BRBS 10-K & 10-Q changes, risk factors and insider trading
Blue Ridge Bankshares, Inc. · NYSE · State Commercial Banks · CIK 842717 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “The Company may not be able to successfully manage its growth, which may adversely affect its results of operations and financial condition.”
New heading “The Company's allowance for credit losses ("ACL") may be insufficient and any increases in the ACL may have a material adverse effect on the Company’s financial condition and results of operations.”
New heading “Shifts in workplace dynamics, including remote and hybrid work arrangements, and a potentially smaller federal government workforce, may weaken office property and housing demand, pressure valuations, and increase credit risk for the Company.”
New heading “The development and use of artificial intelligence (“AI”) presents risks and challenges that may adversely impact our business.”
Removed heading “The Consent Order issued by the OCC requires the Bank to devote significant resources to enhance its policies, procedures, and practices, and places additional restrictions on the Bank’s operations, and the failure to comply with any provision of the Consent Order may cause the OCC to take further action against it.”
Removed heading “The Company’s fintech operations could further subject it to increased operational, compliance, and other risks that could adversely affect the Company’s business, financial condition, and results of operations.”
Removed heading “Regulations issued by the CFPB could adversely impact earnings due to, among other things, increased compliance costs or costs due to noncompliance.”
Removed heading “The Company’s mortgage banking revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market, any of which could adversely impact the Company’s profits.”
Removed heading “The Company's ACL may be insufficient and any increases in the ACL may have a material adverse effect on the Company’s financial condition and results of operations.”
Removed heading “Shifts in workplace dynamics, including remote work, and a potentially smaller federal government workforce, may weaken office property and housing demand, pressure valuations, and increase credit risk for the Company.”
Removed heading “The Company may not be able to successfully manage its long-term growth, which may adversely affect its results of operations and financial condition.”
Largest changes
“The Company’s investment securities portfolio, in particular, may be impacted by market conditions beyond its control, including rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, inactivity or instability in the credit markets, and changes in market interest rates. For example, the Company carries its available for sale securities portfolio at estimated fair market value. …”see in full comparison
“The Company’s business is directly impacted by economic conditions, legislative and regulatory changes, changes in government monetary and fiscal policies, changes in consumer behavior and business practices, and inflation, all of which are beyond its control. The growth in economic activity and in the demand for goods and services, coupled with labor shortages, supply chain disruptions, tariffs, and other factors, has contributed to rising inflationary pressures, the Federal Reserve’s responsive interest rate hikes during 2022 and 2023, and the risk of recession. …”see in full comparison
“The Company’s investment securities portfolio, in particular, may be impacted by market conditions beyond its control, including rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, inactivity or instability in the credit markets, and changes in market interest rates. For example, the Company carries its available for sale securities portfolio at estimated fair market value. …”see in full comparison
“While increased in-office attendance may help stabilize demand for some commercial real estate properties, persistent remote and hybrid work arrangements could keep office vacancy rates elevated, particularly in markets with oversupply in the Company's footprint. Additionally, workforce reductions in the federal government due to budget cuts or restructuring could further dampen demand for office space and housing in government-centric areas. …”see in full comparison
“While increased in-office attendance may help stabilize demand for some commercial real estate properties, persistent remote and hybrid work trends could keep office vacancy rates elevated, particularly in markets with oversupply in the Company's footprint. Additionally, workforce reductions in the federal government due to budget cuts or restructuring could further dampen demand for office space and housing in government-centric areas. …”see in full comparison
“The Company’s business is directly impacted by economic conditions, legislative and regulatory changes, changes in government monetary and fiscal policies, changes in consumer behavior and business practices, and inflation, all of which are beyond its control. The growth in economic activity and in the demand for goods and services, coupled with labor shortages, supply chain disruptions and other factors, has contributed to rising inflationary pressures, the Federal Reserve’s responsive interest rate hikes during 2022 and 2023, and the risk of recession. …”see in full comparison
Full comparison: every changed paragraph (98)
An investment in the Company’s common stock involves certain risks, including those described below. In addition to the other information set forth in this report,Form 10-K, investors in the Company’s securities should carefully consider the factors discussed below. These factors, either alone or taken together, could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, capital position, and prospects. One or more of these could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline.
The Company may not be able to successfully manage its growth, which may adversely affect its results of operations and financial condition.
A key aspect of the Company’s long-term business strategy is growth. During 2025 and 2024, the Company’s strategic initiatives included repositioning its balance sheet to align with its return to a community-focused bank and positioning itself for measured growth. The Company may not be able to successfully grow in the long-term if it is unable to identify attractive markets, locations, or opportunities to expand in the future. The Company’s ability to manage its growth successfully also will depend on whether it can maintain capital levels adequate to support its business, maintain operational and control systems, cost controls, asset quality, comply with regulatory requirements, and successfully integrate any businesses the Company pursues into its organization.
Should the Company enter into new markets or new lines of business, its lack of history and familiarity with those markets, clients, and lines of business may lead to unexpected challenges or difficulties that inhibit its success. The Company’s plans to expand could depress earnings in the short run, even if it efficiently executes a growth strategy leading to long-term financial benefits. Any of the foregoing could adversely affect the Company’s results of operations.
The Company has reported net income for the year ended December 31, 2025, but reported a net loss for the year ended December 31, 2024, some of which is due to the cost of complying with regulatory directives set forth in the Consent Order. While the Company has implemented, and will continue to implement, cost-saving initiatives and efficiency measures, there is no guarantee that these actions will yield the desired financial results. Additionally, the Company reduced its earning assets in 2025 and 2024 and intends to begin increasing earning assets in future periods. Factors such as market conditions, competitive pressures, or unforeseen operational challenges could hinder the Company’s ability to achieve sustained and acceptable levels of future profitability. If the Company is unable to improve its financial performance, it could experience less than acceptable levels of profits, which could adversely affect its financial position, capital levels, and the value of its common stock.
The Company’s success is, and is expected to remain, highly dependent on its management team. The Company’s strategy and operations will continue to place significant demands on management, and the loss of any such person’s services may have an adverse effect upon the Company's strategy, operations, and profitability. If the Company fails to retain or continue to recruit qualified employees, its strategy, operations, and profitability could be adversely affected.
In order to be successful, the Company must identify and retain experienced key management members and sales staff with local expertise and relationships. Competition for qualified personnel is intense and there is a limited number of qualified persons with knowledge of and experience in banking and in the Company’s chosen geographic markets. Even if the Company identifies individuals that it believes could assist it in building its franchise, it may be unable to recruit these individuals to work for the Company. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out the Company’s strategy is often lengthy. The Company’s inability to identify, recruit, and retain talented personnel could limit its ability to pursue its strategic goals and materially adversely affect its business, financial condition, and results of operations.
Changes in the interest rate environment may reduce the Company’s profits. It is expected that the Company will continue to realize income from the differential or “spread” between the interest earned on loans, securities, and other interest-earning assets, and interest paid on deposits, borrowings, and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Loan and deposit volumes, yields, and costs are affected by market interest rates on these products, and there is substantial competition for loans and deposits that affect rates on these products. Additionally, short-term rates are driven by actions of the Federal Reserve, and movements in such rates may have a significant effect on the Company's interest rate risk. The Company’s management cannot ensure that it can minimize interest rate risk. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Further, shifts in the Company’s mix of interest-earning assets or interest-bearing liabilities could adversely affect yields on assets or costs of funds, respectively. Accordingly, changes in levels of market interest rates or management thereof could materially and adversely affect the net interest spread, loan and deposit volumes, and the Company’s overall profitability.
The Company’s business is directly impacted by economic conditions, legislative and regulatory changes, changes in government monetary and fiscal policies, changes in consumer behavior and business practices, and inflation, all of which are beyond its control. The growth in economic activity and in the demand for goods and services, coupled with labor shortages, supply chain disruptions, tariffs, and other factors, has contributed to rising inflationary pressures, the Federal Reserve’s responsive interest rate hikes during 2022 and 2023, and the risk of recession. A deterioration in economic conditions, whether caused by global, national, or local concerns, especially within the Company’s market area, could result in, among other consequences, an increase in loan delinquencies, problem assets and foreclosures, a decline in demand for the Company’s products and services, a decrease in low cost or non-interest bearing deposits, and/or a deterioration in the value of collateral for loans, especially real estate loans, any of which could result in losses that materially and adversely affect the Company’s business.
The Company is directly and indirectly affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. As a financial institution, market risk is inherent in the financial instruments associated with the Company’s operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt, and trading account assets and liabilities. A few of the market conditions that may shift from time to time, thereby exposing the Company to market risk, include fluctuations in interest rates, equity and futures prices, and price deterioration or changes in value due to changes in market perception or actual credit quality of issuers. Any changes in these market conditions could adversely affect the Company’s financial condition, capital ratios, and results of operations.
The Company’s investment securities portfolio, in particular, may be impacted by market conditions beyond its control, including rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, inactivity or instability in the credit markets, and changes in market interest rates. For example, the Company carries its available for sale securities portfolio at estimated fair market value. As a result of rising interest rates during 2022 and 2023, the unrealized losses in the Company’s investment securities portfolio increased dramatically and thereby negatively impacted the Company’s accumulated other comprehensive income. While there were declines in market interest rates during 2024 and 2025, reducing unrealized losses, these unrealized losses (net of income taxes) were approximately $31.1 million as of December 31, 2025. Such losses could be realized in earnings should liquidity needs and/or business strategy necessitate the sales of securities in a loss position, which could adversely affect the Company’s financial condition, capital ratios, and results of operations.
The Company is affected by domestic monetary policy. The Federal Reserve regulates the supply of money and credit in the United States, and its policies determine in large part the Company’s cost of funds for lending, investing, and capital raising activities and the return it earns on those loans and investments, both of which affect the Company’s net interest margin. The actions of the Federal Reserve also can materially affect the value of financial instruments that the Company holds, such as loans and debt securities, and also can affect the Company’s borrowers, potentially increasing the risk that they may fail to repay their loans. The Company’s business and earnings also are affected by the fiscal or other policies that are adopted by various regulatory authorities of the United States. Changes in fiscal or monetary policy are beyond the Company’s control and hard to predict.
The Company encounters substantial competition from financial institutions in its market area and other providers of financial products and services, and competition is increasing. Ultimately, the Company may not be able to compete successfully against current and future competitors. Many competitors offer the same banking services that the Company offers in its service area. These competitors include national, regional, and community banks. The Company also faces competition from many other types of financial institutions, including finance companies, mutual and money market fund providers, brokerage firms, insurance companies, credit unions, financial subsidiaries of certain industrial corporations, financial technology companies, and mortgage companies. Technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. Further, the widespread adoption and rapid evolution of emerging technologies in the financial services industry, including artificial intelligence, cryptocurrencies (including stablecoins and memecoins), tokens, and other digital assets could negatively impact the Company's ability to compete. Increased competition may result in reduced business for the Company.
A number of the Company’s competitors are larger than the Company, have greater access to capital and other resources, have larger lending limits, and are able to serve the credit needs of larger customers. Additionally, many of the Company’s non-bank competitors are not subject to the same extensive regulations that govern the Company’s activities. Areas of competition include interest rates for loans and deposits, efforts to obtain loans and deposits, and range and quality of products and services provided, including new technology-driven products and services. If the Company is unable to attract and retain banking customers, it may be unable to continue to grow loan and deposit portfolios and its results of operations and financial condition may otherwise be adversely affected.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, insurance and pension funds, or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks. The emergence, adoption, and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchain, as well as advances in robotic process automation, could significantly affect the competition for financial services. Large technology companies offering embedded financial services, digital wallets, and payment platforms have also increased competitive pressures and may accelerate customer migration away from traditional banking products.
The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations.
The Company’s common stock is listed on the NYSE American market under the symbol “BRBS”. There is no guarantee that the Company will be able to maintain the listing of its common stock on the NYSE American in the future.
Currently, the Company’s common stock is thinly traded and has substantially less liquidity than the trading markets for many other bank holding companies. In addition, there can be no assurance that a more active trading market for shares of the Company’s common stock will develop or if one develops, that it can be sustained. The development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within the Company’s control. Therefore, the Company’s shareholders may not be able to sell their shares at the volume, prices, or times that they desire. Shareholders should be financially prepared and able to hold shares for an indefinite period.
In addition, thinly-traded stocks can be more volatile than more widely-traded stocks. Several factors could cause the price of the Company's stock to fluctuate substantially. These factors include, but are not limited to, developments related to the Company’s business and operations, stock performance of other companies deemed to be peers, news reports of trends, concerns, and irrational exuberance on the part of investors, geopolitical uncertainty, and other issues related to the financial services industry, in general. The Company’s stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to its performance and are not within the control of the Company. General market declines or market volatility in the future, especially in the financial institutions sector of the economy, could adversely affect the price of the Company’s common stock. Additionally, the current market price may not be indicative of future market prices.
The Company assumes credit risk by virtue of making loans and extending loan commitments and letters of credit. The Company manages credit risk through a program of underwriting standards, the review of certain credit decisions, and a continuous quality assessment process of credit already extended. The Company’s exposure to credit risk is managed through the use of consistent underwriting standards that emphasize local lending, while avoiding highly-leveraged transactions and excessive industry and other concentrations. The Company’s credit administration function employs risk management techniques to help ensure that problem loans are promptly identified and is periodically subject to independent review. While these procedures are designed to provide the Company with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.
The Company's allowance for credit losses ("ACL") may be insufficient and any increases in the ACL may have a material adverse effect on the Company’s financial condition and results of operations.
The Company’s nonperforming assets adversely affect its net income in various ways. Nonperforming assets, which include nonaccrual loans, loans past due 90 days and still accruing interest, and other real estate owned ("OREO") were $25.4 million, or 1.05% of total assets, and $25.7 million, or 0.94% of total assets, as of December 31, 2025 and December 31, 2024, respectively. When the Company receives collateral through foreclosures and similar proceedings, it is required to record the related loan to the then fair market value of the collateral less estimated selling costs, which may result in a loss.
An increased level of nonperforming assets increases the Company’s risk profile and may impact the capital levels regulators believe are appropriate in light of such risks. The Company utilizes various techniques such as workouts, restructurings, and loan sales to manage problem assets. Increases in, or negative changes in, the value of these problem assets, the underlying collateral, or in the borrowers’ performance or financial condition, could adversely affect the Company’s business, results of operations, and financial condition. In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities. There can be no assurance that the Company will avoid increases in nonperforming assets in the future.
The Company offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer, and other loans. Credit risk and credit losses can increase if loans are concentrated to borrowers who, as a group, may be uniquely or disproportionately affected by economic or market conditions. As of December 31, 2025 and December 31, 2024, approximately 83.6% and 80.8%, respectively, of the Company’s loans were secured by real estate, both residential and commercial, substantially all of which are located in its market area. A major change in the region’s real estate market, resulting in a deterioration in real estate values, or in the local or national economy, could adversely affect the Company’s customers’ ability to pay these loans, which in turn could adversely impact the Company. Risk of loan defaults and foreclosures are inherent in the banking industry, and the Company tries to limit its exposure to this risk by carefully underwriting and monitoring its extensions of credit. The Company cannot fully eliminate credit risk, and as a result, losses may occur in the future.
As of December 31, 2025 and December 31, 2024, the Company had approximately $836.3 million and $847.8 million in loans secured by commercial real estate, respectively, representing approximately 44.9% and 40.2% of total loans outstanding as of those same dates, respectively. The Company's portfolio of loans secured by commercial real estate consists primarily of non-owner occupied properties. These loans are generally considered to present a higher risk of default than residential and owner-occupied commercial real estate loans, typically involve larger loan balances, and are dependent on cash flows generated by the property, and in some cases the borrower or guarantor, to service the debt. It may be more difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers' ability to repay their loans frequently depends on the successful rental of their properties. As of December 31, 2025, the Company had approximately $55.7 million of non-owner occupied office loans, representing approximately 6.7% of total commercial real estate loans outstanding at that date. Cash flows to service commercial real estate loans may be negatively affected by general economic conditions, such as unemployment, a sustained downturn, or in occupancy rates in the local economy where the property is located and could increase the likelihood of default. Further, when fixed rate loans originated in a time of lower interest rates near their maturity dates, a higher interest rate environment could make it more difficult for borrowers to refinance or extend their loans with the Company due to higher debt service costs. Because the Company’s loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the provision for credit losses, and an increase in charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations.
Shifts in workplace dynamics, including remote and hybrid work arrangements, and a potentially smaller federal government workforce, may weaken office property and housing demand, pressure valuations, and increase credit risk for the Company.
While increased in-office attendance may help stabilize demand for some commercial real estate properties, persistent remote and hybrid work arrangements could keep office vacancy rates elevated, particularly in markets with oversupply in the Company's footprint. Additionally, workforce reductions in the federal government due to budget cuts or restructuring could further dampen demand for office space and housing in government-centric areas. These factors may strain property cash flows, depress collateral values, and elevate default risks, particularly for lenders with significant exposure to office properties or government-related tenants. The Company has very limited exposure to commercial real estate in the greater Washington, D.C. area; however, its proximity to this area makes it potentially vulnerable to changes in government spending. This increased credit risk for the Company could result in future losses, which could have a material adverse effect on the Company’s financial condition and results of operations.
At December 31, 2025 and December 31, 2024, approximately 4.5% and 7.8% of the Company’s loan portfolio, or $83.5 million and $166.3 million, respectively, consisted of construction and land development loans. Construction financing typically involves a higher degree of credit risk than financing on improved owner-occupied real estate and improved income producing real estate. Risk of loss on a construction or land development loan is largely dependent upon the accuracy of the initial estimate of the property’s value at completion of construction or development, the marketability of the property, and the bid price and estimated cost (including interest) of construction or development. If the estimate of construction or development costs proves to be inaccurate, the Company may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of the value proves to be inaccurate, it may be confronted, at or prior to the maturity of the loan, with a project whose value is insufficient to assure full repayment. When lending to builders and developers, the cost breakdown of construction or development is provided by the builder or developer. Although the Company’s underwriting criteria are designed to evaluate and minimize the risks of each construction or land development loan, there can be no guarantee that these practices will have safeguarded against material delinquencies and losses to the Company’s operations. In addition, construction and land development loans are dependent on the successful completion of the projects they finance. Loans secured by vacant or unimproved land are generally riskier than loans secured by improved property. These loans are more susceptible to adverse conditions in the real estate market and local economy, which could have a material adverse effect on the Company's financial condition and results of operations.
A significant source of risk for the Company is the possibility that losses will be sustained because borrowers, guarantors, and related parties may fail to perform in accordance with the terms of their loan agreements. Most of the Company’s loans are secured, but some loans are unsecured. With respect to the secured loans, the collateral securing the repayment of these loans may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in economic, environmental, declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, terrorist activity, environmental contamination, and other external events. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately collateralized when it is not. The Company has adopted underwriting and credit monitoring procedures and policies, including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to mitigate the risk of loss. An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the ACL, and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations.
In deciding whether to extend credit or to enter into other transactions with clients and counterparties, the Company may rely on information furnished to it by or on behalf of clients and counterparties, including financial statements and other financial information, which it does not independently verify. The Company also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, the Company may assume that a client’s audited financial statements conform with generally accepted accounting principles ("GAAP") and present fairly, in all material respects, the financial condition, results of operations, and cash flows of that client. The Company’s financial condition and results of operations could be negatively impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading or other information that turns out to be misleading or incorrect.
As indicated above, a significant portion of the Company’s loan portfolio consists of loans secured by real estate and the Company may also hold a portfolio of foreclosed properties. The Company relies upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment that adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of the Company’s loans and the foreclosed properties held by the Company may be more or less valuable than anticipated. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, the Company may not be able to recover the outstanding balance of the loan. It may also be unable to sell its foreclosed properties for the values estimated by their appraisals.
The Consent Order issued by the OCC requires the Bank to devote significant resources to enhance its policies, procedures, and practices, and places additional restrictions on the Bank’s operations, and the failure to comply with any provision of the Consent Order may cause the OCC to take further action against it.
On January 24, 2024, the Bank consented to the issuance of the Consent Order by the OCC. The Consent Order replaces the Written Agreement entered into by the Bank with the OCC on August 29, 2022. The Consent Order generally incorporates the prior provisions of the Written Agreement, as well as adding new provisions. The Consent Order requires the Bank and/or the board of directors of the Bank to, among other things, address and remediate BSA/AML deficiencies, violations and corrective actions, enhance oversight of its third-party partnerships, submit to the OCC acceptable strategic and capital plans, and adopt, implement, and adhere to various revised and expanded risk-based policies, procedures, and processes. While subject to the Consent Order, the Bank will also be required to obtain non-objection from the OCC prior to onboarding or signing a contract with a new third-party fintech relationship or offering new products or services or conducting new activities with or through existing third-party fintech relationships.
The Consent Order also requires the Bank to maintain a leverage ratio of 10.00% and a total capital ratio of 13.00%. As a result, the Bank may not be deemed to be “well capitalized” for purposes of the bank regulatory framework for prompt corrective action while subject to the Consent Order. If the Bank fails to achieve and maintain such capital ratios, the OCC may deem the Bank to be “undercapitalized” under such regulatory provisions.
The Company's management and board of directors have devoted and expect to continue to devote considerable time, attention, and resources on developing, implementing, and monitoring corrective actions to comply with the terms of the Consent Order. The Company is also utilizing third-party consultants and other advisors to assist in complying with the Consent Order and noninterest expense has increased, and may continue to increase, as a result.
There is no guarantee that the Company will ultimately address the OCC’s concerns and comply with all of the terms of the Consent Order. Issuance of the Consent Order does not preclude further government action with respect to the Bank’s BSA/AML compliance, including the assessment of civil money penalties or other enforcement actions, if the OCC determines that the Bank has continued, or has failed to correct, the practices and/or violations described in the Consent Order or that the Bank otherwise is violating or has violated the Consent Order.
The Company’s fintech operations could further subject it to increased operational, compliance, and other risks that could adversely affect the Company’s business, financial condition, and results of operations.
Starting in 2019 through late 2023, the Company’s business strategy included growing partnerships with fintech companies, which served as a source of loan and deposit growth, interest and noninterest income, and technology-related solutions for the Company. The fintech BaaS depository partnerships resulted in, among other things, rapid growth in the Company’s deposit base. As of December 31, 2023, the Company’s deposits related to fintech relationships, including BaaS depository operations, totaled $465.9 million, or 18.2% of total deposits, and included $371.0 million of fintech BaaS deposits. This level of deposit accounts necessitated enhanced operational and control systems and additional qualified personnel to oversee and manage the increased operational and compliance burdens from these accounts, including those resulting from increased account opening, suspicious activity monitoring, network security controls related to ACH and payment systems, protection of customer records and data confidentiality, and consumer compliance matters, among others, and may subject the Company to additional supervisory actions, operational and compliance risks, or reputational harm.
In consideration of the risk profile of fintech BaaS depository operations and the Consent Order, the Company decided to exit these BaaS depository operations and execute an orderly winddown of all partners during 2024. As of December 31, 2024, the Company had $21.3 million of fintech-related deposits consisting primarily of corporate deposits. In addition, the Company has reported plans to exit its indirect fintech lending relationships and expects for the indirect fintech lending operations to be completely exited by early 2026 as contracts mature with its remaining partners. As a result of the Company’s ongoing exit from its fintech operations, it has experienced, and may continue to experience, decreases in noninterest and interest income from fintech partnerships, decreases in deposit and loan balances, adverse impacts to its net interest margin due to lower activity, shifts in funding sources, and increases in reputational risk, any of which has had, and in the future could have, an adverse effect on the Company’s earnings and capital levels, and its business, financial condition, and results of operations.
The Company operates in a highly regulatedhighly-regulated industry, and the laws and regulations that govern the Company’s operations, including changes in them or the Company’s failure to comply with them, and regulatory actions implementing such laws and regulations, may adversely affect the Company.
The Company is subject to extensive regulation and supervision that govern almost all aspects of its operations. These laws and regulations, and regulatory actions implementing such laws and regulations, including the Consent Order, among other matters, prescribe minimum capital requirements, impose limitations on the Company’s business activities, limit the dividends or distributions that it can pay, and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in its capital than GAAP.
Changes to laws, regulations, or regulatory policies, or supervisory guidance, including changes in interpretation or implementation of laws, regulations, policies, or supervisory guidance, or changes in enforcement priorities could affect the Company in substantial and unpredictable ways. Regulatory responses in connection with unforeseen stress events, including failures of banks and other financial institutions, often lead to increased regulatory scrutiny and heightened supervisory expectations and could adversely impact the Company’s business, financial condition, and results of operations, or alter or disrupt the Company’s planned future strategies and actions. The Company’s failure to comply with these laws and regulations, has in the past and could in the future subject it to restrictions on its business activities, fines, and other penalties, any of which could adversely affect the Company’s results of operations,operations and increase required capital base,levels. andActivities of other banks could also affect the price of itsthe Company's securities. Compliance with laws and regulations, and regulatory actions implementing such laws and regulations, can be difficult and costly, and changes to laws and regulations could make compliance more difficult or expensive or otherwise adversely affect the Company’s business and financial condition.
The Company expects the Trump administration will seekcontinue to implement a regulatory agenda that iscould differentreduce thanand thatstreamline certain prudential and regulatory requirements applicable to banking organizations at a federal level. Separately, the Trump administration’s emphasis on stablecoins and digital assets, including taking action to create a federal regulatory system for stablecoins through the signing of the BidenGenius administration,Act, bolsters the efforts of nonbanking financial intermediaries who are not as highly regulated as banks to increasingly and thateffectively couldcompete impactfor and obtain the business of customers of traditional banking institutions. At this time, however, it is unclear what the impacts to the rulemaking, supervision, examination, and enforcement priorities of the federal banking agencies.agencies Atwill this time, it is unclearbe, what laws, regulations, and policies may change and whether future changes or uncertainty surrounding future changes will adversely affect the Company’s operating environment, and therefore its business, financial condition, and results of operations.
In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks. The secure processing, maintenance, and use of this information is critical to operations and the Company’s business strategy. The Company has invested in accepted technologies and continually reviews processes and practices that are designed to protect its networks, computers, and data from damage or unauthorized access. Despite these security measures, the Company’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged, or disclosed. A breach in security could result in legal claims, regulatory penalties, disruption in operations, and damage to the Company’s reputation, which could adversely affect its business and financial condition. Furthermore, as cyber threats continue to evolve and increase, the Company may be required to expend significant additional financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any identified information security vulnerabilities. The continued evolution and increased usage of artificial intelligence technologies may further increase these risks.
In addition, multiple U.S. companies have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information, and other financial or privileged data. These incursions affect cards issued and deposit accounts maintained by many banks, including the Company. These events can cause the Company to reissue a significant number of cards and take other costly steps to avoid significant theft loss to the Company and its customers. In some cases, the Company may be required to reimburse customers for the losses they incur. Other possible points of intrusion or disruption not within the Company’s control include internet service providers, electronic mail and collaboration platform providers, social media portals, distant-server (cloud) service providers, electronic data security providers, core processing vendors, payment networks, software and hardware manufacturers, data storage providers, telecommunications companies, smart phone manufacturers, utility providers, and other third-party technology vendors and service providers.
Third-party vendors provide key components of the Company’s business operations such as data processing, recording, and monitoring transactions, online banking interfaces and services, internet connections, and network access. While the Company maintains an extensive third-party risk management program and has selected these third-party vendors carefully, it does not control their actions. Any problem caused by these third parties, including poor performance of services, failure to provide services, disruptions in communication services provided by a vendor and failure to handle current or higher volumes, could adversely affect the Company’s ability to deliver products and services to its customers and otherwise conduct its business, and may harm its reputation. Financial or operational difficulties of a third-party vendor could also hurt the Company’s operations if those difficulties interface with the vendor’s ability to serve the Company. Replacing these third-party vendors could also create significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to the Company’s business operations.
Regulations issued by the CFPB could adversely impact earnings due to, among other things, increased compliance costs or costs due to noncompliance.
The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive, or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The CFPB has recently pursued a more aggressive enforcement policy with respect to a range of regulatory compliance matters, specifically including fair lending, loan servicing, financial institution sales and marketing practices, and financial institution consumer fee and account management practices. For example, the CFPB has brought enforcement actions against financial institutions for overdraft practices that the CFPB alleged to be unlawful and ordered each of these institutions to pay a substantial civil money penalty in addition to customer restitution and proposed rules to curb overdraft fees. Despite the Company's ongoing compliance efforts, it may become subject to regulatory enforcement actions with respect to programs and practices. The costs and limitations related to this additional regulatory scrutiny with respect to consumer product offerings and services may adversely affect the Company’s profitability. As noted previously, the future of the CFPB is uncertain, but there are other agencies that have similar oversight on the Bank's activities.
The authorities that promulgate accounting standards, including the Financial Accounting Standards Board, the SEC, and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes are difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in the restatement of financial statements for prior periods. Such changes could also require the Company to incur additional personnel or technology costs. For example, effective January 1, 2023, the Company adopted Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses (referred herein as “current expected credit losses” or “CECL”). CECL is generally viewed throughout the industry as the most significant change in accounting standards to affect financial institutions in decadesdecades, as it fundamentally changes the accounting for and estimation of the allowance for credit losses (“ACL”).ACL. The prior incurred loss approach was replaced by a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. As a result, the Company has incurred additional expenses to support both the adoption and the subsequent accounting and financial reporting requirements of CECL. For more information regarding recent accounting pronouncements and their effects on the Company, see “Recent Accounting Pronouncements” in Note 2 of the Company’s audited financial statements as of and for the year ended December 31, 2024.2025.
The Company’s success is, and is expected to remain, highly dependent on its management team. The Company’s operations will continue to place significant demands on management, and the loss of any such person’s services may have an adverse effect upon the Company's operations and profitability. If the Company fails to retain or continue to recruit qualified employees, its operations and profitability could be adversely affected.
In order to be successful, the Company must identify and retain experienced key management members and sales staff with local expertise and relationships. Competition for qualified personnel is intense and there is a limited number of qualified persons with knowledge of and experience in banking and in the Company’s chosen geographic markets. Even if the Company identifies individuals that it believes could assist it in building its franchise, it may be unable to recruit these individuals away from their current employers. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out the Company’s strategy is often lengthy. The Company’s inability to identify, recruit, and retain talented personnel could limit its ability to pursue its strategic goals and materially adversely affect its business, financial condition, and results of operations.
Third-party vendors provide key components of the Company’s business operations such as data processing, recording, and monitoring transactions, online banking interfaces and services, internet connections, and network access. While the Company has selected these third-party vendors carefully, it does not control their actions. Any problem caused by these third parties, including poor performance of services, failure to provide services, disruptions in communication services provided by a vendor and failure to handle current or higher volumes, could adversely affect the Company’s ability to deliver products and services to its customers and otherwise conduct its business, and may harm its reputation. Financial or operational difficulties of a third-party vendor could also hurt the Company’s operations if those difficulties interface with the vendor’s ability to serve the Company. Replacing these third-party vendors could also create significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to the Company’s business operations.
In addition, financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry. In 2023 and 2024, several large regional banks experienced large deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into FDIC receivership. In the aftermath, there was substantial market disruption and concern that diminished depositor confidence could spread across the banking industry, leading to deposit outflows that could destabilize other institutions. While public confidence in the banking system has since stabilized, deposit outflows caused by reputational concerns or events affecting the banking industry generally could adversely affect the Company’s liquidity, financial condition, and results of operations.
In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks. The secure processing, maintenance, and use of this information is critical to operations and the Company’s business strategy. The Company has invested in accepted technologies and continually reviews processes and practices that are designed to protect its networks, computers, and data from damage or unauthorized access. Despite these security measures, the Company’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged, or disclosed. A breach in security could result in legal claims, regulatory penalties, disruption in operations, and damage to the Company’s reputation, which could adversely affect its business and financial condition. Furthermore, as cyber threats continue to evolve and increase, the Company may be required to expend significant additional financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any identified information security vulnerabilities.
In addition, multiple U.S. companies have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information, and other financial or privileged data. These incursions affect cards issued and deposit accounts maintained by many banks, including the Company. These events can cause the Company to reissue a significant number of cards and take other costly steps to avoid significant theft loss to the Company and its customers. In some cases, the Company may be required to reimburse customers for the losses they incur. Other possible points of intrusion or disruption not within the Company’s control include internet service providers, electronic mail portal providers, social media portals, distant-server (cloud) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.
The market for financial services, including banking and consumer finance services, is increasingly affected by advances in technology, including recent and rapid developments in artificial intelligence, social media, and other developments in telecommunications, data processing, computers, automation, online banking, and tele-banking. The Company’s ability to compete successfully in its market may depend on the extent to which it is able to implement or exploit such technological changes. If the Company is not able to afford such technologies, properly or timely anticipate or implement such technologies, or effectively train its staff to use such technologies, its business, financial condition, or operating results could be adversely affected.
The development and use of artificial intelligence (“AI”) presents risks and challenges that may adversely impact our business.
The Company or its third-party vendors, clients, or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI presents a number of risks and challenges to the Company’s business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in the Company’s implementation of AI technology and increase the Company’s compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, the Company may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which the Company may have limited visibility. Any of these risks could expose the Company to liability or adverse legal or regulatory consequences and harm the Company’s reputation and the public perception of its business or the effectiveness of its security measures.
The current and anticipated effects of climate change continue to raise concerns for the state of the global environment. As a result, the Company and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. While the Trump administration has shifted federal policy to reduce the emphasis on climate change initiatives and environmental regulations, state and local regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, could affect our business operations. Among other things, the Company and its customers could face cost increases, compliance-related risks, asset value reductions and operating process changes.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased. Federal and state legislatures and regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. The federal banking agencies, including the OCC, have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks’ risk management practices. In October 2023, the OCC published principles for climate risk management by banking organizations with more than $100 billion in assets. The OCC also has appointed its first ever Climate Change Risk Officer and established an internal climate risk implementation committee in order to assist with these initiatives and to support the agency’s efforts to enhance its supervision of climate change risk management. Similar and even more expansive initiatives are expected, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. To the extent that these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to the Company, the Company would likely experience increased compliance costs and other compliance-related risks.
Management's Discussion & Analysis (MD&A)
Removed heading “Mortgage Servicing Rights ("MSR") Assets”
Removed heading “Equity Investments”
Largest changes
“Excluding the goodwill impairment charge, the VCB ESOP litigation settlement charge, and regulatory remediation expenses, noninterest expense decreased $5.5 million, or 4.8%, for 2024 compared to 2023. Lower legal and regulatory filings expenses in 2024 was primarily the result of reduced legal costs associated with the VCB ESOP litigation, which were incurred in 2023. …”see in full comparison
For the year ended December 31,see in full comparison2024,2025, the Company reportedanetlossincome of$15.4$10.7 million compared to a net loss of$51.8$15.4 million for2023.2024.BasicDilutedandincomediluted(loss) per sharewerewas $0.11 for 2025 compared to ($0.31) for20242024.comparedContributing to($2.73) for 2023. Thethe net lossofin$51.82024million for the year ended December 31, 2023 included an after-tax goodwill impairment charge of $26.8 million andwas a$4.7$6.3 million after-taxsettlementnon-cashreservenegative fair value adjustment of an equity investment the Company holds in a fintech company. Additionally, forthe2024, thepreviouslyCompanydisclosedreportedEmployee$3.6Stock Ownership Plan ("ESOP") litigation assumed in the 2019 acquisitionmillion ofVirginia Community Bankshares, Inc. ("VCB"). After-taxafter-tax regulatory remediationexpensesexpenses, while none were reported for2024 and 2023 were $3.6 million and $8.1 million, respectively.2025.
“In 2024, the Company identified potential impairment indicators related to one of its investments, 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. …”see in full comparison
The Company also has various other equity investments, including an investment in a fintech company and limited partnerships, totalingsee in full comparison$4.8$4.9 million and$12.9$4.8 million as of December 31,20242025 and2023,2024, 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 indication of 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 identifiedpotentialimpairmenttriggersindicators related to one of its investments,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 resultedresulting in an $8.5 million impairmentcharge,charge that was recorded in fair value adjustments of other equityinvestments,investmentsto adjuston theinvestmentconsolidatedtostatementsitsofestimatedoperations.fairNomarketsuch potential impairment indicators were noted inthe second quarter of 2024.2025.
Income Tax Expense. For the year ended December 31,see in full comparison2024,2025, the Company recorded income tax expense of $3.1 million (effective income tax rate of 22.3%) compared to an income tax benefit of $1.1 million (effective income tax rate of 6.8%)compared to income tax benefit of $7.1 million (effective income tax rate of 12.0%)for the same period of2023.2024. The effective income tax rate in the 2024 period was primarily attributable to income tax expense on the surrender of the majority of the Company's investment in bank owned life insurance, which resulted in a taxable gain and nondeductible penalties.The effective income tax rate in the 2023 period was primarily attributable to the $26.8 million goodwill impairment charge, which was not tax deductible.
see in full comparisonAs of December 31, 2024 and 2023, the majority of the investment securities portfolio consisted of securities rated investment grade by a leading rating agency. Investment grade securities are judged to have a low risk of default, to be of the best quality and carry the smallest degree of investment risk.At December 31,20242025 and2023,2024, securities with a fair value of$268.9$174.3 million and$35.8$268.9 million, respectively, were pledged to secure the Bank's borrowing facility with the FHLB. As of December 31, 2025 and 2024, the Company had pledged securities with a fair value of $0 and $16.3 million as collateral for the FRB DiscountWindow,Window.andThe decline in pledged securities as of December 31,2023,2025 from December 31, 2024 with both FHLB and FRB reflects theCompanyreleasehadofpledgedsecurities$260.9 millionheld ascollateral for the FRB Bank Term Funding Program (“BTFP”).collateral.
Full comparison: every changed paragraph (108)
The Company makes certain forward-looking statements in this Form 10-K that are subject to risks and uncertainties. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of management’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. The Company cautions that the forward-looking statements are based largely on management’s expectations and are subject to a number of known and unknown risks and uncertainties that are subject tomay change based on factors which are, in many instances, beyond the its control. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements.
the effects of, and changes in, the macroeconomic environment and financial market conditions, including monetary and fiscal policies, interest ratesrates, and inflation;
the impact of, and the ability to comply with, the terms of the Consent Order, as defined below, with the OCC, including the heightened capital requirements and other restrictions therein, and other regulatory directives;
the imposition of additional regulatory actions or restrictions for noncompliance with the Consent Order or otherwise;
the Company’s involvement in, and the outcome of, any litigation, legal proceedings, or enforcement actions that may be instituted against the Company;
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, and managing the wind down of these partnerships;
the emergence of digital assets and payment stablecoins, and evolving legislative or regulatory frameworks, which could alter deposit flows, competition, and credit intermediation and, in turn, adversely affect the Company’s funding, liquidity, or overall financial performance;
the ability to maintain capital levels adequate to support the Company's business and to comply with the Consent Order directives;
the usage of advances and changes in technological and social media to develop timely development ofand competitive new products and servicesservices, and the acceptance of these products and services by new and existing customers;
changes in consumer spending and savings habits;
technological and social media changes;
adverse developments in the financial industry generally, such as recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior;
political developments, including government shutdowns and other significant disruptions and changes in the funding, size, scope and effectiveness of the federal government, its agencies and services;
the impact of changes in financial services policies, laws, and regulations, including laws, regulationsregulations, and policies concerning taxes, banking, securities, real estate and insurance, the application thereof by bank regulatory bodies, and the three branches of the federal government;
the economic impact of duties, tariffs, or other barriers or restrictions on trade, any retaliatory countermeasures, and the volatility and uncertainty arising therefrom;
the Company’s involvement in, and the outcome of, any litigation, legal proceedings, or enforcement actions that may be instituted against the Company; and other risks and factors identified in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections and elsewhere in this Form 10-K and in filings the Company makes from time to time with the SEC.
The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in this Form 10-K, including those discussed in the section entitled “Risk Factors” in Item 1A above. If one or more of the factors affecting forward-looking information and statements proves incorrect, then actual results, performanceperformance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-K. Therefore, the Company cautions you not to place undue reliance on its forward-looking information and statements. The Company will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how these risks and uncertainties will affect it.
The accounting principles the Company applies under GAAP are complex and require management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. The Company views thesethe following policies as critical because they are highly dependent upon subjective or complex judgments, assumptions, and estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.
Allowance for Credit Losses ("ACL")
The allowance for credit lossesACL represents management’s best estimate of credit losses over the remaining life of the Company's held for investment loan portfolio. Loans are charged-off against the ACL when management believes the loan balance is no longer collectible. Subsequent recoveries of previously charged-off amounts (recoveries) are recorded as increases to the ACL. The provision for (recovery of) credit losses is an amount sufficient to bring the ACL to an estimated balance that management considers adequate to absorb lifetime expected losses in the Company’s held for investment loan portfolio. The ACL is a valuation account that is deducted from the loans’loans' recorded investment to present the net amount expected to be collected on the loans.loan portfolio. In accordance with Accounting Standards Codification ("ASC") 326, Credit Losses, the Company elected to exclude accrued interest from the recorded investment basis in its determination of the ACL for loans held for investment, and instead reverses accrued but unpaid interest through interest income in the period in which the loan is placed on nonaccrual status.
In applying future economic forecasts, the Company utilizes a forecast period of one year and then reverts to the mean of historical loss rates on a straight-line basis over the following one-year period. The Company considers economic forecasts of national gross domestic product and unemployment rates from the Federal Open Market Committee to inform the model for loss estimation. Historical loss rates used in the quantitative model arewere derived using both the Bank’sBank's and peer bank data obtained from publicly-available sources (i.e., federal call reports). encompassing an economic cycle. The Bank’sBank's peer group utilized is comprised of financial institutions of relatively similar size (i.e., $1 - $5 billion of total assets) and in similar markets. Management also considers qualitative adjustments when estimating loan losses to take into account the model’smodel's quantitative limitations. Qualitative adjustments to quantitative loss factors, either negative or positive, may include considerations of trends in delinquencies, changes in volume and terms of loans, effects of changes in lending policy, experience and depth of management, regional and local economic trends and conditions, concentrations of credit, and loan review results.
For those loans that do not share similar risk characteristics, the Company evaluates the ACL needs on an individual (or loan-by-loan) basis. This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and is based on whether (1) the risk grade of the loan is substandard or worse and the balance exceeds $500,000, (2) the risk grade of the loan is special mention and the balance exceeds $1,000,000, or (3) the loan’sloan's terms or risks differ significantly from other pooled loans. Measurement of credit loss is based on the expected future cash flows of an individually evaluated loan, discounted at the loan’sloan's effective interest rate, or measured on an observable market value, if one exists, or the estimated market value of the collateral underlying the loan discounted for estimated costs to sell the collateral for collateral-dependent loans. In limited circumstances, the collateral value for a collateral-dependent loan may be based on the enterprise value of a company. The enterprise value method involves assessing the borrower’s ability to repay the loan by estimating the total value of its business, including both debt and equity. This approach is typically used where the recoverable value is based on the fair value of the company as a going concern, adjusted for the priority of the Company'scompany's claim. If the net value applying these measures is less than the loan’sloan's amortizedrecorded cost,investment, a specific reserve is recorded in the ACL and charged-off in the period when management believes the loan balance is no longer collectible.
Credit losses are an inherent part of the Company’s business. The Company has an ACL management "work group", which includes executive and senior management of the accounting and credit administration teams, who approve the key methodologies and assumptions, as well as the final ACL.ACL, on a quarterly basis. While management uses available information at the time of estimation to determine expected lifetime credit losses on loans, future changes in the ACL may be necessary based on changes in portfolio composition, portfolio credit quality, changes in underlying facts for individually evaluated loans, and/or changes in current and forecasted economic conditions. In addition, bank regulatory agencies and the Company's independent auditors periodically review its ACL and may require an increase in the ACL or the recognition of further loan charge-offs, based on judgments that are different than those of management. Additional provisions for such losses, if necessary, would be recorded as a charge to earnings.
Mortgage Servicing Rights ("MSR") Assets
MSR assets represent the economic value associated with servicing a mortgage loan during the life of the loan. The Company retains servicing rights on mortgages originated and sold to the secondary market. The assets are separate from the underlying mortgage and may be retained or sold by the Company when the related mortgage is sold. Under ASC 860, Transfers and Servicing, MSR assets are initially recognized at fair value and subsequently accounted for using either the amortization method or the fair value measurement method. Beginning January 1, 2022, the Company elected the fair value measurement method for accounting for MSR assets; prior to this, MSR assets were recorded under the amortization method. This change in accounting method, which was an irrevocable election, was prospective in nature and resulted in an after-tax difference in carrying values of its MSR assets under the two methods at the beginning of 2022. Consequently, a positive $3.5 million cumulative effect adjustment was recorded to stockholders’ equity as of January 1, 2022. MSR assets and servicing income are reported on the Company’s consolidated balance sheets and consolidated statements of operations, respectively.
In the second half of 2024, the Company sold substantially all of its MSR assets consisting of $1.94 billion in unpaid principal loan balances of underlying mortgages, at a loss of $3.6 million. This loss includes transaction-related costs and an estimated recourse reserve for potential putbacks, estimated transition costs, and a portion of the proceeds withheld for documentation review.
As of December 31, 2024, the Company's MSR asset portfolio was $386 thousand, which consisted of $33.9 million in unpaid principal loan balances of underlying mortgages.
Income taxes are accounted for using the balance sheet method in accordance with ASC 740, Accounting for Income Taxes.Taxes, and recently adopted ASU No. 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures (collectively "ASC 740"). Per ASC 740, the objective is to (a) recognize the amount of taxes payable or refundable for the current year, and (b) defer tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or federal income tax returns. Deferred tax assets and liabilities are determined based on the tax effects of the temporary differences between the book (i.e., financial statement) and tax bases of the various balance sheet assets and liabilities,liabilities and give current recognition to changes in tax rates and laws. Temporary differences are reversed in the period in which an amount or amounts become taxable or deductible.
Equity Investments
The Company has made equity investments in a fintech company and limited partnerships, which are being accounted for as equity securities under ASC 321, Investments – Equity Investments. Few of these equity investments have readily-determinable fair values and most are reported at cost, less impairment, if any. 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 indication of impairment no less than quarterly. These investments, inclusive of the fair value adjustments, totaled $4.8 million and $12.9 million as of December 31, 2024 and 2023, respectively, and are included in other equity investments on the Company's consolidated balance sheets. Other equity investments are also periodically evaluated for impairment using information obtained either directly from the investee, a third-party broker, or a third-party valuation firm. If an impairment has been identified, the carrying value of the investment is written down to its estimated fair market value through a charge to earnings.
For the year ended December 31, 2024,2025, the Company reported a net lossincome of $15.4$10.7 million compared to a net loss of $51.8$15.4 million for 2023.2024. BasicDiluted andincome diluted (loss) per share werewas $0.11 for 2025 compared to ($0.31) for 20242024. comparedContributing to ($2.73) for 2023. Thethe net loss ofin $51.82024 million for the year ended December 31, 2023 included an after-tax goodwill impairment charge of $26.8 million andwas a $4.7$6.3 million after-tax settlementnon-cash reservenegative fair value adjustment of an equity investment the Company holds in a fintech company. Additionally, for the2024, the previouslyCompany disclosedreported Employee$3.6 Stock Ownership Plan ("ESOP") litigation assumed in the 2019 acquisitionmillion of Virginia Community Bankshares, Inc. ("VCB"). After-taxafter-tax regulatory remediation expensesexpenses, while none were reported for 2024 and 2023 were $3.6 million and $8.1 million, respectively.2025.
(6) Includes amortization of fair value adjustments (premiums) on assumed subordinated notes of $100$0.1 thousandmillion for both years ended December 31, 20242025 and 2023.2024.
Average interest-earning assets were $2.85$2.49 billion for the year ended December 31, 20242025 compared to $3.03$2.85 billion for the same period of 2023,2024, a $188.1$354.9 million decrease. This decrease was primarily attributable to lower average balances of loans held for investment and securities,investment, which decreaseddeclined $190.7$303.1 millionmillion. andTo $36.5transition million,the respectively,Company partiallyto offseta bymore highertraditional averagecommunity balancesbanking ofmodel, interest-earning deposits in other banks. Thethe Company selectively reduced its loan portfolio,portfolio primarilyto loansborrowers outside of the Bank's geographic market,markets by approximately $120.0 million in order2025. toGenerally, meetthese loans carried higher yields but also presented greater credit risk than the liquidityremainder needsof tothe exitCompany's fintechloan BaaS depository operations.portfolio. Total interest income (on a taxable equivalent basis) decreased by $8.7$22.5 million to $160.4$137.8 million for the year ended December 31, 20242025 compared to the year ended 2023.December 31, 2024. This decrease was primarily due to lower average balances of loans held for investment.investment, partially offset by fee income of $3.5 million associated with the extension and subsequent payoff of a previously criticized out-of-market loan. The yields on loans held for investment in 2025 and 2024 were 5.89% and 5.87%, respectively. In 2025, a large previously criticized out-of-market loan relationship paid off resulting in $3.5 million of fee income, which had a positive 15 basis point effect on the yield on loans held for investment in 2025. Interest income in 20242025 and 20232024 also included accretion of fair value adjustments (discounts) on acquired loans of $1.1$1.6 million and $2.6$1.1 million, respectively.
Average interest-bearing liabilities were $2.20$1.79 billion for the year ended December 31, 20242025 compared to $2.31$2.20 billion for the same period of 2023,2024, a $114.0$407.0 million decrease. OfThe majority of this decrease,decline $50.3($307.7 million) was attributable to lowerdecreases in average balances of FHLB advances, while $45.0 million was attributable to lower average balances of interest-bearing deposits, primarily duefintech-related todeposits ($237.0 million) and wholesale time deposits ($173.3 million). These changes reflect the balance sheet repositioning as the Company moved towards a declinemore intraditional fintechcommunity BaaSbank deposits. Average fintech-related deposit balances were $260.0 million and $653.2 million for the years ended December 31, 2024 and December 31, 2023, respectively.model. Interest expense increaseddecreased by $5.7$22.7 million to $81.7$58.9 million for the year ended December 31, 20242025 compared to the 20232024 period.period, Higherlargely interest expense was primarily attributable to higher rates paid on interest-bearing deposits, primarily time deposits, partially offsetdriven by athe decline in depositsaverage relatedbalances toand the Bank's fintech operations. These changes reflect the balance sheet repositioning that facilitated the exitcost of fintechinterest-bearing BaaS depository operations and towards a more traditional community bank model. The interest rates for the majority of the fintech-related accounts are index-priced, with the index being the federal funds rate.deposits. The cost of fintech-relatedaverage depositsinterest-bearing wasliabilities 3.86%decreased to 3.29% in 2025 from 3.72% in 2024, while the cost of depositsfunds ofdecreased customersto 2.66% in the Bank's primary markets (also excluding brokered deposits) was 3.15% in the same period. Brokered time deposits also contributed to the higher interest expense in the 2024 period in the amount of $23.9 million. The cost of average interest-bearing liabilities increased to 3.72% in 20242025 from 3.29% in 2023, while the cost of funds increased to 3.04% in 2024 from 2.56% in 2023.2024. Interest expense in the 20242025 and 20232024 periods included the amortization of fair value adjustments (premium) on assumed time deposits of $0.3$0.1 million and $0.8$0.3 million, respectively, which was a reduction to interest expense.
Net interest income (on a taxable equivalent basis) was $78.9 million for the year ended December 31, 2025 compared to $78.7 million for the year ended December 31, 2024 compared to $93.1 million for the year ended December 31, 2023,2024, while net interest margin was 2.77%3.17% and 3.07%2.77% for the same respective periods. The aforementioned fee income of $3.5 million had a positive 12 basis point effect on net interest margin in 2025. Accretion and amortization of purchase accounting adjustments had a 57 basis point and 125 basis point positive effect on net interest margin for the same respective periods. The decrease in net interest income in 20242025 was primarily due to lower average balances of loans held for investmentinvestment, partially offset by lower average balances of and higherrates ratespaid on deposits,interest-bearing primarilydemand accounts, money market accounts, and time deposits. The Company anticipates that future net interest income and net interest margin will be positively affected as itportions anticipatesof the loan balanceportfolio declinesreprice and amortize, and new production is added in a higher interest rate environment than portions of the existing portfolio. Additionally, maturities of higher-cost time deposits, including brokered deposits, are expected to stabilizehave witha positive effect on net interest margin as new and renewed loansdeposits are anticipated to be sourced at higherlower market rates and a further reduction in higher cost brokered deposits.rates.
(Recovery of ) Provision for Credit Losses. The Company recorded a recovery of credit losses of $4.0 million for the year ended December 31, 2025 compared to $5.1 million for the year ended December 31, 20242024. comparedThe torecovery a provision forof credit losses ofin $22.32025 millionwas forprimarily thedue yearto endedloan Decemberportfolio 31,balance 2023,reductions, a decreaserecoveries of $27.4loans million.charged off in prior years, and reductions to reserves on individually evaluated loans. The recovery of credit losses in 2024 was primarily attributable to an $8.4 million recovery from the sale of a specialty finance loan reserved for in 2023 and 2022 and2022, lower reserve needs due to loan portfolio balance reductions, and lower balances of loan commitments, partially offset by higher specific reserves for certain purchased loans. Provision for credit losses in 2023 was primarily composed of specific reserves on the previously reported group of specialty finance loans, partially offset by a credit to provision for credit losses on unfunded commitments, as the Company actively worked to reduce these balances.
The Company reported higher service charges on deposit accounts for 2025 compared to 2024, primarily due to the execution of a project in early 2025 to more closely align products and pricing with competitors in the markets in which the Bank operates. The decline in residential mortgage banking income for the same comparative periods was attributable to the sale of the mortgage division in the first quarter of 2025. The decline in bank owned life insurance income for 2025 compared to 2024 was due to the surrender of policies at their cash surrender values in the latter half of 2024. Swap transaction fees in 2025 represent income earned upon the execution of interest rate swaps agreements that the Bank entered into with certain commercial borrowers and swap counterparties.
In 2024, the Company identified potential impairment indicators related to one of its investments, 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 in the second quarter of 2024, which was recorded in fair value adjustments of other equity investments. No such impairment indicators were identified in 2025.
Income on sale of MSRs in 2025 was attributable to the release of reserves associated with the 2024 sales of MSRs. The reserves related to a portion of the sales proceeds held back pending the Company providing certain documentation to the buyers subsequent to the sales. During 2025, all such available documentation was delivered, and the heldback sales proceeds were received.
The decline in other noninterest income for 2025 compared to 2024 was primarily driven by lower fee income from the Company's exit of its indirect fintech lending and BaaS depository partnerships.
Lower noninterest income in 2024 compared to 2023 was primarily attributable to a $8.5 million non-cash, negative fair value adjustment of an equity investment the Company holds in a fintech company. Lower gain on sale of guaranteed government loans in 2024 compared to 2023 was attributable to the exit of the majority of the Company's guaranteed government lending team in the second quarter of 2024, which aligns with the Company’s enhanced focus on lending opportunities within its core geographic market.
The decline in residential mortgage banking income was primarily attributable to lower mortgage volumes sold into the secondary market in 2024 ($221.3 million) compared to 2023 ($315.5 million). Also contributing to the decline in noninterest income was the sale of MSR assets, which resulted in a loss on sale of $3.6 million, while fair value adjustments to MSR assets was a positive $619 thousand in 2024 compared to a negative $2.8 million in 2023. Fair value adjustments are primarily driven by market interest rates and related assumptions. Partially offsetting the negative $2.8 million fair value adjustment on MSR assets in 2023 was the retention of new MSR assets.
The decline in other noninterest income in 2024 compared to 2023 was primarily attributable to a decline in income from fintech BaaS deposit partnerships and a decline in income from Small Business Investment Company ("SBIC") investments as the Company sold all of its SBIC investments in 2024. In 2023, SBIC income and fintech BaaS deposit income were partially offset by the $553 thousand loss on sale of the LenderSelect Mortgage Group. The Company reported in January 2025 plans to exit its indirect fintech lending partnerships and, as a result, anticipates a decline in noninterest income beginning in 2025 from these sources. These partnerships generated $2.9 million and $3.0 million of noninterest income in 2024 and 2023, respectively.
The majority of the decline in noninterest expenses in 2025 compared to 2024 was for salaries and employee benefits. Employee headcount was reduced to 302 employees as of December 31, 2025 from 442 as of December 31, 2024, a 32% reduction. The headcount reduction and lower audit fees, FDIC insurance premiums, consulting fees, regulatory remediation expenses, and other noninterest expenses resulted primarily from the exit of fintech BaaS depository operations, the remediation of the now-terminated Consent Order, and the sale of the mortgage division..
Higher advertising and marketing expenses for the 2025 period compared to the 2024 period were the result of marketing campaigns designed to drive future growth, which launched in the second half of 2025. Higher other taxes and assessments in the 2025 period were due to higher bank franchise taxes as a result of higher capital levels at the Bank.
While the Company anticipates additional noninterest expense reductions in future periods, due to operational efficiency and other strategic initiatives, the amount and rate of cost reductions are expected to be significantly less than the change from 2024 to 2025.
Excluding the goodwill impairment charge, the VCB ESOP litigation settlement charge, and regulatory remediation expenses, noninterest expense decreased $5.5 million, or 4.8%, for 2024 compared to 2023. Lower legal and regulatory filings expenses in 2024 was primarily the result of reduced legal costs associated with the VCB ESOP litigation, which were incurred in 2023. Lower other contractual services and regulatory remediation expenses in 2024 were due to the reduction in the use of third-party resources in the BSA/AML area, as the Bank completed certain requirements under the Consent Order and exited its fintech BaaS depository operations. Higher audit fees in 2024 were primarily due to outsourced internal audits and assessments related to fintech operations. While salaries and employee benefits expenses remained flat in 2024 from 2023, full-time equivalent employees ("FTEs") as of December 31, 2024 and December 31, 2023, were 442 and 513, respectively. The Company anticipates that due to the transition to a more traditional community banking model, operational efficiency initiatives, and as regulatory directives are met, salaries and employee benefits expenses will decline in subsequent periods. Additionally, the Company expects overall noninterest expenses to decrease as it addresses the findings in the Consent Order.
Income Tax Expense. For the year ended December 31, 2024,2025, the Company recorded income tax expense of $3.1 million (effective income tax rate of 22.3%) compared to an income tax benefit of $1.1 million (effective income tax rate of 6.8%) compared to income tax benefit of $7.1 million (effective income tax rate of 12.0%) for the same period of 2023.2024. The effective income tax rate in the 2024 period was primarily attributable to income tax expense on the surrender of the majority of the Company's investment in bank owned life insurance, which resulted in a taxable gain and nondeductible penalties. The effective income tax rate in the 2023 period was primarily attributable to the $26.8 million goodwill impairment charge, which was not tax deductible.
The Company has pledged certain qualifying loans as collateral for borrowings. Commercial and residential mortgages totaling $695.1 million and $797.9 million were pledged with the FHLB as of December 31, 2025 and 2024, respectively. The Company pledged as collateral for borrowings with the FRB Discount Window certain construction and commercial and industrial loans totaling $72.8 million and $91.6 million as of December 31, 2025 and 2024, respectively.
TheWhile the Federal Reserve has reduced the target Fed Funds rate by 175 basis points from a recent peak, the current lending environment for commercial real estate (“CRE”) loans has heightened risk due to a higher interest rate environment.environment than had existed when these loans may have been originated. Potential negative impacts may include higher debt service burdens for floating rate loans and fixed rate loans originated in a lower rate environment that maturereprice andor requiremature, requiring renewal or refinancing. As these loans mature, they may be repriced at significantly higher interest rates,rates leading to increased debt service costs that can strain borrowers' ability to meet payment obligations. In some cases, the higher cost of refinancing may lead to loan defaults, particularly if property cash flows have not increased proportionally.relatively.
In response to the heightened risk, earlier in 2024, the Bank’s credit policy and risk committee conducted a targeted review of certain of the Bank’s loan types, including office loans, to confirm its internal risk ratings. In addition, theThe Bank’s credit administration department led by its Chief Credit Officer performs a periodic analysisanalyses of emerging trends by geography and property type where the Bank has the largestlarger concentrations by CRE property type. TheThese analysisanalyses includesinclude all real estate property types and geographic markets represented in the loan portfolio.portfolio Thisand analysis isare provided to the Bank's board of directors to assess whether the CRE lending strategy and risk appetite continue to be appropriate, considering changes in local market conditions and the Bank’s exposure to collateral type concentrations. Also, concentration limits by real estate collateral type are approved and monitored by the Bank's board of directors. As of December 31, 2024,2025, all limits are in compliance.
The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed) as of December 31, 2025. Loans shown in the one year or less column are term loans that have a stated maturity date within twelve months. Variable rate loans reprice at various intervals (monthly or quarterly) and the rate is tied to a published index such as the Fed Prime rate, U.S. Treasury bond indices, or the Secured Overnight Funding Rate.
The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed) as of December 31, 2024.
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 December 31, 20242025 and December 31, 2023.2024. 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,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,may 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.
Net recoveries were $0.3 million for the year ended December 31, 2025, compared to net charge-offs of $10.0 million for the year ended December 31, 2024. Contributing to the higher charge-offs and recoveries in 2024 compared to 2025 was the sale of a nonperforming specialty finance loan in 2024 that resulted in both a reduction of reserves ($8.4 million) established in 2022 and 2023 and a partial charge off ($9.4 million).
In the second quarter of 2024, the Company executed an agreement to sell a nonperforming specialty finance loan (reported as commercial and industrial) to a third party, reclassifying the loan from loans held for investment to loans held for sale in the same period at its estimated fair value. Upon reclassification, the Company recorded a charge-off of $9.4 million, which was provisioned for in prior years. In the third quarter of 2024, the sale was completed upon the receipt of all contractual amounts due and pursuant to the note sale agreement, and the Company recorded an $8.4 million recovery of credit losses.
The adoption of ASC 326 on January 1, 2023 resulted in a $7.4 million increase in the ACL. Provision for credit losses in the 2023 period was primarily attributable to specific reserves for specialty finance loans that were originated in 2022. The Company ceased making loans identified as specialty finance in late 2022. As of December 31, 2024 and 2023, carrying values of specialty finance loans totaled $0 and $34.2 million, respectively, with specific reserves of $0 and $9.6 million, respectively, as of the same dates. Net loan charge-offs were $10.0 million for the year ended December 31, 2024, compared to $27.0 million for the year ended December 31, 2023. The decline in net charge-offs in 2024 compared to 2023 was primarily due to $19.5 million in specialty finance loan charge-offs recorded in 2023 compared to $1.0 million in 2024. Net charge-offs of the nonguaranteed portion of government-guaranteed loans totaled $2.0 million and $1.1 million for 2024 and 2023, respectively.
The ACL includes specific reserves for individually evaluated loans and a general allowance applicable to all loan categories; however, management has allocated the ACL by loan type to provide an indication of the relative risk characteristics of the loan portfolio. The allocation is an estimate and should not be interpreted as an indication that charge-offs will occur in these amounts or that the allocation indicates future trends, and does not restrict the usage of the general allowance for any specific loan or category. The following table presents the allocation of the ACL by loan category and the percentage of loans in each category to total loans as of the dates stated.
Loans are generally placed into nonaccrual status when they are past due 90 days or more as to either principal or interest or when, in the opinion of management, the collection of principal and/or interest is in doubt. A loan remains in nonaccrual status until the loan is current as to payment of both principal and interest or past due less than 90 days and the borrower demonstrates the ability to pay and remain current for a sustained period of time, generally six months, or when the loan otherwise becomes well-secured and in the process of collection. When cash payments are received, they are applied to principal first, then to accrued interest. It is the Company's policy not to record interest income on nonaccrual loans until the loan has returned to accrual status. In certain instances, accruing loans that are past due 90 days or more as to principal or interest may not be placed on nonaccrual status, if the Company determines that the loans are well-secured and are in the process of collection.
OREO generally includes properties that have been substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties, which are held for resale, are initially stated at fair value, including a reduction for the estimated selling expenses, which becomes the new carrying value. In subsequent periods, such properties are stated at the lower of the restated carrying value or fair value. In limited cases, the Bank may receive non-cash consideration, including equity interests, pursuant to negotiated or court-approved settlements with borrowers. The fair value of nonmarketable equity interests are generally estimated using a discounted cash flow analysis based on management’s assumptions regarding expected future cash flows, timing, and a risk-adjusted discount rate. These assets, which are reported with OREO on the Company's consolidated balance sheets, are subsequently carried at the lower of cost or fair value, less estimated costs to sell, and are periodically evaluated for impairment.
What changed in the latest 10-Q
Risk Factors
There have been no material changes to the risk factors disclosed in the 2025 Form 10-K. Additional risks not presently known to the Company, or that are currently deemed immaterial, may also adversely affect the Company's business, financial condition, or results of operations. See also “Cautionary Note About Forward-Looking Statements,” included in Part I, Item 2, of this Form 10-Q.
Full comparison: every changed paragraph (1)
There have been no material changes to the risk factors disclosed in the 2025 Form 10-K. Additional risks not presently known to the Company, or that are currently deemed immaterial, may also adversely affect the Company's business, financial condition, or results of operations. See also “Cautionary Note About Forward-Looking Statements,” included in Part 1,I, Item 2, of this Form 10-Q.
Management's Discussion & Analysis (MD&A)
Largest changes
On July 15, 2025, the Company completed a $10.0 million partial redemption ofsee in full comparisonitsthe 2029 Notes. As ofMarchJune31,30, 2026, the2029 Notes bore an annualinterest rateofon8.0%.the 2029 Notes, which resets quarterly, was 8.01%. As ofMarchJune31,30, 2026, the net carrying amount of the 2029 Notes was $14.7 million, inclusive of a $0.2 million purchase accountingadjustment (premium).adjustment. For the three months endedMarchJune31,30, 2026 and 2025, the effective interest rate on the 2029 Notes was7.92%7.43% and6.31%,7.48%, respectively, inclusive of the amortization of the purchase accounting adjustment (premium). For the six months ended June 30, 2026 and 2025, the effective interest rate on the 2029 Notes was 7.68% and 7.44%, respectively, inclusive of the amortization of the purchase accounting adjustment (premium).
Estimated uninsured deposits atsee in full comparisonMarchJune31,30, 2026 were approximately$414.3$430.3 million. In the unlikely event that uninsured deposit balances leave the Bank over a short period of time, management couldmore thansatisfy the demand withcashitson-handavailableand FHLB borrowing capacity.liquidity.
“As the Company transitioned to a more traditional community banking model and remediated the requirements under the consent order with the Bank's primary regulator, which was terminated in the fourth quarter of 2025, the number of employees decreased from 442 as of December 31, 2024, to 302 as of December 31, 2025, and to 269 as of June 30, 2026, or by 39% and 11%, respectively. As a result, the Company reported lower expenses for salaries and employee benefits and technology and communication costs. …”see in full comparison
“Average interest-earning assets were $2.31 billion for the six months ended June 30, 2026, compared to $2.57 billion for the same period of 2025, a $265.4 million decrease. This decrease was primarily due to declines in average balances of loans held for investment and loans held for sale, which decreased $217.5 million and $24.5 million, respectively, reflective of the Company's efforts to selectively reduce its portfolio of out-of-market loans and its exit from its indirect fintech lending partnerships. …”see in full comparison
“For the three months ended June 30, 2026, the Company reported a net loss of $1.3 million, or ($0.01) per diluted common share, compared to net income of $1.3 million, or $0.01 per diluted common share, for the same period of 2025. Net loss for the three months ended June 30, 2026 included an after-tax $3.2 million provision for credit losses, compared to an after-tax benefit for recovery of credit losses of $0.5 million for the same period of 2025. …”see in full comparison
“Noninterest expense decreased $4.2 million to $18.7 million for the three months ended March 31, 2026, from the same period of 2025. The decline relative to the prior period was primarily due to the termination of the consent order with the Bank's primary regulator, under which the Bank was operating until it was terminated in the fourth quarter of 2025. …”see in full comparison
Full comparison: every changed paragraph (75)
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, 2025 (the “2025 Form 10-K”). Results of operations for the three and six months ended MarchJune 31,30, 2026 are not necessarily indicative of the results of operations for the balance of 2026, 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.
On March 30, 2026, the Company announced a special cash dividend of $0.60 per share of the Company's common stock totaling approximately $54.1 million, of which $53.2 million was paid on April 27, 2026 to shareholders of record as of the close of business on April 13, 2026.
On March 30, 2026, the Company announced a special cash dividend of $0.60 per share of the Company's common stock totaling approximately $54.1 million. The dividend was paid on April 27, 2026 to shareholders of record as of the close of business on April 13, 2026. Also on March 30, 2026, the Company announced that the holders of outstanding warrants to purchase the Company's common stock (the "Warrants") representing a majority of shares of common stock underlying such Warrants approved an amendment and restatement of the Warrants (the "Warrant Amendment"). Pursuant to the Warrant Amendment, in connection with certain cash distributions to holders of the Company's common stock while the Warrants are outstanding, the per share exercise price of each Warrant is reduced by the per share dividend amount in lieu of cash distributions to Warrant holders, including the special cash dividends of $0.25 per share paid in November 2025 and $0.60 per share paid in April 2026. TheAs Companya hadresult, the previously accrued $6.1 million (for the November 2025 dividenddividends to be paid ifupon and when the Warrants are exercised. As a resultexercise of the Warrant Amendment, the $6.1 million accrualWarrants) was reversed in the first quarter of 2026, andand, upon execution of the amended and restated Warrants, the strike price of the Warrants reduces to $1.65 per common share.
The table below presents information pertaining to the Warrants as of and for the periodperiods stated.
Comparison of Financial Condition as of MarchJune 31,30, 2026 and December 31, 2025
Total assets were $2.33 billion as of June 30, 2026, a decrease of $105.3 million from $2.43 billion as of December 31, 2025. Approximately half of this decrease was attributable to a decrease in cash and due from banks ($54.3 million), while the remainder was due to decreases in securities available for sale ($15.9 million), loans held for sale ($14.8 million) and loans held for investment ($12.3 million). Cash and due from banks declined due to the special cash dividend paid of $53.2 million and the reduction of brokered time deposits of approximately $52.9 million. The decline in available for sale securities was due to bonds called or matured ($9.6 million) and portfolio amortization ($16.4 million), partially offset by bond purchases ($11.1 million).
Total assets were $2.41 billion as of March 31, 2026, a decrease of $18.5 million from $2.43 billion as of December 31, 2025. Most of this decrease was attributable to a $31.8 million decline in loans held for investment and a $14.8 million decline in loans held for sale, partially offset by an increase in cash and due from banks, which increased $30.7 million from December 31, 2025. Included in the reduction of loans held for investment in the first quarterhalf of 2026 were payoffs and paydowns of $24.1$32.2 million of out-of-market loans. The decline in loans held for sale reflectsreflected the Company's complete exit from its indirect fintech lending activities in the first quarter.quarter of 2026. The allowance for credit losses ("ACL") was $19.2$22.0 million and $19.4 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively. The increase since year-end primarily reflects the addition of specific reserves for out-of-market loans. Loans held for investment increased $19.6 million during the second quarter of 2026, primarily driven by growth in commercial and residential mortgage loans.
During the second quarter of 2026, the Company partnered with a third-party residential mortgage originator, whereby the Company purchases adjustable-rate mortgage loans originated generally within its market area. Purchases under this program totaled $17.3 million during the second quarter of 2026, inclusive of purchase premiums. This program provides a primary mortgage product to the Company's consumer customers.
Total deposits were $1.89$1.86 billion as of MarchJune 31,30, 2026, a net decrease of $18.1$48.8 million from December 31, 2025. The decline in the first quarterhalf of 2026 was primarily due to a $31.5$52.9 million decrease in brokered time deposits. Excluding the decline in brokered deposits, deposits increased $13.4$4.1 million in the first quarterhalf of 2026.
Total stockholders’ equity decreased by $46.7$48.3 million to $277.0$275.4 million as of MarchJune 31,30, 2026, from $323.7 million at December 31, 2025, primarily due to the special cash dividend ($54.1 million) announced March 30, 2026, partially offset by a $6.1 million reversal of accrued dividends due to the aforementioned Warrant Amendment.
Comparison of Results of Operations for the Three and Six Months Ended MarchJune 31,30, 2026 and 2025
For the three months ended June 30, 2026, the Company reported a net loss of $1.3 million, or ($0.01) per diluted common share, compared to net income of $1.3 million, or $0.01 per diluted common share, for the same period of 2025. Net loss for the three months ended June 30, 2026 included an after-tax $3.2 million provision for credit losses, compared to an after-tax benefit for recovery of credit losses of $0.5 million for the same period of 2025. Loans from a single out-of-market relationship originated prior to 2024 were placed on nonaccrual at June 30, 2026, and a reserve was established for the loans in the amount of $2.9 million ($2.3 million after tax). Net loss for the three months ended June 30, 2026 also included $0.3 million of after-tax expenses related to severance, compared to $0.2 million for the same period of 2025. Severance expenses include amounts associated with previously-announced executive officer transitions. The 2025 period also included an after-tax benefit of $1.0 million from the recovery of non-credit related amounts reserved for in the prior year, as the Company concluded outstanding exit activities with a former fintech banking-as-a-service (“BaaS”) partner.
For the threesix months ended MarchJune 31,30, 2026, the Company reported a net incomeloss of $0.8$0.5 million, or ($0.01) per diluted common share, compared to net lossincome of $0.4$0.9 million, or ($0.01) per diluted common share, for the same period of 2025. Net incomeloss for the firstsix quartermonths ofended June 30, 2026 included after-tax severance expenses of $1.3$1.7 millionmillion, relatedwhile to the transition of executive officers. Netnet income for the firstsix quartermonths ofended 2026June when excluding these transition expenses was $2.1 million, or $0.02 per diluted common share. Net loss for the first quarter of30, 2025 included after-tax severance costs of $0.5$0.8 million and an after-tax $0.2 million loss on the sale of the mortgage division.million.
Net Interest Income. Net interest income is the excess of interest earned on loans, investments, and other interest-earning assets less the interest paid on deposits and borrowings and is the Company’s primary revenue source. Net interest income is thereby affected by overall balance sheet size, changes in interest rates, and changes in the mix of investments, loans, deposits, and borrowings. Net interest income for the three and six months ended MarchJune 31,30, 2026 was $16.9$16.5 million and $33.4 million, respectively, a decline of $2.1$3.3 million and $5.4 million from the same respective periodperiods in 2025, primarily due to a declinedeclines in average loan balances.
The following table presents the average balance sheets for the three months ended MarchJune 31,30, 2026 and 2025. 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.
Average balances of interest-earning assets decreased $286.1$244.9 million to $2.33$2.28 billion for the three months ended MarchJune 31,30, 20262026, compared to $2.62$2.53 billion for the same period of 2025. Relative to the year-ago period, thisThis decrease primarily reflected lower average balances of loans held for investment and lower average loans held for sale, reflective of the Company's efforts to selectively reduce its portfolio of out-of-market loans and its exit offrom its indirect fintech lending partnerships, in addition to lower average interest-earning deposits in other banks.partnerships. The yield on average loans held for investment was 5.50%5.54% and 5.70%5.80% for the firstsecond quarters of 2026 and 2025, respectively. The decline in yield on loans held for investment was primarily due to a decline in higher yielding out-of-market loans and lower accretion of discounts on acquired loans. Accretion of discounts on acquired loans had a fourthree and seven basis point positive effect on yield on loans held for investment for the same respective periods. InterestThe incomeexit of fintech lending operations, represented by loans held for thesale, threealso monthshad endeda Marchunfavorable 31, 2026 and 2025 included accretion of discountseffect on acquiredyields loanson ofinterest-earning $0.2 million and $0.4 million, respectively.assets.
Average balances of interest-bearing liabilities decreased $226.2$170.4 million to $1.67$1.65 billion for the three months ended MarchJune 31,30, 20262026, compared to $1.90$1.82 billion for the same period of 2025. The decline relative to the year-ago perioddecrease was primarily due to a $138.8$118.7 million reduction of average balances of brokered deposits, reported in time deposits, and a $25.1$19.9 million reduction in average borrowings attributabledue to the Company's redemption of a portion of its subordinated notes.notes in the late second and early third quarters of 2025.
Cost of fundsdeposits was 2.42%2.25% for the firstthree quartermonths ofended 2026June 30, 2026, compared to 2.78%2.47% for the firstsame quarterperiod of 2025, while cost of depositsfunds was 2.27%2.41% and 2.62%,2.63%, for the same respective periods. Lower cost of fundsdeposits and depositsfunds in the firstsecond quarter of 2026 relative to the year-ago periodsperiod were primarily due to the reduction in average balances of higher cost brokered deposits paid off upon maturity and the partial redemption of the Company's subordinated notes. Cost of deposits, excluding brokered deposits, was 1.97% for the firstsecond quarter of 2026 compared to 2.19%2.05% for the firstsecond quarter of 2025.
Net interest income (on a taxable equivalent basis) for the three months ended MarchJune 31,30, 2026 was $16.9$16.6 million compared to $19.0$19.9 million for the same period in 2025. Interest income declined $6.0$5.9 million to $29.4$28.9 million for the three months ended MarchJune 31,30, 20262026, primarily due to the decline in average balances of loans held for investment, loans held for sale, and interest-earning deposits in other banks, which collectively declined $244.1 million from $35.4the three months ended June 30, 2025. Interest expense declined $2.6 million to $12.3 million for the three months ended MarchJune 31,30, 2025,2026, whilelargely interestdriven expenseby lower average balances of brokered deposits, which declined $3.9 million to $12.5$118.7 million from $16.4 million for the same respectiveperiod periods.of 2025. Net interest margin remainedwas unchanged2.91% atand 2.90%3.15% for the firstsecond quarters of 2026 and 2025.2025, respectively.
The following table presents the average balance sheets for the six months ended June 30, 2026 and 2025. 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.
Average interest-earning assets were $2.31 billion for the six months ended June 30, 2026, compared to $2.57 billion for the same period of 2025, a $265.4 million decrease. This decrease was primarily due to declines in average balances of loans held for investment and loans held for sale, which decreased $217.5 million and $24.5 million, respectively, reflective of the Company's efforts to selectively reduce its portfolio of out-of-market loans and its exit from its indirect fintech lending partnerships. Total interest income (on a taxable equivalent basis) decreased $11.8 million for the six months ended June 30, 2026 from the same period of 2025, primarily due to loan portfolio reductions, while the yield on interest-earning assets declined 40 basis points. The yield on average loans held for investment was 5.52% and 5.75% for the first halves of 2026 and 2025, respectively. The decline in yield on loans held for investment was primarily due to a decline in higher yielding out-of-market loans and lower accretion of discounts on acquired loans. Accretion of discounts on acquired loans had a three and seven basis point positive effect on yield on loans held for investment for the same respective periods.
Average interest-bearing liabilities were $1.66 billion for the six months ended June 30, 2026 compared to $1.86 billion for the same period of 2025, a $198.2 million decrease. Interest expense decreased by $6.5 million to $24.8 million for the six months ended June 30, 2026, compared to the same period of 2025.
Cost of deposits was 2.26% for the six months ended June 30, 2026, compared to 2.54% for the same period of 2025, while cost of funds decreased to 2.41% for the first half of 2026 from 2.71% for the first half of 2025. Lower cost of deposits and funds in the 2026 period was primarily the result of the payoff of higher cost brokered time deposits at maturity. Cost of deposits, excluding brokered deposits, was 1.97% for the first half of 2026 compared to 2.12% for the same period of 2025.
Net interest income (on a taxable equivalent basis) was $33.5 million for the six months ended June 30, 2026, compared to $38.9 million for the same period in 2025. Net interest margin was 2.90% and 3.02% for the first halves of 2026 and 2025, respectively.
Provision for (Recovery of) Credit Losses. A provision for credit losses on loans of $3.5 million was reported for the three months ended June 30, 2026, whereas a recovery of credit losses on loans of $0.7 million was reported for the three months ended June 30, 2025. The provision for credit losses on loans for the second quarter of 2026 was primarily due to additions to specific loan reserves, net loan charge-offs, and loan portfolio growth of $19.6 million for the quarter. The provision for credit losses on loans for the 2026 period included a $2.9 million reserve established for loans associated with a single out-of-market relationship originated prior to 2024. The recovery of credit losses on loans for the second quarter of 2025 was primarily due to loan portfolio reductions.
A provision for credit losses on loans of $2.9 million and a recovery of credit losses on loans of $0.7 million were reported for the six months ended June 30, 2026 and 2025, respectively.
A provision for credit losses on unfunded commitments was $0.6 million for the three and six months ended June 30, 2026. The second quarter of 2026 provision was due to an increase in committed but unfunded lines of credit to commercial construction borrowers. There was no provision for credit losses on unfunded commitments in the same respective periods of 2025.
Recovery of Credit Losses. A recovery of credit losses of $0.6 million was reported for the three months ended March 31, 2026, whereas none was reported for the three months ended March 31, 2025. The recovery of credit losses for the first quarter of 2026 was primarily due to loan portfolio balance reductions of $31.8 million and $0.3 million of net loan recoveries, including an $0.8 million recovery on a loan charged off in 2022.
The declines in residential mortgage banking income for the 2026 periods compared to the 2025 periods were attributable to the sale of the Company's mortgage division in the first quarter of 2025. The declines in other noninterest income for the comparative periods were primarily the result of the $0.6 million loss recognized in the second quarter of 2026 upon the liquidation of an equity method investment made in 2022, the Company's exit from fintech indirect lending in the first quarter of 2026, and the receipt of proceeds heldback from the 2024 sale of mortgage servicing rights.
The Company reported higher service charges on deposit accounts during the three months ended March 31, 2026 compared to 2025, primarily due to the execution of a project in early 2025 to more closely align products and pricing with competitors in the markets in which the Bank operates. The decline in residential mortgage banking income for the same comparative periods was attributable to the sale of the mortgage division late in the first quarter of 2025. The $0.2 million loss on the sale of the mortgage division was included in other noninterest income in the 2025 period. Additionally, the decline in other noninterest income for the 2026 period compared to 2025 was primarily driven by lower income from the Company's other investments.
As the Company transitioned to a more traditional community banking model and remediated the requirements under the consent order with the Bank's primary regulator, which was terminated in the fourth quarter of 2025, the number of employees decreased from 442 as of December 31, 2024, to 302 as of December 31, 2025, and to 269 as of June 30, 2026, or by 39% and 11%, respectively. As a result, the Company reported lower expenses for salaries and employee benefits and technology and communication costs. Included in salaries and employee benefits expense for the three and six months ended June 30, 2026 were severance costs of $0.4 million and $2.1 million, respectively, compared to $0.3 million and $1.0 million for the same respective periods of 2025. Higher advertising and marketing expenses for the 2026 periods compared to the 2025 periods were the result of marketing campaigns designed to drive growth, which launched in the second half of 2025. The decline in Federal Deposit Insurance Corporation ("FDIC") insurance premiums primarily reflected lower assessment rates for the 2026 periods relative to the 2025 periods. The declines in other noninterest expense during the 2026 periods relative to the 2025 periods were primarily due to lower third-party loan servicing costs and losses on the repurchase of loans previously sold.
Noninterest expense decreased $4.2 million to $18.7 million for the three months ended March 31, 2026, from the same period of 2025. The decline relative to the prior period was primarily due to the termination of the consent order with the Bank's primary regulator, under which the Bank was operating until it was terminated in the fourth quarter of 2025. Lower expenses resulting from the consent order termination were primarily in salaries and benefits, as the number of full-time employees declined by 70 full-time employees, or approximately 20%, since March 31, 2025, and lower technology costs, other contractual services, audit fees, and Federal Deposit Insurance Corporation ("FDIC") insurance premiums. Included in salaries and employee benefits expense for the three months ended March 31, 2026 and 2025 were executive officer transition and severance costs of $1.7 million and $0.7 million, respectively. The decrease in other noninterest expense in the first quarter 2026 compared to the same period of 2025 was primarily due to lower third-party loan servicing costs and losses on loans previously sold.
Income Tax Expense. For the three and six months ended MarchJune 31,30, 2026, the effective income tax raterates waswere 24.9%20.5% and 10.9%, respectively, compared to 51.2%27.0% and 2.8% for the three and six months ended MarchJune 31,30, 2025.2025, respectively. The effective income tax rate for the threefirst monthshalf ended March 31,of 2026 includedwas primarily a result of the effectCompany's ofmarginal limitationspre-tax onloss in the taxperiod, deductibilitywhile of certain costs. The higherthe effective income tax rate infor the second quarter of 2025 periodwas primarily driven by the potential elimination of deductibility of compensation costs in future taxable periods. The effective income tax rate for the six months ended June 30, 2025 included the effect of a $0.3 million favorable adjustment related to a change in the state tax rate applied to the accumulated unrealized loss on the available for sale securities portfolio.
The Company has pledged certain qualifying loans as collateral for borrowings.borrowing facilities. Commercial and residential mortgages totaling $665.7$637.0 million and $695.1 million were pledged with the Federal Home Loan Bank of Atlanta ("FHLB") as of MarchJune 31,30, 2026 and December 31, 2025, respectively. TheConstruction Companyand pledgedcommercial and industrial loans totaling $45.3 million and $72.8 million as collateralof forJune borrowings30, 2026 and December 31, 2025, respectively, were pledged with the Federal Reserve Bank of Richmond (“FRB”) Discount Window certain construction and commercial and industrial loans totaling $71.1 million and $72.8 million as of March 31, 2026 and December 31, 2025, respectively.Window.
While the Federal Reserve has reduced the target Fed Funds rate by 175 basis points from a recent peak, the current lending environment for commercial real estate (“CRE”) loans has heightened risk due to a higher interest rate environment than had existed when the majority of the Company's loans may have been originated. Potential negative impacts may include higher debt service burdens for floating rate loans and fixed rate loans originated in a lower rate environment that reprice or mature, requiring renewal or refinancing. As these loans mature, they may be repriced at higher interest rates leading to increased debt service costs that can strain borrowers' ability to meet payment obligations. In some cases, the higher cost of refinancing may lead to loan defaults, particularly if property cash flows have not increased relatively.
The Bank’s credit administration department led by the Chief Risk Officer and Chief Credit Officer performs periodic analyses of emerging trends by geography and property type where the Bank has larger concentrations by CRE property type. These analyses include all real estate property types and geographic markets represented in the loan portfolio and are provided to the Bank's board of directors to assess whether the CRE lending strategy and risk appetite continue to be appropriate, considering changes in local market conditions and the Bank’s exposure to collateral type concentrations. Also, concentration limits by real estate collateral type are approved and monitored by the Bank's board of directors. As of MarchJune 31,30, 2026, the Bank was in compliance with allboard approved limits.
The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed), as of MarchJune 31,30, 2026. Loans shown in the one year or less column are term loans that have a stated maturity date within twelve months. Variable rate loans reprice at various intervals (monthly or quarterly) and the rate is tied to a published index such as the Fed Prime rate, U.S. Treasury bond indices, or the Secured Overnight Funding Rate.
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 MarchJune 31,30, 2026 and December 31, 2025. 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 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.
Of the $2.3$2.7 million and $2.8$3.1 million of loan charge-offs forrecognized during the three months ended MarchJune 31,30, 2026,2026 and 2025, respectively, $1.6$1.8 million and $2.0$2.4 million for the same respective periods were attributable to business and consumer credit cards originated through a partnership with a third-party company. TheUnder this arrangement, the third-party provides the Bank limited credit loss protectionprotection. to the Bank, and upon receipt, credits for losses are reported as recoveries. Since the inception of this partnership in early 2023,Accordingly, the Bank hasrecords notcharge-offs experiencedbased aon the credit card portfolio activity and recognizes recoveries upon receipt of payments under the credit loss fromprotection thisagreement, arrangement.which fully offset these charge-offs during the same respective periods.
Of the $4.9 million and $5.9 million of loan charge-offs recognized during the six months ended June 30, 2026 and 2025, respectively, $3.3 million and $4.3 million for the same respective periods were attributable to this third-party arrangement. The Bank received payments under the credit loss protection agreement that fully offset these charge-offs during the respective periods. Since the inception of this partnership in early 2023, the Bank has not incurred any net credit losses under this program.
Loans are generally placed into nonaccrual status when they are past due 90 days or more as to either principal or interest or when, in the opinion of management, the collection of principal and/or interest is in doubt. A loan remains in nonaccrual status until the loan is current as to payment of both principal and interest or past due less than 90 days and the borrower demonstrates the ability to pay and remain current for a sustained period of time, generally six months, or when the loan otherwise becomes well-secured and in the process of collection. When cash payments are received, they are applied to principal first, then to accrued interest. It is the Company's policy not to record interest income on nonaccrual loans until the loan has returned to accrual status. In certain instances, accruing loans that are past due 90 days or more as to principal or interest may not be placed on nonaccrual status, if the Company determines that the loans are well-secured and are in the process of collection. The decline in nonperforming loans and the related ratios above for March 31, 2026 from December 31, 2025 primarily reflects loan paydowns in the first quarter of 2026.
The changes in nonperforming loans, the ACL, and the related ratios above at June 30, 2026 from December 31, 2025 were primarily attributable to loans from a single out-of-market relationship originated prior to 2024 totaling $11.4 million. The loans, classified as commercial and industrial, remained current through May 2026 but became delinquent when the borrower failed to make its June 2026 payment. Consequently, the loans were placed on nonaccrual at June 30, 2026. Subsequent to June 30, 2026, the borrower reported that its business had ceased operations. In light of this development and management's estimate of expected credit losses, the Company established a reserve of approximately $2.9 million, as of June 30, 2026. The Company believes the credit issues affecting this borrower are unique and not systematic to the Company's overall portfolio.
OREO generally includes properties that have been substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties, which are held for resale, are initially stated at fair value, including a reduction for the estimated selling expenses, which becomes the new carrying value.
OREO generally includes properties that have been substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties,which are held for resale, are initially stated at fair value, including a reduction for the estimated selling expenses, which becomes the new carrying value. In subsequent periods, such properties are stated at the lower of the restated carrying value or fair value. In limited cases, the Bank may receive non-cash consideration, including equity interests, pursuant to negotiated or court-approved settlements with borrowers. The fair value of nonmarketable equity interests are generally estimated using a discounted cash flow analysis based on management’s assumptions regarding expected future cash flows, timing, and a risk adjusted discount rate. These assets, which are reported with OREO on the Company's consolidated balance sheets, are subsequently carried at the lower of cost or fair value, less estimated costs to sell, and are periodically evaluated for impairment. In subsequent periods, such properties are stated at the lower of the restated carrying value or fair value. As of both June 30, 2026 and December 31, 2025, the Company's nonmarketable equity interest assets totaled $0.2 million.
As of MarchJune 31,30, 2026 and December 31, 2025, OREO included a property with a carrying value of $1.3$1.4 million that served as collateral for a government guaranteed loan. The guaranteed portion of the loan (90%) is owned by the U.S. Small Business Administration ("SBA"), and the Company is obligated to remit to the SBA its share of the liquidation proceeds upon the sale of the property. Accordingly, the Company recorded a $1.2 million liability, reported in other liabilities on the Company's consolidated balance sheets as of both MarchJune 31,30, 2026 and December 31, 2025, representing the SBA's contractual interest in the expected proceeds from the sale of the property.
Investment Securities. The investment portfolio is used as a source of interest income, credit risk diversification, and liquidity, as well as to manage interest rate sensitivity and provide collateral for short-term borrowings. Securities in the investment portfolio classified as securities available for sale ("AFS") may be sold in response to changes in market interest rates, securities’ prepayment risk, liquidity needs, and other similar factors, and are carried at estimated fair value. The fair value of the Company’s AFS investment securities AFS portfolio was $331.9$317.0 million as of MarchJune 31,30, 2026, a decrease of $1.0$15.9 million from $332.9 million at December 31, 2025. The decline in AFS securities was due to bonds called or matured ($9.6 million), portfolio amortization ($16.4 million), and fair value adjustments ($1.0 million), partially offset by bond purchases ($11.1 million). As a result of elevated market interest rates, the Company’s portfolio of AFS securities had net unrealized losses of approximately $41.3 million and $40.3 million as of bothJune March 31,30, 2026 and December 31, 2025, respectively, of which approximately 83%85% and 84%, respectively, were related to securities backed by U.S. government agencies.
As of MarchJune 31,30, 2026 and December 31, 2025, the majority of the investment securities portfolio consisted of securities rated investment grade by a leading rating agency. Investment grade securities are judged to have a low risk of default, to be of the best quality, and to carry the smallest degree of investment risk. At MarchJune 31,30, 2026 and December 31, 2025, securities with a fair value of $169.8$163.8 million and $174.3 million, respectively, were pledged to secure the Bank’s borrowing facility with the FHLB.
The Company reviews its AFS investment securities AFS portfolio for potential credit losses at least quarterly. AFS investmentInvestment securities AFS with unrealized losses are generally a result of pricing changes due to changes in the current interest rate environment and not as a result of permanent credit impairment. The Company does not intend to sell nor does it believe that it will be required to sell,sell any of its impaired securities prior to the recovery of the amortized cost. NoDue to these factors, no ACL has been recognized for AFS securities as of both MarchJune 31,30, 2026 and December 31, 2025.
Restricted equity investments consisted of stock in the FHLB (carrying basis $8.9 million and $9.1 million at MarchJune 31,30, 2026 and December 31, 2025, respectively), FRB stock (carrying value of $9.0$7.4 million and $9.4 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively), and stock in the Company’s correspondent bank (carrying value of $0.5 million at both MarchJune 31,30, 2026 and December 31, 2025). Restricted equity investments are carried at cost.
The Company has various other equity investments, including an investment in a fintech company and limited partnerships, totaling $5.0 million and $4.9 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively.
The Company also holds other investments, primarily in early-stage focused investment funds, which totaled $18.0 million and $20.8 million as of June 30, 2026 and December 31, 2025, respectively, and are reported in other investments on the consolidated balance sheets. During the second quarter of 2026, the Company recognized a $0.6 million loss upon the liquidation of an investment made in 2022. The loss reflects the difference between the investment’s carrying value and the distribution received upon the final liquidation of the investment subsequent to June 30, 2026. As of June 30, 2026 and December 31, 2025, the carrying value of this investment was $3.2 million and $6.3 million, respectively. Over the period it was held, the investment generated cumulative pre-tax income of approximately $1.9 million.
The Company also holds investments in early-stage focused investment funds and low-income housing partnerships, which totaled $20.9 million and $20.8 million as of March 31, 2026 and December 31, 2025, respectively, and are reported in other investments on the consolidated balance sheets.
The Company had no investment securities classified as held to maturity as of MarchJune 31,30, 2026 or December 31, 2025.
Deposits. The principal sources of funds for the Company are deposits, including transaction accounts (demand and money market accounts), time deposits, and savings accounts, of customers in the Company’sBank’s primary geographic market area. Such customers provide the Bank a source of fee income and cross-marketing opportunities and are generally a lower cost source of funding for the Bank.funding.
Brokered deposit balances are sourced through intermediaries and are an unsecured source of funding for the Bank. Brokered deposits were added throughout 2023 and early 2024 to enhance liquidity and in anticipation of the exit of the Company's fintech BaaS deposit operations. The Bank has a liquidity management program, with oversight of the Bank’s asset and liability committee (the “ALCO”), that sets forth guidelines and monitors for the desired maximum level of brokered deposits, which is 20.0% of total deposits. In recent quarters, the Company has reduced its level of higher-priced brokered deposits by sourcing non-brokered deposits and throughwith cash flows from the loan portfolio, and expects to continue reducing brokered deposits in future periods to 10.0% or less of total deposits.portfolio.
Total deposits decreased $18.1$48.8 million from $1.91 billion as of December 31, 2025 to $1.89$1.86 billion as of MarchJune 31,30, 2026, as:
Deposits, excluding brokered deposits, increased $13.4 million from $1.67 billion as of December 31, 2025 to $1.69 billion as of March 31, 2026; and Brokered deposits decreased $31.5$52.9 million from $238.7 million, or 12.5% of total deposits, as of December 31, 2025 to $207.2$185.8 million, or 10.9%10.0% of total deposits, as of MarchJune 30, 2026; and Deposits, excluding brokered deposits, increased $4.1 million from $1.67 billion as of December 31, 2025 to $1.68 billion as of June 30, 2026.
Estimated uninsured deposits totaled approximately $414.3$430.3 million as of MarchJune 31,30, 2026, or 20.3%23.1% of total deposits, compared to $397.0 million, or 19.1%20.8% of total deposits, as of December 31, 2025. Uninsured deposit amounts are based on estimates as of the reported dates.
The following table presents a summary of average deposits and the weighted average rate paid for the periods stated. The decline in average balances and rate for interest-bearingnoninterest-bearing demand accounts reflects the exit of fintechfintech-related BaaS depository operations.deposits.
Borrowings. The Company uses short-term and long-term borrowings primarily from various sources, includingthe FHLB advances and FRB advances,FRB, to fund assets and operations. The following table presents information onregarding the balances of borrowings as of June 30, 2026 and December 31, 2025, and the average balances for the periodssix months ended MarchJune 31,30, 2026 and year ended December 31, 2025. The weighted average rate was 3.82%3.84% and 3.87% as of and for the same periods, respectively.
BRBS insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-07-01 | Cozart Heather |
Grant/award | 10,306 | $3.59 | $37.0K |
| 2026-07-01 | Jones Otis |
Grant/award | 3,816 | $3.59 | $13.7K |
| 2026-07-01 | Gavant Judy Carol |
Disposition to issuer | 7,474 | — | — |
| 2026-07-01 | Patterson Julien G |
Grant/award | 10,460 | $3.59 | $37.6K |
| 2026-07-01 | Spilman Vance H |
Grant/award | 14,206 | $3.59 | $51.0K |
| 2026-07-01 | Reynolds Randolph N Jr |
Grant/award | 6,602 | $3.59 | $23.7K |
| 2026-07-01 | Bost Hunter H. |
Grant/award | 9,694 | $3.59 | $34.8K |
Well-known investors holding BRBS (13F)
None of the 59 investors we track reported a position in their latest 13F.