BLUE RIDGE BANKSHARES INC
For the period ended Jun 30, 2024. Filed Aug 6, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 6, 2024
BRBS$3.990.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-08.
0000950170-24-055532
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0000950170-24-091820
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 116 previous paragraphs and 126 current paragraphs.
60 unchanged; 46 reworded; 16 added; 9 removed; 1 previous and 4 current paragraphs rearranged.
Tables are not compared: 15 previous and 19 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
Private Placements
Current report
On April 3, 2024 and June 13, 2024, the Company closed private placements in which it issued and sold shares of its common and preferred stock for gross proceeds of $150.0 million and $11.6 million, respectively (collectively, the "Private Placements"). At a special meeting of shareholders held June 20, 2024, the Company’s shareholders approved the conversion of the preferred shares issued in the Private Placements into shares of the Company’s common stock. On June 28, 2024, all outstanding shares of the Company’s Mandatorily Convertible Cumulative Perpetual Preferred Stock, Series B (the "Series B Common Stock") were automatically converted into shares of the Company’s common stock. The outstanding shares of the Company’s Mandatorily Convertible Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”), remained outstanding at June 30, 2024. Subsequent to June 30, 2024, the holder of Series C Preferred Stock received regulatory non-objection to exchange the Series C Preferred Stock for common stock as stipulated in the Private Placements. The Company expects the exchange for shares of the Company's common stock will be completed during the third quarter of 2024. Capital proceeds received, net of issuance costs, from the Private Placements totaled $152.5 million.
Current report
The Private Placements also included the issuance of warrants for 6,549 shares of Series B Preferred Stock and warrants for 1,411 shares of Series C Preferred Stock. Each warrant can be exercised to purchase shares at a price of $10 thousand per share. On June 28, 2024, the warrants for preferred stock converted to warrants for common stock, except the Series C Preferred Stock warrants for the reasons noted above relating to the Series C Preferred Stock. The conversion rate on the warrants from preferred stock to common stock was 4,000 shares of common per preferred share. The warrants have 5-year terms and expire April 3, 2029. Holders of the warrants may exercise them in whole or in part and may utilize an option for cashless exercise for a net number of shares.
Current report
The Company intends to use the capital from the Private Placements to propel its near-term strategic initiatives, which include repositioning business lines, supporting organic growth, and further enhancing the Bank’s capital levels, including compliance with the minimum capital ratios set forth in the Bank’s Consent Order with the OCC, which requires the Bank to maintain a tier 1 leverage ratio of 10.0% and a total risk-based capital ratio of 13.0%. As of June 30, 2024, the Bank’s capital ratios exceeded these minimum capital ratios.
Current report
Total stockholders’ equity increased by $139.6 million to $325.6 million as of June 30, 2024 compared to $186.0 million at December 31, 2023, primarily due to the closing of the Private Placements in the second quarter of 2024.
Current report
Average interest-bearing liabilities were $2.32 billion for the six months ended June 30, 2024 compared to $2.26 billion for the same period of 2023, a $61.2 million increase. Interest expense increased by $8.5 million to $42.7 million for the six months ended June 30, 2024 compared to the same period of 2023. Cost of interest-bearing liabilities increased to 3.68% for the second half of 2024 from 3.03% for the second half of 2023, while cost of funds were 3.02% and 2.30% for the same respective periods. Higher cost of funds in the 2024 period was primarily due to higher market interest rates and a shift in the mix of average interest-bearing liabilities, partially to higher cost wholesale funding sources. Interest expense in the first halves of 2024 and 2023 included the amortization of fair value adjustments (premium) on assumed time deposits of $178 thousand and $506 thousand, respectively, which was a reduction to interest expense.
Current report
Net interest income (on a taxable equivalent basis) was $40.5 million for the six months ended June 30, 2024 compared to $49.1 million the same period in 2023. Net interest margin was 2.77% and 3.21% for the first halves of 2024 and 2023, respectively. Accretion and amortization of purchase accounting adjustments had a 6 basis point and 11 basis point positive effect on net interest margin for the same respective periods.
Current report
Noninterest income in the three and six months ended June 30, 2024 included a $8.5 million negative fair value adjustment of an equity investment the Company holds in a fintech company. Lower gain on sale of guaranteed government loans in the 2024 periods was attributable to less favorable secondary market conditions and a significant decrease in the number of lending officers on the guaranteed government production team, which aligns with the Company’s enhanced focus on lending opportunities within its core geographic market. Mortgage servicing rights ("MSR") assets had more favorable fair value adjustments in the 2024 periods, driven primarily by higher longer-term interest rate expectations.
Current report
Excluding regulatory remediation, noninterest expense decreased $3.7 million and $1.6 million for the three and six months ended June 30, 2024, respectively, compared to the same periods of 2023. Lower legal and regulatory filings expenses in the 2024 periods were the result of legal costs associated with the Virginia Community Bankshares, Inc. Employee Stock Ownership Plan litigation incurred in the 2023 periods. Lower other contractual services expenses in the 2024 period were due to the reduction in the use of third-party resources in the Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) area, as these resources were complementing internal resources in meeting the Bank’s BSA/AML requirements for the fintech BaaS operations. Higher audit and accounting fees in the first half of 2024 were primarily due to outsourced internal audits and assessments related to fintech operations. Higher Federal Deposit Insurance Corporation ("FDIC") insurance expense in the 2024 periods was primarily due to lower profitability and regulatory capital levels, which increase the insurance assessment rate. Other noninterest expense in the second quarter of 2024 also included approximately $940 thousand of excise taxes related to the surrender of bank-owned life insurance policies in the period. Regulatory remediation expenses in the second quarter of 2024 were approximately half of the amount in the first quarter of 2024, which reflect the reduction in the use of third-party resources in the BSA/AML area, as the Bank completes certain requirements under the Consent Order.
Current report
Income Tax Expense. Income tax benefit for the three months ended June 30, 2024 was $616 thousand compared to income tax benefit of $1.8 million for the same period of 2023, resulting in an effective income tax rate of 5.1% and 17.5%, respectively. Income tax benefit for the six months ended June 30, 2024 was $1.0 million compared to income tax benefit of $654 thousand for the same period in 2023, resulting in effective tax rates of 6.7% and 12.3% for the same respective periods. Lower effective income tax rates in the 2024 periods were primarily attributable to $2.0 million of provision expense recognized in the second quarter of 2024 upon surrendering bank-owned life insurance policies, representing the tax effect of the life-to-date income earned on the policies. Taxes on such earnings were previously permanently deferred but became subject to tax upon the surrender of the policies.
Current report
The following table presents the Company’s portfolio of commercial real estate loans by property type as of the dates stated.
Current report
As a result of an agreement the Company executed in the second quarter of 2024 to sell a nonperforming, specialty finance loan to a third party, the Company reclassified this loan from loans held for investment to loans held for sale in the same period at its estimated fair value and recorded a charge-off of substantially all of the reserve held on the loan, which was provisioned for in prior years. The charge-off was approximately $9.4 million and is included in the commercial charge-off lines above for both the three and six-month periods ended June 30, 2024.
Current report
The previously noted specialty finance loan's carrying value was $14.4 million and $32.8 million as of June 30, 2024 and December 31, 2023, respectively, and is included in the nonperforming loan held for sale amount in the table above. In the first half of 2024, the Company received approximately $9.0 million of cash payments which were applied to the book principal balance of this loan. Remaining payments pursuant to the loan sale agreement are to occur over a period of time, with the sale expected to consummate in the third quarter of 2024.
Current report
Nonperforming loans, which include nonaccrual loans and loans past due 90 days and still accruing interest, decreased $21.9 million from December 31, 2023 to $41.2 million as of June 30, 2024. This decline primarily reflects payments received on and a charge-off of substantially all of the reserve related to the previously noted specialty finance loan.
Current report
The Company also has various other equity investments, including an investment in a fintech company and limited partnerships, totaling $4.4 million and $12.9 million as of June 30, 2024 and December 31, 2023, respectively. The Company reports such investments at fair value if observable market transactions have occurred in similar securities, resulting in a new carrying value that is evaluated for impairment no less than quarterly. These impairment analyses may include quantitative and/or qualitative information obtained either directly from the investee, a third-party broker, or a third-party valuation firm. If a potential impairment has been identified, the carrying value of the investment would be written down to its estimated fair market value through a charge to earnings. In the second quarter of 2024, the Company identified potential impairment triggers related to its holdings, mainly due to regulatory pressures on banks partnering with fintech companies in the BaaS sector. These pressures led some fintech companies to announce cost-saving measures and at least one to seek bankruptcy protection. As a result, the Company engaged a third-party valuation firm to value the Company's investment in a fintech company. This valuation resulted in an $8.5 million impairment charge, recorded in fair value adjustments of other equity investments, to adjust the investment to its estimated fair market value as of June 30, 2024.
Current report
The change in the results of interest rate scenarios from December 31, 2023 to June 30, 2024 is partially the result of the decrease in the Bank’s fintech BaaS deposits. A significant portion of BaaS deposits bear interest rates that adjust with changes in the federal funds rate making them highly sensitive to instantaneous rate changes.
Removed paragraphs (9)
Previous report
Private Placement
Previous report
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 shares of common stock. The Private Placement amends and replaces the previously announced private placement of the Company's common stock and warrants that was announced on December 22, 2023.
Previous report
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.
Previous report
Total stockholders’ equity decreased by $5.1 million to $181.0 million as of March 31, 2024 compared to $186.0 million at December 31, 2023. The fair value of the Company’s portfolio of securities available for sale ("AFS") decreased in the first three months of 2024, primarily as a result of a modest increase in market longer-term interest rates, resulting in an after-tax decrease in stockholders’ equity of $2.6 million. The Company did not have any investment securities classified as held to maturity as of March 31, 2024 and December 31, 2023.
Previous report
Noninterest income in the first quarter of 2024 increased slightly from the first quarter of 2023. Mortgage servicing right ("MSR") assets resulted in a positive fair value adjustment compared to a negative adjustment driven by higher market interest rates for the same period in 2023. Changes in the fair value of MSR assets are due primarily to future interest rate expectations. Offsetting this increase, were lower gains on sale of guaranteed government loans in the 2024 period compared to the 2023 period, attributable to lower volumes, which were $1.5 million and $30.6 million in the same respective periods.
Previous report
Excluding regulatory remediation, noninterest expense increased $2.1 million for the three months ended March 31, 2024 compared to the same period of 2023. Higher noninterest expense for the 2024 period was primarily attributable to higher salaries and employee benefits expense, primarily headcount additions in the areas of risk and compliance to support fintech operations and leadership personnel, partially offset by lower headcount in the mortgage banking segment. Higher other contractual services expense in the 2024 period was primarily due to outsourced BSA/AML and other compliance services as the Bank has augmented its compliance staff primarily to support fintech operations. Higher audit and accounting fees in the 2024 period were primarily due to outsourced internal audits and assessments related to fintech operations. Higher Federal Deposit Insurance Corporation ("FDIC") insurance expense relative to the prior period was primarily due to balance sheet growth and other factors such as lower profitability and regulatory capital levels, which increase the insurance assessment rate. Partially offsetting these higher noninterest expenses were lower legal and regulatory filings fees as the 2023 period included legal costs associated with the Virginia Community Bankshares, Inc. Employee Stock Ownership Plan litigation.
Previous report
Income Tax Expense. Income tax benefit for the three months ended March 31, 2024 was $407 thousand compared to income tax expense of $1.2 million for the same period of 2023, resulting in an effective income tax rates of 12.3% and 22.8%, respectively. The lower effective income tax rate in the 2024 period was primarily attributable to tax-exempt income, primarily from bank owned life insurance and tax-exempt securities and loans, relative to income subject to statutory tax rates.
Previous report
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.
Previous report
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 those set forth in the Consent Order.
Reworded paragraphs (46)
Previous wording
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 unaudited consolidated financial statements and the notes thereto included in this Form 10-Q and the audited consolidated financial statements and the 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”). Results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations for the balance of 2024, or for any other period. As used in this report, the terms “the Company,” “we,” “us,” and “our” refer to Blue Ridge Bankshares, Inc. and its consolidated subsidiaries. The term “Bank” refers to Blue Ridge Bank, National Association.
Current wording
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 unaudited consolidated financial statements and the notes thereto included in this Form 10-Q and the audited consolidated financial statements and the 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”). Results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results of operations for the balance of 2024, or for any other period. As used in this report, the terms “the Company,” “we,” “us,” and “our” refer to Blue Ridge Bankshares, Inc. and its consolidated subsidiaries. The term “Bank” refers to Blue Ridge Bank, National Association.
Previous wording
the impact of, and the ability to comply with, the terms of the Consent Order with the Office of the Comptroller of the Currency ("OCC"), including the heightened capital requirements and other restrictions therein, and other regulatory directives;
Current wording
the impact of, and the ability to comply with, the terms of the Consent Order, as defined below, with the Office of the Comptroller of the Currency ("OCC"), including the heightened capital requirements and other restrictions therein, and other regulatory directives;
Previous wording
the Company’s ability to manage its fintech operations, including implementing enhanced controls and procedures, complying with the Consent Order, other regulatory directives and applicable laws and regulations, maintaining the quality of loans associated with these relationships, and, in certain cases, winding down certain of these partnerships;
Current wording
the Company’s ability to manage its fintech relationships, including implementing enhanced controls and procedures, complying with the OCC directives and applicable laws and regulations, maintaining deposit levels and the quality of loans associated with these relationships, and, in certain cases, winding down certain of these partnerships;
Previous wording
the ability to maintain adequate liquidity by growing and retaining deposits and secondary funding sources, especially if the Company's or industry's reputation become damaged;
Current wording
the ability to maintain adequate liquidity by growing and retaining deposits and secondary funding sources, especially if the Company's or its industry's reputation become damaged;
Previous wording
the ability to maintain capital levels adequate to support the Company's business and to comply with the Consent Order and other regulatory directives placed upon the Bank;
Current wording
the ability to maintain capital levels adequate to support the Company's business and to comply with OCC directives;
Previous wording
changes in technological and social media;
Current wording
technological and social media changes;
Previous wording
The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in the 2023 Form 10-K including those discussed in the section entitled "Risk Factors." 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-Q. Therefore, the Company cautions 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.
Current wording
The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in the 2023 Form 10-K and this Form 10-Q, including those discussed in the section entitled "Risk Factors" in those filings. 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-Q. Therefore, the Company cautions 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.
Previous wording
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.
Current wording
On January 24, 2024, the Bank consented to the issuance of a consent order (the “Consent Order”) with the OCC, the Bank's primary regulator. 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.
Previous wording
Total assets were $3.08 billion as of March 31, 2024, a decrease of $41.4 million from $3.12 billion as of December 31, 2023. Most of this decrease was attributable to a lower loans held for investment balances, which decreased $36.9 million to $2.39 billion as of March 31, 2024 from $2.43 million as of December 31, 2023. The Company purposely reduced assets to fund the wind down of the Bank's fintech banking-as-a-service ("BaaS") operations. The allowance for credit losses ("ACL") decreased $868 thousand to $35.0 million as of March 31, 2024 from $35.9 million as of December 31, 2023.
Current wording
Total assets were $2.93 billion as of June 30, 2024, a decrease of $184.5 million from $3.12 billion as of December 31, 2023. Most of this decrease was attributable to a decline in loans held for investment, which decreased $171.7 million to $2.26 billion as of June 30, 2024 from $2.43 billion as of December 31, 2023. The Company previously announced it would exit its fintech depository (“banking-as-a-service” or “BaaS”) operations. The Company has purposely and selectively reduced assets to meet the liquidity needs of exiting BaaS operations and expects to do so in the future as it continues to execute its plan to wind down BaaS operations. The allowance for credit losses ("ACL") declined $7.9 million to $28.0 million as of June 30, 2024 from $35.9 million as of December 31, 2023, primarily attributable to a $9.4 million charge-off of a reserve held for a specialty finance loan that was reclassified to loans held for sale, as the Bank entered into an agreement to sell the loan.
Previous wording
Total deposits as of March 31, 2024 were $2.47 billion, a net decrease of $100.3 million from December 31, 2023. The decrease in the first three months of 2024 was primarily due to a decrease of $150.0 million of interest-bearing fintech deposits, partially offset by higher time deposit balances of $64.0 million. Total deposits related to fintech relationships decreased by $162.9 million to $303.0 million as of March 31, 2024 from $465.9 million as of December 31, 2023, and represented 12.3% and 18.2% of total deposits as of the same respective dates.
Current wording
Total deposits as of June 30, 2024 were $2.33 billion, a net decrease of $240.2 million from December 31, 2023. The decrease in the first six months of 2024 was primarily due to a decrease of $245.3 million of interest-bearing fintech deposits, partially offset by higher time deposit balances of $86.9 million. Total deposits related to fintech relationships decreased by $259.2 million to $206.6 million as of June 30, 2024 from $465.9 million as of December 31, 2023, and represented 8.9% and 18.2% of total deposits as of the same respective dates. In the first half of 2024, core deposits, which exclude fintech-related and wholesale deposits, increased $69.8 million.
Previous wording
Comparison of Results of Operations for the Three Months Ended March 31, 2024 and 2023
Current wording
Comparison of Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023
Previous wording
For the three months ended March 31, 2024, the Company reported a net loss of $2.9 million, or ($0.15) per diluted common share, compared to net income of $4.0 million, or $0.21 per diluted common share, for the three months ended March 31, 2023. The net loss for the three months ended March 31, 2024 included $2.3 million of after tax costs incurred for professional services related to regulatory remediation efforts in connection with the Consent Order, compared to $876 thousand of after tax costs incurred for the same period in 2023 in connection with the Written Agreement. Net interest income for the three months ended March 31, 2024 was $20.3 million, a decline of $4.8 million from the same period in 2023, primarily due to higher funding costs, which increased 92 basis points.
Current wording
The net loss for the three and six months ended June 30, 2024 included a $6.7 million after-tax negative fair value adjustment recorded for an equity investment in a fintech company. The net loss for the three and six months ended June 30, 2024 also included $1.1 million and $3.2 million, respectively, of after tax-costs incurred for professional services related to regulatory remediation efforts in connection with the Consent Order, compared to $1.8 million and $2.7 million, respectively, of after tax-costs incurred for the same periods in 2023 in connection with the Written Agreement.
Previous wording
Net Interest Income. Net interest income is the amount by which interest earned on interest-earning assets exceeds the interest paid on interest-bearing liabilities and is the Company’s primary revenue source. Net interest income is thereby affected by overall balance sheet size, changes in interest rates, and changes in the mix of investments, loans, deposits, and borrowings. The Company’s principal interest-earning assets are loans to businesses, real estate investors, and individuals, and its investment securities portfolio. Interest-bearing liabilities consist primarily of negotiable order of withdrawal and savings accounts, money market accounts, certificates of deposit, and Federal Home Loan Bank of Atlanta (“FHLB”) advances. A common net interest income measure is net interest margin. Net interest margin represents the difference between interest income and interest expense calculated as a percentage of average interest-earning assets.
Current wording
Net Interest Income. Net interest income is the amount by which interest earned on interest-earning assets exceeds the interest paid on interest-bearing liabilities and is the Company’s primary revenue source. Net interest income is thereby affected by overall balance sheet size, changes in interest rates, and changes in the mix of investments, loans, deposits, and borrowings. The Company’s principal interest-earning assets are loans to businesses, real estate investors, and individuals, and investment securities. Interest-bearing liabilities consist primarily of negotiable order of withdrawal and savings accounts, money market accounts, certificates of deposit, and Federal Home Loan Bank of Atlanta (“FHLB”) advances. A common net interest income measure is net interest margin. Net interest margin represents the difference between interest income and interest expense calculated as a percentage of average interest-earning assets.
Previous wording
Average interest-bearing liabilities were $2.41 billion for the three months ended March 31, 2024 compared to $2.17 billion for the same period of 2023, a $242.0 million increase. Interest expense increased by $6.5 million to $22.2 million for the three months ended March 31, 2024 compared to the same period of 2023. Cost of interest-bearing liabilities increased to 3.68% for the first quarter of 2024 from 2.89% for the first quarter of 2023, while total cost of funds was 3.03% and 2.11% for the same respective periods. Higher cost of funds in the 2024 period was primarily due to higher rates on time deposits, particularly brokered time deposits the Company began issuing late in the first quarter of 2023 to increase liquidity in response to financial industry events. Interest expense in the first quarters of 2024 and 2023 included the amortization of fair value adjustments (premium) on assumed time deposits of $97 thousand and $284 thousand, respectively, which was a reduction to interest expense.
Current wording
Average interest-bearing liabilities were $2.23 billion for the three months ended June 30, 2024 compared to $2.35 billion for the same period of 2023, a $118.7 million decrease. Interest expense increased by $2.0 million to $20.5 million for the three months ended June 30, 2024 compared to the same period of 2023. Cost of interest-bearing liabilities increased to 3.69% for the second quarter of 2024 from 3.17% for the second quarter of 2023, while total cost of funds was 3.02% and 2.49% for the same respective periods. Higher cost of funds in the 2024 period was primarily due to higher rates on time deposits, particularly brokered time deposits the Company began issuing late in the first quarter of 2023 to increase liquidity in response to financial industry events and in anticipation of the wind down of fintech BaaS operations. Interest expense in the second quarters of 2024 and 2023 included the amortization of fair value adjustments (premium) on assumed time deposits of $81 thousand and $222 thousand, respectively, which was a reduction to interest expense.
Previous wording
Net interest income (on a taxable equivalent basis) for the three months ended March 31, 2024 was $20.4 million compared to $25.2 million for the same period in 2023, an decrease of $4.9 million. Net interest margin was 2.75% and 3.30% for the first quarters of 2024 and 2023, respectively. Accretion and amortization of purchase accounting adjustments had a 6 and 13 basis point positive effect on net interest margin for the same respective periods.
Current wording
Net interest income (on a taxable equivalent basis) for the three months ended June 30, 2024 was $20.1 million compared to $23.9 million for the same period in 2023, a decrease of $3.8 million. Net interest margin was 2.79% and 3.12% for the second quarters of 2024 and 2023, respectively. Accretion and amortization of purchase accounting adjustments had a 5 and 9 basis point positive effect on net interest margin for the same respective periods.
Previous wording
Average interest-earning assets were $2.97 billion for the three months ended March 31, 2024 compared to $3.06 billion for the same period of 2023, a $94.0 million decrease. This decrease was primarily attributable to declines in average balances of loans held for investment and taxable securities, which decreased $89.0 million and $37.1 million, respectively, partially offset by higher average balances of interest-earning deposits in other banks and loans held for sale. Total interest income (on a taxable equivalent basis) increased $1.6 million for the three-month period ended March 31, 2024 from the same period of 2023. This increase was primarily due to higher yields, including fee income, on loans held for investment and interest-earning deposits in other banks. Interest income on loans held for investment in the first quarter of 2024 included $671 thousand of interest received as a result of the payoff of a nonaccrual loan, which had an 11 and 9 basis point positive effect on the yield on loans held for investment and net interest margin, respectively. In addition, higher yields in the 2024 period were primarily attributable to the re-pricing of variable rate loans in the higher interest rate environment, partially offset by lower accretion of purchase accounting adjustments (discounts) on acquired loans. Interest income in the first quarters of 2024 and 2023 included accretion of discounts on acquired loans of $329 thousand and $698 thousand, respectively.
Current wording
Average interest-earning assets were $2.93 billion for the six months ended June 30, 2024 compared to $3.06 billion for the same period of 2023, a $135.9 million decrease. This decrease was primarily attributable to declines in average balances of loans held for investment and securities, which decreased $120.0 million and $48.3 million, respectively, partially offset by higher average balances of interest-earning deposits in other banks and loans held for sale. Total interest income (on a taxable equivalent basis) decreased $209 thousand for the six-month period ended June 30, 2024 from the same period of 2023. This decrease was primarily due to lower average balances on loans held for investment, in addition to lower accretion of purchase accounting adjustments (discounts) on acquired loans. Interest income on loans held for investment for the six-month period ended June 30, 2024 included $671 thousand of interest received as a result of the payoff of a nonaccrual loan, which had a 6 and 5 basis point positive effect on the yield on loans held for investment and net interest margin, respectively. Interest income for the six months ended June 30, 2024 and 2023 included accretion of discounts on acquired loans of $603 thousand and $1.2 million, respectively.
Previous wording
Provision for Credit Losses. The Company recorded a recovery of credit losses of $1.0 million in the first quarter of 2024 compared to a recovery of credit losses of $1.5 million in the first quarter of 2023. The recovery of credit losses in in the 2024 period was attributable to lower balances of unfunded loan commitments. The recovery of credit losses in the 2023 period was primarily attributable to the release of specific reserves on a collateral-dependent loan, due to cash payments applied to the recorded investment and a credit to provision for credit losses on unfunded loan commitments of $400 thousand.
Current wording
Provision for Credit Losses. The Company recorded a provision for credit losses of $3.1 million in the second quarter of 2024 compared to $10.0 million in the second quarter of 2023. Provision for credit losses for the first halves of 2024 and 2023 was $2.1 million and $8.5 million, respectively. The provision in the second quarter of 2024 was related primarily to certain purchased loans and increased reserves for the non-guaranteed portion of government guaranteed loans, which offset lower reserve needs due to loan portfolio balance reductions. Provision for credit losses in the 2023 periods was primarily attributable to specific reserves on the previously reported group of specialty finance loans, partially offset by a credit (benefit) to provision for credit losses on lower balances of unfunded commitments.
Previous wording
Allowance for Credit Losses. Management makes estimates based on facts available at the time the ACL is determined. Such estimation requires significant judgment at the time made. Management believes that the Company’s ACL was adequate as of March 31, 2024 and December 31, 2023. There can be no assurance, however, that adjustments to the ACL 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; and changes in the circumstances of particular borrowers are criteria, among others, that could increase the level of the ACL required, resulting in charges to the provision for credit losses for loans. In addition, bank regulatory agencies periodically review the Bank's ACL and may, on occasion, require an increase in the ACL or the recognition of further loan charge-offs, based on their judgment of the facts at the time of their review that may differ than that of management.
Current wording
Allowance for Credit Losses. In determining the adequacy of the Company’s ACL, management makes estimates based on facts available at the time the ACL is determined. Such estimation requires significant judgment at the time made. Management believes that the Company’s ACL was adequate as of June 30, 2024 and December 31, 2023. There can be no assurance, however, that adjustments to the ACL 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; and changes in the circumstances of particular borrowers are criteria, among others, that could increase the level of the ACL required, resulting in charges to the provision for credit losses for loans. In addition, bank regulatory agencies periodically review the Bank's ACL and may, on occasion, require an increase in the ACL or the recognition of further loan charge-offs, based on their judgment of the facts at the time of their review that may differ than that of management.
Previous wording
The following table presents an analysis of the change in the ACL by loan type as of and for the periods stated.
Current wording
The following table presents an analysis of the change in the ACL by loan type as of the dates and for the periods stated.
Previous wording
Nonperforming loans, which include nonaccrual loans and loans past due 90 days and still accruing interest, decreased $9.9 million from December 31, 2023, to $53.2 million as of March 31, 2024. This decline was primarily attributable to payoffs of and cash payments applied to nonaccrual loans. Nonaccrual loans as of March 31, 2024 and December 31, 2023 included specialty finance loans with carrying values totaling $29.8 million and $34.2 million, respectively. Of the $34.2 million of these loans reported as of December 31, 2023, the Company received cash payments totaling $3.0 million in the first quarter of 2024 and an additional $1.5 million subsequent to March 31, 2024, pursuant to a forbearance agreement under which the largest of the specialty finance loans is subject. An additional specialty finance loan paid in full in the first quarter of 2024. The remaining purchase accounting adjustments (discounts) related to loans acquired by the Company were $4.9 million and $5.1 million at March 31, 2024 and December 31, 2023, respectively.
Current wording
The remaining purchase accounting adjustments (discounts) related to loans acquired by the Company were $4.4 million and $5.1 million at June 30, 2024 and December 31, 2023, respectively.
Previous wording
Modified Loans. The Company did not grant any loan modifications to borrowers experiencing financial difficulties during the first quarter of 2024. The total recorded investment of previously modified loans within the 12 months preceding March 31, 2024, was $35.0 million, or 1.5% of gross loans held for investment, of which $33.0 million were on nonaccrual status as of the same date.
Current wording
Modified Loans. The Company granted one loan modification to a borrower experiencing financial difficulties during the six months ended June 30, 2024. The total recorded investment of previously modified loans within the 12 months preceding June 30, 2024, was $19.9 million, or 0.88% of gross loans held for investment, of which $17.9 million were on nonaccrual status as of the same date.
Previous wording
Investment Securities. The investment portfolio is used as a source of interest income, credit risk diversification, and liquidity, as well as to provide collateral for borrowings. Securities in the investment portfolio classified as securities AFS may be sold in response to changes in market interest rates, changes in the security's prepayment risk, general liquidity needs, such as funding loans and deposits, and other similar factors, and are carried at estimated fair value. The fair value of the Company’s AFS investment securities portfolio was $314.4 million as of March 31, 2024, a slight decrease from $321.1 million at December 31, 2023, primarily due to the amortization of securities. As a result of elevated market interest rates, the Company’s portfolio of AFS securities had an unrealized loss of approximately $61.5 million as of March 31, 2024.
Current wording
Investment Securities. The investment portfolio is used as a source of interest income, credit risk diversification, and liquidity, as well as to provide collateral for borrowings. Securities in the investment portfolio classified as securities AFS may be sold in response to changes in market interest rates, changes in the security's prepayment risk, general liquidity needs, such as funding loans and deposits, and other similar factors, and are carried at estimated fair value. The fair value of the Company’s AFS investment securities portfolio was $307.4 million as of June 30, 2024, a decrease of $13.7 million from $321.1 million at December 31, 2023, primarily due to the sale of several mortgage backed securities, in addition to amortization. As a result of elevated market interest rates, the Company’s portfolio of AFS securities had an unrealized loss of approximately $57.5 million as of June 30, 2024.
Previous wording
As of March 31, 2024 and December 31, 2023, the majority of the investment securities portfolio consisted of securities rated as investment grade by a leading rating agency. Investment grade securities are judged to have a low risk of default. At 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 borrowing facility with the 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 Federal Reserve.
Current wording
As of June 30, 2024 and December 31, 2023, the majority of the investment securities portfolio consisted of securities rated as investment grade by a leading rating agency. Investment grade securities are judged to have a low risk of default. At June 30, 2024 and December 31, 2023, securities with a fair value of $266.7 million and $35.9 million, respectively, were pledged to secure the Bank’s borrowing facility with the FHLB.
Previous wording
Restricted equity investments consisted of stock in the FHLB (carrying basis $15.6 million and $12.3 million at March 31, 2024 and December 31, 2023, respectively), stock in the Federal Reserve Bank of Richmond (the "FRB") (carrying value of $6.0 million and $5.9 million at March 31, 2024 and December 31, 2023, respectively), and stock in the Company’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 holds 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, respectively, which are carried at fair value with any gain or loss reported in the consolidated statements of operations each reporting period.
Current wording
Restricted equity investments consisted of stock in the FHLB (carrying basis $11.9 million and $12.3 million at June 30, 2024 and December 31, 2023, respectively), stock in the Federal Reserve Bank of Richmond (the "FRB") (carrying value of $5.9 million at both June 30, 2024 and December 31, 2023), and stock in the Company’s correspondent bank (carrying value of $468 thousand at both June 30, 2024 and December 31, 2023). Restricted equity investments are carried at cost.
Previous wording
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 generally a lower cost source of funding for the Bank and are preferred to brokered deposits. The Company's fintech partnerships have been a significant source of deposits and comprised approximately $303.0 million, or 12.3%, of the Company's deposits as of March 31, 2024, compared to approximately $465.9 million, or 18.2%, as of December 31, 2023. This $162.9 million decline was anticipated as part of a previously reported and closely managed fintech BaaS deposit wind down plan.
Current wording
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, of customers in the Company’s primary geographic market area, all of which provide the Bank a source of fee income and cross-marketing opportunities. Core deposits are generally a lower cost source of funding for the Bank and are preferred to brokered deposits. The Company's fintech partnerships have been a significant source of deposits and the Company has determined it will exit its fintech BaaS operations and is undergoing a closely managed wind down project in connection with its fintech partners. Fintech BaaS deposits comprise a significant portion of the Company’s fintech-related deposits. Fintech-related deposits comprised approximately $206.6 million, or 8.9%, of the Company's deposits as of June 30, 2024, compared to approximately $465.9 million, or 18.2%, as of December 31, 2023. This decline of approximately $259.2 million decline was anticipated in the wind down plan. The Company expects BaaS deposits to continue to decline and that such balances will be insignificant by the end of 2024.
Previous wording
Brokered deposits comprising both time deposits and money market accounts totaled $514.1 million and $515.5 million as of March 31, 2024 and December 31, 2023, respectively. The Company added brokered deposit balances throughout 2023 in anticipation of the substantial exit of its BaaS operations, to fund the decline in core deposits, and to enhance liquidity in light of financial industry events that began in March 2023. Brokered deposits represented approximately 20.8% and 20.1% of total deposits as of March 31, 2024 and December 31, 2023, respectively.
Current wording
Brokered deposits comprising both time deposits and money market accounts totaled $484.6 million and $515.5 million as of June 30, 2024 and December 31, 2023, respectively. The Company added brokered deposit balances throughout 2023 to enhance liquidity in light of financial industry events that began in March 2023 and in anticipation of the substantial exit of its BaaS operations. Brokered deposits represented approximately 20.8% and 20.1% of total deposits as of June 30, 2024 and December 31, 2023, respectively.
Previous wording
As a result of the Consent Order, subsequent to December 31, 2023, the Bank is prohibited from soliciting, accepting, renewing, or rolling over any brokered deposits, except in compliance with certain applicable restrictions under federal law, while subject to the Consent Order. In response and pursuant to 12 USC 1831f, 12 CFR 337.6(c) and 12 CFR 303.243(a), the Bank submitted to the FDIC an application for a waiver of the prohibition on the acceptance, renewal, or rollover of brokered deposits by an adequately capitalized insured depository institution.
Current wording
As a result of the Consent Order, the Bank is prohibited from soliciting, accepting, renewing, or rolling over any brokered deposits, except in compliance with certain applicable restrictions under federal law, while subject to the Consent Order. In response and pursuant to 12 USC 1831f, 12 CFR 337.6(c) and 12 CFR 303.243(a), the Bank submitted to the FDIC an application for a waiver of the prohibition on the acceptance, renewal, or rollover of brokered deposits by an adequately capitalized insured depository institution. Subsequent to the end of the second quarter, the Bank received approval from the FDIC allowing the Bank to accept, renew, or rollover brokered deposits. The approval is for a six-month period and in the amount of maturities during this period.
Previous wording
Total deposits as of March 31, 2024 were $2.47 billion, a decrease of $100.3 million from December 31, 2023, of which $150.7 million was due to lower interest-bearing deposits, primarily due to the BaaS deposit wind down, partially offset by an increase in time deposits. Estimated uninsured deposits totaled approximately $553.8 million as of March 31, 2024, or 22.4% of total deposits, compared to $573.9 million, or 22.3% of total deposits, as of December 31, 2023. Excluding fintech-related deposits, estimated uninsured deposits were 19.0% and 18.2% of total deposits as of March 31, 2024 and December 31, 2023, respectively.
Current wording
Total deposits as of June 30, 2024 were $2.33 billion, a decrease of $240.2 million from December 31, 2023, of which $291.0 million was due to lower interest-bearing deposits, primarily due to the BaaS deposit wind down, partially offset by an increase in time deposits. In the first half of 2024, core deposits, which exclude fintech-related and wholesale deposits, increased $69.8 million. Estimated uninsured deposits totaled approximately $425.3 million as of June 30, 2024, or 17.9% of total deposits, compared to $573.9 million, or 22.3% of total deposits, as of December 31, 2023. Excluding fintech BaaS deposits, estimated uninsured deposits were 16.7% and 18.2% of total deposits as of June 30, 2024 and December 31, 2023, respectively.
Previous wording
Approximately 20.1% of total deposits as of March 31, 2024 were composed of noninterest-bearing demand deposits compared to 19.7% as of December 31, 2023. In contrast, approximately 38.8% and 34.8% of total deposits as of March 31, 2024 and December 31, 2023, respectively, were composed of time deposits.
Current wording
Approximately 20.2% of total deposits as of June 30, 2024 were composed of noninterest-bearing demand deposits compared to 19.7% as of December 31, 2023. In contrast, approximately 42.1% and 34.8% of total deposits as of June 30, 2024 and December 31, 2023, respectively, were composed of time deposits.
Previous wording
Borrowings. The following tables present information on the balances and interest rates on borrowings as of and for the periods stated.
Current wording
Borrowings. The following tables present information on the balances and interest rates on borrowings as of the dates and for the periods stated.
Previous wording
Subordinated notes, net, totaled $39.8 million as of both March 31, 2024 and December 31, 2023. The effective interest rate on the subordinated notes for the three months ended March 31, 2024 and 2023 was 5.62% and 5.56%, 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”). The fixed rates on these subordinated notes transition to variable rates based on the Secured Overnight Funding Rate ("SOFR") roughly five years from issued date. On October 15, 2024, the rate on the 2029 Notes will reset quarterly to the current three-month SOFR interest rate plus 433.5 basis points. On June 1, 2025, the rate on the 2030 Note will reset quarterly to the current three-month SOFR interest rate plus 587 basis points.
Current wording
Subordinated notes, net, totaled $39.8 million and $39.9 million as of June 30, 2024 and December 31, 2023, respectively. The effective interest rate on the subordinated notes for the three and six months ended June 30, 2024 was 5.53% and 5.58%, respectively, compared to 5.49% and 5.52% for the same periods in 2023. 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”). The fixed rates on these subordinated notes transition to variable rates based on the Secured Overnight Funding Rate ("SOFR") roughly five years from issued date. On October 15, 2024, the rate on the 2029 Notes will reset quarterly to the current three-month SOFR interest rate plus 433.5 basis points. On June 1, 2025, the rate on the 2030 Note will reset quarterly to the current three-month SOFR interest rate plus 587 basis points.
Previous wording
Deposits are the primary source of the Company’s liquidity. Cash flow from amortizing assets or maturing assets also provides funding to meet the liquidity needs of the Company. Deposit sources are from the Bank’s core customers and from brokered deposit markets. These markets are accessed through brokers or through the IntraFi Network (“IntraFi”), of which the Bank is a member. IntraFi facilitates the Bank attaining brokered deposits via an on-line marketplace. The Bank utilizes IntraFi's reciprocal deposit services to offer its high-value customers access to FDIC insurance through IntraFi's network of banks. Partly through the use of the IntraFi reciprocal deposit program, the Company has reduced uninsured deposits to $553.8 million and $573.9 million as of March 31, 2024 and December 31, 2023, respectively.
Current wording
Deposits are the primary source of the Company’s liquidity. Cash flow from amortizing assets or maturing assets also provides funding to meet the liquidity needs of the Company. Deposit sources are from the Bank’s core customers and from brokered deposit markets. These markets are accessed through brokers or through the IntraFi Network (“IntraFi”), of which the Bank is a member. IntraFi facilitates the Bank attaining brokered deposits via an on-line marketplace. The Bank utilizes IntraFi's reciprocal deposit services to offer its high-value customers access to FDIC insurance through IntraFi's network of banks. Partly through the use of the IntraFi reciprocal deposit program, the Company has reduced uninsured deposits to $425.3 million and $573.9 million as of June 30, 2024 and December 31, 2023, respectively.
Previous wording
As a result of the Consent Order, the Bank is prohibited from soliciting, accepting, renewing, or rolling over any brokered deposits, except in compliance with certain applicable restrictions under federal law, while subject to the Consent Order. In response and pursuant to 12 USC 1831f, 12 CFR 337.6(c) and 12 CFR 303.243(a), the Bank submitted to the FDIC an application for a waiver of the prohibition on the acceptance, renewal, or rollover of brokered deposits by an adequately capitalized insured depository institution.
Current wording
As a result of the Consent Order, subsequent to December 31, 2023, the Bank is prohibited from soliciting, accepting, renewing, or rolling over any brokered deposits, except in compliance with certain applicable restrictions under federal law, while subject to the Consent Order. In response and pursuant to 12 USC 1831f, 12 CFR 337.6(c) and 12 CFR 303.243(a), the Bank submitted to the FDIC an application for a waiver of the prohibition on the acceptance, renewal, or rollover of brokered deposits by an adequately capitalized insured depository institution. Subsequent to the end of the second quarter, the Bank received approval from the FDIC allowing the Bank to accept, renew, or rollover brokered deposits. The approval is for a six-month period and in the amount of maturities during this period.
Previous wording
The Company has access to secured funding sources, including a secured line of credit with the FHLB under which the Company can borrow up to the allowable amount for the collateral pledged. The Bank's line of credit with the FHLB was $656.5 million as of March 31, 2024, with available credit of $265.4 million as of the same date. Outstanding advances totaled $280.0 million as of March 31, 2024. Additionally, letters of credit issued primarily for the purpose of collateral for public deposits with the Treasury Board of the Commonwealth of Virginia reduce the available credit balance, which totaled $110.0 million as of March 31, 2024.
Current wording
The Company has access to secured funding sources, including a secured line of credit with the FHLB under which the Company can borrow up to the allowable amount for the collateral pledged. The Bank's line of credit with the FHLB was $711.0 million as of June 30, 2024, with available credit of $427.0 million as of the same date. Outstanding advances totaled $202.9 million as of June 30, 2024. Additionally, letters of credit issued primarily for the purpose of collateral for public deposits with the Treasury Board of the Commonwealth of Virginia reduce the available credit balance, which totaled $80.0 million as of June 30, 2024.
Previous wording
The Company also has access to advances from the FRB through its Discount Window. As of March 31, 2024, the Company had secured borrowing capacity through the FRB Discount Window of $101.8 million, of which there were no outstanding advances.
Current wording
The Company also has access to advances from the FRB through its Discount Window. As of June 30, 2024, the Company had secured borrowing capacity through the FRB Discount Window of $81.2 million, of which there were no outstanding advances. The $65.0 million advance obtained through the FRB Bank Term Funding Program was repaid at its maturity in the second quarter of 2024.
Previous wording
Managing the Company's liquidity position through the substantial exit of the BaaS operations will require significant liquidity oversight. The Company's closely managed BaaS wind down plan is an element of its liquidity management. Management intends to utilize proceeds from the Private Placement, the contraction of the Company’s balance sheet, particularly loans, secured funding facilities, as well as core deposit growth to meet its liquidity requirements.
Current wording
Managing the Company's liquidity position through the substantial exit of the BaaS operations requires significant liquidity oversight. Management intends to utilize proceeds from the Private Placements, loan portfolio amortization and prepayments, core deposit growth, and as needed, availability of secured borrowing capacity to offset the outflow of funding from the BaaS wind down.
Previous wording
On January 24, 2024, the Bank consented to the issuance of the Consent Order, which requires the Bank to achieve and maintain minimum capital requirements, which are higher than those required for capital adequacy purposes. Specifically, the Bank is required to maintain a leverage ratio of 10.00% and a total capital ratio of 13.00%. As of both March 31, 2024 and December 31, 2023, the Bank did not meet these capital ratios. Until such levels are met and the Consent Order has been lifted, the Bank is deemed to be less than well capitalized, thus adequately capitalized.
Current wording
On January 24, 2024, the Bank consented to the issuance of the Consent Order, which requires the Bank to achieve and maintain minimum capital requirements which are higher than those required for capital adequacy purposes. Specifically, the Bank is required to maintain a leverage ratio of 10.00% and a total capital ratio of 13.00%. As of June 30, 2024, the Bank met these minimum capital ratios. Until such levels are maintained and the Consent Order has been lifted, the Bank is deemed to be less than well capitalized, thus adequately capitalized.
Previous wording
As previously noted, the Company adopted 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.
Current wording
As previously noted, the Company adopted Accounting Standards Codification 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.
Previous wording
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, with the corresponding capital amounts for both the leverage ratio and the total capital ratio as of both March 31, 2024 and December 31, 2023. The CECL Transitional Amount was $8.1 million, of which $4.1 million and
Current wording
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, with the corresponding capital amounts for both the leverage ratio and the total capital ratio as of both June 30, 2024 and December 31, 2023. 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 June 30, 2024 and December 31, 2023, respectively.
Previous wording
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. The Company evaluates each customer’s credit worthiness on a case-by-case basis, in a manner similar to that if underwriting a loan. 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.
Current wording
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. The Company evaluates each customer’s credit worthiness on a case-by-case basis, in a manner similar to that if underwriting a loan. As of June 30, 2024 and December 31, 2023, the Company had outstanding loan commitments of $386.6 million and $480.8 million, respectively. Of these amounts, $107.7 million and $113.5 million were unconditionally cancelable at the sole discretion of the Company as of the same respective dates.
Showing the first 40 of 46 pairs. Open the source sections for the rest.
Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
For the three months ended June 30, 2024, the Company reported a net loss of $11.4 million, or ($0.47) per diluted common share, compared to a net loss of $8.6 million, or ($0.45) per diluted common share, for the three months ended June 30, 2023.
Current report — wording carried from elsewhere
For the six months ended June 30, 2024, the Company reported a net loss of $14.3 million, or ($0.66) per diluted common share, compared to a net loss of $4.6 million, or ($0.25) per diluted common share, for the six months ended June 30, 2023.
Current report — wording carried from elsewhere
Average interest-earning assets were $2.89 billion for the three months ended June 30, 2024 compared to $3.06 billion for the same period of 2023, a $177.9 million decrease. This decrease was primarily attributable to declines in average balances of loans held for investment and securities, which decreased $151.2 million and $51.6 million, respectively, partially offset by higher average balances of interest-earning deposits in other banks and loans held for sale. Total interest income (on a taxable equivalent basis) decreased $1.8 million for the three-month period ended June 30, 2024 from the same period of 2023. This decrease was primarily due to lower average balances of loans, which declined $151.2 million. Lower yields in the 2024 period were primarily attributable to lower volume and lower accretion of purchase accounting adjustments (discounts) on acquired loans. Interest income for the three months ended June 30, 2024 and 2023 included accretion of discounts on acquired loans of $274 thousand and $463 thousand, respectively.
Current report — wording carried from elsewhere
The following table presents the average balance sheets for the six months ended June 30, 2024 and 2023. Also shown are the amounts of interest earned on interest-earning assets, with related tax-equivalent yields, and interest expense on interest-bearing liabilities, with related rates, as well as a volume and rate analysis of changes in net interest income for the periods stated.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
$2.0 million reduced the regulatory capital amounts and capital ratios as of March 31, 2024 and December 31, 2023, respectively.