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Provident Bancorp, Inc. Reports Earnings for the December 31, 2019 Quarter and Year

AMESBURY, Mass., Jan. 23, 2020 (GLOBE NEWSWIRE) -- Provident Bancorp, Inc. (the “Company”) (PVBC), the holding company for The Provident Bank (the “Bank”), reported net income for the three months ended December 31, 2019 of $2.6 million, or $0.14 per diluted share, compared to $2.8 million, or $0.15 per diluted share, for the three months ended December 31, 2018. Net income for the year ended December 31, 2019 was $10.8 million, or $0.60 per diluted share, compared to $9.3 million, or $0.50 per diluted share, for the year ended December 31, 2018. As a result of the completion of the second-step conversion and related stock offering, all historical share and per share information has been restated to reflect the 2.0212-to-one exchange ratio.

David Mansfield, CEO of The Provident Bank commented, “Our strong year-end financial performance is highlighted by the 20% increase in earnings per share over the previous year. These results were driven by our loan growth of 14.8%, a stable net interest margin and a low efficiency ratio. With the successful completion of our conversion from a mutual holding company to a full stock holding company, we have begun using the additional capital injection to execute on our strategic growth initiatives. On January 17, 2020, The Bank acquired United Bank’s legacy ResX Warehouse Lending Portfolio from People’s United Bank, N.A. The acquired loans have commitments of $180 million with outstanding balances of $73 million as of the acquisition date. This acquisition aligns well with our business profile and is a sound opportunity for the Bank to put its capital to immediate use.”

Net interest and dividend income before provision for loan losses increased by $1.7 million, or 17.6%, compared to the three months ended December 31, 2018, and increased by $6.3 million, or 16.9%, compared to the year ended December 31, 2018. The growth in net interest and dividend income this quarter over the prior year’s fourth quarter is primarily the result of an increase in our average interest earning assets of $169.7 million, or 19.4%, offset by a decrease in net interest margin of seven basis points to 4.43%. The growth in net interest income for the year ended December 31, 2019 compared to 2018 is primarily the result of an increase in average interest earning assets of $120.1 million, or 14.0%, and an increase of the net interest margin of 11 basis points to 4.44%.

Provisions for loan losses of $1.7 million were recognized for the three months ended December 31, 2019 compared to $614,000 for the same period in 2018. For the year ended December 31, 2019, $5.3 million of provisions were recognized compared to $3.3 million for the year ended December 31, 2018. The changes in the provision were based on management’s assessment of loan portfolio growth and composition changes, historical charge-off trends, levels of problem loans and other asset quality trends. We had $3.2 million in loan net charge-offs in 2019 compared to net charge-offs of $1.4 million in 2018. Charge-offs in 2019 primarily resulted from three commercial relationships that the Bank charged-off in the first six months of 2019 as well as net charge-offs totaling $922,000 from our consumer lending portfolio.

The allowance for loan losses as a percentage of total loans was 1.42% as of December 31, 2019 compared to 1.38% as of December 31, 2018. The allowance for loan losses as a percentage of non-performing loans was 237.6% as of December 31, 2019 compared to 186.55% as of December 31, 2018. Non-performing loans were $5.8 million, or 0.52% of total assets as of December 31, 2019, compared to $6.3 million, or 0.64% of total assets, as of December 31, 2018. The largest non-performing loan outstanding as of December 31, 2019 is a $1.9 million commercial and industrial loan with a specific reserve of $130,000. During the fourth quarter of 2019, a commercial real estate loan relationship with a total balance of $18.6 million became impaired due to insufficient cash flows to pay the debt. We expect to formally restructure this loan relationship, and based on a discounted cash flow calculation using the anticipated restructure terms, we established a specific reserve of $1.4 million for this relationship during the fourth quarter.

In 2011, the Bank joined the BancAlliance Network. BancAlliance has a membership of approximately 200 community banks that together participate in middle market commercial and industrial loans as a way to diversify their commercial portfolio. During the year ended December 31, 2019, the Bank charged-off one commercial and industrial loan totaling $917,000 and accepted a short-sale of another loan, each of which was originated through the BancAlliance Network. The accepted short-sale resulted in a charge-off of $589,000 on a $1.2 million loan relationship. As of December 31, 2019, the Bank has seven BancAlliance loan relationships remaining totaling $8.4 million. Out of the seven relationships, four totaling $4.6 million are pass rated and three totaling $3.8 million are substandard. Included in our substandard loans is one relationship totaling $1.9 million that is on non-accrual status and deemed impaired. We have allocated specific reserves totaling $130,000 for this relationship. Our last BancAlliance loan origination was in February 2017 and at this time we are not anticipating originating any new loans through this network.

Noninterest income decreased $19,000, or 1.9%, and was $1.0 million for both of the three months ended December 31, 2019 and 2018. The decrease is primarily due to a decrease in other service charges and fees of $27,000, or 6.1%, partially offset by an increase of $9,000, or 2.5%, in customer service fees on deposit accounts. For the year ended December 31, 2019, noninterest income decreased $67,000, or 1.6%, to $4.1 million compared to $4.2 million for the year ended December 31, 2018. The decrease is primarily due to a decrease in other service charges and fees of $210,000, or 10.5%, partially offset by an increase of $113,000 in gains on sales of securities.

Noninterest expense increased $1.1 million, or 16.6%, to $7.5 million for the three months ended December 31, 2019 compared to $6.4 million for the three months ended December 31, 2018. The increase is primarily due to increases in salaries and employee benefits expense and other expense, partially offset by a decrease in professional fees. The increase of $979,000, or 23.2%, for the three months ended December 31, 2019 in salary and employee benefits was primarily due to an increased number of sales and operations positions compared to the same period in 2018 as well as our ESOP expense. ESOP expense increased $483,000 due to the acquisition of additional shares from our stock offering. The increase of $156,000, or 23.1%, in other expenses is primarily due to an increase in our telecommunication expenses from adding our new offices in Portsmouth and using a new system to connect our offices. The decrease of $201,000, or 54.0%, for the three months ended December 31, 2019 in professional fees was due to legal expenses incurred in 2018 related to certain subordinated lienholders that disputed the priority of the Bank’s liens and the right of the Bank to retain proceeds from a foreclosure sale. For the year ended December 31, 2019, noninterest expense increased $2.1 million, or 8.4%, to $27.6 million compared to $25.4 million for the year ended December 31, 2018. The primary increases for the year ended December 31, 2019 were salary and employee benefits expense, occupancy expense, marketing and other expense. The increase of $1.4 million, or 8.6%, for the year ended December 31, 2019 in salary and employee benefits was primarily due to a higher number of sales and operations positions compared to the same period in 2018 as well as increased ESOP expense of $459,000 due to the added shares from the stock offering. The increase of $235,000, or 13.6%, in occupancy expense for the year ended December 31, 2019 was primarily due to the acceleration of our leasehold improvements amortization related to the closure of our Hampton, New Hampshire branch in May 2019. The increase of $140,000, or 57.1% in marketing expense is primarily due to increased marketing in our new products and review of our website. The increase of $227,000, or 7.9%, in other expense was primarily due to telecommunications expense from adding our new offices in Portsmouth and using a new system to connect our offices.

As of December 31, 2019, total assets have increased $147.7 million, or 15.2%, to $1.1 billion compared to $974.1 million at December 31, 2018. The primary reasons for the increase are increases in net loans and cash and cash equivalents, partially offset by a decrease in investments in available-for-sale securities. Net loans increased $123.8 million, or 14.8%, to $959.3 million as of December 31, 2019 compared to $835.5 million at December 31, 2018. The increase in net loans was due to an increase in commercial loans of $90.0 million, or 24.9%, and an increase in commercial real estate loans of $53.5 million, or 14.7%, offset by a decrease of $11.7 million, or 20.3%, in residential real estate loans and a decrease of $7.1 million, or 35.7%, in consumer loans. The increase in cash and cash equivalents of $31.0 million, or 108.5%, resulted from the completion of our second-step conversion and related stock offering in October 2019. The decrease in investments in available-for-sale securities of $9.6 million, or 18.7%, resulted primarily from principal pay downs partially offset by an increase in the fair value of the securities.

Total liabilities increased $42.4 million, or 5.0%, due to increased deposits and operating lease liabilities, partially offset by a decrease in borrowings. Deposits were $850.0 million as of December 31, 2019, representing an increase of $81.8 million, or 10.7%, compared to December 31, 2018. The primary reasons for the increase in deposits was due to an increase in money market deposits of $41.1 million, or 17.9%, an increase in NOW and demand deposit of $37.4 million, or 11.3%, and an increase in savings accounts of $6.3 million, or 5.7%, partially offset by a decrease in certificate accounts of $3.0 million, or 3.1%. The increases in money markets, NOW and demand accounts are primarily due to our increased deposit initiative. The increase in savings accounts is primarily due to municipal deposits. The decrease in time deposits is primarily due to decreasing our brokered CD exposure. Operating lease liabilities were $3.9 million as of December 31, 2019 due to the adoption of ASU (Accounting Standards Update) No. 2016-02, Leases (Topic 842). This standard was effective January 1, 2019 and required us to recognize on our balance sheet our lease liabilities. Borrowings decreased $43.0 million, or 63.3%, to $25.0 million as of December 31, 2019 primarily due to the liquidity provided from the completion of our stock offering.

As of December 31, 2019, shareholders’ equity was $230.9 million compared to $125.6 million at December 31, 2018, representing an increase of $105.3 million, or 83.9%. The increase is primarily due to raising $91.6 million in capital due to our second-step conversion and related stock offering and net income of $10.8 million for the current year.

About Provident Bancorp, Inc.
Provident Bancorp, Inc. is a Maryland corporation that was formed in 2019 to be the successor corporation to Provident Bancorp, Inc., a Massachusetts corporation, and the holding company for The Provident Bank. The Provident Bank, a subsidiary of Provident Bancorp, Inc., is an innovative, commercial bank that finds solutions for our business and private clients. We are committed to strengthening the economic development of the regions we serve, by working closely with businesses and private clients and delivering superior products and high-touch services to meet their banking needs. The Provident has offices in Massachusetts and New Hampshire. All deposits are insured in full through a combination of insurance provided by the Federal Deposit Insurance Corporation (FDIC) and the Depositors Insurance Fund (DIF). For more information about The Provident Bank please visit our website www.theprovidentbank.com or call 877-487-2977.

Forward-looking statements

This news release may contain certain forward-looking statements, such as statements of the Company’s or the Bank’s plans, objectives, expectations, estimates and intentions. Forward-looking statements may be identified by the use of words such as, “expects,” “subject,” “believe,” “will,” “intends,” “may,” “will be” or “would.” These statements are subject to change based on various important factors (some of which are beyond the Company’s or the Bank’s control) and actual results may differ materially. Accordingly, readers should not place undue reliance on any forward-looking statements (which reflect management’s analysis of factors only as of the date of which they are given). These factors include: general economic conditions; trends in interest rates; the ability of our borrowers to repay their loans; and the ability of the Company or the Bank to effectively manage its growth and results of regulatory examinations, among other factors. The foregoing list of important factors is not exclusive. Readers should carefully review the risk factors described in other documents of the Company files from time to time with the Securities and Exchange Commission, including Annual and Quarterly Reports on Forms 10-K and 10-Q, and Current Reports on Form 8-K.

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

At

At

December 31,

December 31,

(In thousands)

2019

2018

Assets

(unaudited)

Cash and due from banks

$

11,990

$

10,941

Short-term investments

47,668

17,672

Cash and cash equivalents

59,658

28,613

Investments in available-for-sale securities (at fair value)

41,790

51,403

Federal Home Loan Bank stock, at cost

1,416

2,650

Loans, net

959,286

835,528

Bank owned life insurance

26,925

26,226

Premises and equipment, net

18,441

16,086

Other real estate owned

-

1,676

Accrued interest receivable

2,854

2,638

Deferred tax asset, net

7,242

6,437

Other assets

4,312

2,822

Total assets

$

1,121,924

$

974,079

Liabilities and Shareholders' Equity

Deposits:

Noninterest-bearing

$

222,088

$

195,293

Interest-bearing

627,817

572,803

Total deposits

849,905

768,096

Borrowings

24,998

68,022

Operating lease liabilities

3,877

-

Other liabilities

12,211

12,377

Total liabilities

890,991

848,495

Shareholders' equity:

Preferred stock; $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding

-

-

Common stock, 2019: $0.01 par value: 100,000,000 shares authorized; 19,473,818 shares issued and outstanding; 2018: no par value, 100,000,000 shares authorized, 19,529,200 shares issued, 19,455,503 shares outstanding (1)

195

-

Additional paid-in capital

146,173

45,895

Retained earnings

94,160

83,351

Accumulated other comprehensive income (loss)

458

(255

)

Unearned compensation - ESOP

(10,053

)

(2,619

)

Treasury stock: 0 and 73,697 shares at December 31, 2019 and 2018, respectively (1)

-

(788

)

Total shareholders' equity

230,933

125,584

Total liabilities and shareholders' equity

$

1,121,924

$

974,079

(1) Share amounts related to periods prior to the date of the Conversion (October 16, 2019) have been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (2.0212-to-one).


Three Months Ended

Year Ended

December 31,

December 31,

(Dollars in thousands, except per share data)

2019

2018

2019

2018

Interest and dividend income:

(unaudited)

Interest and fees on loans

$

12,883

$

10,938

$

49,693

$

40,358

Interest and dividends on securities

319

413

1,549

1,669

Interest on short-term investments

160

26

296

313

Total interest and dividend income

13,362

11,377

51,538

42,340

Interest expense:

Interest on deposits

1,599

1,314

6,258

4,468

Interest on borrowings

189

223

1,890

745

Total interest expense

1,788

1,537

8,148

5,213

Net interest and dividend income

11,574

9,840

43,390

37,127

Provision for loan losses

1,677

614

5,326

3,329

Net interest and dividend income after provision for loan losses

9,897

9,226

38,064

33,798

Noninterest income:

Customer service fees on deposit accounts

363

354

1,452

1,435

Service charges and fees - other

415

442

1,783

1,993

Gain on sale of securities, net

-

-

113

-

Bank owned life insurance income

173

172

698

687

Other income

18

20

65

63

Total noninterest income

969

988

4,111

4,178

Noninterest expense:

Salaries and employee benefits

5,197

4,218

18,243

16,801

Occupancy expense

401

410

1,968

1,733

Equipment expense

124

110

444

471

Data processing

196

213

738

810

Marketing expense

146

77

385

245

Professional fees

171

372

1,210

1,223

Directors' compensation

184

153

741

620

Software depreciation and implementation

215

175

734

645

Other

832

676

3,093

2,866

Total noninterest expense

7,466

6,404

27,556

25,414

Income before income tax expense

3,400

3,810

14,619

12,562

Income tax expense

849

975

3,811

3,237

Net income

$

2,551

$

2,835

$

10,808

$

9,325

Earnings per share: (1)

Basic

$

0.14

$

0.15

$

0.60

$

0.50

Diluted

$

0.14

$

0.15

$

0.60

$

0.50

Weighted Average Shares: (1)

Basic

18,006,471

18,714,004

17,958,186

18,676,062

Diluted

18,135,220

18,876,858

18,066,968

18,809,926

(1) Amounts related to periods prior to the date of the Conversion (October 16, 2019) have been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (2.0212-to-one).


For the three

For the

months ended

year ended

December 31,

December 31,

2019

2018

2019

2018

(unaudited)

Performance Ratios:

Return on average assets (1)

0.92

%

1.22

%

1.04

%

1.03

%

Return on average equity (1)

5.39

%

9.16

%

7.38

%

7.75

%

Interest rate spread (1) (3)

4.04

%

4.17

%

4.05

%

4.05

%

Net interest margin (1) (4)

4.43

%

4.50

%

4.44

%

4.33

%

Non-interest expense to average assets (1)

2.70

%

2.76

%

2.65

%

2.80

%

Efficiency ratio (5)

59.52

%

59.14

%

58.15

%

61.53

%

Average interest-earning assets to average interest-bearing liabilities

157.03

%

147.07

%

146.87

%

146.01

%

Average equity to average assets

17.12

%

13.33

%

14.08

%

13.26

%


At

At

December 31,

December 31,

(unaudited)

2019

2018

Asset Quality Ratios:

Allowance for loan losses as a percent of total loans (2)

1.42

%

1.38

%

Allowance for loan losses as a percent of non-performing loans

237.60

%

186.55

%

Non-performing loans as a percent of total loans (2)

0.60

%

0.74

%

Non-performing loans as a percent of total assets

0.52

%

0.64

%

Non-performing assets as a percent of total assets (6)

0.52

%

0.81

%

(1) Annualized where appropriate.

(2) Loans are presented before the allowance but include deferred costs/fees. Loans held-for-sale are excluded.

(3) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.

(4) Represents net interest income as a percent of average interest-earning assets.

(5) Represents noninterest expense divided by the sum of net interest income and noninterest income, excluding gains on securities available for sale, net.

(6) Non-performing assets consists of non-accrual loans plus loans accruing but 90 days overdue and OREO.