Part I [Business](index=3&type=section&id=Item%201.%20Business) Provident Bancorp, Inc. operates BankProv, a commercial bank focused on technology-first solutions for niche markets - As of December 31, 2021, Provident Bancorp, Inc. had total consolidated assets of **$1.73 billion**, deposits of **$1.46 billion**, and shareholders' equity of **$233.8 million**[20](index=20&type=chunk) - BankProv focuses on providing banking solutions to niche markets, including renewable energy, digital assets, fintech, and search fund lending[23](index=23&type=chunk) - From December 31, 2017, to December 31, 2021, the company experienced significant growth, with deposits increasing by **$709.8 million (94.6%)** and net loans increasing by **$691.7 million (93.2%)**[25](index=25&type=chunk) [Lending Activities](index=5&type=section&id=Lending%20Activities) The company's lending is heavily focused on commercial loans, including specialized enterprise value, digital asset, and renewable energy sectors Loan Portfolio Composition (December 31, 2021) | Loan Category | Balance (in millions) | Percentage of Total Loans | | :--- | :--- | :--- | | Commercial Business | $726.2 | 49.8% | | Commercial Real Estate | $432.3 | 29.7% | | Mortgage Warehouse | $253.8 | 17.4% | | Construction & Land Development | $42.8 | 2.9% | | Multi-Family Residential | $31.5 | 2.2% | | Consumer | $1.5 | 0.1% | - The commercial business loan portfolio includes several specialized, high-growth national lending areas: - **Enterprise Value Loans**: **$340.3 million**[36](index=36&type=chunk) - **Digital Asset Company Loans**: **$120.5 million**[39](index=39&type=chunk) - **Renewable Energy Loans**: **$62.3 million**[40](index=40&type=chunk) - The company originated **$124.0 million** in Paycheck Protection Program (PPP) loans; as of December 31, 2021, only **$12.4 million** remained outstanding[42](index=42&type=chunk) [Sources of Funds](index=12&type=section&id=Sources%20of%20Funds) Deposits are the primary funding source, supplemented by FHLB borrowings, with core deposit growth from technology and niche commercial customers nationwide - Total deposits reached **$1.46 billion** at year-end 2021, including **$20.2 million** in brokered certificates of deposit and **$16.8 million** from the QwickRate network[91](index=91&type=chunk) - The company has developed specialized deposit and cash management services for 1031 qualified intermediaries, digital currency customers, payroll providers, and community association management companies, generating business deposits from outside its traditional branch network[90](index=90&type=chunk) - As of December 31, 2021, the company had **$13.5 million** in outstanding advances from the FHLB of Boston and a total borrowing capacity of **$141.3 million**[93](index=93&type=chunk) [Supervision and Regulation](index=14&type=section&id=Supervision%20and%20Regulation) Provident Bancorp and BankProv are extensively regulated by state and federal authorities, covering capital adequacy, lending limits, and deposit insurance - The Provident Bank is dually regulated by the Massachusetts Commissioner of Banks (state charter) and the FDIC (primary federal regulator and insurer), while the holding company is regulated by the Federal Reserve Board[97](index=97&type=chunk)[99](index=99&type=chunk) - The bank is subject to federal capital requirements, including minimum ratios for Common Equity Tier 1, Tier 1, and Total Capital, and was classified as "**well capitalized**" as of December 31, 2021[120](index=120&type=chunk)[134](index=134&type=chunk) - Lending activities are limited by a loans-to-one-borrower cap, which under Massachusetts law is **20%** of the bank's capital (stock, surplus, and undivided profits)[110](index=110&type=chunk) - Deposits are insured by the FDIC up to applicable limits, with excess amounts insured by the Depositors Insurance Fund (DIF) of Massachusetts[97](index=97&type=chunk)[112](index=112&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) This section is not required for a smaller reporting company [Unresolved Staff Comments](index=23&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments [Properties](index=23&type=section&id=Item%202.%20Properties) As of December 31, 2021, the company operated from nine offices, owning five and leasing four, with a total net book value of $18.4 million - The company conducts business through its main office, six branches, and two loan production offices, with five offices owned and four leased[166](index=166&type=chunk) - The total net book value of land, buildings, furniture, fixtures, equipment, and lease right-of-use assets was **$18.4 million** at year-end 2021[166](index=166&type=chunk) [Legal Proceedings](index=23&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no legal proceedings [Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=24&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ, with a stock repurchase program active in Q4 2021, repurchasing 45,429 shares - The company's common stock is traded on the NASDAQ Capital Market under the symbol "**PVBC**"[171](index=171&type=chunk) Stock Repurchases (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2021 | 13,328 | $16.20 | | Nov 2021 | 15,468 | $19.90 | | Dec 2021 | 16,633 | $18.30 | | **Total Q4** | **45,429** | **$18.23** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income increased 34.7% to $16.1 million in 2021, driven by a 12.8% rise in net interest income and improved noninterest income Key Financial Highlights (2021 vs 2020) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1.73 billion | $1.51 billion | +14.8% | | Net Loans | $1.43 billion | $1.31 billion | +9.0% | | Total Deposits | $1.46 billion | $1.24 billion | +18.0% | | Net Interest Income | $61.4 million | $54.5 million | +12.8% | | Provision for Loan Losses | $3.9 million | $5.6 million | -30.6% | | Net Income | $16.1 million | $12.0 million | +34.7% | | Diluted EPS | $0.93 | $0.66 | +40.9% | [Comparison of Financial Condition (at Dec 31, 2021 and 2020)](index=29&type=section&id=Comparison%20of%20Financial%20Condition) Total assets increased 14.8% to $1.73 billion, driven by commercial loan and core deposit growth, while shareholders' equity slightly decreased due to stock repurchases - Net loans increased to **$1.43 billion**, with commercial loan growth driven by a **$105.4 million (703.1%)** increase in loans to digital asset companies and a **$54.2 million (18.9%)** increase in enterprise value loans[210](index=210&type=chunk) - Total deposits increased to **$1.46 billion**, fueled by new relationships, including **$99.7 million** in deposits from digital asset customers and **$59.9 million** from new BaaS customers[254](index=254&type=chunk) - Noninterest-bearing deposits grew significantly, representing **42.9%** of total deposits at year-end 2021, up from **31.0%** at year-end 2020[254](index=254&type=chunk) - Shareholders' equity decreased by **$2.1 million** to **$233.8 million**, mainly because the **$19.0 million** used for common stock repurchases exceeded the **$16.1 million** of net income for the year[261](index=261&type=chunk) [Asset Quality](index=31&type=section&id=Asset%20Quality) Asset quality improved significantly in 2021, with non-performing loans decreasing to 0.20% and a strong allowance coverage ratio of 674.14% Asset Quality Ratios | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Non-performing loans to total loans | 0.20% | 0.41% | | Non-performing assets to total assets | 0.17% | 0.36% | | Allowance for loan losses to total loans | 1.34% | 1.39% | | Allowance for loan losses to non-performing loans | 674.14% | 341.72% | - Total non-performing assets decreased by **46.6%** to **$2.9 million** at year-end 2021 from **$5.4 million** at year-end 2020[225](index=225&type=chunk) - By December 31, 2021, all loans that had received COVID-19 related modifications under the CARES Act had resumed repayment or been paid off; at the end of 2020, **$265.6 million** in such modifications were outstanding[233](index=233&type=chunk) [Comparison of Results of Operations (for years ended Dec 31, 2021 and 2020)](index=43&type=section&id=Comparison%20of%20Results%20of%20Operations) Net income rose 34.7% to $16.1 million, driven by increased net interest income and noninterest income, despite higher noninterest expenses - Net interest income increased by **12.8%** to **$61.4 million**, benefiting from **$2.4 million** in accreted fee income from the forgiveness of SBA PPP loans[274](index=274&type=chunk) - The provision for loan losses decreased by **30.6%** to **$3.9 million**, reflecting improved economic conditions and portfolio quality[275](index=275&type=chunk) - Noninterest income increased **45.8%** to **$5.2 million**, boosted by fees from cash vault services for Bitcoin ATM operators and a death benefit payout from bank-owned life insurance[278](index=278&type=chunk) - Noninterest expense increased **13.4%** to **$40.6 million**, with salaries and employee benefits rising **24.2%**, including a **$984,000** expense related to a retirement agreement with the President and Chief Lending Officer[279](index=279&type=chunk) [Management of Market Risk](index=45&type=section&id=Management%20of%20Market%20Risk) The company manages interest rate risk through adjustable-rate loans and core deposits, with simulation models showing asset sensitivity to rising rates Net Interest Income Sensitivity Analysis (as of Dec 31, 2021) | Change in Interest Rates (Basis Points) | Estimated Change in Net Interest Income (Next 12 Months) | | :--- | :--- | | +200 | +3.40% | | 0 | 0.00% | | -100 | -1.30% | Economic Value of Equity (EVE) Sensitivity Analysis (as of Dec 31, 2021) | Change in Interest Rates (Basis Points) | Estimated Change in EVE | | :--- | :--- | | +400 | +13.00% | | +200 | +7.60% | | 0 | 0.00% | | -100 | -13.30% | [Controls and Procedures](index=48&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the Company's disclosure controls and procedures were effective as of December 31, 2021[303](index=303&type=chunk) - Based on an assessment using the COSO framework, management believes the Company's internal control over financial reporting is effective as of December 31, 2021[308](index=308&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=50&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement [Executive Compensation](index=50&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement [Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters](index=50&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholders%20Matters) Security ownership details are incorporated by reference, including outstanding options and securities available for future issuance under equity plans Equity Compensation Plan Information (as of Dec 31, 2021) | Category | Number of Securities to Be Issued Upon Exercise | Weighted-Average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,558,963 | $10.72 | 220,631 | [Certain Relationships and Related Transactions, and Director Independence](index=50&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement [Principal Accounting Fees and Services](index=50&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement Part IV [Exhibits and Financial Statement Schedules](index=51&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits included in the Form 10-K report [Form 10-K Summary](index=53&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no Form 10-K summary

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________________ Commission File No. 001-39090 Provident Bancorp, Inc. (Exact name of registrant as specified in its charter) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 (State or other j ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________________ Commission File No. 001-39090 Provident Bancorp, Inc. (Exact name of registrant as specified in its charter) (State or other jurisd ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________________ Commission File No. 001-39090 Provident Bancorp, Inc. (Exact name of registrant as specified in its charter) (State or other juris ...

[PART I](index=3&type=section&id=Part%20I) This section provides an overview of the Company's business, market, lending activities, regulatory environment, and tax considerations, along with statutory disclosures [ITEM 1. BUSINESS](index=3&type=section&id=ITEM%201.%20BUSINESS) The Company, a Maryland corporation, completed a mutual-to-stock conversion in 2019, with its subsidiary BankProv specializing in technology-first banking for niche markets across Northeastern Massachusetts and Southern New Hampshire, operating under extensive regulatory oversight [FORWARD-LOOKING STATEMENTS](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines the nature of forward-looking statements in the report, highlighting inherent uncertainties and potential impacts from economic conditions and the COVID-19 pandemic - The Annual Report contains forward-looking statements identified by words like "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect," and similar meanings[15](index=15&type=chunk) - These statements are subject to significant business, economic, and competitive uncertainties and contingencies, many beyond the Company's control, including general economic conditions, loan delinquencies, funding access, real estate fluctuations, and changes in government policies[15](index=15&type=chunk)[16](index=16&type=chunk) - The ongoing COVID-19 pandemic introduces additional uncertainties, potentially impacting demand for services, increasing loan delinquencies, reducing collateral values, affecting net interest margin, and increasing cybersecurity risks[18](index=18&type=chunk) [Provident Bancorp, Inc.](index=4&type=section&id=Provident%20Bancorp%2C%20Inc.) This section details the Company's incorporation, mutual-to-stock conversion, capital raised, and regulatory oversight - Provident Bancorp, Inc. was incorporated in June 2019 as the successor to Provident Bancorp, Inc. ("Old Provident") following a second-step mutual-to-stock conversion completed on October 16, 2019[20](index=20&type=chunk)[22](index=22&type=chunk) - The Company raised gross proceeds of **$102.1 million** by selling 10,212,397 shares of common stock at $10.00 per share in the offering[22](index=22&type=chunk) - The Company is regulated by the Board of Governors of the Federal Reserve System and the Massachusetts Commissioner of Banks[21](index=21&type=chunk) Selected Financial Metrics (as of Dec 31, 2020) | Metric | Amount (as of Dec 31, 2020) | | :----- | :-------------------------- | | Total Assets | $1.51 billion | | Deposits | $1.24 billion | | Shareholders' Equity | $235.9 million | [BankProv](index=4&type=section&id=BankProv) This section describes BankProv's focus on adaptive, technology-first banking for niche markets and its operational footprint - BankProv (The Provident Bank) is a Massachusetts-chartered stock savings bank focused on providing adaptive and technology-first banking solutions to niche markets, including renewable energy, fin-tech, and search fund lending[23](index=23&type=chunk) - It operates from a main office and six branch offices in Northeastern Massachusetts and Southern New Hampshire, with loan production offices in Boston, Massachusetts, and Ponte Vedra, Florida[24](index=24&type=chunk) Deposits and Net Loans Growth | Metric | Dec 31, 2020 | Dec 31, 2016 | Change (Amount) | Change (%) | | :------- | :----------- | :----------- | :-------------- | :--------- | | Deposits | $1.24 billion | $627.98 million | $609.5 million | 97.0% | | Net Loans | $1.31 billion | $624.43 million | $690.4 million | 110.6% | [Market Area](index=5&type=section&id=Market%20Area) This section defines the Company's primary lending areas and nationwide offerings, including key demographic and economic indicators - The primary lending area is Northeastern Massachusetts and Southern New Hampshire, focusing on Essex County, MA, and Hillsborough and Rockingham Counties, NH, which are bedroom communities to the Boston-Concord technology corridor[28](index=28&type=chunk) - Enterprise value and mortgage warehouse loans are offered nationwide, with relationships spanning 26 states as of December 31, 2020[28](index=28&type=chunk) Regional Economic Indicators | Region | Unemployment Rate (Dec 2020) | Unemployment Rate (Dec 2019) | Population Growth (2013-2020) | Median Household Income (2020) | | :------- | :--------------------------- | :--------------------------- | :---------------------------- | :----------------------------- | | Massachusetts | 7.1% | 2.4% | 4.9% | $85,145 | | Essex County, MA | N/A | N/A | 5.7% | $80,867 | | New Hampshire | 3.8% | 2.3% | 3.4% | $81,669 | | Hillsborough County, NH | N/A | N/A | 3.6% | $88,792 | | Rockingham County, NH | N/A | N/A | 4.9% | $99,103 | [Competition](index=6&type=section&id=Competition) This section discusses the significant competition faced by the Company in both deposit and loan markets from various financial institutions - The Company faces significant competition for deposits and loans from larger financial institutions (e.g., TD Bank, Bank of America, Citizens Bank) and other financial service companies (e.g., brokerage firms, fintech, money market funds)[32](index=32&type=chunk) - Competition for loans, especially commercial loans, is aggressive, with many community banks pricing loans competitively to gain market share[33](index=33&type=chunk) Deposit Market Share (June 30, 2020) | County | Deposit Market Share (June 30, 2020) | Market Share Rank (out of institutions with offices) | | :--------------- | :--------------------------------- | :------------------------------------------------- | | Essex County, MA | 2.29% | 12th out of 35 | | Rockingham County, NH | 3.26% | 9th out of 26 | [Lending Activities](index=6&type=section&id=Lending%20Activities) This section provides an overview of the Company's diversified loan portfolio and strategic focus on commercial lending - The Company's loan portfolio is diversified across various categories, with a strategic focus on commercial lending[34](index=34&type=chunk) - The Company has been successful in growing both deposits and net loans, with deposits increasing **97.0%** and net loans increasing **110.6%** from December 31, 2016, to December 31, 2020[25](index=25&type=chunk) Loan Portfolio Composition (Dec 31, 2020) | Loan Type | Balance (Dec 31, 2020, in thousands) | % of Total Loan Portfolio | | :-------------------------------- | :----------------------------------- | :------------------------ | | Commercial Business Loans | $566,000 | 42.3% | | Commercial Real Estate Loans | $439,000 | 32.8% | | Mortgage Warehouse Loans | $265,400 | 19.8% | | Construction and Land Development | $28,900 | 2.2% | | Multi-Family Residential Real Estate | $38,200 | 2.9% | | One- to Four-Family Residential Loans | $32,800 | 2.5% | | Home Equity Loans and Lines of Credit | $11,800 | 0.9% | | Consumer Loans | $5,500 | 0.4% | [Commercial Business Loans](index=6&type=section&id=Commercial%20Business%20Loans) This section details the Company's commercial business loan portfolio, including enterprise value, renewable energy, and SBA PPP loans - Commercial business loans totaled **$566.0 million** (**42.3%** of total loans) at December 31, 2020, with an intent to increase originations[34](index=34&type=chunk) - Enterprise value loans (search fund lending) amounted to **$286.1 million**, spanning 26 states, and are senior secured positions relying on enterprise value and cash flow, with a maximum senior loan-to-enterprise value of 65% or lower[35](index=35&type=chunk) - Renewable energy loans, primarily secured by solar arrays in New England and New York, totaled **$37.2 million** at December 31, 2020[40](index=40&type=chunk) - The Company originated **$78.0 million** in SBA Paycheck Protection Program (PPP) loans during 2020, with **$41.8 million** outstanding at year-end, fully guaranteed by the U.S. government[42](index=42&type=chunk) Enterprise Value Loans by Industry (Dec 31, 2020, in thousands) | Type of Industry (Enterprise Value Loans) | Balance (Dec 31, 2020, in thousands) | | :---------------------------------------- | :----------------------------------- | | Advertising | $26,741 | | Consulting services | $41,480 | | Industrial/manufacturing/warehouse | $59,868 | | Information technology and software | $31,870 | | Landscaping | $12,647 | | Non-essential retail | $52,979 | | Real estate services | $5,502 | | Other | $55,017 | | **Total** | **$286,104** | [Commercial Real Estate Loans](index=8&type=section&id=Commercial%20Real%20Estate%20Loans) This section describes the Company's commercial real estate loan portfolio, including owner-occupied, income-producing, and multi-family properties - Commercial real estate loans were **$439.0 million** (**32.8%** of total loans) at December 31, 2020, including **$38.2 million** in multi-family residential real estate loans[44](index=44&type=chunk) - The portfolio includes **$179.5 million** secured by owner-occupied commercial real estate and **$259.5 million** by income-producing properties[44](index=44&type=chunk) - Multi-family real estate loans, a subset of commercial real estate, totaled **$38.2 million** (**2.9%** of total loans) at December 31, 2020, generally secured by properties with five to 15 rental units[51](index=51&type=chunk) Commercial Real Estate Loan Portfolio (Dec 31, 2020, in thousands) | Type of Loan (Commercial Real Estate) | Balance (Dec 31, 2020, in thousands) | | :------------------------------------ | :----------------------------------- | | Residential one-to-four family | $30,860 | | Mixed use | $51,913 | | Office | $48,510 | | Retail | $32,400 | | Industrial/manufacturing/warehouse | $59,235 | | Hotel/motel/inn | $27,612 | | Mobile home/park | $30,908 | | Self-storage facility | $28,545 | | Other commercial real estate | $128,966 | | **Total** | **$438,949** | [Construction and Land Development Loans](index=9&type=section&id=Construction%20and%20Land%20Development%20Loans) This section outlines the Company's construction and land development loan portfolio, including residential, condominium, commercial, and multi-family projects - Construction and land development loans were **$28.9 million** (**2.2%** of total loans) at December 31, 2020, comprising **$9.9 million** in residential and condominium construction and **$19.0 million** in commercial and multi-family construction[55](index=55&type=chunk) - Most construction loans are interest-only during the construction phase (12-24 months) and can convert to permanent mortgages or be paid in full[56](index=56&type=chunk) - Loan-to-value ratios generally do not exceed **80%** of the appraised market value upon project completion[56](index=56&type=chunk) [Mortgage Warehouse Loans](index=10&type=section&id=Mortgage%20Warehouse%20Loans) This section details the Company's mortgage warehouse lending business, acquired in 2020, providing short-term financing to non-bank originators - The Bank acquired a mortgage warehouse lending business in 2020, which had **$265.4 million** (**19.8%** of total loans) at December 31, 2020[61](index=61&type=chunk)[62](index=62&type=chunk) - These facility lines are offered to independent non-bank mortgage origination companies, fully collateralized by one- to four-family residential mortgage loans, and typically repaid within 15 days from the sale of underlying loans to investors[61](index=61&type=chunk) [One- to Four-Family Residential Loans](index=10&type=section&id=One-%20to%20Four-Family%20Residential%20Loans) This section describes the Company's residential real estate loan portfolio, which has been discontinued to focus on commercial lending - One- to four-family residential real estate loans were **$32.8 million** (**2.5%** of total loans) at December 31, 2020, consisting of **$20.7 million** fixed-rate and **$12.1 million** adjustable-rate loans[63](index=63&type=chunk) - The Company discontinued this type of lending in 2014 to focus on commercial loan originations, expecting the portfolio to decrease over time[64](index=64&type=chunk) [Home Equity Loans and Lines of Credit](index=10&type=section&id=Home%20Equity%20Loans%20and%20Lines%20of%20Credit) This section outlines the Company's home equity loan and line of credit portfolio, with originations discontinued to prioritize commercial lending - Outstanding home equity loans were **$2.2 million** (**0.2%** of total loans) and home equity lines of credit were **$9.6 million** (**0.7%** of total loans) at December 31, 2020[65](index=65&type=chunk) - Originations for home equity loans were discontinued in 2014 and lines of credit in 2020 to focus on commercial lending[65](index=65&type=chunk) [Consumer Loans](index=10&type=section&id=Consumer%20Loans) This section details the Company's consumer loan portfolio, primarily secured by certificate accounts and overdraft lines of credit, with some lending activities discontinued - Consumer loans, primarily secured by certificate accounts and overdraft lines of credit, totaled **$5.5 million** (**0.4%** of total loans) at December 31, 2020[66](index=66&type=chunk) - Lending for loans secured by certificate accounts was discontinued in 2020, but overdraft lines of credit are still offered[67](index=67&type=chunk) - The Company purchased **$5.3 million** in unsecured consumer loans through the BancAlliance Lending Club Program, but stopped new investments in May 2019[68](index=68&type=chunk) [Loan Underwriting Risks](index=11&type=section&id=Loan%20Underwriting%20Risks) This section identifies and explains the inherent risks associated with various loan categories, including commercial, real estate, construction, mortgage warehouse, and consumer loans - Commercial business loans carry higher risk due to reliance on business cash flow and potentially depreciating collateral, making loss levels harder to predict[69](index=69&type=chunk) - Enterprise value loans have greater non-payment risk as repayment depends on successful business plan execution, additional financing, or a liquidity event, with potential reliance on intangible assets in default[70](index=70&type=chunk) - Commercial and multi-family real estate loans involve larger balances and greater risk, with repayment dependent on property operations and management, making them sensitive to real estate market and economic conditions[71](index=71&type=chunk) - Construction and land development loans are based on cost and value estimates, carrying additional risks due to uncertain project value prior to completion and reliance on project success or take-out financing[74](index=74&type=chunk)[75](index=75&type=chunk) - Mortgage warehouse loans face fraud risks (e.g., nonexistent loans, fictitious transactions) and the risk of mortgage companies being unable to sell the underlying loans[77](index=77&type=chunk) - Adjustable-rate loans, while offsetting interest rate increases, could lead to higher delinquencies and defaults if monthly payments rise significantly[78](index=78&type=chunk) - Consumer loans, especially unsecured ones, entail greater risk due to reliance on borrower financial stability and potential rapid depreciation of collateral[79](index=79&type=chunk) [Loan Originations, Purchases and Sales](index=12&type=section&id=Loan%20Originations%2C%20Purchases%20and%20Sales) This section describes the Company's loan origination channels, its practice of selling participation interests, and its approach to loan purchases - Loan originations are driven by current customers, relationship managers, website, networking, and referrals from various third parties[80](index=80&type=chunk) - The Company primarily originates loans for its portfolio but occasionally sells participation interests in commercial real estate and business loans to local financial institutions[81](index=81&type=chunk) - The Company generally does not purchase whole loans but has occasionally purchased loan participations, with no new purchases through a shared national credit program expected going forward[82](index=82&type=chunk) Loan Participations and Purchased Loans | Metric | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :-------------------------------- | :---------------------- | :---------------------- | | Loan Participations Sold | $1.4 million | $209,000 | | Outstanding Purchased Loans (Dec 31) | $11.3 million | N/A | [Loan Approval Procedures and Authority](index=13&type=section&id=Loan%20Approval%20Procedures%20and%20Authority) This section outlines the Company's structured loan approval process, including underwriting standards, officer authority, and committee review for larger loans - Lending activities adhere to written, non-discriminatory underwriting standards and loan origination procedures set by BankProv's board and management[83](index=83&type=chunk) - Loan approval authority is granted to officers up to prescribed limits, with all loans requiring approval from at least two lending officers (one Senior Vice President or above), except for small borrowing relationships[83](index=83&type=chunk) - Loans exceeding **$2.0 million** are presented to the Credit Committee for review and formal approval, and policy exceptions require authorization from BankProv's Risk Committee[83](index=83&type=chunk) [Loans-to-One Borrower Limit and Loan Category Concentration](index=13&type=section&id=Loans-to-One%20Borrower%20Limit%20and%20Loan%20Category%20Concentration) This section details the Company's regulatory and internal limits for loans to a single borrower and highlights significant lending relationships - The regulatory limit for loans-to-one borrower was **$40.2 million** at December 31, 2020, with an internal limit set at **90%** of the regulatory limit (**$36.1 million**)[85](index=85&type=chunk) - The largest lending relationship at December 31, 2020, was **$32.6 million** (12 commercial business loans), performing as agreed[86](index=86&type=chunk) - The second largest relationship was **$21.0 million** (13 commercial real estate, commercial business, and construction loans), with **$17.8 million** modified under the CARES Act and under full payment deferral at year-end[86](index=86&type=chunk) [Investment Activities](index=14&type=section&id=Investment%20Activities) This section describes the Company's investment portfolio, objectives, and quarterly evaluation for other-than-temporary impairment - The Company invests in U.S. Treasury obligations, government-sponsored enterprise securities, mortgage-backed securities, municipal bonds, FHLB deposits, CDs, corporate bonds, and marketable equity securities[88](index=88&type=chunk) - Investment objectives include maintaining liquidity, managing interest rate and credit risk, utilizing funds when loan demand is weak, and generating favorable returns[90](index=90&type=chunk) - The Company evaluates debt securities for other-than-temporary impairment (OTTI) quarterly, recognizing full depreciation as a realized loss if intent or requirement to sell exists, or splitting credit-related OTTI through earnings and non-credit related OTTI in other comprehensive income[91](index=91&type=chunk) Investment Portfolio (Dec 31, 2020) | Investment Portfolio (Dec 31, 2020) | Fair Value (in millions) | | :---------------------------------- | :----------------------- | | Total Investment Portfolio | $32.2 | | Composition | U.S. Government Agency mortgage-backed securities, state and municipal bonds | [Sources of Funds](index=14&type=section&id=Sources%20of%20Funds) This section identifies deposits as the primary source of funds, supplemented by borrowings, and details the growth in core deposits - Deposits are the primary source of funds, supplemented by borrowings (mainly FHLB advances), brokered deposits, and certificates of deposit from a national exchange[92](index=92&type=chunk) - Core deposits (all deposits except CDs) have grown by **$303.7 million** (**40.2%**) to **$1.06 billion**, representing **85.6%** of total deposits[270](index=270&type=chunk) - The Company utilizes FHLB advances to supplement funds, with **$13.5 million** outstanding at December 31, 2020, and a borrowing capacity of **$159.3 million**[97](index=97&type=chunk) Deposit Composition (Dec 31, 2020) | Deposit Type (Dec 31, 2020) | Amount (in millions) | | :-------------------------- | :------------------- | | Total Deposits | $1,240 | | Brokered Certificates of Deposit | $114.1 | | QwickRate Certificates of Deposit | $39.9 | [Personnel](index=15&type=section&id=Personnel) This section provides information on the Company's employee count and labor relations status - As of December 31, 2020, the Company had **149** full-time and **nine** part-time employees, none of whom are represented by a collective bargaining unit[99](index=99&type=chunk) [Subsidiaries](index=15&type=section&id=Subsidiaries) This section lists and describes the primary subsidiaries of The Provident Bank and their purpose - The Provident Bank's subsidiaries include Provident Security Corporation and 5 Market Street Security Corporation, both established to buy, sell, and hold investments for their own account[100](index=100&type=chunk) [SUPERVISION AND REGULATION](index=15&type=section&id=SUPERVISION%20AND%20REGULATION) This section outlines the extensive regulatory framework governing the Company and its subsidiary, BankProv, at both state and federal levels - BankProv is a Massachusetts-chartered stock savings bank, regulated by the Massachusetts Commissioner of Banks and the Federal Deposit Insurance Corporation (FDIC), with deposits insured by both the FDIC and the Depositors Insurance Fund[101](index=101&type=chunk) - Provident Bancorp, Inc., as a bank holding company, is regulated by the Federal Reserve Board and the Securities and Exchange Commission[103](index=103&type=chunk) - Changes in laws or regulations from these agencies or the government could materially impact operations and financial performance[105](index=105&type=chunk) [Massachusetts Banking Laws and Supervision](index=16&type=section&id=Massachusetts%20Banking%20Laws%20and%20Supervision) This section details the regulatory oversight by the Massachusetts Commissioner of Banks, covering lending authority, investment limits, dividends, and deposit insurance - The Provident Bank is regulated and supervised by the Massachusetts Commissioner of Banks, requiring approvals for various transactions and subject to sanctions for non-compliance[107](index=107&type=chunk) - Massachusetts savings banks have broad lending authority, including various mortgage, commercial, and consumer loans[109](index=109&type=chunk) - Investment in preferred and common stock is generally limited to **4.0%** of deposits, with an additional **1.0%** for Massachusetts corporations[111](index=111&type=chunk) - Dividends can be declared from net profits, but total annual dividends cannot exceed net profits for that year combined with retained net profits of the preceding two years without prior approval[112](index=112&type=chunk) - Loans to one borrower are generally limited to **20.0%** of the bank's capital[115](index=115&type=chunk) - The Depositors Insurance Fund insures savings bank deposits exceeding federal coverage and charges risk-based assessments[117](index=117&type=chunk) [Federal Bank Regulation](index=17&type=section&id=Federal%20Bank%20Regulation) This section outlines federal regulations impacting the Company, including COVID-19 relief, capital requirements, affiliate transactions, FDIC insurance, and Community Reinvestment Act obligations - Interagency guidance and the CARES Act allow financial institutions to make short-term loan modifications (e.g., payment deferrals) in response to COVID-19 without automatically classifying them as troubled debt restructurings (TDRs), provided borrowers were current prior to relief[118](index=118&type=chunk)[119](index=119&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - The CARES Act provided **$350 billion** for the Paycheck Protection Program (PPP) loans, **100%** federally guaranteed, with a **1.0%** interest rate and potential for forgiveness[122](index=122&type=chunk) - Federal regulations require minimum capital standards: Common Equity Tier 1 (CET1) ratio of **4.5%**, Tier 1 capital ratio of **6.0%**, total capital ratio of **8%**, and Tier 1 leverage ratio of **4%**[124](index=124&type=chunk) - The Provident Bank was classified as a "well capitalized" institution at December 31, 2020, exceeding all minimum capital requirements[137](index=137&type=chunk) - Transactions with affiliates are limited to **10.0%** of capital stock and surplus for any one affiliate and **20.0%** for all affiliates, and must be on terms at least as favorable as those with non-affiliates[141](index=141&type=chunk) - Deposit accounts are insured up to **$250,000** per depositor by the FDIC, which imposes risk-based assessments on depository institutions[144](index=144&type=chunk)[145](index=145&type=chunk) - The Community Reinvestment Act (CRA) requires banks to meet the credit needs of their communities, including low- and moderate-income neighborhoods; BankProv's latest CRA rating was "Satisfactory"[151](index=151&type=chunk) [Other Regulations](index=23&type=section&id=Other%20Regulations) This section lists various federal and state laws governing the Company's loan and deposit operations - The Provident Bank's loan operations are subject to various federal and state laws, including the Home Mortgage Disclosure Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, and Massachusetts Debt Collection Regulations[154](index=154&type=chunk) - Deposit operations are governed by laws such as the Right to Financial Privacy Act, Check Clearing for the 21st Century Act, and Electronic Funds Transfer Act[154](index=154&type=chunk) [Federal Reserve System](index=23&type=section&id=Federal%20Reserve%20System) This section describes the Federal Reserve Board's role, including the elimination of reserve requirements for the Bank - Effective March 26, 2020, the Federal Reserve Board reduced the reserve requirement to **zero**, eliminating it for The Provident Bank[154](index=154&type=chunk) [Federal Home Loan Bank System](index=23&type=section&id=Federal%20Home%20Loan%20Bank%20System) This section details the Bank's membership in the FHLB System, stock ownership requirements, and dividend considerations - The Provident Bank is a member of the Federal Home Loan Bank System, required to own capital stock in the FHLB, which is carried at cost and periodically evaluated for impairment[155](index=155&type=chunk) - FHLB dividends can be reduced by requirements to fund resolution of insolvent thrifts and affordable housing programs; in 2020, FHLB of Boston paid dividends with an annual yield of **5.25%**[156](index=156&type=chunk) [Holding Company Regulation](index=23&type=section&id=Holding%20Company%20Regulation) This section outlines the Federal Reserve Board's regulation of Provident Bancorp, Inc. as a bank holding company, including acquisition approvals and dividend policies - Provident Bancorp, Inc. is regulated by the Federal Reserve Board under the Bank Holding Company Act of 1956, requiring prior approval for significant acquisitions and limiting non-banking activities[157](index=157&type=chunk)[158](index=158&type=chunk) - The Gramm-Leach-Bliley Act of 1999 allows well-capitalized and well-managed bank holding companies to become "financial holding companies" and engage in broader financial activities[159](index=159&type=chunk) - The Federal Reserve Board's policies generally require dividends to be paid only from current earnings and consistent with capital needs, asset quality, and financial condition, and mandate that holding companies serve as a source of financial strength to subsidiary banks[161](index=161&type=chunk) [Federal Securities Laws](index=24&type=section&id=Federal%20Securities%20Laws) This section describes the Company's compliance with federal securities laws, including SEC registration, resale restrictions, and corporate governance mandates - Provident Bancorp, Inc.'s common stock is registered with the SEC, subjecting it to information, proxy solicitation, and insider trading restrictions under the Securities Exchange Act of 1934[165](index=165&type=chunk) - Shares purchased by non-affiliates can be resold without registration, while affiliate shares are subject to Rule 144 resale restrictions[166](index=166&type=chunk) - The Company qualified as an "emerging growth company" under the JOBS Act until December 31, 2020[167](index=167&type=chunk) - The Sarbanes-Oxley Act of 2002 mandates policies, procedures, and systems to ensure corporate responsibility and accurate financial disclosures[168](index=168&type=chunk) [Change in Control Regulations](index=25&type=section&id=Change%20in%20Control%20Regulations) This section explains the regulatory requirements for changes in control of the bank holding company, including prior notice and approval thresholds - The Change in Bank Control Act requires **60 days'** prior written notice and non-disapproval from the Federal Reserve Board for any person or group to acquire control of a bank holding company[169](index=169&type=chunk) - Control is defined as the power to direct management or policies, or to vote **25%** or more of any class of voting securities, with a rebuttable presumption of control at over **10%** ownership under certain circumstances[169](index=169&type=chunk) [TAXATION](index=25&type=section&id=TAXATION) This section details the federal and state income tax obligations applicable to Provident Bancorp, Inc. and its subsidiaries - Provident Bancorp, Inc. and The Provident Bank are subject to federal and state income taxation[171](index=171&type=chunk) [Federal Taxation](index=25&type=section&id=Federal%20Taxation) This section outlines the Company's federal income tax reporting methods and the repeal of the bad debt reserve method for tax purposes - The Company reports income on a calendar year basis using the accrual method, with a maximum federal income tax rate of **21%** for its 2020 tax year[172](index=172&type=chunk) - Federal legislation in 1996 repealed the reserve method for bad debts for tax years after 1995, requiring savings institutions to recapture accumulated bad debt reserves, which The Provident Bank has completed[173](index=173&type=chunk) [State Taxation](index=26&type=section&id=State%20Taxation) This section details the state excise and business taxes applicable to the Company and its subsidiaries in Massachusetts and New Hampshire - Financial institutions in Massachusetts file combined income tax returns, with an excise tax rate of **9.0%** of federal taxable income, adjusted for certain items[174](index=174&type=chunk) - The Provident Bank's subsidiaries, Provident Security Corporation and 5 Market Street Security Corporation, are classified as "security corporations" under Massachusetts law, paying a tax equal to **0.33%** of gross income[175](index=175&type=chunk) - New Hampshire imposes a Business Profits tax at **7.7%** and a Business Enterprise tax at **0.6%** of payroll, benefits, interest, and dividends, with the latter applied as a credit against the former[176](index=176&type=chunk) [ITEM 1A. RISK FACTORS](index=26&type=section&id=ITEM%201A.%20RISK%20FACTORS) This item is not required for a smaller reporting company, indicating that the Company is exempt from providing a detailed discussion of risk factors in this section - The Company is a smaller reporting company and is not required to provide a detailed discussion of risk factors in this section[178](index=178&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=26&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The Company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[179](index=179&type=chunk) [ITEM 2. PROPERTIES](index=26&type=section&id=ITEM%202.%20PROPERTIES) As of December 31, 2020, the Company operated through a main office, six branch offices, and two loan production offices. Five offices are owned, and four (two branch, two loan production) are leased, with a total net book value of land, buildings, furniture, fixtures, equipment, and lease right-of-use assets at $19.0 million - At December 31, 2020, the Company operated through a main office and six branch offices in Massachusetts and New Hampshire, along with two loan production offices in Boston, MA, and Ponte Vedra, FL[180](index=180&type=chunk) - Five offices are owned, and four (two branch, two loan production) are leased[180](index=180&type=chunk) Net Book Value of Properties (Dec 31, 2020) | Asset Category | Net Book Value (Dec 31, 2020, in millions) | | :--------------- | :--------------------------------------- | | Land, buildings, furniture, fixtures, equipment, and lease right-of-use assets | $19.0 | [ITEM 3. LEGAL PROCEEDINGS](index=26&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The Company reported no legal proceedings - There are no legal proceedings[181](index=181&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=27&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[182](index=182&type=chunk) [PART II](index=28&type=section&id=Part%20II) This section covers the Company's common equity market, selected financial data, management's discussion and analysis, market risk disclosures, financial statements, and internal controls [ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=28&type=section&id=ITEM%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Company's common stock trades on the NASDAQ Capital Market under the symbol "PVBC." As of March 18, 2021, there were 791 holders of record. The Company completed a stock repurchase program in February 2021, repurchasing 738,043 shares in Q4 2020 at an average price of $10.72 per share - The Company's common stock is traded on the NASDAQ Capital Market under the symbol "PVBC"[184](index=184&type=chunk) - As of March 18, 2021, there were approximately **791** holders of record of Provident Bancorp Inc.'s common stock[184](index=184&type=chunk) - The Company announced a stock repurchase program on October 19, 2020, to repurchase up to **1,000,000** shares (approximately **5.2%** of outstanding shares), which was completed in February 2021[185](index=185&type=chunk) Stock Repurchase Program (Q4 2020) | Period (Q4 2020) | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------------- | :------------------------------- | :--------------------------- | | October 1 - October 31 | 47,169 | $8.64 | | November 1 - November 30 | 189,617 | $9.66 | | December 1 - December 31 | 501,257 | $11.32 | | **Total** | **738,043** | **$10.72** | [ITEM 6. Selected Consolidated Financial and Other Data](index=28&type=section&id=ITEM%206.%20Selected%20Consolidated%20Financial%20and%20Other%20Data) This section provides a summary of selected consolidated historical financial and other data for Provident Bancorp, Inc. for the years ended and at December 31, 2020, 2019, 2018, 2017, and 2016, covering financial condition, operating data, performance ratios, regulatory capital ratios, asset quality ratios, and other key metrics Selected Financial Condition Data (In thousands) | Financial Condition Data | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | | :----------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Total assets | $1,505,781 | $1,121,788 | $974,079 | $902,265 | $795,543 | | Cash and cash equivalents | 83,819 | 59,658 | 28,613 | 47,689 | 10,705 | | Debt securities available-for-sale (at fair value) | 32,215 | 41,790 | 51,403 | 61,429 | 117,867 | | Loans receivable, net | 1,314,810 | 959,286 | 835,528 | 742,138 | 624,425 | | Deposits | 1,237,428 | 849,905 | 768,096 | 750,057 | 627,982 | | Borrowings | 13,500 | 24,998 | 68,022 | 26,841 | 49,858 | | Total shareholders' equity | 235,856 | 230,933 | 125,584 | 115,777 | 109,149 | Selected Operating Data (In thousands, except per share data) | Operating Data | 2020 | 2019 | 2018 | 2017 | 2016 | | :----------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Interest and dividend income | $60,403 | $51,538 | $42,340 | $35,782 | $28,894 | | Interest expense | 5,931 | 8,148 | 5,213 | 3,726 | 2,785 | | Net interest and dividend income | 54,472 | 43,390 | 37,127 | 32,056 | 26,109 | | Provision for loan losses | 5,597 | 5,326 | 3,329 | 2,929 | 703 | | Net income | $11,985 | $10,808 | $9,325 | $7,915 | $6,339 | | Basic EPS | $0.66 | $0.60 | $0.50 | $0.43 | $0.34 | | Diluted EPS | $0.66 | $0.60 | $0.50 | $0.43 | $0.34 | Selected Performance Ratios | Performance Ratios | 2020 | 2019 | 2018 | 2017 | 2016 | | :----------------------- | :------ | :------ | :------ | :------ | :------ | | Return on average assets | 0.89% | 1.04% | 1.03% | 0.91% | 0.84% | | Return on average equity | 5.05% | 7.38% | 7.75% | 6.84% | 5.98% | | Net interest margin | 4.23% | 4.44% | 4.33% | 3.90% | 3.65% | | Efficiency ratio | 61.72% | 58.15% | 61.53% | 65.79% | 68.59% | | Dividend payout ratio | 13.65% | —% | —% | —% | —% | Selected Regulatory Capital Ratios (Bank Only) | Regulatory Capital Ratios | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------------ | :------ | :------ | :------ | :------ | :------ | | Total capital to risk weighted assets | 14.60% | 17.62% | 14.55% | 14.96% | 15.88% | | Tier 1 capital to risk weighted assets | 13.35% | 16.37% | 13.30% | 13.71% | 14.41% | | Tier 1 capital to average assets | 12.37% | 15.18% | 12.69% | 11.80% | 12.59% | | Common equity tier 1 capital | 13.35% | 16.37% | 13.30% | 13.71% | 14.41% | Selected Asset Quality Ratios | Asset Quality Ratios | 2020 | 2019 | 2018 | 2017 | 2016 | | :----------------------- | :------ | :------ | :------ | :------ | :------ | | Allowance for loan losses as % of total loans | 1.39% | 1.42% | 1.38% | 1.30% | 1.36% | | Allowance for loan losses as % of non-performing loans | 341.72% | 237.58% | 186.55% | 108.02% | 542.98% | | Net charge-offs to average outstanding loans | 0.08% | 0.35% | 0.18% | 0.25% | 0.00% | | Non-performing loans as % of total loans | 0.41% | 0.60% | 0.74% | 1.20% | 0.25% | | Non-performing loans as % of total assets | 0.36% | 0.52% | 0.64% | 1.00% | 0.20% | | Total non-performing assets as % of total assets | 0.36% | 0.52% | 0.81% | 1.00% | 0.20% | [ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=ITEM%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the Company's financial condition and operating results, detailing the impact of COVID-19, critical accounting policies, changes in assets, liabilities, equity, net interest income, market risk, liquidity, and capital resources [COVID-19](index=31&type=section&id=COVID-19) This section discusses the adverse impacts of the COVID-19 pandemic on the Company's operations, including loan modifications, regulatory relief, and potential financial implications - The COVID-19 pandemic has adversely impacted industries where the Company's customers operate, potentially impairing their financial obligations[193](index=193&type=chunk) - The CARES Act and other regulatory relief efforts, including the temporary reduction of the federal funds rate, are expected to materially impact the Company's operations, potentially affecting net interest income and profitability[194](index=194&type=chunk) - The Company actively worked with COVID-19 affected borrowers, deferring payments, interest, and fees, and did not classify these modifications as troubled debt restructurings (TDRs) under agency guidance and the CARES Act[195](index=195&type=chunk)[198](index=198&type=chunk) - The Company implemented business continuity plans, including remote work, and does not anticipate significant challenges to systems and controls[196](index=196&type=chunk) - Fee income was reduced due to waived fees for COVID-19 affected customers, and interest income could be reduced if credit losses emerge on deferred payments[197](index=197&type=chunk)[198](index=198&type=chunk) - Continued uncertainty from the pandemic could increase the provision for loan losses, worsen asset quality, and increase collection expenses and charge-offs[199](index=199&type=chunk) - The Company participated in the PPP, originating loans fully guaranteed by the U.S. government, which mitigates credit risk[199](index=199&type=chunk) - Loan modifications included covenants requiring quarterly financial statements and prohibiting fund distributions to owners/stockholders (except payroll) and payments to subordinated debt holders[201](index=201&type=chunk) [Critical Accounting Policies](index=32&type=section&id=Critical%20Accounting%20Policies) This section highlights key accounting policies requiring significant judgment, specifically the allowance for loan losses and income taxes - Critical accounting policies involve significant judgments and assumptions that could materially impact asset carrying values or income[203](index=203&type=chunk) [Allowance for Loan Losses](index=32&type=section&id=Allowance%20for%20Loan%20Losses) This section details the methodology for estimating the allowance for loan losses, including specific and general components and considerations for various loan types - The allowance for loan losses (ALL) is a valuation allowance for probable incurred credit losses, estimated using past loan loss experience, portfolio composition, borrower situations, collateral values, and economic conditions[204](index=204&type=chunk) - The ALL consists of specific (for individually impaired loans, including TDRs) and general components (for homogeneous loans, based on historical loss experience adjusted for qualitative factors like delinquencies, economic conditions, and portfolio concentrations)[205](index=205&type=chunk)[209](index=209&type=chunk)[215](index=215&type=chunk) - Impairment is measured on a loan-by-loan basis for commercial, commercial real estate, and construction loans, using present value of expected cash flows or fair value of collateral[215](index=215&type=chunk) - Mortgage warehouse loans are assessed at lower credit risk due to their short-term nature and do not carry the same ALL allocation as traditional loans[208](index=208&type=chunk) [Income Taxes](index=33&type=section&id=Income%20Taxes) This section explains the Company's income tax accounting, including the recognition of deferred tax assets and liabilities and the assessment of tax positions - Income taxes are recognized under the asset and liability method, establishing deferred tax assets and liabilities for temporary differences at enacted tax rates[218](index=218&type=chunk) - A tax position is recognized as a benefit only if it is "more likely than not" to be sustained in an examination, with the recognized amount being the largest benefit greater than **50%** likely to be realized[219](index=219&type=chunk) [Comparison of Financial Condition at December 31, 2020 and December 31, 2019](index=33&type=section&id=Comparison%20of%20Financial%20Condition%20at%20December%2031%2C%202020%20and%20December%2031%2C%202019) This section compares the Company's financial position at year-end 2020 and 2019, detailing changes in assets, liabilities, and equity - Total assets increased **$384.0 million**, or **34.2%**, to **$1.51 billion** at December 31, 2020, from **$1.12 billion** at December 31, 2019[220](index=220&type=chunk) [Assets](index=33&type=section&id=Assets) This section summarizes the overall increase in total assets, driven by growth in loans and cash, partially offset by a decrease in investments - The increase was primarily due to increases in net loans, cash and cash equivalents, bank owned life insurance and accrued interest receivable, partially offset by a decrease in investments in available-for-sale securities[220](index=220&type=chunk) [Cash and Cash Equivalents](index=34&type=section&id=Cash%20and%20Cash%20Equivalents) This section details the increase in cash and cash equivalents, primarily due to increased deposits exceeding loan growth - The increase in short-term investments was a result of increased deposits exceeding loan growth[221](index=221&type=chunk) Cash and Cash Equivalents (in millions) | Metric | Dec 31, 2020 (in millions) | Dec 31, 2019 (in millions) | Change (Amount) | Change (%) | | :-------------------- | :------------------------- | :------------------------- | :-------------- | :--------- | | Cash and cash equivalents | $83.8 | $59.7 | $24.1 | 40.5% | | Short-term investments | $72.0 | $47.7 | $24.3 | 51.0% | [Debt Securities Available-for-Sale](index=34&type=section&id=Debt%20Securities%20Available-for-Sale) This section explains the decrease in available-for-sale debt securities, mainly due to principal pay downs on mortgage-backed securities - The decrease was primarily due to principal pay downs on government mortgage-backed securities[222](index=222&type=chunk) Debt Securities Available-for-Sale (in millions) | Metric | Dec 31, 2020 (in millions) | Dec 31, 2019 (in millions) | Change (Amount) | Change (%) | | :-------------------------- | :------------------------- | :------------------------- | :-------------- | :--------- | | Debt securities available-for-sale | $32.2 | $41.8 | $(9.6) | (22.9)% | [Bank Owned Life Insurance](index=34&type=section&id=Bank%20Owned%20Life%20Insurance) This section describes the increase in bank-owned life insurance, attributed to the purchase of additional policies - The increase was primarily due to the purchase of additional insurance policies[223](index=223&type=chunk) Bank Owned Life Insurance (in millions) | Metric | Dec 31, 2020 (in millions) | Dec 31, 2019 (in millions) | Change (Amount) | Change (%) | | :-------------------- | :------------------------- | :------------------------- | :-------------- | :--------- | | Bank owned life insurance | $36.7 | $26.9 | $9.8 | 36.3% | [Accrued Interest Receivable](index=34&type=section&id=Accrued%20Interest%20Receivable) This section details the increase in accrued interest receivable, primarily due to deferred interest on COVID-19 loan modifications - The increase was primarily due to deferred interest on loan modifications as part of interagency guidance and the CARES Act[224](index=224&type=chunk) Accrued Interest Receivable (in millions) | Metric | Dec 31, 2020 (in millions) | Dec 31, 2019 (in millions) | Change (Amount) | Change (%) | | :---------------------- | :------------------------- | :------------------------- | :-------------- | :--------- | | Accrued interest receivable | $6.4 | $2.9 | $3.5 | 123.2% | [Loan Portfolio Analysis](index=34&type=section&id=Loan%20Portfolio%20Analysis) This section provides a detailed analysis of the loan portfolio's composition and changes, highlighting the significant growth in mortgage warehouse loans - The acquisition and growth of mortgage warehouse loans significantly contributed to the overall loan portfolio increase[225](index=225&type=chunk) Loan Portfolio Composition and Changes (in millions) | Loan Type | Dec 31, 2020 (in millions) | % of Total Loans (2020) | Dec 31, 2019 (in millions) | % of Total Loans (2019) | Change (Amount) | Change (%) | | :-------------------------------- | :------------------------- | :---------------------- | :------------------------- | :---------------------- | :-------------- | :--------- | | Net Loans | $1,314.8 | 87.3% | $959.3 | 85.5% | $355.5 | 37.1% | | Commercial Loans | $566.0 | 42.3% | $451.8 | 46.3% | $114.2 | 25.3% | | Mortgage Warehouse Loans | $265.4 | 19.8% | $0 | 0% | $265.4 | N/A | | Commercial Real Estate Loans | $439.0 | 32.8% | $418.4 | 42.9% | $20.6 | 4.9% | | Enterprise Value Loans | $286.1 | N/A | $178.0 | N/A | $108.1 | 60.7% | | SBA PPP Loans | $41.8 | N/A | $0 | N/A | $41.8 | N/A | | Renewable Energy Loans | $37.2 | N/A | $66.1 | N/A | $(28.9) | (43.8)% | | Construction and Land Development Loans | $28.9 | 2.2% | $46.8 | 4.8% | $(17.8) | (38.1)% | | Residential Real Estate Loans | $32.8 | 2.5% | $45.7 | 4.7% | $(12.9) | (28.3)% | | Consumer Loans | $5.5 | 0.4% | $12.7 | 1.3% | $(7.2) | (56.4)% | [Loan Maturity](index=35&type=section&id=Loan%20Maturity) This section presents the contractual maturity distribution of the loan portfolio and the breakdown of fixed and adjustable-rate loans Contractual Maturity of Loan Portfolio (Dec 31, 2020, in thousands) | Loan Type | One year or less | More than one year to five years | More than five years through 15 years | More than 15 years | Total Loans | | :-------------------- | :--------------- | :------------------------------- | :------------------------------------ | :----------------- | :---------- | | Residential Real Estate | $118 | $2,483 | $13,107 | $17,077 | $32,785 | | Commercial Real Estate | $25,744 | $29,958 | $124,735 | $258,512 | $438,949 | | Construction and Land Development | $11,478 | $3,089 | $385 | $13,975 | $28,927 | | Commercial | $58,922 | $243,462 | $248,642 | $14,950 | $565,976 | | Consumer | $903 | $4,644 | $0 | $0 | $5,547 | | Mortgage Warehouse | $265,379 | $0 | $0 | $0 | $265,379 | | **Total** | **$362,544** | **$283,636** | **$386,869** | **$304,514** | **$1,337,563** | Fixed and Adjustable-Rate Loans Due After Dec 31, 2021 (in thousands) | Loan Type | Fixed Rates | Floating or Adjustable Rates | Total Due After Dec 31, 2021 | | :------------------------ | :---------- | :--------------------------- | :--------------------------- | | Residential | $20,563 | $12,104 | $32,667 | | Commercial | $58,245 | $354,960 | $413,205 | | Construction and land development | $385 | $17,064 | $17,449 | | Commercial | $358,680 | $148,374 | $507,054 | | Consumer | $4,644 | $0 | $4,644 | | Mortgage warehouse | $0 | $0 | $0 | | **Total loans** | **$442,517** | **$532,502** | **$975,019** | [Asset Quality](index=35&type=section&id=Asset%20Quality) This section discusses the Company's asset quality, including credit risk management, loan delinquencies, non-performing assets, and the allowance for loan losses - The Company's credit risk management strategy focuses on well-defined credit policies, uniform underwriting, and prompt attention to potential problem loans, supported by internal controls and loan reviews[231](index=231&type=chunk) - Loan risk ratings are assigned and monitored annually for commercial real estate, construction, and commercial business loans, with re-evaluation for significant concerns[231](index=231&type=chunk)[233](index=