Chronicle Journal: Finance

Provident Bancorp, Inc. Reports Earnings for the March 31, 2020 Quarter

AMESBURY, Mass., May 08, 2020 (GLOBE NEWSWIRE) -- Provident Bancorp, Inc. (the “Company”) (NasdaqCM: PVBC), the holding company for The Provident Bank (the “Bank”), reported net income for the three months ended March 31, 2020 of $1.2 million, or $0.07 per diluted share, compared to $2.2 million, or $0.12 per diluted share, for the three months ended March 31, 2019. As a result of the completion of the second-step conversion and related stock offering in October 2019, all historical share and per share information has been restated to reflect the 2.0212-to-one exchange ratio.

“I am deeply saddened by the devastating toll the COVID-19 crisis has placed on the health and well-being of our communities, including the effects on small businesses,” said David Mansfield, CEO. “These businesses are the backbone of our communities - they create jobs, lead innovation, reflect America’s diversity, help our communities flourish and represent our friends and neighbors. In these grave and uncertain times, it is critical that we do everything we can to help our local businesses continue to operate.”

“These are the times when a culture and organization get tested. Fortunately, our team responsible for pandemic training and execution were well-prepared and ready to take the necessary steps to ensure our customers, staff and operations would experience little-to-no disruption. Our partnership with COCC, our core provider, and our already existing virtual workstation infrastructure made for a smooth transition to remote working for over 120 of our employees. I am immensely proud of the work we have accomplished, the steadfast dedication, the “let’s do this” mindset and, most importantly, the immense depth of caring from the entire team at The Provident Bank.”

“Our fast response from the pandemic team created a smooth transition so that our lending team could quickly react to our customers’ needs who are experiencing financial difficulty due to COVID-19. Our team is responding around the clock for modification requests and applications for the Small Business Administration’s (“SBA’s”) Paycheck Protection Program (“PPP”).”

“Our earnings could be materially impacted as a result of the pandemic. We may have additional increased provisions for loan losses and decreased fee income as we work with our customers to aid in the stabilization of their businesses. With the successful second-step conversion in 2019, the Company has a strong capital position and we believe it is well positioned to withstand the potential losses due to the pandemic.”

Covid–19 Response

The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations. The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruption in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates.

Congress and the bank regulatory agencies have taken several actions designed to cushion the economic fallout. The Coronavirus Aid Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020. The goal of the CARES Act is to prevent severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on the Company’s operations.

The Company’s business depends upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full extent that the impact of COVID-19 will have on the Company’s operations, the Company will be disclosing potentially material items of which it is aware.

The following are areas that are impacting the Company:

  • Working with affected customers to waive fees from a variety of sources, such as, but not limited to insufficient funds, account maintenance, minimum balance and ATM fees;
  • Establishing modification programs in accordance with regulations to aid in providing economic relief to our borrowers by providing up to six month payment deferrals;
  • Participation and origination of loans in the new 7(a) PPP authorized by the SBA to temporarily guarantee loans as part of the CARES Act; and
  • Changes in the provision for loan losses as the Company evaluates the qualitative factors and potential losses within the portfolio.

Financial Results for March 31, 2020 Quarter

Net interest and dividend income before provision for loan losses increased by $1.9 million, or 18.8%, compared to the three months ended March 31, 2019. The growth in net interest and dividend income this quarter over the prior year’s first quarter is primarily the result of an increase in our average interest earning assets of $208.0 million, or 22.5%, offset by a decrease in net interest margin of 13 basis points to 4.27%.

Provisions for loan losses of $3.1 million were recognized for the three months ended March 31, 2020 compared to $1.5 million for the same period in 2019. The changes in the provision were based on management’s assessment of loan portfolio growth and composition changes, historical charge-off trends, levels of problem loans and other asset quality trends. During the three months ended March 31, 2020, we had $269,000 in loan net charge-offs. The Company has reviewed certain qualitative factors in light of significant economic deterioration due to COVID-19. As businesses remain shut down, the Company continues to work with borrowers and offer relief in the form of short-term payment deferrals as well as originating PPP loans through the SBA. There remains significant uncertainty of the full impact of COVID-19 as there is no set timeline as to when our customers can return to operations. In reviewing the modifications performed as of March 31, 2020 and having an understanding as to the demand of modifications that are currently being considered, increased provisions were recognized to build a reserve to handle the potential impact that COVID-19 could have on our commercial customers.

The allowance for loan losses as a percentage of total loans was 1.46% as of March 31, 2020 compared to 1.42% as of December 31, 2019. The allowance for loan losses as a percentage of non-performing loans was 66.2% as of March 31, 2020 compared to 237.6% as of December 31, 2019. Non-performing loans were $24.9 million, or 1.97% of total assets as of March 31, 2020, compared to $5.8 million, or 0.52% of total assets, as of December 31, 2019. As of March 31, 2020, non-performing loans consist primarily of one commercial relationship and one commercial real estate relationship. The commercial real estate loan relationship with a total balance of $18.6 million became impaired in 2019 and in 2020 a troubled debt restructuring was completed. The loan was placed on non-accrual until the relationship can demonstrate the ability to pay the loan under the restructured terms. The loan relationship was evaluated and specific reserves of $1.4 million were allocated as of March 31, 2020.

The commercial relationship totaling $1.9 million was originated through the BancAlliance network. BancAlliance has a membership of approximately 200 community banks that together participate in middle market commercial and industrial loans as a way to diversify their commercial portfolio. The impaired loan relationship was evaluated and specific reserves of $131,000 were allocated as of March 31, 2020.

During the three months ended March 31, 2020, the Bank accepted a short-sale, which was originated through the BancAlliance Network. The accepted short-sale resulted in a charge-off of $97,000 on a $490,000 loan relationship. As of March 31, 2020, the Bank has five BancAlliance loan relationships remaining totaling $6.7 million. Out of the five relationships, three totaling $3.3 million are pass rated and two totaling $3.4 million are substandard. One of the substandard relationships totaling $1.9 million is on non-accrual and deemed impaired. We have allocated specific reserves totaling $131,000 for this relationship. Our last BancAlliance loan origination was in February 2017, and at this time we are not anticipating originating any new loans through this network.

Noninterest income decreased $36,000, or 3.4%, and was $1.0 million for each of the three months ended March 31, 2020 and 2019. The decrease is primarily due to a decrease in the gains on sales of securities of $113,000, or 100.0%, partially offset by an increase in other service charges and fees of $48,000, or 11.7%, and an increase of $23,000, or 7.0%, in customer service fees on deposit accounts.

Noninterest expense increased $1.6 million, or 23.1%, to $8.3 million for the three months ended March 31, 2020 compared to $6.7 million for the three months ended March 31, 2019. The increase is primarily due to an increase in salaries and employee benefits expense, write-down of a notes receivable, and other expense, partially offset by a decrease in occupancy expense. The increase of $1.1 million, or 25.5%, for the three months ended March 31, 2020 in salary and employee benefits was primarily due to a higher number of sales and operations positions compared to the same period in 2019, the addition of staff from the warehouse business line purchase, and our ESOP expense. The warehouse business line purchase increased salary and employee benefits by $171,000. ESOP expense increased $114,000 due to the acquisition of additional shares from our stock offering in October 2019. A write-down of a notes receivable was completed after the Company evaluated the collectability and determined that $500,000 is uncollectible. Other expense increased $103,000, or 15.2%, due to increased telecommunication expenses and loan workout expenses. Occupancy expense decreased $203,000, or 31.5%, primarily due to the acceleration of our leasehold improvements amortization related to the closure of our Hampton, New Hampshire branch in 2019.

As of March 31, 2020, total assets have increased $144.8 million, or 12.9%, to $1.27 billion compared to $1.12 billion at December 31, 2019. The primary reasons for the increase are increases in net loans, partially offset by a decrease cash and cash equivalents and in investments in available-for-sale securities. Net loans increased $170.0 million, or 17.7%, to $1.13 billion as of March 31, 2020 compared to $959.3 million at December 31, 2019. The increase in net loans was due to an increase in commercial loans of $179.7 million, or 39.8%, and an increase in construction and land development loans of $1.6 million, or 3.3%, partially offset by decreases in commercial real estate loans of $2.6 million, or 0.6%, residential real estate loans of $3.1 million, or 6.9%, and consumer loans of $2.2 million, or 17.3%. The decrease in cash and cash equivalents of $25.2 million, or 42.3%, resulted from the purchase of the warehouse business line in January 2020. The decrease in investments in available-for-sale securities of $2.7 million, or 6.5%, resulted primarily from principal pay downs on government mortgage-backed securities.

Total liabilities increased $143.0 million, or 16.1%, due to increased deposits and an increase in borrowings. Deposits were $893.5 million as of March 31, 2020, representing an increase of $43.6 million, or 5.1%, compared to December 31, 2019. The primary reason for the increase in deposits was due to an increase of $58.9 million, or 62.4%, in time deposits and an increase of $4.7 million, or 4.0%, in savings accounts, partially offset by a decrease in money market accounts of $15.9 million, or 5.9%, and NOW and demand deposits of $4.1 million, or 1.1%. The increase in time deposits is primarily due to increases in brokered certificates of deposit of $55.8 million, or 114.9%, and an increase of $2.8 million, or 32.8%, from Qwickrate, where we gather certificates of deposit nationwide by posting rates we will pay on these deposits. The increase in savings accounts is primarily due to municipal deposits. Money market deposits and NOW and demand deposits decreased due to the decrease in some of our high rate relationships within these categories. Borrowings increased $100.0 million, or 400.1%, to $125.0 million as of March 31, 2020 primarily due to funding loan growth.

As of March 31, 2020, shareholders’ equity was $232.7 million compared to $230.9 million at December 31, 2019, representing an increase of $1.7 million, or 0.7%. The increase was primarily due to year-to-date net income of $1.2 million, stock-based compensation expense of $261,000, and employee stock ownership plan shares earned of $250,000.

About Provident Bancorp, Inc.
Provident Bancorp, Inc. is a Maryland corporation that was formed in 2019 to be the successor corporation to Provident Bancorp, Inc., a Massachusetts corporation, and the holding company for The Provident Bank. The Provident Bank, a subsidiary of Provident Bancorp, Inc., is an innovative, commercial bank that finds solutions for our business and private clients. We are committed to strengthening the economic development of the regions we serve, by working closely with businesses and private clients and delivering superior products and high-touch services to meet their banking needs. The Provident has offices in Massachusetts and New Hampshire. All deposits are insured in full through a combination of insurance provided by the Federal Deposit Insurance Corporation (FDIC) and the Depositors Insurance Fund (DIF). For more information about The Provident Bank please visit our website 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; 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.
Consolidated Balance Sheet 

 At At
 March 31, December 31,
(Dollars in thousands) 2020   2019 
Cash and due from banks$8,662  $11,990 
Short-term investments 25,760   47,668 
Cash and cash equivalents 34,422   59,658 
Debt securities available-for-sale (at fair value) 39,081   41,790 
Federal Home Loan Bank stock, at cost 2,736   1,416 
Loans, net of allowance for loan losses of $16,674 and $13,844 as of   
  March 31, 2020 and December 31, 2019, respectively 1,129,282   959,286 
Bank owned life insurance 27,104   26,925 
Premises and equipment, net 14,934   14,728 
Accrued interest receivable 3,236   2,854 
Right-of-use assets 4,375   3,713 
Other assets 11,385   11,418 
Total assets$1,266,555  $1,121,788 
Liabilities and Shareholders' Equity   
  Noninterest-bearing$244,728  $222,088 
Interest-bearing 648,804   627,817 
Total deposits 893,532   849,905 
Borrowings 125,010   24,998 
Operating lease liabilities 4,555   3,877 
Other liabilities 10,800   12,075 
Total liabilities 1,033,897   890,855 
Shareholders' equity:   
Preferred stock; authorized 50,000 shares:   
  no shares issued and outstanding -   - 
Common stock, $0.01 par value, 100,000,000 shares authorized;   
  19,476,248 amd 19,473,818 shares issued and outstanding   
  at March 31, 2020 and December 31, 2019, respectively 195   195 
Additional paid-in capital 146,500   146,174 
Retained earnings 95,390   94,159 
Accumulated other comprehensive income 441   458 
Unearned compensation - ESOP (9,868)  (10,053)
Total shareholders' equity 232,658   230,933 
Total liabilities and shareholders' equity$1,266,555  $1,121,788 

Provident Bancorp, Inc.
Consolidated Income Statements

 Three Months Ended 
 March 31, 
(Dollars in thousands, except per share data) 2020  2019 
Interest and dividend income:(unaudited) 
Interest and fees on loans$13,760 $11,699 
Interest and dividends on securities 258  404 
Interest on short-term investments 71  26 
Total interest and dividend income 14,089  12,129 
Interest expense:    
Interest on deposits 1,646  1,437 
Interest on borrowings 371  534 
Total interest expense 2,017  1,971 
Net interest and dividend income 12,072  10,158 
Provision for loan losses 3,099  1,462 
Net interest and dividend income after provision for loan losses 8,973  8,696 
Noninterest income:    
Customer service fees on deposit accounts 352  329 
Service charges and fees - other 460  412 
Gain on sale of securities, net -  113 
Bank owned life insurance income 180  177 
Other income 18  15 
 Total noninterest income 1,010  1,046 
Noninterest expense:    
Salaries and employee benefits 5,402  4,294 
Occupancy expense 441  644 
Equipment expense 137  106 
Data processing 201  203 
Marketing expense 64  55 
Professional fees 386  422 
Directors' compensation 194  181 
Software depreciation and implementation 200  163 
Write down of note receivable 500  - 
Other 781  678 
Total noninterest expense 8,306  6,746 
Income before income tax expense 1,677  2,996 
Income tax expense 446  778 
 Net income $1,231 $2,218 
Earnings per share: (1)    
Basic$0.07 $0.12 
Diluted$0.07 $0.12 
Weighted Average Shares: (1)    
Basic 18,115,970  18,730,676 
Diluted 18,261,282  18,807,840 
(1) Amounts related to periods prior to the date of the Conversion (October 16, 2019) have been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (2.0212-to-one). 

Provident Bancorp, Inc.
Net Interest Income Analysis

 For the Three Months Ended March 31,
   2020   2019 
    Interest     Interest  
  Average Earned/ Yield/ Average Earned/ Yield/
  Balance Paid Rate Balance Paid Rate
(Dollars in thousands)            
Interest-earning assets:            
  Loans $1,068,525  $13,760 5.15% $865,239  $11,699 5.41%
  Short-term investments  19,176   71 1.48%  4,356   26 2.39%
  Investment securities  41,031   237 2.31%  50,780   373 2.94%
  Federal Home Loan Bank stock  3,161   21 2.66%  3,533   31 3.51%
  Total interest-earning assets  1,131,893   14,089 4.98%  923,908   12,129 5.25%
Non-interest earning assets  57,183       63,362     
  Total assets $1,189,076      $987,270     
Interest-bearing liabilities:            
  Savings accounts $121,106   105 0.35% $118,032   108 0.37%
  Money market accounts  255,883   705 1.10%  231,766   699 1.21%
  NOW accounts  124,286   155 0.50%  115,977   116 0.40%
  Certificates of deposit  133,819   681 2.04%  103,862   514 1.98%
  Total interest-bearing deposits  635,094   1,646 1.04%  569,637   1,437 1.01%
  Borrowings  78,869   371 1.88%  80,483   534 2.65%
  Total interest-bearing liabilities  713,963   2,017 1.13%  650,120   1,971 1.21%
Noninterest-bearing liabilities:            
  Noninterest-bearing deposits  226,440       189,544     
  Other noninterest-bearing liabilities  15,731       16,256     
  Total liabilities  956,134       855,920     
Total equity  232,942       131,350     
  Total liabilities and            
  equity $1,189,076      $987,270     
Net interest income   $12,072     $10,158  
Interest rate spread (1)     3.85%     4.04%
Net interest-earning assets (2) $417,930      $273,788     
Net interest margin (3)     4.27%     4.40%
Average interest-earning assets to            
  interest-bearing liabilities  158.54%      142.11%    
(1) Net interest rate spread represents the difference between the weighted average yield on interest-bearing assets and the weighted average rate of interest-bearing liabilities.
(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.    
(3) Net interest margin represents net interest income divided by average total interest-earning assets    

Provident Bancorp, Inc.
Selected Financial Highlights

 For the three
 months ended
 March 31,
 2020 2019 
Performance Ratios:  
Return on average assets (1)0.41%0.90%
Return on average equity (1)2.11%6.75%
Interest rate spread (1) (3)3.85%4.04%
Net interest margin (1) (4)4.27%4.40%
Non-interest expense to average assets (1)2.79%2.73%
Efficiency ratio (5)63.49%60.82%
Average interest-earning assets to  
  average interest-bearing liabilities158.54%142.11%
Average equity to average assets19.59%13.30%

 At At At
 March 31, December 31,March 31,
  2020   2019   2019 
Asset Quality     
Non-accrual loans:     
Real estate:     
Commercial$21,199  $1,701  $519 
Residential 732   969   822 
Construction and land development 165   165   - 
Commercial 2,754   2,955   6,919 
Consumer 84   37   115 
Total non-accrual loans 24,934   5,827   8,375 
Accruing loans past due 90 days or more -   -   - 
Other real estate owned -   -   1,720 
Total non-performing assets$24,934  $5,827  $10,095 
Asset Quality Ratios     
Allowance for loan losses as a percent of total loans (2) 1.46%  1.42%  1.36%
Allowance for loan losses as a percent of non-performing loans 66.87%  237.58%  141.58%
Non-performing loans as a percent of total loans (2) 2.18%  0.60%  0.96%
Non-performing loans as a percent of total assets 1.97%  0.52
%  0.84%
Non-performing assets as a percent of total assets (6) 1.97%  0.52
%  1.01%
Capital and Share Related (7)     
Stockholders' equity to total assets 18.4
%  20.6
%  12.8%
Book value per share$11.95
  $11.86  $6.59 
Market value per share$8.62  $12.45  $11.21 
Shares outstanding 19,476,248   19,473,818   19,455,503 
(1) Annualized where appropriate.     
(2) Loans are presented before the allowance but include deferred costs/fees. Loans held-for-sale are excluded.
(3) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.
(4) Represents net interest income as a percent of average interest-earning assets. 
(5) Represents noninterest expense divided by the sum of net interest income and noninterest income, excluding gains on securities available for sale, net.
(6) Non-performing assets consists of non-accrual loans plus loans accruing but 90 days overdue and OREO.
(7) Amounts related to periods prior to the date of the Conversion (October 16, 2019) have been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (2.0212-to-one).


Provident Bancorp, Inc.
Carol Houle, 603-334-1253
Executive Vice President/CFO

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