The rise, fall and recovery of Blue Ridge Bank

Luray-based bank holds seven-figure impact on local tax base

PUBLISHER’s DISCLAIMER: The writer holds multiple accounts with the Luray branch of Blue Ridge Bank and owns less than 500 shares of Blue Ridge Bankshares. Blue Ridge Bank has also been an advertising client of Page Valley News for the past four years.

By Randy Arrington

LURAY, April 19 — After months of bad news about regulatory enforcement actions, plummeting stock prices, administrative changes, and staffing layoffs … mixed with rumors of potential closure or buyout… Page Valley News recently requested an interview with William Beale, CEO of Blue Ridge Bank, N.A., to discuss the Luray-based bank’s quick rise on Wall Street, its leap into the world of fintech, the unpleasant aftermath, and the roadmap to recovery that’s been implemented over the past year.

In the simplest of terms, the rapid growth and decline of Blue Ridge Bank over the past decade can be summed up as “growing too fast”, but of course, that’s an over-simplification. More accurately, a large portion of the local bank’s rapid rise and fall can be tied to its investments in “banking-as-a-service”, also known as fintech, in which the bank grew faster than its infrastructure could handle. That, in turn, garnered the attention of federal regulators, who were already increasing pressure on the banking industry as a whole to keep better tabs on the multitude of new online accounts being created to fend off such financial crimes as money laundering.

In less than eight years, Blue Ridge Bank grew its assets by more than 1,200 percent, with about two-thirds of that growth happening in less than three years. While mergers with other community banks and financial service providers created greater assets, nothing increased the client base more than investments and partnerships in fintech…which eventually pushed Blue Ridge Bank accounts over the 1 million mark.

For county residents not interested in the details of the banking industry, or those who deal with other financial institutions and think this story doesn’t apply to them…consider that, in addition to the thousands of dollars contributed to non-profits and local agencies over the past decade, the bank franchise tax paid by Blue Ridge Bank alone made up just under 10 percent of the Town of Luray’s total revenues in the current budget cycle. The Town of Shenandoah got around 2-3 percent of its current revenue the same way. That’s also in addition to levies paid to both the towns and the county on real estate holdings, and other fees.

The Rise

Chartered and organized in 1893 as “Page Valley Bank of Virginia”, the Luray-based bank would become Page County’s first banking institution after opening its doors on Monday, Jan. 3, 1894 with paid in capital of $15,000 and a charter maximum of $25,000.

The community bank grew slowly over the next century, opening its current headquarters on East Main Street in June 1974. It would be March 2002 before the local bank even opened its second branch, located in the Town of Shenandoah. By FY2015, what was now “Blue Ridge Bank” had expanded several times within the region and reported assets of $269 million.

By the close of FY2018, the balance sheet had doubled to nearly $540 million, and one year later it nearly doubled again to just under $1 billion. That’s when the real growth began.

Two key announcements came in December 2019 — first, Blue Ridge’s common stock was approved for listing on the New York Stock Exchange and first opened for trading on Dec. 23, 2019; second, the closing of a $42.5 million merger with Central Virginia-based Virginia Community Bankshares Inc., which was originally started in Louisa County. At the conclusion of that merger, Blue Ridge Bank was reported to have 15 branches and more than $950 million in assets.

At the time, then-CEO Brian Plum stated, “We’re growing our non-interest income lines of business, including…credit cards, payroll, insurance, mortage and qualified intermediary services.”

Twelve days after ringing the bell on Wall Street on Jan. 2, 2020, Blue Ridge Bankshares announced the acquisition of Richmond-based LenderSelect Mortage Group (previously Atlantic Bay Mortage Group).

“The bank grew very quickly…with [two] mergers…and in between began the initiation of getting into fintech. That’s a lot of growth and change to put on the bank’s infrastructure at one time,” current Blue Ridge CEO William Beale said during an interview with PVN earlier this month.

Numerous venture capitalists, according to an Oct. 10, 2023 article in American Banker, “considered [fintech] a silver bullet for community banks.” The banking-as-a-service concept basically utilizes technology to allow those outside the banking industry to provide banking services. Known in the industry as financial technology solutions, computer programs and systems enable or support financial services typically reserved for banking institutions.

With a tidal wave of new accounts under Blue Ridge Bank, total assets grew to $3.13 billion by 2022. Stock prices that stood about $9 per share in October 2020 grew to $18.57 a share one year later. The hot stock would cool to $13.54 per share by the end of 2022, just prior to a series of negative reports in 2023 that would trigger a wave of declines down to less than a third of the value in 2020.

“When we got into fintech, we did not have good systems in place,” Beale told PVN. “All of these fintech accounts they were opening were Blue Ridge Bank accounts…it simply overwhelmed the capacity of the bank.”

The Fall

Today, Blue Ridge Bank holds more than 80,000 customer accounts. However, at its high point in early 2023 due to fintech partnerships…

“We had over 1 million accounts on our books,” Beale said. “With that comes 1 million debit cards, with how many transactions?…again, it just overwhelmed the infrastructure and the staff.”

The incredibly rapid rise of the banking-as-a-service business began to draw the attention of federal regulators across the industry. On Aug. 29, 2022, Blue Ridge Bank entered an agreement with the Office of the Comptroller of the Currency “to bolster its oversight of fintech partners and improve its controls for the prevention of money laundering,” according to the American Banker article referenced above.

In late July 2023, Blue Ridge announced a net loss from continuing operations of $19.5 million, which more than offset the profits of the previous four quarters. Beale, a 48-year veteran of community banking, took over as CEO the same month, coinciding with Plum’s resignation. The next month Beale announced that Blue Ridge would be winding down its fintech partnerships.

“Blue Ridge grew very quickly,” Beale told American Banker last summer. “There were some mistakes made along the way, so I’m here to fix those mistakes. That’s my priority.”

The market would punish the bank’s stock when problems surfaced over fintech compliance with federal regulators, and circled back for another heavy blow when the new CEO announced cutbacks in that portion of the bank’s portfolio. While BRBS had still been selling at $13.54 a share in early December 2022, by Nov. 3, 2023 the stock had reached a low of $2.23.

That low-water mark appeared just after an Oct. 30, 2023, decision by the board of directors of Blue Ridge Bankshares to suspend payment of future quarterly dividends to stockholders. That was followed by a Dec. 8, 2023 report showing a third quarter overall net loss of $41.4 million.

“There was an opportunity with banking-as-a-service…on deposit taking and lending. I think venture capitalists saw this as a new, less expensive way to deliver banking services to the public at large, but also to create a specialty line…such as an HSA account…handling it through an online mechanism rather than a bank,” Beale said. “But banking and processes weren’t integrated after everyone’s accounts were approved…integral, back-office pieces were not smoothed out. There was a rapid addition of a huge chunk of future business.”

The Recovery

After spending a combined 30 years as the CEO of two community banks, Beale has taken several steps to improve the trajectory of Blue Ridge. In addition to downscaling partnerships in fintech, he says more of the focus will shift back to the traditional business model for a community bank.

“We want to get back to where we gather deposits in communities where we have branches, and we make loans in those same communities,” Beale said.

Despite staff layoffs and other cutbacks across the company, the new CEO says an important part of the recovery process was new leadership.

“One thing I wanted, and the Board wanted, us to do, was strengthen the management team. There were lots of good people, but many were asked to do things beyond their skill set,” Beale said. “We have built a much stronger, more experienced management team to help us get to get through this.… those at or near the end of their career and can help return Blue Ridge to being a solid community bank. They are excited for the challenge. It’s proven to be a really good team.”

In addition to shifting the business model, trimming the fat, and putting new leadership in place, Blue Ridge Bank is also getting a substantial cash infusion. An April 3 press release states that Blue Ridge Bankshares entered a definitive securities purchase agreement for $150 million in a private placement. The move will result in the issuance of 60 million new common shares of BRBS at $2.50 per share. The increase in capital is being made possible in large part by private investor Kenneth R. Lehman, who will own about 25 percent of Blue Ridge’s pro forma outstanding common stock.

“There are many businesses that go through rough spots in their existence.,” Beale said. “Blue Ridge has been going through a rough spot, but we…after yesterday’s [definitive securities purchase agreement]…are one of the best capitalized banks in Virginia.”

The move will add three new investor-appointed representatives to the board of directors for Blue Ridge Bank, N.A. and Blue Ridge Bankshares Inc.

“Robert Janney and Larry Dees have been there [on the board] a long time, and they have been very supportive of the steps we are taking to turn Blue Ridge Bank back into a community bank,” Beale said. “They have been firm in their support, and I appreciate that.”

Today, Blue Ridge Bank’s total assets stand at more than $3.26 billion, a slight increase from the $3.13 billion in 2022. As of Sept. 30, 2023, only about a quarter of deposits, or $720.8 million, was still tied up in fintech partnerships. The Luray-based bank has made progress in its regulatory remediation efforts in verifying clients and monitoring accounts.

Beale adds that while the fall of BRBS stock prices were related to factors specific to Blue Ridge, the banking industry as a whole took a hit from higher interest rates.

“Stocks dropped across the banking sector broadly…most of it started in ’22…banks were living off “zero money”, with good margins and lots of liquidity. Then at the tail end of the Trump administration and into Biden…the [Federal Reserve] raised rates and took money out of the banking industry,” Beale noted. “So, there were industry factors driving banks down. Bank stocks drift down as interest rates go up, and bank margins get compressed.”

The Local Impact

With the hope that interest rates will level off or even be lowered as inflation stabilizes and the overall economy shows continued growth, Blue Ridge Bank is hoping to share better news with stockholders in the coming quarterly reports. If they do, that’s good news for all local residents, especially in Luray.

The Bank Franchise Tax is levied on banks by municipalities. The taxable value is based on the shares of stock located within the corporate limits, according to Luray Treasurer Danielle Babb. While the Town of Luray receives such taxes from three different banks, Blue Ridge pays the highest fees by far. Here’s a look at Blue Ridge’s bank franchise tax payments to Luray since 2012:

• 2012 — $57,735
• 2013 — $72,838
• 2014 — $81,111
• 2015 — $110,920
• 2016 — $130,967
• 2017 — $124,318
• 2018 — $145,447
• 2019 — $150,904
• 2020 — $167,339
• 2021 — $283,695
• 2022 — $518,346
• 2023 — $891,099

“Blue Ridge Bank makes up most of the bank tax revenue as they are ‘headquartered’ in Luray. Likewise, Pioneer and Truist are headquartered elsewhere and would have significantly less taxable value,” Babb said. “BRB’s tax paid has grown steadily over the last few years, but then spiked significantly in 2022 and 2023.

“The Town does not receive notification of the assessed values in advance, which makes budgeting for these revenues extremely difficult,” Babb added. “As you can see the revenue received from BRB is significant to the Town.”

The Luray Council is not proposing any increases to its real estate or personal property tax rates in the next budget cycle, although an increase from 6 percent to 10 percent is being considered for the Transient Occupancy Tax, much like the county will vote on May 6. Luray will hold a public hearing on its budget May 13.

However, Luray’s council members are preparing for a projected reduction of about $330,000 in revenue in FY25 due solely to the decline of BRB stock. The final number may be higher or lower, as town staff is using an estimated figure.

“We are all the way through [the budget process] before we know that number,” Luray Town Manager Brian Chrisman told the council at its April 8 meeting. “We’d rather have more [in revenue]…if so, we can adjust moving forward. If it’s lower, we’ll pull from reserves to fill the deficit.”

The bank stock tax paid by Blue Ridge has generated about $30,000 per budget cycle over the past four years for the Town of Shenandoah, reaching a peak of $34,752 in 2022. That figure stood at only $9,221 in 2014 — 12 years after opening a BRB branch in Shenandoah. In 2014, Blue Ridge Bank paid about half of what Pioneer Bank paid Shenandoah in bank stock tax ($17,071 paid that year by Pioneer), but BRB has now drawn about even in levies paid over the past eight years.

The Town of Stanley only receives the bank franchise tax from Pioneer Bank, which is based in Stanley and paid $78,439 in the most recent fiscal year. Pioneer’s franchise tax payments to Stanley have grown steadily over the past decade since paying $42,572 in 2014.

With nearly $1 million paid toward bank franchise taxes in the Page Valley alone last year, the future of Blue Ridge Bank’s stock impacts the local community. With multiple efforts being made to get back on track, Blue Ridge’s CEO believes that the 130-year-old community bank will rebound by returning to its roots and focusing on community banking.

“I see no reason why this bank won’t celebrate its 200th anniversary,” Beale told PVN. “This is just a rough spot and we’re going to come out of it. Places like Page County need community banks, and we want to be part of that community.”

For more information about Blue Ridge Bank,

visit https://www.mybrb.bank/

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