BLUE RIDGE BANKSHARES INC

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Organization and Basis of Presentation

Blue Ridge Bankshares, Inc. (the “Company”) 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 accompanying unaudited consolidated financial statements of the Company include the accounts of the Bank and the Financial Group and were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. All significant intercompany balances and transactions have been eliminated in consolidation. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as amended (the “2023 Form 10-K”).

The Company's significant accounting policies are disclosed in Note 2 of the audited financial statements and notes for the year ended December 31, 2023 and are contained in the 2023 Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2023.

Restatement

On October 31, 2023, the Company and the Audit Committee of its board of directors, after consultation with the Company’s independent registered public accounting firm and the Office of the Comptroller of the Currency (“OCC”), the Bank's primary federal banking regulator, determined that certain specialty finance loans that, as previously disclosed, were placed on nonaccrual, reserved for, or charged off in the interim periods ended March 31, 2023 and June 30, 2023 should have been reported as nonaccrual, reserved for, or charged off in earlier periods. On November 14, 2023, the Company filed amendments to its Annual Report on Form 10-K for the year ended December 31, 2022 and its Quarterly Reports on Form 10-Q for the periods ended March 31, 2023 and June 30, 2023 to restate the consolidated financial statements included therein.

The Company does not believe that the restatements reflect any significant financial impact on the Company's financial condition as of March 31, 2024, or any trends in the Company's business or its prospects. The consolidated financial statements included in this Quarterly Report on Form 10-Q reflect the effects of the aforementioned restatement as of and for the quarterly period ended March 31, 2023.

Regulatory Matters

On January 24, 2024, the Bank consented to the issuance of a consent order (the “Consent Order”) with the OCC. The Consent Order generally incorporates the provisions of the formal written agreement (the "Written Agreement") entered into between the Bank and the OCC on August 29, 2022, as well as adding new provisions. The Written Agreement principally concerned the Bank’s fintech operations and required the Bank to continue enhancing its controls for assessing and managing the third-party, Bank Secrecy Act/Anti-Money Laundering, and information technology risks stemming from its fintech partnerships. The Consent Order adds time frames by which certain of the directives are required, requires the Bank to submit a strategic plan and a capital plan, and places further restrictions on the Company’s fintech operations. The Consent Order also requires the Bank to maintain a leverage ratio of 10.0% and a total capital ratio of 13.0%, referred to as minimum capital ratios. Complete copies of the Written Agreement and the Consent Order are included as Exhibits 10.14 and 10.15, respectively, to the 2023 Form 10-K.

Private Placement

On April 3, 2024, the Company closed and funded a private placement of securities pursuant to an amended and restated securities purchase agreement, dated April 3, 2024, with certain investors for gross proceeds of $150.0 million (the "Private Placement"). In the Private Placement, the Company issued and sold 3.4 million shares of common stock at a purchase price of $2.50 per common share,14,150 shares of convertible Series B or Series C preferred stock at a purchase price of $10 thousand per preferred share, and 7,383 warrants to purchase convertible Series B or Series C preferred stock at an exercise price of $10 thousand per preferred share. Each share of convertible Series B and Series C preferred stock represents the equivalent of 4,000 sharesof common stock. The Private Placement amends and replaces thepreviously announced private placement of the Company's common stock and warrants that was announced on December 22, 2023.

The Company will use the net proceeds from the Private Placement to reposition business lines, support organic growth, and enhance capital levels of the Bank.

Recent Accounting Pronouncements (Issued But Not Adopted)

Improvements to Reportable Segment Disclosures. In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2023-07–Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods certain disclosures that are currently required annually. Additionally, the ASU requires a public entity to disclose the title and position of the Chief Operating Decision Maker ("CODM"), as well as the metric that the CODM uses to gauge segment performance. The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. This ASU requires retrospective application to all prior periods presented in the financial statements. The adoption of this ASU will only impact disclosures, with no impacts to results of operations, cash flows, and financial condition.

Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU No. 2023-09–Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The ASU requires prospective application by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or alternately applying the amendments retrospectively by providing the revised disclosures for all period presented. The Company does not expect the adoption of this ASU to have a material effect on its consolidated financial statements.

Note 2 – Investment Securities and Other Investments

Investment securities classified as available for sale ("AFS") are carried at fair value in the consolidated balance sheets. The following tables present amortized cost, fair values, and gross unrealized gains and losses of investment securities AFS as of the dates stated.

As of March 31, 2024 and December 31, 2023, securities with a fair value of $213.2 million and $35.9 million, respectively, were pledged to secure the Bank’s line of credit with the Federal Home Loan Bank of Atlanta ("FHLB").

As of March 31, 2024, the Company pledged securities with $69.0 million of par value (amortized cost and fair value of $69.7 million and $56.1 million, respectively) as collateral for the Bank Term Funding Program (“BTFP”) established by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

The following table presents the amortized cost and fair value of securities AFS by contractual maturity as of the date stated. Expected maturities may differ from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables present a summary of unrealized losses and the length of time securities have been in a continuous loss position, by security type and number of securities, as of the dates stated.

The Company evaluates the fair value and credit quality of its securities AFS portfolio no less than quarterly. At March 31, 2024 and December 31, 2023, the majority of securities in an unrealized loss position were of investment grade; however, a portion of the portfolio does not have a third-party investment grade available. These ungraded securities were primarily subordinated debt instruments issued by bank holding companies and are classified as corporate bonds in the tables above. The Company evaluated the issuers of these individually, observing that each issuer had strong capital ratios and profitability thereby indicating limited exposure to asset quality or liquidity issues, which resulted in no identifiable credit losses. Investment securities with unrealized losses are generally pricing changes due to changes in the interest rate environment since purchase and not as a result of permanent credit impairment. Contractual cash flows for mortgage backed securities and U.S. Treasury and agencies 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. As of March 31, 2024 and December 31, 2023, there was no allowance for credit losses (“ACL”) against the Company's securities AFS portfolio.

Restricted equity investments consisted of stock in the FHLB (carrying value of $15.6 million and $12.3 million as of March 31, 2024 and December 31, 2023, respectively), stock in the Federal Reserve Bank of Richmond ("FRB")

(carrying value of $6.0 million and $5.9 million at March 31, 2024 and December 31, 2023, respectively), and stock in the Bank’s correspondent bank (carrying value of$468 thousand at both March 31, 2024 and December 31, 2023). Restricted equity investments are carried at cost.

The Company also has various other equity investments, including an investment in a fintech company and other limited partnership investments, totaling $12.9 million as of both March 31, 2024 and December 31, 2023, which are carried at fair value with any gain or loss reported in the consolidated statements of operations each reporting period.

The Company also holds investments in early-stage focused investment funds, small business investment companies ("SBIC"), and low-income housing partnerships, which totaled $26.6 million and $29.5 million as of March 31, 2024 and December 31, 2023, respectively, and are reported in other investments on the consolidated balance sheets. These investments do not have readily-determinable fair values, are generally reported at amortized cost, and are periodically evaluated for potential impairment.

Note 3 – Loans and ACL

The following table presents the amortized cost of loans held for investment as of the dates stated.

The Company has pledged certain commercial and residential mortgages as collateral for borrowings with the FHLB. Loans totaling $815.2 million and $767.1 million were pledged as of March 31, 2024 and December 31, 2023, respectively. The Company has pledged certain commercial and industrial loans totaling $101.8 million and $161.0 million as collateral for borrowings with the FRB Discount Window as of March 31, 2024 and December 31, 2023, respectively. The decline in availability at the FRB Discount Window during the first quarter of 2024 was primarily due to changes in eligibility of certain collateral.

The following tables present the aging of the amortized cost of loans held for investment by loan category as of the dates stated.

The following tables present the amortized cost of nonaccrual loans held for investment with and without an ACL by loan category as of the dates stated.

The Company recognized $65 thousand and $89 thousand of interest income on nonaccrual loans during thethree months ended March 31, 2024 and March 31, 2023, respectively.

The following table presents accrued interest receivable by loan type reversed from interest income associated with loans held for investment that were placed on nonaccrual status for the periods stated.

Credit Quality Indicators

The Company segments loans held for investment into risk categories based on relevant information about the expected ability of borrowers to repay debt, such as current financial information, historical payment performance, experience, collateral adequacy, credit documentation, and current economic trends, among other factors. Management assigns loan risk grades by a numerical system as an indication of credit quality of its portfolio of loans held for investment. The Company uses the following definitions for loan risk ratings and periodically evaluates the appropriateness of these ratings across its loan portfolio. Independent third-party loan reviews are periodically performed on the Company's loan portfolio and such reviews are used to validate management's determination of loan risk grades. Bank regulatory agencies also periodically review the Company's loan portfolio, including loan risk grades and may change a grade based on their judgment of the facts at the time of review.

Risk Grade 1 – Strong: This grade is reserved for loans to the strongest of borrowers. These loans are to individuals or businesses where the probability of default is extremely low to the Bank and are secured with collateral where the loss given default is unlikely because of the source of repayment such as a lien on a deposit account held at the Bank. Character, credit history, and ability of individuals or company principals are excellent. High liquidity, minimum risk, strong ratios, and low servicing cost are present.

Risk Grade 2 – Minimal: This grade is reserved for loans to borrowers who are deemed exceptionally strong. These loans are within established guidelines and where the borrowers have documented significant overall financial strength with consistent and predictable cash flows. These loans have excellent sources of repayment, significant balance sheet liquidity, no significant identifiable risk of collection, and conform in all respects to policy, underwriting standards, and federal and state regulations (no exceptions of any kind). In addition, guarantor support, when provided, is viewed as excellent.

Risk Grade 3 – Acceptable: This grade is reserved for loans to borrowers who are deemed strong. These loans have adequate sources of repayment, with minimal 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. In addition, guarantor support, when provided, is viewed as strong.

Risk Grade 4 – Satisfactory: This grade is given to satisfactory loans containing more, but deemed acceptable, risk and where the borrower is assessed as sound. These loans have adequate sources of repayment, with minimal 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. In addition, guarantor support, when provided, is viewed as satisfactory.

Risk Grade 5 – Watch: This grade is for satisfactory loans containing acceptable but elevated risk. These loans are characterized by borrowers who exhibit signs of financial distress or experience unstable or unfavorable change(s) adversely impacting their current or expected financial condition. The borrower's management is deemed to be satisfactory, the collateral securing the loan may have decreased in value, the debt service coverage ratio is inconsistent or breakeven but mostly positive, and/or guarantor support, if any, is limited or marginal. 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 do not conform to underwriting guidelines and/or exceptions without mitigating factors, or have emerging weaknesses that may or may not be cured with the passage of time.

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. The probability of default is likely and may have occurred. 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) current or expected unprofitable operations, (2) inadequate debt service coverage, (3) declining or inadequate liquidity, (4) improper loan structure, (5) questionable or weak repayment sources, and (6) lack of well-defined secondary repayment source. There is a distinct possibility of loss and the Bank will sustain some loss if the deficiencies are not corrected.

Risk Grade 8 – Doubtful: Loans classified doubtful have all the weaknesses inherent in loans classified substandard, with 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 is 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 credit losses.

Risk Grade 9 – Loss: Loans classified loss are considered uncollectible and of such little value that 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 deemed uncollectible are charged off promptly against the allowance for credit losses.

The following table presents the amortized cost of loans held for investment by internal loan risk grade by year of origination as of March 31, 2024. Also presented are current period gross charge-offs by loan type for the three months ended March 31, 2024.

Of the $32.3 million of commercial and industrial loans classified as doubtful (risk grade 8) as of March 31, 2024, $29.8 million was attributable to a specialty finance loan with a specific reserve, a component of the ACL, of $9.6 million as of the same date. There were no loans classified as loss (risk grade 9) as of March 31, 2024.

The following table presents the amortized cost of loans held for investment by internal loan risk grade by year of origination as of December 31, 2023.

The following tables present an analysis of the change in the ACL by major loan segment for the periods stated. Loan segments are presented as either commercial or consumer as follows:

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Commercial – commercial and industrial; real estate – construction, commercial; real estate – commercial; and real estate – farmland; and

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Consumer – real estate – construction, residential; real estate – residential; and consumer.

There were no material changes to the assumptions, loss factors (both quantitative and qualitative), or reasonable and supportable forecasts used in the estimation of the ACL and the provision for credit losses for loans held for investment as of and for the three months ended March 31, 2024.

Excluded from the ACL as of March 31, 2024 and December 31, 2023 was $12.9 million and $13.2 million of accrued interest attributable to loans held for investment, respectively, which is included in accrued interest receivable on the consolidated balance sheet.

The following table presents the amortized cost of collateral-dependent loans as of the dates stated.

Acquired Loans

As of both March 31, 2024 and December 31, 2023, the amortized cost of purchased credit deteriorated ("PCD") loans totaled $51.0 million, with estimated ACL of $522 thousand and $529 thousand, respectively. The remaining non-credit discount on PCD loans was $3.7 million and $3.8 million as of March 31, 2024 and December 31, 2023, respectively.

Modified Loans

The Company closely monitors the performance of borrowers experiencing financial difficulty that have been granted certain loan modifications it would otherwise not consider.

The following table presents information on loans modified in the last 12 months from the date stated.

The following table presents an aging analysis of the recorded investment of loans modified as of the date stated.

During the three months ended March 31, 2024, no loans modified on behalf of borrowers experiencing financial difficulty had a payment default.

Nine residential mortgage loans with a total recorded investment of $1.3 million were in the process of foreclosure as of March 31, 2024.

Note 4 – Borrowings

FHLB Borrowings

The Bank has a line of credit from the FHLB secured by pledged qualifying real estate loans and securities. At March 31, 2024 and December 31, 2023, based on pledged collateral, the line totaled $656.5 million and $455.6 million, respectively. 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 totaling $280.0 million and $210.0 million at March 31, 2024 and December 31, 2023, respectively. FHLB borrowings required the Bank to hold $15.6 million and $12.3 million of FHLB stock at March 31, 2024 and December 31, 2023, respectively, which is included in restricted equity investments on the consolidated balance sheets.

At March 31, 2024 and December 31, 2023, the Bank also had letters of credit outstanding with the FHLB in the amount of $111.2 million and $110.1 million, respectively, of which $110.0 million was for the purpose of collateral for public deposits with the Treasury Board of the Commonwealth of Virginia as of the same dates. Outstanding letters of credit reduce the available balance of the borrowing facility with the FHLB, which was $265.4 million and $135.5 million as of March 31, 2024 and December 31, 2023, respectively.

The following tables present information regarding FHLB advances outstanding as of the dates stated.

FRB Borrowings

The Company may obtain advances from the FRB through the FRB Discount Window. The Company had secured capacity through the FRB Discount Window of $101.8 million and $161.0 million, of which the Company hadno outstanding advances as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, the Company had secured capacity under the BTFP of $69.0 million, of which the Company had drawn one advance for $65.0 million, maturing May 10, 2024, with a fixed interest rate of 4.74%. BTFP advances can be repaid at any time without penalty. On January 24, 2024, the Federal Reserve announced that the BTFP program would cease making new loans effective March 11, 2024.

Other Borrowings

The Company had an unsecured line of credit with a correspondent bank of $10.0 million as of both March 31, 2024 and December 31, 2023. This line bears interest at the prevailing rates for such loans and is cancelable any time by the correspondent bank. As of both March 31, 2024 and December 31, 2023, this line of credit was undrawn.

The Company had$39.8 million and $39.9 million of subordinated notes, net, outstanding as of March 31, 2024 and December 31, 2023, respectively. The Company's subordinated notes are comprised of an issuance in October 2019 maturing October 15, 2029 (the “2029 Notes”) and an issuance in May 2020 maturing June 1, 2030 (the “2030 Note”). As of March 31, 2024, the net carrying amount of the 2029 Notes was $25.1 million, inclusive of a $553 thousand purchase accounting adjustment (premium). For the three months ended March 31, 2024 and 2023, the effective interest rate on the 2029 Notes was 5.22% and 5.09%, respectively, inclusive of the amortization of the purchase accounting adjustment (premium). As of March 31, 2024, the netcarrying amount of the 2030 Note, including capitalized, unamortized debt issuance costs, was $14.8 million. For thethree months ended March 31, 2024 and 2023, the effective interest rate on the 2030 Note was 6.09% and 6.10%, respectively.

Note 5 – Leases

The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and such extensions are included in the calculation of the lease liabilities to theextent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about the Company’s leases as of the dates and for the periods stated.

The following table presents a maturity analysis ofoperating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities as of the date stated.

Note 6 – 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.

The three levels of input that may be used to measure fair value are as follows:

The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates stated.

The following table presents the change in corporate bonds and mortgage backed securities using Level 3 inputs for the periods stated.

As of March 31, 2024, two corporate bonds and one mortgage backed security totaling $750 thousand and $2.0 million, respectively, were reported at their respective amortized cost basis and as Level 3 assets in the fair value hierarchy, as there were no observable market prices for similar investments.

The following table presents the change in mortgage servicing right ("MSR") assets as of the dates and for the periods stated.

The following tables summarize assets that were measured at fair value on a nonrecurring basis as of the dates stated.

The following tables present quantitative information about Level 3 fair value measurements of assets measured on a nonrecurring basis as of the dates stated.

The following tables present the estimated fair values, related carrying amounts, and valuation level of the financial instruments as of the dates stated.

Note 7 – 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 institution's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Pursuant to the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (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, exceptthe 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. 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.

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 undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

In addition to the foregoing capital requirements, the Bank is subject to minimum capital ratios that are higher than those required for capital adequacy purposes, as set forth in the Consent Order. The Bank is required tomaintain a leverage ratio of 10.00% and a total capital ratio of 13.00%. As of March 31, 2024 and December 31, 2023, the Bank did not meet these minimum capital requirements. Until such levels are met and maintained and the Consent Order has been lifted, the Bank is deemed to be less than well capitalized, thus adequately capitalized.

The Company adopted Accounting Standards Codification (“ASC”) 326, Financial Instruments - Credit Losses (referred herein as “current expected credit losses” or “CECL”) effective January 1, 2023. Federal and state banking regulations allow financial institutions to irrevocably elect to phase-in the after-tax cumulative effect adjustment at adoption to retained earnings (“CECL Transitional Amount”) over a three-year period. The three-year phase-in of the CECL Transitional Amount to regulatory capital is 25%,50%, and 25% in 2023, 2024, and 2025, respectively. The Bank made this irrevocable election effective with its first quarter 2023 call report.

The following tables present the capital ratios to which banks are subject to be adequately and well capitalized, as well as capital for the Bank to meet these capital ratio levels, as of the dates stated. Adequately capitalized ratios include the conversation buffer, if applicable. Also presented are the minimum capital ratios set forth in the Consent Order for the Bank, and the related capital amounts for both the leverage ratio and the total capital ratio. The CECL Transitional Amount was $8.1 million, of which $4.1 million and $2.0 million reduced the regulatory capital amounts and capital ratios as of March 31, 2024 and December 31, 2023, respectively.

Note 8 – 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 March 31, 2024 and December 31, 2023, the Company had outstanding loan commitments of $408.5 million and $480.8 million, respectively. Of these amounts, $110.4 million and $113.5 million were unconditionally cancelable at the sole discretion of the Company as of the same respective dates.

Conditional commitments are issued by the Company in the form of financial stand-by letters of credit, which guarantee payment to the underlying beneficiary (i.e., third party) if the customer fails to meet its designated financial obligation. As of March 31, 2024 and December 31, 2023, commitments under outstanding financial stand-by letters of credit totaled $11.6 million and $12.6 million, respectively. The credit risk of issuing stand-by letters of credit can be greater than the risk involved in extending loans to customers.

For the three months ended March 31, 2024 and March 31, 2023, the Company recorded a recovery of provision for credit losses for unfunded commitments of $1.0 million and $400 thousand, respectively, which was primarily attributable to lower balances of loan commitments. As of March 31, 2024, the reserve for unfunded commitments was $2.1 million compared to $3.1 million as of December 31, 2023.

The Company invests in various partnerships, limited liability companies, and SBIC funds. Pursuant to these investments, the Company commits to an investment amount to be fulfilled in future periods. At March 31, 2024, the Company had future commitments outstanding totaling $13.4 million related to these investments.

Note 9 – Earnings Per Share

The following table shows the calculation of basic and diluted earnings per share ("EPS") and the weighted average numberof shares outstanding used in computing EPS and the effect on the weighted average number of shares outstanding 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 and performance-based restricted stock awards (“PSAs”). For the three months ended March 31, 2023, stock options and PSAs for 1,643 shares of the Company’s common stock, respectively, were considered anti-dilutive and excluded from the computation of diluted EPS.

Note 10– Business Segments

The Company hasthree 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 and wholesale mortgage lending and sales activities. Activities at the holding company (or parent level) are primarily associated with investments, borrowings, and certain noninterest expenses.

The following tables present statement of operations items and assets by segment as of the dates and for the periods stated.

Note 11 – Changes to Accumulated Other Comprehensive Income (Loss), net

The following tables present components of accumulated other comprehensive income (loss) for the periods stated.

Note 12 – Legal Matters

In December 2023, a purported shareholder of the Company commenced a putative class action in the U.S. District for the Eastern District of New York (No. 1:23-cv-08944) Hunter v. Blue Ridge Bankshares, Inc., et al). The complaint alleges violations of federal securities laws against the Company and certain of its current and former officers based on alleged material misstatements and omissions in the Company’s filings. The complaint seeks certification of a class action, unspecified damages, and attorneys fees. The putative class plaintiff intends to file an amended complaint after the court appoints lead plaintiff and lead counsel. The Company believes the claims are without merit and no loss has been accrued for this lawsuit as of March 31, 2024.

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, its subsidiary, 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.

During the fourth quarter of 2023, the Company entered into a settlement agreement with the plaintiff to resolve the VCB ESOP litigation (the "Settlement Agreement"). As provided in the Settlement Agreement, the plaintiff has agreed to release the Company, the Bank, and related parties from all claims related to acts or omissions associated with the VCB ESOP, once the court hearing the case has granted final approval of the Settlement Agreement. Pursuant to the Settlement Agreement, the Company has agreed to make a settlement payment of $6.0 million to a fund for the benefit of VCB ESOP participants, with $5.95 million due after final approval of the Settlement Agreement by the court. On February 22, 2024, the court granted preliminary approval of the Settlement Agreement and a final hearing is scheduled in early June 2024, at which it is expected that the court will grant final approval of the Settlement Agreement. If the court grants final approval of the Settlement Agreement, the ongoing lawsuit will be dismissed with prejudice, and all similar claims that were or could have been brought relating to the VCB ESOP will be released and barred.

The Company entered into the Settlement Agreement to eliminate the burden and expense of further litigation and to resolve the claims that were or could have been asserted related to the VCB ESOP. The Company accrued $6.0 million in the third quarter of 2023 in anticipation of this proposed settlement.

Note 13 – Subsequent Events

On April 3, 2024, the Company closed and funded the Private Placement for $150.0 million of gross proceeds; therefore, the Bank's capital and capital ratios as of March 31, 2024 do not reflect the effect of the Private Placement.

The following table presents the capital and capital ratios of the Bank on a pro forma basis as of March 31, 2024, assuming the Private Placement had closed, funded, and the Company had immediately contributed $100.0 million as tier 1 regulatory capital to the Bank on the same date. The pro forma capital ratios below exceed the minimum capital ratios set forth in the Consent Order. See also Note 7 - Minimum Regulatory Capital Requirements.

Subsequent to March 31, 2024, the Company received cash loan payments totaling $1.5 million from a specialty finance borrower. These cash payments were applied to the book principal balance of the loan, which was $29.8 million as of March 31, 2024.