# BLUE RIDGE BANKSHARES, INC. (BRBS) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BLUE RIDGE BANKSHARES, INC.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/842717/000095017022003459/brbs-20211231.htm
Accession: 0000950170-22-003459
Filing date: 2022-03-11
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BRBS/
All MD&A years: /company/BRBS/mda/
Next year: /company/BRBS/mda/fy2022/ (FY 2022)

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following presents management’s discussion and analysis of the Company’s consolidated financial condition and the results of the Company’s operations. This discussion should be read in conjunction with the Company’s consolidated financial statements and the notes thereto presented in Item 8, Financial Statements and Supplementary Information, of this Form 10-K.

Cautionary Note About Forward-Looking Statements

The Company makes certain forward-looking statements in this Form 10-K that are subject to risks and uncertainties. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of management’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. The Company cautions that the forward-looking statements are based largely on management’s expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the its control. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements.

The following factors, among others, could cause the Company’s financial performance to differ materially from that expressed in such forward-looking statements:

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the strength of the United States economy in general and the strength of the local economies in which it conducts operations;

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changes in the level of the Company’s nonperforming assets and charge-offs;

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management of risks inherent in the Company’s real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of collateral and the ability to sell collateral upon any foreclosure;

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the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rate, market, and monetary fluctuations;

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changes in consumer spending and savings habits;

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the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment;

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technological and social media changes impacting the Company, the Bank, and the financial services industry, in general;

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changing bank regulatory conditions, laws, regulations, policies, or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or the Bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, increased regulations, prohibition of certain income producing activities, or changes in the secondary market for loans and other products;

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the impact of changes in laws, regulations, and policies affecting the real estate industry;

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the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB, or other accounting standards setting bodies;

•
the impact of the COVID-19 pandemic on the Company's customers and employees, and the associated efforts by the Company and others to limit the spread of the virus;

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•
the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events;

•
geopolitical conditions, including acts or threats of terrorism and/or military conflicts, including the military conflict between Russia and Ukraine, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;

•
the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

•
the willingness of users to substitute competitors’ products and services for the Company’s products and services;

•
the Company’s inability to successfully manage growth or implement its growth strategy;

•
the effect of acquisitions the Company may make, including, without limitation, disruption of employee or customer relationships, and the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;

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the Company’s participation in the PPP established by the U.S. government and its administration of the loans and processing fees earned under the program;

•
the Company’s involvement, from time to time, in legal proceedings, and examination and remedial actions by regulators;

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the Company’s potential exposure to fraud, negligence, computer theft, and cyber-crime;

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the Bank’s ability to pay dividends; and

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the Bank's ability to effectively manage its fintech partnerships, and the abilities of those fintech companies to perform as expected.

The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in this Form 10-K, including those discussed in the section entitled "Risk Factors" in Item 1A above. If one or more of the factors affecting forward-looking information and statements proves incorrect, then actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-K. Therefore, the Company cautions you not to place undue reliance on its forward-looking information and statements. The Company will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how these risks and uncertainties will affect it.

Critical Accounting Policies and Estimates

General

The accounting principles the Company applies under GAAP are complex and require management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. The Company views these policies as critical because they are highly dependent upon subjective or complex judgments, assumptions, and estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.

Accounting for Business Combinations

Business combinations are accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") 805. ASC 805 requires that the assets acquired and liabilities assumed in a business combination be recorded based on their estimated fair values at the date of acquisition. The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed, including identifiable intangibles, is recorded as goodwill. The determination of fair values requires management to make estimates about future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to actual results that may differ materially from the estimates made.

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Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed to be adequate to absorb probable losses inherent in the portfolio and is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans and actual loss experience, current economic events in specific industries, and other pertinent factors, such as regulatory guidance and general economic conditions. The Company’s allowance for loan losses is established through a provision for loan losses charged to earnings. Loans identified as losses and deemed uncollectible by management are charged to the allowance. Subsequent recoveries, if any, are credited to the allowance for loan losses. The allowance for loan losses is evaluated on a periodic basis by management, but no less than quarterly.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are determined to be impaired and, therefore, individually evaluated for impairment. The Company considers a loan to be impaired when 1) the risk grade of the loan is special mention or worse and the balance of the loan exceeds $500,000 or 2) the loan is a TDR, regardless of balance. A loan is not considered impaired during a period of delay in payment if the Company expects to collect all amounts due, including past-due interest. Measurement of impairment is based on the expected future cash flows of an impaired loan, discounted at the loan's effective interest rate, or measured based on an observable market value, if one exists, or the fair value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans. If the net collateral value is less than the loan balance (including accrued interest and any unamortized premium or discount associated with the loan) an impairment is recognized and a specific reserve is established for the impaired loan. The general component of the allowance for loan losses covers those loans not classified as impaired and those loans classified as impaired that are not individually evaluated for impairment. Loans in the general component population are segmented into homogenous groups that share similar characteristics and receive a loss factor that is based on historical loss experience adjusted for other internal or external influences on credit quality that are not fully reflected in the historical data. Internal and external factors include, but are not limited to, internal underwriting standards, loan portfolio composition and concentrations, and local and national economic conditions.

The determination of the allowance for loan losses is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends, all of which may be susceptible to significant change.

Credit losses are an inherent part of the Company’s business. Management believes the methodologies for determining the allowance for loan losses and the current level of the allowance are appropriate; however, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, as a charge to earnings.

Accounting for Acquired Loans

Loans acquired pursuant to a business combination are recorded at fair value, with no allowance for loan losses carrying over at the effective date of the transaction. The difference between contractually required amounts receivable and the acquisition date fair value of the loans that are not deemed credit-impaired at acquisition is accreted (recognized) into income over the life of the loan either on a level yield or interest method in accordance to ASC 310-20, Receivables-Nonrefundable Fees and Other Costs.

Subsequent to the acquisition date, an allowance for loan losses may be established through a provision for loan losses, based upon a process that is similar to the evaluation process used for originated loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers, among other factors, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that warrant recognition in determining the allowance for loan losses.

Loans are designated purchased credit-impaired ("PCI") on the effective date of a business combination when there is evidence of credit deterioration after origination and for which it is probable that all contractually required principal and interest payments will not be collected. The applicable accounting guidance for PCI loans is ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. PCI loans are initially recorded at fair value (as determined by the present value of expected future cash flows) with no allowance for loan losses. The Company recognizes interest income on all loans acquired at a discount (that is due, in part, to credit quality) based on the acquired loans' expected cash flows. The

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acquired loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flow. The difference between the cash flows expected at acquisition and the investment in the loans, or the accretable yield, is recognized as interest income utilizing the level-yield method over the life of each pool. Increases in expected cash flows subsequent to the acquisition are recognized prospectively through adjustment of the yield on the pool over its remaining life, while decreases in expected cash flows are recognized as impairment through a loss provision and an increase in the allowance for loan losses. Therefore, the allowance for loan losses on these impaired pools reflects only losses incurred after the acquisition (representing the present value of all cash flows that were expected at acquisition but currently are not expected to be received).

Management periodically evaluates the remaining contractual required payments due and estimates of cash flows expected to be collected. These evaluations, performed no less than semi-annually, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. Changes in the contractual required payments due and estimated cash flows expected to be collected may result in changes in the accretable yield and non-accretable difference or reclassifications between accretable yield and the non-accretable difference.

Fair Value Measurements

The Company determines the fair values of financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value. For example, the Company’s available-for-sale investment securities are recorded at fair value using reliable and unbiased evaluations by an industry-wide valuation service. This service uses evaluated pricing models that vary based on asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.

Derivatives

Derivatives are recognized as assets and liabilities on the Company’s consolidated balance sheets and measured at fair value. The Company’s derivatives consist of forward sales of to-be-announced mortgage-backed securities and interest rate lock commitments. The Company’s hedging policies permit the use of various derivative financial instruments to manage interest rate risk or to hedge specified assets and liabilities. The Company may be required to recognize certain contracts and commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a derivative. If derivative instruments are designated as hedges of fair values, both the change in the fair value of the hedge and the hedged item are included in current earnings.

During the normal course of business, the Company enters into commitments to originate mortgage loans, whereby the interest rate on the loan is determined prior to funding (“rate lock commitments”). For commitments issued in connection with potential loans intended for sale, the Bank enters into positions of forward month mortgage-backed securities to be announced (“TBA”) contracts on a mandatory basis or on a one-to-one forward sales contract on a best efforts basis. The Company enters into TBA contracts in order to control interest rate risk during the period between the rate lock commitment and mandatory sale of the mortgage loan. Both the rate lock commitment and the forward TBA contract are considered derivatives. A mortgage loan sold on a best efforts basis is locked into a forward sales contract with a counterparty on the same day as the rate lock commitment to control interest rate risk during the period between the commitment and the sale of the mortgage loan. Both the rate lock commitment and the forward sales contract are considered derivatives.

The market values of rate lock commitments and delivery commitments are not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments, delivery contracts, and forward sales contracts of mortgage backed securities (“MBS”) by measuring the change in the value of the underlying asset, while taking into consideration the probability that the rate lock commitments will close or will be funded. Certain risks arise from the forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. Additional risks inherent in mandatory delivery programs include the risk that, if the Company does not close the loans subject to rate lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreements.

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Income Taxes

Income taxes are accounted for using the balance sheet method in accordance with ASC 740, Accounting for Income Taxes. Per ASC 740, the objective is to recognize (a) the amount of taxes payable or refundable for the current year, and (b) defer tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or federal income tax returns. A net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book (i.e., financial statement) and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Temporary differences are reversed in the period in which an amount or amounts become taxable or deductible.

A deferred tax liability is recognized for all temporary differences that will result in future taxable income; a deferred tax asset is recognized for all temporary differences that will result in future tax deductions, potentially reduced by a valuation allowance. A valuation allowance is recognized if, based on an analysis of available evidence, management determines that it is more likely than not that some portion or all of the deferred tax asset will not be realized. In making this assessment, all sources of taxable income available to realize the deferred tax asset are considered including taxable income in prior carryback years, future releases of existing temporary differences, tax planning strategies, and future taxable income exclusive of reversing temporary differences and carryforwards. The predictability that future taxable income, exclusive of revering temporary differences, will occur is the most subjective of these four sources. Additionally, cumulative losses in recent years, if any, are considered negative evidence that may be difficult to overcome to support a conclusion that future taxable income, exclusive of reversing temporary differences and carryforwards, is sufficient to realize a deferred tax asset. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense. The evaluation of the recoverability of deferred tax assets requires management to make significant judgements regarding the releases of temporary differences and future profitability, among other items. Management has concluded that, as of December 31, 2021, no valuation allowance is required on the Company's deferred tax assets.

Mortgage Servicing Rights ("MSR")

MSR assets represent the economic value associated with servicing a borrower during the life of the mortgage. The assets are separate from the underlying mortgage and may be retained or sold by the Company when the related mortgage is sold. In accordance with ASC 860-50, Transfers and Servicing, MSR assets are initially recognized at fair value and subsequently accounted for using either the amortization method or the fair value measurement method. The Company elected to account for MSR assets using the amortization method, which requires that the servicing asset be amortized in proportion to and over the period of estimated net servicing income. ASC 860-50 also requires that MSR assets accounted for using the amortization method be evaluated for impairment each reporting period and reported at the lower of amortized cost or fair market value. MSR assets and income servicing, net of amortization and impairment, if any, are reported on the Company’s consolidated balance sheets and consolidated statements of income, respectively.

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Five Year Summary of Selected Financial Data

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Comparison of Results of Operations for the Years Ended December 31, 2021 and 2020

For the year ended December 31, 2021, the Company reported net income of $52.5 million compared to $17.7 million reported for 2020. Basic and diluted earnings per share were $2.94 for 2021 compared to $2.07 for 2020.

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Net Interest Income. Net interest income is the excess of interest earned on loans, investments, and other interest-earning assets over the interest paid on deposits and borrowings and is the Company’s primary revenue source. Net interest income is thereby affected by overall balance sheet growth, changes in interest rates, and changes in the mix of investments, loans, deposits, and borrowings.

The following table presents the average balance sheets for each of the years ended December 31, 2021, 2020 and 2019. In addition, the amounts of interest earned on interest-earning assets, with related yields, and interest expense on interest-bearing liabilities, with related rates, are presented.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2021","","","2020","","","2019"],["(Dollars in thousands)","","Average Balance","","","Interest","","","Yield/ Rate","","","Average Balance","","","Interest","","","Yield/ Rate","","","Average Balance","","","Interest","","","Yield/ Rate"],["Assets:"],["Taxable securities","","$","304,685","","","$","5,192","","","","1.70","%","","$","106,228","","","$","2,582","","","","2.43","%","","$","103,698","","","$","3,286","","","","3.17","%"],["Tax-exempt securities (1)","","","12,518","","","","302","","","","2.41","%","","","6,175","","","","178","","","","2.88","%","","","7,832","","","","285","","","","3.64","%"],["Total securities","","","317,203","","","","5,494","","","","1.73","%","","","112,403","","","","2,760","","","","2.46","%","","","111,530","","","","3,571","","","","3.20","%"],["Interest-earning deposits in other banks","","","114,316","","","","135","","","","0.12","%","","","108,587","","","","169","","","","0.16","%","","","15,530","","","","266","","","","1.71","%"],["Federal funds sold","","","45,314","","","","47","","","","0.10","%","","","596","","","","2","","","","0.34","%","","","313","","","","10","","","","3.19","%"],["Loans held for sale","","","145,075","","","","4,162","","","","2.87","%","","","140,496","","","","3,922","","","","2.79","%","","","53,148","","","","1,940","","","","3.65","%"],["Paycheck Protection Program loans (2)","","","351,179","","","","17,311","","","","4.93","%","","","237,229","","","","10,347","","","","4.36","%","","","\u2014","","","","\u2014","","","","\u2014"],["Loans held for investment (including loan fees) (2,3,4)","","","1,659,845","","","","76,460","","","","4.61","%","","","675,226","","","","37,291","","","","5.52","%","","","458,927","","","","25,150","","","","5.48","%"],["Total average interest-earning assets","","","2,632,932","","","","103,609","","","","3.94","%","","","1,274,537","","","","54,491","","","","4.28","%","","","639,448","","","","30,937","","","","4.84","%"],["Less: allowance for loan losses","","","(13,036",")","","","","","","","","","(7,944",")","","","","","","","","","(4,572",")"],["Total noninterest-earning assets","","","201,222","","","","","","","","","","106,245","","","","","","","","","","41,611"],["Total average assets","","$","2,821,118","","","","","","","","","$","1,372,838","","","","","","","","","$","676,487"],["Liabilities and stockholders\u2019 equity:"],["Interest-bearing demand, money market deposits, and savings","","$","908,418","","","$","2,244","","","","0.25","%","","$","346,784","","","$","1,485","","","","0.43","%","","$","170,251","","","$","1,663","","","","0.98","%"],["Time deposits (5)","","","540,471","","","","4,193","","","","0.78","%","","","261,891","","","","4,761","","","","1.82","%","","","216,313","","","","4,546","","","","2.10","%"],["Total interest-bearing deposits","","","1,448,889","","","","6,437","","","","0.44","%","","","608,675","","","","6,246","","","","1.03","%","","","386,564","","","","6,209","","","","1.61","%"],["FHLB borrowings (6)","","","147,919","","","","1,211","","","","0.82","%","","","121,033","","","","1,654","","","","1.37","%","","","111,418","","","","2,601","","","","2.33","%"],["FRB borrowings","","","245,196","","","","790","","","","0.32","%","","","223,869","","","","785","","","","0.35","%","","","\u2014","","","","\u2014","","","","\u2014"],["Subordinated notes (7)","","","46,226","","","","2,627","","","","5.68","%","","","23,566","","","","1,265","","","","5.37","%","","","9,783","","","","709","","","","7.25","%"],["Total average interest-bearing liabilities","","","1,888,230","","","","11,065","","","","0.59","%","","","977,143","","","","9,950","","","","1.02","%","","","507,765","","","","9,519","","","","1.87","%"],["Noninterest-bearing demand deposits","","","658,063","","","","","","","","","","283,186","","","","","","","","","","76,181"],["Other noninterest-bearing liabilities","","","30,700","","","","","","","","","","15,358","","","","","","","","","","32,547"],["Stockholders\u2019 equity","","","244,125","","","","","","","","","","97,151","","","","","","","","","","59,994"],["Total average liabilities and stockholders\u2019 equity","","$","2,821,118","","","","","","","","","$","1,372,838","","","","","","","","","$","676,487"],["Net interest income and margin (8)","","","","","$","92,544","","","","3.51","%","","","","","$","44,541","","","","3.49","%","","","","","$","21,418","","","","3.35","%"],["Cost of funds (9)","","","","","","","","","0.43","%","","","","","","","","","0.79","%","","","","","","","","","1.63","%"],["Net interest spread (10)","","","","","","","","","3.35","%","","","","","","","","","3.26","%","","","","","","","","","2.97","%"]]
[[/GREPCENT_TABLE]]

(1) Computed on a fully taxable equivalent basis assuming a 21% federal income tax rate.

36

(2) Includes deferred loan fees/costs.

(3) Non-accrual loans have been included in the computations of average loan balances.

(4) Includes accretion of fair value adjustments (discounts) on acquired loans of $2.0 million and $1.0 million for the years ended December 31, 2021 and 2020, respectively.

(5) Includes amortization of fair value adjustments (premiums) on assumed time deposits of $3.2 million and $23 thousand for the years ended December 31, 2021 and 2020, respectively.

(6) Includes amortization of fair value adjustments (premiums) on assumed FHLB borrowings of $12 thousand and $0 for the years ended December 31, 2021 and 2020, respectively.

(7) Includes amortization of fair value adjustments (premiums) on assumed subordinated notes of $176 thousand and $0 for the years ended December 31, 2021 and 2020, respectively.

(8) Net interest margin is net interest income divided by average interest-earning assets.

(9) Cost of funds is total interest expense divided by total interest-bearing liabilities and non-interest bearing demand deposits.

(10) Net interest spread is the yield on average interest-earning assets less the cost of average interest-bearing liabilities.

The following table presents the changes in interest income and interest expense due to changes in average assets and liability balances and changes in rates earned on assets and paid on liabilities for the periods stated.

[[GREPCENT_TABLE]]
[["","","2021 compared to 2020","","","2020 compared to 2019"],["","","Increase/(Decrease) Due to (1)","","","Total Increase/","","","Increase/(Decrease) Due to (1)","","","Total Increase/"],["(Dollars in thousands)","","Volume","","","Rate","","","(Decrease)","","","Volume","","","Rate","","","(Decrease)"],["Interest Income"],["Taxable securities","","$","4,824","","","$","(2,214",")","","$","2,610","","","$","80","","","$","(784",")","","$","(704",")"],["Tax-exempt securities","","","183","","","","(59",")","","","124","","","","(60",")","","","(47",")","","","(107",")"],["Interest-earning deposits in other banks","","","9","","","","(43",")","","","(34",")","","","1,593","","","","(1,690",")","","","(97",")"],["Federal funds sold","","","150","","","","(105",")","","","45","","","","9","","","","(17",")","","","(8",")"],["Loans held for sale","","","128","","","","112","","","","240","","","","3,188","","","","(1,206",")","","","1,982"],["Paycheck Protection Program loans","","","4,970","","","","1,994","","","","6,964","","","","10,347","","","","\u2014","","","","10,347"],["Loans held for investment","","","54,378","","","","(15,209",")","","","39,169","","","","24,854","","","","(12,713",")","","","12,141"],["Total interest income","","$","64,642","","","$","(15,524",")","","$","49,118","","","$","40,011","","","$","(16,457",")","","$","23,554"],["Interest Expense"],["Interest-bearing demand, money market deposits, and savings","","$","2,405","","","$","(1,646",")","","$","759","","","$","1,725","","","","(1,903",")","","$","(178",")"],["Time deposits","","","5,064","","","","(5,632",")","","","(568",")","","","958","","","","(743",")","","","215"],["FHLB borrowings","","","367","","","","(810",")","","","(443",")","","","224","","","","(1,171",")","","","(947",")"],["FRB borrowings","","","75","","","","(70",")","","","5","","","","785","","","","\u2014","","","","785"],["Subordinated notes","","","1,218","","","","144","","","","1,362","","","","999","","","","(443",")","","","556"],["Total interest expense","","","9,129","","","","(8,014",")","","","1,115","","","","4,691","","","","(4,260",")","","","431"],["Change in Net Interest Income","","$","55,513","","","$","(7,510",")","","$","48,003","","","$","35,320","","","$","(12,197",")","","$","23,123"]]
[[/GREPCENT_TABLE]]

(1) Change in income/expense due to both volume and rate has been allocated in proportion to the absolute dollar amounts of the change in each.

Average interest-earning assets were $2.63 billion for the year ended December 31, 2021 compared to $1.27 billion for the same period of 2020, a $1.36 billion increase. Most of this increase was attributable to acquired loans in the Bay Banks Merger. Average balances of PPP loans were $351.2 million and $237.2 million in 2021 and 2020, respectively, whereas there were none in 2019. Growth in average balances of loans, excluding PPP loans, was $984.6 million for 2021, primarily attributable to the Bay Banks Merger. Total interest income (on a taxable equivalent basis) increased by $49.1 million to $103.6 million for the year ended December 31, 2021 compared to the same period of 2020. This increase was primarily due to higher average balances of loans, excluding PPP loans, and securities, and higher yields on PPP loans (discussed below), partially offset by lower yields on interest-earning assets due to a lower interest rate environment in which interest-earning assets have re-priced. Processing fees, net of costs, and interest income earned by the Company for PPP loans for the years ended December 31, 2021 and 2020 were $17.3 million and $10.3 million, respectively. Interest income in 2021 and 2020 included accretion of fair value adjustments (discounts) on acquired loans of $2.0 million and $1.0 million, respectively.

Average interest-bearing liabilities were $1.89 billion for the year ended December 31, 2021 compared to $977.1 million for the same period of 2020, a $911.1 million increase. Most of this increase was attributable to interest-bearing deposits

37

assumed in the Bay Banks Merger and organic deposit growth, primarily attributable to general liquidity in the banking system, believed to be from economic stimulus funds granted by the federal government’s response to the COVID-19 pandemic. Interest expense increased by $1.1 million to $11.1 million for the year ended December 31, 2021 compared to the same period of 2020. Higher interest expense attributable to higher average balances of interest-bearing liabilities was partially offset by lower rates paid on deposits and borrowings due to a lower interest rate environment in the 2021 period. Cost of interest-bearing liabilities decreased to 0.59% in 2021 from 1.02% in 2020. Cost of funds were 0.43% and 0.79% for the 2021 and 2020 periods, respectively. Interest expense in the 2021 and 2020 periods included the amortization of fair value adjustments (premium) on assumed time deposits of $3.2 million and $23 thousand, respectively, which was a reduction to interest expense.

Net interest income (on a taxable equivalent basis) was $92.5 million for the year ended December 31, 2021, compared to $44.5 million for the year ended December 31, 2020. Net interest margin was 3.51% for the year ended December 31, 2021 compared to 3.49% for the year ended December 31, 2020. The increase in net interest income in 2021 was primarily due to higher average balances of interest-earning assets, including loans, mainly attributable to the Bay Banks Merger. The Company utilized borrowings from the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) to fund PPP loans during 2021 and 2020. These borrowings were at a fixed annual rate of 0.35% and resulted in interest expense of $790 thousand and $785 thousand for the years ended December 31, 2021 and 2020, respectively. The positive impact on net interest margin as a result of PPP loans and related funding was 18 basis points for the year ended December 31, 2021, compared to 12 basis points for the same period of 2020.

Provision for Loan Losses. The provision for loan losses was $117 thousand for the year ended December 31, 2021 compared to $10.5 million for the year ended December 31, 2020, an decrease of $10.4 million. Net charge-offs amounted to $1.8 million for the year ended December 31, 2021 and $1.2 million for the year ended December 31, 2020. The increase in the provision for loan losses during 2020 was primarily due to a qualitative factor added for the potential credit losses as a result of the COVID-19 pandemic in the amount of $9.2 million. This factor was based on Federal Reserve annualized charge-off rates from recent recessions in addition to statistics on hotel occupancy rates to arrive at a COVID-19 severity factor. This factor was applied to loans of specific NAICS codes that were deemed more susceptible to the impacts of the pandemic, including loans in part collateralized by restaurants, hospitality, and other public venues. The decline in the Company's allowance for loan losses for the year ended December 31, 2021 was due to the release of a substantial portion of the COVID-19 severity factor, as economic conditions improved, partially offset by organic loan growth, reserves for fintech-related loans, specific reserves for impaired loans, and reserve needs for loans that have migrated from the Company's acquired loan pools.

38

Noninterest Income. The following table provides detail for noninterest income and changes for the periods stated.

[[GREPCENT_TABLE]]
[["","","For the years ended December 31,"],["(Dollars in thousands)","","2021","","","2020","","","Change $","","","Change %"],["Gain on sale of Paycheck Protection Program loans","","$","24,315","","","$","\u2014","","","$","24,315","","","","100.00","%"],["Residential mortgage banking income, net","","","28,624","","","","44,460","","","","(15,836",")","","","(35.62","%)"],["Mortgage servicing rights","","","8,398","","","","7,084","","","","1,314","","","","18.55","%"],["Gain on termination of interest rate swaps","","","6,221","","","","\u2014","","","","6,221","","","","100.00","%"],["Gain on sale of guaranteed government loans","","","2,005","","","","880","","","","1,125","","","","127.84","%"],["Wealth and trust management","","","2,373","","","","\u2014","","","","2,373","","","","100.00","%"],["Service charges on deposit accounts","","","1,464","","","","905","","","","559","","","","61.77","%"],["Increase in cash surrender value of bank owned life insurance","","","932","","","","390","","","","542","","","","138.97","%"],["Payroll processing","","","941","","","","974","","","","(33",")","","","(3.39","%)"],["Bank and purchase card, net","","","1,805","","","","1,297","","","","508","","","","39.17","%"],["Fair value adjustments of other equity investments","","","7,316","","","","\u2014","","","","7,316","","","","100.00","%"],["Other","","","3,561","","","","834","","","","2,727","","","","326.98","%"],["Total noninterest income","","$","87,955","","","$","56,824","","","$","31,131","","","","54.78","%"]]
[[/GREPCENT_TABLE]]

39

The Company’s primary noninterest income sources include deposit account service charges and other fees, residential mortgage banking income, which includes gains on sales of mortgages, MSR income, gains on the sale of government guaranteed loans, wealth and trust management fees, and income from bank owned life insurance. Noninterest income totaled $88.0 million and $56.8 million for the years ended December 31, 2021 and 2020, respectively. The increase in noninterest income was primarily attributable to the second quarter of 2021 sale of approximately 19,500 PPP loans with aggregate principal balances of $712.6 million that resulted in a $24.3 million gain on the sale after giving effect to $30.9 million of unearned fees, net of deferred costs, and the sale discount. Also contributing to the increase in noninterest income was a $6.2 million gain on the termination of interest rate swaps in the fourth quarter of 2021 that hedged interest rates on certain FHLB advances, and $7.3 million of fair value adjustments attributable to certain other equity investments, primarily direct investments in fintech companies. Partially offsetting these increases in noninterest income was lower residential mortgage banking income in the 2021 period compared to the 2020 period, primarily due to lower pricing of mortgages sold to the secondary market.

Noninterest Expense. The following table provides detail for noninterest expense and changes for the periods stated.

[[GREPCENT_TABLE]]
[["","","For the years ended December 31,"],["(Dollars in thousands)","","2021","","","2020","","","Change $","","","Change %"],["Salaries and employee benefits","","$","61,891","","","$","45,418","","","$","16,473","","","","36.27","%"],["Occupancy and equipment","","","6,508","","","","3,551","","","","2,957","","","","83.27","%"],["Data processing","","","4,441","","","","2,683","","","","1,758","","","","65.52","%"],["Legal, issuer, and regulatory filing","","","1,736","","","","2,687","","","","(951",")","","","(35.39","%)"],["Advertising and marketing","","","1,403","","","","776","","","","627","","","","80.80","%"],["Communications","","","2,814","","","","721","","","","2,093","","","","290.29","%"],["Audit and accounting fees","","","902","","","","436","","","","466","","","","106.88","%"],["FDIC insurance","","","1,014","","","","749","","","","265","","","","35.38","%"],["Intangible amortization","","","1,867","","","","825","","","","1,042","","","","126.30","%"],["Other contractual services","","","2,783","","","","1,408","","","","1,375","","","","97.66","%"],["Other taxes and assessments","","","2,613","","","","1,013","","","","1,600","","","","157.95","%"],["Merger-related","","","11,868","","","","2,372","","","","9,496","","","","400.34","%"],["Other","","","12,302","","","","5,748","","","","6,554","","","","114.02","%"],["Total noninterest expense","","$","112,142","","","$","68,387","","","$","43,755","","","","63.98","%"]]
[[/GREPCENT_TABLE]]

Noninterest expense totaled $112.1 million and $68.4 million for the years ended December 31, 2021 and 2020, respectively. The increases in noninterest expenses were primarily attributable to the Bay Banks Merger, which was effective January 31, 2021. Also contributing to higher salaries and employee benefits expense in the 2021 period were employees added to support the Company's noninterest income lines and greater incentive expense. Greater incentive expense in the 2021 period included bonuses to reward front-line and support personnel for the efforts made to fulfill PPP loans and other management incentives. Merger-related expenses totaled $11.9 million and $2.4 million for the 2021 and 2020 periods, respectively, with the former period including expenses incurred for both the Bay Banks Merger and the now-terminated proposed merger with FVCBankcorp, Inc.

Income Tax Expense. For the year ended December 31, 2021, the Company recorded a provision for income taxes of $15.7 million (effective tax rate of 23.1%) as compared to a provision of $4.8 million (effective tax rate of 21.4%) for the year ended December 31, 2020. The higher effective tax rate for 2021 was primarily the result of tax provisions made for state income taxes, as the Company expanded its operations, primarily its mortgage division, into various states, primarily its mortgage banking division.

Analysis of Financial Condition

Loan Portfolio. The Company makes loans to individuals as well as to commercial entities. Specific loan terms vary as to interest rate and repayment and collateral requirements based on the type of loan requested and the creditworthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Bank. All loans are underwritten within specific lending policy guidelines that are designed to maximize the Company’s profitability within an acceptable level of business risk.

40

The following table presents the Company’s loan portfolio by category of loan and the percentage of loans in each category to total loans as of the dates stated.

[[GREPCENT_TABLE]]
[["","","At December 31,"],["","","2021","","","2020"],["(Dollars in thousands)","","Amount","","","Percent","","","Amount","","","Percent"],["Commercial and industrial","","$","320,827","","","","17.7","%","","$","123,675","","","","12.1","%"],["Paycheck Protection Program","","","30,742","","","","1.7","%","","","292,068","","","","28.6","%"],["Real estate \u2013 construction, commercial","","","146,523","","","","8.1","%","","","54,702","","","","5.4","%"],["Real estate \u2013 construction, residential","","","58,857","","","","3.3","%","","","18,040","","","","1.8","%"],["Real estate \u2013 mortgage, commercial","","","701,503","","","","38.8","%","","","273,499","","","","26.8","%"],["Real estate \u2013 mortgage, residential","","","493,982","","","","27.3","%","","","213,404","","","","20.9","%"],["Real estate \u2013 mortgage, farmland","","","6,173","","","","0.3","%","","","3,615","","","","0.4","%"],["Consumer loans","","","49,877","","","","2.8","%","","","41,962","","","","4.1","%"],["Gross loans","","","1,808,484","","","","100.0","%","","","1,020,965","","","","100.0","%"],["Less: deferred loan fees, net of costs","","","(906",")","","","","","","(4,271",")"],["Gross loans, net of deferred loan fees","","","1,807,578","","","","","","","1,016,694"],["Less: Allowance for loan losses","","","(12,121",")","","","","","","(13,827",")"],["Net loans","","$","1,795,457","","","","","","$","1,002,867"],["Loans held for sale (not included in totals above)","","$","121,943","","","","","","$","152,931"]]
[[/GREPCENT_TABLE]]

41

The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed) as of December 31, 2021.

[[GREPCENT_TABLE]]
[["","","","","","","","","Variable rate","","","Fixed rate"],["(Dollars in thousands)","","Total Maturities","","","One Year or Less","","","Total","","","1-5 years","","","5-15 years","","","More than 15 years","","","Total","","","1-5 years","","","5-15 years","","","More than 15 years"],["Commercial and industrial","","$","320,827","","","$","60,571","","","$","94,775","","","$","77,484","","","$","16,502","","","$","789","","","$","165,480","","","$","79,620","","","$","83,998","","","$","1,861"],["Paycheck Protection Program","","","30,742","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","30,742","","","","30,742","","","","\u2014","","","","\u2014"],["Real estate \u2013 construction, commercial","","","146,523","","","","40,258","","","","53,515","","","","30,405","","","","10,289","","","","12,821","","","","52,749","","","","37,390","","","","12,367","","","","2,993"],["Real estate \u2013 construction, residential","","","58,857","","","","46,445","","","","4,070","","","","482","","","","1,047","","","","2,540","","","","8,342","","","","3,827","","","","1,863","","","","2,652"],["Real estate \u2013 mortgage, commercial","","","701,503","","","","53,091","","","","299,908","","","","59,567","","","","157,045","","","","83,296","","","","348,504","","","","203,155","","","","142,796","","","","2,553"],["Real estate \u2013 mortgage, residential","","","493,982","","","","17,772","","","","250,301","","","","14,987","","","","62,812","","","","172,502","","","","225,909","","","","43,171","","","","60,982","","","","121,757"],["Real estate \u2013 mortgage, farmland","","","6,173","","","","6","","","","1,923","","","","151","","","","286","","","","1,486","","","","4,245","","","","3,067","","","","1,178","","","","\u2014"],["Consumer loans","","","49,877","","","","1,897","","","","20,054","","","","19,919","","","","135","","","","\u2014","","","","27,927","","","","21,953","","","","5,907","","","","67"],["Gross loans","","$","1,808,484","","","$","220,041","","","$","724,546","","","$","202,995","","","$","248,116","","","$","273,435","","","$","863,897","","","$","422,924","","","$","309,089","","","$","131,884"]]
[[/GREPCENT_TABLE]]

42

The following table presents a summary of the activity in the Company's allowance for loan losses and the ratio of net charge-offs to average loans outstanding for the periods stated.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2021","","","2020"],["Allowance, beginning of period","","$","13,827","","","$","4,572"],["Charge-offs"],["Commercial and industrial","","$","(1,098",")","","$","(6",")"],["Real estate \u2013 construction","","","(195",")","","","\u2014"],["Real estate \u2013 mortgage","","","(125",")","","","(505",")"],["Consumer and other loans","","","(1,123",")","","","(994",")"],["Total charge-offs","","","(2,541",")","","","(1,505",")"],["Recoveries"],["Commercial and industrial","","","196","","","","41"],["Real estate \u2013 construction","","","\u2014","","","","\u2014"],["Real estate \u2013 mortgage","","","98","","","","8"],["Consumer and other loans","","","424","","","","261"],["Total recoveries","","","718","","","","310"],["Net charge-offs","","","(1,823",")","","","(1,195",")"],["Provision for loan losses","","","117","","","","10,450"],["Allowance, end of period","","$","12,121","","","$","13,827"],["Ratio of net charge-offs to average loans outstanding during period:"],["Commercial and industrial","","","0.32","%","","","0.03","%"],["Real estate \u2013 construction","","","0.10","%","","","0.00","%"],["Real estate \u2013 mortgage","","","0.00","%","","","0.10","%"],["Consumer and other loans","","","0.32","%","","","0.47","%"],["Total loans","","","0.10","%","","","0.15","%"]]
[[/GREPCENT_TABLE]]

Management believes that the Company's allowance for loan losses was adequate as of December 31, 2021. There can be no assurance that adjustments to the allowance for loan losses will not be required in the future. Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in the Company’s market area; or changes in the circumstances of particular borrowers are criteria that could require adjustments to the provision for loan losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments of information available to them at the time of their examination.

The allowance for loan losses includes specific and general components applicable to all loan categories; however, management has allocated the allowance by loan type to provide an indication of the relative risk characteristics of the loan portfolio. The allocation is an estimate and should not be interpreted as an indication that charge-offs will occur in these amounts, or that the allocation indicates future trends, and does not restrict the usage of the allowance for any specific loan or category.

The following presents the allocation of the allowance for loan losses by loan category and as a percentage of each category as of the dates stated.

[[GREPCENT_TABLE]]
[["","","December 31,"],["(Dollars in thousands)","","2021","","","% of Loans","","","2020","","","% of Loans"],["Commercial and industrial","","$","2,859","","","","0.89","%","","$","3,762","","","","4.04","%"],["Real estate \u2013 construction, commercial","","","895","","","","0.61","%","","","960","","","","1.76","%"],["Real estate \u2013 construction, residential","","","21","","","","0.04","%","","","150","","","","0.83","%"],["Real estate \u2013 mortgage, commercial","","","4,294","","","","0.61","%","","","4,215","","","","1.58","%"],["Real estate \u2013 mortgage, residential","","","1,493","","","","0.30","%","","","1,481","","","","0.34","%"],["Real estate \u2013 mortgage, farmland","","","18","","","","0.29","%","","","18","","","","0.50","%"],["Consumer and other","","","2,541","","","","5.09","%","","","3,241","","","","6.97","%"],["","","$","12,121","","","","","","$","13,827"]]
[[/GREPCENT_TABLE]]

42

The table above excludes PPP loans, which carry no allowance for loan losses as they are fully guaranteed by the U.S. government. In future periods, the Company may be required to establish an allowance for loan losses for these loans, which would result in a provision for loan losses charged to earnings.

Nonperforming Assets. The following table presents a summary of nonperforming assets and various measures as of the dates stated.

[[GREPCENT_TABLE]]
[["","","December 31,"],["(Dollars in thousands)","","2021","","","2020"],["Nonaccrual loans (1)","","$","15,177","","","$","6,548"],["Loans past due 90 days and still accruing (1)","","","917","","","","46"],["Total nonperforming loans","","$","16,094","","","$","6,594"],["Other real estate owned","","","157","","","","\u2014"],["Total nonperforming assets","","$","16,251","","","$","6,594"],["Allowance for loan losses","","$","12,121","","","$","13,827"],["Loans held for investment, including PPP loans","","$","1,807,578","","","$","1,016,694"],["Loans held for investment, excluding PPP loans","","$","1,777,172","","","$","728,161"],["Total assets","","$","2,665,139","","","$","1,498,258"],["Allowance for loan losses to total loans held for investment, including PPP loans","","","0.67","%","","","1.36","%"],["Allowance for loan losses to total loans held for investment, excluding PPP loans","","","0.68","%","","","1.90","%"],["Allowance for loan losses to nonperforming loans","","","75.31","%","","","209.69","%"],["Nonperforming loans to total loans held for investment, including PPP loans","","","0.89","%","","","0.65","%"],["Nonperforming loans to total loans held for investment, excluding PPP loans","","","0.91","%","","","0.91","%"],["Nonperforming assets to total assets","","","0.61","%","","","0.44","%"],["(1) Excluding PCI loans and accruing TDRs"]]
[[/GREPCENT_TABLE]]

The increase in nonperforming assets in 2021 was primarily attributable to commercial loans to the same borrower relationship that were placed on nonaccrual status in the second quarter of 2021. The decline in the ratio of the allowance for loan losses to total loans held for investment, excluding PPP loans, at December 31, 2021 compared to December 31, 2020 was primarily attributable to loans acquired in the Bay Banks Merger, as no allowance for loan losses carried over in the merger. The remaining purchase accounting adjustment (discount) related to loans acquired in the Bay Banks Merger and earlier acquisitions by the Company was $16.2 million and $1.2 million as of December 31, 2021 and 2020, respectively.

Loans are placed in nonaccrual status when in the opinion of management the collection of additional interest is unlikely or a specific loan meets the criteria for nonaccrual status established by regulatory authorities, generally 90 days or more past due. Any unpaid interest previously accrued on those loans is reversed from income in the period in which the loan's status changes to nonaccrual. No interest income is recognized on loans in nonaccrual status and any payments received for interest reduce the recorded investment of the respective loan. Generally, a loan remains on nonaccrual status until the loan is current as to both principal and interest or the borrower demonstrates the ability to pay and remain current, or both.

OREO includes properties that have been substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties, which are held for resale, are initially stated at fair value, including a reduction for the estimated selling expenses, which becomes the carrying value. In subsequent periods, such properties are stated at the lower of the restated carrying value or fair value.

Impaired loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. The Company had eight TDRs in the amount of $1.0 million as of December 31, 2021 and two TDRs in the amount of $142 thousand as of December 31, 2020.

43

Investment Securities. The investment portfolio is used as a source of interest income, credit risk diversification, and liquidity, as well as to manage interest rate sensitivity and provide collateral for short-term borrowings. Securities in the investment portfolio classified as securities available for sale may be sold in response to changes in market interest rates, securities’ prepayment risk, liquidity needs for loan demand, for general liquidity needs, and other similar factors, and are carried at estimated fair value. The fair value of the Company’s investment securities available for sale was $373.5 million at December 31, 2021, an increase of $264.1 from $109.5 million at December 31, 2020, of which $79.5 million was acquired as part of the Bay Banks Merger. During 2021, the Company purchased $265.0 million in investment securities available for sale to offset redemptions and amortization and to absorb excess liquidity. The Company did not hold any investment securities held-to-maturity at December 31, 2021 or December 31, 2020. Securities in the investment portfolio may be classified as held to maturity, if the Company has the ability and intent to hold them to maturity, and would be carried at amortized cost.

As of December 31, 2021 and 2020, the majority of the investment securities portfolio consisted of securities rated investment grade by a leading rating agency. Investment securities which are investment grade are judged to be of the best quality and carry the smallest degree of investment risk. The fair value of investment securities that were pledged to secure public deposits totaled $8.7 million and $12.5 million as of December 31, 2021 and December 31, 2020, respectively.

The Company completes reviews of its investment portfolio for other-than-temporary impairment at least quarterly. At December 31, 2021 and December 31, 2020, securities in an unrealized loss position were of investment grade. Investment securities with unrealized losses are a result of pricing changes due to recent changes in interest rates and other conditions in the current market environment and were not deemed a result of permanent credit impairment. Contractual cash flows for the agency mortgage-backed securities are guaranteed and/or funded by the U.S. government. Municipal securities show no indication that the contractual cash flows will not be received when due. The Company does not intend to sell nor does it believe that it will be required to sell any of its temporarily impaired securities prior to the recovery of the amortized cost. No other-than-temporary impairment was recognized for the securities in the Company’s investment portfolio as of and for the years ended December 31, 2021 and 2020.

Restricted equity investments consisted of stock in the FHLB (carrying basis $1.7 million and $5.8 million at December 31, 2021 and 2020, respectively), the Federal Reserve Bank of Richmond ("FRB") stock (carrying basis of $6.1 million and $2.2 million at December 31, 2021 and 2020, respectively), and stock in the Company’s correspondent bank (carrying basis of $468 thousand and $248 thousand at December 31, 2021 and 2020, respectively). Restricted equity investments are carried at cost. The Company holds various other equity investments, including shares in other financial institutions and fintech companies, totaling $14.2 million and $3.0 million as of December 31, 2021 and 2020, respectively, which are carried at fair value with any gain or loss reported in the consolidated statements of operations each reporting period.

The following table presents the composition of the Company’s investment portfolio, at amortized cost, as of the dates stated.

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2021","","","2020"],["(Dollars in thousands)","","Balance","","","Percent of total","","","Balance","","","Percent of total"],["Securities available for sale"],["State and municipal","","$","51,341","","","","13.6","%","","$","14,069","","","","12.9","%"],["U. S. Treasury and agencies","","","65,680","","","","17.3","%","","","2,500","","","","2.3","%"],["Mortgage backed securities","","","222,968","","","","58.9","%","","","72,337","","","","66.6","%"],["Corporate bonds","","","38,752","","","","10.2","%","","","19,755","","","","18.2","%"],["Total","","$","378,741","","","","100.0","%","","$","108,661","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

44

The following table presents the amortized cost of the investment portfolio by contractual maturities, as well as the weighted average yields for each of the maturity ranges as of and for the period stated. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Within One Year","","","One to Five Years","","","Five to Ten Years","","","Over Ten Years"],["(Dollars in thousands)","","Amortized Cost","","","Weighted Average Yield","","","Amortized Cost","","","Weighted Average Yield","","","Amortized Cost","","","Weighted Average Yield","","","Amortized Cost","","","Weighted Average Yield","","","Total Amortized Cost"],["Securities available for sale"],["State and municipal","","$","905","","","","1.72","%","","$","3,208","","","","1.52","%","","$","20,776","","","","1.68","%","","$","26,452","","","","1.92","%","","$","51,341"],["U. S. Treasury and agencies","","","\u2014","","","","\u2014","","","","7,500","","","","0.87","%","","","46,152","","","","1.26","%","","","12,028","","","","1.43","%","","","65,680"],["Mortgage backed securities","","","48","","","","1.00","%","","","11,287","","","","0.48","%","","","18,987","","","","1.99","%","","","192,646","","","","1.37","%","","","222,968"],["Corporate bonds","","","\u2014","","","","\u2014","","","","3,497","","","","5.44","%","","","34,524","","","","4.40","%","","","731","","","","4.53","%","","","38,752"],["Total","","$","953","","","","","","$","25,492","","","","","","$","120,439","","","","","","$","231,857","","","","","","$","378,741"]]
[[/GREPCENT_TABLE]]

45

Deposits. The principal sources of funds for the Company are core deposits which include transaction accounts (demand deposits and money market accounts), time deposits, and savings accounts, all of which provide the Bank a source of fee income and cross-marketing opportunities. Core deposits are a low-cost source of funding for the Bank, and are preferred to brokered deposits.

The following table presents the composition of deposits as of the dates stated.

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2021","","","2020"],["(Dollars in thousands)","","Amount","","","% of Total Deposits","","","Amount","","","% of Total Deposits"],["Noninterest-bearing demand","","$","706,088","","","","30.7","%","","$","333,051","","","","35.2","%"],["Interest-bearing demand and money market deposits","","","941,805","","","","41.0","%","","","282,263","","","","29.9","%"],["Savings","","","150,376","","","","6.5","%","","","78,352","","","","8.3","%"],["Time deposits","","","499,502","","","","21.7","%","","","251,443","","","","26.6","%"],["Total deposits","","$","2,297,771","","","","100.0","%","","$","945,109","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Total deposits include uninsured deposits of $680.4 million and $254.4 million as of December 31, 2021 and 2020, respectively. Uninsured deposit amounts are based on estimates as of the reported date.

Brokered and listing service deposits comprised both time deposits and money market accounts totaled $62.1 million and $48.7 million as of December 31, 2021 and 2020, respectively.

Approximately 21.7% of the Company’s deposits as of December 31, 2021 were comprised of time deposits, which are generally the most expensive form of deposit because of their fixed rate and term, compared to 26.6% as of December 31, 2020. Noninterest-bearing demand deposits, which represented 30.7% and 35.2% of total deposits as of December 31, 2021 and December 31, 2020, respectively, are generally viewed as the most favorable form of deposit for financial institutions. In 2021, noninterest-bearing demand deposits increased $373.0 million from December 31, 2020, including $200.0 million assumed in the Bay Banks Merger.

The following table presents a summary of average deposits and the weighted average rate paid for the periods stated.

[[GREPCENT_TABLE]]
[["","","For the year ended December 31,"],["","","2021","","","2020"],["(Dollars in thousands)","","Average Balance","","","Rate","","","Average Balance","","","Rate"],["Noninterest-bearing demand deposits","","$","658,063","","","","\u2014","","","$","283,186","","","","\u2014"],["Interest-bearing deposits:"],["Demand deposits","","","262,679","","","","0.27","%","","","101,178","","","","0.34","%"],["Savings","","","144,151","","","","0.16","%","","","82,510","","","","0.14","%"],["Money market deposits","","","501,588","","","","0.26","%","","","163,096","","","","0.62","%"],["Time deposits","","","540,471","","","","0.78","%","","","261,891","","","","1.82","%"],["Total interest-bearing deposits","","","1,448,889","","","","","","","608,675"],["Total average deposits","","$","2,106,953","","","","","","$","891,861"]]
[[/GREPCENT_TABLE]]

The following table presents maturities of time deposits for certificate of deposits $250 thousand or greater as of the dates stated.

[[GREPCENT_TABLE]]
[["","","December 31,"],["(Dollars in thousands)","","2021","","","2020"],["Maturing in:"],["3 months or less","","$","30,943","","","$","12,157"],["Over 3 months through 6 months","","","47,818","","","","22,901"],["Over 6 months through 12 months","","","14,213","","","","7,132"],["Over 12 months","","","51,868","","","","53,461"],["","","$","144,842","","","$","95,651"]]
[[/GREPCENT_TABLE]]

46

Borrowings. The Company uses short-term and long-term borrowings from various sources, including FHLB advances and FRB advances, to finance operations. The following table presents information on the balances and interest rates on borrowings as of and for periods stated.

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31, 2021"],["(Dollars in thousands)","","Period-End Balance","","","Highest Month-End Balance","","","Average Balance","","","Weighted Average Rate"],["FHLB borrowings","","$","10,111","","","$","220,000","","","$","147,919","","","","0.82","%"],["FRB borrowings","","","17,901","","","","632,540","","","","245,196","","","","0.32","%"],["","","For the Year Ended December 31, 2020"],["(Dollars in thousands)","","Period-End Balance","","","Highest Month-End Balance","","","Average Balance","","","Weighted Average Rate"],["FHLB borrowings","","$","115,000","","","$","124,000","","","$","121,033","","","","1.37","%"],["FRB borrowings","","","281,650","","","","355,484","","","","223,869","","","","0.35","%"]]
[[/GREPCENT_TABLE]]

FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in the Company’s residential, multifamily, and commercial real estate mortgage loan portfolios, as well as selected investment portfolio securities. FRB borrowings in the 2021 and 2020 periods consist exclusively of PPPLF advances secured by PPP loans.

Subordinated notes, net, totaled $40.0 million as of December 31, 2021 compared to $24.5 million as of December 31, 2020, a $15.5 million increase for the year ended December 31 2021, which was primarily attributable to $31.9 million of subordinated notes assumed in the Bay Banks Merger, partially offset by two subordinated note redemptions in 2021. The Company redeemed subordinated notes with an initial aggregate principal balance of $10.0 million and $7.0 million in the second and third quarters of 2021, respectively.

Liquidity. Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers. The Company must be able to meet these needs by obtaining funding from depositors or other lenders or by converting non-cash items into cash. Stable core deposits and a strong capital position provide the base for the Company’s liquidity position. The objective of the Company’s liquidity management program is to ensure that it has sufficient resources to meet the demands of depositors and borrowers. Management believes the Company has demonstrated its ability to attract deposits do to its branch locations, personal service, technology, and pricing.

In addition to deposits, the Company has access to the various wholesale funding markets. These markets include the brokered certificate of deposit market, listing service deposit market, and the federal funds market. The Bank is a member of the IntraFi Network, which allows banking customers to access FDIC insurance protection on deposits through the Bank, which exceed FDIC insurance limits. The Bank has one-way authority with IntraFi for both its Certificate of Deposit Account Registry Service and Insured Cash Swap Service products, which provides the Bank the ability to access additional wholesale funding as needed. The Company maintains a secured line of credit with the FHLB for which the Bank can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces the Company’s reliance on any one source for funding.

Cash flows from amortizing or maturing assets (loans and securities) also provide funding to meet the needs of depositors and borrowers.

The Bank has a line of credit from the FHLB of $358.1 million as of December 31, 2021, with available credit of $263.1 million as of the same date. Outstanding advances drawn on this line totaled $10.0 million and letters of credit pledged for the purpose of collateral for public deposits with the Treasury Board of the Commonwealth of Virginia, which also reduce the available credit balance, totaled $85.0 million as December 31, 2021. The FHLB may provide a credit line of up to 30% of the Bank’s asset value as of the prior quarter-end, subject to certain eligibility requirements, and loan and/or securities collateral pledged.

The Bank had five unsecured federal fund lines available with correspondent banks for overnight borrowing totaling $44.0 million and $38.0 million at December 31, 2021 and 2020, respectively. These lines bear interest at the prevailing rate for such lines and are cancellable at any time by the correspondent banks. These lines were not drawn upon at December 31, 2021 or 2020.

47

The Company’s liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of cash, including deposits. This situation may arise due to circumstances that the Company may be unable to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or the Company. The Company’s ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events. The Company has established a formal liquidity contingency plan, which provides guidelines for liquidity management. For the Company’s liquidity management program, the current liquidity position is determined and then forecasted based on anticipated changes in the balance sheet. In this forecast, the Company expects to maintain a liquidity cushion. The Company then stresses its liquidity position under several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushions and under each stress scenario have been established by policies approved by the board of directors. Management believes the Company has sufficient resources to meet its liquidity needs.

Capital. Capital adequacy is an important measure of financial stability and performance. Management's objectives are to maintain a level of capitalization that is sufficient for the Bank to be categorized as "well capitalized" for regulatory purposes, to sustain asset growth, and promote depositor and investor confidence.

Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. A financial institution's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Basel III Capital Rules were phased-in over a multi-year schedule and were fully phased-in on January 1, 2019. Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios of 2.50% for all ratios, except the tier 1 leverage ratio. If a banking organization dips into its capital conservation buffer, it is subject to limitations on certain activities, including payment of dividends, share repurchases, and discretionary compensation to certain officers. As of December 31, 2021, the Bank met all capital adequacy requirement to which it is subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized; although, these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2021, the most recent regulatory notification, categorized the Bank as well capitalized under the regulatory framework. There are no conditions or events since that notification that management believes have changed the institution's category.

Federal and state banking regulations place certain restrictions on dividends paid by the Company. The total amount of dividends which may be paid at any date is generally limited to retained earnings of the Company. On September 17, 2019, the federal banking agencies jointly issued a final rule required by the EGRRCPA that permits qualifying banks and bank holding companies that have less than $10 billion in consolidated assets to elect to be subject to the CBLR. Under the rule, which became effective on January 1, 2020, banks and bank holding companies that opt into the CBLR framework and maintain a CBLR of greater than 9% are not subject to other risk-based and leverage capital requirements under the Basel III Capital Rules and would be deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. The Company has not opted into the CBLR framework.

48

The following tables present the capital and capital ratios to which the Bank is subject and the amounts and ratios to be adequately and well capitalized for the dates stated. Adequately capitalized ratios include the conversation buffer.

[[GREPCENT_TABLE]]
[["","","As of December 31, 2021"],["","","Actual","","","For Capital Adequacy Purposes","","","To Be Well Capitalized"],["(Dollars in thousands)","","Amount","","","Ratio","","","Amount","","","Ratio","","","Amount","","","Ratio"],["Total risk based capital"],["(To risk-weighted assets)"],["Blue Ridge Bank, N.A.","","$","273,978","","","","13.11","%","","$","219,393","","","","10.50","%","","$","208,946","","","","10.00","%"],["Tier 1 capital"],["(To risk-weighted assets)"],["Blue Ridge Bank, N.A.","","$","260,896","","","","12.49","%","","$","177,604","","","","8.50","%","","$","167,157","","","","8.00","%"],["Common equity tier 1 capital"],["(To risk-weighted assets)"],["Blue Ridge Bank, N.A.","","$","260,896","","","","12.49","%","","$","146,262","","","","7.00","%","","$","135,815","","","","6.50","%"],["Tier 1 leverage"],["(To average assets)"],["Blue Ridge Bank, N.A.","","$","260,896","","","","10.05","%","","$","103,883","","","","4.00","%","","$","129,853","","","","5.00","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","As of December 31, 2020"],["","","Actual","","","For Capital Adequacy Purposes","","","To Be Well Capitalized"],["(Dollars in thousands)","","Amount","","","Ratio","","","Amount","","","Ratio","","","Amount","","","Ratio"],["Total risk based capital"],["(To risk-weighted assets)"],["Blue Ridge Bank, N.A.","","$","109,219","","","","13.10","%","","$","87,574","","","","10.50","%","","$","83,404","","","","10.00","%"],["Tier 1 capital"],["(To risk-weighted assets)"],["Blue Ridge Bank, N.A.","","$","98,751","","","","11.84","%","","$","70,893","","","","8.50","%","","$","66,723","","","","8.00","%"],["Common equity tier 1 capital"],["(To risk-weighted assets)"],["Blue Ridge Bank, N.A.","","$","98,751","","","","11.84","%","","$","58,383","","","","7.00","%","","$","54,213","","","","6.50","%"],["Tier 1 leverage"],["(To average assets)"],["Blue Ridge Bank, N.A.","","$","98,751","","","","8.34","%","","$","47,363","","","","4.00","%","","$","59,180","","","","5.00","%"]]
[[/GREPCENT_TABLE]]

49

Off-Balance Sheet Activities

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and involve the same credit risk and evaluation as making a loan to a customer. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. As of December 31, 2021 and December 31, 2020, the Company had outstanding loan commitments of $475.1 million and $126.0 million, respectively.

Conditional commitments are issued by the Company in the form of performance stand-by letters of credit, which guarantee the performance of a customer to a third party. As of December 31, 2021 and 2020, commitments under outstanding performance stand-by letters of credit totaled $655 thousand and $0, respectively. Additionally, the Company issues financial stand-by letters of credit, which guarantee payment to the underlying beneficiary (i.e., third party) if the customer fails to meet its designated financial obligation. As of December 31, 2021 and 2020, commitments under outstanding financial stand-by letters of credit totaled $4.5 million and $6.1 million, respectively. The credit risk of issuing stand-by letters of credit can be greater than the risk involved in extending loans to customers.

The Company invests in various partnerships and limited liability companies, many of which invest in early-stage companies. Pursuant to these investments, the Company commits to an investment amount that may be fulfilled in future periods, pursuant to capital calls. At December 31, 2021, the Company had future commitments outstanding totaling $8.3 million related to these investments.

The Company also has investments in various small business investment company ("SBIC") funds. The Company's obligations to these funds are satisfied in the form of capital calls that occur during the commitment period. As of December 31, 2021, the Company's remaining capital commitments associated with its investments in SBIC funds was $11.4 million.

Interest Rate Risk Management

As a financial institution, the Company is exposed to various business risks, including interest rate risk. Interest rate risk is the risk to earnings and value arising from volatility in market interest rates. Interest rate risk arises from timing differences in the repricing and maturities of interest-earning assets and interest-bearing liabilities, changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers' ability to prepay loans and depositors' ability to redeem certificates of deposit before maturity, changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion, and changes in spread relationships between different yield curves, such as U.S. Treasuries and other market-based index rates. The Company’s goal is to maximize net interest income without incurring excessive interest rate risk. Management of net interest income and interest rate risk must be consistent with the level of capital and liquidity that the Bank maintains. The Company manages interest rate risk through an asset and liability committee comprised of members of its board of directors and management (the “ALCO”). The ALCO is responsible for monitoring the Company’s interest rate risk in conjunction with liquidity and capital management.

The Company employs an independent consulting firm to model its interest rate sensitivity that uses a net interest income simulation model as its primary tool to measure interest rate sensitivity. Assumptions for modeling are developed based on expected activity in the balance sheet. For maturing assets, assumptions are created for the redeployment of these assets. For maturing liabilities, assumptions are developed for the replacement of these funding sources. Assumptions are also developed for assets and liabilities that could reprice during the modeled time period. These assumptions also cover how management expects rates to change on non-maturity deposits such as interest checking, money market checking, savings accounts, as well as certificates of deposit. Based on inputs that include the current balance sheet, the current level of interest rates, and the developed assumptions, the model produces an expected level of net interest income assuming that market rates remain unchanged. This is considered the base case. The model then simulates what net interest income would be based on specific changes in interest rates. The rate simulations are performed for a two-year period and include rapid rate changes of down 100 basis points to 200 basis points and up 100 basis points to 400 basis points. The results of these simulations are then compared to the base case.

50

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Instantaneous Parallel Rate Shock Scenario"],["","","Change in Net Interest Income - Year 1","","","Change in Net Interest Income - Year 2"],["Change in interest rates:"],["+400 basis points","","$","6,171","","","","7.0","%","","$","14,874","","","","17.2","%"],["+300 basis points","","","5,919","","","","6.7","%","","","12,505","","","","14.5","%"],["+200 basis points","","","4,783","","","","5.4","%","","","9,328","","","","10.8","%"],["+100 basis points","","","2,731","","","","3.1","%","","","5,175","","","","6.0","%"],["Base case","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["-100 basis points","","","(2,863",")","","","(3.2","%)","","","(3,654",")","","","(4.2","%)"],["-200 basis points","","","(4,258",")","","","(4.8","%)","","","(5,498",")","","","(6.4","%)"]]
[[/GREPCENT_TABLE]]

Stress testing the balance sheet and net interest income using instantaneous parallel shock movements in the yield curve of 100 to 400 basis points is a regulatory and banking industry practice. However, these stress tests may not represent a realistic forecast of future interest rate movements in the yield curve. In addition, instantaneous parallel interest rate shock modeling is not a predictor of actual future performance of earnings. It is a financial metric used to manage interest rate risk and track the movement of the Company’s interest rate risk position over a historical time frame for comparison purposes.

The asset and liability repricing characteristics of the Company’s assets and liabilities will have a significant impact on its future interest rate risk profile.