Provident Bancorp, Inc. Reports First Quarter Net Income of $5.0 Million

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Apr 25, 2024, 16:05 ET

AMESBURY, Mass., April 25, 2024 /PRNewswire/ -- Provident Bancorp, Inc. (the "Company") (NasdaqCM: PVBC), the holding company for BankProv (the "Bank"), reported net income for the quarter ended March 31, 2024 of $5.0 million, or $0.30 per diluted share, compared to $2.9 million, or $0.18 per diluted share, for the quarter ended December 31,2023 and $2.1 million, or $0.13 per diluted share, for the quarter ended March 31, 2023. The Company's return on average assets was 1.26% for the quarter ended March 31, 2024, compared to 0.70% for the quarter ended December 31, 2023, and 0.53% for the quarter ended March 31, 2023. The Company's return on average equity was 8.93% for the quarter ended March 31, 2024, compared to 5.33% for the quarter ended December 31, 2023, and 4.01% for the quarter ended March 31, 2023.

In announcing these results, Joseph Reilly, Chief Executive Officer, said, "The banking industry continues to face pressure from a challenging interest rate environment, so we are excited to report earnings for the quarter of $5.0 million. These earnings highlight the Bank's successful efforts to improve asset quality, stabilize our net interest margin and reduce certain large, recurring expenses. We are happy to report that in early April 2024, the Bank exited our one remaining digital asset lending relationship, fully eliminating our lending exposure in this area. We look forward to experiencing continued benefits from successfully executing the Company's strategic plan by mindfully managing our balance sheet in response to market conditions and seeking opportunities to reduce operating expenses."

For the quarter ended March 31, 2024, net interest and dividend income was $12.5 million, a decrease of $1.1 million, or 8.0%, from the quarter ended December 31, 2023, and a decrease of $3.3 million, or 21.1%, compared to the quarter ended March 31, 2023. The interest rate spread and net interest margin were 2.28% and 3.38%, respectively, for the quarter ended March 31, 2024, compared to 2.36% and 3.45%, respectively, for the quarter ended December 31, 2023, and 3.38% and 4.32%, respectively, for the quarter ended March 31, 2023. The decreases in net interest income for the quarter ended March 31, 2024, compared to the respective prior periods, are illustrative of the general challenges faced by the banking industry due to the current interest rate environment.

Total interest and dividend income was $22.0 million for the quarter ended March 31, 2024, a decrease of $1.5 million, or 6.5%, from the quarter ended December 31, 2023, and an increase of $1.4 million, or 6.8%, from the quarter ended March 31, 2023. The Company's yield on interest-earning assets was 5.97% for the quarter ended March 31, 2024, a decrease of two basis points from the quarter ended December 31, 2023, and an increase of 34 basis points from the quarter ended March 31, 2023.

Total interest expense was $9.5 million for the quarter ended March 31, 2024, a decrease of $452,000, or 4.5%, from the quarter ended December 31, 2023, and an increase of $4.7 million, or 98.5% from the quarter ended March 31, 2023. Interest expense on deposits was $9.3 million for the quarter ended March 31, 2024, a decrease of $565,000, or 5.7%, from the quarter ended December 31, 2023, and an increase of $5.4 million, or 139.4% from the quarter ended March 31, 2023. The decrease in interest expense on deposits from the prior quarter was primarily due to a $73.1 million, or 6.7%, decrease in the average balance of interest-bearing deposits. The increase in interest expense from the prior year quarter was due to both an increase in the average balance of interest-bearing deposits of $244.4 million, or 31.8%, and an increase in the cost of interest-bearing deposits of 166 basis points. Interest expense on borrowings totaled $209,000 for the quarter ended March 31, 2024, an increase of $113,000, or 117.7%, from the prior quarter, and a decrease of $701,000 over the prior year quarter. The increase in interest expense on borrowings from the prior quarter was primarily driven by an increase in the average balance of borrowings of $6.1 million, or 39.0%. The decrease in interest expense on borrowings from the prior year quarter was primarily driven by a decrease in the average balance of borrowings of $66.1 million, or 75.2%. The Company's total cost of funds was 3.69% for the quarter ended March 31, 2024, which is an increase of six basis points, from 3.63%, for the quarter ended December 31, 2023, and an increase of 144 basis points from 2.25% for the quarter ended March 31, 2023.

Mr. Reilly noted, "The ongoing 'higher for longer' interest rate environment continues to drive heavy competition in attracting low-cost deposits to the Bank. In response, we have enhanced our connection to the local markets in which we operate, understanding that the long, successful history of the Bank has only been made possible by the support of these communities. This engagement has resulted in a market presence that cultivates our most valued relationships and opportunities, rooted in trust and mutual benefit, where the Bank has established itself as a leading reliable, local banking partner."

The Company recognized a credit loss benefit of $5.6 million for the quarter ended March 31, 2024, compared to a $1.2 million credit loss benefit recognized for the quarter ended December 31, 2023, and a $1.8 million provision for credit losses recognized for the quarter ended March 31, 2023. The allowance for credit losses on loans was $16.0 million, or 1.18% of total loans, as of March 31, 2024, compared to $21.6 million, or 1.61% of total loans, as of December 31, 2023, and $24.8 million, or 1.84% of total loans, as of March 31, 2023. The $5.6 million credit loss benefit and the resulting reduction in the allowance for credit losses is primarily due to a reduction in reserves on individually analyzed loans totaling $4.9 million and a general provision reversal of $675,000. An enterprise value loan, totaling $2.0 million, that was individually analyzed for reserves, paid off during the quarter, resulting in the elimination of $1.1 million in related reserves. The remaining $3.8 million reduction in the individually analyzed reserves was driven by the Company reaching a settlement with a digital asset borrower, which closed subsequent to quarter end. The reserves and loan balance at March 31, 2024 represent the remaining exposure on this digital asset loan.

Net charge-offs totaled $22,000 for the quarter ended March 31, 2024, compared to $1.2 million for the quarter ended December 31, 2023, and $3.6 million for the quarter ended March 31, 2023. Non-performing assets were $12.4 million, or 0.74% of total assets, as of March 31, 2024, compared to $16.5 million, or 0.99% of total assets, as of December 31, 2023 and $31.5 million, or 1.85% of total assets, as of March 31, 2023. These improvements were primarily a result of the reduction in individually analyzed loans and associated reserves, and indicative of the Bank's continued efforts to improve asset quality.

Mr. Reilly noted "Management has been successful in reducing our exposure to non-performing assets, which decreased approximately 25% since December 31, 2023. We will continue to focus on lowering our risk profile by directing our growth towards traditional lending segments, including commercial real estate, and proactively resolving troubled credits."

Noninterest income was $1.4 million for the quarter ended March 31, 2024, compared to $1.6 million for the quarter ended December 31, 2023, and $1.9 million for the quarter ended March 31, 2023. The decrease of $291,000, or 17.7%, compared to the prior quarter was primarily due to a decrease in customer service fees on deposit accounts. The decrease of $591,000, or 30.4% from the prior year quarter was primarily due to decreases in customer service fees on deposit accounts and gains on sale of other repossessed assets in the first quarter of 2023.

Noninterest expense was $12.7 million for the quarter ended March 31, 2024, compared to $12.5 million for the quarter ended December 31, 2023 and $13.2 million for the quarter ended March 31, 2023. The increase of $279,000, or 2.2%, compared to prior quarter was primarily due to a $1.3 million, or 19.1%, increase in salaries and employee benefits, which includes $577,000 in expenses related to the Company's separation with a former executive. This increase was partially offset by a decrease in other expense of $358,000, or 35.3%, a decrease in marketing expense of $175,000, or 90.7%, a decrease in professional fees of $173,000, or 11.6%, a decrease in insurance expense of $150,000, or 33.3%, and a decrease in service fees of $123,000, or 33.7%. The decrease in noninterest expense of $476,000, or 3.6%, from the prior year quarter, was primarily due to a $399,000 decrease in salaries and employee benefits. The decreases over prior periods represent the Bank's continued endeavor to decrease its noninterest expenses, including the termination of certain vendor partnerships and consulting agreements.

Mr. Reilly noted, "We have focused on reducing our expenses by thoroughly analyzing recurring costs and eliminating unnecessary spend, through renegotiating contracts and reviewing the necessity of other expenses with a higher level of scrutiny. We will continue to review our processes to identify cost save opportunities and lower our recurring noninterest expenses."

The Company recorded a provision for income taxes of $1.7 million for the quarter ended March 31, 2024, reflecting an effective tax rate of 25.5%, compared to $1.1 million, or an effective tax rate of 26.7%, for the quarter ended December 31, 2023, and $670,000, or an effective tax rate of 24.2% for the quarter ended March 31, 2023.

Total assets were $1.66 billion at March 31, 2024, a decrease of $11.6 million, or 0.7%, from $1.67 billion at December 31, 2023. Cash and cash equivalents decreased $29.5 million, or 13.4%, totaling $190.9 million at March 31, 2024 compared to $220.3 million at December 31, 2023, primarily due to an increase in net loans and a decrease in borrowings. Net loans were $1.34 billion at March 31, 2024, an increase of $19.4 million, or 1.5%, from December 31, 2023, primarily due to increases of $45.8 million in mortgage warehouse loans and $9.4 million in commercial real estate loans, partially offset by decreases of $26.4 million in enterprise value loans and $11.3 million in commercial loans. The allowance for credit losses on loans decreased $5.6 million, or 25.8%, to $16.0 million during the quarter ended March 31, 2024, related to the previously discussed reductions to reserves on individually analyzed loans.

Total deposits were $1.332 billion at March 31, 2024, an increase of $856,000, or 0.1%, from $1.331 billion at December 31, 2023. Deposits obtained through a national exchange increased $29.0 million, or 21.2% and enterprise value deposits increased $2.9 million, or 2.4%. These increases were offset by decreases in retail deposits of $16.7 million, or 2.3%, and brokered deposits of $15.4 million, or 7.9%. Total borrowings were $89.7 million at March 31, 2024, a decrease of $15.0 million, or 14.4%, when compared to December 31, 2023.

As of March 31, 2024, shareholders' equity increased $5.3 million, or 2.4%, to $227.2 million compared to $221.9 million at December 31, 2023. The increase was primarily due to first quarter net income of $5.0 million. Stockholders' equity to total assets was 13.7% at March 31, 2024, compared to 13.3% at December 31, 2023. Book value per share increased to $12.87 at March 31, 2024, from $12.55 at December 31, 2023. Market value per share decreased 9.6% to $9.10 at March 31, 2024, from $10.07 at December 31, 2023. As of March 31, 2024, the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

Mr. Reilly concluded, "The Company is executing its strategic plan into 2024, and has successfully done so through the first quarter, proving its resiliency in a difficult market. We will continue to work hard to reinforce the pillars of our strong foundation and face our challenges with the same resolve that has brought us almost 200 years of successfully serving our communities and stakeholders."

About Provident Bancorp, Inc.

Provident Bancorp, Inc. (NASDAQ:PVBC) is the holding company for BankProv, a full-service commercial bank headquartered in Massachusetts. With retail branches in the Seacoast Region of Northeastern Massachusetts and New Hampshire, as well as commercial banking offices in the Manchester/Concord market in Central New Hampshire, BankProv delivers a unique combination of traditional banking services and innovative financial solutions to its markets. Founded in Amesbury, Massachusetts in 1828, BankProv holds the honor of being the 10th oldest bank in the nation. The Bank 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, visit bankprov.com.

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 on which they are given). These factors include: general economic conditions; 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 level and methodology for calculating our allowance for credit 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; the ability of the Company or the Bank to effectively manage its growth; global and national war and terrorism; the impact of the COVID-19 pandemic or any other pandemic on our operations and financial results and those of our customers; 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 that 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.
Joseph Reilly, 603-494-8552
President and Chief Executive Officer
[email protected]

Provident Bancorp, Inc. Consolidated Balance Sheets

	At		At
	March 31,		December 31,
(Dollars in thousands)	2024		2023
Assets	(Unaudited)
Cash and due from banks	$	21,341	$	22,200
Short-term investments		169,510		198,132
Cash and cash equivalents		190,851		220,332
Debt securities available-for-sale (at fair value)		27,912		28,571
Federal Home Loan Bank stock, at cost		3,605		4,056
Loans:
Commercial real estate		478,293		468,928
Construction and land development		76,785		77,851
Residential real estate		6,932		7,169
Mortgage warehouse		212,389		166,567
Commercial		164,789		176,124
Enterprise value		407,233		433,633
Digital asset		10,071		12,289
Consumer		88		168
Total loans		1,356,580		1,342,729
Allowance for credit losses on loans		(16,006)		(21,571)
Net loans		1,340,574		1,321,158
Bank owned life insurance		45,037		44,735
Premises and equipment, net		12,835		12,986
Accrued interest receivable		5,921		6,090
Right-of-use assets		3,739		3,780
Deferred tax asset, net		13,048		14,461
Other assets		15,236		14,140
Total assets	$	1,658,758	$	1,670,309
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand deposits	$	310,343	$	308,769
NOW		66,019		93,812
Regular savings		258,776		231,593
Money market deposits		450,596		456,408
Certificates of deposit		246,344		240,640
Total deposits		1,332,078		1,331,222
Borrowings:
Short-term borrowings		80,000		95,000
Long-term borrowings		9,663		9,697
Total borrowings		89,663		104,697
Operating lease liabilities		4,142		4,171
Other liabilities		5,632		8,317
Total liabilities		1,431,515		1,448,407
Shareholders' equity:
Preferred stock; authorized 50,000 shares: no shares issued and outstanding		—		—
Common stock, $0.01 par value, 100,000,000 shares authorized; 17,659,146 and 17,677,479 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively		177		177
Additional paid-in capital		124,415		124,129
Retained earnings		111,266		106,285
Accumulated other comprehensive loss		(1,602)		(1,496)
Unearned compensation - ESOP		(7,013)		(7,193)
Total shareholders' equity		227,243		221,902
Total liabilities and shareholders' equity	$	1,658,758	$	1,670,309

Provident Bancorp, Inc. Consolidated Income Statements (Unaudited)

	Three Months Ended
	March 31,		December 31,		March 31,
(Dollars in thousands, except per share data)	2024		2023		2023
Interest and dividend income:
Interest and fees on loans	$	20,069	$	20,000	$	20,006
Interest and dividends on debt securities available-for-sale		237		232		238
Interest on short-term investments		1,729		3,334		383
Total interest and dividend income		22,035		23,566		20,627
Interest expense:
Interest on deposits		9,340		9,905		3,901
Interest on short-term borrowings		178		64		824
Interest on long-term borrowings		31		32		86
Total interest expense		9,549		10,001		4,811
Net interest and dividend income		12,486		13,565		15,816
Credit loss (benefit) expense - loans		(5,543)		(1,227)		2,935
Credit loss benefit - off-balance sheet credit exposures		(38)		(7)		(1,156)
Total credit loss (benefit) expense		(5,581)		(1,234)		1,779
Net interest and dividend income after credit loss (benefit) expense		18,067		14,799		14,037
Noninterest income:
Customer service fees on deposit accounts		674		1,007		979
Service charges and fees - other		309		336		451
Bank owned life insurance income		302		298		266
Other income		71		6		251
Total noninterest income		1,356		1,647		1,947
Noninterest expense:
Salaries and employee benefits		8,145		6,837		8,544
Occupancy expense		443		421		421
Equipment expense		152		156		144
Deposit insurance		333		368		278
Data processing		413		432		361
Marketing expense		18		193		83
Professional fees		1,314		1,487		1,403
Directors' compensation		174		135		200
Software depreciation and implementation		543		596		417
Insurance expense		301		451		452
Service fees		242		365		236
Other		657		1,015		672
Total noninterest expense		12,735		12,456		13,211
Income before income tax expense		6,688		3,990		2,773
Income tax expense		1,707		1,066		670
Net income	$	4,981	$	2,924	$	2,103
Earnings per share:
Basic	$	0.30	$	0.18	$	0.13
Diluted	$	0.30	$	0.18	$	0.13
Weighted Average Shares:
Basic		16,669,451		16,639,142		16,530,627
Diluted		16,720,653		16,690,937		16,531,266

Provident Bancorp, Inc. Net Interest Income Analysis (Unaudited)

	For the Three Months Ended
	March 31,					December 31,					March 31,
	2024					2023					2023
			Interest					Interest					Interest
	Average		Earned/		Yield/	Average		Earned/		Yield/	Average		Earned/		Yield/
(Dollars in thousands)	Balance		Paid		Rate (5)	Balance		Paid		Rate (5)	Balance		Paid		Rate (5)
Assets:
Interest-earning assets:
Loans (1)	$	1,323,260	$	20,069	6.07 %	$	1,328,658	$	20,000	6.02 %	$	1,391,941	$	20,006	5.75 %
Short-term investments		123,546		1,729	5.60 %		216,722		3,334	6.15 %		40,931		383	3.74 %
Debt securities available-for-sale		28,234		205	2.90 %		25,968		192	2.96 %		28,727		193	2.69 %
Federal Home Loan Bank stock		1,783		32	7.18 %		1,507		40	10.62 %		2,639		45	6.82 %
Total interest-earning assets		1,476,823		22,035	5.97 %		1,572,855		23,566	5.99 %		1,464,238		20,627	5.63 %
Non-interest earning assets		98,890					100,634					117,178
Total assets	$	1,575,713				$	1,673,489				$	1,581,416
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Savings accounts	$	244,148	$	1,961	3.21 %	$	219,162	$	1,588	2.90 %	$	142,457	$	111	0.31 %
Money market accounts		454,883		4,238	3.73 %		518,511		4,935	3.81 %		313,077		1,913	2.44 %
NOW accounts		82,831		183	0.88 %		100,653		239	0.95 %		127,124		146	0.46 %
Certificates of deposit		230,616		2,958	5.13 %		247,206		3,143	5.09 %		185,470		1,731	3.73 %
Total interest-bearing deposits		1,012,478		9,340	3.69 %		1,085,532		9,905	3.65 %		768,128		3,901	2.03 %
Borrowings
Short-term borrowings		12,181		178	5.85 %		6,011		64	4.26 %		69,647		824	4.73 %
Long-term borrowings		9,675		31	1.28 %		9,708		32	1.32 %		18,307		86	1.88 %
Total borrowings		21,856		209	3.83 %		15,719		96	2.44 %		87,954		910	4.14 %
Total interest-bearing liabilities		1,034,334		9,549	3.69 %		1,101,251		10,001	3.63 %		856,082		4,811	2.25 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits		306,349					338,712					495,067
Other noninterest-bearing liabilities		12,041					14,212					20,469
Total liabilities		1,352,724					1,454,175					1,371,618
Total equity		222,989					219,314					209,798
Total liabilities and equity	$	1,575,713				$	1,673,489				$	1,581,416
Net interest income			$	12,486				$	13,565				$	15,816
Interest rate spread (2)					2.28 %					2.36 %					3.38 %
Net interest-earning assets (3)	$	442,489				$	471,604				$	608,156
Net interest margin (4)					3.38 %					3.45 %					4.32 %
Average interest-earning assets to interest-bearing liabilities		142.78 %					142.82 %					171.04 %


(1)	Interest earned/paid on loans includes $734,000, $649,000, and $1.2 million in loan fee income for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively.
(2)	Interest rate spread represents the difference between the weighted average yield on interest-bearing assets and the weighted average rate of interest-bearing liabilities.
(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)	Net interest margin represents net interest income divided by average total interest-earning assets.
(5)	Annualized.

Provident Bancorp, Inc. Select Financial Highlights (Unaudited)

	Three Months Ended
	March 31,		December 31,		March 31,
	2024		2023		2023
Performance Ratios:
Return (Loss) on average assets (1)		1.26 %		0.70 %		0.53 %
Return (Loss) on average equity (1)		8.93 %		5.33 %		4.01 %
Interest rate spread (1) (2)		2.28 %		2.36 %		3.38 %
Net interest margin (1) (3)		3.38 %		3.45 %		4.32 %
Non-interest expense to average assets (1)		3.23 %		2.98 %		3.34 %
Efficiency ratio (4)		92.00 %		81.88 %		74.37 %
Average interest-earning assets to
average interest-bearing liabilities		142.78 %		142.82 %		171.04 %
Average equity to average assets		14.15 %		13.11 %		13.27 %



	At		At		At
	March 31,		December 31,		March 31,
(Dollars in thousands)	2024		2023		2023
Asset Quality
Non-accrual loans:
Commercial real estate	$	—	$	—	$	55
Residential real estate		357		376		224
Commercial		1,923		1,857		193
Enterprise value		—		1,991		4,397
Digital asset		10,071		12,289		26,602
Consumer		1		4		—
Total non-accrual loans		12,352		16,517		31,471
Total non-performing assets	$	12,352	$	16,517	$	31,471

Asset Quality Ratios
Allowance for loan losses as a percent of total loans (5)		1.18 %		1.61 %		1.84 %
Allowance for loan losses as a percent of non-performing loans		129.58 %		130.60 %		78.84 %
Non-performing loans as a percent of total loans (5)		0.91 %		1.23 %		2.33 %
Non-performing loans as a percent of total assets		0.74 %		0.99 %		1.85 %

Capital and Share Related
Stockholders' equity to total assets		13.7 %		13.3 %		12.4 %
Book value per share	$	12.87	$	12.55	$	11.95
Market value per share	$	9.10	$	10.07	$	6.84
Shares outstanding		17,659,146		17,677,479		17,693,818


(1)	Annualized.
(2)	Interest rate spread represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3)	Net interest margin represents net interest income as a percent of average interest-earning assets.
(4)	The efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income, excluding gains on securities available for sale, net.
(5)	Loans are presented before the allowance but include deferred costs/fees.