With a new CEO at the helm, Blue Ridge Bankshares Inc. hopes to accelerate its progress toward regulatory compliance and refocus on traditional community banking.
Billy Beale stepped into the role of president and CEO of Blue Ridge Bankshares amid subpar financial performance and an outstanding written agreement with the Office of the Comptroller of the Currency related to the financial technology partnerships of the company's bank subsidiary, Blue Ridge Bank NA. Beale's appointment came after former president and CEO Brian Plum resigned July 12.
In an interview with S&P Global Market Intelligence, Beale outlined a path for getting the company back in the good graces of regulators and the industry.
Beale's appointment to lead the holding company came about two months after being named CEO of subsidiary Blue Ridge Bank NA. Beale's prior experience includes serving as president and CEO of Community Bankers' Bank from November 2018 to July 2020. From 1989 to 2017, Beale was with Union Bankshares Corp., where he was named CEO in 1991.
According to Beale, the board approached him about joining the company in order to accelerate the bank's cleanup plan.
"Blue Ridge grew very quickly," Beale said in an interview. "There were some mistakes made along the way, and so I'm here to fix those mistakes. That's my priority."
Through organic growth and M&A, Blue Ridge has more than doubled in size in the last three years, reporting $3.21 billion in assets at June 30 compared to $1.59 billion at June 30, 2020.
Fintech fix
One of Beale's main priorities is getting the bank out from under a written agreement with the Office of the Comptroller of the Currency (OCC) related to its financial technology partnerships and Bank Secrecy Act/anti-money laundering (BSA/AML) compliance — a process that was "already underway" but will be accelerated under his leadership, the CEO said.
"I am looking to refine it and accelerate some of the steps that were being taken," Beale said. "I don't know that it's rocket science to get out from under these. They're pretty specific about what needs to be done and how the bank is supposed to be run or how they want it run."
One of the main steps the bank will take is winding down its current fintech and banking-as-a-service (BaaS) partnerships. The bank is currently in the process of doing so, and helping those partners migrate to other institutions as contracts expire.
"There are other banks in this space that do a really good job of managing the BSA/AML and have appropriate staff and systems and things that can accommodate these folks," Beale said. "We're not one of those, I guess, because we got behind the curve, and we've got to reduce some of that volume in order to catch up."
Building out the company's staff related to third-party risk management and BSA/AML compliance "to where we've got the right number of people and the right skilled people to help us manage this" is also a priority, Beale said.
Blue Ridge previously hired Kirsten Muetzel as president of the bank's fintech division in January, a move that was seen as a key part of its effort to address the OCC's requirements. However, around the time former CEO Plum resigned, Muetzel was no longer with the company, Market Intelligence reported.
Beale declined to disclose if Muetzel voluntarily left the company or the position was eliminated, but Muetzel's departure will not have "any impact at all" on the bank's work toward addressing the OCC agreement, Beale said. The bank does not intend to hire another fintech president.
"We're not going to have a president of fintech. Much like we don't have a president of government guaranteed lending or president of middle-market lending or those types of things," Beale said. "It's a line of business that doesn't need a separate president."
Fintech future
Though the bank is winding down its fintech partnerships, it does not plan to exit the space entirely. Instead, the bank plans to continue to play in the BaaS space, but it will be more picky about its partners. In the future, it plans to focus on fintechs that have a more niche customer base, rather than broad consumer-focused fintechs.
"We're going to stay in the fintech business. They're not all equal. Some of them generate more BSA alerts than others do," Beale said. "There are some that are more consumer oriented, small-dollar consumer oriented, that tend to generate more alerts than those who are looking at a more narrow subset, I guess, and not open broadly to the consumer market."
Once the bank is freed from the written agreement and has proper risk controls and staff in place, "then we can go out and look for more opportunities to grow that business, if you will. But right now, in order to be relieved of the written [agreement] we have to shrink that banking-as-a-service piece," Beale said.
The company will operate with a "smaller number" of partners in the future. According to the company's Form 10-K, filed March 10, it ended 2022 with nine active fintech partnerships.
Return to community banking focus
As the company works to wind down its fintech focus, it will ramp up its community banking focus.
"There has been a lot of emphasis on building the fintech line of business. And then certainly, there has been a lot of emphasis and energy and money spent to try to resolve this written agreement," Beale said. "The net result of that is what would be considered the core banking business has been not a priority. And so one of the things I'm trying to do [is] just to reenergize the core banking business, the more traditional community bank business and to try to grow core deposits."
In shifting the company's focus back to a traditional community banking model, the company hopes to improve its financial performance. It reported a net loss of $19.5 million in the quarter due to a "higher provision expense and the associated reversal of interest income related to loans that were placed on nonaccrual during the quarter," according to the company's second-quarter earnings release.
Blue Ridge's performance lags most of its peers headquartered in Virginia. Among the seven publicly traded banks with between $2 billion and $4 billion in assets that are headquartered in Virginia, Blue Ridge had the highest nonperforming assets-to-total assets ratio and the highest efficiency ratio as of June 30, according to Market Intelligence data.
The company reported a net interest margin of 2.66% in the second quarter. Though that is higher than three of its in-state peers, the company is working to improve its net interest margin.
"For whatever reason, we have a lot of fixed-rate loans on the books, especially in the mortgage sector. But the new loans that we're putting on are priced appropriately for current rates. And as the other ones start to pay down and amortize, we're reinvesting that liquidity at higher rates, we should see our net interest margin stabilize, if not possibly expand," Beale said.
Blue Ridge is also focused on capital preservation, as evidenced by the recent decision to forgo the company's third-quarter dividend declaration and payment. The bank reported a common equity Tier 1 ratio of 9.27% at June 30.
As the company has worked through its priorities and the OCC agreement, expenses have come under pressure. Total noninterest expenses were $34.1 million in the second quarter, up from $28.8 million in the linked quarter and $25.3 million in the year-ago period.
Part of the increase is due to a required suspicious activity review lookback under the OCC's written agreement, Beale said. As the company completes that lookback and winds down its fintech partnerships, expenses should start to come down in the fourth quarter, according to Beale.
The company's hiring efforts have also contributed to the increase as Beale works to fill key roles that were missing under prior leadership. Prior to Beale's appointment, Blue Ridge was a "very flat organization," Beale said. "We were without some key players." Beale has since added roles such as a chief human resources officer and a chief operations and technology officer.
Stock slump
The company's stock has also come under pressure recently, trading at 73.9% of tangible book value as of Aug. 15. The company's stock was down 36.6% year to date through Aug. 15, the lowest among its Virginia-based peers.
"I believe there is a discount built in regarding that agreement. I think there is a discount built in related to fintech in general and how this particular bank has managed in fintech. So I think there is some unknowns there that are discounts on our stock as a result of that," Beale said.
Beale is hopeful that once the company is released from its OCC agreement, the stock will rebound.
"When we are fortunate enough to publish that 8-K that says we've been released from the written agreement, we should see an increase in the stock price," the CEO said.
As the company executes its goals, it is not focused on growth, Beale said. M&A is also not a priority for the company, on both the buy and sell side. Among the 20 most recent Virginia bank deals, Blue Ridge was the buyer in three, though one of those was terminated.
"There is no one at the board level that has instructed me that my goal and objective is to sell the bank. My goal and my objective while I'm here [is] to get this thing cleaned up and running the right way and be profitable and start providing a better return to the shareholders," Beale said. "I have not given any thought as to what's down the road two years, three years, five years because none of that would really matter unless I get us out of this written agreement and return us to appropriate profitability."
