instability, public health issues, and other external
events could significantly impact the Company's business.
Severe weather, natural disasters, acts of war or terrorism, geopolitical instability, public health issues, and other adverse
external events could have a significant impact on the Company's ability to conduct business. In addition, such events could
affect the stability of the Company’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value
of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause the Company to incur
additional expenses. The occurrence of any such events in the future and the economic impact from such events could have a
material adverse effect on the Company's business, which, in turn, could have a material adverse effect on its financial
condition and results of operations.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that
could significantly impact the Company’s business.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the
global environment. As a result, political and social attention to the issue of climate change has increased. Federal and state
legislatures and regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives
seeking to mitigate the effects of climate change. The federal banking agencies, including the OCC, have emphasized that
climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory
expectations regarding banks’ risk management practices. In December 2021, the OCC published proposed principles for
climate risk management by banking organizations with more than $100 billion in assets. The OCC also has appointed its
first ever Climate Change Risk Officer and established an internal climate risk implementation committee in order to assist
with these initiatives and to support the agency’s efforts to enhance its supervision of climate change risk management.
Similar and even more expansive initiatives are expected, including potentially increasing supervisory expectations with
respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and
systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and
encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by
the effects of climate change. To the extent that these initiatives lead to the promulgation of new regulations or supervisory
guidance applicable to the Company, the Company would likely experience increased compliance costs and other
compliance-related risks.
The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible
to predict how specifically climate change may impact the Company’s financial condition and results of operations; however,
the physical effects of climate change may also directly impact the Company. Specifically, unpredictable and more frequent
26
weather disasters may adversely impact the value of real property securing the loans in the Bank’s loan portfolio.
Additionally, if insurance obtained by borrowers is insufficient to cover any losses sustained to the collateral, or if insurance
coverage is otherwise unavailable to borrowers, the collateral securing loans may be negatively impacted by climate change,
which could impact the Company’s financial condition and results of operations. Further, the effects of climate change may
negatively impact regional and local economic activity, which could lead to an adverse effect on customers and impact the
communities in which the Company operates. Overall, climate change, its effects and the resulting, unknown impact could
have a material adverse effect on the Company’s financial condition and results of operations.
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not required.
ITEM 2: PROPERTIES
The Company, through its subsidiaries, owns or leases buildings and office space that are used in the normal course of
business. The headquarters of the Company is located at 1807 Seminole Trail, Charlottesville, Virginia 22901 in a building
leased by the Bank. The Main Office of the Bank is located at 1 East Market Street, Martinsville, Virginia 24112 in a
building leased by the Bank. The Company's subsidiaries own or lease various other offices in the counties and cities in
which they operate. As of December 31, 2021, the Company's employees occupied an additional 45 properties, of which 18
were owned by the Company. Additional information with respect to the amounts at which Company premises and
equipment are carried and commitments under long-term leases is set forth in Part II, Item 8 - "Financial Statements and
Supplementary Data", Note 6 - "Premises and Equipment" and Note 13 - "Leases", respectively, in this Form 10-K.
The Company’s properties are maintained in good operating condition and the Company believes the properties are
suitable and adequate for its operational needs.
ITEM 3: LEGAL PROCEEDINGS
In the ordinary course of its operations, the Company is a party to various legal proceedings. As of the date of this report,
there are no pending or threatened proceedings against the Company, other than as set forth below, that, if determined
adversely, would have a material effect on the business, financial position, or results of operations of the Company.
On August 12, 2019, a former employee of VCB and participant in the VCB ESOP filed a class action complaint against
VCB, Virginia Community Bank, and certain individuals associated with the VCB ESOP in the U.S. District Court for the
Western District of Virginia, Charlottesville Division (Case No. 3:19-cv-000450-GEC). The complaint alleges, among other
things, that the defendants breached their fiduciary duties to VCB ESOP participants in violation of the Employee Retirement
Income Security Act of 1974, as amended. The complaint alleges that the VCB ESOP incurred damages “that approach or
exceed $12 million.” The Company automatically assumed any liability of VCB in connection with this litigation as a result
of its 2019 acquisition of VCB. The outcome of this litigation is uncertain, and the plaintiff and other individuals may file
additional lawsuits related to the VCB ESOP. The Company believes the claims are without merit and no loss has been
accrued for this lawsuit.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
27
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
General
The Company’s common stock is listed on the NYSE American market under the symbol “BRBS”. There were
18,769,882 shares of the Company’s common stock outstanding at the close of business on March 7, 2022, which were held
by approximately 2,785 shareholders of record. The closing price of the Company's common stock on December 31, 2021
was $17.78 per common share compared to $11.47 per common share as of December 31, 2020.
Five-Year Stock Performance Graph
The following five-year stock performance graph compares the cumulative total shareholder return (assuming
reinvestment of dividends) on the Company's common stock to the Invesco KBW Regional Banking ETF (NASDAQ ticker:
"KBWR") and the Russell 2000® Index (ticker: "RUT"). This comparison assumes $100.00 was invested on December 31,
2016 in the Company’s common stock and the comparison indices and the cumulative return is measured as of each
subsequent fiscal year-end.
Index
Blue Ridge Bankshares, Inc.
Invesco KBW Regional Banking ETF
Russell 2000® Index
$
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
100.00 $
100.00
100.00
113.86 $
101.82
113.14
118.93 $
83.17
99.37
147.71 $
102.77
122.94
129.17 $
93.58
145.52
12/31/2021
200.23
127.32
165.45
The performance graph above does not constitute soliciting material and should not be deemed filed or incorporated by
reference into any other Company filing under the Securities Act of 1933 or the Exchange Act, except to the extent the
Company specifically incorporates the performance graph by reference therein.
Dividends
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The Company paid four quarterly dividends totaling $0.435 per common share during 2021. On January 5, 2022, the
board of directors of the Company declared a quarterly dividend of $0.12 per common share to shareholders of record as of
the close of business on January 19, 2022, which was paid on January 31, 2022.
The dividend type, amount, and timing are established by the Company’s board of directors. In making its decisions
regarding the payment of dividends on the Company’s common stock, the board of directors considers the Company's
operating results, financial condition, capital adequacy, regulatory requirements, shareholders' return, and other factors.
A discussion of certain restrictions and limitations on the ability of the Bank to pay dividends to the Company, and the
ability of the Company to pay dividends to shareholders of its common stock, is set forth in Part I, Item 1, Business, of this
Form 10-K under the heading “Supervision and Regulation.”
Stock Repurchases
There were no repurchases of the Company's common stock during the fourth quarter of 2021.
ITEM 6: [RESERVED]
29
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following presents management’s discussion and analysis of the Company’s consolidated financial condition and
the results of the Company’s operations. This discussion should be read in conjunction with the Company’s consolidated
financial statements and the notes thereto presented in Item 8, Financial Statements and Supplementary Information, of this
Form 10-K.
Cautionary Note About Forward-Looking Statements
The Company makes certain forward-looking statements in this Form 10-K that are subject to risks and uncertainties.
These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions,
projections, and statements of management’s beliefs concerning future events, business plans, objectives, expected operating
results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation,
any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and are typically
identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,”
“aim,” “intend,” “plan,” or words or phases of similar meaning. The Company cautions that the forward-looking statements
are based largely on management’s expectations and are subject to a number of known and unknown risks and uncertainties
that are subject to change based on factors which are, in many instances, beyond the its control. Actual results, performance,
or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements.
The following factors, among others, could cause the Company’s financial performance to differ materially from that
expressed in such forward-looking statements:
the strength of the United States economy in general and the strength of the local economies in which it conducts
operations;
changes in the level of the Company’s nonperforming assets and charge-offs;
management of risks inherent in the Company’s real estate loan portfolio, and the risk of a prolonged downturn in
the real estate market, which could impair the value of collateral and the ability to sell collateral upon any
foreclosure;
the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the
Federal Reserve, inflation, interest rate, market, and monetary fluctuations;
changes in consumer spending and savings habits;
the Company's ability to identify, attract, and retain experienced management, relationship managers, and support
personnel, particularly in a competitive labor environment;
technological and social media changes impacting the Company, the Bank, and the financial services industry, in
general;
changing bank regulatory conditions, laws, regulations, policies, or programs, whether arising as new legislation or
regulatory initiatives, that could lead to restrictions on activities of banks generally, or the Bank in particular, more
restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, increased
regulations, prohibition of certain income producing activities, or changes in the secondary market for loans and
other products;
the impact of changes in laws, regulations, and policies affecting the real estate industry;
the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory
agencies, the SEC, the Public Company Accounting Oversight Board, the FASB, or other accounting standards
setting bodies;
the impact of the COVID-19 pandemic on the Company's customers and employees, and the associated efforts by
the Company and others to limit the spread of the virus;
30
the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and
other catastrophic events;
geopolitical conditions, including acts or threats of terrorism and/or military conflicts, including the military conflict
between Russia and Ukraine, or actions taken by the U.S. or other governments in response to acts or threats of
terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;
the timely development of competitive new products and services and the acceptance of these products and services
by new and existing customers;
the willingness of users to substitute competitors’ products and services for the Company’s products and services;
the Company’s inability to successfully manage growth or implement its growth strategy;
the effect of acquisitions the Company may make, including, without limitation, disruption of employee or customer
relationships, and the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;
the Company’s participation in the PPP established by the U.S. government and its administration of the loans and
processing fees earned under the program;
the Company’s involvement, from time to time, in legal proceedings, and examination and remedial actions by
regulators;
the Company’s potential exposure to fraud, negligence, computer theft, and cyber-crime;
the Bank’s ability to pay dividends; and
the Bank's ability to effectively manage its fintech partnerships, and the abilities of those fintech companies to
perform as expected.
The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements
that are included in this Form 10-K, including those discussed in the section entitled "Risk Factors" in Item 1A above. If one
or more of the factors affecting forward-looking information and statements proves incorrect, then actual results, performance
or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements
contained in this Form 10-K. Therefore, the Company cautions you not to place undue reliance on its forward-looking
information and statements. The Company will not update the forward-looking statements to reflect actual results or changes
in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is
not possible for the Company to predict their occurrence or how these risks and uncertainties will affect it.
Critical Accounting Policies and Estimates
General
The accounting principles the Company applies under GAAP are complex and require management to apply significant
judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and
estimates when applying these principles where precise measurements are not possible or practical. The Company views
these policies as critical because they are highly dependent upon subjective or complex judgments, assumptions, and
estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated
financial statements. Actual results, in fact, could differ from initial estimates.
Accounting for Business Combinations
Business combinations are accounted for under the acquisition method of accounting in accordance with Accounting
Standards Codification ("ASC") 805. ASC 805 requires that the assets acquired and liabilities assumed in a business
combination be recorded based on their estimated fair values at the date of acquisition. The excess of the cost of an acquired
entity over the net of the amounts assigned to assets acquired and liabilities assumed, including identifiable intangibles, is
recorded as goodwill. The determination of fair values requires management to make estimates about future expected cash
flows, market conditions, and other future events that are highly subjective in nature and subject to actual results that may
differ materially from the estimates made.
31
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed to be adequate 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 Company’s allowance for loan losses 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 for loan losses. The allowance for loan
losses is evaluated on a periodic basis by management, but no less than quarterly.
The allowance for loan losses consists of specific and general components. The specific component relates to loans that
are determined to be impaired and, therefore, individually evaluated for impairment. The Company considers a loan to be
impaired when 1) the risk grade of the loan is special mention or worse and the balance of the loan exceeds $500,000 or 2)
the loan is a TDR, regardless of balance. A loan is not considered impaired during a period of delay in payment if the
Company expects to collect all amounts due, including past-due interest. Measurement of impairment is based on the
expected future cash flows of an impaired loan, discounted at the loan's effective interest rate, or measured based on an
observable market value, if one exists, or the fair value of the collateral underlying the loan, discounted to consider estimated
costs to sell the collateral for collateral-dependent loans. If the net collateral value is less than the loan balance (including
accrued interest and any unamortized premium or discount associated with the loan) an impairment is recognized and a
specific reserve is established for the impaired loan. The general component of the allowance for loan losses covers those
loans not classified as impaired and those loans classified as impaired that are not individually evaluated for impairment.
Loans in the general component population are segmented into homogenous groups that share similar characteristics and
receive a loss factor that is based on historical loss experience adjusted for other internal or external influences on credit
quality that are not fully reflected in the historical data. Internal and external factors include, but are not limited to, internal
underwriting standards, loan portfolio composition and concentrations, and local and national economic conditions.
The determination of the allowance for loan losses is inherently subjective as it requires significant estimates, including
the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans
based on historical loss experience, and consideration of current economic trends, all of which may be susceptible to
significant change.
Credit losses are an inherent part of the Company’s business. Management believes the methodologies for determining
the allowance for loan losses and the current level of the allowance are appropriate; however, it is possible that there may be
unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional
internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, as a charge
to earnings.
Accounting for Acquired Loans
Loans acquired pursuant to a business combination are recorded at fair value, with no allowance for loan losses carrying
over at the effective date of the transaction. The difference between contractually required amounts receivable and the
acquisition date fair value of the loans that are not deemed credit-impaired at acquisition is accreted (recognized) into income
over the life of the loan either on a level yield or interest method in accordance to ASC 310-20, Receivables-Nonrefundable
Fees and Other Costs.
Subsequent to the acquisition date, an allowance for loan losses may be established through a provision for loan losses,
based upon a process that is similar to the evaluation process used for originated loans. This evaluation, which includes a
review of loans on which full collectability may not be reasonably assured, considers, among other factors, the estimated fair
value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which
includes the remaining net purchase discount or premium, and other factors that warrant recognition in determining the
allowance for loan losses.
Loans are designated purchased credit-impaired ("PCI") on the effective date of a business combination when there is
evidence of credit deterioration after origination and for which it is probable that all contractually required principal and
interest payments will not be collected. The applicable accounting guidance for PCI loans is ASC 310-30, Loans and Debt
Securities Acquired with Deteriorated Credit Quality. PCI loans are initially recorded at fair value (as determined by the
present value of expected future cash flows) with no allowance for loan losses. The Company recognizes interest income on
all loans acquired at a discount (that is due, in part, to credit quality) based on the acquired loans' expected cash flows. The
32
acquired loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk
characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of
cash flow. The difference between the cash flows expected at acquisition and the investment in the loans, or the accretable
yield, is recognized as interest income utilizing the level-yield method over the life of each pool. Increases in expected cash
flows subsequent to the acquisition are recognized prospectively through adjustment of the yield on the pool over its
remaining life, while decreases in expected cash flows are recognized as impairment through a loss provision and an increase
in the allowance for loan losses. Therefore, the allowance for loan losses on these impaired pools reflects only losses incurred
after the acquisition (representing the present value of all cash flows that were expected at acquisition but currently are not
expected to be received).
Management periodically evaluates the remaining contractual required payments due and estimates of cash flows
expected to be collected. These evaluations, performed no less than semi-annually, require the continued use of key
assumptions and estimates, similar to the initial estimate of fair value. Changes in the contractual required payments due and
estimated cash flows expected to be collected may result in changes in the accretable yield and non-accretable difference or
reclassifications between accretable yield and the non-accretable difference.
Fair Value Measurements
The Company determines the fair values of financial instruments based on the fair value hierarchy, which requires an
entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
hierarchy describes three levels of inputs that may be used to measure fair value. For example, the Company’s available-for-
sale investment securities are recorded at fair value using reliable and unbiased evaluations by an industry-wide valuation
service. This service uses evaluated pricing models that vary based on asset class and include available trade, bid, and other
market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and
conditions databases, as well as extensive quality control programs. Depending on the availability of observable inputs and
prices, different valuation models could produce materially different fair value estimates. The values presented may not
represent future fair values and may not be realizable.
Derivatives
Derivatives are recognized as assets and liabilities on the Company’s consolidated balance sheets and measured at fair
value. The Company’s derivatives consist of forward sales of to-be-announced mortgage-backed securities and interest rate
lock commitments. The Company’s hedging policies permit the use of various derivative financial instruments to manage
interest rate risk or to hedge specified assets and liabilities. The Company may be required to recognize certain contracts and
commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a derivative.
If derivative instruments are designated as hedges of fair values, both the change in the fair value of the hedge and the hedged
item are included in current earnings.
During the normal course of business, the Company enters into commitments to originate mortgage loans, whereby the
interest rate on the loan is determined prior to funding (“rate lock commitments”). For commitments issued in connection
with potential loans intended for sale, the Bank enters into positions of forward month mortgage-backed securities to be
announced (“TBA”) contracts on a mandatory basis or on a one-to-one forward sales contract on a best efforts basis. The
Company enters into TBA contracts in order to control interest rate risk during the period between the rate lock commitment
and mandatory sale of the mortgage loan. Both the rate lock commitment and the forward TBA contract are considered
derivatives. A mortgage loan sold on a best efforts basis is locked into a forward sales contract with a counterparty on the
same day as the rate lock commitment to control interest rate risk during the period between the commitment and the sale of
the mortgage loan. Both the rate lock commitment and the forward sales contract are considered derivatives.
The market values of rate lock commitments and delivery commitments are not readily ascertainable with precision
because rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. The Company
determines the fair value of rate lock commitments, delivery contracts, and forward sales contracts of mortgage backed
securities (“MBS”) by measuring the change in the value of the underlying asset, while taking into consideration the
probability that the rate lock commitments will close or will be funded. Certain risks arise from the forward delivery
contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. Additional risks
inherent in mandatory delivery programs include the risk that, if the Company does not close the loans subject to rate lock
commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreements.
33
Income Taxes
Income taxes are accounted for using the balance sheet method in accordance with ASC 740, Accounting for Income
Taxes. Per ASC 740, the objective is to recognize (a) the amount of taxes payable or refundable for the current year, and (b)
defer tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements
or federal income tax returns. A net deferred tax asset or liability is determined based on the tax effects of the temporary
differences between the book (i.e., financial statement) and tax bases of the various balance sheet assets and liabilities and
gives current recognition to changes in tax rates and laws. Temporary differences are reversed in the period in which an
amount or amounts become taxable or deductible.
A deferred tax liability is recognized for all temporary differences that will result in future taxable income; a deferred tax
asset is recognized for all temporary differences that will result in future tax deductions, potentially reduced by a valuation
allowance. A valuation allowance is recognized if, based on an analysis of available evidence, management determines that it
is more likely than not that some portion or all of the deferred tax asset will not be realized. In making this assessment, all
sources of taxable income available to realize the deferred tax asset are considered including taxable income in prior
carryback years, future releases of existing temporary differences, tax planning strategies, and future taxable income
exclusive of reversing temporary differences and carryforwards. The predictability that future taxable income, exclusive of
revering temporary differences, will occur is the most subjective of these four sources. Additionally, cumulative losses in
recent years, if any, are considered negative evidence that may be difficult to overcome to support a conclusion that future
taxable income, exclusive of reversing temporary differences and carryforwards, is sufficient to realize a deferred tax asset.
Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense. The
evaluation of the recoverability of deferred tax assets requires management to make significant judgements regarding the
releases of temporary differences and future profitability, among other items. Management has concluded that, as of
December 31, 2021, no valuation allowance is required on the Company's deferred tax assets.
Mortgage Servicing Rights ("MSR")
MSR assets represent the economic value associated with servicing a borrower during the life of the mortgage. The
assets are separate from the underlying mortgage and may be retained or sold by the Company when the related mortgage is
sold. In accordance with ASC 860-50, Transfers and Servicing, MSR assets are initially recognized at fair value and
subsequently accounted for using either the amortization method or the fair value measurement method. The Company
elected to account for MSR assets using the amortization method, which requires that the servicing asset be amortized in
proportion to and over the period of estimated net servicing income. ASC 860-50 also requires that MSR assets accounted for
using the amortization method be evaluated for impairment each reporting period and reported at the lower of amortized cost
or fair market value. MSR assets and income servicing, net of amortization and impairment, if any, are reported on the
Company’s consolidated balance sheets and consolidated statements of income, respectively.
34
Five Year Summary of Selected Financial Data
(Dollars and shares in thousands, except per share data)
Income Statement Data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income attributable to noncontrolling interest
Net income attributable to Blue Ridge Bankshares,
Inc.
Per Common Share Data:
Earnings per share, basic and diluted (1)
Dividends declared per share (1) (2)
Book value per common share (1)
Balance Sheet Data:
Assets
Loans held for investment, gross (including PPP)
Loans held for sale
Securities
Deposits
Subordinated notes, net
FHLB borrowings
FRB borrowings
Stockholders' equity
Weighted average common shares outstanding -
basic (1)
Weighted average common shares outstanding -
diluted (1)
Financial Ratios:
Return on average assets
Return on average equity
Net interest margin
Efficiency ratio
Dividend payout ratio
Capital and Credit Quality Ratios:
Average equity to average assets
Allowance for loan losses to loans held for
investment, excluding PPP
Nonperforming loans to total assets
Nonperforming assets to total assets
Net charge-offs to total loans held for investment
2021
2020
2019
2018
2017
$ 103,546
11,065
92,481
117
92,364
87,955
112,142
68,177
15,697
(3)
$
$
52,477
2.94
0.4350
14.76
$2,665,139
1,807,578
121,943
396,050
2,297,771
39,986
10,111
17,901
277,139
17,840
17,840
1.86%
21.50%
3.51%
62.15%
14.80%
8.65%
0.68%
0.60%
0.61%
0.10%
$
$
$
54,460
9,950
44,510
10,450
34,060
56,824
68,387
22,497
4,800
(1)
17,696
2.07
0.2850
12.61
$1,498,258
1,016,694
152,931
120,648
945,109
24,506
115,000
281,650
108,200
$ 30,888
9,520
21,368
1,742
19,626
18,796
32,845
5,577
973
(24)
$
$
4,580
0.74
0.3800
10.88
$ 960,811
646,834
55,646
128,897
722,030
9,800
124,800
—
92,337
$ 22,437
5,152
17,285
1,225
16,060
10,123
20,464
5,719
1,147
(13)
$
$
4,559
1.09
0.3600
9.41
$ 539,590
414,868
29,233
58,750
415,027
9,766
73,100
—
39,621
$ 18,481
3,931
14,550
1,095
13,455
7,799
15,847
5,407
2,057
—
$
$
3,350
0.81
0.2133
8.73
$ 424,122
330,805
17,220
48,995
339,290
9,733
36,045
—
36,442
8,535
8,535
1.44%
17.65%
3.49%
67.49%
13.75%
6,221
6,221
0.61%
6.94%
3.34%
81.78%
51.61%
4,169
4,169
0.95%
12.02%
3.88%
74.66%
32.92%
4,128
4,128
0.80%
9.56%
3.73%
70.91%
26.29%
7.08%
8.79%
7.89%
8.32%
1.90%
0.44%
0.44%
0.12%
0.71%
0.54%
0.54%
0.12%
0.86%
1.39%
1.42%
0.11%
0.85%
1.78%
1.83%
0.09%
(1) Share and per share figures have been adjusted for all periods presented to reflect the Company's 3-for-2 stock split
effective April 30, 2021.
(2) Beginning in the fourth quarter of 2020, the quarterly dividends have been declared and paid subsequent to the
applicable quarter-end.
Comparison of Results of Operations for the Years Ended December 31, 2021 and 2020
For the year ended December 31, 2021, the Company reported net income of $52.5 million compared to $17.7 million
reported for 2020. Basic and diluted earnings per share were $2.94 for 2021 compared to $2.07 for 2020.
35
Net Interest Income. Net interest income is the excess of interest earned on loans, investments, and other interest-earning
assets over the interest paid on deposits and borrowings and is the Company’s primary revenue source. Net interest income is
thereby affected by overall balance sheet growth, changes in interest rates, and changes in the mix of investments, loans,
deposits, and borrowings.
The following table presents the average balance sheets for each of the years ended December 31, 2021, 2020 and 2019.
In addition, the amounts of interest earned on interest-earning assets, with related yields, and interest expense on interest-
bearing liabilities, with related rates, are presented.
(Dollars in thousands)
Assets:
Taxable securities
Tax-exempt securities (1)
Total securities
Interest-earning deposits in
other banks
Federal funds sold
Loans held for sale
Paycheck Protection
Program loans (2)
Loans held for investment
(including loan fees) (2,3,4)
Total average interest-
earning assets
Less: allowance for loan
losses
Total noninterest-earning
assets
Total average assets
Liabilities and
stockholders’ equity:
Interest-bearing demand,
money market deposits, and
savings
Time deposits (5)
Total interest-bearing
deposits
FHLB borrowings (6)
FRB borrowings
Subordinated notes (7)
Total average interest-
bearing liabilities
Noninterest-bearing demand
deposits
Other noninterest-bearing
liabilities
Stockholders’ equity
Total average liabilities and
stockholders’ equity
Net interest income and
margin (8)
Cost of funds (9)
Net interest spread (10)
2021
2020
For the Years Ended December 31,
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
2019
Interest
Yield/
Rate
$ 304,685 $
12,518
317,203
114,316
45,314
145,075
5,192
302
5,494
135
47
4,162
1.70% $ 106,228 $ 2,582
178
2.41%
6,175
2,760
1.73% 112,403
2.43% $103,698 $ 3,286
285
2.88%
7,832
3,571
2.46% 111,530
0.12% 108,587
0.10%
596
2.87% 140,496
169
2
3,922
0.16% 15,530
0.34%
313
2.79% 53,148
266
10
1,940
3.17%
3.64%
3.20%
1.71%
3.19%
3.65%
351,179
17,311
4.93% 237,229
10,347
4.36%
—
—
—
1,659,845
76,460
4.61% 675,226
37,291
5.52% 458,927
25,150
5.48%
2,632,932
103,609
3.94% 1,274,537
54,491
4.28% 639,448
30,937
4.84%
(13,036)
201,222
$2,821,118
(7,944)
106,245
$1,372,838
(4,572)
41,611
$676,487
$ 908,418 $
540,471
2,244
4,193
0.25% $ 346,784 $ 1,485
4,761
0.78% 261,891
0.43% $170,251 $ 1,663
4,546
1.82% 216,313
0.98%
2.10%
1,448,889
147,919
245,196
46,226
6,437
1,211
790
2,627
0.44% 608,675
0.82% 121,033
0.32% 223,869
23,566
5.68%
6,246
1,654
785
1,265
1.03% 386,564
1.37% 111,418
—
0.35%
9,783
5.37%
6,209
2,601
—
709
1.61%
2.33%
—
7.25%
1,888,230
11,065
0.59% 977,143
9,950
1.02% 507,765
9,519
1.87%
658,063
30,700
244,125
283,186
15,358
97,151
76,181
32,547
59,994
$2,821,118
$1,372,838
$676,487
$ 92,544
3.51%
0.43%
3.35%
$ 44,541
3.49%
0.79%
3.26%
$ 21,418
3.35%
1.63%
2.97%
(1) Computed on a fully taxable equivalent basis assuming a 21% federal income tax rate.
(2) Includes deferred loan fees/costs.
36
(3) Non-accrual loans have been included in the computations of average loan balances.
(4) Includes accretion of fair value adjustments (discounts) on acquired loans of $2.0 million and $1.0 million for the years
ended December 31, 2021 and 2020, respectively.
(5) Includes amortization of fair value adjustments (premiums) on assumed time deposits of $3.2 million and $23 thousand
for the years ended December 31, 2021 and 2020, respectively.
(6) Includes amortization of fair value adjustments (premiums) on assumed FHLB borrowings of $12 thousand and $0 for the
years ended December 31, 2021 and 2020, respectively.
(7) Includes amortization of fair value adjustments (premiums) on assumed subordinated notes of $176 thousand and $0 for
the years ended December 31, 2021 and 2020, respectively.
(8) Net interest margin is net interest income divided by average interest-earning assets.
(9) Cost of funds is total interest expense divided by total interest-bearing liabilities and non-interest bearing demand
deposits.
(10) Net interest spread is the yield on average interest-earning assets less the cost of average interest-bearing liabilities.
The following table presents the changes in interest income and interest expense due to changes in average assets and
liability balances and changes in rates earned on assets and paid on liabilities for the periods stated.
(Dollars in thousands)
Interest Income
Taxable securities
Tax-exempt securities
Interest-earning deposits in other banks
Federal funds sold
Loans held for sale
Paycheck Protection Program loans
Loans held for investment
Total interest income
Interest Expense
Interest-bearing demand, money market
deposits, and savings
Time deposits
FHLB borrowings
FRB borrowings
Subordinated notes
Total interest expense
Change in Net Interest Income
$
$
$
$
2021 compared to 2020
2020 compared to 2019
Increase/(Decrease)
Due to (1)
Volume
Rate
Total
Increase/
(Decrease)
Increase/(Decrease)
Due to (1)
Volume
Rate
Total
Increase/
(Decrease)
4,824 $
183
9
150
128
4,970
54,378
64,642 $ (15,524) $
(2,214) $
(59)
(43)
(105)
112
1,994
(15,209)
2,610 $
124
(34)
45
240
6,964
39,169
49,118 $
80 $
(60)
1,593
9
3,188
10,347
24,854
40,011 $ (16,457) $
(784) $
(47)
(1,690)
(17)
(1,206)
—
(12,713)
2,405 $
5,064
367
75
1,218
9,129
55,513 $
(1,646) $
(5,632)
(810)
(70)
144
(8,014)
(7,510) $
759 $
(568)
(443)
5
1,362
1,115
48,003 $
1,725
958
224
785
999
4,691
35,320 $ (12,197) $
(1,903) $
(743)
(1,171)
—
(443)
(4,260)
(704)
(107)
(97)
(8)
1,982
10,347
12,141
23,554
(178)
215
(947)
785
556
431
23,123
(1) Change in income/expense due to both volume and rate has been allocated in proportion to the absolute dollar amounts of
the change in each.
Average interest-earning assets were $2.63 billion for the year ended December 31, 2021 compared to $1.27 billion for
the same period of 2020, a $1.36 billion increase. Most of this increase was attributable to acquired loans in the Bay Banks
Merger. Average balances of PPP loans were $351.2 million and $237.2 million in 2021 and 2020, respectively, whereas
there were none in 2019. Growth in average balances of loans, excluding PPP loans, was $984.6 million for 2021, primarily
attributable to the Bay Banks Merger. Total interest income (on a taxable equivalent basis) increased by $49.1 million to
$103.6 million for the year ended December 31, 2021 compared to the same period of 2020. This increase was primarily due
to higher average balances of loans, excluding PPP loans, and securities, and higher yields on PPP loans (discussed below),
partially offset by lower yields on interest-earning assets due to a lower interest rate environment in which interest-earning
assets have re-priced. Processing fees, net of costs, and interest income earned by the Company for PPP loans for the years
ended December 31, 2021 and 2020 were $17.3 million and $10.3 million, respectively. Interest income in 2021 and 2020
included accretion of fair value adjustments (discounts) on acquired loans of $2.0 million and $1.0 million, respectively.
Average interest-bearing liabilities were $1.89 billion for the year ended December 31, 2021 compared to $977.1 million
for the same period of 2020, a $911.1 million increase. Most of this increase was attributable to interest-bearing deposits
assumed in the Bay Banks Merger and organic deposit growth, primarily attributable to general liquidity in the banking
37
system, believed to be from economic stimulus funds granted by the federal government’s response to the COVID-19
pandemic. Interest expense increased by $1.1 million to $11.1 million for the year ended December 31, 2021 compared to
the same period of 2020. Higher interest expense attributable to higher average balances of interest-bearing liabilities was
partially offset by lower rates paid on deposits and borrowings due to a lower interest rate environment in the 2021 period.
Cost of interest-bearing liabilities decreased to 0.59% in 2021 from 1.02% in 2020. Cost of funds were 0.43% and 0.79% for
the 2021 and 2020 periods, respectively. Interest expense in the 2021 and 2020 periods included the amortization of fair
value adjustments (premium) on assumed time deposits of $3.2 million and $23 thousand, respectively, which was a
reduction to interest expense.
Net interest income (on a taxable equivalent basis) was $92.5 million for the year ended December 31, 2021, compared
to $44.5 million for the year ended December 31, 2020. Net interest margin was 3.51% for the year ended December 31,
2021 compared to 3.49% for the year ended December 31, 2020. The increase in net interest income in 2021 was primarily
due to higher average balances of interest-earning assets, including loans, mainly attributable to the Bay Banks Merger. The
Company utilized borrowings from the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) to fund
PPP loans during 2021 and 2020. These borrowings were at a fixed annual rate of 0.35% and resulted in interest expense of
$790 thousand and $785 thousand for the years ended December 31, 2021 and 2020, respectively. The positive impact on net
interest margin as a result of PPP loans and related funding was 18 basis points for the year ended December 31, 2021,
compared to 12 basis points for the same period of 2020.
Provision for Loan Losses. The provision for loan losses was $117 thousand for the year ended December 31, 2021
compared to $10.5 million for the year ended December 31, 2020, an decrease of $10.4 million. Net charge-offs amounted to
$1.8 million for the year ended December 31, 2021 and $1.2 million for the year ended December 31, 2020. The increase in
the provision for loan losses during 2020 was primarily due to a qualitative factor added for the potential credit losses as a
result of the COVID-19 pandemic in the amount of $9.2 million. This factor was based on Federal Reserve annualized
charge-off rates from recent recessions in addition to statistics on hotel occupancy rates to arrive at a COVID-19 severity
factor. This factor was applied to loans of specific NAICS codes that were deemed more susceptible to the impacts of the
pandemic, including loans in part collateralized by restaurants, hospitality, and other public venues. The decline in the
Company's allowance for loan losses for the year ended December 31, 2021 was due to the release of a substantial portion of
the COVID-19 severity factor, as economic conditions improved, partially offset by organic loan growth, reserves for
fintech-related loans, specific reserves for impaired loans, and reserve needs for loans that have migrated from the Company's
acquired loan pools.
38
Noninterest Income. The following table provides detail for noninterest income and changes for the periods stated.
(Dollars in thousands)
Gain on sale of Paycheck Protection Program loans
Residential mortgage banking income, net
Mortgage servicing rights
Gain on termination of interest rate swaps
Gain on sale of guaranteed government loans
Wealth and trust management
Service charges on deposit accounts
Increase in cash surrender value of bank owned life
insurance
Payroll processing
Bank and purchase card, net
Fair value adjustments of other equity investments
Other
Total noninterest income
$
$
For the years ended
December 31,
2021
2020
Change $
Change %
24,315 $
28,624
8,398
6,221
2,005
2,373
1,464
932
941
1,805
7,316
3,561
87,955 $
— $
44,460
7,084
—
880
—
905
390
974
1,297
—
834
56,824 $
24,315
(15,836)
1,314
6,221
1,125
2,373
559
542
(33)
508
7,316
2,727
31,131
100.00%
(35.62%)
18.55%
100.00%
127.84%
100.00%
61.77%
138.97%
(3.39%)
39.17%
100.00%
326.98%
54.78%
39
The Company’s primary noninterest income sources include deposit account service charges and other fees, residential
mortgage banking income, which includes gains on sales of mortgages, MSR income, gains on the sale of government
guaranteed loans, wealth and trust management fees, and income from bank owned life insurance. Noninterest income totaled
$88.0 million and $56.8 million for the years ended December 31, 2021 and 2020, respectively. The increase in noninterest
income was primarily attributable to the second quarter of 2021 sale of approximately 19,500 PPP loans with aggregate
principal balances of $712.6 million that resulted in a $24.3 million gain on the sale after giving effect to $30.9 million of
unearned fees, net of deferred costs, and the sale discount. Also contributing to the increase in noninterest income was a $6.2
million gain on the termination of interest rate swaps in the fourth quarter of 2021 that hedged interest rates on certain FHLB
advances, and $7.3 million of fair value adjustments attributable to certain other equity investments, primarily direct
investments in fintech companies. Partially offsetting these increases in noninterest income was lower residential mortgage
banking income in the 2021 period compared to the 2020 period, primarily due to lower pricing of mortgages sold to the
secondary market.
Noninterest Expense. The following table provides detail for noninterest expense and changes for the periods stated.
(Dollars in thousands)
Salaries and employee benefits
Occupancy and equipment
Data processing
Legal, issuer, and regulatory filing
Advertising and marketing
Communications
Audit and accounting fees
FDIC insurance
Intangible amortization
Other contractual services
Other taxes and assessments
Merger-related
Other
Total noninterest expense
For the years ended
December 31,
2021
2020
Change $
Change %
$
$
61,891 $
6,508
4,441
1,736
1,403
2,814
902
1,014
1,867
2,783
2,613
11,868
12,302
112,142 $
45,418 $
3,551
2,683
2,687
776
721
436
749
825
1,408
1,013
2,372
5,748
68,387 $
16,473
2,957
1,758
(951)
627
2,093
466
265
1,042
1,375
1,600
9,496
6,554
43,755
36.27%
83.27%
65.52%
(35.39%)
80.80%
290.29%
106.88%
35.38%
126.30%
97.66%
157.95%
400.34%
114.02%
63.98%
Noninterest expense totaled $112.1 million and $68.4 million for the years ended December 31, 2021 and 2020,
respectively. The increases in noninterest expenses were primarily attributable to the Bay Banks Merger, which was effective
January 31, 2021. Also contributing to higher salaries and employee benefits expense in the 2021 period were employees
added to support the Company's noninterest income lines and greater incentive expense. Greater incentive expense in the
2021 period included bonuses to reward front-line and support personnel for the efforts made to fulfill PPP loans and other
management incentives. Merger-related expenses totaled $11.9 million and $2.4 million for the 2021 and 2020 periods,
respectively, with the former period including expenses incurred for both the Bay Banks Merger and the now-terminated
proposed merger with FVCBankcorp, Inc.
Income Tax Expense. For the year ended December 31, 2021, the Company recorded a provision for income taxes of
$15.7 million (effective tax rate of 23.1%) as compared to a provision of $4.8 million (effective tax rate of 21.4%) for the
year ended December 31, 2020. The higher effective tax rate for 2021 was primarily the result of tax provisions made for
state income taxes, as the Company expanded its operations, primarily its mortgage division, into various states, primarily its
mortgage banking division.
Analysis of Financial Condition
Loan Portfolio. The Company makes loans to individuals as well as to commercial entities. Specific loan terms vary as
to interest rate and repayment and collateral requirements based on the type of loan requested and the creditworthiness of the
prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located
in the markets serviced by the Bank. All loans are underwritten within specific lending policy guidelines that are designed to
maximize the Company’s profitability within an acceptable level of business risk.
40
The following table presents the Company’s loan portfolio by category of loan and the percentage of loans in each
category to total loans as of the dates stated.
(Dollars in thousands)
Commercial and industrial
Paycheck Protection Program
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage, residential
Real estate – mortgage, farmland
Consumer loans
Gross loans
Less: deferred loan fees, net of costs
Gross loans, net of deferred loan fees
Less: Allowance for loan losses
Net loans
Loans held for sale (not included in totals above)
At December 31,
2021
2020
Amount
Percent
Amount
Percent
$
320,827
30,742
146,523
58,857
701,503
493,982
6,173
49,877
1,808,484
(906)
1,807,578
(12,121)
$ 1,795,457
121,943
$
17.7% $
1.7%
8.1%
3.3%
38.8%
27.3%
0.3%
2.8%
100.0%
123,675
292,068
54,702
18,040
273,499
213,404
3,615
41,962
1,020,965
(4,271)
1,016,694
(13,827)
$ 1,002,867
152,931
$
12.1%
28.6%
5.4%
1.8%
26.8%
20.9%
0.4%
4.1%
100.0%
41
The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed) as of December 31, 2021.
(Dollars in thousands)
Commercial and industrial
Paycheck Protection Program
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage, residential
Real estate – mortgage, farmland
Consumer loans
Gross loans
Variable rate
Total
Maturities
$
320,827 $
30,742
146,523
58,857
701,503
493,982
6,173
49,877
$ 1,808,484 $
One Year
or Less
Total
1-5 years
5-15 years
More than
15 years
60,571 $
—
40,258
46,445
53,091
17,772
6
1,897
220,041 $
94,775 $
—
53,515
4,070
299,908
250,301
1,923
20,054
724,546 $
77,484 $
—
30,405
482
59,567
14,987
151
19,919
202,995 $
16,502 $
—
10,289
1,047
157,045
62,812
286
135
248,116 $
789 $
—
12,821
2,540
83,296
172,502
1,486
—
273,435 $
Fixed rate
1-5 years
5-15 years
More than
15 years
79,620 $
30,742
37,390
3,827
203,155
43,171
3,067
21,953
422,924 $
83,998 $
—
12,367
1,863
142,796
60,982
1,178
5,907
309,089 $
1,861
—
2,993
2,652
2,553
121,757
—
67
131,884
Total
165,480 $
30,742
52,749
8,342
348,504
225,909
4,245
27,927
863,897 $
42
The following table presents a summary of the activity in the Company's allowance for loan losses and the ratio of net
charge-offs to average loans outstanding for the periods stated.
(Dollars in thousands)
Allowance, beginning of period
Charge-offs
Commercial and industrial
Real estate – construction
Real estate – mortgage
Consumer and other loans
Total charge-offs
Recoveries
Commercial and industrial
Real estate – construction
Real estate – mortgage
Consumer and other loans
Total recoveries
Net charge-offs
Provision for loan losses
Allowance, end of period
Ratio of net charge-offs to average loans outstanding during period:
Commercial and industrial
Real estate – construction
Real estate – mortgage
Consumer and other loans
Total loans
$
$
$
Year Ended December 31,
$
$
$
2021
13,827
(1,098)
(195)
(125)
(1,123)
(2,541)
196
—
98
424
718
(1,823)
117
12,121
0.32%
0.10%
0.00%
0.32%
0.10%
2020
4,572
(6)
—
(505)
(994)
(1,505)
41
—
8
261
310
(1,195)
10,450
13,827
0.03%
0.00%
0.10%
0.47%
0.15%
Management believes that the Company's allowance for loan losses was adequate as of December 31, 2021. There can be
no assurance that adjustments to the allowance for loan losses will not be required in the future. Changes in the economic
assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis
or in the Company’s market area; or changes in the circumstances of particular borrowers are criteria that could require
adjustments to the provision for loan losses. In addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance for loan losses based on their judgments of information available to them at the time of their
examination.
The allowance for loan losses includes specific and general components applicable to all loan categories; however,
management has allocated the allowance by loan type to provide an indication of the relative risk characteristics of the loan
portfolio. The allocation is an estimate and should not be interpreted as an indication that charge-offs will occur in these
amounts, or that the allocation indicates future trends, and does not restrict the usage of the allowance for any specific loan or
category.
The following presents the allocation of the allowance for loan losses by loan category and as a percentage of each
category as of the dates stated.
(Dollars in thousands)
Commercial and industrial
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage, residential
Real estate – mortgage, farmland
Consumer and other
December 31,
2021
% of
Loans
2020
% of
Loans
2,859
895
21
4,294
1,493
18
2,541
12,121
0.89% $
0.61%
0.04%
0.61%
0.30%
0.29%
5.09%
$
3,762
960
150
4,215
1,481
18
3,241
13,827
4.04%
1.76%
0.83%
1.58%
0.34%
0.50%
6.97%
$
$
42
The table above excludes PPP loans, which carry no allowance for loan losses as they are fully guaranteed by the U.S.
government. In future periods, the Company may be required to establish an allowance for loan losses for these loans, which
would result in a provision for loan losses charged to earnings.
Nonperforming Assets. The following table presents a summary of nonperforming assets and various measures as of the
dates stated.
$
$
$
$
$
$
$
(Dollars in thousands)
Nonaccrual loans (1)
Loans past due 90 days and still accruing (1)
Total nonperforming loans
Other real estate owned
Total nonperforming assets
Allowance for loan losses
Loans held for investment, including PPP loans
Loans held for investment, excluding PPP loans
Total assets
Allowance for loan losses to total loans held for investment,
including PPP loans
Allowance for loan losses to total loans held for investment,
excluding PPP loans
Allowance for loan losses to nonperforming loans
Nonperforming loans to total loans held for investment, including
PPP loans
Nonperforming loans to total loans held for investment, excluding
PPP loans
Nonperforming assets to total assets
(1) Excluding PCI loans and accruing TDRs
December 31,
2021
2020
15,177
917
16,094
157
16,251
12,121
1,807,578
1,777,172
2,665,139
$
$
$
$
$
$
$
0.67%
0.68%
75.31%
0.89%
0.91%
0.61%
6,548
46
6,594
—
6,594
13,827
1,016,694
728,161
1,498,258
1.36%
1.90%
209.69%
0.65%
0.91%
0.44%
The increase in nonperforming assets in 2021 was primarily attributable to commercial loans to the same borrower
relationship that were placed on nonaccrual status in the second quarter of 2021. The decline in the ratio of the allowance for
loan losses to total loans held for investment, excluding PPP loans, at December 31, 2021 compared to December 31, 2020
was primarily attributable to loans acquired in the Bay Banks Merger, as no allowance for loan losses carried over in the
merger. The remaining purchase accounting adjustment (discount) related to loans acquired in the Bay Banks Merger and
earlier acquisitions by the Company was $16.2 million and $1.2 million as of December 31, 2021 and 2020, respectively.
Loans are placed in nonaccrual status when in the opinion of management the collection of additional interest is unlikely
or a specific loan meets the criteria for nonaccrual status established by regulatory authorities, generally 90 days or more past
due. Any unpaid interest previously accrued on those loans is reversed from income in the period in which the loan's status
changes to nonaccrual. No interest income is recognized on loans in nonaccrual status and any payments received for interest
reduce the recorded investment of the respective loan. Generally, a loan remains on nonaccrual status until the loan is current
as to both principal and interest or the borrower demonstrates the ability to pay and remain current, or both.
OREO includes properties that have been substantively repossessed or acquired in complete or partial satisfaction of
debt. Such properties, which are held for resale, are initially stated at fair value, including a reduction for the estimated
selling expenses, which becomes the carrying value. In subsequent periods, such properties are stated at the lower of the
restated carrying value or fair value.
Impaired loans also include certain loans that have been modified in TDRs where economic concessions have been
granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically
result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions,
forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of
restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance
for a reasonable period, generally six months. The Company had eight TDRs in the amount of $1.0 million as of December
31, 2021 and two TDRs in the amount of $142 thousand as of December 31, 2020.
43
Investment Securities. The investment portfolio is used as a source of interest income, credit risk diversification, and
liquidity, as well as to manage interest rate sensitivity and provide collateral for short-term borrowings. Securities in the
investment portfolio classified as securities available for sale may be sold in response to changes in market interest rates,
securities’ prepayment risk, liquidity needs for loan demand, for general liquidity needs, and other similar factors, and are
carried at estimated fair value. The fair value of the Company’s investment securities available for sale was $373.5 million at
December 31, 2021, an increase of $264.1 from $109.5 million at December 31, 2020, of which $79.5 million was acquired
as part of the Bay Banks Merger. During 2021, the Company purchased $265.0 million in investment securities available for
sale to offset redemptions and amortization and to absorb excess liquidity. The Company did not hold any investment
securities held-to-maturity at December 31, 2021 or December 31, 2020. Securities in the investment portfolio may be
classified as held to maturity, if the Company has the ability and intent to hold them to maturity, and would be carried at
amortized cost.
As of December 31, 2021 and 2020, the majority of the investment securities portfolio consisted of securities rated
investment grade by a leading rating agency. Investment securities which are investment grade are judged to be of the best
quality and carry the smallest degree of investment risk. The fair value of investment securities that were pledged to secure
public deposits totaled $8.7 million and $12.5 million as of December 31, 2021 and December 31, 2020, respectively.
The Company completes reviews of its investment portfolio for other-than-temporary impairment at least quarterly. At
December 31, 2021 and December 31, 2020, securities in an unrealized loss position were of investment grade. Investment
securities with unrealized losses are a result of pricing changes due to recent changes in interest rates and other conditions in
the current market environment and were not deemed a result of permanent credit impairment. Contractual cash flows for the
agency mortgage-backed securities are guaranteed and/or funded by the U.S. government. Municipal securities show no
indication that the contractual cash flows will not be received when due. The Company does not intend to sell nor does it
believe that it will be required to sell any of its temporarily impaired securities prior to the recovery of the amortized cost. No
other-than-temporary impairment was recognized for the securities in the Company’s investment portfolio as of and for the
years ended December 31, 2021 and 2020.
Restricted equity investments consisted of stock in the FHLB (carrying basis $1.7 million and $5.8 million at December
31, 2021 and 2020, respectively), the Federal Reserve Bank of Richmond ("FRB") stock (carrying basis of $6.1 million and
$2.2 million at December 31, 2021 and 2020, respectively), and stock in the Company’s correspondent bank (carrying basis
of $468 thousand and $248 thousand at December 31, 2021 and 2020, respectively). Restricted equity investments are carried
at cost. The Company holds various other equity investments, including shares in other financial institutions and fintech
companies, totaling $14.2 million and $3.0 million as of December 31, 2021 and 2020, respectively, which are carried at fair
value with any gain or loss reported in the consolidated statements of operations each reporting period.
The following table presents the composition of the Company’s investment portfolio, at amortized cost, as of the dates
stated.
(Dollars in thousands)
Securities available for sale
State and municipal
U. S. Treasury and agencies
Mortgage backed securities
Corporate bonds
Total
December 31,
2021
2020
Balance
Percent of
total
Balance
Percent of
total
$
$
51,341
65,680
222,968
38,752
378,741
13.6% $
17.3%
58.9%
10.2%
100.0% $
14,069
2,500
72,337
19,755
108,661
12.9%
2.3%
66.6%
18.2%
100.0%
44
The following table presents the amortized cost of the investment portfolio by contractual maturities, as well as the weighted average yields for each of the maturity
ranges as of and for the period stated. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
(Dollars in thousands)
Securities available for sale
State and municipal
U. S. Treasury and agencies
Mortgage backed securities
Corporate bonds
Total
Within One Year
One to Five Years
Five to Ten Years
Over Ten Years
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Total
Amortized
Cost
December 31, 2021
$
$
905
—
48
—
953
1.72% $
—
1.00%
—
$
3,208
7,500
11,287
3,497
25,492
1.52% $
0.87%
0.48%
5.44%
$
20,776
46,152
18,987
34,524
120,439
1.68% $
1.26%
1.99%
4.40%
$
26,452
12,028
192,646
731
231,857
1.92% $
1.43%
1.37%
4.53%
$
51,341
65,680
222,968
38,752
378,741
45
Deposits. The principal sources of funds for the Company are core deposits which include transaction accounts (demand
deposits and money market accounts), time deposits, and savings accounts, all of which provide the Bank a source of fee
income and cross-marketing opportunities. Core deposits are a low-cost source of funding for the Bank, and are preferred to
brokered deposits.
The following table presents the composition of deposits as of the dates stated.
(Dollars in thousands)
Noninterest-bearing demand
Interest-bearing demand and money market deposits
Savings
Time deposits
Total deposits
December 31,
2021
2020
Amount
706,088
941,805
150,376
499,502
2,297,771
$
$
% of Total
Deposits
Amount
% of Total
Deposits
30.7% $
41.0%
6.5%
21.7%
100.0% $
333,051
282,263
78,352
251,443
945,109
35.2%
29.9%
8.3%
26.6%
100.0%
Total deposits include uninsured deposits of $680.4 million and $254.4 million as of December 31, 2021 and 2020,
respectively. Uninsured deposit amounts are based on estimates as of the reported date.
Brokered and listing service deposits comprised both time deposits and money market accounts totaled $62.1 million and
$48.7 million as of December 31, 2021 and 2020, respectively.
Approximately 21.7% of the Company’s deposits as of December 31, 2021 were comprised of time deposits, which are
generally the most expensive form of deposit because of their fixed rate and term, compared to 26.6% as of December 31,
2020. Noninterest-bearing demand deposits, which represented 30.7% and 35.2% of total deposits as of December 31, 2021
and December 31, 2020, respectively, are generally viewed as the most favorable form of deposit for financial institutions. In
2021, noninterest-bearing demand deposits increased $373.0 million from December 31, 2020, including $200.0 million
assumed in the Bay Banks Merger.
The following table presents a summary of average deposits and the weighted average rate paid for the periods stated.
(Dollars in thousands)
Noninterest-bearing demand deposits
Interest-bearing deposits:
Demand deposits
Savings
Money market deposits
Time deposits
Total interest-bearing deposits
Total average deposits
For the year ended December 31,
2020
2021
Average
Balance
Rate
Average
Balance
Rate
$
658,063
— $
283,186
—
262,679
144,151
501,588
540,471
1,448,889
$ 2,106,953
0.27%
0.16%
0.26%
0.78%
$
101,178
82,510
163,096
261,891
608,675
891,861
0.34%
0.14%
0.62%
1.82%
The following table presents maturities of time deposits for certificate of deposits $250 thousand or greater as of the
dates stated.
(Dollars in thousands)
Maturing in:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
December 31,
2021
2020
$
$
30,943 $
47,818
14,213
51,868
144,842 $
12,157
22,901
7,132
53,461
95,651
46
Borrowings. The Company uses short-term and long-term borrowings from various sources, including FHLB advances
and FRB advances, to finance operations. The following table presents information on the balances and interest rates on
borrowings as of and for periods stated.
(Dollars in thousands)
FHLB borrowings
FRB borrowings
(Dollars in thousands)
FHLB borrowings
FRB borrowings
For the Year Ended December 31, 2021
Period-
End
Balance
Highest
Month-
End
Balance
Average
Balance
Weighted
Average
Rate
$
10,111 $
17,901
220,000 $
632,540
147,919
245,196
0.82%
0.32%
For the Year Ended December 31, 2020
Period-
End
Balance
Highest
Month-
End
Balance
Average
Balance
Weighted
Average
Rate
$
115,000 $
281,650
124,000 $
355,484
121,033
223,869
1.37%
0.35%
FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in the Company’s residential,
multifamily, and commercial real estate mortgage loan portfolios, as well as selected investment portfolio securities. FRB
borrowings in the 2021 and 2020 periods consist exclusively of PPPLF advances secured by PPP loans.
Subordinated notes, net, totaled $40.0 million as of December 31, 2021 compared to $24.5 million as of December 31,
2020, a $15.5 million increase for the year ended December 31 2021, which was primarily attributable to $31.9 million of
subordinated notes assumed in the Bay Banks Merger, partially offset by two subordinated note redemptions in 2021. The
Company redeemed subordinated notes with an initial aggregate principal balance of $10.0 million and $7.0 million in the
second and third quarters of 2021, respectively.
Liquidity. Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and
borrowers. The Company must be able to meet these needs by obtaining funding from depositors or other lenders or by
converting non-cash items into cash. Stable core deposits and a strong capital position provide the base for the Company’s
liquidity position. The objective of the Company’s liquidity management program is to ensure that it has sufficient resources
to meet the demands of depositors and borrowers. Management believes the Company has demonstrated its ability to attract
deposits do to its branch locations, personal service, technology, and pricing.
In addition to deposits, the Company has access to the various wholesale funding markets. These markets include the
brokered certificate of deposit market, listing service deposit market, and the federal funds market. The Bank is a member of
the IntraFi Network, which allows banking customers to access FDIC insurance protection on deposits through the Bank,
which exceed FDIC insurance limits. The Bank has one-way authority with IntraFi for both its Certificate of Deposit Account
Registry Service and Insured Cash Swap Service products, which provides the Bank the ability to access additional wholesale
funding as needed. The Company maintains a secured line of credit with the FHLB for which the Bank can borrow up to the
allowable amount for the collateral pledged. Having diverse funding alternatives reduces the Company’s reliance on any one
source for funding.
Cash flows from amortizing or maturing assets (loans and securities) also provide funding to meet the needs of
depositors and borrowers.
The Bank has a line of credit from the FHLB of $358.1 million as of December 31, 2021, with available credit of $263.1
million as of the same date. Outstanding advances drawn on this line totaled $10.0 million and letters of credit pledged for
the purpose of collateral for public deposits with the Treasury Board of the Commonwealth of Virginia, which also reduce
the available credit balance, totaled $85.0 million as December 31, 2021. The FHLB may provide a credit line of up to 30%
of the Bank’s asset value as of the prior quarter-end, subject to certain eligibility requirements, and loan and/or securities
collateral pledged.
The Bank had five unsecured federal fund lines available with correspondent banks for overnight borrowing totaling
$44.0 million and $38.0 million at December 31, 2021 and 2020, respectively. These lines bear interest at the prevailing rate
for such lines and are cancellable at any time by the correspondent banks. These lines were not drawn upon at December 31,
2021 or 2020.
47
The Company’s liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of
cash, including deposits. This situation may arise due to circumstances that the Company may be unable to control, such as
general market disruption, negative views about the financial services industry generally, or an operational problem that
affects a third party or the Company. The Company’s ability to borrow from other financial institutions on favorable terms or
at all could be adversely affected by disruptions in the capital markets or other events. The Company has established a formal
liquidity contingency plan, which provides guidelines for liquidity management. For the Company’s liquidity management
program, the current liquidity position is determined and then forecasted based on anticipated changes in the balance sheet. In
this forecast, the Company expects to maintain a liquidity cushion. The Company then stresses its liquidity position under
several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushions and under each
stress scenario have been established by policies approved by the board of directors. Management believes the Company has
sufficient resources to meet its liquidity needs.
Capital. Capital adequacy is an important measure of financial stability and performance. Management's objectives are
to maintain a level of capitalization that is sufficient for the Bank to be categorized as "well capitalized" for regulatory
purposes, to sustain asset growth, and promote depositor and investor confidence.
Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial
institutions must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. A financial institution's capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Basel III Capital Rules were phased-in over a multi-year schedule and were fully phased-in on January 1, 2019.
Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital
ratios of 2.50% for all ratios, except the tier 1 leverage ratio. If a banking organization dips into its capital conservation
buffer, it is subject to limitations on certain activities, including payment of dividends, share repurchases, and discretionary
compensation to certain officers. As of December 31, 2021, the Bank met all capital adequacy requirement to which it is
subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized; although, these terms are not used to
represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.
At December 31, 2021, the most recent regulatory notification, categorized the Bank as well capitalized under the regulatory
framework. There are no conditions or events since that notification that management believes have changed the institution's
category.
Federal and state banking regulations place certain restrictions on dividends paid by the Company. The total amount of
dividends which may be paid at any date is generally limited to retained earnings of the Company. On September 17, 2019,
the federal banking agencies jointly issued a final rule required by the EGRRCPA that permits qualifying banks and bank
holding companies that have less than $10 billion in consolidated assets to elect to be subject to the CBLR. Under the rule,
which became effective on January 1, 2020, banks and bank holding companies that opt into the CBLR framework and
maintain a CBLR of greater than 9% are not subject to other risk-based and leverage capital requirements under the Basel III
Capital Rules and would be deemed to have met the well capitalized ratio requirements under the “prompt corrective action”
framework. The Company has not opted into the CBLR framework.
48
The following tables present the capital and capital ratios to which the Bank is subject and the amounts and ratios to be
adequately and well capitalized for the dates stated. Adequately capitalized ratios include the conversation buffer.
(Dollars in thousands)
Total risk based capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Tier 1 capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Common equity tier 1 capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Tier 1 leverage
(To average assets)
Blue Ridge Bank, N.A.
(Dollars in thousands)
Total risk based capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Tier 1 capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Common equity tier 1 capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Tier 1 leverage
(To average assets)
Blue Ridge Bank, N.A.
$
$
$
$
$
$
$
$
Actual
Amount
Ratio
As of December 31, 2021
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Amount
Ratio
273,978
13.11% $
219,393
10.50% $
208,946
10.00%
260,896
12.49% $
177,604
8.50% $
167,157
8.00%
260,896
12.49% $
146,262
7.00% $
135,815
6.50%
260,896
10.05% $
103,883
4.00% $
129,853
5.00%
Actual
Amount
Ratio
As of December 31, 2020
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Amount
Ratio
109,219
13.10% $
87,574
10.50% $
83,404
10.00%
98,751
11.84% $
70,893
8.50% $
66,723
8.00%
98,751
11.84% $
58,383
7.00% $
54,213
6.50%
98,751
8.34% $
47,363
4.00% $
59,180
5.00%
49
Off-Balance Sheet Activities
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract and involve the same credit risk and evaluation as making a loan to a customer. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. As of December 31, 2021 and December 31, 2020, the Company had outstanding loan
commitments of $475.1 million and $126.0 million, respectively.
Conditional commitments are issued by the Company in the form of performance stand-by letters of credit, which
guarantee the performance of a customer to a third party. As of December 31, 2021 and 2020, commitments under
outstanding performance stand-by letters of credit totaled $655 thousand and $0, respectively. Additionally, the Company
issues financial stand-by letters of credit, which guarantee payment to the underlying beneficiary (i.e., third party) if the
customer fails to meet its designated financial obligation. As of December 31, 2021 and 2020, commitments under
outstanding financial stand-by letters of credit totaled $4.5 million and $6.1 million, respectively. The credit risk of issuing
stand-by letters of credit can be greater than the risk involved in extending loans to customers.
The Company invests in various partnerships and limited liability companies, many of which invest in early-stage
companies. Pursuant to these investments, the Company commits to an investment amount that may be fulfilled in future
periods, pursuant to capital calls. At December 31, 2021, the Company had future commitments outstanding totaling $8.3
million related to these investments.
The Company also has investments in various small business investment company ("SBIC") funds. The Company's
obligations to these funds are satisfied in the form of capital calls that occur during the commitment period. As of December
31, 2021, the Company's remaining capital commitments associated with its investments in SBIC funds was $11.4 million.
Interest Rate Risk Management
As a financial institution, the Company is exposed to various business risks, including interest rate risk. Interest rate risk
is the risk to earnings and value arising from volatility in market interest rates. Interest rate risk arises from timing differences
in the repricing and maturities of interest-earning assets and interest-bearing liabilities, changes in the expected maturities of
assets and liabilities arising from embedded options, such as borrowers' ability to prepay loans and depositors' ability to
redeem certificates of deposit before maturity, changes in the shape of the yield curve where interest rates increase or
decrease in a nonparallel fashion, and changes in spread relationships between different yield curves, such as U.S. Treasuries
and other market-based index rates. The Company’s goal is to maximize net interest income without incurring excessive
interest rate risk. Management of net interest income and interest rate risk must be consistent with the level of capital and
liquidity that the Bank maintains. The Company manages interest rate risk through an asset and liability committee
comprised of members of its board of directors and management (the “ALCO”). The ALCO is responsible for monitoring the
Company’s interest rate risk in conjunction with liquidity and capital management.
The Company employs an independent consulting firm to model its interest rate sensitivity that uses a net interest
income simulation model as its primary tool to measure interest rate sensitivity. Assumptions for modeling are developed
based on expected activity in the balance sheet. For maturing assets, assumptions are created for the redeployment of these
assets. For maturing liabilities, assumptions are developed for the replacement of these funding sources. Assumptions are
also developed for assets and liabilities that could reprice during the modeled time period. These assumptions also cover how
management expects rates to change on non-maturity deposits such as interest checking, money market checking, savings
accounts, as well as certificates of deposit. Based on inputs that include the current balance sheet, the current level of interest
rates, and the developed assumptions, the model produces an expected level of net interest income assuming that market rates
remain unchanged. This is considered the base case. The model then simulates what net interest income would be based on
specific changes in interest rates. The rate simulations are performed for a two-year period and include rapid rate changes of
down 100 basis points to 200 basis points and up 100 basis points to 400 basis points. The results of these simulations are
then compared to the base case.
50
Change in interest rates:
+400 basis points
+300 basis points
+200 basis points
+100 basis points
Base case
-100 basis points
-200 basis points
December 31, 2021
Instantaneous Parallel Rate Shock Scenario
Change in Net
Change in Net
Interest Income -
Interest Income -
Year 2
Year 1
$
6,171
5,919
4,783
2,731
—
(2,863)
(4,258)
7.0% $ 14,874
12,505
6.7%
9,328
5.4%
5,175
3.1%
—
—
(3,654)
(3.2%)
(5,498)
(4.8%)
17.2%
14.5%
10.8%
6.0%
—
(4.2%)
(6.4%)
Stress testing the balance sheet and net interest income using instantaneous parallel shock movements in the yield curve
of 100 to 400 basis points is a regulatory and banking industry practice. However, these stress tests may not represent a
realistic forecast of future interest rate movements in the yield curve. In addition, instantaneous parallel interest rate shock
modeling is not a predictor of actual future performance of earnings. It is a financial metric used to manage interest rate risk
and track the movement of the Company’s interest rate risk position over a historical time frame for comparison purposes.
The asset and liability repricing characteristics of the Company’s assets and liabilities will have a significant impact on
its future interest rate risk profile.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is incorporated herein by reference to the information in section "Interest Rate Risk Management"
within Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K.
51
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Blue Ridge Bankshares, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Blue Ridge Bankshares, Inc. and its subsidiaries (the
Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income,
changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial
statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Elliott Davis, PLLC
We have served as the Company's auditor since 2020.
Raleigh, North Carolina
March 11, 2022
52
Blue Ridge Bankshares, Inc.
Consolidated Balance Sheets
December 31, 2021 and 2020
(Dollars in thousands except share data)
ASSETS
Cash and due from banks
Federal funds sold
Securities available for sale, at fair value
Restricted and other equity investments
Other investments
Loans held for sale
Paycheck Protection Program loans, net of deferred fees and costs
Loans held for investment, net of deferred fees and costs
Less allowance for loan losses
Loans held for investment, net
Accrued interest receivable
Other real estate owned
Premises and equipment, net
Right-of-use asset
Bank owned life insurance
Goodwill
Other intangible assets
Mortgage derivative asset
Mortgage servicing rights, net
Mortgage brokerage receivable
Interest rate swap asset
Other assets
Total assets
LIABILITIES & STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand
Interest-bearing demand and money market deposits
Savings
Time deposits
Total deposits
FHLB borrowings
FRB borrowings
Subordinated notes, net
Lease liability
Interest rate swap liability
Other liabilities
Total liabilities
Commitments and contingencies (Note 23)
Stockholders’ Equity:
Common stock, no par value; 25,000,000 shares authorized; 18,774,082 and
8,577,932 shares issued and outstanding at December 31, 2021 and
December 31, 2020, respectively (1)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income, net of tax
Total Blue Ridge Bankshares, Inc. stockholders' equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
2021
2020
$
$
$
130,643
43,903
373,532
22,518
13,643
121,943
30,406
1,777,172
(12,121)
1,765,051
9,573
157
26,661
6,317
46,545
26,826
7,742
1,876
16,469
4,064
199
17,071
2,665,139
706,088
941,805
150,376
499,502
2,297,771
10,111
17,901
39,986
7,651
199
14,381
2,388,000
117,945
775
109,475
11,173
6,565
152,931
288,533
728,161
(13,827)
714,334
5,428
—
14,831
5,328
15,724
19,620
2,581
5,293
7,084
8,516
1,716
10,406
1,498,258
333,051
282,263
78,352
251,443
945,109
115,000
281,650
24,506
5,506
2,735
15,552
1,390,058
194,309
252
85,982
(3,632)
276,911
228
277,139
2,665,139
$
66,771
252
40,688
264
107,975
225
108,200
1,498,258
$
$
$
$
(1) Common stock as of the periods presented is reflective of the Company's 3-for-2 stock split effective April 30, 2021.
See accompanying notes to consolidated financial statements.
53
Blue Ridge Bankshares, Inc.
Consolidated Statements of Operations
For the years ended December 31, 2021 and 2020
(Dollars in thousands, except per share data)
INTEREST INCOME
Interest and fees on loans
Interest on securities, deposit accounts, and federal funds sold
Total interest income
INTEREST EXPENSE
Interest on deposits
Interest on subordinated notes
Interest on FHLB and FRB borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Gain on sale of Paycheck Protection Program loans
Residential mortgage banking income, net
Mortgage servicing rights
Gain on termination of interest rate swaps
Gain on sale of guaranteed government loans
Wealth and trust management
Service charges on deposit accounts
Increase in cash surrender value of bank owned life insurance
Payroll processing
Bank and purchase card, net
Fair value adjustments of other equity investments
Other
Total noninterest income
NONINTEREST EXPENSE
Salaries and employee benefits
Occupancy and equipment
Data processing
Legal, issuer, and regulatory filing
Advertising and marketing
Communications
Audit and accounting fees
FDIC insurance
Intangible amortization
Other contractual services
Other taxes and assessments
Merger-related
Other
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
Net income attributable to noncontrolling interest
Net income attributable to Blue Ridge Bankshares, Inc.
Net income available to common stockholders
Basic and diluted earnings per common share (EPS) (1)
2021
2020
$
$
97,933
5,613
103,546
6,437
2,627
2,001
11,065
92,481
117
92,364
24,315
28,624
8,398
6,221
2,005
2,373
1,464
932
941
1,805
7,316
3,561
87,955
61,891
6,508
4,441
1,736
1,403
2,814
902
1,014
1,867
2,783
2,613
11,868
12,302
112,142
68,177
15,697
52,480
(3)
52,477
52,477
2.94
$
$
$
$
$
$
$
$
51,559
2,901
54,460
6,246
1,265
2,439
9,950
44,510
10,450
34,060
—
44,460
7,084
—
880
—
905
390
974
1,297
—
834
56,824
45,418
3,551
2,683
2,687
776
721
436
749
825
1,408
1,013
2,372
5,748
68,387
22,497
4,800
17,697
(1)
17,696
17,696
2.07
(1) EPS has been adjusted for all periods presented to reflect the Company's 3-for-2 stock split effective April 30, 2021.
See accompanying notes to consolidated financial statements.
54
Blue Ridge Bankshares, Inc.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2021 and 2020
(Dollars in thousands)
Net income
Other comprehensive income (loss):
For the years ended December 31,
2021
2020
$
52,480
$
17,697
Gross unrealized (losses) gains on securities available for sale arising during the
period
Deferred income tax benefit (expense)
Reclassification of net loss (gain) on securities available for sale included in net
income
Income tax (benefit) expense
Unrealized (losses) gains on securities available for sale arising during the
period, net of tax
Transfer of securities held to maturity to available for sale
Deferred income tax expense
Unrealized gains on transfer of held-to-maturity securities to available for
sale, net of tax
Gross unrealized gains (losses) on interest rate swaps
Deferred income tax (expense) benefit
Reclassification of net gains on interest rate swaps included in net income
Income tax expense
Unrealized gains (losses) on interest rate swaps, net of tax
Gross unrealized losses on pension and post-retirement benefit plans
Deferred income tax benefit
Unrealized losses on pension and post-retirement benefit plans
Other comprehensive (loss) income, net of tax
Comprehensive net income
Comprehensive net income attributable to noncontrolling interest
Comprehensive net income attributable to Blue Ridge Bankshares, Inc.
$
$
See accompanying notes to consolidated financial statements.
(6,093)
1,279
144
(30)
(4,700)
—
—
—
7,240
(1,521)
(6,221)
1,307
805
(2)
1
(1)
(3,896)
48,584
(3)
48,581
$
$
491
(103)
(211)
44
221
538
(113)
425
(774)
163
—
—
(611)
—
—
—
35
17,732
(1)
17,731
55
Blue Ridge Bankshares, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
As of and for the years ended December 31, 2021 and 2020
(Dollars in thousands except share data)
Balance, December 31, 2019
Net income
Other comprehensive income
Dividends on common stock
Restricted stock awards, net of forfeitures
Balance, December 31, 2020
Net income
Other comprehensive loss
Dividends on common stock
Issuance of common stock and other consideration paid in
business combination
Stock option exercises
Restricted stock awards, net of forfeitures
Balance, December 31, 2021
Shares of
Common Stock (1)
8,487,878
—
—
—
90,054
8,577,932
—
—
—
Common Stock
66,204
$
—
—
—
567
66,771
—
—
—
$
9,951,743
89,786
154,621
18,774,082
$
125,403
804
1,331
194,309
Additional Paid-
in Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss), net
Noncontrolling
Interest
Total
$
$
$
252
—
—
—
—
252
—
—
—
—
—
—
252
$
$
$
25,428
17,696
—
(2,436)
—
40,688
52,477
—
(7,183)
—
—
—
85,982
$
$
$
229
—
35
—
—
264
—
(3,896)
—
—
—
—
(3,632)
$
$
$
224
1
—
—
—
225
3
—
—
—
—
—
228
$
$
$
92,337
17,697
35
(2,436)
567
108,200
52,480
(3,896)
(7,183)
125,403
804
1,331
277,139
(1) Common stock outstanding as of and for the periods presented is reflective of the Company's 3-for-2 stock split effective April 30, 2021.
See accompanying notes to consolidated financial statements.
56
Blue Ridge Bankshares, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2021 and 2020
(Dollars in thousands)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization
Deferred income taxes
Provision for loan losses
Accretion of fair value adjustments (discounts) on acquired loans
Amortization of fair value adjustments (premiums) on assumed time deposits
Amortization of fair value adjustments (premiums) on assumed subordinated
notes
Fair value adjustments on other real estate owned
Fair value adjustments of other equity investments
Proceeds from sale of loans held for sale
Loans held for sale, originated
Gain on sale of loans held for sale, originated
Gain on sale of Paycheck Protection Program loans
Realized losses (gains) on sale of available for sale securities
Loss on disposal of premises and equipment
Investment amortization expense, net
Amortization of subordinated debt issuance costs
Intangible amortization
Increase in cash surrender value of bank owned life insurance
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net cash provided by (used in) operating activities
Cash Flows From Investing Activities
Net increase in federal funds sold
Purchases of securities available for sale
Proceeds from calls, sales, paydowns and maturities of securities available for sale
Proceeds from calls, sales, paydowns and maturities of securities held to maturity
Proceeds from sale of other real estate owned
Net change in restricted equity and other equity investments
Proceeds from sale of Paycheck Protection Program loans
Net change in Paycheck Protection Program loans
Net increase in loans held for investment
Purchases of premises and equipment
Proceeds from sale of premises and equipment
Purchases of bank owned life insurance
Capital calls of other investments
Net cash acquired in acquisition of Bay Banks of Virginia, Inc.
Distributions from other investments
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities
Net increase in demand, savings and other interest-bearing deposits
Net decrease in time deposits
Dividends paid on common stock
Federal Home Loan Bank advances
Federal Home Loan Bank repayments
Federal Reserve Bank advances
Federal Reserve Bank repayments
Stock options exercised
Payment of subordinated notes issuance costs
Issuance of subordinated notes
Redemptions of subordinated notes
Net cash (used in) provided by financing activities
Net increase in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental Schedule of Cash Flow Information
Cash paid for:
57
2021
2020
$
52,480
$
17,697
2,168
1,923
117
(2,006)
(3,225)
(176)
75
(7,316)
1,228,021
(1,171,787)
(21,432)
(24,315)
144
110
1,865
206
1,867
(932)
12,442
(10,921)
59,308
(41,396)
(264,929)
71,804
—
341
(205)
705,930
(382,830)
(59,053)
(1,256)
547
(9,600)
(11,582)
44,066
647
52,484
452,173
(127,174)
(7,183)
721,000
(836,000)
434,336
(722,900)
804
—
—
(14,150)
(99,094)
12,698
117,945
130,643
$
951
(1,680)
10,450
(1,030)
(23)
—
—
—
1,099,378
(1,180,190)
(42,140)
—
(211)
160
1,138
55
825
(390)
(26,332)
13,002
(108,340)
(295)
(44,164)
53,595
1,212
—
(3,039)
—
(292,068)
(53,320)
(3,010)
719
—
(609)
—
94
(340,885)
232,591
(9,512)
(2,436)
676,900
(686,700)
363,682
(82,032)
—
(349)
15,000
—
507,144
57,919
60,026
117,945
$
Interest
Income taxes
Non-cash investing and financing activities:
Unrealized (losses) gains on securities available for sale
Transfer of securities from held to maturity to available for sale
Issuance of restricted stock awards, net of forfeitures
Assets acquired in acquisition
Liabilities assumed in acquisition
Effective settlement of subordinated notes in business combination
Change in goodwill
See accompanying notes to consolidated financial statements.
$
$
$
$
$
$
$
$
$
11,583
10,131
$
$
(6,024) $
— $
$
$
$
$
$
1,331
1,224,583
1,107,036
650
7,206
10,030
2,000
1,029
10,980
567
—
—
—
23
58
Note 1. Organization and Basis of Presentation
Blue Ridge Bankshares, Inc. (the "Company"), a Virginia corporation, was formed in 1988 and is registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended. The Company is headquartered
in Charlottesville, Virginia and conducts its business activities primarily through its wholly-owned subsidiary bank,
Blue Ridge Bank, National Association (the "Bank") and its wealth and trust management subsidiary, BRB
Financial Group, Inc. (the “Financial Group”). The Company exists primarily for the purposes of holding the stock
of its subsidiaries, the Bank and the Financial Group.
The Bank operates under a national charter and is subject to regulation by the Office of the Comptroller of the
Currency (the “OCC”). Consequently, it undergoes periodic examinations by this regulatory authority. As a bank
holding company, the Company is subject to supervision and regulation by the Board of Governors of the Federal
Reserve System and the Bureau of Financial Institutions of the Virginia State Corporation Commission, which also
periodically conduct examinations of the holding company's activities.
As of December 31, 2021, the Bank operated twenty-six full-service banking offices across its footprint, which
stretches from the Shenandoah Valley across the Piedmont region through Richmond and into the coastal peninsulas
and Hampton Roads region of Virginia and north-central North Carolina.
The Company, through the Financial Group, offers management services for personal and corporate trusts,
including estate planning, estate settlement and trust administration, insurance products, and investment and wealth
management. The Bank’s mortgage banking activities include a retail mortgage business operating as Monarch
Mortgage and wholesale mortgage business operating as LenderSelect Mortgage Group ("LenderSelect").
LenderSelect offers wholesale and third-party residential mortgage origination services to other financial institutions
and credit unions. The Company, through its minority investment in Hammond Insurance Agency, Inc. (“Hammond
Insurance”) offers property and casualty insurance to individuals and businesses. Payroll processing services are
offered through the Bank’s majority-owned subsidiary, MoneyWise Payroll Solutions, Inc. ("MoneyWise Payroll").
and employment benefit services are offered under the trade name BluePoint Benefits ("BluePoint Benefits").
On January 31, 2021, the Company completed a merger with Bay Banks of Virginia, Inc. (“Bay Banks”), a
bank holding company conducting substantially all its operations through its bank subsidiary, Virginia
Commonwealth Bank, and the Financial Group (formerly VCB Financial Group, Inc.). Immediately following the
Company’s merger with Bay Banks, Bay Banks’ subsidiary bank was merged with and into the Bank, while the
Financial Group became a subsidiary of the Company (collectively, the “Bay Banks Merger”).
In March 2021, the Company’s board of directors approved a three-for-two stock split (“Stock Split”) effected
in the form of a 50% stock dividend on the Company’s common stock outstanding paid on April 30, 2021 to
shareholders of record as of April 20, 2021. Cash was paid in lieu of fractional shares based on the closing price of
common stock on the record date. References made to outstanding shares or per share amounts in the accompanying
consolidated financial statements and disclosures have been adjusted to reflect the Stock Split for all periods
presented, unless otherwise noted.
On July 14, 2021, the Company and FVCBankcorp, Inc. (“FVCB”) jointly announced they had entered into a
definitive agreement pursuant to which FVCB would merge with and into the Company in an all-stock merger of
equals. On January 20, 2022, the Company and FVCB jointly announced a mutual agreement to terminate their
merger agreement. Both the Company and FVCB agreed that each company will bear its own costs and expenses in
connection with the terminated transaction, and that neither party will pay any termination fee as a result of the
mutual decision to terminate the merger agreement.
The accompanying consolidated financial statements of the Company include the accounts of the Bank, the
Financial Group, and MoneyWise Payroll (net of noncontrolling interest) and were prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within
the banking industry. All significant intercompany balances and transactions have been eliminated in consolidation.
Information contained herein as of December 31, 2021 includes the balances of Bay Banks; information
contained herein as of and for the year ended December 31, 2020 does not include the balances of Bay Banks.
Information for the year ended December 31, 2021 includes the operations of Bay Banks for the period immediately
following the effective date of the Bay Banks Merger (January 31, 2021) through December 31, 2021.
59
Certain amounts presented in the consolidated financial statements of prior periods have been reclassified to
conform to current year presentations, including the following instances. The reclassifications had no effect on net
income, net income per share, or shareholders’ equity, as previously reported.
Correction of Immaterial Classification Errors
During the fourth quarter of 2021, the Company determined that the classification of certain consumer loan
balances that had originated through its programs with financial technology (fintech) companies, which had been
reported on its consolidated balance sheets as loans held for investment, should have been reported as loans held for
sale. The Company has changed the classification of these loans on its December 31, 2020 consolidated balance
sheet, which resulted in a $4.7 million decrease from what was previously reported in the Company's 2020 Form 10-
K in loans held for investment, with a corresponding increase of $4.7 million in loans held for sale. The change in
classification did not affect the Company's reported total assets or earnings as of and for the year ended December
31, 2020 on its consolidated balance sheets and statements of operations, respectively.
During the third quarter of 2021, the Company determined that its 35% investment in Hammond Insurance,
which had been reported on its consolidated balance sheets in goodwill and other intangible assets, should have been
reported as other assets. Also during the third quarter of 2021, the Company determined that its acquisition of
BluePoint Benefits, which had been reported on its consolidated balance sheets in other assets, should have been
reported as goodwill. The Company has changed the classification of both investments on its December 31, 2020
consolidated balance sheets. The change in the classification for the investment in Hammond Insurance resulted in a
$613 thousand and $341 thousand decrease from what was previously reported in the Company's 2020 Form 10-K
in goodwill and other intangible assets, respectively, with a corresponding increase of $954 thousand in other
investments as of December 31, 2020. The change in the classification for the investment in BluePoint Benefits
resulted in a $340 thousand decrease from what was previously reported in the 2020 Form 10-K in other assets with
a corresponding increase of the same amount in goodwill as of December 31, 2020. Neither change in classification
for the Company's investment in Hammond Insurance and BluePoint Benefits affected the Company's reported total
assets or earnings as of and for the year ended December 31, 2020 on its consolidated balance sheet and statement of
operations, respectively.
During the first quarter of 2021, the Company determined a loan arrangement with a third-party financial
institution for the purpose of residential mortgage loan originations, which had been reported on its consolidated
balance sheets as loans held for sale, should have been reported as loans held for investment. The Company has
changed the classification of this loan on its December 31, 2020 consolidated balance sheet, which resulted in a
$30.4 million decrease from what was previously reported in the Company’s 2020 Form 10-K in loans held for sale
with a corresponding increase of the same amount in loans held for investment as of December 31, 2020. There were
no outstanding loans under this arrangement as of December 31, 2021. The change in classification did not affect the
Company’s reported earnings for 2020, the Company does not believe any material allowance for loan losses would
have been necessary for this loan as of December 31, 2020, and the Company believes its allowance for loan losses
was adequate as of December 31, 2020. This reclassification did not change total loans or total assets on the
Company’s consolidated balance sheets.
The Company evaluated the effect of the previously noted incorrect presentations, both qualitatively and
quantitatively, and concluded that its previously issued financial statements were not materially misstated due to the
changes in classification.
Note 2. Summary of Significant Accounting Policies
The accounting and reporting policies of the Company are in accordance with GAAP.
(a) Use of Estimates
In preparing consolidated financial statements in conformity with GAAP, management is required to make
estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, and disclosures of
contingent assets and contingent liabilities, as of the date of the consolidated financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to accounting for
60
business combinations, accounting for acquired loans, the allowance for loan losses, the valuation of deferred tax
assets, mortgage servicing rights, and the valuation of derivative and hedging instruments.
(b) Accounting for Business Combinations
Business combinations are accounted for under the acquisition method of accounting in accordance with
Accounting Standards Codification ("ASC") 805. ASC 805 requires that the assets acquired and liabilities assumed
in a business combination be recorded based on their estimated fair values at the date of acquisition. The excess of
the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed,
including identifiable intangibles, is recorded as goodwill. The determination of fair values requires management to
make estimates about future expected cash flows, market conditions, and other future events that are highly
subjective in nature and subject to actual results that may differ materially from the estimates made.
(c) Cash and due from banks and federal funds sold
For purposes of the consolidated statements of cash flows and balance sheets, cash and due from banks include
cash on hand and amounts due from banks, including short-term investments with original maturities of less than 90
days.
Federal funds sold represents excess bank reserves lent (generally on an overnight basis) to other financial
institutions in the federal funds market. Federal funds sold are separately disclosed within the consolidated balance
sheets.
(d) 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 liquidity needs, changes in
interest rates, prepayment risk, or other similar factors. Securities reclassified from one category to another are
transferred at fair value.
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.
Investment securities for which the fair value of the security is less than its amortized cost are evaluated on a
quarterly basis for credit related other-than-temporary impairment ("OTTI"). For debt securities, impairment is
considered other-than-temporary and recognized in its entirety in the consolidated statements of income if either the
Company intends to sell the security or it is more likely than not that it will be required to sell the security before
recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more
likely than not that it will be required to sell the security before recovery, management must determine what portion
of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds
the present value of the cash flows expected to be collected from the security. If there is credit loss, the loss is
recognized in the consolidated statements of income, and the remaining portion of the impairment is recognized in
other comprehensive income (loss). 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. 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.
The Company has made investments in several fintech companies, which are being accounted for as equity
securities under ASC 321, Investments - Equity Investments. None of the Company's fintech investments have
readily-determinable fair values and most are reported at cost, less impairment, if any. However, several of the
fintech entities had observable market transactions in 2021 that, in the opinion of management, were similar to the
61
Company's existing investments. Accordingly, the Company recorded fair market value adjustments (unrealized
gains) on its existing investments totaling $7.3 million for the year ended December 31, 2021, which is reported in
noninterest income as fair value adjustments on other equity investments on the Company's consolidated statements
of operations. These investments, inclusive of the fair value adjustments, totaled $14.2 million and $3.0 million as of
December 31, 2021 and 2020, respectively, and are included in restricted and other equity investments on the
Company's consolidated balance sheets.
(e) Loans Held for Sale
Mortgage loans originated or purchased and intended for sale in the secondary market are carried at estimated
fair value in the aggregate. Changes in fair value are recognized in residential mortgage banking income on the
consolidated statements of income. The Company participates in a mandatory delivery program for its government
guaranteed and conventional mortgage loans. Under the mandatory delivery program, loans with interest rate locks
are paired with the sale of a to-be-announced (“TBA”) mortgage-backed security bearing similar attributes in the
aggregate. Under the mandatory delivery program, the Bank commits to deliver loans to an investor at an agreed
upon price after the close of such loans. This differs from a best efforts delivery, which sets the sale price with the
investor on a loan-by-loan basis when each loan is locked.
Certain consumer loans originated by the Company and sourced by fintech partners are classified on the
Company's consolidated balance sheets as held for sale. These loans are originated by the Bank and either sold
directly to the applicable fintech partner or another investor at par, generally up to 10 days from origination. These
loans are carried at cost. As of December 31, 2021 and 2020, fintech loans held for sale totaled $5.8 million and
$4.7 million, respectively, and are included in loans held for sale on the Company's consolidated balance sheets.
(f) Loans Held for Investment and Allowance for Loan Losses
Loans receivable that management has the intent and ability to hold for the foreseeable future or until loan
maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, and net of any
deferred fees and origination costs. Loan origination fees and certain direct origination costs are deferred and
amortized as an adjustment of the yield using the payment terms required by the loan contract.
As a result of the Bay Banks Merger and the Company's acquisition of Virginia Community Bankshares, Inc. in
2019, the Company's loan portfolio is segregated between loans initially accounted for under the amortized cost
method (referred to as "originated" loans) and loans acquired (referred to as "acquired" loans). The loans segregated
to the acquired loan portfolio were initially measured at fair value and subsequently accounted for under either ASC
310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality or ASC 310-20 Nonrefundable Fees
and Other Costs.
Purchased credit-impaired (“PCI”) loans, which were the non-performing loans acquired in the Company's
acquisitions, were acquired at a discount that is due, in part, to credit quality and are accounted for under ASC 310-
30. These loans are initially recorded at fair value (as determined by the present value of expected future cash flows)
with no allowance for loan losses. The Company accounts for interest income on all loans acquired at a discount
(that is due, in part, to credit quality) based on the acquired loans' expected cash flows. The acquired loans may be
aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics. A
pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash
flow. The difference between the cash flows expected at acquisition and the investment in the loans, or the
"accretable yield," is recognized as interest income utilizing the level-yield method over the life of each pool.
Increases in expected cash flows subsequent to the acquisition are recognized prospectively through adjustment to
any previously recognized allowance for loan loss for that pool of loans and then through an increase in the yield on
the pool over its remaining life, while decreases in expected cash flows are recognized as impairment through a loss
provision and an increase in the allowance for loan losses. Therefore, the allowance for loan losses on these
impaired pools reflects only losses incurred after the acquisition (representing the present value of all cash flows that
were expected at acquisition but currently are not expected to be received).
The Company periodically evaluates the remaining contractual required payments due and estimates of cash
flows expected to be collected for PCI loans. These evaluations, performed no less than semi-annually, require the
continued use of key assumptions and estimates, similar to the initial estimate of fair value. Changes in the
contractual required payments due and estimated cash flows expected to be collected may result in changes in the
accretable yield and non-accretable difference or reclassifications between accretable yield and the non-accretable
difference. On an aggregate basis, if the acquired pools of PCI loans perform better than originally expected, the
62
Company would expect to receive more future cash flows than originally modeled at the acquisition date. For the
pools with better than expected cash flows, the forecasted increase would be recorded as an additional accretable
yield that is recognized as a prospective increase to the Company's interest income on loans.
Loans are generally placed into nonaccrual status when they are past-due 90 days or more as to either principal
or interest or when, in the opinion of management, the collection of principal and/or interest is in doubt. A loan
remains in nonaccrual status until the loan is current as to payment of both principal and interest or past-due less
than 90 days and the borrower demonstrates the ability to pay and remain current. When cash payments are
received, they are applied to principal first, then to accrued interest. It is the Company's policy not to record interest
income on nonaccrual loans until principal has become current. In certain instances, accruing loans that are past due
90 days or more as to principal or interest may not go on nonaccrual status if the Company determines that the loans
are well secured and are in the process of collection. Loans are charged-off in whole or in part when a loan or a
portion thereof is considered uncollectible.
Non-performing assets include nonaccrual loans, loans past due 90 days or more, and other real estate owned
(“OREO”).
The Company maintains an allowance for loan losses at a level that represents management's best estimate of
known and inherent losses in the loan portfolio. Both the amount of the provision expense and the level of the
allowance for loan losses are impacted by many factors, including general and industry-specific economic
conditions, actual and expected credit losses, historical trends, and specific conditions of the individual borrowers.
As a part of the analysis, the Company uses comparative peer group data and qualitative factors such as levels of and
trends in delinquencies, nonaccrual loans, charged-off loans, changes in volume and terms of loans, effects of
changes in lending policy, experience and ability and depth of management, national and local economic trends, and
conditions and concentrations of credit, competition, and loan review results to support estimates.
The allowance for loan losses is increased or decreased by provision losses or reversals to earnings, increased
by recoveries of previously charged-off loans, and decreased by loan charge-offs.
The Company also maintains an allowance for loan losses for acquired loans: (i) accounted for under ASC 310-
30, when there is deterioration in credit quality subsequent to acquisition, and (ii) accounted for under ASC 310-20,
when the inherent losses in the loans exceed the remaining discount recorded at the time of acquisition.
The allowance for loan losses consists of specific and general components. The specific component relates to
loans that are determined to be impaired and, therefore, individually evaluated for impairment. The Company
considers a loan to be impaired when 1) the risk grade of the loan is special mention or worse and the balance of the
loan exceeds $500,000, or 2) the loan is a troubled debt restructuring ("TDR"), regardless of balance. The Company
determines and recognizes impairment of certain loans when, based on current information and events, it is probable
that it will be unable to collect all amounts due according to the loan agreement. A loan is not considered impaired
during a period of delay in payment if the Company expects to collect all amounts due, including past-due interest.
The Company evaluates the impairment of certain loans on a loan-by-loan basis for those loans that are adversely
risk rated. Measurement of impairment is based on the expected future cash flows of an impaired loan, discounted at
the loan's effective interest rate, or measured on an observable market value, if one exists, or the fair value of the
collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent
loans. If the net collateral value is less than the loan balance (including accrued interest and any unamortized
premium or discount associated with the loan) an impairment is recognized and a specific reserve is established for
the impaired loan. Loans classified as loss loans are fully reserved or charged-off. The general component of the
allowance for loan losses covers those loans not classified as impaired and those loans classified as impaired that are
not individually evaluated for impairment. Loans in the general component population are segmented into
homogenous groups that share similar characteristics and receive a loss factor that is based on historical loss
experience and adjusted for other internal or external influences on credit quality that are not fully reflected in the
historical data. Internal and external factors include, but are not limited to, internal underwriting standards, loan
portfolio composition and concentrations, and local and national economic conditions.
Loans considered to be TDRs are loans that have their terms restructured (e.g., interest rates, loan maturity date,
payment and amortization period, etc.) in circumstances that provide payment relief to a borrower experiencing
financial difficulty. All restructured loans are considered impaired loans and may either be in accruing status or
nonaccruing status. Nonaccruing restructured loans may return to accruing status provided doubt has been removed
concerning the collectability of principal and interest as evidenced by a sufficient period of payment performance in
accordance with the restructured terms. Loans may be removed from the restructured category in the year
63
subsequent to the restructuring, if their revised loan terms are considered to be consistent with terms that can be
obtained in the credit market for loans with comparable risk and if they meet certain performance criteria.
Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), banks had the option to
temporarily suspend certain requirements of GAAP related to TDRs for a limited period of time if the following
conditions were met: the borrower's loan modification was related to the COVID-19 pandemic; the loan modified
was not more than 30 days past due as of December 31, 2019, and the loan modification occurred between March 1,
2020 and the earlier of January 1, 2022 or the date that is 60 days after the COVID-19 national emergency declared
under the National Emergencies Act is terminated by the President of the United States. All loan modifications made
by the Company that met the requirements for modifications under the CARES Act were made on a good faith basis
to borrowers and accordingly were not designated as TDRs as of and for the years ended December 31, 2021 and
2020.
(g) Premises and Equipment
Land is carried at cost. Premises and equipment, other than land, are carried at cost less accumulated
depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life
of the asset. Estimated useful lives ranges from 39 to 40 years for buildings and from 3 to 15 years for furniture,
fixtures, and equipment.
Amortization of leasehold improvements is computed using the straight-line method over the shorter of the
useful life of the improvements or the lease term. Purchased computer software, which is capitalized, is amortized
over estimated useful lives of one to three years.
(h) Leases
In accordance with the requirements of ASC 842, Leases, the Company evaluates new real estate and equipment
leases to determine whether the contractual arrangements constitute a lease, or contain an embedded lease, which
would be in scope under ASC 842 and whether such leases would meet the requirements of an operating or
financing lease under the standard.
For operating leases, right-of-use assets (“ROU assets”) and lease liabilities are recognized at the
commencement date of the lease. ROU assets represent the Company’s right to use leased assets over the term of the
lease. Lease liabilities represent the Company’s contractual obligation to make lease payments over the lease term
and are measured as the present value of the lease payments over the lease term. ROU assets are measured as the
amount of the lease liability adjusted for certain items such as prepaid lease payments, unamortized lease incentives,
and unamortized direct costs. ROU assets are amortized on a straight-line basis less the periodic interest expense
adjustment of the lease liability and the amortization is included in occupancy expense in the Company’s
consolidated statements of operations. The discount rate used for the present value calculations for lease liabilities
was the rate implicit in the lease if determinable, and when the rate was not determinable, the Company used its
incremental, collateralized borrowing rate with the FHLB for the period that most closely coincided with the
respective lease term as of the commencement date of the lease.
Most of the Company’s leases include renewal options, with renewal terms extending the lease obligation up to
as much as five years. Lease terms may include renewal or extension options to the extent they are reasonably
certain to be exercised as assessed at lease commencement. As of and for the years ended December 31, 2021 and
2020, the Company did not have any leases that met the standard definition of a finance lease nor did it engage in
any sale-leaseback transactions or have any sublease income. In accordance with the ASU, the Company elects not
to recognize an ROU asset and lease obligation for contracts with an initial term of twelve months or less. The
expense associated with these short-term leases is included in noninterest expense in the consolidated statements of
operations. To the extent that a lease arrangement includes both lease and non-lease components, the Company has
elected not to account for these separately.
Rent expense on operating leases is recorded using the straight-line method over the appropriate lease term.
(i) Goodwill and Other Intangible Assets
Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is not amortized
but is evaluated at least annually for impairment by comparing its fair value with its carrying amount. Impairment is
indicated when the carrying amount of a reporting unit exceeds its estimated fair value.
64
Goodwill arises from business combinations and is generally determined as the excess of the fair value of the
consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the
net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a
business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at
least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test
should be performed. The Company performs the impairment test annually during the fourth quarter. Goodwill is the
only intangible asset with an indefinite life on the Company’s balance sheet.
Intangible assets with definite useful lives are amortized over their estimated useful lives and tested for
impairment if events and circumstances exist that might indicate impairment may have occurred.
No impairment was recorded for goodwill and other intangible assets in 2021 and 2020.
(j) Mortgage Servicing Rights (“MSR”) Assets
MSR assets represent the economic value associated with servicing a borrower during the life of the mortgage.
The assets are separate from the underlying mortgage and may be retained or sold by the Company when the related
mortgage is sold. Per ASC 860-50, Transfers and Servicing, MSR assets are initially recognized at fair value and
subsequently accounted for using either the amortization method or the fair value measurement method. The
Company elected to account for MSR assets using the amortization method, which requires that the servicing asset
be amortized in proportion to and over the period of estimated net servicing income. ASC 860-50 also requires that
MSR assets accounted for using the amortization method be evaluated for impairment each reporting period and
reported at the lower of amortized cost or fair market value. MSR assets and income servicing, net of amortization
and impairment, if any, are reported on the Company’s consolidated balance sheets and consolidated statements of
income, respectively.
(k) Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and reported as OREO. At the time of
acquisition these properties are recorded at estimated fair value less estimated selling costs, with any write down
charged to the allowance for loan losses and any gain on foreclosure recorded in the allowance up to the amount
previously changed off, establishing a new cost basis. Subsequent to foreclosure, valuations of the assets are
periodically performed by management, and these assets are subsequently accounted for at the lower of cost or fair
value, less estimated selling costs. Adjustments are made for subsequent declines in the fair value of the assets, less
selling costs. Revenue and expenses from operations and valuation changes are charged to operating income in the
period of the transaction.
(l) Cash Surrender Value of Life Insurance
The Company has purchased life insurance policies on certain key employees. The cash surrender value of life
insurance is recorded at the gross amount that can be realized under the insurance contract at the balance date, which
is the cash surrender value. The increase in the cash surrender value over time is recorded as other noninterest
income. The Company monitors the financial strength and condition of the counterparty.
(m) Income Taxes
Income taxes are accounted for using the balance sheet method in accordance with ASC 740, Accounting for
Income Taxes. Per ASC 740, the objective is to recognize (a) the amount of taxes payable or refundable for the
current year, and (b) defer tax liabilities and assets for the future tax consequences of events that have been
recognized in the financial statements or federal income tax returns. Deferred tax assets and liabilities are
determined based on the tax effects of the temporary differences between the book (i.e., financial statement) and tax
bases of the various balance sheet assets and liabilities and give current recognition to changes in tax rates and laws.
Temporary differences are reversed in the period in which an amount or amounts become taxable or deductible.
When the Company’s federal tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the
position taken or the amount of the position that would ultimately be sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all available evidence, management
believes it is more likely than not that the position will be sustained upon examination, including the resolution of
appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax
positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit
that is more than 50 percent likely to be realized upon settlement with the applicable taxing authority. The portion of
65
the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as
a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated
interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties, if any,
associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of
income.
(n) Earnings Per Share
Accounting guidance specifies the computation, presentation, and disclosure requirements for earnings per
share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants,
convertible securities, or contingent stock agreements if those securities trade in a public market. Basic EPS is
computed by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is
similar to the computation of basic EPS except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive common shares had been issued. The Company had
9,898 and zero dilutive weighted average common shares outstanding for the years ended December 31, 2021 and
2020, respectively, which were attributable to exercisable stock options.
(o) Derivatives
Derivatives are recognized as assets and liabilities on the Company’s consolidated balance sheets and measured
at fair value. The Company’s derivatives consist of forward sales of to-be-announced mortgage-backed securities
and interest rate lock commitments. The Company’s hedging policies permit the use of various derivative financial
instruments to manage interest rate risk or to hedge specified assets and liabilities. All derivatives are recorded at
fair value on the consolidated balance sheets. The Company may be required to recognize certain contracts and
commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a
derivative. If derivative instruments are designated as hedges of fair values, both the change in the fair value of the
hedge and the hedged item are included in current earnings.
During the normal course of business, the Company enters into commitments to originate mortgage loans,
whereby the interest rate on the loan is determined prior to funding (“rate lock commitments”). For commitments
issued in connection with potential loans intended for sale, the Bank enters into positions of forward month
mortgage-backed securities (“MBS”) to be announced (“TBA”) contracts on a mandatory basis or on a one-to-one
forward sales contract on a best efforts basis. The Company enters into TBA contracts in order to control interest
rate risk during the period between the rate lock commitment and mandatory sale of the mortgage loan. Both the rate
lock commitment and the TBA contract are considered derivatives. A mortgage loan sold on a best efforts basis is
locked into a forward sales contract with a counterparty on the same day as the rate lock commitment to control
interest rate risk during the period between the commitment and the sale of the mortgage loan. Both the rate lock
commitment and the forward sales contract are considered derivatives.
The market values of rate lock commitments and best efforts forward delivery commitments is not readily
ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in
stand-alone markets. The Company determines the fair value of rate lock commitments, delivery contracts, and
forward sales contracts of MBS by measuring the change in the value of the underlying asset, while taking into
consideration the probability that the rate lock commitments will close or will be funded. Certain risks arise from the
forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the
contracts. Additional risks inherent in mandatory delivery programs include the risk that, if the Company does not
close the loans subject to rate lock commitments, it will still be obligated to deliver MBS to the counterparty under
the forward sales agreement.
The Company enters into interest rate swap agreements to accommodate the needs of its banking customers.
The Company mitigates the interest rate risk entering into these swap agreements by entering into equal and
offsetting swap agreements with a highly-rated third-party financial institutions. These back-to-back swap
agreements are a free-standing derivatives and are recorded at fair value in the Company’s consolidated balance
sheets.
The Company entered into various interest rate swaps in 2020 and 2019 that qualified as cash flow hedges as
defined by ASC 815, Derivatives and Hedging. The objective of these interest rate swaps was to hedge against the
risk of variability in its cash flows attributable to changes in the 3-month LIBOR benchmark rate component of
forecasted three-month fixed rate funding advances from the FHLB. The hedging objective was to reduce the
interest rate risk associated with the Company’s fixed rate advances from the designation date and going through the
66
maturity date. These cash flow hedges are recorded at fair value in the Company’s consolidated balance sheets. The
Company terminated these cash flow hedges during the fourth quarter of 2021.
(p) Pension and Post-retirement Benefit Plans
As part of the Bay Banks Merger, the Company assumed a noncontributory cash balance benefit pension plan,
which was frozen in 2012. The plan covers employees who had become vested in the plan as of the date it was
frozen. The Company also assumed a post-retirement benefit plan as a result of the Bay Banker Merger that covers
eligible retirees’ medical and life insurance benefits, which was frozen to new employees as of March 1, 2018. The
Company accounts for both its pension and post-retirement benefit plans in accordance with ASC 715,
Compensation-Retirement Benefits.
(q) Business Segments
The Company has three reportable business segments: commercial banking, mortgage banking, and holding
company activities. The commercial banking business segment makes loans to and generates deposits from
individuals and businesses, while offering a wide array of general banking activities to its customers. It is distinct
from the Company's mortgage banking division, which concentrates on individual, wholesale, and participated
mortgage lending, and sales activities. Activities at the holding company or parent level are primarily associated
with investments, borrowings, and certain noninterest expenses.
(r) Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. The amendments in this ASU, among other things, require the measurement of all expected credit
losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking
information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will
still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit
losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and
purchased financial assets with credit deterioration. As a “smaller reporting company” under Securities and
Exchange Commission (“SEC”) rules, the Company will be required to apply the guidance for fiscal years, and
interim periods within those years, beginning after December 15, 2022. The Company has a cross-functional
working group, supported by a third-party consultant, that is implementing the requirements of ASU 2016-13 by the
adoption date.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial
Instruments – Credit Losses. This ASU addresses issues raised by stakeholders during the implementation of ASU
No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. Among other narrow-scope improvements, the new ASU clarifies guidance around how to report
expected recoveries. “Expected recoveries” describes a situation in which an organization recognizes a full or partial
write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a
portion of that amount, will in fact be recovered. While applying the credit losses standard, stakeholders questioned
whether expected recoveries were permitted on assets that had already shown credit deterioration at the time of
purchase (also known as purchased credit-deteriorated (“PCD”) assets). In response to this question, the ASU
permits organizations to record expected recoveries on PCD assets. In addition to other narrow technical
improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative
allowances for available-for-sale debt securities. The ASU includes effective dates and transition requirements that
vary depending on whether or not an entity has already adopted ASU 2016-13. The Company is currently assessing
the impact that ASU 2019-11 will have on its consolidated financial statements.
Note 3. Business Combinations
On January 31, 2021, the Company completed the Bay Banks Merger, which was accounted for as a business
combination. At the effective date of the merger, Bay Banks’ shareholders received 0.5000 shares of the Company’s
common stock in exchange for each share of Bay Banks common stock held (“Exchange Ratio”), plus cash in lieu of
any fractional shares, resulting in the Company issuing 6,634,495 shares (9,951,743 shares on a post Stock Split
basis) with an aggregate fair market value of $124.9 million based on the closing price of the Company’s common
stock at January 29, 2021, the last trading day prior to the effective date of the merger, and paying $3.4 thousand in
67
lieu of fractional shares. In addition, options to purchase 198,362 shares of Bay Banks common stock, whether
vested or unvested, were converted to options to acquire 99,176 shares of the Company’s common stock (148,764
shares on a post Stock Split basis) at an estimated fair value of $472 thousand as of the merger date. Finally, Bay
Banks had previously acquired $1.75 million of the Company’s subordinated notes, while the Bank had previously
acquired $1.10 million of Bay Banks’ subordinated notes. In the merger, an effective settlement of the notes
occurred in the amount of $650 thousand, which reduced the consideration paid.
The Bay Banks Merger combined two banks with complementary capabilities and geographical focus, thus
provided the opportunity for the organization to leverage its existing infrastructure, including people, processes, and
systems, across a larger asset base.
The Company has accounted for the Bay Banks Merger under the acquisition method of accounting, whereby
the acquired assets and assumed liabilities are recorded by the Company at their estimated fair values as of the
effective date of the merger. Fair value estimates were based on management’s assessment of the best information
available at the time of determination and are highly subjective.
The following table presents the consideration paid in the merger and the summary balance sheet of Bay Banks
as of the date of the merger inclusive of estimated fair value adjustments and the allocation of consideration paid in
the merger to the acquired assets and assumed liabilities. Goodwill resulting from the Bay Banks Merger was $7.2
million.
(Dollars in thousands, except per share data)
Consideration paid:
Company's common shares issued
Purchase price per share
Value of common stock issued
Estimated fair value of stock options
Cash in lieu of fractional shares
Total consideration paid
Effective settlement of subordinated notes
Total consideration paid less effective settlement of subordinated notes
Fair value of assets acquired:
Cash and due from banks
Federal funds sold
Certificates of deposit
Securities available for sale
Restricted securities
Loans held for investment
Loans held for sale
Premises and equipment
Right-of-use asset
Other real estate owned
Bank owned life insurance
Mortgage servicing rights
Core deposit intangible
Deferred tax asset, net
Other assets
Total assets
Fair value of liabilities assumed:
Deposits
FHLB borrowings
FRB borrowings
Subordinated notes
Other liabilities
Total liabilities
Net identifiable assets acquired at fair value
Goodwill
68
Reference:
9,951,743 A
12.55 A, B
124,928
472
3
125,403
(650)
124,753
44,066
1,732
1,018
79,505
4,385
1,030,433 C
3,814
15,532 D
1,864
598
20,259
987
6,850 E
2,685 F
10,855 G
1,224,583
1,030,888 H
10,124 I
24,815
31,850 J
9,359
1,107,036
117,547
7,206
$
$
$
$
$
$
$
$
$
$
Reference: Explanation of reference:
A
B
Common shares issued and purchase price per share are presented on a post Stock Split basis.
The value of the shares of the Company's common stock exchanged for shares of Bay Banks common
stock was based upon the closing price of the Company's common stock at January 29, 2021, the last
trading day prior to the date of completion of the merger.
Reflective of a $17.9 million (or 1.70%) fair value adjustment (discount) to the amortized cost of the
loan portfolio acquired.
Reflective of a $4.4 million fair value adjustment (premium) over the net book value of premises and
equipment acquired.
Core deposit intangible asset recorded to reflect the fair value of nonmaturity deposits, except for time
deposits over $100,000, assumed by the Company.
Reflective of a $2.1 million net deferred tax asset recorded on all fair value adjustments, excluding
goodwill, at the statutory federal income tax rate of 21%.
Reflective of a $203 thousand fair vale adjustment (premium) on other assets acquired.
Reflective of a $5.8 million fair value adjustment (premium) over the book value of time deposits
assumed.
Reflective of a $124 thousand fair value adjustment (premium) on the $10 million Federal Home Loan
Bank of Atlanta ("FHLB") advance assumed.
Reflective of a $950 thousand fair value adjustment (premium) over the book value of subordinated
notes assumed.
C
D
E
F
G
H
I
J
Cash and cash equivalents. The carrying amounts of cash, due from banks, federal funds sold, and certificates
of deposit was deemed to be a reasonable estimate of fair value.
Securities available for sale. The estimated fair value of investment securities acquired was based on quoted
market and third-party broker provided prices as of the merger date.
Restricted securities. The carrying amount of restricted equity securities was used as a reasonable estimate of
fair value. These investments are carried at cost as no active trading market exists.
Loans. The acquired loan portfolio was segregated into two categories for valuation purposes: PCI and
purchased performing loans. PCI loans were identified as those loans that were nonaccrual prior to the business
combination and those loans that were identified as potentially impaired. Potentially impaired loans were those loans
that were identified during the credit review process where there was an indication that the borrower did not have
sufficient cash flows to service the loan in accordance with its terms. Specifically, loans with a risk rating of special
mention or worse, loans that had been previously restructured as a TDR, or loans that had a history of delinquent
payments were deemed PCI. Performing loans were those loans that were currently performing in accordance with
the loan contract and did not exhibit any significant deterioration in credit quality since origination.
For loans that were identified as performing, the fair values were determined using a discounted cash flow
analysis (the "income approach"). Performing loans were segmented into pools based on loan type including
commercial mortgages, multifamily, commercial and industrial, construction and land development, consumer
residential, and consumer nonresidential, and further segmented based on payment structure (fully amortizing, non-
fully amortizing balloon, or interest only), rate type (fixed versus variable), and remaining maturity. The estimated
cash flows expected to be collected for each loan were determined using a valuation model that included the
following key assumptions: prepayment speeds, expected credit loss rates, and discount rates. Prepayment speeds
were influenced by many factors including, but not limited to, current yields, historic rate trends, payment types,
interest rate type, and the duration of the individual loan. Expected credit loss rates were based on recent and
historical default and loss rates observed for loans with similar characteristics, and further influenced by a third-
party loan review on a selection of loans within the acquired portfolio. The discount rates used were based on rates
market participants may require for cash flows with similar risk characteristics at the acquisition date.
For loans that were identified as PCI, either the above income approach or the asset approach was used. The
income approach was used for PCI loans where there was an expectation that the borrower would more likely than
not continue to pay based on the current terms of the loan contract. Management used the asset approach for all
nonaccrual loans to reflect market participant assumptions. Under the asset approach, the fair value of each loan was
determined based on the estimated fair values of the underlying collateral, less estimated costs to sell.
69
The methods used to estimate the fair values of loans are sensitive to the assumptions and estimates used. While
management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current
market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active
markets.
Premises and equipment. Land and buildings (collectively, “premises”) acquired were recorded at estimated fair
value as determined by third-party appraisals at or near the merger date. Equipment, including office furniture,
computers, and similar assets, were recorded at the their net book values as of the merger date, which approximated
fair value.
Bank owned life insurance. The carrying value of bank owned life insurance was deemed to reasonably
approximate fair value. These policies are recorded at their cash surrender value, using information provided by the
insurance carriers.
70
The following table presents the purchased performing and PCI loans receivable at the date of the Bay Banks
Merger and the fair value adjustments (discounts) recorded immediately following the merger:
(Dollars in thousands)
Principal payments receivable
Fair value adjustment - credit and interest
Fair value of acquired loans
As of January 31, 2021
Purchased
Performing
$
$
936,523 $
(2,784)
933,739 $
PCI
111,766 $
(15,072)
96,694 $
Total
1,048,289
(17,856)
1,030,433
Core deposit intangible. Core deposit intangible ("CDI") is the measure of the value of noninterest-bearing
checking, savings, interest-bearing checking, money market, and certain certificates of deposits assumed in a
business combination. Certificates of deposit with balances over $100,000 and brokered deposits are excluded from
evaluation, as the Company determined customer related intangible assets are non-existent for these accounts. The
estimated fair value of CDI was based on the present value of the expected cost savings attributable to the core
deposit funding relative to an alternative funding source. The CDI is being amortized over an estimated useful life of
10 years, which approximates the existing deposit relationships acquired.
Deposits. The fair values of deposit liabilities with no stated maturity (noninterest-bearing checking, savings,
interest-bearing checking, and money market deposits) are equal to the carrying amounts payable on demand. The
estimated fair value of the certificates of deposit represents contractual cash flows, discounted to present value using
interest rates currently offered by market participants on deposits with similar characteristics and remaining
maturities.
FHLB borrowings. The fair value of the FHLB borrowings was estimated by discounting the future cash flows
using current interest rates offered for similar advances as of the acquisition date.
FRB borrowings. The fair value of Federal Reserve Bank of Richmond (“FRB”) borrowings was deemed to
approximate its carrying value. These borrowings are pursuant to the FRB’s Paycheck Protection Program Liquidity
Facility (“PPPLF”) and there is no comparable borrowing to advances under this facility.
Subordinated notes. The fair value of the subordinated notes was estimated by utilizing recent issuance interest
rates for subordinated debt offerings of similar issuer size near the merger date and adjusted for time to redemption
or maturity.
The fair value estimates are subject to change for up to one year after the effective date of the merger, if
additional information relative to effective date fair values becomes available. No adjustments have been made to
the fair value estimates through December 31, 2021.
Impact of Certain Fair Value Adjustments
The net effect of the amortization and accretion of premiums and discounts associated with the fair value
adjustments to assets acquired and liabilities assumed in the Bay Banks Merger had the following effect on the
consolidated statement of operations for the period stated.
(Dollars in thousands)
Loans (1)
Time deposits (2)
FHLB borrowings (3)
Subordinated notes (4)
CDI (5)
Net effect to income before income taxes
For the year ended
December 31, 2021
1,593
3,146
12
171
(1,194)
3,728
$
$
(1) Loan discount accretion and premium (amortization) is included in interest and fees in the consolidated
statements of operations.
(2) Time deposit premium amortization is included in interest on deposits in the consolidated statements of
operations.
71
(3) FHLB borrowings premium amortization is included in interest on FHLB and FRB borrowings in the
consolidated statements of operations.
(4) Subordinated notes premium amortization is included in the interest on subordinated notes in the
consolidated statements of operations.
(5) CDI amortization is included in the intangible amortization in the consolidated statements of operations.
Pro Forma Financial Information
The following table presents the effect of the Bay Banks Merger on the Company on a pro forma basis, as if the
merger had occurred at the beginning of 2020. Merger-related expenses of $11.9 million and $2.4 million for the
years ended December 31, 2021 and 2020, respectively, which are included in the Company’s consolidated
statements of operations, are not included in the pro forma information below. Merger-related expenses incurred by
Bay Banks prior to the completion of the Bay Banks Merger are not included in the Company’s consolidated
statements of operations and are also not included in the pro forma information below. Net income includes pro
forma adjustments for the accretion and amortization of estimated fair value adjustments on acquired loans and
assumed time deposits and borrowings, as well as amortization of estimated CDI. A federal income tax rate of 21%
was used in determining pro forma net income.
(Dollars in thousands, except per share data)
Revenue (net interest income plus noninterest income)
Net income
Earnings per common share
Note 4. Investment Securities and Other Investments
For years ended December 31,
2021
2020
$
183,226 $
60,956
3.32
152,473
26,107
1.42
Investment securities available for sale are carried on the Company's consolidated balance sheets at fair value.
The following table presents amortized cost, fair values, and gross unrealized gains and losses of investment
securities at the dates stated.
(Dollars in thousands)
Available for sale
State and municipal
U.S. Treasury and agencies
Mortgage backed securities
Corporate bonds
Total investment securities
(Dollars in thousands)
Available for sale
State and municipal
U.S. Treasury and agencies
Mortgage backed securities
Corporate bonds
Total investment securities
December 31, 2021
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Amortized
Cost
Fair
Value
$
$
51,341 $
65,680
222,968
38,752
378,741 $
302 $
—
403
808
1,513 $
(530) $
(1,614)
(4,261)
(317)
(6,722) $
51,113
64,066
219,110
39,243
373,532
December 31, 2020
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Amortized
Cost
Fair
Value
$
$
14,069 $
2,500
72,337
19,755
108,661 $
258 $
—
696
469
1,423 $
(68) $
(91)
(398)
(52)
(609) $
14,259
2,409
72,635
20,172
109,475
At December 31, 2021 and 2020, securities with fair values of $8.7 million and $12.5 million, respectively,
were pledged to secure public deposits with the Treasury Board of the Commonwealth of Virginia.
At December 31, 2021 and 2020, securities with fair values of $23.1 million and $29.4 million, respectively,
were pledged to secure the Bank’s line of credit with the FHLB.
72
The following tables present fair value and gross unrealized losses, aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated.
The reference point for determining when securities are in an unrealized loss position is period-end; therefore, it is
possible that a security's market value exceeded its amortized cost on other days during the past twelve-month
period.
(Dollars in thousands)
State and municipal
U.S. Treasury and agencies
Mortgage backed securities
Corporate bonds
Total
(Dollars in thousands)
State and municipal
U.S. Treasury and agencies
Mortgage backed securities
Corporate bonds
Total
Number of
Securities
Less than 12 Months
Unrealized
Losses
Fair
Value
38 $ 27,905 $
22
54
11
125 $285,666 $
64,067
186,924
6,770
December 31, 2021
12 Months or
Greater
Total
Fair
Value
Unrealized
Losses
Unrealized
Losses
Fair
Value
— $ 27,905 $
— 64,067
(4) 187,467
(4)
7,766
(8) $287,205 $
(530)
(1,614)
(4,261)
(317)
(6,722)
(530) $ — $
(1,614)
(4,257)
(313)
—
543
996
(6,714) $ 1,539 $
Number of
Securities
Less than 12 Months
Unrealized
Losses
Fair
Value
6 $ 3,111 $
1
22
7
36 $ 29,308 $
2,410
20,545
3,242
December 31, 2020
12 Months or
Greater
Total
Fair
Value
Unrealized
Losses
Unrealized
Losses
Fair
Value
— $ 3,111 $
— 2,410
29,137
5,197
(333)
(45)
(378) $ 39,855 $
(68)
(91)
(398)
(52)
(609)
(68) $
(91)
(65)
(7)
— $
—
8,592
1,955
(231) $ 10,547 $
The following table presents the amortized cost and fair value of securities available for sale by contractual
maturity as of the dates stated. Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment penalties.
(Dollars in thousands)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
December 31, 2021
Amortized
Cost
Fair
Value
$
$
953 $
25,492
120,439
231,857
378,741 $
954
25,316
119,942
227,320
373,532
Restricted equity investments consisted of stock in the FHLB (carrying basis $1.7 million and $5.8 million at
December 31, 2021 and 2020, respectively), FRB stock (carrying basis of $6.1 million and $2.2 million at December
31, 2021 and 2020, respectively), and stock in the Company’s correspondent bank (carrying basis of $468 thousand
and $248 thousand at December 31, 2021 and 2020, respectively). Restricted equity investments are carried at cost.
The Company holds various other equity investments, including shares in other financial institutions and fintech
companies, totaling $14.2 million and $3.0 million as of December 31, 2021 and 2020, respectively, which are
carried at fair value with gain or loss, if any, reported in the consolidated statements of operations each reporting
period.
The Company also holds investments in early-stage focused investment funds, small business investment
company ("SBIC") funds, and low income housing partnerships, which are reported in other investments on the
consolidated balance sheets. Early-stage focused investment funds primarily hold investments in fintech companies
or early-stage technology companies that focus on bank offerings.
Management evaluates securities for OTTI on a quarterly basis, and more frequently when economic or market
concerns warrant such evaluation. No declines in fair value relative to amortized cost were deemed to be OTTI as of
and for the years ended December 31, 2021 and 2020.
73
Note 5. Loans and Allowance for Loan Losses
The following table presents loans held for investment, including Paycheck Protection Program ("PPP") loans,
as of the dates stated.
December 31,
(Dollars in thousands)
Commercial and industrial
Paycheck Protection Program
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage, residential
Real estate – mortgage, farmland
Consumer loans
Gross loans
Less: deferred loan fees, net of costs
Total
$
2021
320,827 $
30,742
146,523
58,857
701,503
493,982
6,173
49,877
1,808,484
(906)
2020
123,675
292,068
54,702
18,040
273,499
213,404
3,615
41,962
1,020,965
(4,271)
$ 1,807,578 $ 1,016,694
In 2020, the Company participated in the PPP under the CARES Act (“PPP 1”). Through the PPP 1, the federal
government partnered with banks, including the Bank, to provide over $650 billion to small businesses to support
payrolls and other operating expenses. PPP 1 loans have a two year term if originated prior to June 5, 2020, or a
five-year term if originated on or subsequent to June 5, 2020, and earn an annual interest rate of 1%. Banks
originating PPP 1 loans earned a processing fee of 1%, 3%, or 5% of the loan amount, depending on the size of the
loan. The Company originated approximately $363.4 million in PPP 1 loans in 2020, and as of December 31, 2021,
$18.0 million of PPP 1 loans were outstanding, including those acquired in the Bay Banks Merger.
In 2021 the Company participated in the PPP pursuant to the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act, passed into law on December 27, 2020 (“PPP 2”). The PPP 2 was for loan applications
received by May 31, 2021. The Company funded over 20,000 PPP 2 loans for approximately $730 million. PPP 2
loans have a contractual term of five years and earn an annual interest rate of 1%. Banks originating PPP 2 loans
earned processing fees that were tiered depending on the size of the loan. Specifically, processing fees for loans of
not more than $50,000 equaled 50% of the loan balance or $2,500, whichever was less; processing fees for loans
more than $50,000 and not more than $350,000 equaled 5% of the loan balance, and processing fees for loans above
$350,000 equaled 3% of the loan balance. Of the PPP 2 loans originated in 2021, approximately 19,500 with
principal balances of $712.6 million were sold on June 28, 2021. Gross proceeds from the sale were $705.9 million
and the Company recorded a pre-tax gain in noninterest income of $24.3 million on the sale after giving effect to
$30.9 million of unamortized fees, net of deferred costs, and the sale discount. As of December 31, 2021, the
Company held PPP 2 loans with aggregate principal balances and unamortized fees, net of deferred costs, of $12.7
million and $348 thousand, respectively.
The Company believes that the majority of PPP 1 and PPP 2 loans will be forgiven, in accordance with the
terms of the program, and will be paid in full pursuant to the U.S. government guarantee.
The Company is accounting for the PPP processing fees in accordance with ASC 310-20, Receivables
Nonrefundable Fees and Other Costs, which requires fees, net of costs, to be deferred and amortized as a component
of loan yield over the expected life of the loans, which the Company believes is one to three years for PPP 2 loans,
depending on the individual loan balance. Of the $11.5 million of processing fees received in 2020 for PPP 1 loans,
$4.8 million were recognized as a component of interest income for the year ended December 31, 2021. No
unamortized PPP 1 fees remain as of December 31, 2021. PPP 2 processing fees, net of costs, totaled $43.4 million
in 2021, of which $12.5 million were recognized as interest income for the year ended December 31, 2021, and
$30.9 million were recognized as part of the gain on sale in the second quarter of 2021.
From the onset of the global COVID-19 pandemic, the Company proactively addressed the needs of its
commercial and individual borrowers by modifying loans allowing for the short-term deferral of principal payments
or of principal and interest payments. In response to the COVID-19 pandemic, during 2020, the Company approved
over 550 loan deferrals for a total of $110.6 million. In addition, Bay Banks approved nearly 400 loan deferrals for
approximately $160.0 million. Most of these loans are now past the deferment period and are back on normal
74
payment schedules, and as of December 31, 2021, 15 loans were in deferment for a total of approximately $5.2
million. These loans were not designated as TDRs.
The Company has pledged certain commercial and residential mortgages as collateral for borrowings with the
FHLB. Loans totaling $478.3 million and $213.3 million were pledged as of December 31, 2021 and 2020,
respectively. Additionally, PPP loans were pledged as collateral for PPPLF advances in the amount of $17.9 million
and $281.6 million as of December 31, 2021 and 2020, respectively.
As a result of the Bay Banks Merger and the 2019 acquisition of Virginia Community Bankshares, Inc., the
acquired loan portfolios were initially measured at fair value as of the respective acquisition dates and subsequently
accounted for as either purchased performing loans or PCI loans. The following table presents the outstanding
principal balance and related recorded investment of these acquired loans included in the consolidated balance
sheets as of the dates stated.
(Dollars in thousands)
PCI loans
Outstanding principal balance
Carrying amount
Purchased performing loans
Outstanding principal balance
Carrying amount
Total acquired loans
Outstanding principal balance
Carrying amount
December 31,
2021
2020
$
97,418 $
84,029
706,147
703,333
803,565
787,362
1,278
1,085
97,301
96,317
98,579
97,402
The following table presents the changes in the accretable yield for PCI loans for the periods stated.
(Dollars in thousands)
Balance, beginning of period
Additions
Accretion
Other changes, net
Balance, end of period
2021
2020
$
$
123 $
10,030
(5,381)
12,077
16,849 $
188
—
(56)
(9)
123
The following tables present the aging of the recorded investment of loans held for investment as of the dates
stated.
December 31, 2021
(Dollars in thousands)
Commercial and industrial
Paycheck Protection Program
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage, residential
Real estate – mortgage, farmland
Consumer
Less: deferred fees, net of costs
Total
Greater
than 90
Days Past
Due &
Accruing
30-59
Days
Past Due
$
60-89
Days
Past Due
2,338 $
—
271
651
53
13,950
—
902
—
$ 18,165 $
Total Past
Due &
Nonaccrual
Total
Loans
Current
Nonaccrual
PCI
8,903 $ 303,490 $ 320,827
30 $
30,742
30,742
—
146,523
131,410
—
58,857
57,416
279
701,503
646,554
—
493,982
465,275
359
6,173
6,173
—
49,877
46,868
249
(906)
(906)
—
917 $ 15,177 $ 36,527 $ 84,029 $1,687,022 $1,807,578
8,434 $
—
359
1,441
3,077
21,086
—
2,130
—
6,066 $
—
88
413
3,024
5,190
—
396
—
—
14,754
—
51,872
7,621
—
879
—
— $
—
—
98
—
1,587
—
583
—
2,268 $
75
(Dollars in thousands)
Commercial and industrial
Paycheck Protection Program
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage, residential
Real estate – mortgage, farmland
Consumer
Less: deferred loan fees, net of costs
Total
Greater
than 90
Days Past
Due &
Accruing
60-89
Days
Past Due
December 31, 2020
Total Past
Due &
Nonaccrual
Nonaccrual
— $
—
—
—
211
—
—
334
—
545 $
— $
—
—
—
—
46
—
—
—
46 $
1,310 $
—
—
—
3,643
881
—
714
—
2,427 $
—
—
262
4,625
1,989
—
1,983
—
6,548 $ 11,286 $
30-59
Days
Past Due
$
1,117 $
—
—
262
771
1,062
—
935
—
4,147 $
$
PCI
Current
Total
Loans
— $ 121,248 $ 123,675
292,068
— 292,068
54,702
54,667
35
18,040
17,778
—
273,499
268,066
808
213,404
211,173
242
3,615
3,615
—
41,962
39,979
—
(4,271)
(4,271)
—
1,085 $1,004,323 $1,016,694
The following tables present the aging of the recorded investment of PCI loans as of the dates stated.
(Dollars in thousands)
Commercial and industrial
Real estate – construction, commercial
Real estate – mortgage, commercial
Real estate – mortgage, residential
Consumer
Total PCI loans
(Dollars in thousands)
Real estate – construction, commercial
Real estate – mortgage, commercial
Real estate – mortgage, residential
Total PCI loans
December 31, 2021
30-89
Days
Past Due
Greater than
90 Days Past
Due &
Accruing
Current
Total
Loans
— $
—
—
147
—
147 $
— $
—
—
—
4
4 $
8,903 $
14,754
51,872
7,474
875
83,878 $
8,903
14,754
51,872
7,621
879
84,029
December 31, 2020
30-89
Days
Past Due
Greater than
90 Days Past
Due &
Accruing
Current
Total
Loans
— $
224
35
259 $
— $
—
—
— $
35 $
584
207
826 $
35
808
242
1,085
$
$
$
$
76
The following tables present the allowance for loan losses and the amount of loans evaluated for impairment,
individually and collectively, by loan type as of the dates stated.
(Dollars in thousands)
PCI loans:
Commercial and industrial
Real estate – construction, commercial
Real estate – mortgage, commercial
Real estate – mortgage, residential
Consumer
Total PCI loans
Originated and purchased performing loans:
Commercial and industrial
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage, residential
Real estate – mortgage, farmland
Consumer
Total originated and purchased performing loans
Gross loans
Less: deferred loan fees, net of costs
Total
(Dollars in thousands)
PCI loans:
Real estate – construction, commercial
Real estate – mortgage, commercial
Real estate – mortgage, residential
Total PCI loans
Originated and purchased performing loans:
Commercial and industrial
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage, residential
Real estate – mortgage, farmland
Consumer
Total originated and purchased performing loans
Gross loans
Less: deferred loan fees, net of costs
Total
December 31, 2021
Individually
Evaluated for
Impairment
Collectively
Evaluated for
Impairment
Total Loan
Balances
Related
Allowance for
Loan Losses
$
$
— $
—
—
—
—
—
8,903 $
14,754
51,872
7,621
879
84,029
8,903 $
14,754
51,872
7,621
879
84,029
4,612
527
—
3,194
1,400
—
—
9,733
9,733
—
307,312
131,242
58,857
646,437
484,961
6,173
48,998
1,683,980
1,768,009
(570)
9,733 $ 1,767,439 $ 1,777,172 $
311,924
131,769
58,857
649,631
486,361
6,173
48,998
1,693,713
1,777,742
(570)
—
—
—
117
—
117
2,859
895
21
4,294
1,376
18
2,541
12,004
12,121
—
12,121
December 31, 2020
Individually
Evaluated for
Impairment
Collectively
Evaluated for
Impairment
Total Loan
Balances
Related
Allowance for
Loan Losses
— $
—
—
—
234
—
—
1,645
452
—
—
2,331
2,331
—
2,331 $
35 $
808
242
1,085
35 $
808
242
1,085
123,441
54,667
18,040
271,046
212,710
3,615
41,962
725,481
726,566
(736)
725,830 $
123,675
54,667
18,040
272,691
213,162
3,615
41,962
727,812
728,897
(736)
728,161 $
—
—
—
—
3,762
960
150
4,215
1,481
18
3,241
13,827
13,827
—
13,827
$
$
77
The tables above exclude PPP loans of $30.7 million and $292.1 million as of December 31, 2021 and 2020,
respectively. PPP loans are fully guaranteed by the U.S. government; therefore, the Company recorded no allowance
for loan losses for these loans as of December 31, 2021 and 2020.
The following tables present information related to impaired loans by loan type as of and for the periods
presented.
(Dollars in thousands)
With no specific allowance recorded:
Real estate – construction, commercial
With an allowance recorded:
Commercial and industrial
Real estate – mortgage, commercial
Real estate – mortgage, residential
Total
(Dollars in thousands)
With no specific allowance recorded:
Real estate – mortgage, residential
Real estate – mortgage, commercial
With an allowance recorded:
Commercial and industrial
Total
December 31, 2021
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
$
527 $
527 $
— $
535 $
4,612
3,194
1,400
9,733 $
4,612
3,849
1,400
10,388 $
836
1
42
879 $
4,369
3,636
700
9,240 $
37
260
70
23
390
December 31, 2020
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
$
1,645 $
452
2,030 $
571
234
2,331 $
234
2,835 $
— $
—
144
144 $
2,091 $
538
362
2,991 $
4
2
—
6
Impaired loans also include TDRs. There were eight TDRs totaling $1.0 million as of December 31, 2021
compared to two TDRs totaling $142 thousand as of December 31, 2020.
The following table presents an analysis of the change in the allowance for loans losses by loan type as of and
for the periods stated.
(Dollars in thousands)
Allowance for loan losses, beginning of period
Charge-offs:
Commercial and industrial
Real estate – construction
Real estate – mortgage
Consumer loans
Total charge-offs
Recoveries:
Commercial and industrial
Real estate – mortgage
Consumer loans
Total recoveries
Net charge-offs
Provision for loan losses
Allowance for loan losses, end of period
78
December 31,
2021
2020
13,827 $
4,572
(1,098) $
(195)
(125)
(1,123)
(2,541)
196
98
424
718
(1,823)
117
12,121 $
(6)
—
(505)
(994)
(1,505)
41
8
261
310
(1,195)
10,450
13,827
$
$
$
The Company categorizes loans into risk categories based on relevant information about the expected ability of
borrowers to service their debt, such as current financial information, historical payment experience, collateral
adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans
individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans
such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis
as new information is obtained. The Company uses the following definitions for risk ratings:
Risk Grade 1 – Strong: This grade is reserved for loans to the strongest of borrowers. These loans are to
individuals or corporations that are well known to the Bank and are always secured with an almost guaranteed
source of repayment such as a lien on a bank deposit account. Character, credit history, and ability of individuals or
company principals are excellent and unquestioned. Source of income and industry of borrower appears stable. High
liquidity, minimum risk, good ratios, and low handling cost are present.
Risk Grade 2 – Minimal: This grade is reserved for loans to borrowers who are deemed exceptionally strong.
These loans are within guidelines and where the borrowers have documented significant overall financial strength.
These loans have excellent sources of repayment, significant balance sheet liquidity, no significant identifiable risk
of collection, and conform in all respects to policy, guidelines, underwriting standards, and federal and state
regulations (no exceptions of any kind).
Risk Grade 3 – Acceptable: This grade is reserved for loans to borrowers who are deemed strong. These loans
have adequate sources of repayment, with little identifiable risk of collection. Generally, loans assigned this risk
grade will demonstrate the following characteristics: (1) conformity in all respects with policy, guidelines,
underwriting standards, and federal and state regulations (no exceptions of any kind), (2) documented historical cash
flow that meets or exceeds required minimum guidelines, or that can be supplemented with verifiable cash flow
from other sources, and (3) adequate secondary sources to liquidate the debt.
Risk Grade 4 – Satisfactory: This grade is given to satisfactory loans containing more risk than Risk Grade 3
loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this
risk grade will demonstrate the following characteristics: (1) general conformity to the Bank's underwriting
requirements, with limited exceptions to policy, product, or underwriting guidelines. All exceptions noted have
documented mitigating factors that offset any additional risk associated with the exceptions noted, (2) documented
historical cash flow that meets or exceeds required minimum guidelines, or that can be supplemented with verifiable
cash flow from other sources, and (3) adequate secondary sources to liquidate the debt, including combinations of
liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.
Risk Grade 5 – Watch: This grade is for satisfactory loans containing acceptable but elevated risk. These
loans are characterized by borrowers who have a marginal cash flow, marginal profitability, or have experienced an
unprofitable year and declining financial condition. The borrower's management may be deemed to be satisfactory,
the collateral securing the loan may create a loan-to-value ratio in excess of 90%, the debt service coverage ratio and
global debt service coverage are unstable but mostly positive, and/or guarantor support, if any, is inadequate. Loans
classified as Watch warrant additional monitoring by management.
Risk Grade 6 – Special Mention: This grade is for loans that have potential weaknesses that deserve
management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the
repayment prospects for the Bank's credit position at some future date. Special Mention loans are not adversely
classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention credits
typically exhibit underwriting guideline tolerances and/or exceptions with no mitigating factors, or emerging
weaknesses that may or may not be cured as time passes.
Risk Grade 7 – Substandard: A substandard loan is inadequately protected by the current sound net worth
and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a
well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the
distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently
not meeting the repayment schedule should be downgraded further to substandard. Loans in this category are
characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective
action. The weaknesses may include, but are not limited to: (1) high debt to worth ratios, (2) declining or negative
earnings trends, (3) declining or inadequate liquidity, (4) improper loan structure, (5) questionable repayment
sources, (6) lack of well-defined secondary repayment source, and (7) unfavorable competitive comparisons. Such
79
loans are no longer considered to be adequately protected due to the borrower's declining net worth, lack of earnings
capacity, declining collateral margins, and/or unperfected collateral positions. A possibility of loss of a portion of
the loan balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may
have exhibited excessive overdue status or extensions and/or renewals.
Risk Grade 8 – Doubtful: Loans classified doubtful have all the weaknesses inherent in loans classified
substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet
rated as loss because certain events may occur which would salvage the Bank's position, which can include, but not
limited to (1) an injection of capital, (2) alternative financing, and (3) liquidation of assets or the pledging of
additional collateral. Doubtful is a temporary grade where a loss is expected, but is presently not quantified with any
degree of accuracy. Once the loss position is determined, the amount is charged off against the allowance for loan
losses.
Risk Grade 9 – Loss: Loans classified loss are considered uncollectable and of such little value that their
continuance as assets is not warranted. This classification does not mean that the asset has absolutely no recovery or
salvage value, but rather that it is not practical or desirable to defer charging off the worthless loan, even though
partial recovery may be effected in the future. Probable loss portions of doubtful loans are charged off promptly
against the allowance for loan losses.
80
There were no loans classified as doubtful or loss at December 31, 2021 and December 31, 2020.
The following tables present the Company's loan portfolio (PCI and originated and purchased performing) by internal loan grades as of the dates stated. PPP
loans are risk graded strong because they are fully guaranteed by the U.S. government.
(Dollars in thousands)
PCI loans:
Commercial and industrial
Real estate – construction, commercial
Real estate – mortgage, commercial
Real estate – mortgage residential
Consumer loans
Total PCI loans
Originated and purchased performing loans:
Commercial and industrial
Paycheck Protection Program
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage residential
Real estate – mortgage, farmland
Consumer loans
Total originated and purchased performing loans:
Gross loans
Less: deferred loan fees, net of costs
Total
Grade
1
Strong
Grade
2
Minimal
Grade
3
Acceptable
Grade
4
Satisfactory
Grade
5
Watch
Grade
6
Special
Mention
Grade
7
Substandard
December 31, 2021
$
$
— $
—
—
—
—
—
291
30,742
—
—
—
990
340
262
32,625
32,625
$
— $
—
—
—
—
—
560
—
412
—
2,382
9,218
—
3
12,575
12,575
$
— $
—
—
—
—
—
156,519
—
28,973
14,610
307,067
276,992
1,067
16,920
802,148
802,148
$
1,567
2,423
2,642
142
—
6,774
133,738
—
91,900
40,418
283,165
180,980
4,766
30,691
765,658
772,432
$
$
2,818
—
3,892
1,657
388
8,755
11,256
—
7,995
3,416
34,750
11,107
—
542
69,066
77,821
$
$
2,748
11,010
33,487
2,709
481
50,435
3,180
—
1,846
—
17,133
974
—
—
23,133
73,568
$
$
1,770
1,321
11,851
3,113
10
18,065
6,380
—
643
413
5,134
6,100
—
580
19,250
37,315
$
Total
8,903
14,754
51,872
7,621
879
84,029
311,924
30,742
131,769
58,857
649,631
486,361
6,173
48,998
1,724,455
$ 1,808,484
(906)
$ 1,807,578
81
(Dollars in thousands)
PCI loans:
Commercial and industrial
Real estate – construction, commercial
Real estate – mortgage, commercial
Real estate – mortgage residential
Total PCI loans
Originated and purchased performing loans:
Commercial and industrial
Paycheck Protection Program
Real estate – construction, commercial
Real estate – construction, residential
Real estate – mortgage, commercial
Real estate – mortgage residential
Real estate – mortgage, farmland
Consumer loans
Total originated and purchased performing loans:
Gross loans
Less: deferred loan fees, net of costs
Total
Grade
1
Strong
Grade
2
Minimal
Grade
3
Acceptable
Grade
4
Satisfactory
Grade
5
Watch
Grade
6
Special
Mention
Grade
7
Substandard
Total
December 31, 2020
$
$
— $
—
—
—
—
844
292,068
—
—
—
—
444
324
293,680
293,680
$
— $
—
—
—
—
484
—
2,143
—
3,994
3,583
—
36
10,240
10,240
$
— $
—
—
40
40
23,828
—
19,524
3,073
128,163
101,038
1,175
17,062
293,863
293,903
$
— $
35
—
46
81
— $
—
—
121
121
— $
—
93
35
128
— $
—
715
—
715
—
35
808
242
1,085
85,928
—
26,289
8,247
114,977
100,555
1,996
23,311
361,303
361,384
$
7,251
—
5,916
6,458
15,799
5,629
—
521
41,574
41,695
$
4
—
218
—
2,875
123
—
1
3,221
3,349
$
5,336
—
577
262
6,883
2,234
—
707
15,999
16,714
123,675
292,068
54,667
18,040
272,691
213,162
3,615
41,962
1,019,880
$ 1,020,965
(4,271)
$ 1,016,694
82
Note 6. Premises and Equipment, net
The following table presents premises and equipment, net of accumulated depreciation, as of the dates stated.
(Dollars in thousands)
Buildings and land
Furniture, fixtures and equipment
Software
Construction in progress
Total cost
Less: Accumulated depreciation
Premises and equipment, net
December 31,
2021
2020
$
$
25,517 $
6,191
373
41
32,122
(5,461)
26,661 $
13,925
3,945
325
—
18,195
(3,364)
14,831
Depreciation expense for the years ended December 31, 2021 and 2020 was $2.0 million and $951 thousand,
respectively. Software amortization expense for the years ended December 31, 2021 and 2020 was $137 thousand
and $55 thousand, respectively.
83
Note 7. Goodwill and Other Intangible Assets
As of December 31, 2021 and 2020, goodwill totaled $26.8 million and $19.6 million, respectively.
The following tables present information on amortizable intangible assets included on the consolidated balance
sheets as of the dates stated.
(Dollars in thousands)
December 31, 2021
Core deposit intangibles
Other amortizable intangibles
Total
(Dollars in thousands)
December 31, 2020
Core deposit intangibles
Other amortizable intangibles
Total
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
9,626 $
2,659
12,285 $
(2,908) $
(1,635)
(4,543) $
6,718
1,024
7,742
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
2,776 $
2,187
4,963 $
(1,366) $
(1,016)
(2,382) $
1,410
1,171
2,581
$
$
$
$
As a result of the Bay Banks Merger, a core deposit intangible asset of $6.9 million was recorded as of the
acquisition date and is being amortized on an accelerated basis over 10 years using the sum-of-years digits method.
Intangible amortization expense is included in noninterest expense or interest and fees on loans in the
consolidated statements of operations depending on the intangible. For the years ended December 31, 2021 and
2020, intangible amortization expense totaled $1.9 million and $825 thousand, respectively.
The following table presents estimated intangible asset amortization expense of the core deposit intangibles and
other amortizable intangibles for the next five years and thereafter from the date stated.
(Dollars in thousands)
2022
2023
2024
2025
2026
Thereafter
Total
December 31, 2021
1,808
1,455
1,251
1,050
864
1,314
7,742
$
$
Included in other amortizable intangibles were loan servicing assets of $362 thousand and $209 thousand as of
December 31, 2021 and 2020, respectively, related to the sale of the government guaranteed portion of certain loans
that the Company continues to service. Loan servicing assets of $266 thousand and $189 thousand were added
during the years ended December 31, 2021 and 2020, respectively. The amortization of these intangibles is included
in interest and fees on loans in the consolidated statement of operations.
The Company retains MSR assets on mortgages originated and sold to the secondary market. As of December
31, 2021 and 2020, the carrying value of MSR assets included in the consolidate balance sheets were $16.5 million
and $7.1 million, respectively.
84
Note 8. Deposits
The aggregate amount of time deposits, with a minimum denomination of $250 thousand, were $144.8 million
and $95.7 million as of December 31, 2021 and 2020, respectively.
The following table presents the scheduled maturities of time deposits, with a minimum denomination of $250
thousand, for the next five years and thereafter from the date stated were as follows.
(Dollars in thousands)
2022
2023
2024
2025
2026
Total
December 31, 2021
$
$
92,974
15,340
25,763
2,175
8,590
144,842
Brokered deposits totaled $53.7 million and $33.9 million at December 31, 2021 and 2020, respectively.
Additionally, deposits obtained through a certificate of deposit listing service totaled $8.4 million and $14.8 million
as of December 31, 2021 and 2020, respectively.
Note 9. Borrowings
FHLB Borrowings
The Bank has a line of credit from the FHLB of $358.1 million at December 31, 2021, secured by pledged
qualifying real estate loans and certain pledged securities. The FHLB will lend up to 30% of the Bank’s total assets
as of the prior quarter end, subject to certain eligibility requirements, including adequate collateral. The Bank had
borrowings from the FHLB that totaled $10.0 million and $115.0 million at December 31, 2021 and 2020,
respectively. The interest rates on the borrowings for 2021 and 2020 ranged from 0.22% to 0.56% depending on
structure and maturity. The $10.0 million FHLB advance outstanding as of December 31, 2021 has a maturity date
of February 28, 2030. FHLB borrowings required the Bank to hold $1.7 million and $5.8 million of FHLB stock as
of December 31, 2021 and 2020, respectively, which is included in restricted and other equity investments on the
consolidated balance sheets.
At December 31, 2021, 1-4 family residential loans classified as held for investment with a lendable value of
$162.6 million, multi-family residential loans with a lendable value of $31.4 million, commercial real estate loans
with a lendable value of $109.1 million, 1-4 family residential loans held for sale with a lendable value of $32.9
million, and securities with a lendable value of $22.0 million were pledged against the available line of credit with
the FHLB. The Bank also has letters of credit with the FHLB in the amount of $85.0 million for the purpose of
collateral for public deposits with the Treasury Board of the Commonwealth of Virginia. Outstanding letters of
credit reduce the available balance of the borrowing facility with the FHLB, which was $263.1 million as of
December 31, 2021.
FRB Borrowings
In the second quarter of 2020, the Company began participating in the PPPLF, which allows banks to pledge
PPP loans as collateral in exchange for advances. The PPPLF advances are at 100% of the PPP loan value and term,
have a fixed annual cost of 35 basis points, and receive favorable regulatory capital treatment. As of December 31,
2021, FRB borrowings under the PPPLF were $17.9 million with maturities ranging from 1.0 years to 3.5 years. As
of December 31, 2020, the Company’s FRB borrowings were $281.6 million with maturities ranging from 1.2 years
to 4.5 years.
Other Borrowings
The Company has unsecured lines of credit with correspondent banks totaling $64.0 million at December 31,
2021 and $38.0 million at December 31, 2020, available for overnight borrowing. These lines bear interest at the
85
prevailing rates for such loans and are cancellable any time by the correspondent bank. At December 31, 2021 and
2020, none of these lines of credit with correspondent banks were drawn upon.
Subordinated Notes
The Company had $40.0 million and $24.5 million of subordinated notes, net, outstanding as of December 31,
2021 and December 31, 2020, respectively. The Company assumed $30.9 million par value (or $31.9 million fair
value) of subordinated notes in the Bay Banks Merger, which was composed of a $25 million issuance in October
2019 and maturing October 15, 2029 (the “2029 Bay Banks Notes”) and a $7 million issuance in May 2015 and
maturing May 28, 2025 (the “2025 Bay Banks Notes”).
The 2029 Bay Banks Notes bear interest at 5.625% per annum, through October 14, 2024, payable semi-
annually in arrears. From October 15, 2024 through October 14, 2029, or up to an early redemption date, the interest
rate shall reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight
Funding Rate (SOFR) (as defined in the 2029 Bay Banks Notes) plus 433.5 basis points, payable quarterly in
arrears. The 2029 Bay Banks Notes are unsecured, subordinated obligations of the Company and rank junior in right
of payment to the Company’s existing and future senior indebtedness and rank in parity with the other subordinated
notes issued by the Company. Beginning on October 15, 2024 through maturity, the 2029 Bay Banks Notes may be
redeemed, at the Company's option, on any scheduled interest payment date. As of December 31, 2021, the net
carrying amount of the 2029 Bay Banks Notes was $25.3 million, inclusive of a $830 thousand purchase accounting
adjustment (premium) recorded at the effective date of the Bay Banks Merger. For the year ended December 31,
2021, the effective interest rate on the 2029 Bay Banks Notes was 4.73% inclusive of the amortization of the
purchase accounting adjustment (premium).
The 2025 Bay Banks Notes had interest payable on the first of March and September of each year, at a fixed
interest rate of 6.50% per year. The 2025 Bay Banks Notes were redeemable in whole or in part, without premium or
penalty, at any interest payment date at the option of the Company. The Company exercised its right to redeem the
2025 Bay Banks Notes in the third quarter of 2021 and repaid the 2025 Bay Banks Notes in full.
On May 28, 2020, the Company issued a subordinated note with a principal amount of $15.0 million, which
matures on June 1, 2030 (the “2030 Note”). The 2030 Note is an unsecured, subordinated obligation of the Company
and ranks junior in right of payment to the Company’s existing and future senior indebtedness and ranks in parity
with the other subordinated notes issued by the Company. Beginning on June 1, 2025 through maturity, the 2030
Note may be redeemed, at the Company's option, on any scheduled interest payment date. The aggregate carrying
value of the 2030 Note, including capitalized, unamortized debt issuance costs, was $14.7 million as of December
31, 2021. For the year ended December 31, 2021, the effective interest rate on the 2020 Note was 6.12%.
On November 20, 2015, the Company issued an aggregate of $10.0 million of subordinated notes with a
maturity date of December 1, 2025 (the “2025 Notes”). The 2025 Notes were redeemable in part or in full at any
interest payment date on or after December 1, 2020, at the option of the Company. The Company exercised its right
to redeem the 2025 Notes in the second quarter of 2021 and repaid the 2025 Notes in full.
86
Note 10. Derivative Financial Instruments and Hedging Activities
The Company enters into interest rate swap agreements to accommodate the needs of its banking customers.
The Company mitigates the interest rate risk entering into these swap agreements by entering into equal and
offsetting swap agreements with a highly rated third-party financial institution. These back-to-back swap agreements
are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets (asset
positions are included in other assets and liability positions are included in other liabilities).
The following table presents the notational and fair values of the swap agreements for the dates stated.
(Dollars in thousands)
Interest rate swap agreement
Receive fixed/pay variable swaps
Pay fixed/receive variable swaps
(Dollars in thousands)
Interest rate swap agreement
Receive fixed/pay variable swaps
Pay fixed/receive variable swaps
December 31, 2021
Fair
Value
Notional
Amount
2,052 $
2,052
199
(199)
December 31, 2020
Fair
Value
Notional
Amount
2,145 $
2,145
185
(185)
$
$
The Company entered into various interest rate swaps in 2020 and 2019, the objective of which was to hedge
the risk of variability in the cash flows attributable to changes in the 3-month LIBOR benchmark rate component of
forecasted 3-month fixed rate funding advances from the FHLB. The hedging objective was to reduce the interest
rate risk associated with the Company’s fixed rate advances from the designation date and through the maturity date.
During the fourth quarter of 2021, the Company terminated these cash flow hedges and recognized a gain of $6.2
million, which is included in noninterest income in the consolidated statements of operations. In connection with the
termination of the cash flow hedges, the Company repaid $115.0 million of FHLB advances that were associated
with these hedges.
As part of its efforts to sell originated government guaranteed and conventional residential mortgages into the
secondary market, the Bank had entered into $64.8 million and $154.3 million of rate lock commitments with
borrowers, net of expected fallout, as of December 31, 2021 and 2020, respectively, and $113.6 million and $97.1
million of closed loan inventory waiting for sale, which were hedged by $169.5 million and $225.0 million in
forward TBA mortgage-backed securities as of December 31, 2021 and 2020, respectively. Mortgage derivative
assets totaled $1.9 million and $5.3 million as of December 31, 2021 and 2020, respectively, and mortgage
derivative liabilities, which are included in other liabilities on the consolidated balance sheets, were $75 thousand
and $1.6 million as of December 31, 2021 and 2020, respectively.
Note 11. Employee Benefit Plans
The Company has a 401(k) plan that covers eligible employees (the "401(k) Plan"). Employees may make
voluntary contributions subject to certain limits based on federal tax laws. The Bank contributes a matching
contribution equal to 100% of an employee's contribution up to 5% of his or her elective deferral. This matching
contribution is subject to a vesting schedule of six years. For the years ended December 31, 2021 and 2020, total
expenses attributable to the 401(k) Plan were $2.5 million and $1.2 million, respectively.
The Company has an Employee Stock Ownership Plan (the “ESOP”) that covers eligible employees.
Contributions to the ESOP 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.
Contributions from the Company are subject to a vesting schedule of six years. The ESOP held 192,066 and 156,087
total shares of Company common stock at December 31, 2021 and December 31, 2020, respectively. All shares
issued to and held by the ESOP are considered outstanding in the computation of EPS.
87
The Company assumed the Bay Banks of Virginia, Inc. ESOP pursuant to the Bay Banks Merger (the "Bay
Banks ESOP"). The Bay Banks ESOP remained a separate plan from the ESOP after the Bay Banks Merger, and no
new participants were permitted to the Bay Banks ESOP beginning with the effective date of the merger. The Bay
Banks ESOP held 361,500 total shares of Company common stock at December 31, 2021, which were considered
outstanding in the computation of EPS.
In the Bay Banks Merger, the Company assumed a non-contributory, cash balance defined benefit pension plan
(the “Pension Plan”) for employees who were vested in the plan as of December 31, 2012, the date the plan was
frozen (i.e., curtailed). Each participant’s account balance grows based on monthly interest credits. The Pension Plan
is partially funded by assets invested for the benefit of the plan participants. The Pension Plan assets are held by a
third-party qualified trust and are not included in the Company’s consolidated balance sheets. The Company made
contributions totaling $703 thousand to the Pension Plan for the 2021 plan year. The accumulated benefit obligation
for the Pension Plan was $1.1 million as of December 31, 2021. The funded assets for the Pension Plan, included in
other assets in the Company’s consolidated balance sheets, were $10 thousand as of December 31, 2021. In 2021,
the Company began the process of terminating the Pension Plan, which would result in the liquidation of plan assets
and the complete settlement of the benefit obligation owed to all remaining participants. The termination of the
Pension Plan is contingent on Company obtaining certain regulatory approvals, including from the Internal Revenue
Service. The Company anticipates that the termination will be effective during 2022.
The Pension Plan sponsor selects the assumption for the expected long-term rate of return on assets held by the
qualified trust in consultation with its investment advisors and actuary. This rate is intended to reflect the average
rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical
performance is reviewed, especially with respect to real rates of return (i.e., net of inflation), for the major asset
classes held or anticipated to be held by the qualified trust and for the qualified trust itself. Undue weight is not
given to recent experience that may not continue over the measurement period, with higher significance placed on
current forecasts of future long-term economic conditions.
Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this
purpose, the Pension Plan is assumed to continue in force and not terminate during the period during which assets
are invested. However, consideration is given to the potential impact of current and future investment policy, cash
flow into and out of the qualified trust, and expenses (both investment and non-investment) typically paid from the
Pension Plan’s assets (to the extent such expenses are not explicitly estimated within periodic cost).
The qualified trust assets are sufficiently diversified to maintain a reasonable level of risk without imprudently
sacrificing return. The investment manager of the qualified trust selects investment fund managers with
demonstrated experience and expertise and funds with demonstrated historical performance for the implementation
of the plan’s investment strategy. The qualified trust assets are not included in the Company’s consolidated balance
sheets as of December 31, 2021 and are considered Level 1 from a fair value hierarchy perspective.
The following table presents the Pension Plan’s assets by asset type as of the dates stated.
Mutual funds - equity
Mutual funds - fixed income
Total
December 31, 2021
%
Amount
$
$
869
290
1,159
75%
25%
100%
In the Bay Banks Merger, the Company also assumed a post-retirement benefit plan (the “PRB Plan”) covering
retirees who were age 55 with 10 years of service or age 65 with five years of service prior to March 1, 2018, when
the plan was curtailed. The PRB Plan provides coverage toward a retiree’s eligible medical and life insurance
benefits. The PRB Plan is unfunded and benefits are expensed as incurred. The Company expects to make no
contributions to the PRB Plan in future periods. The accumulated (unfunded) benefit obligation for the PRB Plan
was $52 thousand as of December 31, 2021.
The following table provides a reconciliation of changes in the accumulated benefit obligations and fair value of
qualified trust assets (Pension Plan only) and a statement of funded (unfunded) status for the Pension Plan and the
PRB Plan as of and for the period stated.
88
December 31, 2021
Pension Plan
PRB Plan
$
— $
$
$
$
$
2,041
—
45
34
(971)
—
1,149
—
1,330
97
703
(971)
1,159
10
$
For the year ended December 31, 2021
PRB Plan
Pension Plan
11
—
—
11
$
$
— $
45
(73)
—
—
—
—
(28)
11
—
—
11
$
(17) $
—
65
—
2
(9)
(6)
—
52
—
—
—
6
(6)
—
(52)
(9)
—
—
(9)
—
2
—
—
—
—
—
2
(9)
—
—
(9)
(7)
Change in benefit obligation
Benefit obligation, beginning of year
Assumed in business combination
Service cost
Interest cost
Actuarial loss (gain)
Benefit payments
Settlement (gain) loss
Benefit obligation, end of year
Change in plan assets
Fair value of plan assets, beginning of year
Acquired in business combination
Actual return on plan assets
Employer contributions
Benefits payments
Fair value of plan assets, end of year
Funded (unfunded) status, end of year
Amounts recognized in accumulated other comprehensive loss (income)
Net loss (gain)
Prior service cost
Net obligation at transition
Amount recognized
Components of net periodic benefit (gain) cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net obligation at transition
Recognized net loss due to settlement
Recognized net actuarial loss
Net periodic benefit (gain) cost
Other changes in plan assets and benefit obligations recognized in accumulated
other comprehensive (income) loss
Net loss (gain)
Amortization of prior service cost
Amortization of net obligation at transition
Total recognized in other comprehensive loss (income)
Total recognized in net periodic benefit cost and other comprehensive
loss (income)
89
The following table presents the assumptions used in the valuation of and disclosures for the Pension Plan and
the PRB Plan for the period stated.
Discount rate used for net periodic pension cost
Discount rate used for disclosure (range)
Expected return on plan assets
Rate of compensation increase
Rate of compensation increase for net periodic
pension cost
Expected future interest crediting rate
December 31, 2021
Pension Plan
2.75%
1.02% - 3.08%
PRB Plan
7.25%
N/A
N/A
3.00%
2.50%
2.75%
N/A
N/A
N/A
N/A
The following table presents the expected benefit payments to be made from the Pension Plan and PRB Plan for
the periods following the date stated.
2022
2023
2024
2025
2026
2027 - 2031
December 31, 2021
Pension Plan
PRB Plan
$
$
1,149
—
—
—
—
—
6
6
5
5
5
28
Note 12. Stock-Based Compensation
The Company has granted restricted stock awards ("RSA") to employees and directors under the Blue Ridge
Bankshares, Inc. Equity Incentive Plan. RSAs are considered fixed awards as the number of shares and fair value is
known at the date of grant, and the fair value of the award at the grant date is amortized over the requisite service
period, which is generally three years. Compensation expense recognized in the consolidated statements of
operations related to RSAs, net of forfeitures, for the years ended December 31, 2021 and 2020 was $1.3 million and
$567 thousand, respectively. Unrecognized compensation expense related to the restricted stock awards as of
December 31, 2021 totaled $2.5 million.
The following table presents RSA activity as of and for the periods stated.
RSA unvested and outstanding, January 1, 2020
Granted
Vested
Forfeited
RSA unvested and outstanding, December 31, 2020
Granted
Vested
Forfeited
RSA unvested and outstanding, December 31, 2021
Shares
94,762
120,429
(36,216)
(30,375)
148,600
174,634
(85,037)
(20,013)
218,184
Weighted Average
Fair Value per RSA
12.17
$
10.41
12.14
12.43
10.70
17.35
12.28
13.45
15.15
$
$
The Company converted fully vested options to purchase 198,362 shares of Bay Banks common stock into
options to purchase 99,176 shares (148,758 on a post Stock Split basis) of the Company’s common stock pursuant to
the Bay Banks Merger. The estimated fair value of the converted stock options as of the effective date of the merger
was $472 thousand and included in the Bay Banks Merger consideration. The estimated fair value was determined
using the Black-Scholes Model, which requires the use of assumptions including the risk-free interest rate, expected
term, expected volatility (of the underlying stock), and expected dividend yield.
90
The following table presents the ranges and weighted averages of assumptions used to determine the estimated
fair value of the converted stock options in the Bay Banks Merger.
Risk free interest rate (U.S. Treasury)
Expected term (years)
Expected volatility
Expected dividend yield
As of January 31, 2021
Range
0.06% - 0.45%
0.14 - 5.00
21.2% - 38.2%
2.85%
Weighted Average
0.32%
3.89
32.8%
2.85%
The following table presents stock option activity for the periods presented.
Options outstanding and exercisable, January 1, 2021
Assumed in Bay Banks Merger
Granted
Forfeited
Exercised
Expired
Options outstanding and exercisable, December 31, 2021
Shares
—
148,758
—
(808)
(89,786)
(557)
57,607
Weighted
Average
Exercise Price
—
9.89
—
13.80
9.99
6.47
11.75
$
$
Weighted
Average
Remaining
Contractual
Life (in years)
—
5.47
Aggregate
Intrinsic
Value (1)
—
6.18 $
354,269
(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the
amount by which the current market value of the underlying stock exceeds the exercise price of the option) that
would have been received by the option holders had all option holders exercised their options as of the respective
years ended. This amount changes based on the market value of the Company’s common stock.
91
Note 13. Leases
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the
option to extend the lease terms and the Company has included such extensions in its calculation of the lease
liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide
for residual value guarantees and The following table presents a summary of the activity in the Company's
allowance for loan losses and the ratio of net charge-offs to average loans outstanding for the periods stated.
The Company assumed five operating leases for real estate in the Bay Banks Merger. In accordance with ASC
842 – Leases, the original classification of each lease was retained and not re-evaluated as part of the accounting for
the business combination. The Company measured each of the assumed lease liabilities as if the lease was new,
determined the appropriate lease liability and ROU asset fair value based on the Company's incremental borrowing
rate at merger date, and obtained independent assessments of favorable or unfavorable market terms for each lease
contract.
The following tables present information about the Company’s leases as of and for the periods stated.
(Dollars in thousands)
Lease liability
ROU asset
Weighted average remaining lease term (years)
Weighted average discount rate
(Dollars in thousands)
Operating lease cost
Total lease cost
Cash paid for amounts included in the measurement
of lease liabilities
December 31, 2021
7,651
$
6,317
$
6.79
1.86%
For the year ended
December 31,
2021
2020
2,383 $
2,383 $
1,731
1,731
2,014 $
—
$
$
$
The following table presents a maturity analysis of operating lease liabilities and reconciliation of the
undiscounted cash flows to the total of operating lease liabilities for periods following the date stated.
(Dollars in thousands)
2022
2023
2024
2025
2026
Thereafter
Total undiscounted cash flows
Discount
Lease liability
December 31,
2021
$
$
1,638
1,276
946
849
767
2,442
7,918
(267)
7,651
Note 14. Fair Value
The fair value of a financial instrument is the current amount that would be exchanged between willing parties
in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Fair value is best determined based upon quoted market prices. However, in
many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques.
92
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the
instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not
necessarily represent the underlying fair value of the Company.
The Company records fair value adjustments to certain assets and liabilities and determines fair value
disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. Additional considerations are involved to determine the fair value of financial assets in
markets that are not active.
The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value
hierarchy based on these two types of inputs are as follows:
Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 – Valuation is based on observable inputs including quoted prices in active markets for similar
assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and
model-based valuation techniques for which significant assumptions can be derived primarily from or
corroborated by observable data in the market.
Level 3 – Valuation is based on model-based techniques that use one or more significant inputs or
assumptions that are unobservable in the market.
The following describes the valuation techniques used by the Company to measure certain financial assets and
liabilities recorded at fair value on a recurring basis in the financial statements:
Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation
hierarchy. Level 1 securities would include highly-liquid government bonds and exchange traded equities. If quoted
market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities
with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities,
mortgage-backed agency securities, obligations of states and political subdivisions, and certain corporate, asset-
backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the
valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted FRB
and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore
excluded from the following table.
Rabbi trust assets
As a result of the Bay Banks Merger, the Company acquired and assumed a rabbi trust and deferred
compensation plan. The assets held by the rabbi trust are invested at the direction of the individual participants and
are generally invested in marketable investment securities, such as common stocks and mutual funds or short-term
investments (e.g., cash) (Level 1). Rabbi trust assets and the associated deferred compensation plan liability are
included in other assets and other liabilities, respectively, in the consolidated balance sheets.
Derivative financial instruments
Derivative instruments used to hedge residential mortgage loans held for sale and the related interest rate lock
commitments are reported at fair value utilizing Level 2 inputs. The fair values of derivative financial instruments
are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for
rate lock commitments.
Cash flow hedges (interest rate swaps) are used to hedge against the risk of variability in cash flows attributable
to changes in the 3-month LIBOR benchmark rate component of forecasted 3-month fixed rate funding advances
from the FHLB. These cash flow hedges were recorded at fair value utilizing Level 2 inputs.
93
The following tables present the balances of financial assets measured at fair value on a recurring basis as of the
dates stated.
(Dollars in thousands)
Securities available for sale:
State and municipals
U.S. Treasury and agencies
Mortgage backed securities
Corporate bonds
Total securities available for sale
Other assets:
Rabbi trust assets
Mortgage derivative asset
Interest rate swap asset
Other liabilities:
Mortgage derivative liability
Interest rate swap liability
(Dollars in thousands)
Securities available for sale:
State and municipals
U.S. Treasury and agencies
Mortgage backed securities
Corporate bonds
Total investment securities available for sale
Other assets:
Mortgage derivative asset
Interest rate swap asset
Other liabilities:
Mortgage derivative liability
Interest rate swap liability
Total
December 31, 2021
Level 2
Level 1
Level 3
51,113 $
64,066 $
219,110
39,243
373,532 $
994 $
1,876
199
75 $
199
— $
— $
—
—
— $
994 $
—
—
— $
—
51,113 $
64,066 $
219,110
39,243
373,532 $
— $
1,876
199
75 $
199
Total
December 31, 2020
Level 2
Level 1
Level 3
14,259 $
2,409
72,635
20,172
109,475 $
5,293 $
1,716
1,569 $
2,735
— $
—
—
—
— $
— $
—
— $
—
14,259 $
2,409
72,635
20,172
109,475 $
5,293 $
1,716
1,569 $
2,735
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. The
following describes the valuation techniques used by the Company to measure certain financial assets recorded at
fair value on a nonrecurring basis in the financial statements.
Mortgage Servicing Rights
The Company accounts for MSR assets under the amortization method, which requires that the MSR assets be
recorded at the lower of cost or fair value. As of December 31, 2021, the amortized cost of MSR assets totaled $16.5
million compared to a fair value of $21.0 million.
94
The following tables present the change in MSR assets as of and for the periods stated.
(Dollars in thousands)
Balance, December 31, 2020
Acquired in Bay Banks Merger
Additions
Write-offs
Amortization
Impairments
Fair value adjustments
Balance, December 31, 2021 - Fair value
Balance, December 31, 2021 - Amortized cost
(Dollars in thousands)
Balance, December 31, 2019
Additions
Write-offs
Amortization
Impairments
Fair value adjustments
Balance, December 31, 2020 - Fair value
Balance, December 31, 2020 - Amortized cost
$
$
$
$
$
$
MSR Assets
MSR Assets
7,084
997
11,809
(959)
(2,462)
—
4,484
20,953
16,469
—
7,539
(61)
(391)
(3)
207
7,291
7,084
A third-party model is used to determine the fair value of the Company’s MSR assets. The model establishes
pools of performing loans, calculates projected future cash flows for each pool, and applies a discount rate to each
pool. As of December 31, 2021 and 2020, the Company was servicing approximately $1.91 billion and $846.5
million in loans, respectively, via a third-party subservicer. Loans are segregated into homogenous pools based on
loan term, interest rates, and other similar characteristics. Cash flows are then estimated based on net servicing fee
income and servicing costs, utilizing assumed prepayment speeds. The weighted average net servicing fee income of
the portfolio was 28.0 basis points as of December 31, 2021. Estimated base annual servicing costs were $65.00 to
$80.00 per loan depending on the guarantor. Prepayment speeds in the model are based on empirically derived data
for mortgage pool factors and differences between a mortgage pool’s weighted average coupon and its current
mortgage rate. The weighted average prepayment speed assumption used in the fair value model was 11.65% as of
December 31, 2021. A base discount rate of 9.00% to 11.00% (9.29% weighted average discount rate) was then
applied to each pool’s projected future cash flows as of December 31, 2021. The discount rate is intended to
represent the estimated market yield for the highest quality grade of comparable servicing. MSR assets are classified
as Level 3.
Impaired Loans
Impaired loans with specific reserves are carried at fair value. Fair value is based on the discounted cash flows
of the loan or the fair value of the collateral less estimated costs to sell, if the loan is collateral-dependent. Collateral
may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Any
given loan may have multiple types of collateral; however, the majority of the Company’s loan collateral is real
estate. The value of real estate collateral is generally determined utilizing a market valuation approach based on an
appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data
(Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties or
is discounted by the Company because of lack of marketability, then the fair value is considered Level 3. The value
of business equipment is based upon an outside appraisal if deemed significant or the net book value on the
applicable business’s financial statements if not considered significant. Likewise, values for inventory and accounts
receivables collateral are based on financial statement balances or aging reports (Level 3). Fair value adjustments are
recorded in the period incurred as provision for loan losses on the consolidated statements of operations.
95
Loans Held for Sale
Mortgage loans originated or purchased and intended for sale in the secondary market are carried at estimated
market value in the aggregate (i.e., loans held for sale). Changes in fair value are recognized in residential mortgage
banking income, net on the consolidated statements of operations (Level 2).
Certain consumer loans originated by the Company and sourced by fintech partners are classified on the
Company's consolidated balance sheets as held for sale. These loans are originated by the Bank and either sold
directly to the applicable fintech partner or another investor at par, generally up to 10 days from origination. Due to
relatively short time between origination and sale, these loans are held at cost, which approximates fair value (Level
2).
Other Real Estate Owned
Certain assets such as OREO are measured at fair value less estimated costs to sell. Valuation of OREO is
generally determined using current appraisals from independent appraisers, a Level 2 input. If current appraisals
cannot be obtained prior to reporting dates, or if declines in value are identified after the most recent appraisal,
appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a real
estate agent or broker, estimated selling costs reduce the listing price, resulting in a valuation based on Level 3
inputs.
The following tables summarize assets that were measured at fair value on a nonrecurring basis as of the dates
stated.
(Dollars in thousands)
Impaired loans, net
Loans held for sale
OREO
(Dollars in thousands)
Impaired loans, net
Loans held for sale
Total
$
8,344 $
121,943
157
December 31, 2021
Level 1
Level 2
— $
—
—
— $
121,943
—
Level 3
8,344
—
157
Total
$
2,187 $
152,931
December 31, 2020
Level 1
Level 2
Level 3
— $
—
— $
152,931
2,187
—
The following tables present quantitative information about Level 3 fair value measurements as of the dates
stated.
(Dollars in thousands)
Impaired loans, net
Discounted appraised value technique
Discounted cash flows technique
OREO
Discounted appraised value technique
(Dollars in thousands)
Impaired loans, net
Discounted appraised value technique
Discounted cash flows technique
Balance as of
December 31,
2021
Unobservable
Input
Weighted Average
$
$
8,108
236
Selling Costs
Discount Rate
7%
4% - 7%
157
Discount Rate
7%
Balance as of
December 31,
2020
Unobservable
Input
Weighted
Average
2,097
90
Selling Costs
Discount Rate
10%
6%
Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it
is practical to estimate the value is based upon the characteristics of the instruments and relevant market
information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or
impose on an entity that contractual right or obligation to either receive or deliver cash for another financial
instrument. The information used to determine fair value is highly subjective and judgmental in nature and,
96
therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows,
risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is
estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity
on these various instruments could be significantly different.
The carrying values of cash and due from banks and federal funds sold are of such short duration that carrying
value reasonably approximates fair value (Level 1).
The carrying values of accrued interest receivable and accrued interest payable are of such short duration that
carrying value reasonably approximates fair value (Level 2).
The carrying value of restricted equity investments approximates fair value based on the redemption provisions
of the issuer (Level 2). The fair value of other equity investments, including the Company's investments in certain
fintech companies, is based on either observable market prices, if available, or on observable market transactions for
identical or significantly similar investments (Level 2).
The fair value of the Company’s loan portfolio includes a credit risk assumption in the determination of the fair
value of its loans. This credit risk assumption is intended to approximate the fair value that a market participant
would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a
segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans,
impaired loans, and all other loans. The results are then adjusted to account for credit risk as described above. The
fair value of the Company’s loan portfolio also considers illiquidity risk through the use of a discounted cash flow
model to compensate for based on certain assumptions included within the discounted cash flow model, primarily
the use of discount rates that better capture inherent credit risk over the lifetime of a loan. This consideration of both
credit risk and illiquidity risk provides an estimated exit price for the Company’s loan portfolio. Loans held for
investment are reported as Level 3.
There is no credit risk associated with PPP loans as they are fully guaranteed by the U.S. government. Further,
these loans are expected to be short term in nature. As a result, the carrying value of PPP loans reasonably
approximates fair value (Level 3).
The carrying value of cash surrender value of life insurance reasonably approximates fair value. The Company
records these policies at their cash surrender value, which is estimated using information provided by insurance
carriers.
The carrying value of noninterest-bearing deposits approximates fair value (Level 1). The carrying values of
interest-bearing demand, money market, and savings deposits approximates fair value based on their current pricing
and are reported as Level 2. The fair value of time deposits were valued using a discounted cash flow calculation
that includes a market rate analysis of the current rates offered by market participants for time deposits that mature
in the same period. Time deposits are reported as Level 3.
The fair value of the FHLB borrowings is estimated by discounting the future cash flows using current interest
rates offered for similar advances (Level 2).
The fair value of FRB borrowings is approximated by its carrying value as there is no comparable debt to
PPPLF advances (Level 2).
The fair value of the Company’s subordinated notes is estimated by utilizing recent issuance interest rates for
subordinated debt offerings of similar issuer size (Level 3).
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its
normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the Company. Borrowers with fixed rate
obligations may be are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate
environment. Conversely, depositors who are receiving fixed rates may be more likely to withdraw funds before
maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors
rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new
loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
97
The following tables present estimated fair values and related carrying amounts of the Company’s financial
instruments as of the dates stated.
(Dollars in thousands)
Financial Assets
Cash and due from banks
Federal funds sold
Securities available for sale
Restricted and other equity investments
PPP loans receivable, net
Loans held for investment, net
Accrued interest receivable
Bank owned life insurance
Financial Liabilities
Noninterest-bearing deposits
Interest-bearing demand and money market
deposits
Savings deposits
Time deposits
FHLB borrowings
FRB borrowings
Subordinated notes, net
(Dollars in thousands)
Financial Assets
Cash and due from banks
Federal funds sold
Securities available for sale
Restricted and other equity investments
PPP loans receivable, net
Loans held for investment, net
Accrued interest receivable
Bank owned life insurance
Financial Liabilities
Noninterest-bearing deposits
Interest-bearing demand and money market
deposits
Savings deposits
Time deposits
FHLB borrowings
FRB borrowings
Subordinated notes, net
December 31, 2021
Fair Value Measurements at
Carrying
Value
Fair Value
Level 1
Level 2
Level 3
43,903
$ 130,643 $ 130,643 $ 130,643 $
43,903
373,532
22,518
30,406
1,766,820
9,573
46,545
43,903
373,532
22,518
30,406
1,765,051
9,573
46,545
—
— $
—
—
—
— 373,532
—
22,518
—
—
—
30,406
— 1,766,820
—
—
—
—
—
9,573
46,545
$ 706,088 $ 706,088 $ 706,088 $
— $
—
941,805
150,376
499,502
10,111
17,901
39,986
941,805
150,376
503,968
9,943
17,901
41,388
— 941,805
— 150,376
—
—
9,943
—
17,901
—
—
—
—
—
503,968
—
—
41,388
December 31, 2020
Fair Value Measurements at
Carrying
Value
Fair Value
Level 1
Level 2
Level 3
$ 117,945 $ 117,945 $ 117,945 $
775
109,475
11,173
288,533
714,334
5,428
15,724
775
109,475
11,173
288,533
715,674
5,428
15,724
— $
775
—
— 109,475
11,173
—
—
—
—
—
5,428
—
15,724
—
—
—
—
—
288,533
715,674
—
—
$ 333,051 $ 333,051 $ 333,051 $
— $
—
282,263
78,352
251,443
115,000
281,650
24,506
282,263
78,352
257,647
114,983
281,650
25,830
— 282,263
78,352
—
—
—
114,983
— 281,650
—
—
—
—
257,647
—
—
25,830
Note 15. Minimum Regulatory Capital Requirements
Banks and bank holding companies are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. A financial
98
institution's capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
The Basel III Capital Rules phased-in over a multi-year schedule and were fully phased-in on January 1, 2019.
Under the Basel III rules, banks must hold a capital conservation buffer above the adequately capitalized risk-based
capital ratios of 2.50% for all ratios, except the tier 1 leverage ratio. If a banking organization dips into its capital
conservation buffer, it is subject to limitations on certain activities, including payment of dividends, share
repurchases, and discretionary compensation to certain officers. Management believes as of December 31, 2021 and
2020, the Bank met all capital adequacy requirements to which it is subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized; although, these terms are not used to
represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital
restoration plans are required. At December 31, 2021, the most recent regulatory notification categorized the Bank
as well capitalized under the regulatory framework. There are no conditions or events since that notification that
management believes have changed the institution's category.
Federal and state banking regulations place certain restrictions on dividends paid by the Company. The total
amount of dividends that may be paid at any date is generally limited to retained earnings of the Company. Pursuant
to the EGRRCPA, regulators have provided for an optional, simplified measure of capital adequacy, the community
bank leverage ratio ("CBLR") framework, for qualifying community bank organizations. Banks that qualify may opt
in to the CBLR framework beginning January 1, 2020 or any time thereafter. The CBLR framework eliminates the
four required capital ratios disclosed below and requires the disclosure of a single leverage ratio, with a minimum
requirement of 9%. The Company has not opted into the CBLR framework.
The following tables present capital ratios for the Bank as of the dates stated. Adequately capitalized ratios
include the conversation buffer.
(Dollars in thousands)
Total risk based capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Tier 1 capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Common equity tier 1 capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Tier 1 leverage
(To average assets)
Blue Ridge Bank, N.A.
December 31, 2021
For Capital
Adequacy
Purposes
Amount
Ratio
To Be Well
Capitalized
Amount
Ratio
Actual
Amount
Ratio
$ 273,978
13.11% $ 219,393
10.50% $ 208,946
10.00%
$ 260,896
12.49% $ 177,604
8.50% $ 167,157
8.00%
$ 260,896
12.49% $ 146,262
7.00% $ 135,815
6.50%
$ 260,896
10.05% $ 103,883
4.00% $ 129,853
5.00%
99
(Dollars in thousands)
Total risk based capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Tier 1 capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Common equity tier 1 capital
(To risk-weighted assets)
Blue Ridge Bank, N.A.
Tier 1 leverage
(To average assets)
Blue Ridge Bank, N.A.
December 31, 2020
For Capital
Adequacy
Purposes
Amount Ratio
To Be Well
Capitalized
Amount Ratio
Actual
Amount
Ratio
$
$
$
$
109,219
13.10% $ 87,574
10.50% $ 83,404
10.00%
98,751
11.84% $ 70,893
8.50% $ 66,723
8.00%
98,751
11.84% $ 58,383
7.00% $ 54,213
6.50%
98,751
8.34% $ 47,363
4.00% $ 59,180
5.00%
100
Note 16. Related Party Transactions
During the years ended December 31, 2021 and 2020, officers, directors, and principal shareholders and their
related interests (related parties) were customers of and had transactions with the Bank. These transactions were
made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable loans with persons not deemed related parties to the Bank and did not
involve more than the normal risk of collectability or present other unfavorable features. The following table
presents loan transactions with such related parties as of and for the periods stated.
(Dollars in thousands)
Total loans, beginning of period
Advances
Curtailments
Total loans, end of period
December 31,
2021
2020
$
$
13,957 $
6,699
(12,919)
7,737 $
14,168
12,472
(12,683)
13,957
The Bank held related party deposits of approximately $13.2 million and $8.4 million as of December 31, 2021
and 2020, respectively.
Note 17. Earnings Per Share
The following table shows the calculation of basic and diluted EPS and the weighted average number of shares
outstanding used in computing EPS and the effect of dilutive potential common stock for the periods stated. Basic
EPS amounts are computed by dividing net income (the numerator) by the weighted average number of common
shares outstanding (the denominator). Diluted EPS amounts assume the conversion, exercise, or issuance of all
potential common stock instruments, unless the effect would be to reduce the loss or increase earnings per common
share. Potential dilutive common stock instruments include exercisable stock options. For the year ended December
31, 2021, no stock options for shares of the Company’s common stock were considered anti-dilutive. Weighted
average common shares outstanding, basic and dilutive, for all periods presented are presented on a post Stock Split
basis.
(Dollars in thousands, except per share data)
Net income
Net income attributable to noncontrolling interest
Net income available to common shareholders
Weighted average common shares outstanding, basic
Effect of dilutive securities
Weighted average common shares outstanding, dilutive
Basic and diluted earnings per common share
Note 18. Income Taxes
For the years ended
December 31,
2021
52,480
(3)
52,477
17,840,675
9,898
17,850,573
2.94
$
$
$
$
$
$
2020
17,697
(1)
17,696
8,535,606
—
8,535,606
2.07
The following table presents the differences between the provision for income taxes at the federal statutory rate
and the amounts computed as reported for the periods stated.
101
(Dollars in thousands)
Income tax at federal statutory rate
Increase (decrease) resulting from:
State income taxes, net of federal tax effect
Tax-exempt interest income
Income from life insurance
Merger-related expenses
Other permanent differences
Provision for income taxes
For the years ended December 31,
2021
2020
$
14,317
21.0% $
4,725
21.0%
1,499
(105)
(196)
250
(68)
15,697
$
2.2%
(0.2%
)
(0.3%
)
0.4%
(0.1%
)
23.1% $
34
(20)
(82)
174
(31)
4,800
0.2%
(0.1%)
(0.4%)
0.8%
(0.1%)
21.4%
The following table presents the significant components of the provision for income taxes for the periods stated.
(Dollars in thousands)
Current tax provision
Federal
State
Total current tax provision
Deferred tax provision (benefit)
Federal
State
Total deferred tax provision (benefit)
Provision for income taxes
For the years ended
December 31,
2021
2020
$
$
12,828 $
946
13,774
971
952
1,923
15,697 $
6,437
43
6,480
(1,680)
—
(1,680)
4,800
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following
table presents significant components of deferred tax assets and liabilities as of the dates stated.
(Dollars in thousands)
Deferred tax assets relating to:
Allowance for loan losses
Compensation differences
Reserve for loan sale buy backs
Acquisition accounting adjustments
Loan origination costs
Pass-through entities
Unrealized losses on securities available for sale and interest rate swaps
Other
Total deferred tax assets
Deferred tax liabilities relating to:
Premises and equipment, net
Core deposit and customer-based intangible assets
Mortgage servicing rights
Unrealized gains on other investments
Other
Total deferred tax liabilities
Net deferred tax asset, included in other assets
December 31,
2021
2020
$
2,470 $
1,221
227
3,463
67
487
1,092
872
9,899
(2,885)
(1,549)
(3,711)
(1,536)
(68)
(9,749)
$
150 $
2,478
892
341
255
81
252
108
191
4,598
(1,532)
(464)
(1,488)
—
(25)
(3,509)
1,089
Deferred income tax assets and liabilities are measured at the enacted tax rate for the period in which they are
expected to reverse; therefore, as of December 31, 2021, they have been measured using the federal income tax rate
enacted for subsequent years of 21% and applicable state income tax rates.
102
The Company had no net operating losses that can be carried forward and applied against future taxable income.
The Company’s policy is to report interest and penalties, if any, related to uncertain tax positions in income tax
expense in the consolidated statements of income. With few exceptions, the Company is no longer subject to U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2017. As of
December 31, 2021 and 2020, the Company has no uncertain tax positions.
The Company’s net deferred tax asset, included in other assets in the consolidated balance sheets, was $150
thousand and $1.1 million at December 31, 2021 and 2020, respectively. As of December 31, 2021, management
concluded that the Company’s deferred tax assets were fully realizable, and accordingly, no valuation allowance was
recorded. The Company will continue to monitor deferred tax assets to evaluate whether it will be able to realize the
full benefit of the deferred tax asset or whether there is any need for a valuation allowance. Significant negative
trends in asset credit quality, losses from operations, or other factors could impact the realization of the deferred tax
asset in the future.
103
Note 19. Business Segments
The Company has identified three primary business segments, which are commercial banking, mortgage
banking, and holding company (parent) activities. Revenues from commercial banking operations consist primarily
of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage banking
operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee
income, mortgage servicing rights and fees, and interest earned on mortgage loans held for sale. Activities at the
holding company or parent level are primarily associated with corporate investments and borrowings.
The following tables present statement of operations items and assets by segment as of and for the periods
stated.
(Dollars in thousands)
NET INTEREST INCOME
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Gain on sale of Paycheck Protection Program loans
Residential mortgage banking income, net
Mortgage servicing rights
Gain on sale of guaranteed government loans
Service charges on deposit accounts
Increase in cash surrender value of bank owned life
insurance
Payroll processing
Other income
Total noninterest income
NONINTEREST EXPENSE
Salaries and employee benefits
Merger-related
Other operating expenses
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Net income attributable to noncontrolling interest
Net income attributable to Blue Ridge Bankshares, Inc.
Total assets as of December 31, 2021
For the year ended December 31, 2021
Commercial
Banking
Mortgage
Banking
Parent Only Eliminations
Blue Ridge
Bankshares,
Inc.
Consolidated
$
$
$
$
99,810 $
8,181
91,629
117
91,512
3,596 $
257
3,339
—
3,339
140 $
2,627
(2,487)
—
(2,487)
24,315
—
—
2,005
1,464
932
941
13,953
43,610
—
28,624
8,398
—
—
—
—
—
37,022
—
—
—
—
—
—
—
7,505
7,505
— $
—
—
—
—
—
—
—
—
—
—
—
(182)
(182)
103,546
11,065
92,481
117
92,364
24,315
28,624
8,398
2,005
1,464
932
941
21,276
87,955
33,687
9,226
31,163
74,076
61,046
13,935
47,111 $
(3)
47,108 $
2,498,916 $
28,204
—
6,385
34,589
5,772
1,253
4,519 $
—
4,519 $
142,537 $
—
2,642
1,017
3,659
1,359
509
850 $
—
850 $
319,685 $
—
—
(182)
(182)
—
—
— $
—
— $
(295,999) $
61,891
11,868
38,383
112,142
68,177
15,697
52,480
(3)
52,477
2,665,139
104
(Dollars in thousands)
NET INTEREST INCOME
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Residential mortgage banking income, net
Mortgage servicing rights
Gain on sale of guaranteed government loans
Service charges on deposit accounts
Increase in cash surrender value of bank owned life
insurance
Payroll processing
Other income
Total noninterest income
NONINTEREST EXPENSE
Salaries and employee benefits
Other operating expenses
Total noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Net income attributable to noncontrolling interest
Net income (loss) attributable to Blue Ridge Bankshares, Inc.
Total assets as of December 31, 2020
For the year ended December 31, 2020
Commercial
Banking
Mortgage
Banking
Parent Only Eliminations
Blue Ridge
Bankshares,
Inc.
Consolidated
$
$
$
$
51,020 $
8,331
42,689
10,450
32,239
3,314 $
354
2,960
—
2,960
126 $
1,265
(1,139)
—
(1,139)
—
—
880
905
390
974
2,165
5,314
44,460
7,084
—
—
—
—
—
51,544
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
(34)
(34)
54,460
9,950
44,510
10,450
34,060
44,460
7,084
880
905
390
974
2,131
56,824
14,217
12,574
26,791
10,762
2,162
8,600 $
(1)
8,599 $
1,312,095 $
31,201
8,075
39,276
15,228
3,337
11,891 $
—
11,891 $
177,074 $
—
2,354
2,354
(3,493)
(699)
(2,794) $
—
(2,794) $
133,041 $
—
(34)
(34)
—
—
— $
—
— $
(123,952) $
45,418
22,969
68,387
22,497
4,800
17,697
(1)
17,696
1,498,258
Note 20. Parent Company Only Financial Statements
The following tables present the condensed financial statements of Blue Ridge Bankshares, Inc. (parent
company only) for the periods presented.
PARENT COMPANY ONLY CONDENSED BALANCE SHEETS
As of December 31,
2020
2021
$
3,156 $
2,174
121,808
—
319
8,267
119
348
6
$ 318,621 $ 133,041
291,525
2,073
14,184
4,532
24
906
2,221
$
1,126 $
370
39,986
41,482
277,139
204
131
24,506
24,841
108,200
$ 318,621 $ 133,041
(Dollars in thousands)
ASSETS
Cash and due from banks
Investment in subsidiaries
Securities available for sale, at fair value
Restricted and other equity investments
Other investments
Accrued interest receivable
Income tax receivable
Other assets
Total assets
LIABILITIES & STOCKHOLDERS’ EQUITY
Accrued expenses
Accrued interest payable
Subordinated notes, net of issuance costs
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
105
PARENT COMPANY ONLY CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
INCOME
Dividends from subsidiary
Interest income
Fair value adjustments of other equity investments
Other
Total income
EXPENSES
Interest on subordinated notes
Professional fees
Merger-related
Other
Total expenses
Income (loss) before income tax expense (benefit) and
equity in undistributed earnings of subsidiary
Income tax expense (benefit)
Equity in undistributed earnings of subsidiaries
Net income
For the years ended
December 31,
2021
2020
$
10,000 $
140
7,316
250
17,706
2,627
890
2,642
189
6,348
800
126
—
—
926
1,265
455
1,732
165
3,617
11,358
509
41,631
52,480 $
(2,691)
(699)
19,689
17,697
$
106
PARENT COMPANY ONLY CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash Flows From Operating Activities
Net income
Equity in undistributed earnings of subsidiaries
Deferred income tax benefit
Amortization of subordinated note issuance costs
Fair value adjustments of other equity investments
Increase in other assets
Increase in accrued expenses
Net cash provided by (used in) operating activities
Cash Flows From Investing Activities
Net change in securities available for sale
Net change in restricted and other equity investments
Net change in other investments
Net cash acquired in Bay Banks Merger
Cash received from (contributed to) Bank
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities
Dividends paid on common stock
Stock option exercises
Payment of subordinated notes issuance costs
Issuance of subordinated notes
Redemption of subordinated debt
Net cash (used in) provided by financing activities
Net increase in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental Schedule of Cash Flow Information
Cash paid for:
Interest
Income taxes
Non-cash investing and financing activities:
Unrealized gain on securities available for sale
Issuance of restricted stock awards, net of forfeitures
For the years ended
December 31,
2021
2020
$
52,480 $
(41,631)
(1,208)
206
(7,316)
(2,677)
646
500
17,696
(19,689)
(62)
54
—
(139)
528
(1,612)
(2,073)
(6,900)
(3,230)
23,214
10,000
21,011
(7,183)
804
—
—
(14,150)
(20,529)
982
2,174
3,156 $
—
—
(7,363)
—
(2,000)
(9,363)
(2,436)
—
(349)
15,000
—
12,215
1,240
934
2,174
2,388 $
10,000 $
1,190
2,000
300 $
1,331 $
—
567
$
$
$
$
$
Note 21. Legal Matters
On August 12, 2019, a former employee of Virginia Community Bankshares, Inc. (“VCB”) and participant in
its Employee Stock Ownership Plan (the “VCB ESOP”) filed a class action complaint against VCB, Virginia
Community Bank, and certain individuals associated with the VCB ESOP in the U.S. District Court for the Western
District of Virginia, Charlottesville Division. The complaint alleges, among other things, that the defendants
breached their fiduciary duties to VCB ESOP participants in violation of the Employee Retirement Income Security
Act of 1974, as amended. The complaint alleges that the VCB ESOP incurred damages “that approach or exceed
$12 million.” The Company automatically assumed any liability of VCB in connection with this litigation as a result
of its 2019 acquisition of VCB. The outcome of this litigation is uncertain, and the plaintiff and other individuals
may file additional lawsuits related to the VCB ESOP. The Company believes the claims are without merit and no
loss has been accrued for this lawsuit.
107
Note 22. Accumulated Other Comprehensive Income, net
The following tables present components of accumulated other comprehensive income (loss) for the periods stated.
(Dollars in thousands)
Balance as of December 31, 2019
Change in net unrealized holding gains on securities available for sale, net of
tax expense of $103
Reclassification for previously unrealized net gains recognized in net income,
net of tax expense of $44
Transfer of securities held to maturity to available for sale, net of tax expense
of $113
Change in net unrealized holding losses on interest rate swaps, net of tax
benefit of $163
Balance as of December 31, 2020
Change in net unrealized holding losses on securities available for sale, net of
tax benefit of $1,279
Reclassification for previously unrealized net losses recognized in net
income, net of tax benefit of $30
Change in net unrealized holding gains on interest rate swaps, net of tax
expense of $1,521
Reclassification for previously unrealized net gains recognized in net income,
net of tax expense of $1,307
Change in net unrealized losses on pension and post-retirement benefit plans,
net of tax benefit of $1
Balance as of December 31, 2021
Net Unrealized Gains (Losses)
Securities Available
For Sale
Transfer of Securities
Held to Maturity to
Available For Sale
Interest Rate Swaps
Pension and
Post-retirement
Benefit Plans
$
423
$
— $
(194) $
— $
388
(167)
—
—
644
(4,814)
114
—
—
—
—
425
—
425
—
—
—
—
—
—
—
(611)
(805)
—
—
5,719
(4,914)
—
—
—
—
—
—
—
—
—
$
—
(4,056) $
—
425
$
—
— $
(1)
(1)
$
Accumulated
Other
Comprehensive
Income (Loss), net
229
388
(167)
425
(611)
264
(4,814)
114
5,719
(4,914)
(1)
(3,632)
108
Note 23. Commitments and Contingencies
In the ordinary course of operations, the Company is party to legal proceedings. Based upon information
currently available, management believes that such legal proceedings, in the aggregate, will not have a material
adverse effect on the Company’s business, financial condition, results of operations, or cash flows.
Also, in the ordinary course of operations, the Company offers various financial products to its customers to
meet their credit and liquidity needs. These instruments involve elements of credit and interest rate risk in excess of
the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for commitments to extend credit and stand-by letters
of credit written is represented by the contractual amount of these instruments. The Company uses the same credit
policies in making commitments and conditional commitments as it does for on-balance sheet commitments.
Subject to its normal credit standards and risk monitoring procedures, the Company makes contractual
commitments to extend credit. Commitments generally have fixed expiration dates or other termination clauses and
may require the payment of a fee. Since many of the commitments may expire without being completely drawn
upon, the total commitment amounts do not necessarily represent future cash requirements. As of December 31,
2021 and December 31, 2020, the Company had outstanding loan commitments of $475.1 million and $126.0
million, respectively.
Conditional commitments are issued by the Company in the form of performance stand-by letters of credit,
which guarantee the performance of a customer to a third party. As of December 31, 2021 and 2020, commitments
under outstanding performance stand-by letters of credit totaled $655 thousand and $0, respectively. Additionally,
the Company issues financial stand-by letters of credit, which guarantee payment to the underlying beneficiary (i.e.,
third party) if the customer fails to meet its designated financial obligation. As of December 31, 2021 and 2020,
commitments under outstanding financial stand-by letters of credit totaled $4.5 million and $6.1 million,
respectively. The credit risk of issuing stand-by letters of credit can be greater than the risk involved in extending
loans to customers.
Reserves for unfunded commitments to borrowers as of December 31, 2021 and 2020 were $962 thousand and
$0, respectively, and are included in other liabilities on the consolidated balance sheets.
The Company invests in various partnerships and limited liability companies, many of which invest in early-
stage companies. Pursuant to these investments, the Company commits to an investment amount that may be
fulfilled in future periods. At December 31, 2021, the Company had future commitments outstanding totaling $8.3
million related to these investments.
The Company also has investments in various SBIC funds. The Company's obligations to these funds are
satisfied in the form of capital calls that occur during the commitment period. As of December 31, 2021, the
Company's remaining capital commitments associated with its investments in SBIC funds was $11.4 million.
109
Note 24. Subsequent Events
On January 5, 2022, the Board of Directors of the Company declared a quarterly dividend of $0.12 per share,
payable on January 31, 2022 to shareholders of record as of the close of business on January 19, 2022.
110
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2021, the Company, under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer and Chief Financial Officer, completed an
evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as
defined in Rule 13a-15(e) under the Exchange Act. In designing and evaluating its disclosure controls and
procedures, management recognized that disclosure controls and procedures, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that objectives of the disclosure controls and
procedures are met. The design of any disclosure controls and procedures is also based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential conditions. Based upon their evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of December 31,
2021 were effective in providing reasonable assurance that information required to be disclosed in the Company’s
reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the
time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to
management of the Company, including the Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over
financial reporting is designed to provide reasonable assurance to the Company’s management and board of
directors regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based
on this assessment, management concluded that, as of December 31, 2021, the Company’s internal control over
financial reporting was effective.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended
December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only
management’s report in this annual report.
ITEM 9B: OTHER INFORMATION
None.
111
ITEM 9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than as set forth below, the information required by this item will be included in the Company’s
Definitive Proxy Statement for the 2022 Annual Meeting of Shareholders and incorporated herein by reference or
included in an amendment to this Form 10-K filed within 120 days after the end of the fiscal year covered by this
Form 10-K.
Code of Ethics
The Company has adopted a Code of Ethics and Conflict of Interest Policy that applies to directors, executive
officers, and employees of the Company and the Bank. A copy of the code is filed as Exhibit 14.1 to this report and
may be obtained without charge by written request to the Company’s Corporate Secretary.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this Item will be included in the Company’s Definitive Proxy Statement for the
2022 Annual Meeting of Shareholders and incorporated herein by reference or included in an amendment to this
Form 10-K filed within 120 days after the end of the fiscal year covered by this Form 10-K.
112
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Other than as set forth below, the information required by this Item will be included in the Company’s
Definitive Proxy Statement for the 2022 Annual Meeting of Shareholders and incorporated herein by reference or
included in an amendment to this Form 10-K filed within 120 days after the end of the fiscal year covered by this
Form 10-K.
Equity Compensation Plan Table
The following table summarizes information, as of December 31, 2021, relating to the Company’s stock-based
compensation plans, pursuant to which awards may be granted in the form of incentive stock options, non-qualified
stock options, stock appreciation rights, restricted awards, performance share awards, and performance
compensation awards in the form of common stock from time to time.
Equity compensation plans approved
by shareholders
Equity compensation plans not approved
by shareholders
Total
Number of
Shares To be
Issued Upon
Exercise Of
Outstanding
Options, Warrants
and Rights (1)
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights (1)
Number of
Shares Remaining
Available for
Future Issuance
Under Equity
Compensation
Plan
— $
—
— $
—
—
—
247,626
—
247,626
(1) The information in this column does not include a total of 57,607 shares of common stock that are issuable
upon the exercise of stock options assumed in the Bay Banks Merger with a weighted-average exercise price
of $11.75 per share.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item will be included in the Company’s Definitive Proxy Statement for the
2022 Annual Meeting of Shareholders and incorporated herein by reference or included in an amendment to this
Form 10-K filed within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item will be included in the Company’s Definitive Proxy Statement for the
2022 Annual Meeting of Shareholders and incorporated herein by reference or included in an amendment to this
Form 10-K filed within 120 days after the end of the fiscal year covered by this Form 10-K.
113
PART IV
ITEM 15: EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number
2.1
2.2
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Description
Agreement and Plan of Reorganization, dated as of May 13, 2019, between Blue Ridge Bankshares, Inc.
and Virginia Community Bankshares, Inc. (incorporated by reference to Appendix A to the joint proxy
statement/prospectus included in Amendment No. 2 to Blue Ridge Bankshares Inc.’s Registration
Statement on Form S-4 (File No. 333-233148) filed on October 29, 2019).
Agreement and Plan of Reorganization, dated as of August 12, 2020, as amended on November 6, 2020,
between Blue Ridge Bankshares, Inc. and Bay Banks of Virginia, Inc. (incorporated by reference to
Appendix A to the joint proxy statement/prospectus included in Amendment No. 1 to Blue Ridge
Bankshares Inc.’s Registration Statement on Form S-4 (File No. 333-249438) filed on December 9,
2020).
Articles of Incorporation of Blue Ridge Bankshares, Inc., as amended through August 16, 2011
(incorporated by reference to Exhibit 2.1 of Blue Ridge Bankshares, Inc.’s Form 1-A Offering Statement
filed May 19, 2016).
Articles of Amendment of Blue Ridge Bankshares, Inc., dated June 27, 2018 (incorporated by reference to
Exhibit 3.2 of Blue Ridge Bankshares, Inc.’s Registration Statement on Form S-4 filed on August 8,
2019).
Articles of Amendment of Blue Ridge Bankshares, Inc., dated July 7, 2020 (incorporated by reference to
Exhibit 3.1 of Blue Ridge Bankshares, Inc.’s Current Report on Form 8-K filed on July 8, 2020).
Bylaws of Blue Ridge Bankshares, Inc., as amended and restated January 31, 2021 (incorporated by
reference to Exhibit 3.2 of Blue Ridge Bankshares, Inc.’s Current Report on Form 8-K filed on February
1, 2021).
Specimen Common Stock Certificate of Blue Ridge Bankshares, Inc. (incorporated by reference to
Exhibit 3.1 of Blue Ridge Bankshares, Inc.’s Form 1-A Offering Statement filed May 19, 2016).
Form of 5.625% Fixed-to-Floating Rate Subordinated Note due 2029 (incorporated by reference to
Exhibit 4.1 to Bay Banks of Virginia, Inc.’s Current Report on Form 8-K filed on October 7, 2019).
Form of Subordinated Note due 2030 (incorporated by reference to Exhibit 4.1 of Blue Ridge Bankshares,
Inc.’s Current Report on Form 8-K filed on May 29, 2020).
Description of Blue Ridge Bankshares, Inc.’s Securities.
Employment Agreement, dated November 1, 2011, between Blue Ridge Bank and Brian K. Plum
(incorporated by reference to Exhibit 6.3 of Blue Ridge Bankshares, Inc.’s Form 1-A Offering Statement
filed May 19, 2016).
Change in Control Agreement, dated January 1, 2011, between Blue Ridge Bank and Brian K. Plum
(incorporated by reference to Exhibit 6.4 of Blue Ridge Bankshares, Inc.’s Form 1-A Offering Statement
filed May 19, 2016).
Employment Agreement, dated August 12, 2020 and effective January 31, 2021, by and between Blue
Ridge Bankshares, Inc. and Judy C. Gavant (incorporated by reference to Exhibit 10.2 of Blue Ridge
Bankshares, Inc.’s Current Report on Form 8-K filed on February 1, 2021).
Employment Agreement, dated August 12, 2020 and effective January 31, 2021, by and between Blue
Ridge Bankshares, Inc. and Susan S. Pittman (incorporated by reference to Exhibit 10.3 of Blue Ridge
Bankshares, Inc.’s Current Report on Form 8-K filed on February 1, 2021).
Employment Agreement, dated November 19, 2020 and effective January 31, 2021, between Blue Ridge
Bankshares, Inc. and C. Rodes Boyd, Jr. (incorporated by reference to Exhibit 10.13 to Amendment No. 1
to Blue Ridge Bankshares, Inc.’s Registration Statement on Form S-4 (File No. 333-249438) filed on
December 9, 2020).
Blue Ridge Bankshares, Inc. Equity Incentive Plan, as amended.
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.5 of Pre-Effective
Amendment No. 1 to Blue Ridge Bankshares, Inc.’s Registration Statement on Form S-4 filed on October
4, 2019).
Description of Annual Cash Incentive Program, as amended (incorporated by reference to Exhibit 10.1 of
Blue Ridge Bankshares, Inc.’s Current Report on Form 8-K filed on December 21, 2021).
114
10.9
10.10
10.11
10.12
Form of Stock Purchase Agreement, by and among Blue Ridge Bankshares, Inc. and certain individual
investors, dated December 31, 2014 and March 17, 2015 (incorporated by reference to Exhibit 6.9 of Blue
Ridge Bankshares, Inc.’s Form 1-A Offering Statement filed May 19, 2016).
Form of Registration Rights Agreement, by and among Blue Ridge Bankshares, Inc. and certain
individual investors, dated December 31, 2014 and March 17, 2015 (incorporated by reference to Exhibit
6.10 of Blue Ridge Bankshares, Inc.’s Form 1-A Offering Statement filed May 19, 2016).
Form of Subordinated Note Purchase Agreement, dated October 7, 2019, by and among Bay Banks of
Virginia, Inc. and the purchasers thereto (incorporated by reference to Exhibit 10.1 to Bay Banks of
Virginia, Inc.’s Current Report on Form 8-K filed on October 7, 2019).
Form of Subordinated Note Purchase Agreement, dated May 28, 2020 (incorporated by reference to
Exhibit 10.1 of Blue Ridge Bankshares, Inc.’s Current Report on Form 8-K filed on May 29, 2020).
10.13 Bay Banks of Virginia, Inc. 2003 Incentive Stock Option Plan (incorporated by reference to Exhibit 99.0
to Bay Banks of Virginia, Inc.’s Form S-8, filed on February 19, 2004).
10.14 Bay Banks of Virginia, Inc. 2008 Non-Employee Directors Stock Option Plan (incorporated by reference
to Exhibit 99.1 to Bay Banks of Virginia, Inc.’s Form S-8, filed on November 14, 2008).
10.15 Bay Banks of Virginia, Inc. 2013 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to Bay
14.1
21.1
23.1
31.1
31.2
32.1
101
104
Banks of Virginia, Inc.’s Form S-8, filed on June 28, 2013).
Code of Ethics and Conflict of Interest Policy.
Subsidiaries of Blue Ridge Bankshares, Inc.
Consent of Independent Registered Public Accounting Firm – Elliott Davis, LLC.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
The following materials from the Company’s Annual Report on Form 10-K for the year ended December
31, 2021, formatted in Inline Extensible Business Reporting Language (XBRL): (i) Consolidated Balance
Sheets as of December 31, 2021 and 2020, (ii) Consolidated Statements of Income for the years ended
December 31, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the years
ended December 31, 2021 and 2020; (iv) Consolidated Statements of Changes in Stockholders’ Equity for
the years ended December 31, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the years
ended December 31, 2021 and 2020, and (vi) Notes to Consolidated Financial Statements.
The cover page from Blue Ridge Bankshares, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2021 (included with Exhibit 101).
ITEM 16: FORM 10-K SUMMARY
None.
115
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 11, 2022
BLUE RIDGE BANKSHARES, INC.
By: /s/ Brian K. Plum
Brian K. Plum
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Brian K. Plum
Brian K. Plum
/s/ Judy C. Gavant
Judy C. Gavant
/s/ Amanda G. Story
Amanda G. Story
/s/ Larry Dees
Larry Dees
/s/ Hunter H. Bost
Hunter H. Bost
/s/ Elizabeth H. Crowther
Elizabeth H. Crowther
/s/ Mensel D. Dean, Jr.
Mensel D. Dean, Jr.
/s/ Richard A. Farmar, III
Richard A. Farmar, III
/s/ Andrew C. Holzwarth
Andrew C. Holzwarth
/s/ Robert S. Janney
Robert S. Janney
/s/ Julien G. Patterson
Julien G. Patterson
/s/ Randolph N. Reynolds, Jr.
Randolph N. Reynolds, Jr.
/s/ C. Frank Scott, III
C. Frank Scott, III
/s/ Vance H. Spilman
Vance H. Spilman
/s/ William W. Stokes
William W. Stokes
Title
President, Chief Executive Officer and
Director (Principal Executive Officer)
Date
March 11, 2022
Executive Vice President and Chief Financial March 11, 2022
Officer (Principal Financial Officer)
Chief Accounting Officer (Principal
Accounting Officer)
March 11, 2022
Chairman of the Board
March 11, 2022
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
116
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
/s/ Carolyn J. Woodruff
Carolyn J. Woodruff
Director
March 11, 2022
117
Exhibit 4.4
DESCRIPTION OF BLUE RIDGE BANKSHARES, INC.’S SECURITIES
As of December 31, 2021, the common stock of Blue Ridge Bankshares, Inc. (“Blue Ridge”) was the only class of its securities
registered under Section 12 of the Securities Exchange Act of 1934. The following summary description of the material features of
the common stock of Blue Ridge does not purport to be complete and is subject to, and qualified in its entirety by reference to, Blue
Ridge’s articles of incorporation and bylaws, each as amended. For more information, refer to Blue Ridge’s articles of incorporation
and bylaws and any applicable provisions of relevant law, including the Virginia Stock Corporation Act and federal laws governing
banks and bank holding companies.
General
Blue Ridge is authorized to issue 25,000,000 shares of common stock, no par value per share. Each share of Blue Ridge common
stock has the same relative rights as, and is identical in all respects to, each other share of its common stock. Blue Ridge’s common
stock is listed on the NYSE American market under the symbol “BRBS.” The transfer agent for Blue Ridge’s common stock is
Computershare, Inc., 250 Royall Street, Canton, Massachusetts 02021.
Dividends
Blue Ridge’s shareholders are entitled to receive dividends or distributions that its board of directors may declare out of funds
legally available for those payments. The payment of distributions by Blue Ridge is subject to the restrictions of Virginia law
applicable to the declaration of distributions by a corporation. A Virginia corporation generally may not authorize and make
distributions if, after giving effect to the distribution, it would be unable to meet its debts as they become due in the usual course of
business or if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if it
were dissolved at that time, to satisfy the preferential rights of shareholders whose rights are superior to the rights of those receiving
the distribution. In addition, the payment of distributions to shareholders is subject to any prior rights of outstanding preferred stock.
As a bank holding company, Blue Ridge’s ability to pay dividends is affected by the ability of Blue Ridge Bank, National
Association (“Blue Ridge Bank”), its bank subsidiary, to pay dividends to the holding company. The ability of Blue Ridge Bank, as
well as Blue Ridge, to pay dividends is influenced by bank regulatory requirements and capital guidelines.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of Blue Ridge, the holders of shares of its common stock will be entitled
to receive, after payment of all debts and liabilities of Blue Ridge and after satisfaction of all liquidation preferences applicable to any
preferred stock, all remaining assets of Blue Ridge available for distribution in cash or in kind.
Voting Rights
The holders of Blue Ridge common stock are entitled to one vote per share and, in general, a majority of votes cast with respect to
a matter is sufficient to authorize action upon routine matters. Directors are elected by a plurality of the votes cast, and shareholders do
not have the right to accumulate their votes in the election of directors.
Classes of Directors
Blue Ridge’s board of directors is divided into three classes, apportioned as evenly as possible, with directors serving staggered
three-year terms.
Preemptive Rights; Redemption and Assessment
Holders of shares of Blue Ridge common stock are not entitled to preemptive rights with respect to any shares that may be issued,
other than as provided to certain individual shareholders for so long as such shareholders own at least 4.9% of the issued and
outstanding common stock, on a separate and individual basis and not collectively, as set forth in those certain Stock Purchase
Agreements, by and among Blue Ridge and certain individual investors, dated December 31, 2014 and March 17, 2015, respectively.
Blue Ridge common stock is not subject to redemption or any sinking fund and the outstanding shares are fully paid and
nonassessable.
Preferred Stock
Blue Ridge’s board of directors is empowered to authorize the issuance of shares of preferred stock, in one or more classes or
series, at such times, for such purposes and for such consideration as it may deem advisable without shareholder approval. Blue
Ridge’s board may fix the designations, voting powers, preferences, participation, redemption, sinking fund, conversion, dividend and
other relative rights, qualifications, limitations and restrictions of any such series of preferred stock. The creation and issuance of any
class or series of preferred stock, and the relative rights, designations and preferences of such class or series, if and when established,
will depend upon, among other things, the future capital needs of Blue Ridge, then existing market conditions and other factors that, in
the judgment of Blue Ridge’s board, might warrant the issuance of preferred stock.
Anti-takeover Provisions
Certain provisions of Blue Ridge’s articles of incorporation and bylaws contain provisions that may have the effect of
discouraging, delaying, or preventing a change of control of Blue Ridge by means of a tender offer, a proxy fight, open market
purchases of shares of its common stock, or otherwise in a transaction not approved by Blue Ridge’s board of directors. These
provisions are designed to reduce, or have the effect of reducing, Blue Ridge’s vulnerability to coercive takeover practices and
inadequate takeover bids. However, the existence of these provisions could prevent Blue Ridge shareholders from receiving a
premium over the then prevailing market price of Blue Ridge common stock or a transaction that may otherwise be in the best interest
of Blue Ridge shareholders. In addition, these provisions make it more difficult for Blue Ridge shareholders, should they choose to do
so, to remove Blue Ridge’s board of directors or management. These provisions include the following:
Authorized Preferred Stock. Blue Ridge’s articles of incorporation authorize Blue Ridge’s board of directors to establish one or
more series of preferred stock and to determine, with respect to any series of preferred stock, the preferences, rights, and other terms
of such series. Under this authority, Blue Ridge’s board could create and issue a series of preferred stock with rights, preferences, or
restrictions that have the effect of discriminating against an existing or prospective holder of Blue Ridge’s common stock as a result of
such holder beneficially owning or commencing a tender offer for a substantial amount of common stock. One of the effects of
authorized but unissued and unreserved shares of preferred stock may be to render it more difficult for, or to discourage an attempt by,
a potential acquirer to obtain control of Blue Ridge by means of a merger, tender offer, proxy contest, or otherwise, and thereby
protect the continuity of Blue Ridge’s management.
Classified Board of Directors. Blue Ridge’s articles of incorporation and bylaws divide its board of directors into three classes,
apportioned as evenly as possible, with directors serving staggered three-year terms. As a result, at least two annual meetings of
shareholders may be required for the shareholders to replace a majority of Blue Ridge’s directors, subject to the shareholders’ ability
to remove directors with or without cause by vote of the holders of a majority of Blue Ridge’s outstanding common shares. The
classification of Blue Ridge’s board makes it more difficult and time consuming to gain control of the board.
Board Vacancies. Virginia law and Blue Ridge’s articles of incorporation and bylaws provide that any vacancy occurring on Blue
Ridge’s board may be filled by the remaining members of the board. These provisions may discourage, delay, or prevent a third party
from voting to remove incumbent directors and simultaneously gaining control of Blue Ridge’s board by filling the vacancies created
by that removal with its own nominees.
Supermajority Voting Provisions. Blue Ridge’s articles of incorporation provide that certain mergers or consolidations, share
exchanges, acquisitions of control, sales of all or substantially all of Blue Ridge’s assets, liquidation or dissolution, in each case with a
corporation, person or entity that is the beneficial owner, directly or indirectly, of more than 5% of the shares of capital stock of Blue
Ridge outstanding and entitled to vote on the transaction (a “significant shareholder”), must be approved by the affirmative vote of the
holders of 80% of the outstanding capital stock of Blue Ridge entitled to vote on the transaction. If such an action does not involve a
significant shareholder, it must be approved by the affirmative vote of the holders of more than two-thirds of the outstanding capital
stock of Blue Ridge entitled to vote on the transaction. The voting provisions described in this paragraph do not apply to any
transaction which is approved in advance by a majority of those directors of Blue Ridge (i) who were directors before the corporation,
person or entity became a significant shareholder and who are not affiliates of such significant shareholder, and (ii) who became
directors of Blue Ridge at the recommendation of the directors referred to in clause (i) above.
No Cumulative Voting. Blue Ridge’s articles of incorporation do not provide for cumulative voting for any purpose. The absence
of cumulative voting may afford anti-takeover protection by making it more difficult for Blue Ridge’s shareholders to elect nominees
opposed by the board of directors.
Shareholder Meetings. Pursuant to Blue Ridge’s bylaws, special meetings of shareholders may only be called by Blue Ridge’s
President or by request in writing stating the purposes thereof delivered to the President and signed by a majority of the directors or by
three or more shareholders owning, in the aggregate, not less than 20% in interest of the shares of Blue Ridge’s capital stock. This
provision affords antitakeover protection by making it more difficult for shareholders to call a special meeting of shareholders to
consider a proposed merger or other business combination.
Advance Notification of Shareholder Nominations. Blue Ridge’s bylaws establish advance notice procedures with respect to the
nomination of persons for election as directors, other than nominations made by or at the direction of Blue Ridge’s board. Pursuant to
Blue Ridge’s bylaws, a shareholder entitled to vote for the election of directors may nominate persons for election to Blue Ridge’s
board by delivering written notice to Blue Ridge’s Corporate Secretary. With respect to an election to be held at an annual meeting of
shareholders, its bylaws generally require that such notice be delivered not fewer than 60 days nor more than 90 days prior to the first
anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is advanced by more
than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder must be delivered not earlier than
the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. A shareholder
wishing to nominate any person for election as a director must provide Blue Ridge with certain information concerning the nominee
and the proposing shareholder.
Merger Considerations. The articles of incorporation of Blue Ridge provide that Blue Ridge’s board of directors, when evaluating
a transaction that would or may involve a change in control of Blue Ridge, shall consider, among other things, the following factors:
the social and economic effects of the proposed transaction on the depositors, employees, suppliers, customers and other constituents
of Blue Ridge and on the communities in which Blue Ridge operates or is located, the business reputation of the other party proposing
the transaction, and the evaluation of the then value of Blue Ridge in a freely negotiated sale and of the future prospects of Blue Ridge
as an independent entity. This provision provides Blue Ridge’s board the latitude to consider additional factors, aside from the price of
a proposed merger or other business combination, in determining whether the transaction is in the best interests of Blue Ridge and its
shareholders.
Exhibit 10.6
BLUE RIDGE BANKSHARES, INC.
EQUITY INCENTIVE PLAN
(as amended April 30, 2021)
1.
Purpose; Eligibility.
1.1
General Purpose. The name of this plan is the BLUE RIDGE BANKSHARES, INC. Equity
Incentive Plan (the “Plan”). The purposes of the Plan are to (a) enable BLUE RIDGE BANKSHARES,
INC., a Virginia corporation (the “Company”), and any Affiliate to attract and retain the types of
Employees, Consultants and Directors who will contribute to the Company’s long range success; (b)
provide incentives that align the interests of Employees, Consultants and Directors with those of the
shareholders of the Company; and (c) promote the success of the Company’s business.
1.2
Eligible Award Recipients. The persons eligible to receive Awards are the Employees,
Directors, and Community/Advisory Board members of the Company and its Affiliates.
1.3
Available Awards. Awards that may be granted under the Plan include: (a) Incentive Stock
Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e)
Performance Share Awards, and (f) Performance Compensation Awards.
2.
Definitions.
“Affiliate” means a corporation or other entity that, directly or through one or more intermediaries,
controls, is controlled by or is under common control with, the Company.
“Applicable Laws” means the requirements related to or implicated by the administration of the Plan
under applicable state corporate law, United States federal and state securities laws, the Code, any stock
exchange or quotation system on which the shares of Common Stock are listed or quoted, and the
applicable laws of any foreign country or jurisdiction where Awards are granted under the Plan.
“Award” means any right granted under the Plan, including an Incentive Stock Option, a Non-
qualified Stock Option, a Stock Appreciation Right, a Restricted Award, a Performance Share Award or a
Performance Compensation Award.
“Award Agreement” means a written agreement, contract, certificate or other instrument or
document evidencing the terms and conditions of an individual Award granted under the Plan which may,
in the discretion of the Company, be transmitted electronically to any Participant. Each Award Agreement
shall be subject to the terms and conditions of the Plan.
“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the
Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term
is used in Section 13(d)(3) of the Exchange Act), such “person” shall be deemed to have beneficial
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ownership of all securities that such “person” has the right to acquire by conversion or exercise of other
securities, whether such right is currently exercisable or is exercisable only after the passage of time. The
terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.
“Board” means the Board of Directors of the Company, as constituted at any time.
“Cause” means:
With respect to any Employee: (a) if the Employee is a party to an employment or service
agreement with the Company or its Affiliates and such agreement provides for a definition of Cause, the
definition contained therein; or (b) if no such agreement exists, or if such agreement does not define
Cause: (i) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral
turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach
with respect to the Company or an Affiliate; (ii) conduct that results in or is reasonably likely to result in
harm to the reputation or business of the Company or any of its Affiliates; (iii) gross negligence or willful
misconduct with respect to the Company or an Affiliate; or (iv) material violation of state or federal
securities laws.
With respect to any Director, a determination by a majority of the disinterested Board members
that the Director has engaged in any of the following: (a) malfeasance in office; (b) gross misconduct or
neglect;(c) false or fraudulent misrepresentation inducing the director’s appointment;(d) willful
conversion of corporate funds; or (e) repeated failure to participate in Board meetings on a regular basis
despite having received proper notice of the meetings in advance.
The Committee, in its absolute discretion, shall determine the effect of all matters and questions
relating to whether a Participant has been discharged for Cause.
“Change in Control” (a) The direct or indirect sale, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related transactions, of all or substantially
all of the properties or assets of the Company and its subsidiaries, taken as a whole, to any Person that is
not a subsidiary of the Company; (b) The Incumbent Directors cease for any reason to constitute at least a
majority of the Board; (c) The date which is 10 business days prior to the consummation of a complete
liquidation or dissolution of the Company; (d) The acquisition by any Person of Beneficial Ownership of
50% or more (on a fully diluted basis) of either (i) the then outstanding shares of Common Stock of the
Company, taking into account as outstanding for this purpose such Common Stock issuable upon the
exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any
similar right to acquire such Common Stock (the “Outstanding Company Common Stock”) or (ii) the
combined voting power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however,
that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (A) any
acquisition by the Company or any Affiliate, (B) any acquisition by any employee benefit plan sponsored
or maintained by the Company or any subsidiary, (C) any acquisition which complies with clauses, (i),
(ii) and (iii) of subsection (e) of this definition or (D) in respect of an Award held by a particular
Participant, any acquisition by the Participant or any group of persons including the Participant (or any
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entity controlled by the Participant or any group of persons including the Participant); or (e) The
consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of
corporate transaction involving the Company that requires the approval of the Company’s shareholders,
whether for such transaction or the issuance of securities in the transaction (a “Business Combination”),
unless immediately following such Business Combination: (i) more than 50% of the total voting power of
(A) the entity resulting from such Business Combination (the “Surviving Company”), or (B) if applicable,
the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities
eligible to elect a majority of the members of the board of directors (or the analogous governing body) of
the Surviving Company (the “Parent Company”), is represented by the Outstanding Company Voting
Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is
represented by shares into which the Outstanding Company Voting Securities were converted pursuant to
such Business Combination), and such voting power among the holders thereof is in substantially the
same proportion as the voting power of the Outstanding Company Voting Securities among the holders
thereof immediately prior to the Business Combination; (ii) no Person (other than any employee benefit
plan sponsored or maintained by the Surviving Company or the Parent Company) is or becomes the
Beneficial Owner, directly or indirectly, of 50% or more of the total voting power of the outstanding
voting securities eligible to elect members of the board of directors of the Parent Company (or the
analogous governing body) (or, if there is no Parent Company, the Surviving Company); and (iii) at least
a majority of the members of the board of directors (or the analogous governing body) of the Parent
Company (or, if there is no Parent Company, the Surviving Company) following the consummation of the
Business Combination were Board members at the time of the Board’s approval of the execution of the
initial agreement providing for such Business Combination.
“Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any
reference to a section of the Code shall be deemed to include a reference to any regulations promulgated
thereunder.
“Committee” means a committee of one or more members of the Board appointed by the Board to
administer the Plan in accordance with Section 3.3 and Section 3.4.
“Common Stock” means the common stock, zero par value per share, of the Company, or such other
securities of the Company as may be designated by the Committee from time to time in substitution
thereof.
“Company” means BLUE RIDGE BANKSHARES, INC., a Virginia corporation, and any successor
thereto.
“Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether
as an Employee, Consultant or Director, is not interrupted or terminated. The Participant’s Continuous
Service shall not be deemed to have terminated merely because of a change in the capacity in which the
Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a
change in the entity for which the Participant renders such service, provided that there is no interruption
or termination of the Participant’s Continuous Service; provided further that if any Award is subject to
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Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section
409A of the Code. For example, a change in status from an Employee of the Company to a Director of an
Affiliate will not constitute an interruption of Continuous Service. The Committee or its delegate, in its
sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of
any leave of absence approved by that party, including sick leave, military leave or any other personal or
family leave of absence.
“Covered Employee” has the same meaning as set forth in Section 162(m)(3) of the Code, as
interpreted by Internal Revenue Service Notice 2007-49.
“Deferred Stock Units (DSUs)” has the meaning set forth in Section 7.2 A hereof.
“Director” means a member of the Board.
“Disability” means that the Participant is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment; provided, however, for purposes of
determining the term of an Incentive Stock Option pursuant to Section 6.10 hereof, the term Disability
shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an
individual has a Disability shall be determined under procedures established by the Committee. Except in
situations where the Committee is determining Disability for purposes of the term of an Incentive Stock
Option pursuant to Section 6.10 hereof within the meaning of Section 22(e)(3) of the Code, the
Committee may rely on any determination that a Participant is disabled for purposes of benefits under any
long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.
“Disqualifying Disposition” has the meaning set forth in Section 14.11.
“Effective Date” is April 1, 2017.
“Employee” means any person, including an Officer or Director, employed by the Company or an
Affiliate; provided, that, for purposes of determining eligibility to receive Incentive Stock Options, an
Employee shall mean an employee of the Company or a parent or subsidiary corporation within the
meaning of IRC Section 424. Mere service as a Director or payment of a director’s fee by the Company or
an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair Market Value” means, as of any date, the value of the Common Stock as determined below. If
the Common Stock is listed on any established stock exchange or a national market system, the Fair
Market Value shall be the closing price of a share of Common Stock (or if no sales were reported the
closing price on the date immediately preceding such date) as quoted on such exchange or system on the
day of determination, as reported in the Wall Street Journal or such other source as the Committee deems
reliable. In the absence of an established market for the Common Stock, the Fair Market Value shall be
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determined in good faith by the Committee and such determination shall be conclusive and binding on all
persons.
“Free Standing Rights” has the meaning set forth in Section 7.1(a).
“Good Reason” means: (a) If an Employee is a party to an employment or service agreement with the
Company or its Affiliates and such agreement provides for a definition of Good Reason, the definition
contained therein; or(b) If no such agreement exists or if such agreement does not define Good Reason,
the occurrence of one or more of the following without the Participant’s express written consent, which
circumstances are not remedied by the Company within thirty (30) days of its receipt of a written notice
from the Participant describing the applicable circumstances (which notice must be provided by the
Participant within ninety (90) days of the Participant’s knowledge of the applicable circumstances): (i)
any material, adverse change in the Participant’s duties, responsibilities, authority, title, status or reporting
structure; (ii) a material reduction in the Participant’s base salary or bonus opportunity; or (iii) a
geographical relocation of the Participant’s principal office location by more than fifty (50) miles.
“Grant Date” means the date on which the Committee adopts a resolution, or takes other appropriate
action, expressly granting an Award to a Participant that specifies the key terms and conditions of the
Award or, if a later date is set forth in such resolution, then such date as is set forth in such resolution.
“Incentive Stock Option” means an Option intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code.
“Incumbent Directors” means individuals who, on the Effective Date, constitute the Board, provided
that any individual becoming a Director subsequent to the Effective Date whose election or nomination
for election to the Board was approved by a vote of at least two-thirds of the Incumbent Directors then on
the Board (either by a specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for Director without objection to such nomination) shall be an Incumbent
Director. No individual initially elected or nominated as a director of the Company as a result of an actual
or threatened election contest with respect to Directors or as a result of any other actual or threatened
solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.
“Negative Discretion” means the discretion authorized by the Plan to be applied by the Committee to
eliminate or reduce the size of a Performance Compensation Award in accordance with Section 7.4(d)(iv)
of the Plan; provided, that, the exercise of such discretion would not cause the Performance
Compensation Award to fail to qualify as “performance-based compensation” under Section 162(m) of
the Code.
“Non-Employee Director” means a Director who is a “non-employee director” within the meaning
of Rule 16b-3.
“Non-qualified Stock Option” means an Option that by its terms does not qualify or is not intended
to qualify as an Incentive Stock Option.
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“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
“Option” means an Incentive Stock Option or a Non-qualified Stock Option granted pursuant to the
Plan.
“Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable,
such other person who holds an outstanding Option.
“Option Exercise Price” means the price at which a share of Common Stock may be purchased upon
the exercise of an Option.
“Outside Director” means a Director who is an “outside director” within the meaning of Section
162(m) of the Code and Treasury Regulations Section 1.162-27(e)(3) or any successor to such statute and
regulation.
“Participant” means an eligible person to whom an Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Award.
“Performance Compensation Award” means any Award designated by the Committee as a
Performance Compensation Award pursuant to Section 7.4 of the Plan.
“Performance Criteria” means the criterion or criteria that the Committee shall select for purposes
of establishing the Performance Goal(s) for a Performance Period with respect to any Performance
Compensation Award under the Plan. The Performance Criteria that will be used to establish the
Performance Goal(s) shall be based on the attainment of specific levels of performance of the Company
(or Affiliate, division, business unit or operational unit of the Company) and shall be limited to the
following: (a) net earnings or net income (before or after taxes); (b) basic or diluted earnings per share
(before or after taxes); (c) net revenue or net revenue growth; (d) gross revenue; (e) gross profit or gross
profit growth; (f) net operating profit (before or after taxes); (g) return on assets, capital, invested capital,
equity, or sales; (h) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash
flow return on capital); (i) earnings before or after taxes, interest, depreciation and/or amortization; (j)
gross or operating margins; (k) improvements in capital structure; (l) budget and expense management;
(m) productivity ratios; (n) economic value added or other value added measurements; (o) share price
(including, but not limited to, growth measures and total shareholder return); (p) expense targets; (q)
margins; (r) operating efficiency; (s) working capital targets; (t) enterprise value; and (u) completion of
acquisitions or business expansion.
Any one or more of the Performance Criteria may be used on an absolute or relative basis to
measure the performance of the Company and/or an Affiliate, as the Committee may deem appropriate, or
as compared to the performance of a group of comparable companies, or published or special index that
the Committee, in its sole discretion, deems appropriate, or the Committee may select Performance
Criterion (o) above as compared to various stock market indices. The Committee also has the authority to
provide for accelerated vesting of any Award based on the achievement of Performance Goals pursuant to
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the Performance Criteria specified in this paragraph. To the extent required under Section 162(m) of the
Code, the Committee shall, within the first 90 days of a Performance Period (or, if longer or shorter,
within the maximum period allowed under Section 162(m) of the Code), define in an objective fashion
the manner of calculating the Performance Criteria it selects to use for such Performance Period. In the
event that applicable tax and/or securities laws change to permit the Committee discretion to alter the
governing Performance Criteria without obtaining shareholder approval of such changes, the Committee
shall have sole discretion to make such changes without obtaining shareholder approval.
“Performance Formula” means, for a Performance Period, the one or more objective formulas
applied against the relevant Performance Goal to determine, with regard to the Performance
Compensation Award of a particular Participant, whether all, some portion but less than all, or none of the
Performance Compensation Award has been earned for the Performance Period.
“Performance Goals” means, for a Performance Period, the one or more goals established by the
Committee for the Performance Period based upon the Performance Criteria. The Committee is
authorized at any time during the first 90 days of a Performance Period (or, if longer or shorter, within the
maximum period allowed under Section 162(m) of the Code), or at any time thereafter (but only to the
extent the exercise of such authority after such period would not cause the Performance Compensation
Awards granted to any Participant for the Performance Period to fail to qualify as “performance-based
compensation” under Section 162(m) of the Code), in its sole and absolute discretion, to adjust or modify
the calculation of a Performance Goal for such Performance Period to the extent permitted under Section
162(m) of the Code in order to prevent the dilution or enlargement of the rights of Participants.
“Performance Period” means the one or more periods of time not less than one fiscal quarter in
duration, as the Committee may select, over which the attainment of one or more Performance Goals will
be measured for the purpose of determining a Participant’s right to and the payment of a Performance
Compensation Award.
“Performance Share Award” means any Award granted pursuant to Section 7.3 hereof.
“Performance Share” means the grant of a right to receive a number of actual shares of Common
Stock or share units based upon the performance of the Company during a Performance Period, as
determined by the Committee.
“Permitted Transferee” means: (a) a member of the Optionholder’s immediate family (child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships), any person sharing the Optionholder’s household (other than a tenant or
employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in
which these persons (or the Optionholder) control the management of assets, and any other entity in
which these persons (or the Optionholder) own more than 50% of the voting interests; (b) third parties
designated by the Committee in connection with a program established and approved by the Committee
pursuant to which Participants may receive a cash payment or other consideration in consideration for the
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transfer of a Non-qualified Stock Option; and (c) such other transferees as may be permitted by the
Committee in its sole discretion.
“Plan” means this Blue Ridge Bankshares, Inc. Equity Incentive Plan, as amended and/or amended
and restated from time to time.
“Related Rights” has the meaning set forth in Section 7.1(a).
“Restricted Award” means any Award granted pursuant to Section 7.2(a).
“Restricted Period” has the meaning set forth in Section 7.2(a).
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-
3, as in effect from time to time.
“Securities Act” means the Securities Act of 1933, as amended.
“Stock Appreciation Right” means the right pursuant to an Award granted under Section 7.1 to
receive, upon exercise, an amount payable in cash or shares equal to the number of shares subject to the
Stock Appreciation Right that is being exercised multiplied by the excess of (a) the Fair Market Value of
a share of Common Stock on the date the Award is exercised, over (b) the exercise price specified in the
Stock Appreciation Right Award Agreement.
“Stock for Stock Exchange” has the meaning set forth in Section 6.4.
“Ten Percent Shareholder” means a person who owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of any of its Affiliates.
3.
Administration
3.1
Authority of Committee. The Plan shall be administered by the Committee or, in the Board’s
sole discretion, by the Board. Subject to the terms of the Plan, the Committee’s charter and Applicable
Laws, and in addition to other express powers and authorization conferred by the Plan, the Committee
shall have the authority:
(a)
to construe and interpret the Plan and apply its provisions;
(b)
to promulgate, amend, and rescind rules and regulations relating to the administration of
the Plan;
(c)
to authorize any person to execute, on behalf of the Company, any instrument required to
carry out the purposes of the Plan;
8
(d)
to delegate its authority to one or more Officers of the Company with respect to Awards
that do not involve Covered Employees or “insiders” within the meaning of Section 16 of the Exchange
Act;
(e)
to determine when Awards are to be granted under the Plan and the applicable Grant
Date;
(f)
from time to time to select, subject to the limitations set forth in this Plan, those
Participants to whom Awards shall be granted;
(g)
to determine the number of shares of Common Stock to be made subject to each Award;
(h)
to determine whether each Option is to be an Incentive Stock Option or a Non-qualified
Stock Option;
(i)
to prescribe the terms and conditions of each Award, including, without limitation, the
exercise price and medium of payment and vesting provisions, and to specify the provisions of the Award
Agreement relating to such grant;
(j)
to determine the target number of Performance Shares to be granted pursuant to a
Performance Share Award, the performance measures that will be used to establish the performance
goals, the performance period(s) and the number of Performance Shares earned by a Participant;
(k)
to designate an Award (including a cash bonus) as a Performance Compensation Award
and to select the Performance Criteria that will be used to establish the Performance Goals;
(l)
to amend any outstanding Awards, including for the purpose of modifying the time or
manner of vesting, or the term of any outstanding Award; provided, however, that if any such amendment
impairs a Participant’s rights or increases a Participant’s obligations under his or her Award or creates or
increases a Participant’s federal income tax liability with respect to an Award, such amendment shall also
be subject to the Participant’s consent;
(m)
to determine the duration and purpose of leaves of absences which may be granted to a
Participant without constituting termination of their employment for purposes of the Plan, which periods
shall be no shorter than the periods generally applicable to Employees under the Company’s employment
policies;
(n)
to make decisions with respect to outstanding Awards that may become necessary upon a
change in corporate control or an event that triggers anti-dilution adjustments;
(o)
to interpret, administer, reconcile any inconsistency in, correct any defect in and/or
supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the
Plan; and
9
(p)
to exercise discretion to make any and all other determinations which it determines to be
necessary or advisable for the administration of the Plan.
The Committee also may modify the purchase price or the exercise price of any outstanding
Award, provided that if the modification effects a repricing, shareholder approval shall be required before
the repricing is effective.
3.2
Committee Decisions Final. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on the Company and the Participants, unless such decisions are
determined by a court having jurisdiction to be arbitrary and capricious.
3.3
Delegation. The Committee, or if no Committee has been appointed, the Board, may delegate
administration of the Plan to a committee or committees of one or more members of the Board, and the
term “Committee” shall apply to any person or persons to whom such authority has been delegated. The
Committee shall have the power to delegate to a subcommittee any of the administrative powers the
Committee is authorized to exercise (and references in this Plan to the Board or the Committee shall
thereafter be to the committee or subcommittee), subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of the Plan. The members of
the Committee shall be appointed by and serve at the pleasure of the Board. From time to time, the Board
may increase or decrease the size of the Committee, add additional members to, remove members (with or
without cause) from, appoint new members in substitution therefor, and fill vacancies, however caused, in
the Committee. The Committee shall act pursuant to a vote of the majority of its members or, in the case
of a Committee comprised of only two members, the unanimous consent of its members, whether present
or not, or by the written consent of the majority of its members and minutes shall be kept of all of its
meetings and copies thereof shall be provided to the Board. Subject to the limitations prescribed by the
Plan and the Board, the Committee may establish and follow such rules and regulations for the conduct of
its business as it may determine to be advisable.
3.4
Committee Composition. Except as otherwise determined by the Board, the Committee shall
consist solely of two or more Non-Employee Directors who are also Outside Directors. The Board shall
have discretion to determine whether or not it intends to comply with the exemption requirements of Rule
16b-3 and/or Section 162(m) of the Code. However, if the Board intends to satisfy such exemption
requirements, with respect to Awards to any Covered Employee and with respect to any insider subject to
Section 16 of the Exchange Act, the Committee shall be a compensation committee of the Board that at
all times consists solely of two or more Non-Employee Directors who are also Outside Directors. Within
the scope of such authority, the Board or the Committee may (a) delegate to a committee of one or more
members of the Board who are not Outside Directors the authority to grant Awards to eligible persons
who are either (i) not then Covered Employees and are not expected to be Covered Employees at the time
of recognition of income resulting from such Award or (ii) not persons with respect to whom the
Company wishes to comply with Section 162(m) of the Code or (b) delegate to a committee of one or
more members of the Board who are not Non-Employee Directors the authority to grant Awards to
10
eligible persons who are not then subject to Section 16 of the Exchange Act. Nothing herein shall create
an inference that an Award is not validly granted under the Plan in the event Awards are granted under
the Plan by a compensation committee of the Board that does not at all times consist solely of two or
more Non-Employee Directors who are also Outside Directors.
3.5
Indemnification. In addition to such other rights of indemnification as they may have as
Directors or members of the Committee, and to the extent allowed by Applicable Laws, the Committee
shall be indemnified by the Company against the reasonable expenses, including attorney’s fees, actually
incurred in connection with any action, suit or proceeding or in connection with any appeal therein, to
which the Committee may be party by reason of any action taken or failure to act under or in connection
with the Plan or any Award granted under the Plan, and against all amounts paid by the Committee in
settlement thereof (provided, however, that the settlement has been approved by the Company, which
approval shall not be unreasonably withheld) or paid by the Committee in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such Committee did not act in good faith and in a manner which such
person reasonably believed to be in the best interests of the Company, or in the case of a criminal
proceeding, had no reason to believe that the conduct complained of was unlawful; provided, however,
that within 60 days after institution of any such action, suit or proceeding, such Committee shall, in
writing, offer the Company the opportunity at its own expense to handle and defend such action, suit or
proceeding.
4.
Shares Subject to the Plan.
4.1
Subject to adjustment in accordance with Section 11, a total of 600,000 shares of Common
Stock shall be available for the grant of Awards under the Plan. During the terms of the Awards, the
Company shall keep available at all times the number of shares of Common Stock required to satisfy such
Awards.
4.2
Shares of Common Stock available for distribution under the Plan may consist, in whole or in
part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any
manner.
4.3
Subject to adjustment in accordance with Section 11, no Participant shall be granted, during
any one (1) year period, Options to purchase Common Stock and Stock Appreciation Rights with respect
to more than 22,500 shares of Common Stock in the aggregate or any other Awards with respect to more
than 22,500 shares of Common Stock in the aggregate. If an Award is to be settled in cash, the number of
shares of Common Stock on which the Award is based shall not count toward the individual share limit
set forth in this Section 4.
4.4
Any shares of Common Stock subject to an Award that is canceled, forfeited or expires prior
to exercise or realization, either in full or in part, shall again become available for issuance under the
Plan. Notwithstanding anything to the contrary contained herein: shares subject to an Award under the
Plan shall not again be made available for issuance or delivery under the Plan if such shares are (a) shares
11
tendered in payment of an Option, (b) shares delivered or withheld by the Company to satisfy any tax
withholding obligation, or (c) shares covered by a stock-settled Stock Appreciation Right or other Awards
that were not issued upon the settlement of the Award.
5.
Eligibility.
5.1
Eligibility for Specific Awards. Incentive Stock Options may be granted only to Employees.
Awards other than Incentive Stock Options may be granted to Employees, Consultants and Directors and
those individuals whom the Committee determines are reasonably expected to become Employees,
Consultants and Directors following the Grant Date.
5.2
Ten Percent Shareholders. A Ten Percent Shareholder shall not be granted an Incentive Stock
Option unless the Option Exercise Price is at least 110% of the Fair Market Value of the Common Stock
at the Grant Date and the Option is not exercisable after the expiration of five years from the Grant Date.
Option Provisions. Each Option granted under the Plan shall be evidenced by an Award Agreement.
6.
Each Option so granted shall be subject to the conditions set forth in this Section 6, and to such other
conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All
Options shall be separately designated Incentive Stock Options or Non-qualified Stock Options at the
time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of
Common Stock purchased on exercise of each type of Option. Notwithstanding the foregoing, the
Company shall have no liability to any Participant or any other person if an Option designated as an
Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute
“nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of
such Option do not satisfy the requirements of Section 409A of the Code. The provisions of separate
Options need not be identical, but each Option shall include (through incorporation of provisions hereof
by reference in the Option or otherwise) the substance of each of the following provisions:
6.1
Term. Subject to the provisions of Section 5.2 regarding Ten Percent Shareholders, no
Incentive Stock Option shall be exercisable after the expiration of 10 years from the Grant Date. The term
of a Non-qualified Stock Option granted under the Plan shall be determined by the Committee; provided,
however, no Non-qualified Stock Option shall be exercisable after the expiration of 10 years from the
Grant Date.
6.2
Exercise Price of An Incentive Stock Option. Subject to the provisions of Section 5.2
regarding Ten Percent Shareholders, the Option Exercise Price of each Incentive Stock Option shall be
not less than 100% of the Fair Market Value of the Common Stock subject to the Option on the Grant
Date. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an Option Exercise
Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of
the Code.
12
6.3
Exercise Price of a Non-qualified Stock Option. The Option Exercise Price of each Non-
qualified Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock
subject to the Option on the Grant Date. Notwithstanding the foregoing, a Non-qualified Stock Option
may be granted with an Option Exercise Price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the
provisions of Section 409A of the Code.
6.4
Consideration. The Option Exercise Price of Common Stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and regulations, either (a) in cash or by
certified or bank check at the time the Option is exercised or (b) in the discretion of the Committee, upon
such terms as the Committee shall approve, the Option Exercise Price may be paid: (i) by delivery to the
Company of other Common Stock, duly endorsed for transfer to the Company, with a Fair Market Value
on the date of delivery equal to the Option Exercise Price (or portion thereof) due for the number of
shares being acquired, or by means of attestation whereby the Participant identifies for delivery specific
shares of Common Stock that have an aggregate Fair Market Value on the date of attestation equal to the
Option Exercise Price (or portion thereof) and receives a number of shares of Common Stock equal to the
difference between the number of shares thereby purchased and the number of identified attestation shares
of Common Stock (a “Stock for Stock Exchange”); (ii) a “cashless” exercise program established with a
broker; (iii) by reduction in the number of shares of Common Stock otherwise deliverable upon exercise
of such Option with a Fair Market Value equal to the aggregate Option Exercise Price at the time of
exercise; (iv) any combination of the foregoing methods; or (v) in any other form of legal consideration
that may be acceptable to the Committee. Unless otherwise specifically provided in the Option, the
exercise price of Common Stock acquired pursuant to an Option that is paid by delivery (or attestation) to
the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid
only by shares of the Common Stock of the Company that have been held for more than six months (or
such longer or shorter period of time required to avoid a charge to earnings for financial accounting
purposes). Notwithstanding the foregoing, during any period for which the Common Stock is publicly
traded (i.e., the Common Stock is listed on any established stock exchange or a national market system)
an exercise by a Director or Officer that involves or may involve a direct or indirect extension of credit or
arrangement of an extension of credit by the Company, directly or indirectly, in violation of Section
402(a) of the Sarbanes-Oxley Act of 2002 shall be prohibited with respect to any Award under this Plan.
6.5
Transferability of An Incentive Stock Option. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder
may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a
third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
6.6
Transferability of a Non-qualified Stock Option. A Non-qualified Stock Option may, in the
sole discretion of the Committee, be transferable to a Permitted Transferee, upon written approval by the
Committee to the extent provided in the Award Agreement. If the Non-qualified Stock Option does not
13
provide for transferability, then the Non-qualified Stock Option shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the Option.
6.7
Vesting of Options. Each Option that vests solely based on the continued service of the
Participant shall vest and therefore become exercisable as determined by the Board for a period up to five
years on the anniversaries of the Grant Date, subject to the Optionholder’s Continuous Service. Each
Option that vests based on the achievement of performance or other criteria shall vest and therefore
become exercisable as determined by the Board for a period up to five years from the Grant Date, subject
to the achievement of applicable performance goals and the Optionholder’s Continuous Service. No
Option may be exercised for a fraction of a share of Common Stock. The Committee may, but shall not be
required to, provide for an acceleration of vesting and exercisability in the terms of any Award
Agreement upon the occurrence of a specified event.
6.8
Termination of Continuous Service. Unless otherwise provided in an Award Agreement or in
an employment agreement the terms of which have been approved by the Committee, in the event an
Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability),
the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to
exercise such Option as of the date of termination) but only within such period of time ending on the
earlier of (a) the date three months following the termination of the Optionholder’s Continuous Service or
(b) the expiration of the term of the Option as set forth in the Award Agreement; provided that, if the
termination of Continuous Service is by the Company for Cause, all outstanding Options (whether or not
vested) shall immediately terminate and cease to be exercisable. If, after termination, the Optionholder
does not exercise his or her Option within the time specified in the Award Agreement, the Option shall
terminate.
6.9
Extension of Termination Date. An Optionholder’s Award Agreement may also provide that if
the exercise of the Option following the termination of the Optionholder’s Continuous Service for any
reason would be prohibited at any time because the issuance of shares of Common Stock would violate
the registration requirements under the Securities Act or any other state or federal securities law or the
rules of any securities exchange or interdealer quotation system, then the Option shall terminate on the
earlier of (a) the expiration of the term of the Option in accordance with Section 6.1 or (b) the expiration
of a period after termination of the Participant’s Continuous Service that is three months after the end of
the period during which the exercise of the Option would be in violation of such registration or other
securities law requirements.
6.10 Disability of Optionholder. Unless otherwise provided in an Award Agreement, in the event
that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise
such Option as of the date of termination), but only within such period of time ending on the earlier of (a)
14
the date 12 months following such termination or (b) the expiration of the term of the Option as set forth
in the Award Agreement. If, after termination, the Optionholder does not exercise his or her Option
within the time specified herein or in the Award Agreement, the Option shall terminate.
6.11 Death of Optionholder. Unless otherwise provided in an Award Agreement, in the event an
Optionholder’s Continuous Service terminates as a result of the Optionholder’s death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of
death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest
or inheritance or by a person designated to exercise the Option upon the Optionholder’s death, but only
within the period ending on the earlier of (a) the date 12 months following the date of death or (b) the
expiration of the term of such Option as set forth in the Award Agreement. If, after the Optionholder’s
death, the Option is not exercised within the time specified herein or in the Award Agreement, the Option
shall terminate.
6.12
Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market
Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds $100,000, the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as Non-qualified Stock Options.
7.
Provisions of Awards Other Than Options.
7.1
Stock Appreciation Rights.
(a)
General
Each Stock Appreciation Right granted under the Plan shall be evidenced by an Award
Agreement. Each Stock Appreciation Right so granted shall be subject to the conditions set forth in this
Section 7.1, and to such other conditions not inconsistent with the Plan as may be reflected in the
applicable Award Agreement. Stock Appreciation Rights may be granted alone (“Free Standing
Rights”) or in tandem with an Option granted under the Plan (“Related Rights”).
(b)
Grant Requirements
Any Related Right that relates to a Non-qualified Stock Option may be granted at the
same time the Option is granted or at any time thereafter but before the exercise or expiration of the
Option. Any Related Right that relates to an Incentive Stock Option must be granted at the same time the
Incentive Stock Option is granted.
(c)
Term of Stock Appreciation Rights
The term of a Stock Appreciation Right granted under the Plan shall be determined by the
Committee; provided, however, no Stock Appreciation Right shall be exercisable later than the tenth
anniversary of the Grant Date.
15
(d)
Vesting of Stock Appreciation Rights
Each Stock Appreciation Right shall vest and therefore become exercisable as determined
by the Board for a period up to five years anniversaries of the Grant Date, subject to the Participant’s
Continuous Service. No Stock Appreciation Right may be exercised for a fraction of a share of Common
Stock. The Committee may, but shall not be required to, provide for an acceleration of vesting and
exercisability in the terms of any Award Agreement upon the occurrence of a specified event.
(e)
Exercise and Payment
Upon exercise of a Stock Appreciation Right, the holder shall be entitled to receive from
the Company an amount equal to the number of shares of Common Stock subject to the Stock
Appreciation Right that is being exercised multiplied by the excess of (i) the Fair Market Value of a share
of Common Stock on the date the Award is exercised, over (ii) the exercise price specified in the Stock
Appreciation Right or related Option. Payment with respect to the exercise of a Stock Appreciation Right
shall be made on the date of exercise. Payment shall be made in the form of shares of Common Stock
(with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the
Committee in its sole discretion), cash or a combination thereof, as determined by the Committee.
(f)
Exercise Price
The exercise price of a Free Standing Stock Appreciation Right shall be determined by
the Committee, but shall not be less than 100% of the Fair Market Value of one share of Common Stock
on the Grant Date of such Stock Appreciation Right. A Related Right granted simultaneously with or
subsequent to the grant of an Option and in conjunction therewith or in the alternative thereto shall have
the same exercise price as the related Option, shall be transferable only upon the same terms and
conditions as the related Option, and shall be exercisable only to the same extent as the related Option;
provided, however, that a Stock Appreciation Right, by its terms, shall be exercisable only when the Fair
Market Value per share of Common Stock subject to the Stock Appreciation Right and related Option
exceeds the exercise price per share thereof and no Stock Appreciation Rights may be granted in tandem
with an Option unless the Committee determines that the requirements of Section 7.1(b) are satisfied.
(g)
Reduction in the Underlying Option Shares
Upon any exercise of a Related Right, the number of shares of Common Stock for which
any related Option shall be exercisable shall be reduced by the number of shares for which the Stock
Appreciation Right has been exercised. The number of shares of Common Stock for which a Related
Right shall be exercisable shall be reduced upon any exercise of any related Option by the number of
shares of Common Stock for which such Option has been exercised.
7.2
Restricted Awards.
(a)
General
A Restricted Award is an Award of actual shares of Common Stock (“Restricted Stock”)
or hypothetical Common Stock units (“Restricted Stock Units”) having a value equal to the Fair Market
16
Value of an identical number of shares of Common Stock, which may, but need not, provide that such
Restricted Award may not be sold, assigned, transferred or otherwise disposed of, pledged or
hypothecated as collateral for a loan or as security for the performance of any obligation or for any other
purpose for such period (the “Restricted Period”) as the Committee shall determine. Each Restricted
Award granted under the Plan shall be evidenced by an Award Agreement. Each Restricted Award so
granted shall be subject to the conditions set forth in this Section 7.2, and to such other conditions not
inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b)
Restricted Stock and Restricted Stock Units
(i)
(ii)
Each Participant granted Restricted Stock shall execute and deliver to the Company
an Award Agreement with respect to the Restricted Stock setting forth the restrictions
and other terms and conditions applicable to such Restricted Stock. If the Committee
determines that the Restricted Stock shall be held by the Company or in escrow rather
than delivered to the Participant pending the release of the applicable restrictions, the
Committee may require the Participant to additionally execute and deliver to the
Company (A) an escrow agreement satisfactory to the Committee, if applicable and
(B) the appropriate blank stock power with respect to the Restricted Stock covered by
such agreement. If a Participant fails to execute an agreement evidencing an Award
of Restricted Stock and, if applicable, an escrow agreement and stock power, the
Award shall be null and void. Subject to the restrictions set forth in the Award, the
Participant generally shall have the rights and privileges of a shareholder as to such
Restricted Stock, including the right to vote such Restricted Stock and the right to
receive dividends.
The terms and conditions of a grant of Restricted Stock Units shall be reflected in an
Award Agreement. No shares of Common Stock shall be issued at the time a
Restricted Stock Unit is granted, and the Company will not be required to set aside a
fund for the payment of any such Award. A Participant shall have no voting rights
with respect to any Restricted Stock Units granted hereunder. The Committee may
also grant Restricted Stock Units with a deferral feature, whereby settlement is
deferred beyond the vesting date until the occurrence of a future payment date or
event set forth in an Award Agreement (“Deferred Stock Units”). At the discretion
of the Committee, each Restricted Stock Unit or Deferred Stock Unit (representing
one share of Common Stock) may be credited with cash and stock dividends paid by
the Company in respect of one share of Common Stock (“Dividend Equivalents”).
Dividend Equivalents shall be paid currently (and in no case later than the end of the
calendar year in which the dividend is paid to the holders of the Common Stock or, if
later, the 15th day of the third month following the date the dividend is paid to
holders of the Common Stock). Dividend Equivalents shall be withheld by the
Company and credited to the Participant’s account, and interest may be credited on
the amount of cash Dividend Equivalents credited to the Participant’s account at a
17
rate and subject to such terms as determined by the Committee. Dividend Equivalents
credited to a Participant’s account and attributable to any particular Restricted Stock
Unit or Deferred Stock Unit (and earnings thereon, if applicable) shall be distributed
in cash or, at the discretion of the Committee, in shares of Common Stock having a
Fair Market Value equal to the amount of such Dividend Equivalents and earnings, if
applicable, to the Participant upon settlement of such Restricted Stock Unit or
Deferred Stock Unit and, if such Restricted Stock Unit or Deferred Stock Unit is
forfeited, the Participant shall have no right to such Dividend Equivalents./Dividend
Equivalents will be deemed re-invested in additional Restricted Stock Units or
Deferred Stock Units based on the Fair Market Value of a share of Common Stock on
the applicable dividend payment date and rounded down to the nearest whole share.
(c)
Restrictions
(i)
(ii)
(iii)
Restricted Stock awarded to a Participant shall be subject to the following restrictions
until the expiration of the Restricted Period, and to such other terms and conditions as
may be set forth in the applicable Award Agreement: (A) if an escrow arrangement is
used, the Participant shall not be entitled to delivery of the stock certificate; (B) the
shares shall be subject to the restrictions on transferability set forth in the Award
Agreement; (C) the shares shall be subject to forfeiture to the extent provided in the
applicable Award Agreement; and (D) to the extent such shares are forfeited, the
stock certificates shall be returned to the Company, and all rights of the Participant to
such shares and as a shareholder with respect to such shares shall terminate without
further obligation on the part of the Company.
Restricted Stock Units and Deferred Stock Units awarded to any Participant shall be
subject to (A) forfeiture until the expiration of the Restricted Period, and satisfaction
of any applicable Performance Goals during such period, to the extent provided in the
applicable Award Agreement, and to the extent such Restricted Stock Units or
Deferred Stock Units are forfeited, all rights of the Participant to such Restricted
Stock Units or Deferred Stock Units shall terminate without further obligation on the
part of the Company and (B) such other terms and conditions as may be set forth in
the applicable Award Agreement.
The Committee shall have the authority to remove any or all of the restrictions on the
Restricted Stock, Restricted Stock Units and Deferred Stock Units whenever it may
determine that, by reason of changes in Applicable Laws or other changes in
circumstances arising after the date the Restricted Stock or Restricted Stock Units or
Deferred Stock Units are granted, such action is appropriate.
(d)
Restricted Period
18
With respect to Restricted Awards, the Restricted Period shall commence on the Grant
Date and each Restricted Award that vests solely based on the continued service of the Participant shall
vest as determined by the Board for a period up to five years on the anniversaries of the Grant Date,
subject to the Participant’s Continuous Service. Each Restricted Award that vests based on the
achievement of performance or other criteria shall vest as determined by the Board for a period up to five
years from the Grant Date, subject to the achievement of applicable performance goals and the
Participant’s Continuous Service.
No Restricted Award may be granted or settled for a fraction of a share of Common
Stock. The Committee may, but shall not be required to, provide for an acceleration of vesting in the
terms of any Award Agreement upon the occurrence of a specified event.
(e)
Delivery of Restricted Stock and Settlement of Restricted Stock Units
Upon the expiration of the Restricted Period with respect to any shares of Restricted
Stock, the restrictions set forth in Section 7.2(c) and the applicable Award Agreement shall be of no
further force or effect with respect to such shares, except as set forth in the applicable Award Agreement.
If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or
his or her beneficiary, without charge, the stock certificate evidencing the shares of Restricted Stock
which have not then been forfeited and with respect to which the Restricted Period has expired (to the
nearest full share) and any cash dividends or stock dividends credited to the Participant’s account with
respect to such Restricted Stock and the interest thereon, if any. Upon the expiration of the Restricted
Period with respect to any outstanding Restricted Stock Units, or at the expiration of the deferral period
with respect to any outstanding Deferred Stock Units, the Company shall deliver to the Participant, or his
or her beneficiary, without charge, one share of Common Stock for each such outstanding vested
Restricted Stock Unit or Deferred Stock Unit (“Vested Unit”) and cash equal to any Dividend
Equivalents credited with respect to each such Vested Unit in accordance with Section 7.2(b)(ii) hereof
and the interest thereon or, at the discretion of the Committee, in shares of Common Stock having a Fair
Market Value equal to such Dividend Equivalents and the interest thereon, if any; provided, however,
that, if explicitly provided in the applicable Award Agreement, the Committee may, in its sole discretion,
elect to pay cash or part cash and part Common Stock in lieu of delivering only shares of Common Stock
for Vested Units. If a cash payment is made in lieu of delivering shares of Common Stock, the amount of
such payment shall be equal to the Fair Market Value of the Common Stock as of the date on which the
Restricted Period lapsed in the case of Restricted Stock Units, or the delivery date in the case of Deferred
Stock Units, with respect to each Vested Unit.
(f)
Stock Restrictions
Each certificate representing Restricted Stock awarded under the Plan shall bear a legend
in such form as the Company deems appropriate.
7.3
Performance Share Awards.
(a)
Grant of Performance Share Awards
19
Each Performance Share Award granted under the Plan shall be evidenced by an Award
Agreement. Each Performance Share Award so granted shall be subject to the conditions set forth in this
Section 7.3, and to such other conditions not inconsistent with the Plan as may be reflected in the
applicable Award Agreement. The Committee shall have the discretion to determine: (i) the number of
shares of Common Stock or stock-denominated units subject to a Performance Share Award granted to
any Participant; (ii) the performance period applicable to any Award; (iii) the conditions that must be
satisfied for a Participant to earn an Award; and (iv) the other terms, conditions and restrictions of the
Award.
(b)
Earning Performance Share Awards
The number of Performance Shares earned by a Participant will depend on the extent to
which the performance goals established by the Committee are attained within the applicable
Performance Period, as determined by the Committee. No payout shall be made with respect to any
Performance Share Award except upon written certification by the Committee that the minimum
threshold performance goal(s) have been achieved.
7.4
Performance Compensation Awards.
(a)
General
The Committee shall have the authority, at the time of grant of any Award described in
this Plan (other than Options and Stock Appreciation Rights granted with an exercise price equal to or
greater than the Fair Market Value per share of Common Stock on the Grant Date), to designate such
Award as a Performance Compensation Award in order to qualify such Award as “performance-based
compensation” under Section 162(m) of the Code. In addition, the Committee shall have the authority to
make an Award of a cash bonus to any Participant and designate such Award as a Performance
Compensation Award in order to qualify such Award as “performance-based compensation” under
Section 162(m) of the Code.
(b)
Eligibility
The Committee will, in its sole discretion, designate within the first 90 days of a
Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of
the Code) which Participants will be eligible to receive Performance Compensation Awards in respect of
such Performance Period. However, designation of a Participant eligible to receive an Award hereunder
for a Performance Period shall not in any manner entitle the Participant to receive payment in respect of
any Performance Compensation Award for such Performance Period. The determination as to whether or
not such Participant becomes entitled to payment in respect of any Performance Compensation Award
shall be decided solely in accordance with the provisions of this Section 7.4. Moreover, designation of a
Participant eligible to receive an Award hereunder for a particular Performance Period shall not require
designation of such Participant eligible to receive an Award hereunder in any subsequent Performance
Period and designation of one person as a Participant eligible to receive an Award hereunder shall not
20
require designation of any other person as a Participant eligible to receive an Award hereunder in such
period or in any other period.
(c)
Discretion of Committee with Respect to Performance Compensation Awards
With regard to a particular Performance Period, the Committee shall have full discretion
to select the length of such Performance Period (provided any such Performance Period shall be not less
than one fiscal quarter in duration), the type(s) of Performance Compensation Awards to be issued, the
Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of
the Performance Goal(s) that is (are) to apply to the Company and the Performance Formula. Within the
first 90 days of a Performance Period (or, if longer or shorter, within the maximum period allowed under
Section 162(m) of the Code), the Committee shall, with regard to the Performance Compensation Awards
to be issued for such Performance Period, exercise its discretion with respect to each of the matters
enumerated in the immediately preceding sentence of this Section 7.4(c) and record the same in writing.
(d)
Payment of Performance Compensation Awards
(i)
Condition to Receipt of Payment
Unless otherwise provided in the applicable Award Agreement, a Participant
must be employed by the Company on the last day of a Performance Period to
be eligible for payment in respect of a Performance Compensation Award for
such Performance Period.
(ii)
Limitation
A Participant shall be eligible to receive payment in respect of a Performance
Compensation Award only to the extent that: (A) the Performance Goals for
such period are achieved; and (B) the Performance Formula as applied against
such Performance Goals determines that all or some portion of such
Participant’s Performance Compensation Award has been earned for the
Performance Period.
(iii)
Certification
Following the completion of a Performance Period, the Committee shall review
and certify in writing whether, and to what extent, the Performance Goals for
the Performance Period have been achieved and, if so, calculate and certify in
writing the amount of the Performance Compensation Awards earned for the
period based upon the Performance Formula. The Committee shall then
determine the actual size of each Participant’s Performance Compensation
Award for the Performance Period and, in so doing, may apply Negative
Discretion in accordance with Section 7.4(d)(iv) hereof, if and when it deems
appropriate.
(iv)
Use of Discretion
21
In determining the actual size of an individual Performance Compensation
Award for a Performance Period, the Committee may reduce or eliminate the
amount of the Performance Compensation Award earned under the Performance
Formula in the Performance Period through the use of Negative Discretion if, in
its sole judgment, such reduction or elimination is appropriate. The Committee
shall not have the discretion to (A) grant or provide payment in respect of
Performance Compensation Awards for a Performance Period if the
Performance Goals for such Performance Period have not been attained or (B)
increase a Performance Compensation Award above the maximum amount
payable under Section 7.4(d)(vi) of the Plan.
(v)
Timing of Award Payments
Performance Compensation Awards granted for a Performance Period shall be
paid to Participants as soon as administratively practicable following
completion of the certifications required by this Section 7.4 but in no event later
than 2 1/2 months following the end of the fiscal year during which the
Performance Period is completed.
(vi)
Maximum Award Payable
Notwithstanding any provision contained in this Plan to the contrary, the
maximum Performance Compensation Award payable to any one Participant
under the Plan for a Performance Period (excluding any Options and Stock
Appreciation Rights) is 15,000 shares of Common Stock or, in the event such
Performance Compensation Award is paid in cash, the equivalent cash value
thereof on the first or last day of the Performance Period to which such Award
relates, as determined by the Committee. The maximum amount that can be
paid in any calendar year to any Participant pursuant to a cash bonus Award
described in the last sentence of Section 7.4(a) shall be $250,000. Furthermore,
any Performance Compensation Award that has been deferred shall not
(between the date as of which the Award is deferred and the payment date)
increase (A) with respect to a Performance Compensation Award that is payable
in cash, by a measuring factor for each fiscal year greater than a reasonable rate
of interest set by the Committee or (B) with respect to a Performance
Compensation Award that is payable in shares of Common Stock, by an amount
greater than the appreciation of a share of Common Stock from the date such
Award is deferred to the payment date.
Securities Law Compliance. Each Award Agreement shall provide that no shares of Common Stock
8.
shall be purchased or sold thereunder unless and until (a) any then applicable requirements of state or
federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company
and its counsel and (b) if required to do so by the Company, the Participant has executed and delivered to
the Company a letter of investment intent in such form and containing such provisions as the Committee
22
may require. The Company shall use reasonable efforts to seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be required to grant
Awards and to issue and sell shares of Common Stock upon exercise of the Awards; provided, however,
that this undertaking shall not require the Company to register under the Securities Act the Plan, any
Award or any Common Stock issued or issuable pursuant to any such Award. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the
Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon
exercise of such Awards unless and until such authority is obtained.
Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Awards, or upon
9.
exercise thereof, shall constitute general funds of the Company.
10. Miscellaneous.
10.1 Acceleration of Exercisability and Vesting. The Committee shall have the power to accelerate
the time at which an Award may first be exercised or the time during which an Award or any part thereof
will vest in accordance with the Plan, notwithstanding the provisions in the Award stating the time at
which it may first be exercised or the time during which it will vest.
10.2 Shareholder Rights. Except as provided in the Plan or an Award Agreement, no Participant
shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Award unless and until such Participant has satisfied all requirements for
exercise of the Award pursuant to its terms and no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions of other rights for which the
record date is prior to the date such Common Stock certificate is issued, except as provided in Section 11
hereof.
10.3 No Employment or Other Service Rights. Nothing in the Plan or any instrument executed or
Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the
Company or an Affiliate in the capacity in effect at the time the Award was granted or shall affect the
right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without
notice and with or without Cause or (b) the service of a Director pursuant to the By-laws of the Company
or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
10.4 Transfer; Approved Leave of Absence. For purposes of the Plan, no termination of
employment by an Employee shall be deemed to result from either (a) a transfer to the employment of the
Company from an Affiliate or from the Company to an Affiliate, or from one Affiliate to another, or (b)
an approved leave of absence for military service or sickness, or for any other purpose approved by the
Company, if the Employee’s right to reemployment is guaranteed either by a statute or by contract or
under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so
23
provides in writing, in either case, except to the extent inconsistent with Section 409A of the Code if the
applicable Award is subject thereto.
10.5 Withholding Obligations. To the extent provided by the terms of an Award Agreement and
subject to the discretion of the Committee, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of Common Stock under an Award by any of
the following means (in addition to the Company’s right to withhold from any compensation paid to the
Participant by the Company) or by a combination of such means: (a) tendering a cash payment; (b)
authorizing the Company to withhold shares of Common Stock from the shares of Common Stock
otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the
Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the
minimum amount of tax required to be withheld by law; or (c) delivering to the Company previously
owned and unencumbered shares of Common Stock of the Company.
11. Adjustments Upon Changes in Stock. In the event of changes in the outstanding Common Stock or
in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split,
reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization,
merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after
the Grant Date of any Award, Awards granted under the Plan and any Award Agreements, the exercise
price of Options and Stock Appreciation Rights, the maximum number of shares of Common Stock
subject to all Awards stated in Section 4 and the maximum number of shares of Common Stock with
respect to which any one person may be granted Awards during any period stated in Section 4 and
Section 7.4(d)(vi) will be equitably adjusted or substituted, as to the number, price or kind of a share of
Common Stock or other consideration subject to such Awards to the extent necessary to preserve the
economic intent of such Award. In the case of adjustments made pursuant to this Section 11, unless the
Committee specifically determines that such adjustment is in the best interests of the Company or its
Affiliates, the Committee shall, in the case of Incentive Stock Options, ensure that any adjustments under
this Section 11 will not constitute a modification, extension or renewal of the Incentive Stock Options
within the meaning of Section 424(h)(3) of the Code and in the case of Non-qualified Stock Options,
ensure that any adjustments under this Section 11 will not constitute a modification of such Non-qualified
Stock Options within the meaning of Section 409A of the Code. Any adjustments made under this Section
11 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule
16b-3 under the Exchange Act. Further, with respect to Awards intended to qualify as “performance-
based compensation” under Section 162(m) of the Code, any adjustments or substitutions will not cause
the Company to be denied a tax deduction on account of Section 162(m) of the Code. The Company shall
give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be
conclusive and binding for all purposes.
12. Effect of Change in Control.
12.1 Unless otherwise provided in an Award Agreement, notwithstanding any provision of the Plan
to the contrary:
24
In the event of a Participant’s termination of Continuous Service without Cause or for
Good Reason during the 24-month period following a Change in Control, notwithstanding any provision
of the Plan or any applicable Award Agreement to the contrary, all Options and Stock Appreciation
Rights shall become immediately exercisable with respect to 100% of the shares subject to such Options
or Stock Appreciation Rights, and/or the Restricted Period shall expire immediately with respect to 100%
of the shares of Restricted Stock or Restricted Stock Units as of the date of the Participant’s termination
of Continuous Service.
With respect to Performance Compensation Awards, in the event of a Participant’s
termination of Continuous Service without Cause or for Good Reason, in either case, within 24 months
following a Change in Control, all Performance Goals or other vesting criteria will be deemed achieved at
100% of target levels and all other terms and conditions will be deemed met as of the date of the
Participant’s termination of Continuous Service.
To the extent practicable, any actions taken by the Committee under the immediately preceding
clauses (a) and (b) shall occur in a manner and at a time which allows affected Participants the ability to
participate in the Change in Control with respect to the shares of Common Stock subject to their Awards.
12.2
In addition, in the event of a Change in Control, the Committee may in its discretion and upon
at least 10 days’ advance notice to the affected persons, cancel any outstanding Awards and pay to the
holders thereof, in cash or stock, or any combination thereof, the value of such Awards based upon the
price per share of Common Stock received or to be received by other shareholders of the Company in the
event. In the case of any Option or Stock Appreciation Right with an exercise price (or SAR Exercise
Price in the case of a Stock Appreciation Right) that equals or exceeds the price paid for a share of
Common Stock in connection with the Change in Control, the Committee may cancel the Option or Stock
Appreciation Right without the payment of consideration therefor.
12.3 The obligations of the Company under the Plan shall be binding upon any successor
corporation or organization resulting from the merger, consolidation or other reorganization of the
Company, or upon any successor corporation or organization succeeding to all or substantially all of the
assets and business of the Company and its Affiliates, taken as a whole.
13. Amendment of the Plan and Awards.
13.1 Amendment of Plan. The Board at any time, and from time to time, may amend or terminate
the Plan. However, except as provided in Section 11 relating to adjustments upon changes in Common
Stock and Section 13.3, no amendment shall be effective unless approved by the shareholders of the
Company to the extent shareholder approval is necessary to satisfy any Applicable Laws. At the time of
such amendment, the Board shall determine, upon advice from counsel, whether such amendment will be
contingent on shareholder approval.
13.2 Shareholder Approval. The Board may, in its sole discretion, submit any other amendment to
the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to
25
satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate deductibility of compensation
paid to certain executive officers.
13.3 Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible Employees, Consultants and
Directors with the maximum benefits provided or to be provided under the provisions of the Code and the
regulations promulgated thereunder relating to Incentive Stock Options or to the nonqualified deferred
compensation provisions of Section 409A of the Code and/or to bring the Plan and/or Awards granted
under it into compliance therewith.
13.4 No Impairment of Rights. Rights under any Award granted before amendment of the Plan shall
not be impaired by any amendment of the Plan unless (a) the Company requests the consent of the
Participant and (b) the Participant consents in writing.
13.5 Amendment of Awards. The Committee at any time, and from time to time, may amend the
terms of any one or more Awards; provided, however, that the Committee may not affect any amendment
which would otherwise constitute an impairment of the rights under any Award unless (a) the Company
requests the consent of the Participant and (b) the Participant consents in writing.
14. General Provisions.
14.1 Forfeiture Events. The Committee may specify in an Award Agreement that the Participant’s
rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation,
forfeiture or recoupment upon the occurrence of certain events, in addition to applicable vesting
conditions of an Award. Such events may include, without limitation, breach of non-competition, non-
solicitation, confidentiality, or other restrictive covenants that are contained in the Award Agreement or
otherwise applicable to the Participant, a termination of the Participant’s Continuous Service for Cause, or
other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its
Affiliates.
14.2 Clawback. Notwithstanding any other provisions in this Plan, any Award which is subject to
recovery under any law, government regulation or stock exchange listing requirement, will be subject to
such deductions and clawback as may be required to be made pursuant to such law, government
regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant to any
such law, government regulation or stock exchange listing requirement).
14.3 Sub-plans. The Committee may from time to time establish sub-plans under the Plan for
purposes of satisfying blue sky, securities, tax or other laws of various jurisdictions in which the
Company intends to grant Awards. Any sub-plans shall contain such limitations and other terms and
conditions as the Committee determines are necessary or desirable. All sub-plans shall be deemed a part
of the Plan, but each sub-plan shall apply only to the Participants in the jurisdiction for which the sub-
plan was designed.
26
14.4 Deferral of Awards. The Committee may establish one or more programs under the Plan to
permit selected Participants the opportunity to elect to defer receipt of consideration upon exercise of an
Award, satisfaction of performance criteria, or other event that absent the election would entitle the
Participant to payment or receipt of shares of Common Stock or other consideration under an Award. The
Committee may establish the election procedures, the timing of such elections, the mechanisms for
payments of, and accrual of interest or other earnings, if any, on amounts, shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the Committee deems advisable for
the administration of any such deferral program.
14.5 Unfunded Plan. The Plan shall be unfunded. Neither the Company, the Board nor the
Committee shall be required to establish any special or separate fund or to segregate any assets to assure
the performance of its obligations under the Plan.
14.6 Recapitalizations. Each Award Agreement shall contain provisions required to reflect the
provisions of Section 11.
14.7 Delivery. Upon exercise of a right granted under this Plan, the Company shall issue Common
Stock or pay any amounts due within a reasonable period of time thereafter. Subject to any statutory or
regulatory obligations the Company may otherwise have, for purposes of this Plan, 30 days shall be
considered a reasonable period of time.
14.8 No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered
pursuant to the Plan. The Committee shall determine whether cash, additional Awards or other securities
or property shall be issued or paid in lieu of fractional shares of Common Stock or whether any fractional
shares should be rounded, forfeited or otherwise eliminated.
14.9 Other Provisions. The Award Agreements authorized under the Plan may contain such other
provisions not inconsistent with this Plan, including, without limitation, restrictions upon the exercise of
the Awards, as the Committee may deem advisable.
14.10 Section 409A. The Plan is intended to comply with Section 409A of the Code to the extent
subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and
administered to be in compliance therewith. Any payments described in the Plan that are due within the
“short-term deferral period” as defined in Section 409A of the Code shall not be treated as deferred
compensation unless Applicable Laws require otherwise. Notwithstanding anything to the contrary in the
Plan, to the extent required to avoid accelerated taxation and tax penalties under Section 409A of the
Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant
to the Plan during the six (6) month period immediately following the Participant’s termination of
Continuous Service shall instead be paid on the first payroll date after the six-month anniversary of the
Participant’s separation from service (or the Participant’s death, if earlier). Notwithstanding the
foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent
the assessment of any excise tax or penalty on any Participant under Section 409A of the Code and
neither the Company nor the Committee will have any liability to any Participant for such tax or penalty.
27
14.11 Disqualifying Dispositions. Any Participant who shall make a “disposition” (as defined in
Section 424 of the Code) of all or any portion of shares of Common Stock acquired upon exercise of an
Incentive Stock Option within two years from the Grant Date of such Incentive Stock Option or within
one year after the issuance of the shares of Common Stock acquired upon exercise of such Incentive
Stock Option (a “Disqualifying Disposition”) shall be required to immediately advise the Company in
writing as to the occurrence of the sale and the price realized upon the sale of such shares of Common
Stock.
14.12 Section 16. It is the intent of the Company that the Plan satisfy, and be interpreted in a manner
that satisfies, the applicable requirements of Rule 16b-3 as promulgated under Section 16 of the Exchange
Act so that Participants will be entitled to the benefit of Rule 16b-3, or any other rule promulgated under
Section 16 of the Exchange Act, and will not be subject to short-swing liability under Section 16 of the
Exchange Act. Accordingly, if the operation of any provision of the Plan would conflict with the intent
expressed in this Section 14.13, such provision to the extent possible shall be interpreted and/or deemed
amended so as to avoid such conflict.
14.13 Section 162(m). To the extent the Committee issues any Award that is intended to be exempt
from the deduction limitation of Section 162(m) of the Code, the Committee may, without shareholder or
grantee approval, amend the Plan or the relevant Award Agreement retroactively or prospectively to the
extent it determines necessary in order to comply with any subsequent clarification of Section 162(m) of
the Code required to preserve the Company’s federal income tax deduction for compensation paid
pursuant to any such Award.
14.14 Beneficiary Designation. Each Participant under the Plan may from time to time name any
beneficiary or beneficiaries by whom any right under the Plan is to be exercised in case of such
Participant’s death. Each designation will revoke all prior designations by the same Participant, shall be in
a form reasonably prescribed by the Committee and shall be effective only when filed by the Participant
in writing with the Company during the Participant’s lifetime.
14.15 Expenses. The costs of administering the Plan shall be paid by the Company.
14.16 Severability. If any of the provisions of the Plan or any Award Agreement is held to be invalid,
illegal or unenforceable, whether in whole or in part, such provision shall be deemed modified to the
extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining
provisions shall not be affected thereby.
14.17 Plan Headings. The headings in the Plan are for purposes of convenience only and are not
intended to define or limit the construction of the provisions hereof.
14.18 Non-Uniform Treatment. The Committee’s determinations under the Plan need not be uniform
and may be made by it selectively among persons who are eligible to receive, or actually receive, Awards.
Without limiting the generality of the foregoing, the Committee shall be entitled to make non-uniform and
28
selective determinations, amendments and adjustments, and to enter into non-uniform and selective
Award Agreements.
15. Effective Date of Plan. The Plan shall be effective as of the Effective Date.
16. Termination or Suspension of the Plan. The Plan shall terminate automatically on April 1st, 2027.
No Award shall be granted pursuant to the Plan after such date, but Awards theretofore granted may
extend beyond that date. The Board may suspend or terminate the Plan at any earlier date pursuant to
Section 13.1 hereof. No Awards may be granted under the Plan while the Plan is suspended or after it is
terminated. Unless the Company determines to submit Section 7.4 of the Plan and the definition of
“Performance Goal” and “Performance Criteria” to the Company’s shareholders at the first shareholder
meeting that occurs in the fifth year following the year in which the Plan was last approved by
shareholders (or any earlier meeting designated by the Board), in accordance with the requirements of
Section 162(m) of the Code, and such shareholder approval is obtained, then no further Performance
Compensation Awards shall be made to Covered Employees under Section 7.4 after the date of such
annual meeting, but the Plan may continue in effect for Awards to Participants not in accordance with
Section 162(m) of the Code.
17. Choice of Law. The law of the Commonwealth of Virginia shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such state’s conflict of law rules.
18. Regulatory Rescission. If any FDIC-insured institution controlled by Blue Ridge Bankshares, Inc.
falls below minimum regulatory capital requirements then its primary federal regulator can direct the
Company to require participants to exercise or forfeit stock rights.
29
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
Blue Ridge Bankshares, Inc. (the “Company”) and its subsidiaries are committed to the
goal of the highest standards of ethical corporate and personal conduct. The Company can
achieve this goal only through the individual and collective efforts of its directors, officers,
and employees.
Corporate Conduct
The Company’s activities should earn the confidence and trust of its various stakeholders
–customers, shareholders, employees, and the general public.
The corporate code of ethics is as follows:
The Company will actively seek to comply with all laws or regulations in the conduct
of its business.
The Company will provide pertinent, accurate, and complete information to authorized
auditors or regulatory agencies.
The Company will keep accurate books and records, record all transactions honestly
and correctly and provide full, fair, accurate, timely, and understandable disclosure in
publicly available reports and communications.
The Company will maintain standards and procedures to safeguard the legitimate
confidentiality of information pertaining to customers and employees.
The Company will conduct its business in fair and open competition and will not enter
into illegal arrangements with competitors affecting pricing or marketing policies.
Personal Conduct
The Company is judged by the collective performance and public perception of its
employees and directors, and as such each of us has a responsibility to act in a manner that
merits public trust and confidence. Specific guidelines, regulations, and procedures are
contained in the Statement of Business Practices related to specific duties. Basic standards
of personal business ethics can be stated as follows:
No director or employee may take any action, either personally or on behalf of the
Company, that will violate any law or regulation affecting the Company’s business.
Each director and employee must perform his or her assigned duties honestly and
ethically, with due care, and to the best of his or her ability, and in the best interest of
the Company, its stockholders, and its customers.
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
Each director and employee must not attempt to exercise undue influence over the
conduct or report of any external, internal, or other audit.
Each director and employee must avoid all circumstances that could produce conflicts
or the appearance of conflicts between personal interests and those of the Company,
and report to organizational superiors any actual or potential conflict of interest that
develops.
Each director and employee must respect the confidentiality of information obtained in
the course of business and use it only for the legitimate purposes of the Company.
Each director and employee must exercise absolute candor and honesty in providing
facts and information requested by organizational superiors or other authorized
officials or required for the Company’s business and, within job responsibilities,
provide constituents having the right to know with information that is relevant,
accurate, and complete.
Each director and employee must responsibly use all Company assets and resources
entrusted to him or her.
Each director and employee must not use corporate resources or his or her position in
pursuit of personal interests or in violation of any law or regulation.
Each director and employee must promptly report all acts known or suspected to be
violations of the Code of Ethics and Statement of Business Practices or of the law
applicable to the Company’s business in accordance with established procedures.
Each director and employee must actively promote ethical behavior among fellow
directors and employees.
Each director and employee is accountable for adhering to this Code of Ethics and the
Statement of Business Practices.
Statement of Business Practices
The following Statement of Business Practices (“Statement”) seeks to provide practical
guidance for and application of the Company’s Code of Ethics (“Code”). This Statement
reflects the corporate policy of the Company as well as the mandates of certain laws and
regulations and shall govern the actions of the Company’s officers and employees (and
directors where indicated). This Statement may be supplemented by other corporate
policies in the discretion of management, not in conflict with these provisions.
Administration
Every new director and employee will receive a copy of the Code of Ethics and Statement
of Business Practices and will acknowledge acceptance of its terms as a condition of
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
employment. This signed acceptance will be maintained in the employee’s personnel file.
Each officer and director will be required to complete and sign an annual affirmation
statement attesting to his or her compliance with the Statement.
Any apparent or suspected violation of the Code of Ethics or Statement of Business
Practices must be promptly brought to the attention of the CEO or Chief
Financial Officer or otherwise in accordance with reporting procedures established by the
Board of Directors. Upon determination that a violation has occurred, appropriate
disciplinary action will be taken through the normal supervisory process.
Violations of provisions of the Statement of Business Practices are grounds for disciplinary
action ranging from reprimand to dismissal. Internal disciplinary action would be in
addition to any civil or criminal action that may result.
The Audit and Risk Governance Committee (“Committee”) of the Board of Directors shall
have the authority to review, and, upon full disclosure of the facts, approve exceptions to
this policy. In addition, the Committee shall have the power to amend this policy and
approve any and all changes proposed. All approved changes or amendments by the
Committee shall be noted in the minutes of the Committee, reflected in subsequent copies
of this Statement, and reported to the Board of Directors of the Company.
Confidential Information
Corporate Information
All information, financial or otherwise, about the Company, its shareholders, or employees
is to be considered confidential (not available to the public), unless it has been
published in reports to shareholders or otherwise made available to the public in accordance
with applicable disclosure laws or is otherwise authorized by the Company for disclosure.
Any questions concerning the disclosure of confidential information should be addressed
to the CEO or the Chief Financial Officer and if necessary, reviewed by the Company’s
External Counsel prior to disclosure.
Customer Information
The expectation of privacy is fundamental to our banking relationships with our customers.
Confidential information obtained from a customer, such as account balances, financial
condition, anticipated changes in management, business plans and projections etc. must
never be divulged to anyone other than the relevant customer or to employees or agents of
the Company (unless such disclosure is specifically permitted by the customer or legally
required). Such information may be communicated to other Company personnel or agents
only for legitimate use in connection with their Company responsibilities.
Personal Use of Confidential Information
Confidential information must not be used to further any private interests or for personal
gain or for the benefit of any subsequent employer. The use or disclosure of such
information can also result in civil and criminal liability, both for the individual concerned
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
and the Company, or for a former employee of the Company and a subsequent employer,
as the case may be.
Release of Information
Requests for information regarding current or former employees should be referred to the
CEO or Chief Financial Officer for handling under approved release rules. Inquiries
regarding customer credit and account information must be referred to authorized
personnel. Other information concerning a customer, shareholder, or a particular business
transaction may be released externally only in accordance with approved Company policies
or as required by law. Information regarding the Company (other than approved
advertising) may be publicly disclosed only in accordance with Company-approved public
disclosures. No information should be provided to governmental or other entities unless
pursuant to an approved response to legal process, the information has been appropriately
requested by a regulatory examiner in the course of an examination, and/or the release of
information has been authorized under normal operating procedures.
Bank Examinations
As a matter of law, the contents and results of bank regulatory examinations must be held
in strictest confidence and may not be publicly divulged or discussed. Company personnel
will cooperate fully with requests for information made by regulatory examiners as
required by law.
Conflicts of Interest
Avoidance of Conflicts
Each director, officer, and employee of the Company has a duty to conduct his or her
personal affairs in a manner that avoids as much as possible both actual and apparent
conflicts with the business interest of the Company. The Company recognizes, however,
that it is not possible to avoid all conflicts of interest or potential situations where conflicts
may arise. A conflict of interest exists or may exist whenever directors and employees or
their relatives have an interest in any entity or matter that may be affected by a decision of
the Company, in which the Company’s interest may be different or which may affect the
judgment that such director, officer, or employee may have to exercise in the discharge of
his/her responsibilities to the Company, or may be perceived by the public as doing so
directors, employees, and officers should be alert to and promptly disclose to in writing to
their immediate supervisor, with a copy to the CEO or Chief Financial Officer, all actual
or potential conflicts of interest. Directors must also disclose such actual or potential
conflicts to all other members of the Board. Such disclosure must disclose the nature of
the conflict, the circumstances giving rise to the conflict and the interests of the employee,
relative, or entity involved. No employee, officer, or director may influence or participate
in any decision or action of the Company in which there is an actual or potential conflict
of interest.
Employees may not process or approve extensions of credit or overdrafts or waive service
charges or late fees for themselves or their relatives. No director, officer, or employee may
participate in any way in the approval process for any extensions of credit to any business
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
in which the director, officer, or employee, or any of their relatives, has a material financial
interest.
Gifts
To avoid possible conflicts of interest and because it is potentially illegal under the Bank
Bribery Act to accept anything of value from a customer in connection with any transaction
or business of the Company, directors, officers, employees, and members of their
households are not permitted to solicit or accept gifts (either for themselves or others) from
any existing or prospective customer or supplier unless it has been approved in advance by
a senior officer of the Company with authority to do so or is authorized by established
Company policy below. A gift is regarded as any type of gratuity, favor, service, discount
or price concession, legacy (except from a relative), fee, compensation, or anything of
monetary value. Directors, officers, or employees who are unsure as to whether a gift may
be a violation of law and/or these standards should seek guidance from the CEO.
Prohibited gifts should be returned to the sender. The only exceptions to this policy are as
follows:
Gifts based on obvious family and personal relationships where it is clear that it is those
relationships which are the sole motivating factor;
Meals, refreshments, travel arrangements, accommodations, or entertainment of
reasonable value and in the course of bona fide business discussions so long as these
expenses would be paid by the Company as a reasonable business expense. Any travel
arrangements and accommodations offered to employees and officers from any source
must be approved by the CEO or Chief Financial Officer in advance or, in the case of
a director, by the Chairman of the Board, if offered to the director by a party having a
present or known possible business or employment relationship with the Company.
Lavish or extravagant entertainment should not be accepted unless reimbursement is
made to the donor;
Gifts not exceeding $100 in value received at holiday time or on special occasions that
create no sense of obligation. Purchasing agents or other employees involved in
purchasing should refuse gifts of any nature from existing or prospective suppliers;
Unsolicited advertising or promotional materials of reasonable value that are generally
available to the public;
Discounts or rebates on merchandise or services that do not exceed those available to
other customers;
Fees or other compensation received from an organization in which membership or an
official position held is approved by the Company, subject to the prior approval of the
CEO or Chief Financial Officer or the Human Resources Committee of the Board of
Directors;
Civic, charitable, educational, or religious organizational awards for recognition of
service and accomplishments; and
Such other exceptions as may be adopted in writing on a case-by-case basis by the
CEO, Chief Financial Officer, or the Chairman of the Board of Directors.
An employee must immediately report to his or her supervisor any offer of anything of
value for him or herself or others that is not clearly within what is permitted in these
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
Standards of Business Practices or that he/she believes is an attempt to improperly
influence them in the performance of their duties.
No individual representing the Company or member of his/her immediate family may
extend a gift to any existing or prospective customers or suppliers that would be
unacceptable for such individual or family member to receive from the customer or supplier
under this policy.
Material Management of Financial Interests
No director, officer, or employee shall make or approve any loan by the Company or any
purchase by the Company or exercise any discretionary authority whatsoever with respect
to any other transaction or course of dealing between the Company and any entity in which
he or she or his/her relatives have a significant management or financial interest. A relative
is defined as a spouse, parent, minor or adult child, or sibling by blood, marriage, or
adoption. In all such situations the director, officer, or employee must report the interest
to his/her superior and must either disqualify him or herself from any participation in the
decision to be made, or, in the alternative, relinquish the interest. A material financial
interest is defined as a 10% or greater ownership interest in a business.
In order to help avoid potential conflicts of interest, all officers and employees are required
to seek prior approval from the CEO prior to assuming any management position or
acquiring any material financial interest in an entity other than the Company.
Outside Activities
Fiduciary and Other Appointments
No officer or employee shall act solely or in conjunction with anyone else in a fiduciary
capacity, including as the executor of an estate, except (1) for a relative, or (2) with the
consent of the CEO. Employees shall not accept an appointment from or for the benefit of
a customer (other than a relative) under a power of attorney, or as trustee where a customer
is the grantor or a beneficiary, or manage or participate or influence the management all or
any part of a customer’s business affairs or assets (including but not limited to the
acquisition or disposition thereof, except in exercising the Company’s interest therein as
lender). No officer or employee shall serve as the Treasurer, or any other position in which
he or she is entrusted with handling the funds of an outside organization, without prior
written approval from the CEO. Such approval shall be maintained in the officer’s or
employee’s employment file.
In all instances where an officer or employee has knowledge that he or she has been named
in a fiduciary capacity, solely or in conjunction with someone else, or that he or she has
been named as a beneficiary under the will of anyone other than a relative, he or she should
report such fact promptly to the Company’s CEO.
Organizational Directorships and Trusteeships
The Company recognizes the value to itself, the individual, and to outside organizations
(particularly to civic, charitable or tax exempt organizations), of having the Company’s
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
directors, officers, and employees serve as directors or trustees of outside organizations
and has no absolute policy prohibiting such outside trusteeships or directorships where the
circumstances are appropriate, no real or apparent conflict of interest is involved and
the position does not interfere with an employee or officer’s fulfillment of his
responsibilities. However, with respect to officers and employees, all new outside
directorships and trusteeships and any resulting compensation shall be approved in writing
by the CEO prior to acceptance. Such approval shall be maintained in the officer’s or
employee’s employment file.
Outside Employment or Business Activity
In no instance shall an officer or employee be employed by, or engage in, any business
whose products or services compete directly or indirectly with the Company. No outside
employment or business may interfere, to any extent, with the officer or employee’s ability
to devote his full time to the business of the Company. Officers and employees may not
utilize confidential Company information or trade on their position with the Company in
seeking or carrying on any outside employment or business activity. Outside employment
or business activity must be reported to and approved by the CEO prior to acceptance.
Such documentation shall be maintained in the officer’s or employee’s employment file.
Community Involvement
The Company encourages its officers and employees to participate in civic and charitable
activities. Any activities, or assignments within such activities, that are likely to encroach
on working time, interfere with regular duties, adversely affect the quality of work
performed, involve significant use of the Company’s equipment, supplies, or facilities,
imply sponsorship or support of the Company on behalf of the organization, or potentially
adversely affect the reputation of the Company, must be approved by the CEO prior to
acceptance. Such approval shall be maintained in the officer’s or employee’s employment
file.
Political Activity
The Company encourages it officers and employees to exercise, as individuals, the
prerogatives of good citizenship and to participate, as individuals, directly or indirectly in
all elective processes at every level of government. Officers and employees who engage
in political activities do so as individuals and not as representatives of the Company. The
endorsement of any candidate, party, or cause by an officer or employee or such officer or
employee’s participation in any political or governmental office or campaign must clearly
be on an individual basis with no actual or implied imputation of endorsement by the
Company or other connection to the Company. Under no circumstance shall an officer or
employee capitalize on his or her association with the Company for political purposes or
use the Company name or letterhead in connection with a political campaign.
Written approval must be obtained from the CEO prior to acceptance of any nomination or
appointment to public office, including local governmental units such as planning
commissions; such approval shall be maintained in the officer’s or employee’s
employment file.
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
Personal Finance
Just as the Company’s reputation rests in part on the intelligent management of its
customers’ funds, so are its employees, officers, and directors expected to manage their
personal finances in an intelligent, prudent, and honest manner. Financial activities that
pose excessive monetary or credit risk or that might otherwise reflect adversely on the
Company should be avoided.
Investments
Subject to the other provisions of this Statement, employees, and officers are permitted to
make personal investments in corporate stocks, bonds, real estate, money market
instruments, or other securities, including those issued by the Company. However, such
investments should not be permitted to influence an officer’s or employee’s actions in
conducting Company business.
Securities of Customers and Suppliers
Employees should not invest in securities, enterprises, or other activities of customers and
suppliers that are not available to or on terms more favorable than are available to the public
without the prior written approval of the CEO. Such approval shall be maintained in the
officer’s or employee’s employment file. No officer or employee or relative shall use
confidential information not available to the general public learned as a result of his or her
association with the Company to purchase or sell or influence others to purchase or sell the
investment securities of any customer or supplier.
Purchases and Sales of Securities
No director, officer, or employee, or a member of their immediate family, shall make use
of any information which comes to his or her attention as a result of his or her position with
the Company to purchase stock in any company, including Company stock, or in advising
others to buy or sell such stock, until such information has been made available to the
general public. Any director, officer, or employee with questions regarding this policy
should seek guidance from the Company’s External Counsel.
Abuse of Blue Ridge Bank’s Accounts
All personal accounts and financial relationships with the Company shall be handled in a
responsible manner. Intentional, repeated, or excessive overdrafts or delinquencies shall
be avoided, as should any activity which resembles check kiting. No corporate accounts
shall be used for any personal purposes. All business expenses shall be handled in
accordance with the Company’s written policies.
Borrowing
Employees should not borrow from or lend personal funds to other employees, customers,
or suppliers. Employees may borrow from the Company according to established policies
and procedures, or from any other banks or companies normally engaged in the business
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
of lending, on terms offered to other customers under similar circumstances and without
special concessions.
Sale of Purchase of Securities or Other Property
No director, officer, employee, members of their immediate families, their related interests,
or their agents, shall be an eligible purchaser of property acquired by the Company through
repossession, except at a public sale.
Business Conduct
Compliance With Laws
The Company intends in the conduct of its business to obey all applicable laws and comply
with relevant regulations. Where the requirements of such laws or regulations are unclear,
the advice of the CEO or Company’s External Counsel should be sought.
Non-Discrimination
The Company is firmly committed to nondiscrimination and equal opportunity. All
employees and applicants for employment, and existing and prospective customers and
suppliers, shall be treated without discrimination and harassment on the basis of race, color,
religion, creed, gender, national origin, age, veteran’s status, or disability.
Improper Payments
The use of the Company’s funds for any unlawful purposes or in violation of stated policies
is prohibited. No bribes, kickbacks, or similar remuneration or consideration of any kind
are to be given or offered to any individual, organization, government, political party, or
other entity or representative thereof, for any reason whatsoever. An employee or
representative of the Company possessing knowledge of such illegal payments, or of any
unrecorded funds or false entries maintained for the purpose of facilitating such payments,
must immediately notify the CEO or Chief Financial Officer or follow such other reporting
procedure as the Board of Directors may establish.
Fair Competition
In conducting its business, the Company engages in fair and ethical competition. It is the
strict policy of the Company that all officers and employees comply with the letter of
antitrust laws in the conduct of their duties and business activities. The Company
repudiates all illegal practices in conducting its business.
Bank Property
Employees may not use Company supplies, equipment or property for their own personal
purposes without the prior written approval of their immediate supervisor. In addition,
Company equipment may not be removed from the workplace without prior authorization
from the appropriate Senior Manager.
Lobbying
BLUE RIDGE BANKSHARES, INC/BLUE RIDGE BANK, N.A.
CODE OF ETHICS and CONFLICT OF INTEREST POLICY
Exhibit 14.1
Because of the complexity of the laws dealing with lobbying, all planned contacts with
members of the state and federal legislatures on matters relating to the Company or to
banking must have the prior approval of the CEO or the Company or his designee.
Violations of Policy
Any violation of this policy may carry consequences enacted by the Company, including,
but not limited to, a reprimand, suspension (with or without pay), or immediate termination.
Policy Acknowledgement
I acknowledge that I have received a copy and will adhere to the Company’s Code of Ethics
and Conflicts of Interest Policy.
______________________________
Printed Name
Date
______________________________
______________________________
Signature
Subsidiaries of Blue Ridge Bankshares, Inc.
Subsidiary
Blue Ridge Bank, National Association
BRB Financial Group, Inc.
Exhibit 21.1
Jurisdiction of
Incorporation or Organization
United States of America
Virginia
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements (Nos. 333-249438 and 333-248227) on
Form S-8 of Blue Ridge Bankshares, Inc. of our report dated March 11, 2022, relating to the consolidated financial
statements of Blue Ridge Bankshares, Inc. and Subsidiaries, appearing in this Annual Report on Form 10-K of Blue
Ridge Bankshares, Inc. for the year ended December 31, 2021.
/s/ Elliott Davis, PLLC
Raleigh, North Carolina
March 11, 2022
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, Brian K. Plum, certify that:
1. I have reviewed this annual report on Form 10-K of Blue Ridge Bankshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) evaluated the effectiveness of the registrant‘s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant‘s internal control over financial reporting
that occurred during the registrant‘s most recent fiscal quarter (the registrant‘s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant‘s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
significant role in the registrant’s internal control over financial reporting.
(b) any fraud, whether or not material, that involves management or other employees who have a
/s/ Brian K. Plum
Brian K. Plum
President and Chief Executive Officer
Date: March 11, 2022
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification
I, Judy C. Gavant, certify that:
1. I have reviewed this annual report on Form 10-K of Blue Ridge Bankshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) evaluated the effectiveness of the registrant‘s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant‘s internal control over financial reporting
that occurred during the registrant‘s most recent fiscal quarter (the registrant‘s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant‘s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
significant role in the registrant’s internal control over financial reporting.
(b) any fraud, whether or not material, that involves management or other employees who have a
/s/ Judy C. Gavant
Judy C. Gavant
Executive Vice President and Chief Financial Officer
Date: March 11, 2022
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Blue Ridge Bankshares, Inc. (the “Company”) on Form 10-K for the
year ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify,
pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that based on their
knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company as of and for the periods covered in the Report.
/s/ Brian K. Plum
Brian K. Plum
President and Chief Executive Officer
/s/ Judy C. Gavant
Judy C. Gavant
Executive Vice President and Chief Financial Officer
Date: March 11, 2022