Provident Bancorp, Inc. Reports Earnings for the June 30, 2021 Quarter and Continues Payment of Quarterly Cash Dividends of $0.04 per Share

Company Release – 07/29/2021



Amesbury, Massachusetts — Provident Bancorp, Inc. (the “Company”) (NasdaqCM: PVBC), the holding company for The Provident Bank (the “Bank”), reported net income for the three months ended June 30, 2021 of $3.2 million, or $0.18 per diluted share, compared to $3.3 million, or $0.18 per diluted share, for the three months ended June 30, 2020. Net income for the six months ended June 30, 2021 was $7.5 million, or $0.43 per diluted share, compared to $4.5 million, or $0.25 per diluted share, for the six months ended June 30, 2020.



The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.04 per share, which will be paid on August  27, 2021 to stockholders of record as of August 13, 2021.



In announcing these results, Dave Mansfield, Chief Executive Officer said, “The development of new technologies and the changing needs of customers has put immense pressure on the banking industry to evolve. Over the past few years our institution has focused on embracing innovation and leveraging new technologies to deliver a better banking experience to businesses who seek digital solutions. By forming new relationships with several digital asset companies and implementing newly developed digital services, we have seen financial benefits in the form of increased non-interest bearing deposits and fee income as well as an expansion in our specialty lending portfolio.  Our Bank is excited to be an active participant in the  evolution of our industry as we continue to seek new ways to challenge the traditional processes of today to transform the customer experience of tomorrow.”



COVID–19 Response



Since the distribution of the first COVID-19 vaccination began in December, additional vaccines have been approved for use and the Company’s market area has progressed through different phases of the vaccine rollout. As larger percentages of the population become fully vaccinated, and warmer weather has begun, there has been an uptick in economic activity, particularly in those industries that had been most heavily impacted by the economic downturn caused by the COVID-19 pandemic.



In December 2020, Congress approved a bill which allocated additional funds to the Small Business Administration (“SBA”) for a second round of Paycheck Protection Program (“PPP”) loans to assist with the economic fallout caused by the COVID-19 pandemic. The SBA, in consultation with the U.S. Treasury department, resumed the PPP in January of 2021 through May 31, 2021.  During the first round of the PPP, which ran from March to August 2020, the Company originated $78.0 million in PPP loans. As of June 30, 2021, the Company has originated an additional $46.0 million under the second round of the PPP.  The Company continues to work with customers who received PPP loans on applying for loan forgiveness, and as of June 30, 2021, of the $124.0 million in PPP loans issued, only $43.3 million remained outstanding with unaccreted fee income totaling $1.7 million.



The Company’s focus has been on meeting the needs of its customers through the height of the pandemic and now through the economic recovery. We continue to maintain close communication with commercial customers, especially in those industries most heavily impacted by the pandemic.  Most loans that were modified under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act have resumed repayment or have been paid off. We have not experienced any significant delinquencies related to these loans that have resumed repayment. As of June 30, 2021, remaining loan modifications that were made under the CARES Act totaled $18.9 million, or 1.4% of total loans, compared to $44.0 million, or 3.3%  of total loans at December 31, 2020.



Financial Results



For the three and six month period ended June 30, 2021,  net interest and dividend increased by $1.6 million, or 12.0%, and increased by $4.4 million, or 17.5%, compared to the three and six months ended June 30, 2020, respectively.  For the three months ended June 30, 2021 interest and dividend income increased $859,000, or 5.9%, to $15.5 million compared to $14.7 million for the same period in 2020. The primary reason for the increase was an increase in average interest earning assets of $211.7 million, partially offset by a decrease in the yield on interest earning assets of 43 basis points to 4.20% for the three months ended June 30, 2021 compared to 4.63% for the same period in 2020.  Also contributing to the increase in net interest and dividend income for the three months ended June 30, 2021 was a decrease in interest expense of $709,000, or 43.8%, to $910,000 compared to $1.6 million for the three months ended June 30, 2020.  Interest expense declined as a result of the rate environment and a lower cost of funds of 43 basis points, to 0.43%, for the three months ended June 30, 2021 compared to 0.86% for the same period in 2020. Net interest and dividend income increased by $4.4 million, or 17.5%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. For the six months ended June 30, 2021, interest and dividend income increased $2.7 million, or 9.3%, to $31.4 million compared to $28.7 million for the same period in 2020. The primary reason for the increase was an increase in average interest earning assets of $271.0 million, partially offset by a decrease in the yield on interest earning assets of 52 basis points to 4.27% for the six months ended June 30, 2021 compared to 4.79% for the same period in 2020. Also contributing to the increase in net interest and dividend income for the six months ended June 30, 2021 was a decrease in interest expense of $1.7 million, or 48.0%, to $1.9 million compared to $3.6 million for the six months ended June 30, 2020. Interest expense declined as a result of the rate environment and a lower cost of funds of 55 basis points, to 0.44% for

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the six months ended June 30, 2021 compared to 0.99% for the same period in 2020. The decrease in yield on assets and cost of funds for the three and six months ended June 30, 2021, are the result of a decrease in the national rate environment. The decreasing rate environment resulted in a decrease in our net interest margin of 17 basis points to 3.95% from 4.12% for the three months ended June 30, 2021, and 18 basis points to 4.01% from 4.19% for the six months ended June 30, 2021 when compared to the same periods in 2020.



Provision for loan losses of $1.7 million were recognized for the three months ended June 30, 2021 compared to $872,000 for the same period in 2020.  For the six months ended June 30, 2021, a provision of $2.4 million was recognized compared to $4.0 million for the six months ended June 30, 2020. The changes in the provision were based on management’s assessment of economic conditions, including the impact of the COVID-19 pandemic, loan portfolio growth and composition changes, historical charge-off trends, levels of problem loans and other asset quality trends.



The allowance for loan losses as a percentage of total loans was 1.43%  as of June 30, 2021 compared to 1.39% as of December 31, 2020. The primary reason for the increase was a  $1.3 million loan relationship that was placed on nonaccrual status in the second quarter of 2021 with specific reserves of $956,000. Net charge-offs for the six months ended June 30, 2021 were $1.5 million compared to $657,000 for the same period in 2020. The primary reason for the increase in net charge-offs was the charge-off of a $1.2 million impaired loan that was previously reserved for during the first quarter. During the first quarter, the increases to the allowance were partially offset by a decrease in the provision allocated to mortgage warehouse loan balances resulting from the Bank’s seasoning experience with this line of lending. There were  $227.1 million and $265.4 million in outstanding mortgage warehouse loan balances at June 30, 2021 and December 31, 2020, respectively. Loans in this segment are facility lines to non-bank mortgage origination companies for sale into secondary markets, which typically occurs within 15 days of the loan closure. Due to their short-term nature, these loans are assessed at a lower credit risk and do not carry the same allocation as traditional loans. Included in total loans is $43.3 million in PPP loans originated as part of the CARES Act that we believe have no credit risk due to a government guarantee, therefore we have not provided for losses for these loans. Excluding PPP loans, the allowance for loan losses as a percentage of total loans was 1.48% as of June 30, 2021 compared to 1.43% at December 31, 2020.  The allowance for loan losses as a percentage of non-performing loans was 416.12% as of June 30, 2021 compared to 341.72% as of December 31, 2020. Non-performing loans were $4.7 million, or 0.29% of total assets as of June 30, 2021, compared to $5.4 million, or 0.36% of total assets, as of December 31, 2020. As of June 30, 2021, non-performing loans consist primarily of two commercial relationships totaling $3.3 million.  These loan relationships were evaluated for impairment and specific reserves of $2.8 million were allocated as of June 30, 2021. 



Noninterest income increased $399,000, or 56.7%, to  $1.1 million for the three months ended June 30, 2021 compared to $704,000 for the three months ended June 30, 2020. The increase is primarily due to  an increase in other service charges and fees of $177,000, or 67.8%, and an increase in customer service fees on deposit accounts of $169,000, or 64.0%. The increase in other service charges and fees is primarily due to waived fees in 2020 for customers impacted by COVID-19 in addition to a loan payoff charge on a commercial real estate loan. The increase in customer service fees on deposit accounts is primarily due to waived fees in 2020 for customers impacted by COVID-19 in addition to fees generated from the cash vault services for our customers who operate Bitcoin ATMs. For the six months ended June 30, 2021, noninterest income increased $407,000, or 23.7%, to $2.1 million compared to $1.7 million for the six months ended June 30, 2020. This was primarily due to an increase in customer service fees on deposit accounts of $196,000, or 31.8%, and an increase in other service charges and fees of $67,000 or 9.3%. The increase in customer service fees on deposit accounts was primarily due to waived fees in 2020 for customers impacted by COVID-19 in addition to fees generated from the cash vault services for our customers who operate Bitcoin ATMs.  Other service charges and fees increased primarily due to income from a loan payoff charge on a commercial real estate loan partially offset by a decrease in overdraft fee income.  Noninterest income for the six months ended June 30, 2021 also increased due to an increase in bank owned life insurance income of $92,000, or 26.3%, when compared to the same period in 2020 due to the purchase of additional insurance policies in 2020. Other income increased $52,000, or 192.6%  for the six months ended June 30, 2021 primarily due to a one-time incentive payment on a service contract received in the first quarter of 2021.  



Noninterest expense increased $1.1 million, or 14.0%, to $9.5 million for the three months ended June 30, 2021 compared to $8.4 million for the three months ended June 30, 2020. The increase is primarily due to an increase in salaries and employee benefits expense,  professional fees, data processing fees and directors’ compensation.  The increase of $905,000, or 15.6%, in salary and employee benefits was primarily due to increased stock-based compensation expense and a higher number of sales and operations positions compared to the same period in 2020. The increase of $102,000, or 27.8%, in professional fees was primarily due to costs paid to third party vendors for program assistance as well as increased legal, and audit and compliance costs. Data processing fees increased $92,000 or 41.4%, primarily due to new contracts for deposit services. Directors’ compensation increased $90,000, or 52.6%, primarily due to increased stock-based compensation expense. For the six months ended June 30, 2021, noninterest expense increased $2.0 million, or 12.4%, to $18.7 million compared to $16.7 million for the six months ended June 30, 2020. The increase is primarily due to an increase in salaries and employee benefits expense, data processing fees, directors’ compensation, professional fees and deposit insurance expenses, partially offset by a decrease in write downs of other assets and receivables. The increase of $2.0 million, or 17.7%, for the six months ended June 30, 2021 when compared to the same period in 2020 in salary and employee benefits was primarily due to stock based compensation expense and a higher number of sales and operations positions compared to the same period in 2020. Data processing fees increased $187,000 or 41.7%, primarily due to new contracts for deposit services. Directors’ compensation increased $150,000, or 41.1%, primarily due to increase stock-based compensation expense. Professional fees increased $147,000, or 19.5%, primarily due to

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management fees and an increase in audit and compliance costs. Deposit insurance expenses increased $93,000, or 75.0%, primarily due to one-time credits that were recognized in the first quarter of 2020 that resulted in a lower expense. These increases were offset by a decrease in write downs of other assets and receivables of $500,000. In the first quarter of 2020 a write-down of a notes receivable balance was completed after the Company evaluated the collectability and determined that $500,000 was uncollectible.



As of June 30, 2021,  total assets have increased $79.3 million, or 5.3%, to $1.59 billion compared to $1.51 billion at December 31, 2020. The primary reasons for the increase are increases in cash and cash equivalents and net loans. The increase in cash and cash equivalents of $56.6 million, or 67.5% is primarily due to an increase in deposits. Net loans increased $19.8 million, or 1.5%, and were $1.33 billion as of June 30, 2021 compared to $1.31 billion at December 31, 2020. The increase in net loans was due to an increase in commercial loans of $71.8 million, or 12.7% and construction and land development loans of $4.6 million, or 15.9%, partially offset by decreases in mortgage warehouse loans of $38.2 million, or 14.4%, commercial real estate loans of $7.7 million, or 1.8%, residential real estate loans of $6.2 million, or 18.8%, and consumer loans of $2.5 million, or 45.1%.  Our commercial loan growth was primarily due to increases in our specialty lending portfolios. As of June 30, 2021, enterprise value loans increased $17.9 million, or 6.3%, to $304.0 million compared to $286.1 million at December 31, 2020. Renewable energy loans increased $13.8 million, or 37.1%, to $51.0 million compared to $37.2 million at December 31, 2020. Also included in commercial loans at June 30, 2021 and December 31, 2020 were $45.0 million and $15.0 million in loans to crypto companies. 



Total liabilities increased $83.6 million, or 6.6%, due to increased deposits. Deposits were $1.32 billion as of June 30, 2021, representing an increase of $84.4 million, or 6.8%, compared to December 31, 2020.  The increase in deposits was due to an increase of $91.9 million, or 16.6%, in NOW and demand deposits, an increase of $42.2 million, or 11.9% in money market accounts, an increase of $2.9 million, or 1.9%, in savings accounts, partially offset by a decrease of $52.6 million, or 29.5%, in time deposits. NOW and demand deposits and money market deposits increased primarily due to funds from the origination of PPP loans and increased deposit balances from new and expanded relationships with digital asset customers, which totaled $94.6 million at June 30, 2021. The increase in savings accounts is primarily caused by increased consumer savings. The decrease in time deposits is primarily due to roll-off of brokered certificates of deposit. In addition, the Bank has increased focused on growing non-interest bearing deposit balances and as of June 30, 2021 non-interest bearing deposits represented 36.6% total deposits compared to 31.0% at December 31, 2020.



As of June 30, 2021, shareholders’ equity was $231.6 million compared to $235.9 million at December 31, 2020,  representing a decrease of $4.3 million, or 1.8%. The decrease was primarily due to the repurchase of 869,301 shares of common stock for  $12.4 million, $1.2 million from dividends paid, and a decrease in other comprehensive income of $59,000, partially offset by net income of $7.5 million,  stock-based compensation expense of $1.3 million and employee stock ownership plan shares earned of $647,000. 



About Provident Bancorp, Inc.



BankProv, legally operating as The Provident Bank, is a subsidiary of Provident Bancorp, Inc. (NASDAQ: PVBC). BankProv is a future-ready commercial bank for corporate clients, specializing in offering adaptive and technology-first banking solutions to niche markets, including cryptocurrency, renewable energy, fin-tech and search fund lending. We are committed to offering state-of-the-art APIs (application programming interfaces) for all business clients and BaaS (Bank as a Service) partners. Through our offerings, BankProv insures 100% of deposits through a combination of insurance provided by the Federal Deposit Insurance Corporation (FDIC) and the Depositors Insurance Fund (DIF). For more information about BankProv please visit our website www.bankprov.com or call 877-487-2977.



Forward-looking statements



This news release may contain certain forward-looking statements, such as statements of the Company’s or the Bank’s plans, objectives, expectations, estimates and intentions. Forward-looking statements may be identified by the use of words such as, “expects,” “subject,” “believe,” “will,” “intends,” “may,” “will be” or “would.” These statements are subject to change based on various important factors (some of which are beyond the Company’s or the Bank’s control) and actual results may differ materially. Accordingly, readers should not place undue reliance on any forward-looking statements (which reflect management’s analysis of factors only as of the date of which they are given). These factors include: general economic conditions; the effects of any pandemic; trends in interest rates; the ability of our borrowers to repay their loans; and the ability of the Company or the Bank to effectively manage its growth and results of regulatory examinations, among other factors. The foregoing list of important factors is not exclusive. Readers should carefully review the risk factors described in other documents of the Company files from time to time with the Securities and Exchange Commission, including Annual and Quarterly Reports on Forms 10-K and 10-Q, and Current Reports on Form 8-K.



Provident Bancorp, Inc.

Carol Houle, 603-334-1253

Executive Vice President/CFO

choule@bankprov.com





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