On December 15, 2019, the Company completed the acquisition of VCB, the holding company for Virginia Community Bank, pursuant to the terms of the Agreement and Plan of Reorganization, dated May 13, 2019, between the Company and VCB. Under the agreement, VCB’s shareholders had the right to receive, at the holder’s election, either $58.00 per share in cash or 3.05 shares of the Company’s common stock, subject to the allocation and proration procedures set forth in the agreement, plus cash in lieu of fractional shares.

A summary of the assets received and liabilities assumed and related adjustments are as follows:


		As Recorded by							As Recorded by
		Virginia Community							Blue Ridge
		Bankshares, Inc.			Adjustments				Bankshares, Inc.
Assets
Cash and due from banks	$		9,678,700	$		-		$		9,678,700
Investment securities available-for-sale			43,419,481			(470,191)	(1)			42,949,290
Restricted equity securities			302,700			-				302,700
Held-for-investment loans			173,871,523			(900,020)	(2)			172,971,503
Furniture, Fixtures, and equipment			6,435,695			3,296,872	(3)			9,732,567
Other Real Estate Owned			87,427			(87,427)	(4)			-
Accrued interest receivable			864,154			-				864,154
Core deposit intangible			-			1,690,000	(5)			1,690,000
Other assets			8,069,497			549,976	(6)			8,619,473
Total assets acquired	$		242,729,177	$		4,079,210				246,808,387

Liabilities
Deposits			217,953,153			118,621	(7)			218,071,774
Other liabilities			1,296,520			-				1,296,520
Total liabilities assumed	$		219,249,673	$		118,621				219,368,294

Net assets acquired										27,440,093
Total consideration paid										44,048,371
Goodwill								$		16,608,278


Explanation of adjustments:
(1)	Adjustment to reflect estimated fair value of security portfolio.
(2)	Adjustment to reflect estimated fair value and credit mark on loans of $(2,318,569), and elimination of VCB’s allowance for loan and lease losses of $1,418,549.
(3)	Adjustment to reflect estimated fair value of furniture, fixtures, and equipment.
(4)	Adjustment to reflect estimated fair value of OREO.
(5)	Adjustment to reflect recording of core deposit intangible.
(6)	Adjustment to reflect estimated fair value of other assets and the recording of deferred taxes related to acquisition.
(7)	Adjustment to reflect estimated fair value of deposits.

Below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the acquisition.

Cash and cash equivalents. The carrying amount of cash and cash equivalents was used as a reasonable estimate of fair value.

Interest-bearing deposits. The carrying amount of interest-bearing deposits was used as a reasonable estimate of fair value.

Investment securities available-for-sale. The estimated fair value of investment securities available-for-sale was based on proceeds received from sale of securities immediately after consummation of acquisition and quoted prices for those securities that remained in the portfolio.

Restricted stock. The carrying amount of restricted stock was used as a reasonable estimate of fair value. These investments are carried at cost as no active trading market exists.

Loans. The acquired loan portfolio was segregated into one of two categories for valuation purposes: PCI and performing loans. PCI loans were identified as those loans that were nonaccrual prior to the business combination and those loans that had been identified as potentially impaired. Potentially impaired loans were those loans that were identified during the credit review process where there was an indication that the borrower did not have sufficient cash flows to service the loan in accordance with its terms. Performing loans were those loans that were currently performing in accordance with the loan contract and do not appear to have any significant credit issues.

For loans that were identified as performing, the fair values were determined using a discounted cash flow analysis (the "income approach"). Performing loans were segmented into pools based on loan type (commercial real estate, commercial and industrial, commercial construction, consumer residential and consumer nonresidential), and further segmented based on payment structure (fully amortizing, non-fully amortizing balloon, or interest only), rate type (fixed versus variable), and remaining maturity. The estimated cash flows expected to be collected for each loan was determined using a valuation model that included the following key assumptions: prepayment speeds, expected credit loss rates and discount rates. Prepayment speeds were influenced by many factors including, but not limited to, current yields, historic rate trends, payment types, interest rate type, and the duration of the individual loan. Expected credit loss rates were based on recent and historical default and loss rates observed for loans with similar characteristics, and further influenced by a credit review by management and a third party consultant on a selection of loans within the acquired portfolio. The discount rates used were based on rates market participants might charge for cash flows with similar risk characteristics at the acquisition date. These assumptions were developed based on management discussions and third party professional experience.

For loans that were identified as PCI, either the above income approach was used or the asset approach was used. The income approach was used for PCI loans where there was an expectation that the borrower would more likely than not continue to pay based on the current terms of the loan contract. Management used the asset approach for all nonaccrual loans to reflect market participant assumptions. Under the asset approach, the fair value of each loan was determined based on the estimated values of the underlying collateral.

The methods used to estimate the Level 3 fair values of loans are extremely sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets.

The difference between the fair value and the expected cash flows from acquired loans will be accreted to interest income over the remaining term of the loans in accordance with ASC Topic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality." See Note 5 for further details.

Premises and equipment. The land and buildings acquired were recorded at fair value as determined by current appraisals and tax assessments at acquisition date.

Other real estate owned. OREO was recorded at fair value based on an existing purchase contract.

Core deposit intangible. Core deposit intangibles ("CDI") are measures of the value of noninterest checking, savings, interest-bearing checking, and money market deposits that are acquired in a business combination excluding certificates of deposit with balances over $250,000 and high yielding interest bearing deposit accounts, which the Company determines customer related intangible assets as non-existent. The fair value of the CDI stemming from any business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative funding source. The CDI is being amortized over an estimated useful life of 10 years to approximate the existing deposit relationships acquired.

Deposits. The fair values of deposit liabilities with no stated maturity (non-interest checking, savings, interest-bearing checking, and money market deposits) are equal to the carrying amounts payable on demand. The fair values of the certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered by market participants on deposits with similar characteristics and remaining maturities.

The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information relative to closing dates fair value becomes available.