Provident Bancorp(PVBC) - 2021 Q4 - Annual Report

Part I Business 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] - BankProv focuses on providing banking solutions to niche markets, including renewable energy, digital assets, fintech, and search fund lending[23] - 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] Lending Activities 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] - Digital Asset Company Loans: $120.5 million[39] - Renewable Energy Loans: $62.3 million[40] - The company originated $124.0 million in Paycheck Protection Program (PPP) loans; as of December 31, 2021, only $12.4 million remained outstanding[42] Sources of Funds 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] - 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] - 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] Supervision and Regulation 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][99] - 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][134] - 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] - Deposits are insured by the FDIC up to applicable limits, with excess amounts insured by the Depositors Insurance Fund (DIF) of Massachusetts[97][112] Risk Factors This section is not required for a smaller reporting company Unresolved Staff Comments The company reports no unresolved staff comments Properties 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] - 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] Legal Proceedings The company reports no legal proceedings Mine Safety Disclosures 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 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] 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 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) 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] - 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] - Noninterest-bearing deposits grew significantly, representing 42.9% of total deposits at year-end 2021, up from 31.0% at year-end 2020[254] - 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] Asset Quality 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] - 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] Comparison of Results of Operations (for years ended Dec 31, 2021 and 2020) 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] - The provision for loan losses decreased by 30.6% to $3.9 million, reflecting improved economic conditions and portfolio quality[275] - 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] - 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] Management of Market Risk 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 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] - 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] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement Executive Compensation 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 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 Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement Principal Accounting Fees and Services Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits included in the Form 10-K report Form 10-K Summary The company reports no Form 10-K summary