A new consent order has not derailed Blue Ridge Bankshares Inc.'s previously announced capital raise.
A $150 million private placement, which is subject to regulatory and shareholder approvals, remains on track to close in the first quarter, and a shareholder meeting has been scheduled for March 6, bank CEO and President Billy Beale wrote in emailed responses to S&P Global Market Intelligence. He added that the latest consent order — issued in January — replaced a prior one issued in August 2022 and was based on findings from an examination in June 2023.
Efforts for improvement that Blue Ridge has made since the examination were not factored into the January consent order, Beale said. "The Consent Order issued on 1/24 did not consider or take into account the capital raise," Beale said.
Kenneth Lehman, the lead investor in the capital raise, did not respond to a request for comment, and Castle Creek Advisors VIII LLC, which is also taking part in the private placement, declined to comment.
The move to raise capital was partly because the bank faced Office of the Comptroller of the Currency-imposed heightened capital requirements, which the company disclosed in November 2023. The January consent order includes the increased capital requirements. It also notes that the bank did not correct previously reported problems and still had deficiencies in compliance with the Bank Secrecy Act (BSA) and anti-money laundering (AML) rules, which had been a focus of the original consent order.
The increased capital requirements came as the OCC alleged unsafe or unsound practices by the bank in "capital ratios, capital and strategic planning, [and] liquidity risk management," which were new issues raised in the January consent order. It also for the first time designated Blue Ridge in "troubled condition" and deprived it of its "eligible bank" status.
The 'troubled condition'
Being marked in a troubled condition is a clear alert from regulators that Blue Ridge will need to stay focused on fixing the compliance issues, industry experts said.
The troubled condition does not necessarily mean that the bank is on the verge of failure, but rather highlights that the bank is facing financial challenges or significant difficulties, said John Popeo, a partner at advisory firm the Gallatin Group.
According to the OCC's handbook, a bank is in troubled condition if it has a CAMELS composite rating of 4 or 5, or it is subject to enforcement actions regarding its financial condition, or if it is informed by the OCC in writing about the designation.
"Being in troubled condition puts other limits on a bank that don't really hurt the bank, but they do slow the bank down," said Matthew Bisanz, a partner at Mayer Brown LLP.
Among the limits on its operations, Blue Ridge now must notify the OCC before adding or replacing a board member, and before employing or promoting senior executives. It will have to obtain approval from the OCC and the Federal Deposit Insurance Corp. to make severance or indemnification payments, known as golden parachute payments. Without the eligible bank status, Blue Ridge may not be able to receive expedited OCC review on certain filings.
Talent search
Despite the new limits, Blue Ridge is carrying on the search for senior executives to strengthen risk management and compliance.
Blue Ridge is actively looking for a new chief risk officer, and "seeing some very good candidates" to fill a chief compliance officer role, Beale said.
The January consent order listed "BSA staffing" as one of the areas that warrant improvement, and required the bank to maintain a permanent BSA officer who is qualified, experienced, and dedicated to managing a compliance program under BSA and laws and regulations by the Office of Foreign Assets Control.
In November 2023, Blue Ridge added Rebecca Robertson as a BSA officer, Beale noted. Robertson joined Blue Ridge as the BSA officer and a director of financial crimes compliance from Atlantic Union Bank, where she oversaw the financial investigations unit, after an 18-year career at SouthState Bank in the field of AML compliance, according to her LinkedIn profile.
The company has seen several other leadership changes in 2023. Beale became CEO of the bank in May 2023, and took the helm of the holding company after Brian Plum resigned in July.
Trimming fintech partnerships
Blue Ridge's financial technology partnerships were an area of focus causing BSA/AML concerns in the initial consent order in 2022. The company has been shrinking its banking-as-a-service presence.
As of Dec. 31, 2023, deposits related to fintech partnerships were $465.9 million, compared to $720.8 million at Sept. 30, 2023, according to its fourth-quarter 2023 earnings release. Excluding wholesale funding, deposits related to fintech relationships accounted for 22.7% of total deposits on Dec. 31, down from 30.5% on Sept. 30.
Interest and fee income generated through fintech partners remained flat quarter over quarter at $3.7 million.
Beale has previously told Market Intelligence that the bank does not plan to exit the banking-as-a-service space entirely, and will focus on fintechs that have a more niche customer base.
"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 in the previous interview.