Provident Bancorp(PVBC) - 2023 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Provident Bancorp, Inc. as of March 31, 2023, and for the three months then ended Consolidated Balance Sheets Total assets increased to $1.70 billion as of March 31, 2023, from $1.64 billion at year-end 2022, driven by a significant rise in cash and cash equivalents Consolidated Balance Sheet Highlights (unaudited) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $1,702,153 | $1,636,381 | $65,772 | 4.0% | | Cash and cash equivalents | $244,178 | $80,629 | $163,549 | 202.8% | | Loans, net | $1,323,390 | $1,416,047 | ($92,657) | (6.5%) | | Total Liabilities | $1,490,701 | $1,428,839 | $61,862 | 4.3% | | Total deposits | $1,403,921 | $1,279,582 | $124,339 | 9.7% | | Total borrowings | $68,296 | $126,829 | ($58,533) | (46.2%) | | Total Shareholders' Equity | $211,452 | $207,542 | $3,910 | 1.9% | Consolidated Statements of Operations For the three months ended March 31, 2023, net income was $2.1 million, a significant decrease from $5.5 million in the same period of 2022 Consolidated Statements of Operations (unaudited) | (Dollars in thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net interest and dividend income | $15,816 | $17,925 | | Total credit loss expense | $1,779 | $83 | | Total noninterest income | $1,947 | $1,320 | | Total noninterest expense | $13,211 | $11,411 | | Net income | $2,103 | $5,525 | | Diluted EPS | $0.13 | $0.32 | Consolidated Statements of Cash Flows For the first three months of 2023, the company experienced a net cash outflow from operating activities of $3.1 million, a reversal from a $2.3 million inflow in the prior year period Summary of Cash Flows (unaudited) | (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($3,066) | $2,307 | | Net cash provided by investing activities | $100,835 | $596 | | Net cash provided by financing activities | $65,780 | $60,058 | | Net increase in cash and cash equivalents | $163,549 | $62,961 | Notes to Consolidated Financial Statements The notes detail significant accounting policies and risks, including the adoption of CECL, digital asset lending portfolio status, and regulatory capital adequacy - The company adopted the Current Expected Credit Loss (CECL) methodology (ASU 2016-13) on January 1, 2023, resulting in a net increase to retained earnings of $696,000[31][32] - As of March 31, 2023, the digital asset loan portfolio had $27.0 million outstanding, with $26.6 million on non-accrual status[25][26] - The company believes it is well-insulated from recent banking sector turmoil, citing that 100% of customer deposits were insured by the FDIC (54%) and DIF (46%) as of March 31, 2023[29][34] Loan Portfolio Composition (In thousands) | Loan Type | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Commercial real estate | $447,461 | $453,592 | | Commercial | $194,335 | $216,931 | | Enterprise value | $437,570 | $438,745 | | Digital asset | $26,981 | $40,781 | | Mortgage warehouse | $149,113 | $213,244 | | Total Loans | $1,348,202 | $1,444,116 | Bank Regulatory Capital Ratios | Ratio | March 31, 2023 | Requirement for Well Capitalized | | :--- | :--- | :--- | | Total Capital (to Risk Weighted Assets) | 13.52% | > 10.0% | | Tier 1 Capital (to Risk Weighted Assets) | 12.27% | > 8.0% | | Common Equity Tier 1 Capital | 12.27% | > 6.5% | | Tier 1 Capital (to Average Assets) | 11.83% | > 5.0% | Management's Discussion and Analysis of Financial Condition and Results of Operation Management attributes the 61.9% decrease in Q1 2023 net income primarily to lower net interest income, higher credit loss expense, and increased noninterest expense - Net income decreased by $3.4 million, or 61.9%, to $2.1 million for Q1 2023 compared to Q1 2022[162] - Total deposits increased by $124.3 million (9.7%) from year-end 2022, driven by growth in interest-bearing accounts and specialty deposits[147][149] - The company is actively winding down its digital asset lending portfolio, which decreased by $13.8 million (33.8%) during the quarter to $27.0 million[143] Non-Performing Assets (Dollars in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total non-accrual loans | $31,471 | $26,964 | | Other repossessed assets | $0 | $6,051 | | Total non-performing assets | $31,471 | $33,015 | | Total non-performing assets to total assets | 1.85% | 2.02% | Net Interest Income Simulation (Sensitivity to Interest Rate Changes) | Change in Interest Rates (Basis Points) | Estimated Change in Net Interest Income Over Next 12 Months | | :--- | :--- | | +300 | 4.10% | | +200 | 2.80% | | +100 | 1.40% | | 0 | — | | -100 | (6.60)% | | -200 | (13.50)% | | -300 | (20.70)% | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the 'Management of Market Risk' discussion within Item 2, detailing the company's interest rate sensitivity analysis - The company's market risk disclosures are detailed in the Management's Discussion and Analysis section, focusing on interest rate sensitivity analysis through NII and EVE models[191] Item 4. Controls and Procedures Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were not effective due to a material weakness - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to a material weakness in internal control over financial reporting identified in the 2022 Form 10-K[192][193] - The company has started implementing remediation plans to address the material weakness, but the process is not yet complete[195] Part II. Other Information Item 1A. Risk Factors This section provides material updates to risk factors, highlighting the potential negative impact of recent bank failures and adverse changes to the deposit portfolio - A new risk factor highlights that recent failures of other large financial institutions could negatively impact depositor confidence and adversely affect the company's financial condition, results, and stock price[199] - The company notes a risk that adverse changes to its deposit portfolio could force reliance on more expensive funding sources, which would negatively affect operating margins and profitability[200][202] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company provides an update on its stock repurchase program, noting no shares were repurchased during Q1 2023 and shares remaining available - The company did not repurchase any shares of its common stock during the first quarter of 2023 under its existing stock repurchase program[207] - As of March 31, 2023, 254,521 shares were still available for repurchase under the authorized program[207]