PVBC Provident Bancorp Inc

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

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Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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Item 2.02 Results of Operations and Financial Condition

On July 27, 2023, Provident Bancorp, Inc. (the “Company”) issued a press release announcing its earnings for the quarter ended June 30, 2023. A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference. The information contained in this Item 2.02, including the related information set forth in the press release, is being “furnished” and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

ExhibitDescription

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Provident Bancorp, Inc. Reports Results  for the June 30, 2023 Quarter 

Company Release – 07/27/2023



Amesbury, Massachusetts — Provident Bancorp, Inc. (the “Company”) (NasdaqCM: PVBC), the holding company for BankProv (the “Bank”), reported net income for the quarter ended June 30,  2023 of $3.5 million, or $0.21 per diluted share, compared to $2.1 million, or $0.13 per diluted share, for the quarter ended March 31, 2023, and $5.6 million, or $0.33 per diluted share, for the quarter ended June 30, 2022. Net income for the six months ended June 30, 2023 was $5.6 million, or $0.34 per diluted share, compared to $11.1 million, or $0.66 per diluted share, for the six months ended June 30, 2022.



In announcing these results, Carol Houle, Co-Chief Executive Officer and Chief Financial Officer said, “Net interest margin has declined significantly due to our cost of funds outpacing yield on assets. The ten rate hikes since the beginning of 2022, coupled with the speed in which deposits can be moved, has pressured banks to increase deposit rates at a faster pace to remain competitive.”



“It is important, as a leadership team, to evaluate all areas of revenue and expense to ensure the bank is operating at optimum efficiency. During the quarter, we have made concerted efforts to reduce costs and evaluate fees on deposit products to reduce the negative impact that the increased cost of funds had on our performance,” said Joe Reilly, Co-Chief Executive Officer.



Mr. Reilly continued, “Our results for the period reflect our restructured management team and our focus on our revised business plan, operations, and risk tolerance in light of the events and the losses that occurred in late 2022. We have made a concerted effort to adjust our business practices and strategies to better monitor and manage our risk position, capital position, liquidity, growth of our Banking as a Service operations, and overall asset growth. In this regard, we have updated internal metrics and limitations in these areas to better manage and monitor our overall risk position, including generally managing overall asset growth to 5% per year, and we have adopted more comprehensive capital management policies and procedures. We believe these efforts will assist the Company in implementing a measured growth strategy that does not create undue operational risk while meeting supervisory expectations.



Income Statement Results



Quarter Ended June 30, 2023 Compared to Quarter Ended March 31, 2023



For the quarter ended June 30, 2023, net interest and dividend income was $14.9 million, which represents a decrease of $914,000, or 5.8%, compared to the quarter ended March 31, 2023.  Net interest and dividend income was negatively impacted by an increase in interest expense of $3.2 million, or 65.7%, to $8.0 million compared to $4.8 million for the quarter ended March 31, 2023, partially offset by  an increase in interest and dividend income of $2.3 million,  or 10.9%, to $22.9 million compared to $20.6 million for the quarter ended March 31, 2023.  Interest expense increased primarily due to an increase in the cost of interest-bearing deposits and an increase in the average balance of interest-bearing deposits. The cost of interest-bearing deposits increased 101 basis points to 3.04% for the quarter ended June 30, 2023, compared to 2.03% for the quarter ended March 31, 2023, primarily due to rising interest rates and a larger proportion of the portfolio consisting of higher-cost money market accounts and certificates of deposit. The average balance of interest-bearing deposits increased  $240.7 million, or 31.3%, for the quarter ended June 30, 2023, primarily due to increases in the average balances of money market accounts and certificates of deposit.



Interest and dividend income increased primarily due to an increase in the average balance of short-term investments of $195.5 million to $236.4 million as of June 30, 2023, compared to $40.9 million as of March 31, 2023.The increase resulted in an increase of interest earned of $2.6 million to $3.0 million as of June 30, 2023, compared to $383,000 as of March 31, 2023. The increase was partially offset by a decrease in interest and fees on loans of $354,000, or 1.8%, to $19.7 million for the quarter ended June 30, 2023, compared to $20.0 million for the quarter ended March 31, 2023. The decrease was primarily a result of the $45.3 million decrease in the average balance of loans.



A credit loss benefit of $1.1 million was recognized for the quarter ended June 30,  2023 due to improvements in the near-term Gross Domestic Product (“GDP”) and unemployment rate forecasts. Reduced balances in the commercial real estate, commercial, and enterprise value loan portfolios, which have a higher credit risk compared to the Bank’s other loan portfolios such as mortgage warehouse and construction and land development also contributed to the benefit.  In addition, updated valuations increased collateral values for individually analyzed loans in the enterprise value portfolio, causing a decrease in the reserve for the quarter ended June 30, 2023. 



For the quarter ended June 30, 2023, noninterest income was $1.7 million, which represents a decrease of $245,000, or  12.6%, compared to the quarter ended March 31, 2023. The decrease was primarily due to decreases in customer services fees on deposit accounts and other income, partially offset by an increase in other service charges. Customer service fees on deposit accounts decreased $210,000, or 21.5%, primarily due to decreased fees generated from cash vault services for our customers who operate Bitcoin ATMs as management suspended services while they continue to evaluate the services offered. Included in the customer service fees on deposit accounts was $238,000 for implementation and activity fees charged to Banking as a Service (“BaaS”) customers for the quarter ended June 30, 2023, compared to $245,000 for the quarter ended March 31, 2023. Other service charges and fees increased $76,000, or 16.9%, primarily due

to prepayment penalties in our commercial real estate portfolio. Other income decreased $117,000, or 46.6%, primarily due to a decrease in sales of other repossessed assets.



For the quarter ended June 30, 2023, noninterest expense was $12.8 million, which represents a decrease of $460,000, or 3.5%, compared to the quarter ended March 31, 2023. The decrease was primarily due to decreases in professional fees and salaries and employee benefits, partially offset by an increase in other expense.  Professional fees decreased $484,000 from $1.4 million to $919,000 primarily due to decreased legal, audit, and compliance costs which were elevated for the quarter ended March 31, 2023 due to services pertaining to the events that led to losses recorded during 2022. Salaries and employee benefits decreased $435,000 from $8.5 million to $8.1 million due to a reduction in personnel servicing the enterprise value portfolio. Other expenses increased $198,000 from $672,000 to $870,000 due to loan workout expenses. 



Quarter Ended June 30, 2023 Compared to Quarter Ended June 30, 2022



For the quarter ended June 30, 2023, net interest and dividend income was $14.9 million, which represents a decrease of $3.7 million, or 19.9%, from the quarter ended June 30, 2022. The net interest and dividend income for the quarter ended June 30, 2023 was negatively impacted by an increase in interest expense of $7.4 million to $8.0 million compared to $547,000 for the quarter ended June 30, 2022, which was offset by an increase in interest and dividend income of $3.7 million, or 19.4%, to $22.9 million for the quarter ended June 30, 2023, compared to $19.2 million for the quarter ended June 30, 2022. Interest expense increased primarily due to rising interest rates and a larger proportion of higher-cost money market accounts and certificates of deposit in the portfolio. Rising interest rates resulted in an increase in the cost of interest-bearing deposits of 280 basis points to 3.04% for the quarter ended June 30, 2023, compared to 0.24% for the quarter ended June 30, 2022. The increase in interest expense was also driven by an increase in the average balance of interest-bearing deposits of $201.1 million, or 24.9%, to $1.01 billion for the quarter ended June 30, 2023, compared to $807.7 million for the quarter ended June 30, 2022.  



Interest and dividend income increased primarily due to rising interest rates, which resulted in an increased yield on interest-earning assets of 121 basis points to 5.67% for the quarter ended June 30, 2023, compared to 4.46% for the quarter ended June 30, 2022. The rising interest rates resulted in interest earned on short-term investments of $3.0 million for the quarter ended June 30, 2023, compared to $400,000 for the quarter ended June 30, 2022 and interest earned on loans of $19.7 million for the quarter ended June 30, 2023, compared to $18.6 million for the quarter ended June 30, 2022. The increase was partially offset by the $118.3 million, or 8.1%, reduction in the average balance of loans to $1.35 billion for the quarter ended June 30, 2023 from $1.47 billion for the quarter ended June 30, 2022.



A credit loss benefit of $1.1 million was recognized for the quarter ended June 30,  2023 due to improvements in the near-term Gross Domestic Product (“GDP”) and unemployment rate forecasts. Reduced balances in the commercial real estate, commercial, and enterprise value loan portfolios, which have a higher credit risk compared to the Bank’s other loan portfolios such as mortgage warehouse and construction and land development also contributed to the benefit. In addition, updated valuations increased collateral values for individually analyzed loans in the enterprise value portfolio, causing a decrease in the reserve for the quarter ended June 30, 2023.



For the quarter ended June 30, 2023, noninterest income was $1.7 million, which represents an increase of $150,000, or 9.7%, compared to the quarter ended June 30, 2022. The increase was primarily due to increases in customer service fees on deposit accounts and other income, partially offset by a decrease in the gain on loans sold. Customer service fees on deposit accounts increased $150,000, or 24.2%, which was primarily attributable to implementation and activity fees charged to BaaS customers of $238,000 for the quarter ended June 30, 2023, compared to $46,000 for the quarter ended June 30, 2022. Other income increased $98,000, or 272.2%, primarily due to insurance proceeds from replacement of damaged equipment.  Gain on loans sold decreased $187,000, or 100%, primarily due to the sale of residential mortgage loans in June 2022.



For the quarter ended June 30, 2023, noninterest expense was $12.8 million, which represents an increase of  $1.4 million, or 12.8%, compared to the quarter ended June 30, 2022.  The increase in noninterest expense was primarily due to increases in salaries and employee benefits, deposit insurance expense, professional fees, and software depreciation and implementation expenses.  The increase of $787,000, or 10.7%, in salary and employee benefits compared to the quarter ended June 30, 2022 was primarily due to an increase in staff to support strategic initiatives within our deposit products and services. Deposit insurance increased $214,000, or 139.0%, primarily due to an increase in the Federal Deposit Insurance Corporation’s (“FDIC”) insurance assessment rate schedules. Professional fees increased $210,000, or 29.6%, primarily due to increased audit and compliance costs. Software depreciation and implementation expenses increased $156,000, or 47.7%, primarily due to software licenses needed for the increased number of staff. 



Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022



For the six months ended June 30, 2023, net interest and dividend income was $30.7 million, which represents a decrease of $5.4 million, or 15.9%, compared to the six months ended June 30, 2022. This decrease was primarily attributable to rising interest rates which resulted in increased costs  of interest-bearing deposits and borrowings. The cost of interest-bearing deposits increased 237 basis points to 2.60% for the six months ended June 30, 2023, compared to 0.23% for the six months ended June 30, 2022. The cost of borrowings

increased 195 basis points to 3.98% for the six months ended June 30, 2023, compared to 2.02% for the six months ended June 30. 2022. The decrease in net interest and dividend income was further supported by an increase in average interest-bearing liabilities of $132.6 million, or 16.2%, which was due to an increase in average interest-bearing deposits of $85.5 million, or 10.6%, and an increase in the average total borrowings or $47.1 million, or 338.4%.



Interest and dividend income increased $5.9 million, or 15.7%, to $43.5 million for the six months ended June 30, 2023, compared to $37.6 million for the six months ended June 30, 2022. The increase in interest and dividend income for the six months ended June 30, 2023, compared to the six months ended June 30, 2022 was primarily driven by an increase of interest and fees on loans of $2.9 million, or 7.9%, and an increase in interest on short-term investments of $2.9 million, or 632.2%. The yield on loans increased 78 basis points to 5.79% for the six months ended June 30, 2023, compared to 5.01% for the six months ended June 30, 2022. The yield on short-term investments increased 432 basis points to 4.83% for the six months ended June 30, 2023, compared to 0.51% for the six months ended June 30, 2022. 



A  credit loss expense of $712,000 was recognized for the six months ended June 30, 2023, compared to  a credit loss expense of $1.1 million for the six months ended June 30, 2022, which represents a decrease of $412,000, or 36.7%. The credit loss expense for the six months ended June 30, 2023 was driven by the need to replenish the allowance due to $3.6 million of net charge-offs that occurred during the quarter ended March 31, 2023 in the enterprise value portfolio. The expense was partially offset by improvements in the near-term GDP and unemployment rate forecasts, as well as a  reduction of the loan balances in the commercial real estate, commercial, and enterprise value loan portfolios, which have a higher credit risk compared to the Bank’s other loan portfolios.  Also, updated valuations during the quarter ended June 30, 2023 increased collateral values for individually analyzed loans in the enterprise value portfolio partially offset the credit loss expense for the six months ended June 30, 2023. The $1.1 million provision for the six months ended June 30, 2022 was based on the incurred loss model, and was primarily the result of loan portfolio growth.



For the six months ended June 30, 2023, noninterest income was $3.6 million, which represents an increase of $777,000, or 27.1%, compared to the six months ended June 30, 2022. The increase was due to customer service fees on deposit accounts and other income, partially offset by a decrease in gain on loans sold. Customer service fees increased $548,000 due to fees generated from cash vault services for our customers who operate Bitcoin ATMs and implementation and activity fees charges to BaaS customers. During the quarter ended June 30, 2023, management suspended Bitcoin ATM deposit services while they continue to evaluate the services offered. Implementation and activity fees charged to BaaS customers for the six months ended June 30, 2023 were $483,000, compared to $79,000 for the six months ended June 30, 2022. Other income increased $339,000 due to insurance proceeds. Gain on loans sold decreased $284,000 primarily due to the sale of residential mortgage loans in June 2022.



For the six months ended June 30, 2023, noninterest expense was $26.0 million, which represents an increase of $3.2 million, or 14.3%. The increase was due to salaries and employee benefits, professional fees, deposit insurance expense, software depreciation and implementation expense, partially offset by a decrease in write downs of other assets and receivables. Salaries and employee benefits increased $2.1 million, or 14.8%, primarily due to an increase in staff to support strategic initiatives within our deposit products and services. Professional fees increased $885,000, or 61.6%, due to increased legal, audit, and compliance costs which were elevated for the first quarter of 2023 due to services pertaining to the events that led to losses recorded during 2022. Deposit insurance increased $341,000, or 111.8%, primarily due to an increase in the FDIC’s insurance assessment rate schedules. Software depreciation and implementation expenses increased $279,000, or 44.9%, primarily due to software licenses needed for the increased staff. In 2022, there was a write down of an SBA receivable in the first quarter after the Company evaluated the collectability and determined that $395,000 was uncollectible.



Balance Sheet Results



June 30, 2023 Compared to March 31, 2023



Total assets increased $59.4 million, or 3.5%, to $1.76 billion at June 30, 2023, compared to $1.70 billion at March 31, 2023.  The primary reason for the increase was increases in cash and cash equivalents and in net loans. Cash and cash equivalents increased $53.7 million or 22.0% due to increased deposit balances. The Bank deems select specialty deposits expected to be short-term as volatile. The Bank held $171.3 million of these deposits as of June 30, 2023, compared to $91.9 million as of March 31, 2023. These deposits are currently being held as cash in short-term investments.



Net loans increased  $10.2 million, or 0.8%, and were $1.33 billion at June 30, 2023, compared to $1.32 billion at March 31, 2023.  The increase was primarily driven by increases in mortgage warehouse loans of $24.6 million, or 16.5%, and construction and land development loans of $12.0 million, or 14.1%. The increase in net loans was partially offset by decreases in the commercial real estate portfolio of $9.4 million, or 2.1%, the commercial loan portfolio of $6.4 million, or 3.3%, and digital asset loans. The Bank’s continued efforts to reduce its digital asset lending portfolio resulted in a decrease of $10.2 million, or 37.9% to $16.8 million at June 30, 2023.  The decrease in the digital asset loan portfolio was driven by paydowns on the loans secured by cryptocurrency mining rigs as well as the payoff of a $5.7 million line of credit.  



Total liabilities increased $55.8 million, or 3.7%, to $1.55 billion as of June 30, 2023, compared to $1.49 billion at March 31, 2023, primarily due to an increase in deposits and total borrowings. Deposits were $1.45 billion as of June 30, 2023, compared to $1.40 billion as of March 31, 2023, which represents an increase of $44.2 million, or 3.1%. The increase in deposits was primarily related to an increase of $41.2 million, or 18.7% in specialty deposits, which were $261.0 million as of June 30, 2023, compared to $219.8 million as of March 31, 2023. Specialty deposits consist of deposits from BaaS and digital asset customers. BaaS deposits totaled $235.6 million as of June 30, 2023, which represents a $74.0 million increase from March 31, 2023. As of June 30, 2023, the  Bank considered $171.3 million of the specialty deposit balances to be volatile and is holding these deposits as cash.  Included in BaaS deposits was $106.6 million related to BaaS customers whose business model focuses on digital assets, which represents a $54.9 million increase from March 31, 2023. Non-BaaS digital asset deposits totaled $25.3 million as of June 30, 2023, which represents a $32.8 million decrease from March 31, 2023.  Total borrowings increased $11.5 million, or 16.8%, to $79.8 million as of June 30, 2023, compared to $68.3 million at March 31, 2023 to fund loan growth.



As of June 30, 2023, shareholders’ equity was $215.1 million compared to $211.5 million at March 31, 2023,  which represents  an increase of $3.6 million, or 1.7%. The increase was primarily due to net income of $3.5 million, stock-based compensation expense of $332,000, and employee stock ownership plan shares earned of $169,000, partially offset by other comprehensive loss of $322,000.



June 30, 2023 Compared to December 31, 2022



Total assets increased $125.2 million, or 7.7%, to $1.76 billion at June 30, 2023, compared to $1.64 billion at December 31, 2022 due to an increase in cash and cash equivalents, partially offset by decreases in net loans and other repossessed assets.  Cash and cash equivalents increased $217.2 million, or 269.4%  due to increased deposit balances and a decrease in net loans. The Bank deems select specialty deposits expected to be short-term as volatile. The Bank held $171.3 million of these deposits as of June 30, 2023 as cash in short-term investments. No deposits were held as volatile as of December 31, 2022.  Other repossessed assets decreased $6.1 million due to the sale of the remaining cryptocurrency mining rigs that were repossessed during 2022.



Net loans decreased  $82.5 million, or 5.8%, and were $1.33 billion at June 30, 2023, compared to $1.42 billion at December 31, 2022.  The decrease was primarily driven by decreases in mortgage warehouse loans of $39.5 million, or 18.5%, commercial loans of $29.0 million, or 13.4%, commercial real estate loans of $15.6 million, or 3.4%, and digital asset loans.  The Bank's continued efforts to reduce its digital asset portfolio resulted in a decrease of $24.0 million, or 58.9%. The decrease in the digital asset loan portfolio was driven by paydowns on outstanding lines of credit as well as the payoff of a $4.8 million loan secured by cryptocurrency mining rigs during the first quarter of 2023 and the payoff of a $5.7 million line of credit during the second quarter of 2023. The decrease in net loans was partially offset by an increase in the construction and land development portfolio of $25.0 million, or 33.9%.



Total liabilities increased $117.7 million, or 8.2%, to $1.55 billion as of June 30, 2023, compared to $1.43 billion at December 31, 2022, primarily due to an increase in deposits, partially offset by a decrease in borrowings. Deposits were $1.45 billion as of June 30, 2023, compared to $1.28 billion as of December 31, 2022, which represents an increase of $168.5 million, or 13.2%. The increase in deposits was primarily related to an increase of $158.2 million in specialty deposits, which were $261.0 million as of June 30, 2023, compared to $102.8 million as of December 31, 2022. Specialty deposits consist of deposits by BaaS and digital asset customers. BaaS deposits totaled $235.6 million as of June 30, 2023, which represents a $190.3 million increase from December 31, 2022. As of June 30, 2023, the Bank considered $171.3 million of the specialty deposit balances to be volatile and is holding these deposits as cash. Included in BaaS deposits was $106.6 million related to BaaS customers whose business model focuses on digital assets, which represents an $86.0 million increase from December 31, 2022. Non-BaaS digital asset deposits totaled $25.3 million as of June 30, 2023, which represents a $32.2 million decrease from December 31, 2022. The increase in deposits was partially offset by a decrease in borrowings of $47.1 million, or 37.1%, primarily driven by a decrease in overnight borrowings.



As of June 30, 2023, shareholders’ equity was $215.1 million compared to $207.5 million at December 31, 2022, which represents an increase of $7.5 million, or 3.6%. The increase was primarily due to net income of $5.6 million. Also contributing to the increase was a one-time, cumulative-effect adjustment for the adoption of CECL which increased retained earnings by $696,000. Shareholders’ equity also increased due to stock-based compensation expense of $651,000, employee stock ownership plan shares earned of $356,000, and other comprehensive income of $309,000.



About Provident Bancorp, Inc.



BankProv, a subsidiary of Provident Bancorp, Inc. (NASDAQ: PVBC),  is a future-ready commercial bank for corporate clients, specializing in offering adaptive and technology-first banking solutions to niche markets. We are committed to offering state-of-the-art APIs (application programming interfaces) for all business clients and BaaS 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 impact of the COVID-19 pandemic or any other pandemic on our operations and financial results and those of our customers; global and national war and terrorism; trends in interest rates; inflation; potential recessionary conditions; levels of unemployment; legislative, regulatory and accounting changes; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve Bank; deposit flows; our ability to access cost-effective funding; changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio; changes in consumer spending, borrowing and savings habits; competition; real estate values in the market area; loan demand; the adequacy of our allowance for loan losses, changes in the quality of our loan and securities portfolios; the ability of our borrowers to repay their loans; an unexpected adverse financial, regulatory or bankruptcy event experienced by our cryptocurrency, digital asset or financial technology (“fintech”) customers; our ability to retain key employees; failures or breaches of our IT systems, including cyberattacks; the failure to maintain current technologies; 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, 617-546-7365

Co-President and Co-Chief Executive Officer,

and Chief Financial Officer

choule@bankprov.com













Provident Bancorp, Inc.

Consolidated Balance Sheet





























Provident Bancorp, Inc.

Consolidated Income Statements

(Unaudited)





























Provident Bancorp, Inc.

Net Interest Income Analysis

(Unaudited)