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Home›Pooling of interests›BLUE RIDGE BANKSHARES, INC .: MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Type 10-Okay)

BLUE RIDGE BANKSHARES, INC .: MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Type 10-Okay)

By Pia
March 29, 2021
0
0
The next presents administration's dialogue and evaluation of the Firm's
consolidated monetary situation and the outcomes of the Firm's operations.
This dialogue needs to be learn along with the Firm's consolidated
monetary statements and the notes thereto introduced in Merchandise 8, Monetary
Statements and Supplementary Data, of this Type 10-Okay.

Warning Concerning Ahead-Wanting Statements

The Firm makes sure forward-looking statements on this Type 10-Okay which might be
topic to dangers and uncertainties. These forward-looking statements symbolize
plans, estimates, targets, objectives, pointers, expectations, intentions,
projections, and statements of administration's beliefs regarding future occasions,
enterprise plans, targets, anticipated working outcomes, and the assumptions upon
which these statements are primarily based. Ahead-looking statements embody with out
limitation, any assertion which will predict, forecast, point out, or indicate future
outcomes, efficiency or achievements, and are usually recognized with phrases
similar to "might," "may," "ought to," "will," "would," "consider," "anticipate,"
"estimate," "count on," "purpose," "intend," "plan," or phrases or phases of comparable
that means. The Firm cautions that the forward-looking statements are primarily based
largely on administration's expectations and are topic to numerous recognized and
unknown dangers and uncertainties which might be topic to vary primarily based on components
that are, in lots of situations, past the its management. Precise outcomes,
efficiency or achievements may differ materially from these contemplated,
expressed or implied by the forward-looking statements.

The next components, amongst others, may trigger the Firm’s monetary efficiency to vary materially from that expressed in these forward-looking statements:

• the energy of United States financial system usually and the energy of

      native economies during which it conducts operations;



• adjustments within the stage of the Firm’s non-performing property and write-offs;

• the administration of the dangers inherent within the Firm’s mortgage mortgage portfolio,

and the danger of a protracted slowdown in the actual property market, which may

undermine the worth of collateral and the power to promote collateral on any

      foreclosures;




   •  the consequences of, and adjustments in, commerce, financial and monetary insurance policies and

legal guidelines, together with rate of interest insurance policies Federal Reserve, inflation,

      rate of interest, market, and financial fluctuations;




  • adjustments in client spending and financial savings habits;



• technological and social media adjustments having an impression on the Firm, the Financial institution and

      the monetary companies {industry}, usually;




   •  altering financial institution regulatory circumstances, legal guidelines, rules, insurance policies or

packages, whether or not new laws or regulatory initiatives, which

may result in restrictions on the actions of banks usually, or of the Financial institution in

particular, extra restrictive, elevated regulatory capital necessities

prices, together with deposit insurance coverage premiums, regulation or prohibition of

sure income-generating actions or adjustments within the secondary market

      loans and different merchandise;



• the impression of adjustments in legal guidelines, rules and insurance policies affecting the actual

      property {industry};




   •  the impact of adjustments in accounting insurance policies and practices, as could also be

adopted every so often by banking regulatory companies, the SECOND, the general public

Firm Accounting Supervisory Board, FASB or different accounting requirements

      setting our bodies;




   •  the impression of the COVID-19 pandemic and the related efforts by the
      Firm and others to restrict the unfold of the virus;



• the prevalence of main pure disasters, together with unhealthy climate

circumstances, floods, well being issues and different catastrophic occasions;



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• geopolitical circumstances, together with acts or threats of terrorism, or actions

      taken by the U.S. or different governments in response to acts or threats of
      terrorism and/or navy conflicts, which may impression enterprise and
      financial circumstances within the U.S. and overseas;



• the well timed growth of latest aggressive services and

acceptance of those services by new and present clients;

• the willingness of customers to exchange the services of rivals

      for the Firm's services;




   •  the Firm's lack of ability to efficiently handle progress or implement its
      progress technique;




   •  the impact of acquisitions the Firm might make, together with, with out
      limitation, the failure to realize the anticipated income progress and/or
      expense financial savings from such acquisitions;



• the corporate’s participation within the PPP arrange by the we authorities

      and its administration of the loans and processing charges earned below the
      program;



• the involvement of the Firm, every so often, in authorized proceedings and

      examination and remedial actions by regulators;



• the corporate’s potential publicity to fraud, negligence, pc theft and

      cyber-crime; and




  • the Financial institution's capability to pay dividends.




On January 31, 2021, the Firm accomplished its beforehand introduced merger with
Bay Banks. Along with the components described above, enterprise plans,
operations, efficiency, monetary situation, working outcomes, and enterprise
technique could also be affected by the next components:



• the actions of the Firm and Banks of the bay is probably not built-in

efficiently or such integration could also be tougher, time consuming or

      pricey than anticipated;



• the income synergies and price financial savings anticipated from the merger is probably not totally realized.

      realized or realized throughout the anticipated timeframe;




  • revenues following the merger could also be decrease than anticipated; and



• buyer and worker relationships and enterprise operations could also be disrupted

      by the merger.




The foregoing components shouldn't be thought of exhaustive and needs to be learn
along with different cautionary statements which might be included on this Type 10-Okay,
together with these mentioned within the part entitled "Threat Components" in Merchandise 1A
above. If a number of of the components affecting forward-looking info and
statements proves incorrect, then precise outcomes, efficiency or achievements
may differ materially from these expressed in, or implied by, forward-looking
info and statements contained on this Type 10-Okay. Due to this fact, the Firm
cautions you to not place undue reliance on its forward-looking info and
statements. The Firm won't replace the forward-looking statements to
replicate precise outcomes or adjustments within the components affecting the forward-looking
statements. New dangers and uncertainties might emerge every so often, and it's
not potential for the Firm to foretell their prevalence or how these dangers and
uncertainties will have an effect on it.



Crucial accounting strategies


Basic



The accounting ideas the Firm applies below GAAP are complicated and require
administration to use vital judgment to varied accounting, reporting, and
disclosure issues. Administration should use assumptions, judgments, and estimates
when making use of these ideas the place exact measurements are usually not potential or
sensible. These insurance policies are vital as a result of they're extremely dependent upon
subjective or complicated judgments, assumptions, and estimates. Adjustments in such
judgments, assumptions, and estimates might have a big impression on the
consolidated monetary statements. Precise outcomes, the truth is, may differ from
preliminary estimates.



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The accounting insurance policies that the Firm considers important are these referring to judgments, assumptions and estimates regarding the dedication of the allowance for mortgage losses, the honest worth measurements of sure property and liabilities, derivatives and revenue taxes.








Allowance for Mortgage Losses



The allowance for mortgage losses is maintained at a stage believed to be enough
to soak up possible losses inherent within the portfolio and is predicated on the scale and
present danger traits of the mortgage portfolio, an evaluation of particular person
drawback loans and precise loss expertise, present financial occasions in particular
industries, and different pertinent components, similar to regulatory steerage and normal
financial circumstances. The Firm's allowance for mortgage losses is established
by way of a provision for mortgage losses charged to earnings. Loans recognized as
losses and deemed uncollectible by administration are charged to the allowance.
Subsequent recoveries, if any, are credited to the allowance. The allowance for
mortgage losses is evaluated frequently by administration.



The allowance for mortgage losses consists of particular, normal, and unallocated
parts, if any. The precise element pertains to loans which might be categorised
as impaired, for which an allowance is established when the honest worth of the
mortgage is decrease than its carrying worth. The final element covers non-impaired
loans and is predicated on historic loss expertise adjusted for qualitative and
environmental components. Historic losses are categorized into risk-similar mortgage
swimming pools and a loss ratio issue is utilized to every group's mortgage balances to
decide the allocation.



Qualitative and environmental components embody exterior danger components that the
Firm believes impacts its general lending atmosphere. Environmental components
that routinely analyze embody ranges and tendencies in delinquencies and impaired
loans, ranges and tendencies in charge-offs and recoveries, tendencies in quantity and
phrases of loans, results of adjustments in danger choice and underwriting practices,
expertise, capability, depth of lending administration and workers, nationwide and native
financial tendencies, circumstances similar to unemployment charges, housing statistics,
banking {industry} circumstances, and the impact of adjustments in credit score concentrations.
Willpower of the allowance for mortgage losses is inherently subjective because it
requires vital estimates, together with the quantities and timing of anticipated
future money flows on impaired loans, estimated losses on swimming pools of homogeneous
loans primarily based on historic loss expertise, and consideration of present financial
tendencies, all of which can be prone to vital change.



Credit score losses are an inherent a part of the Firm's enterprise and, though
administration believes the methodologies for figuring out the allowance for mortgage
losses and the present stage of the allowance are applicable, it's potential
that there could also be unidentified losses within the portfolio at any specific time
which will change into evident at a future date pursuant to extra inside
evaluation or regulatory remark. Extra provisions for such losses, if
crucial, can be recorded, as a change to earnings.



Allowance for mortgage losses – acquired loans

Acquired loans acknowledged in response to the codification of accounting requirements (“ASC”) 310-30

For acquired loans, to the extent that there’s a deterioration within the credit score high quality of debtors leading to a lower in anticipated money flows after acquisition of the loans, an allowance for mortgage losses can be established utilizing the allowance methodology described. beforehand.

Acquired loans recorded below ASC 310-20



Subsequent to the acquisition date, an allowance for mortgage losses could also be
established by way of a provision for mortgage losses, primarily based upon a course of that's
much like the analysis course of used for originated loans. This analysis,
which features a overview of loans on which full collectability is probably not
moderately assured, considers, amongst different components, the estimated honest worth of
the underlying collateral, financial circumstances, historic web mortgage loss
expertise, carrying worth of the loans, which incorporates the remaining web
buy low cost or premium, and different components that warrant recognition in
figuring out the allowance for mortgage losses.



Loans bought with credit score impairment



Bought credit-impaired ("PCI") loans, that are the loans acquired at a
low cost (that's due, partly, to credit score high quality), are accounted for below ASC
310-30. These loans are initially recorded at honest worth (as decided by the
current worth of anticipated future money flows) with no allowance for mortgage losses.
The Firm acknowledges curiosity revenue on all loans acquired at a reduction (that
is due, partly, to credit score high quality) primarily based on the acquired loans' anticipated money
flows. The acquired loans could also be aggregated and accounted for as a pool of loans
if the loans being aggregated have widespread danger traits. A pool is
accounted for as a single asset with a single composite rate of interest and an
combination expectation of money circulation. The

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distinction between the money flows anticipated at acquisition and the funding in
the loans, or the accretable yield, is acknowledged as curiosity revenue using
the level-yield methodology over the life of every pool. Will increase in anticipated money
flows subsequent to the acquisition are acknowledged prospectively by way of
adjustment of the yield on the pool over its remaining life, whereas decreases in
anticipated money flows are acknowledged as impairment by way of a loss provision and an
improve within the allowance for mortgage losses. Due to this fact, the allowance for mortgage
losses on these impaired swimming pools displays solely losses incurred after the
acquisition (representing the current worth of all money flows that had been anticipated
at acquisition however presently are usually not anticipated to be acquired).



Administration periodically evaluates the remaining contractual required funds
due and estimates of money flows anticipated to be collected. These evaluations,
carried out quarterly, require the continued use of key assumptions and estimates,
much like the preliminary estimate of honest worth. Adjustments within the contractual
required funds due and estimated money flows anticipated to be collected might
end in adjustments within the accretable yield and non-accretable distinction or
reclassifications between accretable yield and the non-accretable distinction. On
an combination foundation, if the acquired swimming pools of PCI loans carry out higher than
initially anticipated and larger money flows are anticipated than initially modeled
on the acquisition date, the forecasted improve can be recorded as an
extra accretable yield acknowledged as a potential improve to curiosity
revenue.



Honest Worth Measurements



The Firm determines the honest values of economic devices primarily based on the
honest worth hierarchy, which requires an entity to maximise the usage of observable
inputs and decrease the usage of unobservable inputs when measuring honest worth.
The hierarchy describes three ranges of inputs which may be used to measure honest
worth. For instance, the Firm's available-for-sale funding securities are
recorded at honest worth utilizing dependable and unbiased evaluations by an
industry-wide valuation service. This service makes use of evaluated pricing fashions that
fluctuate primarily based on asset class and embody accessible commerce, bid, and different market
info. Usually, the methodology contains dealer quotes, proprietary
fashions, huge descriptive phrases and circumstances databases, in addition to in depth
high quality management packages. Relying on the supply of observable inputs and
costs, totally different valuation fashions may produce materially totally different honest worth
estimates. The values introduced might not symbolize future honest values and should not
be realizable.



Derivatives



Derivatives are acknowledged as property and liabilities on the Firm's
consolidated stability sheets and measured at honest worth. The Firm's
derivatives include ahead gross sales of to-be-announced mortgage-backed
securities and rate of interest lock commitments. The Firm's hedging insurance policies
allow the usage of numerous spinoff monetary devices to handle curiosity
price danger or to hedge specified property and liabilities. All derivatives are
recorded at honest worth on the consolidated stability sheets. The Firm could also be
required to acknowledge sure contracts and commitments as derivatives when the
traits of these contracts and commitments meet the definition of a
spinoff. If spinoff devices are designated as hedges of honest values,
each the change within the honest worth of the hedge and the hedged merchandise are included
in present earnings.



Through the regular course of enterprise, the Firm enters into commitments to
originate mortgage loans whereby the rate of interest on the mortgage is set
previous to funding ("price lock commitments"). For commitments issued in connection
with potential loans supposed on the market, the Financial institution enters into positions of
ahead month mortgage-backed securities to be introduced ("TBA") contracts on a
necessary foundation or on a one-to-one ahead gross sales contract on a greatest efforts
foundation. The Firm enters into TBA contracts to be able to management rate of interest
danger throughout the interval between the speed lock dedication and necessary sale of
the mortgage mortgage. Each the speed lock dedication and the ahead TBA contract is
thought of a spinoff. A mortgage mortgage offered on a greatest efforts foundation is locked
right into a ahead gross sales contract with a counterparty on the identical day as the speed
lock dedication to regulate rate of interest danger throughout the interval between the
dedication and the sale of the mortgage mortgage. Each the speed lock dedication and
the ahead gross sales contract are thought of derivatives.



The market values of price lock commitments and greatest efforts ahead supply
commitments shouldn't be readily ascertainable with precision as a result of price lock
commitments and greatest efforts contracts are usually not actively traded in stand-alone
markets. The Firm determines the honest worth of price lock commitments,
supply contracts, and ahead gross sales contracts of mortgage backed securities
("MBS") by measuring the change within the worth of the underlying asset, whereas
making an allowance for the chance that the speed lock commitments will
shut or will probably be funded. Sure dangers come up from the ahead supply contracts
in that the counterparties to the contracts might not have the ability to meet the phrases of
the contracts. Extra dangers inherent in necessary supply packages embody
the danger that, if the Firm doesn't shut the loans topic to price lock
commitments, it's going to nonetheless be obligated to ship MBS to the counterparty below
the ahead gross sales settlement.



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Earnings taxes



Earnings taxes are accounted for utilizing the stability sheet methodology in accordance with
ASC 740, Accounting for Earnings Taxes. Per ASC 740, the target is to acknowledge
(a) the quantity of taxes payable or refundable for the present yr, and (b)
defer tax liabilities and property for the long run tax penalties of occasions that
have been acknowledged within the monetary statements or federal revenue tax returns.
A web deferred tax asset or legal responsibility is set primarily based on the tax results of
the short-term variations between the guide (i.e., monetary assertion) and tax
bases of the varied stability sheet property and liabilities and offers present
recognition to adjustments in tax charges and legal guidelines. Short-term variations are reversed
within the interval during which an quantity or quantities change into taxable or deductible.





Comparability of working outcomes for the years ended December 31, 2020 and 2019



For the yr ended December 31, 2020, the Firm reported web revenue of $17.7
million in comparison with $4.6 million reported for 2019. Fundamental and diluted earnings
per share had been $3.11 in 2020 in comparison with $1.10 in 2019.



Internet Curiosity Earnings. Internet curiosity revenue is the surplus of curiosity earned on
loans and investments over the curiosity paid on deposits and borrowings and is
the Firm's major income supply. Internet curiosity revenue is thereby affected by
general stability sheet progress, adjustments in rates of interest and adjustments within the combine
of investments, loans, deposits, and borrowings.



Internet curiosity revenue was $44.5 million for the yr ended December 31, 2020
in comparison with $21.4 million for the yr ended December 31, 2019. Internet curiosity
margin was 3.49% for the yr ended December 31, 2020 in comparison with 3.35% for the
yr ended December 31, 2019. The rise in web curiosity revenue in 2020 was
primarily as a result of continued progress within the mortgage portfolio, notably loans made
pursuant to the PPP. The optimistic impression on web curiosity margin on account of
PPP loans and associated funding was twelve foundation factors. Common balances of PPP
loans had been $237.2 million in 2020, whereas there have been none in 2019. Progress in
common balances of loans excluding PPP loans was 8.5% for 2020 in comparison with
2019. Included in web curiosity revenue for 2020 was roughly $9.6 million in
web curiosity and charges associated to PPP loans. The Firm utilized borrowings from
the Federal Reserve's Paycheck Safety Program Liquidity Facility ("PPPLF")
to fund PPP loans throughout 2020. These borrowings had been at an annual price of 0.35%
and resulted in curiosity expense of $784 thousand throughout 2020. Moreover, the
Firm participated within the Federal Reserve's Fundamental Avenue Lending Program and
acknowledged mortgage origination charges from this program of roughly $1.5 million
in 2020.



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The next desk exhibits the typical stability sheets for every of the years ended
December 31, 2020, 2019 and 2018. As well as, the quantities of curiosity earned on
interest-earning property, with associated yields, and curiosity expense on
interest-bearing liabilities, with associated charges, are proven.



                                                                         

For the previous years the thirty first of December,

                                              2020                                      2019                                     2018
                               Common                      Yield/       Common                     Yield/       Common                     Yield/
({Dollars} in hundreds)         Stability       Curiosity        Price        Stability      Curiosity        Price        Stability      Curiosity        Price
Property:
Taxable securities (1)       $   106,228$   2,582         2.43 %   $ 103,698$   3,286         3.17 %   $  46,940$   1,574         3.35 %
Tax-exempt securities (1)          6,175           178         2.88 %       7,832           285         3.64 %       9,497           353         3.72 %
Complete securities                 112,403         2,760         2.46 %     111,530         3,571         3.20 %      56,437         1,927         3.41 %
Curiosity-bearing deposits
in
  different banks                    108,587           169         0.16 %      15,530           266         1.71 %       9,051            75         0.83 %
Federal funds offered                   596             2         0.34 %         313            10         3.19 %         882            17         1.93 %
Loans accessible on the market         140,496         3,922         2.79 %      53,148         1,940         3.65 %      18,381           786         4.28 %
Loans held for funding
  (together with mortgage charges)
(2)                              912,455        47,638         5.22 %     458,927        25,150         5.48 %     360,872        19,693         5.46 %
Complete interest-earning
property                         1,274,537        54,491         4.28 %     639,448        30,937         4.84 %     445,623        22,498         5.05 %
Much less allowance for mortgage
losses                            (7,944 )                                 (4,572 )                                 (3,580 )
Complete noninterest incomes
property                           106,245                                   41,611                                   21,597
Complete property                 $ 1,372,838$ 676,487$ 463,640
Liabilities and
stockholders'
  fairness:
Curiosity-bearing demand
and
  financial savings deposits           $   346,784$   1,485         0.43 %   $ 170,251$   1,663         0.98 %   $ 133,431$     814         0.61 %
Time deposits                    261,891         4,761         1.82 %     216,313         4,546         2.10 %     165,317         2,698         1.63 %
Complete interest-bearing
  deposits                       608,675         6,246         1.03 %     386,564         6,209         1.61 %     298,748         3,512         1.18 %
Subordinated debentures
and different borrowings             368,468         3,704         1.01 %     121,201         3,310         2.73 %      53,509         1,640         3.06 %
Complete interest-bearing
  liabilities                    977,143         9,950         1.02 %     507,765         9,519         1.87 %     352,257         5,152         1.46 %
Different noninterest bearing
  liabilities                    298,544                                  108,728                                   73,552
Stockholders' fairness              97,151                                   59,994                                   37,831
Complete liabilities and
  stockholders'
  fairness                     $ 1,372,838$ 676,487$ 463,640
Rate of interest unfold                                           3.26 %                                   2.96 %                                   3.59 %
Internet curiosity revenue and
  Margin                                     $  44,541         3.49 %                 $  21,418         3.35 %                 $  17,346         3.89 %



(1) Calculated on an equal totally taxable foundation utilizing an efficient tax price of 21%.

(2) Loans with out accrual accounting have been included within the calculations of the typical mortgage

    balances.




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Curiosity revenue and expense are affected by adjustments in rates of interest, by
adjustments within the volumes of incomes property and interest-bearing liabilities, and
by adjustments within the combine of those property and liabilities. The next rate-volume
variance evaluation exhibits the year-to-year adjustments within the parts of web
curiosity revenue:



                                         2020 in comparison with 2019                        2019 in comparison with 2018
                                  Improve/(Lower)           Complete          Improve/(Lower)           Complete
                                         Because of               Improve/               Because of               Improve/
({Dollars} in hundreds)            Quantity          Price       (Lower)        Quantity          Price       (Lower)
Curiosity Earnings
Taxable securities              $        80$   (784 )$      (704 )$    1,904$   (192 )$     1,712
Tax-exempt securities                   (60 )        (47 )          (107 )          (62 )          (6 )           (68 )
Curiosity bearing deposits
  in different banks                      1,593       (1,689 )           (96 )           54           137             191
Federal funds offered                        9          (16 )            (7 )          (11 )           4              (7 )
Loans accessible on the market              3,188       (1,207 )         1,981          1,486          (332 )         1,154
Loans held for funding            24,854       (2,367 )        22,487          5,350           107           5,457
Complete curiosity revenue           $    29,664$ (6,110 )$    23,554$    8,721$   (282 )$     8,439
Curiosity Expense
Curiosity-bearing demand
  and financial savings deposits:         $     1,725$ (1,903 )$      (178 )$      225           625     $       850
Time deposits                           958         (743 )           215            832         1,015           1,847
Subordinated debentures and
different borrowings                      6,753       (6,360 )           393          2,074          (404 )         1,670
Complete curiosity expense                9,436       (9,006 )           430          3,131         1,236           4,367

Change in web curiosity revenue $ 20,228$ 2,896$ 23,124

 $    5,590$ (1,518 )$     4,072




Provision for Mortgage Losses. The supply for mortgage losses was $10.5 million
throughout the yr ended December 31, 2020 in comparison with $1.7 million for the yr
ended December 31, 2019, a rise of $8.8 million. Internet charge-offs amounted
to $1.2 million for the yr ended December 31, 2020 and $750 thousand for the
yr ended December 31, 2019. The rise within the provision for mortgage losses
throughout 2020 was primarily as a result of an element added for the potential impression of the
COVID-19 pandemic within the quantity of $9.2 million. This issue was primarily based on
Federal Reserve annualized charge-off charges from latest recessions as well as
to statistics on lodge occupancy charges to reach at a COVID-19 severity issue.
This issue was utilized to loans of particular NAICS codes that had been deemed extra
prone to the impacts of the pandemic, together with loans partly
collateralized by eating places, hospitality, and different public venues.

                                       36

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Non-interest Earnings. The Firm's non-interest revenue sources embody deposit
account service fees and different charges, residential mortgage banking revenue,
together with web beneficial properties on gross sales of mortgages and mortgage servicing rights revenue,
beneficial properties on the sale of assured United States Division of Agriculture ("USDA")
loans, and revenue from financial institution owned life insurance coverage. Non-interest revenue totaled
$56.8 million for the yr ended December 31, 2020 in comparison with $18.8 million in
2019. The rise in non-interest revenue was largely as a result of a rise of
$30.0 million associated to the origination and sale of held on the market mortgages, as
a results of elevated house refinancing and buying because of the low curiosity
price atmosphere for a majority of 2020. The Firm expanded its mortgage
operations in 2020 to incorporate a wholesale mortgage enterprise by way of LenderSelect
Mortgage Group, which additionally contributed to the elevated mortgage quantity in 2020.
Mortgage quantity surpassed $1 billion in 2020, a file for the Firm.
Starting in second quarter 2020, the Firm started retaining mortgage servicing
rights on the sale of residential loans leading to extra non-interest
revenue of roughly $7.1 million for the yr. Moreover, beneficial properties on the
sale of assured USDA loans resulted in revenue of roughly $880 thousand,
a rise of $582 thousand over the prior yr. The next desk gives
element for non-interest revenue for the years ended December 31, 2020 and 2019:



                                         For the years ended
                                             December 31,
({Dollars} in hundreds)                   2020            2019         Change $        Change %
Service fees on deposit accounts   $       905$      651$       254          39.02 %
Earnings from funding in life                                                           (58.33 %)
insurance coverage                                     390            936            (546 )
Residential mortgage banking                                                             208.04 %
revenue, web                                44,460         14,433          30,027
Mortgage servicing rights                   7,084              -           7,084         100.00 %
(Loss) acquire on disposal of property            (160 )            1            (161 )          n/m
Achieve on sale of securities                    211            451            (240 )       (53.22 %)
Loss on sale of OREO                            -            (43 )            43        (100.00 %)
Achieve on sale of assured USDA                                                          195.30 %
loans                                         880            298            

582

Small enterprise funding firm
fund revenue                                    47             49              (2 )        (4.08 %)
Payroll processing revenue by way of
MoneyWise Payroll Options                   974            980              (6 )        (0.61 %)
Financial institution and buy card income              1,297            572             725         126.75 %
Insurance coverage revenue                              110             97              13          13.40 %
Credit score mark restoration revenue                     -            200            (200 )      (100.00 %)
Different revenue                                  626            171             455         266.08 %
Complete non-interest Earnings             $    56,824$   18,796$    38,028         202.32 %




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Non-interest Expense. Non-interest expense totaled $68.4 million for the yr
ended December 31, 2020 in comparison with $32.8 million for 2019, a 108.2% improve.
This was primarily as a result of a rise in salaries and worker advantages of $26.1
million, which was primarily a results of the Financial institution increasing its retail mortgage
operations by way of Monarch Mortgage and the acquisition of LenderSelect Mortgage
Group in late 2019. The elevated mortgage quantity in 2020 resulted in elevated
headcount, bonuses, and commissions tied to those file volumes. Moreover,
occupancy and tools bills elevated $1.0 million as a result of extra leased
places for the expanded mortgage division and a full yr of bills with
the VCB acquisition, which occurred in late 2019. Information processing prices
elevated $781 thousand primarily as a result of progress from the 2019 acquisition of VCB
and better mortgage processing software program prices from the elevated quantity in 2020.
Additionally included in non-interest expense had been merger associated prices of $2.4 million
and $1.7 million for the years ended December 31, 2020 and 2019, respectively,
which might be primarily included in information processing, authorized, issuer, and regulatory
submitting charges and different contractual companies. The next desk gives element
for non-interest expense for the years ended December 31, 2020 and 2019:



                                         For the years ended
                                             December 31,
({Dollars} in hundreds)                   2020            2019         Change $       Change %
Salaries and worker advantages        $    45,418$   19,328$  (26,090 )      (134.99 %)
Occupancy and tools bills            3,551          2,538         (1,013 )       (39.91 %)
Information processing                             2,683          1,902           (781 )       (41.06 %)
Authorized, issuer, and regulatory
submitting charges                                 2,687          1,778           (909 )       (51.12 %)
Promoting expense                           776            810             34           4.20 %
Communications expense                        721            441           (280 )       (63.49 %)
Debit card bills                           583            363           (220 )       (60.61 %)
Administrators charges                                443            231           (212 )       (91.77 %)
Audits and accounting charges                    436            258           (178 )       (68.99 %)
FDIC insurance coverage expense                        749            420           (329 )       (78.33 %)
Different contractual companies                  1,408            382         (1,026 )      (268.59 %)
Different taxes and assessments                 1,013            661           (352 )       (53.25 %)
Printing, postage, stationery, and
provides                                      842            444           (398 )       (89.64 %)
Schooling, dues, journey, meals and
leisure                               1,126            806           (320 )       (39.70 %)
Amortization expense                          825            489           (336 )       (68.71 %)
Mortgage mortgage
funding/underwriting/closing                1,883            670         (1,213 )      (181.04 %)
Insurance coverage expense                             299            153           (146 )       (95.42 %)
Mortgage reserve expense                    1,625            327         (1,298 )      (396.94 %)
Different bills                              1,319            844           (475 )       (56.28 %)
Complete non-interest Expense            $    68,387$   32,845$  (35,542 )      (108.21 %)




Earnings Tax Expense. For the yr ended December 31, 2020, the Firm recorded a
provision for revenue taxes of $4.8 million (efficient tax price of 21.4%) as
in comparison with a provision of $973 thousand (efficient tax price of 17.4%) for the
yr ended December 31, 2019.


Monetary state of affairs evaluation



Mortgage Portfolio. The Firm makes loans to people in addition to to industrial
entities. Particular mortgage phrases fluctuate as to rate of interest, reimbursement, and
collateral necessities primarily based on the kind of mortgage requested and the
creditworthiness of the possible borrower. Credit score danger tends to be
geographically concentrated in {that a} majority of the mortgage clients are situated
within the markets serviced by the Financial institution. All loans are underwritten inside particular
lending coverage pointers which might be designed to maximise the Firm's
profitability inside an appropriate stage of enterprise danger.

                                       38

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The next desk units forth the distribution of the Firm's mortgage portfolio
on the dates indicated by class of mortgage and the share of loans in every
class to whole loans:



                                                            At December 31,
                                                    2020                       2019
 ({Dollars} in hundreds)                     Quantity       %       Quantity       %
 Industrial and industrial                 $  93,286         9.37 %   $  77,728        11.95 %
 Paycheck Safety Program                 292,068        29.34 %           -            -

Actual property – building, industrial 54,702 5.50% 38,039 5.87%

Actual property – building, residential 18,040 1.81% 26,778 4.14%

Actual property – mortgage, industrial 273,499 27.48% 251,824 38.89%

Actual property – mortgage, residential 213,404 21.44% 208,494 32.20%

 Actual property - mortgage, farmland              3,615         0.36 %       5,507         0.85 %
 Shopper loans                               46,684         4.70 %      39,202         6.10 %
 Gross loans                                 995,298       100.00 %     647,572       100.00 %
 Much less: Unearned revenue, web of prices          (4,271 )                     

(738)

 Gross loans, web of web unearned revenue     991,027                    

646,834

 Much less: Allowance for mortgage losses             (13,827 )                   

(4,572)

 Internet loans                                 $ 977,200                  $ 

642,262

Loans held on the market

   (not included in totals above)          $ 178,598$  55,646




                                                                 At December 31,
                                            2018                       2017                       2016
({Dollars} in hundreds)              Quantity       %       Quantity       %       Quantity       %
Industrial and industrial          $  49,292        11.86 %   $  50,270        15.16 %   $  51,416        16.02 %
Actual property - building,
industrial                            14,666         3.53 %      11,502         3.47 %      17,737         5.53 %
Actual property - building,
residential                           15,102         3.63 %       8,136         2.45 %       5,126         1.60 %
Actual property - mortgage,
industrial                           150,513        36.22 %     111,796        33.71 %     109,750        34.21 %
Actual property - mortgage,
residential                          149,856        36.06 %     119,795        36.12 %     116,014        36.16 %
Actual property - mortgage, farmland       4,179         1.01 %       4,656         1.40 %       4,514         1.41 %
Shopper loans                        31,979         7.69 %      25,478         7.69 %      16,281         5.07 %
Gross loans                          415,587       100.00 %     331,633       100.00 %     320,838       100.00 %
Much less: Unearned revenue, web of
prices                                   (719 )                     (829 )                   (1,210 )
Gross loans, web of web unearned
revenue                               414,868                    330,804                    319,628
Much less: Allowance for mortgage losses       (3,580 )                   (2,802 )                   (2,013 )
Internet loans                          $ 411,288$ 328,002$ 317,615

Loans and leases supposed on the market

  (not included in totals above)   $  29,233$  17,220$  24,656




                                       39
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The next desk units forth the repricing traits and sensitivity to
rate of interest adjustments of the Firm's mortgage portfolio at December 31, 2020 and
December 31, 2019:



                                                            Between          After
                                            One 12 months        One and          5

December 31, 2020 (In hundreds of {dollars}) or lower than 5 years

  Years         Complete
Industrial and industrial                  $   21,371$     30,787$  41,128$  93,286
Paycheck Safety Program                         -          292,068             -       292,068
Actual property - building, industrial          5,421           30,283        18,998        54,702
Actual property - building, residential        16,890              103         1,047        18,040
Actual property - mortgage, industrial             19,336          146,471       107,692       273,499
Actual property - mortgage, residential             8,687           37,669       167,048       213,404
Actual property - mortgage, farmland                  102            1,841         1,672         3,615
Shopper loans                                 15,547           24,742         6,395        46,684
Gross loans                                $   87,354$    563,964$ 343,980$ 995,298

Fastened-rate loans                           $   51,442$    531,855$ 154,278$ 737,575
Floating-rate loans                            35,912           32,109       189,702       257,723
Gross loans                                $   87,354$    563,964$ 343,980$ 995,298




                                                           Between          After
                                           One 12 months        One and          5

December 31, 2019 (In hundreds of {dollars}) or much less 5 years years Complete industrial and industrial

                  $  22,807$     28,022$  26,899$  77,728
Actual property - building, industrial        14,133           18,160         5,746        38,039
Actual property - building, residential       26,279              499             -        26,778
Actual property - mortgage, industrial            28,085          125,687        98,052       251,824
Actual property - mortgage, residential           11,237           41,062       156,195       208,494
Actual property - mortgage, farmland                 445            1,453         3,609         5,507
Shopper loans                                 3,154           30,870         5,178        39,202
Gross loans                                $ 106,140$    245,753$ 295,679$ 647,572

Fastened-rate loans                           $  70,659$    223,941$ 133,914$ 428,514
Floating-rate loans                           35,481           21,812       161,765       219,058
Gross loans                                $ 106,140$    245,753$ 295,679$ 647,572




The Firm prepares a quarterly evaluation of the allowance for mortgage losses, with
the target of quantifying portfolio danger right into a greenback quantity of inherent
losses. The allowance for mortgage losses is established as losses are estimated to
have occurred by way of a provision for mortgage losses charged in opposition to revenue and
decreased by loans charged-off (web of recoveries, if any). The Firm's
periodic analysis of the adequacy of the allowance is predicated on previous mortgage loss
expertise, recognized and inherent dangers within the portfolio, antagonistic conditions that
might have an effect on the borrower's capability to repay, the estimated worth of any
underlying collateral, and present financial circumstances. Whereas administration makes use of
the most effective info accessible to make evaluations, future changes could also be
crucial, if financial or different circumstances differ considerably from the
assumptions used. The allowance consists of particular and normal parts. The
particular element pertains to loans which might be recognized as impaired. For loans
which might be categorised as impaired, an allowance is established when the discounted
money flows or the web realizable worth of underlying collateral, which is equal
to the estimated honest worth much less estimated prices to promote, of the impaired mortgage
is decrease than the carrying worth of that mortgage. The final element covers
non-classified loans and people loans categorised over a minimal greenback quantity
that aren't impaired and is predicated on historic loss expertise adjusted for
different inside or exterior influences on credit score high quality that aren't totally
mirrored within the historic information.



The Firm follows relevant steerage issued by FASB. This steerage requires
that losses be accrued when they're possible of occurring and may be estimated.
It additionally requires that impaired loans, inside its scope, be measured primarily based on the
current worth of anticipated future money flows discounted on the mortgage's efficient
rate of interest, besides that as a sensible expedient, a creditor might measure
impairment primarily based on a mortgage's observable market value, or the honest worth of the
collateral if the mortgage is collateral dependent.



                                       40

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Loans are evaluated for non-accrual standing when principal or curiosity is
delinquent for 90 days or extra and are positioned on non-accrual standing when a mortgage
is particularly decided to be impaired. Any unpaid curiosity beforehand
accrued on these loans is reversed from revenue. Any curiosity funds
subsequently acquired are acknowledged as revenue or amortized over the lifetime of the
mortgage relying on the particular circumstances. Curiosity funds acquired on
loans the place administration believes a possible for loss stays are utilized as a
discount of the mortgage principal stability.



Administration believes that the allowance for mortgage losses was enough as of
December 31, 2020. There may be no assurance that changes to the supply
for mortgage losses won't be required sooner or later. Adjustments within the financial
assumptions underlying administration's estimates and judgments; antagonistic
developments within the financial system, on a nationwide foundation or within the Firm's market
space; or adjustments within the circumstances of specific debtors are standards that
may require changes to the supply for mortgage losses.



The next desk gives a abstract of the allowance and allowance for mortgage losses for the durations indicated:


                                                        12 months Ended December 31,
({Dollars} in hundreds)                  2020         2019         2018         2017         2016
Allowance, starting of interval        $  4,572$  3,580$  2,803$  2,013$  2,347
Cost-Offs
Industrial and industrial             $     (6 )$    (43 )$     (6 )   $      -     $ (1,019 )
Actual property, mortgage                     (505 )         (4 )        (13 )        (71 )          -
Shopper and different loans                  (994 )       (914 )       (545 )       (365 )       (306 )
Complete charge-offs                       (1,505 )       (961 )       (564 )       (436 )     (1,325 )
Recoveries
Industrial and industrial                   41            -            -           35            1
Actual property, building                    -            -            -            -            -
Actual property, mortgage                        8            6           12            1            -
Shopper and different loans                   261          205          104           95           64
Complete recoveries                           310          211          116          131           65
Internet charge-offs                         (1,195 )       (750 )       (448 )       (305 )     (1,260 )
Provision for mortgage losses               10,450        1,742        1,225        1,095          926
Allowance, finish of interval              $ 13,827$  4,572$  3,580$  2,803$  2,013
Ratio of web charges-offs to
common whole
  loans excellent throughout interval         0.15 %       0.02 %       0.12 %       0.09 %       0.48 %




The allowance for mortgage losses contains particular and a normal allowance
relevant to all mortgage classes; nonetheless, administration has allotted the
allowance by mortgage sort to supply a sign of the relative danger
traits of the mortgage portfolio. The allocation is an estimate and may
not be interpreted as a sign that charge-offs will happen in these
quantities, or that the allocation signifies future tendencies, and doesn't prohibit
the utilization of the allowance for any particular mortgage or class. The allocation of
the allowance and as a % of the relevant mortgage phase was as follows at
the durations indicated:



                                                                                 December 31,
                                            % of                    % of                    % of                    % of                    % of
({Dollars} in hundreds)          2020        Loans       2019        Loans  

Loans 2018 Loans 2017 Loans 2016 Industrial and industrial loans $ 3,762 4.0% $ 842 1.1% $ 568 1.2% $ 494 0.9% $ 573 1.1% Actual property – building,

  industrial                       960         1.8 %       220         0.6 

% 111 0.8% 92 0.8% 83 0.5% Actual property – building,

  residential                      150         0.8 %        60         0.2 %        56         0.4 %        36         0.5 %        10        0.2 %
Actual property - mortgage,
  industrial                     4,215         1.6 %     1,602         0.6 %     1,183         0.8 %       809         0.7 %       533        0.5 %
Actual property - mortgage,
  residential                    1,481         0.3 %       509         0.2 %       431         0.3 %       405         0.3 %       289        0.3 %
Actual property - mortgage,
  farmland                          18         0.5 %         9         0.2 %        13         0.3 %        12         0.2 %         8        0.1 %
Shopper and different               3,241         7.0 %     1,330         3.4 %     1,218         3.8 %       955         3.8 %       517        3.2 %
                              $ 13,827         1.4 %   $ 4,572         0.7 %   $ 3,580         0.9 %   $ 2,803         0.9 %   $ 2,013        0.6 %


                                       41
--------------------------------------------------------------------------------


Non-performing Property. Non-performing property include non-accrual loans, loans
overdue 90 days and nonetheless accruing curiosity, and OREO (foreclosed properties).
The extent of non-performing property elevated by $1.5 million throughout 2020 to $6.6
million at December 31, 2020 in comparison with $5.2 million at December 31, 2019. The
Firm has established particular mortgage loss reserves on impaired loans equal to
the estimated collateral deficiency (if any), plus the price of sale of the
underlying collateral, as relevant.



Loans are positioned in non-accrual standing when within the opinion of administration the
assortment of extra curiosity is unlikely or a particular mortgage meets the
standards for non-accrual standing established by regulatory authorities. No
curiosity is taken into revenue on non-accrual loans. A mortgage stays on
non-accrual standing till the mortgage is present as to each principal and curiosity
or the borrower demonstrates the power to pay and stay present, or each.



Foreclosed actual property properties embody properties which were
substantively repossessed or acquired in full or partial satisfaction of
debt. Such properties, that are held for resale, are carried at honest worth,
together with a discount for the estimated promoting bills.



Impaired loans additionally embody sure loans which were modified in TDRs the place
financial concessions have been granted to debtors who've skilled or are
anticipated to expertise monetary difficulties. These concessions usually
outcome from the Firm's loss mitigation actions and will embody
reductions within the rate of interest, cost extensions, forgiveness of principal,
forbearance, or different actions. Sure TDRs are categorised as non-performing at
the time of restructure and should solely be returned to performing standing after
contemplating the borrower's sustained reimbursement efficiency for an inexpensive
interval, typically six months. The Firm had two TDRs within the quantity of $142
thousand and $144 thousand at December 31, 2020 and 2019, respectively. One mortgage
was categorised as a TDR as a result of a change in rate of interest and cost phrases and
the opposite mortgage was categorised as a TDR as a result of a change in cost phrases. These
loans are usually not included within the non-performing asset totals within the following
desk.



The next is a abstract of the data referring to danger objects and non-performing property as of the dates indicated:


                                                              December 31,
({Dollars} in hundreds)                  2020         2019         2018         2017         2016
Non-accrual loans                     $  6,583$  4,790$  5,515$  7,496$    787
Loans overdue 90 days and nonetheless
accruing                                    46          369        2,005           73          433
Complete non-performing loans            $  6,629$  5,159$  7,520$  7,569$  1,220
Different actual property owned                      -            -          134          207          611
Complete non-performing property           $  6,629$  5,159$  7,654$  7,776$  1,831
Allowance for mortgage losses to whole
loans
  held for funding                     1.40 %       0.71 %       0.86 %       0.85 %       0.63 %
Allowance for mortgage losses to non-
  performing loans                      208.58 %      88.62 %      47.61 %      37.02 %     165.00 %
Non-performing loans to whole loans
held
  for funding                          0.67 %       0.80 %       1.81 %       2.29 %       0.38 %
Non-performing property to whole
property                                    0.44 %       0.54 %       1.42 %       1.89 %       0.44 %




Potential Drawback Loans



From a credit score danger standpoint, the Firm grades watchlist and drawback loans
into considered one of 5 classes: cross/watch, particular point out, substandard, uncertain,
or loss. The classifications of loans replicate a judgment concerning the dangers of
default and loss related to the mortgage. Credit score rankings are reviewed recurrently
by administration by administration. Rankings are adjusted recurrently to replicate the
diploma of danger and loss that the Firm's administration believes to be applicable
for every credit score. The methodology is structured in order that particular reserve
allocations are elevated in accordance with deterioration in credit score high quality
(and a corresponding improve in danger and loss) or decreased in accordance with
enchancment in credit score high quality (and a corresponding lower in danger and loss).
The Firm's lending coverage requires the routine monitoring of each day overdue
and overdraft studies, month-to-month maturing loans, month-to-month danger score studies, and
inside mortgage overview studies. The lending and credit score administration of the Financial institution meet
as soon as a month to overview loans rated cross/watch. The main focus of every assembly is to
establish and promptly decide any crucial required motion with this mortgage
inhabitants, which consists of loans that, though thought of passable and
performing to phrases, might exhibit particular danger options that warrant administration's
consideration.


Loans which might be thought of particular, substandard, impaired, or lossy are listed within the Financial institution’s Drawback Loans Report or Particular Property Report.

                                       42

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The Financial institution makes use of the next definitions for watchlist danger rankings:

• Go / Look. Debtors deemed passable and environment friendly

circumstances, however with particular danger traits similar to decrease revenue,

tight money circulation, elevated debt and / or weakened fundamentals that

point out greater than common danger.

• Particular point out. A mortgage with particular point out has potential weaknesses that benefit

administration’s consideration. If not corrected, these weaknesses can result in

       deterioration of the reimbursement prospects for the asset or in credit score
       place at some future date.

• Sub-standard. A substandard mortgage shouldn’t be sufficiently protected by

the monetary state of affairs and the cost capability of the debtor or the collateral

promised, if any. Property so categorised have a well-defined weak spot or

weaknesses that endanger the liquidation of the debt. They’re

characterised by the distinct risk that the corporate helps

some loss if the deficiencies are usually not corrected. Potential for loss, whereas present

within the combination quantity of substandard property, should not exist in

particular person property categorised as substandard.

• Uncertain. A nasty mortgage has all of the weaknesses inherent in a mortgage categorised as

of inferior high quality, with the extra attribute that the weaknesses make the gathering

       or liquidation in full, on the idea of present details, circumstances, and
       values, extremely questionable and unbelievable. The chance of loss is

extraordinarily excessive, however some necessary and fairly particular components

can work for the profit and strengthening the asset exists. So,

its classification as an estimated loss is deferred till a

standing may be decided by administration. Excellent components embody

       merger, acquisition or liquidation procedures, capital injection,
       perfecting liens on extra collateral, and refinancing plans.


    •  Loss. Credit rated as loss are charged-off, because the Firm has no
       expectation of the restoration of any funds.




Loans not assembly the standards above are thought of to be pass-rated loans. The
following tables current the mortgage balances by class in addition to danger score.
No property had been categorised as loss or uncertain throughout the durations introduced.



                                                                                             December 31, 2020
                                                                                                                          Grade
                                             Grade          Grade          Grade          Grade            Grade            6             Grade
                                               1              2              3              4                5           Particular            7
({Dollars} in hundreds)                       Prime        Fascinating        Good         Acceptable       Go/Watch      Point out       Substandard        Complete
Industrial and industrial                  $     844$       484     $  

23,828 $ 55,539$ 7,251$ 4$ 5,336$ 93,286
Paycheque Safety Program

                  292,068               -             -                -                -            -                 -    

292,068

Actual property - building, industrial             -           2,143        19,524           26,324            5,916          218               577     

54,702

Actual property - building, residential            -               -         3,073            8,247            6,458            -               262     

18,040

Actual property - mortgage, industrial                 -           3,994       128,163          114,977           15,799        2,968             7,598    

273,499

Actual property - mortgage residential                 -           3,583       101,078          100,601            5,750          158             2,234    

213,404

Actual property - mortgage, farmland                 444               -         1,175            1,996                -            -                 -         3,615
Shopper loans                                   324              36        17,062           28,033              521            1               707        46,684
Gross loans                                $ 293,680$    10,240$ 293,903$    335,717$     41,695$  3,349$      16,714$ 995,298
Much less: Unearned revenue and deferred prices                                                                                                                   (4,271 )
Complete                                                                                                                                                   $ 991,027






                                       43
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                                                                                        December 31, 2019
                                                                                                                 Grade
                                     Grade         Grade          Grade          Grade            Grade            6             Grade
                                       1             2              3              4                5           Particular            7
({Dollars} in hundreds)               Prime       Fascinating        Good      

Acceptable Go / Watch Point out Substandard Complete Industrial and industrial

           $ 1,509$     1,042$  35,180$     37,458$        568$  1,488     $         483     $  77,728
Actual property - building,
industrial                                -           1,454        24,667           10,850              102            -               966        

38,039

Actual property - building,
residential                               -             139         9,355           14,331            2,953            -                 -        26,778
Actual property - mortgage,
industrial                                -           4,971       118,488          114,598            9,273        1,935             2,559       251,824
Actual property - mortgage
residential                               -           4,611       100,665           98,116            3,470          130             1,502       208,494
Actual property - mortgage, farmland      1,467             134         1,736            2,170                -            -                 -         5,507
Shopper loans                          293              72        17,872           20,067              116            -               782        39,202
Gross loans                         $ 3,269$    12,423$ 307,963$    297,590$     16,482$  3,553$       6,292$ 647,572
Much less: Unearned revenue and
deferred prices                                                                                                                                      (738 )
Complete                                                                                                                                          $ 646,834Funding Securities. The funding portfolio is used as a supply of curiosity
revenue, credit score danger diversification, and liquidity, in addition to to handle price
sensitivity and supply collateral for short-term borrowings. Securities within the
funding portfolio categorised as securities available-for-sale could also be offered in
response to adjustments in market rates of interest, adjustments within the securities'
prepayment danger, elevated mortgage demand, normal liquidity wants, and different
related components, and are carried at estimated honest worth. The honest worth of the
Firm's funding securities available-for-sale was $109.5 million at
December 31, 2020, a rise of $904 thousand, or 0.83%, from $108.6 million
at December 31, 2019. Throughout 2020, the Firm bought $44.2 million in
funding securities available-for-sale to offset redemptions and gross sales and to
improve the yield of the portfolio. The Firm didn't maintain any funding
securities held-to-maturity at December 31, 2020, whereas at December 31, 2019
held-to-maturity investments totaled $12.2 million. Securities within the funding
portfolio categorised as held-to-maturity had been these securities that the Firm
had the power and intent to carry to maturity and had been carried at amortized
price.



As of December 31, 2020 and 2019, the vast majority of the funding securities
portfolio consisted of securities rated A to AAA by a number one score company.
Funding securities which carry a AAA score are judged to be of the most effective
high quality and carry the smallest diploma of funding danger. The market worth of
funding securities that had been pledged to safe public deposits totaled
$12.5 million and $12.0 million at December 31, 2020 and December 31, 2019,
respectively.



The Firm completes evaluations for other-than-temporary impairment at the least
quarterly. At December 31, 2020 and December 31, 2019, solely funding grade
securities had been in an unrealized loss place. Funding securities with
unrealized losses are a results of pricing adjustments as a result of latest and destructive
circumstances within the present market atmosphere and weren't deemed a results of
everlasting credit score impairment. Contractual money flows for the company
mortgage-backed securities are assured and/or funded by the U.S. authorities.
Municipal securities present no indication that the contractual money flows won't
be acquired when due. The Firm doesn't intend to promote nor does it consider
that will probably be required to promote any of its briefly impaired securities
previous to the restoration of the amortized price.



No aside from short-term depreciation was recorded for the securities within the Firm’s funding portfolio as of December 31, 2020 and December 31, 2019.



The Firm holds restricted investments in equities of the Federal Reserve Financial institution
of Richmond ("FRB"), the FHLB, and its correspondent financial institution, Neighborhood Banker's
Financial institution ("CBB"). At December 31, 2020, the Firm held $5.8 million of FHLB inventory,
$2.2 million of FRB inventory, and $248 thousand of CBB inventory. At December 31, 2019,
the Firm held $6.0 million of FHLB inventory, $963 thousand of FRB inventory, and
$248 thousand of CBB inventory. At December 31, 2018, the Firm held $3.5
million of FHLB inventory, $813 thousand of FRB inventory, and $168 thousand of CBB
inventory.



                                       44

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The next desk displays the composition of the Firm’s funding portfolio, at amortized price, for the durations indicated:


                                                                        December 31,
                                              2020                           2019                          2018
                                                  % of                     % of                    % of
({Dollars} in hundreds)              Stability         whole          Stability         whole         Stability         whole
Out there-for-sale
State and municipal                $  14,069            12.95 %   $       -             0.00 %   $  1,000             1.80 %
U. S. Treasury and companies            2,500             2.30 %       2,500             2.10 %      3,375             6.20 %
Mortgage backed securities            72,337            66.57 %      94,983            79.00 %     28,976            53.30 %
Company bonds                       19,755            18.18 %      10,554             8.80 %      5,477            10.10 %

Held to maturity

State and municipal                        -                -        12,192            10.10 %     15,565            28.60 %
Complete investments                  $ 108,661           100.00 %   $ 120,229           100.00 %   $ 54,393           100.00 %



The next desk presents the amortized price of the Firm’s funding portfolio in response to their declared maturities, in addition to the weighted common returns for every of the maturity ranges to December 31, 2020:



                                                                                            December 31, 2020
                                              Inside One 12 months                One to 5 Years              5 to Ten Years                Over Ten Years
                                                          Weighted                        Weighted                       Weighted                       Weighted
                                         Amortized        Common        Amortized        Common        Amortized       Common        Amortized       Common
({Dollars} in hundreds)                      Price           Yield           Price            Yield           Price           Yield           Price           Yield
Out there-for-sale
State and municipal                     $        927           1.00 %   $     1,037            2.96 %   $     4,464           2.15 %   $     7,641           1.90 %
U. S. Treasury and companies                    2,500           0.94 %             -               -               -              -               -              -
Mortgage backed securities                         -              -               -               -          13,282           1.88 %        59,055           2.12 %
Company bonds                                    -              -           5,268            5.37 %        14,257           5.27 %           230           6.84 %
Complete investments                       $      3,427$     6,305$    32,003$    66,926




Deposits. The principal sources of funds for the Firm are core deposits
(demand deposits, interest-bearing transaction accounts, cash market accounts,
financial savings deposits, and certificates of deposit) from its market space. The
Firm's deposit base contains transaction accounts, time and financial savings accounts,
and different accounts that clients use for money administration functions and which
present the Financial institution a supply of charge revenue and cross-marketing alternatives as
effectively as a low-cost supply of funding.



Roughly 26.6% of the Firm's deposits at December 31, 2020 had been made up
of time deposits, that are typically the most costly type of deposit as a result of
of their mounted price and time period, in comparison with 36.1% and 40.9% at December 31, 2019
and December 31, 2018, respectively.



                                       45

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The next tables current a abstract of the idea of deposit of the Firm on the dates indicated and of the distribution at maturity of the certificates of deposit of
$ 100,000 or extra on the finish of the durations indicated:


                                                                    December 31,
                                              2020                      2019                      2018
                                       Common                   Common                   Common
({Dollars} in hundreds)                 Stability       Price        Stability       Price        Stability       Price
Noninterest-bearing demand deposits   $ 283,186           -     $  94,855           -     $  71,068           -
Curiosity-bearing deposits:
Demand deposits                         101,178        0.34 %      58,899        0.53 %      50,439        0.50 %
Financial savings                                  82,510        0.14 %      29,691        0.09 %      28,416        0.08 %
Cash market deposits                   163,096        0.62 %      81,661        1.62 %      54,576        0.99 %
Time deposits                           261,891        1.82 %     216,313        2.10 %     165,317        1.63 %
Complete interest-bearing deposits         608,675                   386,564                   298,748
Complete common deposits                $ 891,861$ 481,419$ 369,816




               Maturities of Time Deposits ($100,000 or larger)



                                     December 31,       December 31,       December 31,
  ({Dollars} in hundreds)                 2020               2019               2018
  Maturing in:
  3 months or much less                  $       25,211$       28,455$        8,155
  Over 3 months by way of 6 months            33,963             24,646             19,265
  Over 6 months by way of 12 months           24,675             28,922             20,867
  Over 12 months                            92,341             96,098             60,717
                                    $      176,190$      178,121$      109,004




Brokered and itemizing service deposits made up of each certificates of deposits
and cash market demand accounts totaled $46.6 million at December 31, 2020
in comparison with $49.8 million at December 31, 2019 and $23.5 million at December 31,
2018.



                                       46

————————————————– ——————————

Loans. The next desk gives info on balances and rate of interest borrowings on the dates indicated:


                                                  For the 12 months Ended
                                                  December 31, 2020
                                                Highest
                                  Interval         Month                      Weighted
                                   -Finish          -Finish         Common       Common
        ({Dollars} in hundreds)    Stability       Stability       Stability         Price
        FHLB borrowings          $ 115,000$ 124,000$ 121,033           0.24 %
        FRB borrowings             281,650       355,484       223,869           0.35 %

                                                  For the 12 months Ended
                                                  December 31, 2019
                                                Highest
                                  Interval         Month                      Weighted
                                   -Finish          -Finish         Common       Common
        ({Dollars} in hundreds)    Stability       Stability       Stability         Price
        FHLB borrowings          $ 124,800$ 134,200$ 100,288           1.92 %

                                                  For the 12 months Ended
                                                  December 31, 2018
                                                Highest
                                  Interval         Month                      Weighted
                                   -Finish          -Finish         Common       Common
        ({Dollars} in hundreds)    Stability       Stability       Stability         Price
        FHLB borrowings          $  73,100$  73,100$  39,582           2.47 %



FHLB advances are secured by ensures consisting of a normal lien on eligible loans from the Firm’s residential, multi-family and industrial actual property mortgage portfolios, in addition to sure securities within the funding portfolio. FRB borrowings throughout the 2020 interval consist solely of PPPLF advances assured by PPP loans.



Liquidity. Liquidity within the banking {industry} is outlined as the power to satisfy
the demand for funds of each depositors and debtors. The Firm have to be ready
to satisfy these wants by acquiring funding from depositors or different lenders or by
changing non-cash objects into money. The target of the Firm's liquidity
administration program is to make sure that it all the time has adequate assets to satisfy
the calls for of depositors and debtors. Secure core deposits and a robust
capital place present the bottom for the Firm's liquidity place.
Administration believes the Firm has demonstrated its capability to draw deposits
due to its handy department places, private service, know-how, and
pricing.



Along with deposits, the Firm has entry to the totally different wholesale
funding markets. These markets embody the brokered certificates of deposit
market, itemizing service deposit market, and the federal funds market. The Financial institution
is a member of the IntraFi Community, which permits banking clients to entry
FDIC insurance coverage safety on deposits by way of the Financial institution, which exceed FDIC
insurance coverage limits. The Financial institution has one-way authority with IntraFi for each their
Certificates of Deposit Account Registry Service and Insured Money Swap Service
merchandise, which gives the Financial institution the power to entry extra wholesale
funding as wanted. The Firm additionally maintains secured traces of credit score with the
FRB and the FHLB for which the Financial institution can borrow as much as the allowable quantity for
the collateral pledged. Having numerous funding alternate options reduces the
Firm's reliance on anybody supply for funding.



Money flows from amortized or maturing property additionally present funding to satisfy the wants of depositors and debtors.



The Firm has established a proper liquidity contingency plan, which gives
pointers for liquidity administration. For the Firm's liquidity administration
program, the Firm first determines present liquidity place after which
forecasts liquidity primarily based on anticipated adjustments within the stability sheet. On this
forecast, the Firm expects to keep up a liquidity cushion. The Firm then
stresses its liquidity place below a number of totally different stress situations, from
reasonable to extreme. Tips for the forecasted liquidity cushion and for
liquidity cushions for every stress situation have been established. Administration
believes that it has adequate assets to satisfy its liquidity wants.



The Firm had a credit score line accessible of $177.1 million with the FHLB with an
excellent stability of $135 million, inclusive of a $20 million letter of credit score
to be used as pledging to the Commonwealth of Virginia for public deposits, as of
December 31, 2020. The FHLB might present a credit score line as much as 30% of the Financial institution's
asset worth as of the prior quarter-end,

                                       47

--------------------------------------------------------------------------------
topic to sure eligibility necessities and lending collateral, growing
this credit score line to roughly $450 million. As of December 31, 2019, the
excellent stability of borrowings and commitments with the FHLB totaled $124.8
million.



The Firm had 4 unsecured federal fund traces accessible with correspondent
banks for in a single day borrowing totaling $38.0 million and $24.0 million at
December 31, 2020 and December 31, 2019, respectively. These traces bear curiosity
on the prevailing price for such traces and are cancellable at any time by the
correspondent banks. These traces weren't drawn upon at December 31, 2020 or
2019.



Liquidity is crucial to the Firm's enterprise. The Firm's liquidity may
be impaired by an lack of ability to entry the capital markets or by unexpected
outflows of money, together with deposits. This example might come up as a result of
circumstances that the Firm could also be unable to regulate, similar to normal market
disruption, destructive views concerning the monetary companies {industry} typically, or
an operational drawback that impacts a 3rd social gathering or the Firm. The Firm's
capability to borrow from different monetary establishments on favorable phrases or in any respect
may very well be adversely affected by disruptions within the capital markets or different
occasions. Administration monitor liquidity place each day by way of money circulation
forecasting and common testing in opposition to minimal coverage ratios and it believes
the Firm's stage of liquidity and capital is enough to conduct its
enterprise.



Capital. Capital adequacy is a crucial measure of economic stability and
efficiency. the Firm's targets are to keep up a stage of capitalization
that's adequate to maintain asset progress and promote depositor and investor
confidence.



Regulatory companies measure capital adequacy using a formulation that considers
the person danger profile of the monetary establishment. The minimal capital
necessities for the Financial institution are: (i) a standard fairness Tier 1 ("CET1") capital ratio
of 4.5%; (ii) a Tier 1 to risk-based property capital ratio of 6%; (iii) a complete
risk-based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%.
Moreover, a capital conservation buffer requirement of two.5% of risk-weighted
property is designed to soak up losses in periods of financial stress and is
relevant to the Financial institution's CET1 capital, Tier 1 capital and whole capital ratios.
Together with the conservation buffer, the Financial institution's minimal capital ratios are as
follows: 7.00% for CET1; 8.50% for Tier 1 capital; and 10.50% for whole
risk-based capital. Banking establishments with a ratio of CET1 to risk-weighted
property above the minimal however beneath the conservation buffer will face constraints
on dividends, fairness repurchases, and compensation. The Financial institution was thought of
"effectively capitalized" for regulatory functions at December 31, 2020 and December 31,
2019.



On September 17, 2019, the federal banking companies collectively issued a last rule
required by the EGRRCPA that allows qualifying banks and financial institution holding corporations
which have lower than $10 billion in consolidated property to elect to be topic to
the CBLR. Beneath the rule, which turned efficient on January 1, 2020, banks and
financial institution holding corporations that decide into the CBLR framework and preserve a CBLR of
larger than 9% are usually not topic to different risk-based and leverage capital
necessities below the Basel III Capital Guidelines and can be deemed to have met
the effectively capitalized ratio necessities below the "immediate corrective motion"
framework. The Firm has not opted into the CBLR framework.



As famous above, regulatory capital ranges for the Financial institution meet these established
for "effectively capitalized" establishments. Whereas the Financial institution is presently thought of
"effectively capitalized," it might every so often discover it essential to entry the
capital markets to satisfy the Firm's progress targets or capitalize on
particular enterprise alternatives.



                                       48

————————————————– ——————————

The next desk exhibits the minimal capital requirement and the capital place at December 31, 2020 and December 31, 2019 for the Financial institution.



                                                                                       To Be Properly Capitalized
                                                                                          Beneath the Immediate
                                                           For Capital                    Corrective Motion
                               Precise                 Adequacy Functions (1)                  Provisions
({Dollars} in
hundreds)              Quantity         Ratio          Quantity            Ratio          Quantity            Ratio
As of December 31,
2020
Complete danger primarily based
capital
(To risk-weighted
property)
Blue Ridge Financial institution,
N.A.                   $ 109,219         13.10 %   $     87,574           10.50 %   $     83,404            10.00 %
Tier 1 capital
(To risk-weighted
property)
Blue Ridge Financial institution,
N.A.                   $  98,751         11.84 %   $     70,893
8.50 %   $     66,723             8.00 %
Frequent fairness tier 1
capital
(To risk-weighted
property)
Blue Ridge Financial institution,
N.A.                   $  98,751         11.84 %   $     58,383            7.00 %   $     54,213             6.50 %
Tier 1 leverage
(To common property)
Blue Ridge Financial institution,
N.A.                   $  98,751          8.34 %   $     76,934            4.00 %   $     59,180             5.00 %




                                                                                       To Be Properly Capitalized
                                                                                          Beneath the Immediate
                                                           For Capital                    Corrective Motion
                               Precise                 Adequacy Functions (1)                  Provisions
({Dollars} in
hundreds)              Quantity         Ratio          Quantity            Ratio          Quantity            Ratio
As of December 31,
2019
Complete danger primarily based
capital
(To risk-weighted
property)
Blue Ridge Financial institution,
N.A.                   $  79,911         11.82 %   $     71,007           10.50 %   $     67,626            10.00 %
Tier 1 capital
(To risk-weighted
property)
Blue Ridge Financial institution,
N.A.                   $  75,339         11.14 %   $     57,482
8.50 %   $     54,101             8.00 %
Frequent fairness tier 1
capital
(To risk-weighted
property)
Blue Ridge Financial institution,
N.A.                   $  75,339         11.14 %   $     47,338            7.00 %   $     43,957             6.50 %
Tier 1 leverage
(To common property)
Blue Ridge Financial institution,
N.A.                   $  75,339          8.00 %   $     61,216            4.00 %   $     47,090             5.00 %



(1) Excluding the Financial institution’s Tier 1 / common property (leverage) ratio,

       the minimal capital requirement contains the Basel III Capital Guidelines
       capital conservation buffer.



Off-balance sheet actions



Standby letters of credit score are conditional commitments issued by the Financial institution to
assure the efficiency of a buyer to a 3rd social gathering. These ensures are
primarily issued to help private and non-private borrowing preparations and,
typically, have phrases of 1 yr or much less. The credit score danger concerned in issuing
letters of credit score is actually the identical as that concerned in extending mortgage
services to clients; the Financial institution typically holds collateral supporting these
commitments. Within the occasion the client doesn't carry out in accordance with the
phrases of the settlement with the third social gathering, the Financial institution can be required to fund
the dedication. The utmost potential quantity of future funds the Firm
may very well be required to make is represented by the contractual quantity of the
dedication. If the dedication is funded, the Financial institution can be entitled to hunt
restoration from the client. The utmost potential quantity of future advances on
standby letters of credit score accessible by way of the Firm at December 31, 2020 and
2019, totaled $6.1 million and $641 thousand, respectively.

                                       49

--------------------------------------------------------------------------------
Commitments to increase credit score are agreements to lend to a buyer so long as
there is no such thing as a violation of any situation established within the contract. Commitments
typically have mounted expiration dates or different termination clauses and should
require cost of a charge. Since lots of the commitments are anticipated to run out
with out being drawn upon, the entire dedication quantities don't essentially
symbolize future money necessities. The Firm evaluates every buyer's credit score
worthiness on a case-by-case foundation. The quantity of collateral obtained, if deemed
crucial by the Firm upon extension of credit score, is predicated on administration's
credit score analysis of the counterparty. Collateral held varies however might embody
actual property and revenue producing industrial properties. The authorized commitments
to increase credit score that was accessible however unused at December 31, 2020 and 2019
totaled $126.0 million and $107.7 million, respectively.



Curiosity Price Threat Administration



As a monetary establishment, the Firm is uncovered to varied enterprise dangers,
together with rate of interest danger. Rate of interest danger is the danger to earnings and
worth arising from volatility in market rates of interest. Rate of interest danger
arises from timing variations within the repricing and maturities of
interest-earning property and interest-bearing liabilities, adjustments within the
anticipated maturities of property and liabilities arising from embedded choices,
similar to debtors' capability to prepay loans and depositors' capability to redeem
certificates of deposit earlier than maturity, adjustments within the form of the yield curve
the place rates of interest improve or lower in a nonparallel vogue, and adjustments
in unfold relationships between totally different yield curves, similar to U.S. Treasuries
and LIBOR. The Firm's aim is to maximise web curiosity revenue with out
incurring extreme rate of interest danger. Administration of web curiosity revenue and
rate of interest danger have to be in line with the extent of capital and liquidity
that the Financial institution maintains. The Firm manages rate of interest danger by way of an asset
and legal responsibility committee ("ALCO"). ALCO is accountable for monitoring the
Firm's rate of interest danger along with liquidity and capital
administration.



The Firm employs an unbiased consulting agency to mannequin its rate of interest
sensitivity that makes use of a web curiosity revenue simulation mannequin as its major device
to measure rate of interest sensitivity. Assumptions for modeling are developed
primarily based on anticipated exercise within the stability sheet. For maturing property,
assumptions are created for the redeployment of those property. For maturing
liabilities, assumptions are developed for the substitute of those funding
sources. Assumptions are additionally developed for property and liabilities that might
reprice throughout the modeled time interval. These assumptions additionally cowl how
administration expects charges to vary on non-maturity deposits similar to curiosity
checking, cash market checking, financial savings accounts, in addition to certificates of
deposit. Based mostly on inputs that embody the present stability sheet, the present
stage of rates of interest and the developed assumptions, the mannequin then produces
an anticipated stage of web curiosity revenue assuming that market charges stay
unchanged. That is thought of the bottom case. Subsequent, the mannequin determines what web
curiosity revenue can be primarily based on particular adjustments in rates of interest. The speed
simulations are carried out for a two-year interval and embody speedy price adjustments
of down 100 foundation factors to 200 foundation factors and up 100 foundation factors to 400
foundation factors. The outcomes of those simulations are then in comparison with the bottom
case.



Stress testing the stability sheet and web curiosity revenue utilizing instantaneous
parallel shock actions within the yield curve of 100 to 400 foundation factors is a
regulatory and banking {industry} observe. Nevertheless, these stress exams might not
symbolize a sensible forecast of future rate of interest actions within the yield
curve. As well as, instantaneous parallel rate of interest shock modeling shouldn't be a
predictor of precise future efficiency of earnings. It's a monetary metric
used to handle rate of interest danger and observe the motion of the Firm's
rate of interest danger place over a historic timeframe for comparability
functions.

The revaluation traits of property and liabilities Bay Banks’ the property and liabilities can have a fabric impression on the Firm’s future rate of interest danger profile.

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