BLUE RIDGE BANKSHARES, INC. 10-Q

Item 2. Management’s Discussion and Analysis o f Financial Condition and Results of Operations The following presents management’s discussion and analysis of the Company’s consolidated financial condition and the results of the Company's operations. This discussion should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in this Form 10-Q and the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 (the “ 2024 Form 10-K ” ). Results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results of operations for the balance of 2025, or for any other period. As used in this report, the terms “the Company,” “we,” “us,” and “our” refer to Blue Ridge Bankshares, Inc. and its consolidated subsidiaries. The term “Bank” refers to Blue Ridge Bank, National Association. Cautionary Note About Forward-Looking Statements The Company makes certain forward-looking statements in this Form 10-Q that are subject to risks and uncertainties. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of management’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. The Company cautions that the forward-looking statements are based largely on management’s expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond its control. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements. The following factors, among others, could cause the Company’s financial performance to differ materially from that expressed in such forward-looking statements: • the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; • the effects of, and changes in, the macroeconomic environment and financial market conditions, including monetary and fiscal policies, interest rates, and inflation; • the impact of, and the ability to comply with, the terms of the Consent Order, as defined below, with the Office of the Comptroller of the Currency ("OCC"), including the heightened capital requirements and other restrictions therein, and other regulatory directives; • the imposition of additional regulatory actions or restrictions for noncompliance with the Consent Order or otherwise; • the Company’s involvement in, and the outcome of, any litigation, legal proceedings, or enforcement actions that may be instituted against the Company; • reputational risk and potential adverse reactions of the Company’s customers, suppliers, employees, or other business partners; • the Company’s ability to manage its fintech relationships, including implementing enhanced controls, complying with the OCC directives and applicable laws and regulations, and managing the final phases of the wind down of these partnerships; • the quality and composition of the Company’s loan and investment portfolios, including changes in the level of the Company’s nonperforming assets and charge-offs; • the Company’s management of risks inherent in its loan portfolio, the credit quality of its borrowers, and the risk of a prolonged downturn in the real estate market, which could impair the value of the Company’s collateral and its ability to sell collateral upon any foreclosure; • the ability to maintain adequate liquidity by growing and retaining deposits and secondary funding sources, especially if the Company's or its industry's reputation become damaged; • the ability to maintain capital levels adequate to support the Company's business and to comply with the Consent Order directives; 30 • the ability of the Company to implement cost-saving initiatives and efficiency measures, as well as increase earning assets, in order to yield acceptable levels of profitability; • the ability to generate sufficient future taxable income for the Company to realize its deferred tax assets, including the net operating loss carryforward; • the timely development of competitive products and services and the acceptance of these products and services by new and existing customers; • changes in consumer spending and savings habits; • the willingness of users to substitute competitors’ products and services for the Company’s products and services; • the impact of unanticipated outflows of deposits; • technological and social media changes; • potential exposure to fraud, negligence, computer theft, and cyber-crime; • adverse developments in the financial industry generally, such as bank failures, responsive measures to mitigate and manage such developments, supervisory and regulatory actions and costs, and related impacts on customer and client behavior; • changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or the Bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; • the impact of changes in financial services policies, laws, and regulations, including laws, regulations, and policies concerning taxes, banking, securities, real estate and insurance, the application thereof by bank regulatory bodies, and the three branches of the federal government; • the effect of changes in accounting standards, policies, and practices as may be adopted from time to time; • estimates of the fair value and other accounting values, subject to impairment assessments, of certain of the Company’s assets and liabilities; • geopolitical conditions, including acts or threats of terrorism and/or military conflicts, or actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; • the economic impact of duties, tariffs, or other barriers or restrictions on trade, any retaliatory counter measures, and the volatility and uncertainty arising therefrom; • the occurrence or continuation of widespread health emergencies or pandemics, significant natural disasters, severe weather conditions, floods, and other catastrophic events; • other risks and factors identified in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections and elsewhere in the 2024 Form 10-K and in this Form 10-Q and in filings the Company makes from time to time with the Securities and Exchange Commission (“SEC”). The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in the 2024 Form 10-K and this Form 10-Q, including those discussed in the section entitled "Risk Factors" in those filings. If one or more of the factors affecting forward-looking information and statements proves incorrect, then actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, the Company cautions not to place undue reliance on its forward-looking information and statements. The Company will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how these risks and uncertainties will affect it. 31 Sale of Mortgage Division The Company’s previously announced sale of its mortgage division operating as Monarch Mortgage to an unrelated third-party mortgage company was completed on March 27, 2025. The sale, which included the transfer of certain assets and leases, resulted in a $0.2 million loss, primarily due to the write-off of fixed assets and lease impairment, and is reported in other noninterest income. The Company has continued to fulfill its obligations to borrowers with respect to loans in process and will manage such loans toward closing and funding in the ordinary course of business. This transaction did not meet the criteria for classification as a discontinued operation under Accounting Standards Codification ("ASC") 205-20, Presentation of Financial Statements – Discontinued Operations, and is therefore reported within continuing operations as of and for all periods stated herein. Regulatory Matters On January 24, 2024, the Bank consented to the issuance of the Consent Order by the OCC ("Consent Order"). The Consent Order generally incorporates the provisions of the formal written agreement (the "Written Agreement") entered into between the Bank and the OCC on August 29, 2022, as well as adding new provisions. The Written Agreement principally concerned the Bank’s fintech operations and required the Bank to continue enhancing its controls for assessing and managing the third-party, Bank Secrecy Act/Anti-Money Laundering ("BSA/AML"), and information technology risks stemming from its fintech partnerships. The Consent Order adds time frames by which certain of the directives are required, requires the Bank to submit a strategic plan and a capital plan, and places further restrictions on the Company’s fintech operations. The Consent Order also requires the Bank to maintain a leverage ratio of 10.0% and a total capital ratio of 13.0%, referred to as minimum capital ratios. As of March 31, 2025 and December 31, 2024, the Bank’s capital ratios exceeded these minimum capital ratios. The Company believes it has made significant progress towards meeting the requirements of the Consent Order. Complete copies of the Written Agreement and the Consent Order are included as Exhibits 10.9 and 10.10, respectively, of the 2024 Form 10-K. Private Placements In the second quarter of 2024, the Company closed private placements in which it issued and sold shares of its common and preferred stock for gross proceeds of $161.6 million (collectively, the "Private Placements"). At a special meeting of shareholders held June 20, 2024, the Company’s shareholders approved the Private Placements and an amendment to the Company's articles of incorporation authorizing the issuance of additional shares of common stock, thus enabling the conversion of the preferred shares issued in the Private Placements into shares of the Company’s common stock. On June 28, 2024, and November 7, 2024, all outstanding shares of the Company’s Mandatorily Convertible Cumulative Perpetual Preferred Stock, Series B and Mandatorily Convertible Cumulative Perpetual Preferred Stock, Series C (together the "preferred stock"), were converted or exchanged for shares of the Company’s common stock. Capital proceeds received, net of issuance costs, from the Private Placements totaled $152.1 million. The Private Placements also included the issuance of warrants to purchase common stock and the preferred stock. Warrants for the preferred stock were converted to warrants for common stock upon the conversion or exchange of the preferred stock to common stock. The table below presents information pertaining to warrants to purchase the Company’s common stock as of and for the period stated. As of and for the three months ended March 31, 2025 Warrants with an Exercise Price of $2.50 per Share Warrants with an Exercise Price of $2.36 per Share Total Warrants Outstanding Balance at beginning of period 29,027,999 2,424,000 31,451,999 Warrants exercised during the period (2,762,000 ) — (2,762,000 ) Balance at end of period 26,265,999 2,424,000 28,689,999 Remaining exercise term (years) 4.01 4.20 General There were no changes to the Critical Accounting Policies disclosed in Item 7 of the 2024 Form 10-K. 32 Certain amounts presented in the consolidated financial statements of prior periods have been reclassified to conform to current year presentations. The reclassifications had no effect on net income, net income per share, total assets, total liabilities, or stockholders’ equity as previously reported. Comparison of Financial Condition as of March 31, 2025 and December 31, 2024 Total assets were $2.69 billion as of March 31, 2025, a decrease of $52.2 million from $2.74 billion as of December 31, 2024. Most of this decrease was attributable to a decline in loans held for investment, which decreased $52.1 million to $2.06 billion as of March 31, 2025, from $2.11 billion as of December 31, 2024. The decline in loans held for investment was partially due to a continuation of the Company purposefully and selectively reducing balances of loans where borrowers did not represent in-market relationships. The allowance for credit losses ("ACL") was $23.1 million and $23.0 million as of March 31, 2025 and December 31, 2024, respectively. Total deposits were $2.13 billion as of March 31, 2025, a net decrease of $50.0 million from December 31, 2024. The decline in the first three months of 2025 was primarily due to a $63.4 million decrease in brokered time deposits. Total stockholders’ equity increased by $10.5 million to $338.3 million as of March 31, 2025, compared to $327.8 million at December 31, 2024, primarily due to additional capital of $6.9 million from the exercise of warrants to purchase common stock and a $3.8 million decrease in after-tax unrealized losses in the Company’s portfolio of securities available for sale. Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024 For the three months ended March 31, 2025, the Company reported a net loss of $0.4 million, or $0.01 per diluted common share, compared to a net loss of $2.9 million, or $0.15 per diluted common share, for the three months ended March 31, 2024. Net loss for the first quarter of 2025 included after-tax severance costs of $0.5 million and an after-tax $0.2 million loss on the sale of the mortgage division. After-tax regulatory remediation expenses in connection with the Consent Order for the first quarter of 2025 were $0, compared to $2.1 million for first quarter of 2024. Net interest income for the three months ended March 31, 2025 was $19.0 million, a decline of $1.4 million from the same period in 2024, primarily due a decline in average loan balances. Net Interest Income. Net interest income is the excess of interest earned on loans, investments, and other interest-earning assets less the interest paid on deposits and borrowings and is the Company’s primary revenue source. Net interest income is thereby affected by overall balance sheet size, changes in interest rates, and changes in the mix of investments, loans, deposits, and borrowings. 33 The following table presents the average balance sheets for the three months ended March 31, 2025 and 2024. Also shown are the amounts of interest earned on interest-earning assets, with related tax-equivalent yields, and interest expense on interest-bearing liabilities, with related rates, as well as a volume and rate analysis of changes in net interest income for the periods stated. Average Balances, Income and Expense, Yields and Rates For the three months ended March 31, 2025 2024 Total Increase/ Increase/(Decrease) Due to (Dollars in thousands) Average Balance Interest Yield/ Rate (1) Average Balance Interest Yield/ Rate (1) (Decrease) Volume (2) Rate (2) Average Assets Taxable securities $ 325,076 $ 2,420 2.98 % $ 337,839 $ 2,438 2.89 % $ (18 ) $ (92 ) $ 74 Tax-exempt securities (3) 12,475 81 2.60 % 12,621 77 2.44 % 4 (1 ) 5 Total securities 337,551 2,501 2.96 % 350,460 2,515 2.87 % (14 ) (93 ) 79 Interest-earning deposits in other banks 162,771 1,698 4.17 % 129,366 1,557 4.81 % 141 402 (261 ) Federal funds sold 1,385 15 4.33 % 9,668 130 5.38 % (115 ) (111 ) (4 ) Loans held for sale 29,455 1,366 18.55 % 57,646 1,920 13.32 % (554 ) (939 ) 385 Loans held for investment (4,5,6) 2,089,563 29,788 5.70 % 2,419,351 36,426 6.02 % (6,638 ) (4,965 ) (1,673 ) Total average interest-earning assets 2,620,725 35,368 5.40 % 2,966,491 42,548 5.74 % (7,180 ) (5,706 ) (1,474 ) Less: allowance for credit losses (22,747 ) (35,874 ) Total noninterest-earning assets 123,736 234,315 Total average assets $ 2,721,714 $ 3,164,932 Average Liabilities and Stockholders’ Equity: Interest-bearing demand, money market, and savings $ 720,034 $ 3,350 1.86 % $ 1,112,060 $ 7,667 2.76 % $ (4,317 ) $ (2,703 ) $ (1,614 ) Time (7) 989,486 10,842 4.38 % 970,952 10,818 4.46 % 24 206 (182 ) Total interest-bearing deposits 1,709,520 14,192 3.32 % 2,083,012 18,485 3.55 % (4,293 ) (2,497 ) (1,796 ) FHLB borrowings 150,000 1,432 3.82 % 223,824 2,369 4.23 % (937 ) (781 ) (156 ) FRB borrowings — — — 65,000 768 4.73 % (768 ) (768 ) — Subordinated notes and other borrowings (8) 39,794 736 7.40 % 39,847 560 5.62 % 176 (1 ) 177 Total average interest-bearing liabilities 1,899,314 16,360 3.45 % 2,411,683 22,182 3.68 % (5,822 ) (4,047 ) (1,775 ) Noninterest-bearing demand deposits 458,157 515,486 Other noninterest-bearing liabilities 34,559 53,862 Stockholders' equity 329,684 183,901 Total average liabilities and stockholders’ equity $ 2,721,714 $ 3,164,932 Net interest income and margin (9) $ 19,008 2.90 % $ 20,366 2.75 % $ (1,358 ) $ (1,659 ) $ 301 Cost of funds (10) 2.78 % 3.03 % Net interest spread (11) 1.95 % 2.06 % (1) Annualized. (2) Change in income/expense due to both volume and rate has been allocated in proportion to the absolute dollar amounts of the change in each. (3) Computed on a fully taxable equivalent basis assuming a 22.32% and 22.35% income tax rate for the three months ended March 31, 2025 and 2024, respectively. (4) Includes deferred loan fees/costs. (5) Non-accrual loans have been included in the computations of average loan balances. (6) Includes accretion of fair value adjustments (discounts) on acquired loans of $366 thousand and $329 thousand for the three months ended March 31, 2025 and 2024, respectively. (7) Includes amortization of fair value adjustments (premiums) on assumed time deposits of $35 thousand and $97 thousand for the three months ended March 31, 2025 and 2024, respectively. (8) Includes amortization of fair value adjustments (premiums) on assumed subordinated notes of $25 thousand for both the three months ended March 31, 2025 and 2024, respectively. (9) Net interest margin is net interest income divided by average interest-earning assets. (10) Cost of funds is total interest expense divided by total interest-bearing liabilities and non-interest bearing demand deposits. (11) Net interest spread is the yield on average interest-earning assets less the cost of average interest-bearing liabilities. Average balances of interest-earning assets decreased $345.8 million to $2.62 billion for the first quarter of 2025 compared to $2.97 billion for the same period of 2024. Relative to the year-ago period, this decrease reflected primarily lower average balances of loans held for investment. The yield on average loans held for investment was 5.70% for the first quarter of 2025 compared to 6.02% for the first quarter of 2024. The decline in loan yield was primarily driven by the purposeful and selective exit of higher-rate loans to borrowers that did not represent in-market relationships. Interest income for the three months ended March 31, 2025 and 2024 included accretion of discounts on acquired loans of $366 thousand and $329 thousand, respectively. Average balances of interest-bearing liabilities decreased $512.4 million to $1.90 billion for the three months ended March 31, 2025 compared to $2.41 billion for the same period of 2024. The decline relative to the comparative periods 34 was primarily due to the exit of fintech Banking-as-a-Service ("BaaS") deposit operations and the payoff of wholesale funding. Cost of funds was 2.78% for the first quarter of 2025 compared to 3.03% for the first quarter of 2024, while cost of deposits was 2.62% and 2.84%, for the same respective periods. Lower cost of funds in the first quarter of 2025 was primarily due to the exit of higher cost fintech BaaS deposit operations and lower average balances of wholesale funding, relative to the year-ago period, partially offset by the higher variable cost of $25.0 million of the Company’s subordinated debt, which increased the cost of funds by 3 basis points. Cost of deposits, excluding wholesale deposits, was 1.34% for the first quarter of 2025 compared to 2.52% for the first quarter of 2024. The first quarter of 2025 decline from the comparative period of 2024 was primarily due to lower average balances of higher cost fintech-related deposits. Net interest income (on a taxable equivalent basis) for the three months ended March 31, 2025 was $19.0 million compared to $20.4 million for the same period in 2024. The decline in the first quarter of 2025 compared to the first quarter of 2024 was primarily attributable to lower interest and fee income on loans due to lower average balances. This decline was partially offset by lower average balances and rates paid on interest-bearing demand accounts and lower average balances of wholesale funding. The majority of fintech BaaS deposits were in interest-bearing demand accounts. Net interest margin was 2.90% and 2.75% for the first quarter of 2025 and 2024, respectively. Accretion and amortization of purchase accounting adjustments had a 6 basis point positive effect on net interest margin for both respective periods. Provision for Credit Losses . No provision for credit losses was reported for the first quarter of 2025 compared to a recovery of credit losses of $1.0 million for the first quarter of 2024. Lower allowance for credit losses ("ACL") needs due to loan portfolio balance reductions were offset by higher reserve needs on pooled loans, primarily due to marginal changes in certain qualitative risk factors, resulting in no provision for the 2025 period. The recovery of credit losses in the 2024 period was attributable to lower balances of unfunded loan commitments. Noninterest Income . The following table presents a summary of noninterest income and the dollar and percentage change for the periods presented. For the three months ended (Dollars in thousands) March 31, 2025 March 31, 2024 Change $ Change % Fair value adjustments of other equity investments $ (73 ) $ (7 ) $ (66 ) 942.9 % Residential mortgage banking income 956 2,664 (1,708 ) (64.1 %) Mortgage servicing rights 2 729 (727 ) (99.7 %) Wealth and trust management 454 520 (66 ) (12.7 %) Service charges on deposit accounts 457 361 96 26.6 % Increase in cash surrender value of bank owned life insurance 8 337 (329 ) (97.6 %) Bank and purchase card, net 567 242 325 134.3 % Other 701 2,942 (2,241 ) (76.2 %) Total noninterest income $ 3,072 $ 7,788 $ (4,716 ) (60.6 %) The decline in mortgage banking income in the first quarter of 2025 compared to the same period of 2024 was due to a combination of lower mortgage volumes and lower servicing income, with the latter attributable to the sale of the majority of mortgage servicing rights assets ("MSR") portfolio in the third and fourth quarters of 2024. The decline in other noninterest income was driven by the decrease in the number of fintech indirect lending relationships, which contributed $0.2 million and $1.4 million of noninterest income in the first quarters of 2025 and 2024, respectively. Additionally, other noninterest income in the 2025 period included a $0.2 million loss on the sale of the mortgage division. A recently completed review of the Bank’s deposit products and services led to a more streamlined and competitive offering, which the Company expects will result in higher service charges on deposit accounts in the subsequent periods. 35 Noninterest Expense. The following table presents a summary of noninterest expense and the dollar and percentage change for the periods stated. For the three months ended (Dollars in thousands) March 31, 2025 March 31, 2024 Change $ Change % Salaries and employee benefits $ 12,610 $ 16,045 $ (3,435 ) (21.4 %) Occupancy and equipment 1,381 1,524 (143 ) (9.4 %) Technology and communication 2,784 2,279 505 22.2 % Legal and regulatory filings 439 447 (8 ) (1.8 %) Advertising and marketing 191 297 (106 ) (35.7 %) Audit fees 578 1,155 (577 ) (50.0 %) FDIC insurance 1,097 1,377 (280 ) (20.3 %) Intangible amortization 244 287 (43 ) (15.0 %) Other contractual services 595 1,809 (1,214 ) (67.1 %) Other taxes and assessments 921 943 (22 ) (2.3 %) Regulatory remediation — 2,644 (2,644 ) (100.0 %) Other 2,111 3,630 (1,519 ) (41.8 %) Total noninterest expense $ 22,951 $ 32,437 $ (9,486 ) (29.2 %) Excluding regulatory remediation, noninterest expense decreased $6.8 million for the three months ended March 31, 2025 compared to the same period of 2024. The decline relative to the prior period was primarily due to lower expenses for salaries and employee benefits. The decline in salaries and employee benefits in the first quarter of 2025 reflected a reduction in headcount as the Company continues to right-size its workforce, as it completes certain regulatory directives and transitions to a more traditional community banking model. As of March 31, 2025 and 2024, the Company had 351 and 519 employees, respectively. Also included in salaries and employee benefits expense were severance costs of $0.7 million and $0, for the 2025 and 2024 periods, respectively. Lower regulatory remediation costs and contractual services and audit fees in the 2025 period reflect a reduction in the use of outside consulting services, also due to the completion of certain regulatory directives. Income Tax Expense . Income tax benefit for the three months ended March 31, 2025 was $0.5 million compared to an income tax benefit of $0.4 million for the same period of 2024, resulting in effective income tax rates of 51.2% and 12.3%, respectively. The higher effective income tax rate in the 2025 period was primarily driven by a $0.3 million favorable adjustment related to a change in the state tax rate applied to the accumulated unrealized loss on the available for sale securities portfolio. Excluding this adjustment, the effective income tax rate for the quarter was 22.7%. The lower effective income tax rate in the 2024 period was primarily attributable to tax-exempt income, primarily from bank owned life insurance and tax-exempt securities and loans, relative to income subject to statutory tax rates. Analysis of Financial Condition Loan Portfolio. The Company makes loans to commercial entities and to individuals. Loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan and the creditworthiness of the borrower. Credit risk tends to be geographically concentrated in that a majority of the loans are to borrowers located in the markets served by the Company. All loans are underwritten within specific lending policy guidelines that are designed to maximize the Company’s profitability within an acceptable level of business risk . 36 The following table presents the Company’s loan portfolio by category of loan and the percentage of loans in each category to total loans as of the dates stated. March 31, 2025 December 31, 2024 (Dollars in thousands) Amount Percent Amount Percent Commercial and industrial $ 340,099 16.5 % $ 354,904 16.8 % Real estate – construction, commercial 103,006 5.0 % 114,491 5.4 % Real estate – construction, residential 53,498 2.6 % 51,807 2.4 % Real estate – commercial 834,223 40.6 % 847,842 40.2 % Real estate – residential 683,946 33.2 % 692,253 32.8 % Real estate – farmland 4,748 0.2 % 5,520 0.3 % Consumer 39,761 1.9 % 43,938 2.1 % Gross loans held for investment 2,059,281 100.0 % 2,110,755 100.0 % Deferred costs, net of loan fees 429 1,042 Gross loans held for investment, net of deferred costs 2,059,710 2,111,797 Less: allowance for credit losses (23,126 ) (23,023 ) Net loans $ 2,036,584 $ 2,088,774 Loans held for sale (not included in totals above) $ 23,624 $ 30,976 The following table presents the Company’s portfolio of commercial real estate loans by property type as of the dates stated. March 31, 2025 December 31, 2024 (Dollars in thousands) Amount Percent Amount Percent Commercial real estate – owner occupied $ 194,979 23.4 % $ 193,608 22.8 % Commercial real estate – non-owner occupied Hospitality 120,069 14.4 % 186,619 22.0 % Multi-family 180,383 21.6 % 120,910 14.3 % Retail 103,695 12.5 % 104,363 12.3 % Office 73,441 8.8 % 73,871 8.7 % Mixed use 49,515 5.9 % 49,666 5.9 % Warehouse and industrial 39,452 4.7 % 39,830 4.7 % Other 72,689 8.7 % 78,975 9.3 % Total real estate – commercial $ 834,223 100.0 % $ 847,842 100.0 % The current lending environment for commercial real estate (“CRE”) loans has heightened risk due to a higher interest rate environment. Potential negative impacts include higher debt service burdens for floating rate loans and fixed rate loans that mature and require renewal or refinancing. As these loans mature, they may be repriced at significantly higher interest rates, leading to increased debt service costs that can strain borrowers' ability to meet payment obligations. In some cases, the higher cost of refinancing may lead to loan defaults, particularly if property cash flows have not increased proportionally. Additionally, collateral values overall may be impaired by higher capitalization rates, further complicating refinancing efforts and increasing credit risk to the Bank. Certain CRE collateral types have experienced declining occupancy, demand, and rental rates, which could potentially lead to material declines in property level economics and further weaken borrowers' ability to service their debt. In response to the heightened risk, in 2024, the Bank’s credit policy and risk committee conducted a targeted review of certain of the Bank’s loan types, including office loans, to confirm its internal risk ratings. In addition, the Bank’s credit administration department led by its Chief Credit Officer performs a periodic analysis of emerging trends by geography where the Bank has the largest concentrations by CRE property type. The analysis includes all real estate property types and geographic markets represented in the loan portfolio. This analysis is provided to the Bank's board of directors to assess whether the CRE lending strategy and risk appetite continue to be appropriate, considering changes in local market conditions and the Bank’s exposure to collateral type concentrations. Also, concentration limits by real 37 estate collateral type are approved and monitored by the board of directors. As of March 31, 2025, all limits are in compliance. The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed), as of March 31, 2025. Variable rate Fixed rate (Dollars in thousands) Total Maturities One Year or Less Total 1-5 years 5-15 years More than 15 years Total 1-5 years 5-15 years More than 15 years Commercial and industrial $ 340,099 $ 98,796 $ 122,607 $ 92,318 $ 28,854 $ 1,435 $ 118,696 $ 47,858 $ 52,528 $ 18,310 Real estate – construction, commercial 103,006 18,429 70,474 10,398 14,617 45,459 14,103 13,152 894 57 Real estate – construction, residential 53,498 43,100 728 361 55 312 9,670 1,086 — 8,584 Real estate – commercial 834,223 97,529 451,519 116,606 168,330 166,583 285,175 176,098 99,941 9,136 Real estate – residential 683,946 15,258 395,776 15,799 75,261 304,716 272,912 30,881 31,226 210,805 Real estate – farmland 4,748 — 2,026 148 229 1,649 2,722 1,873 132 717 Consumer loans 39,761 2,122 5,928 5,835 93 — 31,711 27,165 4,546 — Gross loans $ 2,059,281 $ 275,234 $ 1,049,058 $ 241,465 $ 287,439 $ 520,154 $ 734,989 $ 298,113 $ 189,267 $ 247,609 Allowance for Credit Losses . In determining the adequacy of the Company’s ACL, management makes estimates based on facts available at the time the ACL is determined. Such estimation requires significant judgment at the time made. Management believes that the Company’s ACL was adequate as of March 31, 2025 and December 31, 2024. There can be no assurance, however, that adjustments to the ACL will not be required in the future. Changes in the economic assumptions underlying management’s estimates and judgments, adverse developments in the economy, on a national basis or in the Company’s market area, and changes in the circumstances of particular borrowers are criteria, among others, that could increase the level of the ACL required, resulting in charges to the provision for credit losses for loans. In addition, bank regulatory agencies periodically review the Bank's ACL and may, on occasion, require an increase in the ACL or the recognition of further loan charge-offs, based on their judgment of the facts at the time of their review that may differ than that of management. The following table presents an analysis of the change in the ACL by loan type as of and for the periods stated. For the three months ended March 31, 2025 (Dollars in thousands) Commercial and industrial Real estate – construction, commercial Real estate – construction, residential Real estate – commercial Real estate – residential Real estate – farmland Consumer Total ACL, beginning of period $ 5,767 $ 2,057 $ 540 $ 5,963 $ 7,933 $ 18 $ 745 $ 23,023 (Recovery of) provision for credit losses - loans (189 ) (65 ) 12 (240 ) 253 — 229 — Charge-offs (2,123 ) — — (63 ) (16 ) — (587 ) (2,789 ) Recoveries 2,271 — — 338 1 — 282 2,892 Net recoveries (charge-offs) 148 — — 275 (15 ) — (305 ) 103 ACL, end of period $ 5,726 $ 1,992 $ 552 $ 5,998 $ 8,171 $ 18 $ 669 $ 23,126 Ratio of net recoveries (charge-offs) to average loans outstanding 0.16 % 0.00 % 0.00 % 0.14 % -0.01 % 0.00 % -2.71 % 0.02 % For the three months ended March 31, 2024 (Dollars in thousands) Commercial and industrial Real estate – construction, commercial Real estate – construction, residential Real estate – commercial Real estate – residential Real estate – farmland Consumer Total ACL, beginning of period $ 13,787 $ 4,024 $ 1,094 $ 9,929 $ 6,286 $ 15 $ 758 $ 35,893 Provision for (recovery of) credit losses - loans 257 (428 ) (175 ) (97 ) 39 3 401 — Charge-offs (1,957 ) — — — — — (745 ) (2,702 ) Recoveries 1,532 — — — 13 — 289 1,834 Net (charge-offs) recoveries (425 ) — — — 13 — (456 ) (868 ) ACL, end of period $ 13,619 $ 3,596 $ 919 $ 9,832 $ 6,338 $ 18 $ 703 $ 35,025 Ratio of net (charge-offs) recoveries to average loans outstanding -0.33 % 0.00 % 0.00 % 0.00 % 0.01 % 0.00 % -3.14 % -0.14 % The ACL includes specific reserves for individually evaluated loans and a general allowance applicable to all loan categories; however, management has allocated the ACL by loan type to provide an indication of the relative risk characteristics of the loan portfolio. The allocation is an estimate and should not be interpreted as an indication that charge-offs will occur in these amounts, or that the allocation indicates future trends, and does not restrict the usage of 38 the allowance for any specific loan or category. The following table presents the allocation of the ACL by loan category and the percentage of loans in each category to total loans as of the dates stated. March 31, 2025 December 31, 2024 (Dollars in thousands) ACL Amount % of Loans ACL Amount % of Loans Commercial and industrial $ 5,726 16.5 % $ 5,767 16.8 % Real estate – construction, commercial 1,992 5.0 % 2,057 5.4 % Real estate – construction, residential 552 2.6 % 540 2.4 % Real estate – commercial 5,998 40.6 % 5,963 40.2 % Real estate – residential 8,171 33.2 % 7,933 32.8 % Real estate – farmland 18 0.2 % 18 0.3 % Consumer 669 1.9 % 745 2.1 % Total $ 23,126 100.0 % $ 23,023 100.0 % Nonperforming Assets. The following table presents a summary of nonperforming assets and various measures as of the dates stated. (Dollars in thousands) March 31, 2025 December 31, 2024 Nonaccrual loans held for investment $ 22,273 $ 22,957 Loans past due 90 days and still accruing 2,608 2,486 Total nonperforming loans $ 24,881 $ 25,443 Other real estate owned ("OREO") (1) 279 279 Total nonperforming assets $ 25,160 $ 25,722 Loans held for sale $ 23,624 $ 30,976 Loans held for investment 2,059,710 2,111,797 Total loans $ 2,083,334 $ 2,142,773 Total assets $ 2,685,084 $ 2,737,260 ACL on loans held for investment $ 23,126 $ 23,023 ACL to loans held for investment 1.12 % 1.09 % ACL to nonaccrual loans 103.83 % 100.29 % ACL to nonperforming loans 92.95 % 90.49 % Nonaccrual loans to loans held for investment 1.08 % 1.09 % Nonperforming loans to loans held for investment 1.19 % 1.20 % Nonperforming loans to total assets 0.93 % 0.93 % Nonperforming assets to total assets 0.94 % 0.94 % (1) Included in other assets on the consolidated balance sheets. The 3 basis point increase in the ratio of ACL to loans held for investment in the first quarter of 2025 was primarily attributable to marginal changes to certain qualitative risk factors. Loans are generally placed into nonaccrual status when they are past due 90 days or more as to either principal or interest or when, in the opinion of management, the collection of principal and/or interest is in doubt. A loan remains in nonaccrual status until the loan is current as to payment of both principal and interest or past due less than 90 days and the borrower demonstrates the ability to pay and remain current. When cash payments are received, they are applied to principal first, then to accrued interest. It is the Company's policy not to record interest income on nonaccrual loans until principal has become current. In certain instances, accruing loans that are past due 90 days or more as to principal or interest may not be placed on nonaccrual status, if the Company determines that the loans are well-secured and are in the process of collection. OREO includes properties that have been substantively repossessed or acquired in complete or partial satisfaction of debt. Such properties, which are held for resale, are initially stated at fair value, including a reduction for the estimated selling expenses, which becomes the carrying value. In subsequent periods, such properties are stated at the lower of the restated carrying value or fair value. Investment Securities. The investment portfolio is used as a source of interest income, credit risk diversification, and liquidity, as well as to manage interest rate sensitivity and provide collateral for short-term borrowings. Securities in the investment portfolio classified as securities available for sale ("AFS") may be sold in response to changes in market 39 interest rates, securities’ prepayment risk, liquidity needs, and other similar factors, and are carried at estimated fair value. The fair value of the Company’s AFS investment securities portfolio was $325.4 million as of March 31, 2025, an increase of $13.4 million from $312.0 million at December 31, 2024, of which $12.4 million was due to the purchase of securities in the first quarter of 2025. As a result of elevated market interest rates, the Company’s portfolio of AFS securities had an unrealized loss of approximately $50.3 million as of March 31, 2025, approximately 44.1% of which was related to securities backed by U.S. government agencies. As of March 31, 2025 and December 31, 2024, the majority of the investment securities portfolio consisted of securities rated investment grade by a leading ratings agency. Investment grade securities are judged to have a low risk of default, to be of the best quality and carry the smallest degree of investment risk. At March 31, 2025 and December 31, 2024, securities with a fair value of $174.5 million and $268.9 million, respectively, were pledged to secure the Bank’s borrowing facility with the Federal Home Loan Bank of Atlanta ("FHLB"). As of March 31, 2025 and December 31, 2024, the Company had pledged securities with a fair value of $0 and $16.3 million, respectively, as collateral for the Federal Reserve Bank of Richmond ("FRB") Discount Window. The decline in pledged securities as of March 31, 2025 from December 31, 2024 at both FHLB and FRB reflects the release of securities held as collateral. The Company reviews its AFS investment securities portfolio for potential credit losses at least quarterly. AFS investment securities with unrealized losses are generally a result of pricing changes due to changes in the current interest rate environment and not as a result of permanent credit impairment. The Company does not intend to sell nor does it believe that it will be required to sell, any of its impaired securities prior to the recovery of the amortized cost. No ACL has been recognized for AFS securities as of both March 31, 2025 and December 31, 2024. Restricted equity investments consisted of stock in the FHLB (carrying basis $9.1 million and $9.4 million at March 31, 2025 and December 31, 2024, respectively), FRB stock (carrying value of $9.2 million and $9.4 million at March 31, 2025 and December 31, 2024, respectively), and stock in the Company’s correspondent bank (carrying value of $468 thousand at both March 31, 2025 and December 31, 2024). Restricted equity investments are carried at cost. The Company has various other equity investments, including an investment in a fintech company and limited partnerships, totaling $4.7 million and $4.8 million as of March 31, 2025 and December 31, 2024, respectively. The Company also holds investments in early-stage focused investment funds and low-income housing partnerships, which totaled $20.4 million and $19.4 million as of March 31, 2025 and December 31, 2024, respectively, and are reported in other investments on the consolidated balance sheets. The following table presents the amortized cost of the investment portfolio by contractual maturities, as well as the weighted average yields for each of the maturity ranges as of and for the period stated. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. March 31, 2025 Within One Year One to Five Years Five to Ten Years Over Ten Years (Dollars in thousands) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Total Amortized Cost Securities available for sale Mortgage backed securities $ — — $ — — $ 14,857 2.22 % $ 193,237 2.26 % $ 208,094 U. S. Treasury and agencies 1 — 35,210 1.14 % 38,605 2.14 % 5,265 1.91 % 79,081 State and municipal 600 4.44 % 9,694 2.33 % 32,416 2.10 % 7,363 2.58 % 50,073 Corporate bonds — — 10,375 7.37 % 27,589 4.42 % 500 4.00 % 38,464 Total $ 601 $ 55,279 $ 113,467 $ 206,365 $ 375,712 Deposits. The principal sources of funds for the Company are deposits, including transaction accounts (demand deposits and money market accounts), time deposits, and savings accounts, of customers in the Company’s primary geographic market area. Such customers provide the Bank a source of fee income and cross-marketing opportunities and are generally a lower cost source of funding for the Bank. In prior years, deposits sourced from fintech partnerships (“fintech-related deposits”), inclusive of fintech BaaS deposits, were a significant source of deposits for the Company. Prior to 2024, deposits sourced from fintech BaaS providers comprised a significant portion of the Company’s fintech-related deposits. In the fourth quarter of 2024, the Company completed the exit of its fintech BaaS deposit operations and substantially reduced its fintech-related deposit exposure to approximately 1.0% of deposits as of December 31, 2024, consisting of corporate accounts of a few companies in the fintech sector. As of March 31, 2025 and December 31, 2024, fintech-related deposits totaled $14.4 million and $21.3 million, respectively, of which fintech BaaS deposits were $0.2 million for both respective periods. 40 Brokered deposit balances are sourced through intermediaries and are an unsecured source of funding for the Bank. Brokered deposits were added throughout 2023 and early 2024 to enhance liquidity in light of financial industry events that began in March 2023 and in anticipation of the exit of the Company's fintech BaaS deposit operations. Brokered deposits represented approximately 15.9% and 18.5% of total deposits as of March 31, 2025 and December 31, 2024, respectively, and were all time deposits at March 31, 2025. The Bank has a liquidity management program, with oversight of the Bank’s asset and liability committee (the “ALCO”), that sets forth guidelines for the desired maximum level of brokered deposits, which is 20.0% of total deposits. As noted, the Company issued brokered deposits as part of its liquidity management plan, and as a result, the Company's brokered deposit levels have approximated the high-end of the guideline. In recent quarters, the Company has reduced levels of brokered deposits and expects to continue to reduce levels in future periods to a level of 10.0% or less of total deposits. As certain brokered deposits have multiple-year terms, the Company expects brokered deposits to be a funding source for several years. Total deposits decreased $50.0 million from $2.18 billion as of December 31, 2024 to $2.13 billion as of March 31, 2025, as: • Deposits, excluding fintech-related and brokered deposits, increased $20.4 million from approximately $1.76 billion as of December 31, 2024 to approximately $1.78 billion as of March 31, 2025; • Brokered deposits decreased $63.4 million from approximately $402.5 million, or 18.5% of total deposits, as of December 31, 2024 to approximately $339.1 million, or 15.9% of total deposits, as of March 31, 2025; and • Fintech-related deposits decreased $7.0 million from approximately $21.3 million as of December 31, 2024 to approximately $14.4 million as of March 31, 2025. Of the decline, fintech BaaS deposits decreased $35 thousand from December 31, 2024. Estimated uninsured deposits totaled approximately $431.2 million as of March 31, 2025, or 19.8% of total deposits, compared to $399.3 million, or 18.0% of total deposits, as of December 31, 2024. The following table presents a summary of average deposits and the weighted average rate paid for the periods stated. March 31, 2025 March 31, 2024 (Dollars in thousands) Average Balance Average Rate Average Balance Average Rate Noninterest-bearing demand $ 458,157 — $ 515,486 — Interest-bearing: Demand 239,001 0.69 % 582,648 2.52 % Savings 101,671 3.89 % 115,098 4.98 % Money market 379,362 2.06 % 414,314 2.48 % Time 989,486 4.38 % 970,952 4.46 % Total interest-bearing 1,709,520 2,083,012 Total average deposits $ 2,167,677 $ 2,598,498 The following table presents maturities of time deposits for certificate of deposits of $250 thousand or greater as of the dates stated. (Dollars in thousands) March 31, 2025 December 31, 2024 Maturing in: 3 months or less $ 38,107 $ 38,758 Over 3 months through 6 months 44,246 33,845 Over 6 months through 12 months 42,714 60,308 Over 12 months 26,598 31,117 $ 151,665 $ 164,028 41 Borrowings. The Company uses short-term and long-term borrowings from various sources, including FHLB advances and FRB advances, to fund assets and operations. The following tables present information on the balances and interest rates on borrowings as of and for the periods stated. March 31, 2025 (Dollars in thousands) Period-End Balance Highest Month-End Balance Average Balance Weighted Average Rate FHLB borrowings $ 150,000 $ 150,000 $ 150,000 3.82 % December 31, 2024 (Dollars in thousands) Period-End Balance Highest Month-End Balance Average Balance Weighted Average Rate FHLB borrowings $ 150,000 $ 280,000 $ 213,003 4.27 % FRB borrowings — 65,000 23,087 4.68 % FHLB advances are secured by collateral consisting of a blanket lien on qualifying pledged loans in the Company’s residential, multi-family, and commercial real estate mortgage loan portfolios, as well as selected investment portfolio securities. FRB advances through the FRB Discount Window are secured by qualifying pledged construction and commercial and industrial loans, as well as selected investment portfolio securities. Total borrowings were $150.0 million as of both March 31, 2025 and December 31, 2024. Subordinated notes, net, totaled $39.8 million as of both March 31, 2025 and December 31, 2024. The Company's subordinated notes are comprised of a $25 million issuance in October 2019 maturing October 15, 2029 (the “2029 Notes”) and a $15 million issuance in May 2020 maturing June 1, 2030 (the “2030 Note”). The fixed rates on the 2029 Notes transitioned and the 2030 note will transition to variable rates based on the Secured Overnight Funding Rate ("SOFR") roughly five years from issue date. The 2029 Notes can be paid off in whole or in part without penalty at any time and the 2030 Note can be paid off in whole or in part, without penalty, at any time after its initial reset date. Due to the Consent Order, the Company must obtain approval to redeem its subordinated notes. Subsequent to March 31, 2025, the Company received regulatory non-objection to redeem a significant portion of its subordinated debt, which the Company expects will save more than $2 million in interest expense annually. The 2029 Notes bore interest at 5.625% per annum, through October 14, 2024, payable semi-annually in arrears. On October 15, 2024, the rate on the 2029 Notes began to reset quarterly to the current three-month CME Term SOFR interest rate, which was 4.65%, plus 433.5 basis points at initial reset. As of March 31, 2025, the 2029 Notes bore an annual interest rate of 8.64%. For the three months ended March 31, 2025 and 2024, the effective interest rate on the 2029 Notes was 8.05% and 5.22%, respectively, inclusive of the amortization of the purchase accounting adjustment (premium). The 2030 Note bears an interest rate of 6.0% per annum until June 1, 2025, at which date the rate will reset quarterly to the current three-month CME Term SOFR interest rate plus 587 basis points. Interest on the 2030 Note is payable semi-annually in arrears. For the three months ended March 31, 2025 and 2024, the effective interest rate on the 2030 Note was 6.31% and 6.32%, respectively. Subsequent to March 31, 2025, the Company provided a notice of redemption to the holder of the 2030 Note to redeem the note at its initial redemption date, June 1, 2025. Liquidity . Liquidity is essential to the Company’s business. The Company’s liquidity could be impaired by unforeseen outflows of cash, including deposits, or the inability to access the capital and/or wholesale funding markets. This situation may arise due to circumstances that the Company may be unable to control, such as general market disruption, negative views about the Company or the financial services industry generally, or an operational problem that affects the Company or a third party. The Company’s ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the markets in which they operate or other events. Deposits are the primary source of the Company’s liquidity. Cash flows from amortizing or maturing assets also provide funding to meet the liquidity needs of the Company. Deposits are sourced from the Bank’s customers and, as needed, through brokered deposit markets. The brokered deposit markets are accessed through brokers or through the IntraFi Network (“IntraFi”), of which the Bank is a member. IntraFi facilitates the Bank attaining brokered deposits via an on-line marketplace. The Bank also utilizes IntraFi's reciprocal deposit services to offer its high-value customers access to Federal Deposit Insurance Corporation ("FDIC") insurance through IntraFi's network of banks. 42 While subject to the Consent Order, the Bank may not be deemed to be “well capitalized,” which restricts it from accepting, renewing, or rolling over brokered deposits except in compliance with certain applicable restrictions under federal law. During the third quarter of 2024, the Bank received approval from the FDIC allowing it to accept, renew, and rollover brokered deposits. In the fourth quarter of 2024, the Bank received an extension of this approval. Each approval was for a six-month period and in the amount of maturities during this period. The Company expects to continue to seek waivers of this prohibition in the future; however, there is no assurance that such waivers will be approved or that the Company will be able to rely on brokered deposits as a source of funding in the future. The Company has established a formal liquidity contingency plan that provides guidelines for liquidity management. Pursuant to the Company’s liquidity contingency plan, liquidity needs are forecasted based on anticipated changes in the balance sheet. In this forecast, the Company expects to maintain a liquidity cushion. Management then stress tests the Company’s liquidity position under several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushion and for liquidity cushions for each stress scenario have been established and are reviewed by the Bank's ALCO. Management also monitors the Company’s liquidity position on a day-to-day basis through daily cash monitoring and short- and long-term cash flow forecasting and believes its sources of liquidity are adequate to conduct the business of the Company. The following table presents information on the available sources of liquidity as of the date stated. (Dollars in thousands) Capacity Less: Outstanding Borrowings Available Balance Cash and due from banks $ 170,465 Fed funds sold 1,725 Unpledged securities available for sale 150,874 Total $ 323,064 Borrowings FHLB $ 588,470 $ 201,160 (1) $ 387,310 FRB 68,460 — 68,460 Unsecured line of credit 10,000 — 10,000 Total $ 666,930 $ 201,160 $ 465,770 Available liquidity as of March 31, 2025 $ 788,834 (1) Outstanding borrowings are comprised of advances of $150.0 million and letters of credit totaling $51.2 million, of which $50.0 million served as collateral for public deposits with the Treasury Board of the Commonwealth of Virginia. Uninsured deposits at March 31, 2025 were $431.2 million or 19.8% of total deposits. In the unlikely event that uninsured deposit balances leave the Bank over a short period of time, management could more than satisfy the demand with cash on-hand and FHLB borrowing capacity. Capital. Capital adequacy is an important measure of financial stability and performance. The Company’s objectives are to maintain a level of capitalization that is sufficient to support the Company's strategic objectives. Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. A financial institution's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Banks must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios for all ratios except the Tier 1 leverage ratio. If a banking organization dips into its capital conservation buffer, it is subject to limitations on certain activities, including payment of dividends, share repurchases, and discretionary compensation to certain officers. Additionally, regulators may place certain restrictions on dividends paid by banks. The total amount of dividends which may be paid at any date is generally limited to retained earnings of banks. 43 Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized; although, these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The Consent Order requires the Bank to achieve and maintain minimum capital requirements that are higher than those required for capital adequacy purposes. Specifically, the Bank is required to maintain a leverage ratio of 10.0% and a total capital ratio of 13.0%. As of March 31, 2025 and December 31, 2024, the Bank met these minimum capital ratios. Until the Bank has been released from the Consent Order, the Bank is deemed to be less than well capitalized, thus adequately capitalized. Because the Bank may not be deemed to be “well capitalized” while subject to the Consent Order, it could be required to pay higher insurance premiums to the FDIC, obtain approval prior to acquiring branches or opening new lines of business, and be subject to increased regulatory scrutiny such as limitations on asset growth. The Company adopted ASC 326, Financial Instruments - Credit Losses (referred to herein as "current expected credit losses" or "CECL") effective January 1, 2023. Federal and state banking regulations allow financial institutions to irrevocably elect to phase-in the after-tax cumulative effect adjustment at adoption to retained earnings (“CECL Transitional Amount”) over a three-year period. The three-year phase-in of the CECL Transitional Amount to regulatory capital is 25%, 50%, and 25% in 2023, 2024, and 2025, respectively. The Bank made this irrevocable election effective with its first quarter 2023 call report. The following tables present the capital ratios to which banks are subject to be adequately and well capitalized, as well as the capital and capital ratios for the Bank as of the dates stated. Adequately capitalized ratios include the conversation buffer, if applicable. The following table also includes the capital adequacy ratios to which bank holding companies are subject. Also presented are the minimum capital ratios set forth in the Consent Order for the Bank with the corresponding capital amounts for both the leverage ratio and the total capital ratio as of both March 31, 2025 and December 31, 2024. The CECL Transitional Amount was $8.1 million, of which $6.1 million and $4.1 million reduced the regulatory capital amounts and capital ratios as of March 31, 2025 and December 31, 2024, respectively. March 31, 2025 Actual For Capital Adequacy Purposes To Be Well Capitalized Minimum Capital Ratios (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio Total risk based capital (to risk-weighted assets) Blue Ridge Bank, N.A. $ 360,244 17.93 % $ 210,943 10.50 % $ 200,898 10.00 % $ 261,167 13.00 % Blue Ridge Bankshares, Inc. $ 421,913 20.83 % $ 162,048 8.00 % n/a n/a n/a n/a Tier 1 capital (to risk-weighted assets) Blue Ridge Bank, N.A. $ 339,061 16.88 % $ 170,763 8.50 % $ 160,718 8.00 % n/a n/a Blue Ridge Bankshares, Inc. $ 365,857 18.06 % $ 121,536 6.00 % n/a n/a n/a n/a Common equity tier 1 capital (to risk-weighted assets) Blue Ridge Bank, N.A. $ 339,061 16.88 % $ 140,628 7.00 % $ 130,583 6.50 % n/a n/a Blue Ridge Bankshares, Inc. $ 365,857 18.06 % $ 91,152 4.50 % n/a n/a n/a n/a Tier 1 leverage (to average assets) Blue Ridge Bank, N.A. $ 339,061 12.33 % $ 110,013 4.00 % $ 137,517 5.00 % $ 275,033 10.00 % Blue Ridge Bankshares, Inc. $ 365,857 13.23 % $ 110,641 4.00 % n/a n/a n/a n/a 44 December 31, 2024 Actual For Capital Adequacy Purposes To Be Well Capitalized Minimum Capital Ratios (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio Total risk based capital (to risk-weighted assets) Blue Ridge Bank, N.A. $ 358,848 17.26 % $ 218,260 10.50 % $ 207,866 10.00 % $ 270,226 13.00 % Blue Ridge Bankshares, Inc. $ 414,284 19.79 % $ 167,444 8.00 % n/a n/a n/a n/a Tier 1 capital (to risk-weighted assets) Blue Ridge Bank, N.A. $ 340,386 16.38 % $ 176,687 8.50 % $ 166,293 8.00 % n/a n/a Blue Ridge Bankshares, Inc. $ 360,933 17.24 % $ 125,583 6.00 % n/a n/a n/a n/a Common equity tier 1 capital (to risk-weighted assets) Blue Ridge Bank, N.A. $ 340,386 16.38 % $ 145,507 7.00 % $ 135,113 6.50 % n/a n/a Blue Ridge Bankshares, Inc. $ 360,933 17.24 % $ 94,187 4.50 % n/a n/a n/a n/a Tier 1 leverage (to average assets) Blue Ridge Bank, N.A. $ 340,386 11.80 % $ 115,364 4.00 % $ 144,204 5.00 % $ 288,409 10.00 % Blue Ridge Bankshares, Inc. $ 360,933 12.43 % $ 116,169 4.00 % n/a n/a n/a n/a Commitments and Contingencies Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and involve the same credit risk and evaluation as making a loan to a customer. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis, in a manner similar to that if underwriting a loan. As of March 31, 2025 and December 31, 2024, the Company had outstanding loan commitments of $274.3 million and $283.2 million, respectively. Of these amounts, $110.6 million and $108.4 million were unconditionally cancelable at the sole discretion of the Company as of the same respective dates. Conditional commitments are issued by the Company in the form of financial stand-by letters of credit, which guarantee payment to the underlying beneficiary (i.e., third party) if the customer fails to meet its designated financial obligation. As of March 31, 2025 and December 31, 2024, commitments under outstanding financial stand-by letters of credit totaled $11.3 million and $12.5 million, respectively. The credit risk of issuing stand-by letters of credit can be greater than the risk involved in extending loans to customers. No provision for credit losses was reported for the quarter ended March 31, 2025 compared to a recovery of credit losses of $1.0 million for the quarter ending March 31, 2024, which was primarily attributable to lower unfunded loan commitments. As of both March 31, 2025 and December 31, 2024, the reserve for unfunded commitments was $0.9 million and is included in other liabilities on the consolidated balance sheets. As part of the sale of substantially all of its MSR portfolio in 2024, the Company recorded a reserve for estimated putbacks, transition costs, and unearned sales proceeds. The putbacks relate to industry-standard items, including prepayments or early delinquencies of the underlying mortgages, all of which are subject to term limits per the respective sales agreements. The reserve for unearned sales proceeds relates to the Company providing certain documentation to the buyers. As of March 31, 2025 and December 31, 2024, the reserve was $1.7 million and $1.8 million, respectively, and was included in the loss on sale of MSR assets and other liabilities on the consolidated statement of operations and consolidated balance sheet, respectively. The Company has investments in various partnerships and limited liability companies. Pursuant to these investments, the Company commits to an investment amount that may be fulfilled in future periods. At March 31, 2025, the Company had future commitments outstanding totaling $6.2 million related to these investments. Interest Rate Risk Management As a financial institution, the Company is exposed to various business risks, including interest rate risk. Interest rate risk is the risk to earnings and value arising from volatility in market interest rates. Interest rate risk arises from timing differences in the repricing and cash flows of interest-earning assets and interest-bearing liabilities, changes in the expected cash flows of assets and liabilities arising from embedded options, such as borrowers' ability to prepay loans and depositors' ability to redeem certificates of deposit before maturity, changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion, and changes in spread relationships between different yield curves, such as U.S. Treasuries and other market-based index rates. The Company’s goal is to maximize net interest 45 income without incurring excessive interest rate risk. Management of net interest income and interest rate risk must be consistent with the level of capital and liquidity that the Bank maintains. The Company manages interest rate risk through the ALCO comprised of members of management. The ALCO is responsible for monitoring the Company’s interest rate risk in conjunction with liquidity and capital management, pursuant to policy guidelines approved by the board of directors. The Company employs an independent firm to model its interest rate sensitivity that uses a net interest income simulation model as its primary tool to measure interest rate sensitivity. Assumptions for modeling are developed based on expected activity in the balance sheet. For maturing assets, assumptions are created for the redeployment of these assets. For maturing liabilities, assumptions are developed for the replacement of these funding sources. Assumptions are also developed for assets and liabilities that could reprice during the modeled time period. These assumptions also cover how management expects rates to change on non-maturity deposits, such as interest checking, money market checking, savings accounts, as well as certificates of deposit. Based on inputs that include the current balance sheet, the current level of interest rates, and the developed assumptions, the model produces an expected level of net interest income assuming that market rates remain unchanged. This is considered the base case. The model then simulates what net interest income would be based on specific changes in interest rates. The rate simulations are performed for a two-year period and include rapid rate changes of down 100 basis points to 400 basis points and up 100 basis points to 400 basis points. The results of these simulations are then compared to the base case. The following tables present the estimated change in net interest income under various rate change scenarios as of the dates presented. The scenarios assume rate changes occur instantaneous and in a parallel manner, which means the changes are the same on all points of the rate curve. Estimated changes set forth below are dependent on material assumptions, such as those previously discussed. March 31, 2025 Instantaneous Parallel Rate Shock Scenario Change in Net Interest Income - Year 1 Change in Net Interest Income - Year 2 Change in interest rates: +400 basis points $ 2,706 3.1 % $ 6,546 6.9 % +300 basis points 2,976 3.4 % 5,883 6.2 % +200 basis points 2,662 3.1 % 4,693 4.9 % +100 basis points 1,698 2.0 % 2,825 3.0 % Base case -100 basis points (2,919 ) (3.4 %) (4,491 ) (4.7 %) -200 basis points (6,458 ) (7.4 %) (10,299 ) (10.9 %) -300 basis points (9,622 ) (11.1 %) (15,735 ) (16.6 %) -400 basis points (12,409 ) (14.3 %) (20,650 ) (21.8 %) December 31, 2024 Instantaneous Parallel Rate Shock Scenario Change in Net Interest Income - Year 1 Change in Net Interest Income - Year 2 Change in interest rates: +400 basis points $ 3,288 3.8 % $ 6,628 6.7 % +300 basis points 3,347 3.8 % 5,842 5.9 % +200 basis points 2,877 3.3 % 4,610 4.7 % +100 basis points 1,798 2.1 % 2,751 2.8 % Base case -100 basis points (2,978 ) (3.4 %) (4,205 ) (4.3 %) -200 basis points (6,468 ) (7.4 %) (9,650 ) (9.8 %) -300 basis points (9,831 ) (11.2 %) (15,174 ) (15.4 %) -400 basis points (12,664 ) (14.5 %) (19,666 ) (20.0 %) Stress testing the balance sheet and net interest income using instantaneous parallel rate shock movements in the yield curve is a regulatory and banking industry practice. However, these stress tests may not represent a realistic forecast of future interest rate movements in the yield curve. In addition, instantaneous parallel rate shock modeling is not a predictor of actual future performance of earnings. It is a financial metric used to manage interest rate risk and track the movement of the Company’s interest rate risk position over a historical time frame for comparison purposes. 46 The asset and liability repricing characteristics of the Company’s assets and liabilities will have a significant impact on its future interest rate risk profile. Item 3. Quantitative and Qualitati ve Disclosures about Market Risk This information is incorporated herein by reference to the information in section "Interest Rate Risk Management" within Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q.