On December 15, 2019, the Company completed the acquisition of VCB and its subsidiary 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 is as follows:

	As Recorded by Virginia Community Bankshares, Inc.		Adjustments					As Recorded by Blue Ridge Bankshares, Inc.
Assets
Cash and due from banks	$	9,679	$	—				$	9,679
Investment securities available-for-sale		43,419		(470	)	(1	)		42,949
Restricted equity securities		303		—					303
Loans		173,872		(876	)	(2	)		172,996
Premises and equipment		6,436		3,296		(3	)		9,732
Other real estate owned		87		(87	)	(4	)		—
Accrued interest receivable		864		—					864
Core deposit intangible		—		1,690		(5	)		1,690
Other assets		8,069		550		(6	)		8,619
Total assets acquired	$	242,729	$	4,103					246,832
Liabilities
Deposits		217,953		119		(7	)		218,072
Other liabilities		1,297		—					1,297
Total liabilities assumed	$	219,250	$	119					219,369
Net assets acquired									27,463
Total consideration paid									44,048
Goodwill								$	16,585

Explanation of adjustments:

(1)Adjustment to reflect estimated fair value of securities portfolio.

(2)Adjustment to reflect estimated fair value of loans of $2,295, and elimination of VCB’s allowance for loan and lease losses of $1,419.

(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.

The change from December 31, 2019 to December 31, 2020 in goodwill from the VCB acquisition was due to an adjustment to the fair value of a loan after the end of 2019.

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

Cash due from banks. The carrying amount of cash due from banks 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 equity securities. The carrying amount of restricted equity securities 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 may 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 non-accrual loans to reflect market participant assumptions. Under the asset approach, the fair value of each loan was determined based on the estimated fair values of the underlying collateral, less costs to sell.

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 is 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.

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 non-interest bearing 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 bearing 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 date fair values becomes available.