UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | 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.
Provident Bancorp, Inc.
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) | |
| | | |
| (Address of Principal Executive Offices) | Zip Code |
(
(Registrant’s telephone number)
| N/A |
(Former name, former address, and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |
| | ☒ | Smaller Reporting Company | | |
| Emerging Growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 5, 2025, there were
Provident Bancorp, Inc.
CONSOLIDATED BALANCE SHEETS
| (Dollars in thousands) | At March 31, 2025 | At December 31, 2024 | ||||||
| Assets | (unaudited) | |||||||
| Cash and due from banks | $ | $ | ||||||
| Short-term investments | ||||||||
| Cash and cash equivalents | ||||||||
| Debt securities available-for-sale (at fair value) | ||||||||
| Federal Home Loan Bank stock, at cost | ||||||||
| Total loans | ||||||||
| Allowance for credit losses for loans | ( | ) | ( | ) | ||||
| Net loans | ||||||||
| Bank owned life insurance | ||||||||
| Premises and equipment, net | ||||||||
| Accrued interest receivable | ||||||||
| Right-of-use assets | ||||||||
| Deferred tax asset, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Deposits: | ||||||||
| Noninterest-bearing | $ | $ | ||||||
| Interest-bearing | ||||||||
| Total deposits | ||||||||
| Borrowings: | ||||||||
| Short-term borrowings | ||||||||
| Long-term borrowings | ||||||||
| Total borrowings | ||||||||
| Operating lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see Note 18) | ||||||||
| Shareholders' equity: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized; shares issued and outstanding at March 31, 2025 and December 31, 2024 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Unearned compensation - ESOP | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended |
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| March 31, |
March 31, |
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| (Dollars in thousands, except per share data) |
2025 |
2024 |
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| Interest and dividend income: |
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| Interest and fees on loans |
$ | $ | ||||||
| Interest and dividends on debt securities available-for-sale |
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| Interest on short-term investments |
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| Total interest and dividend income |
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| Interest expense: |
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| Interest on deposits |
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| Interest on short-term borrowings |
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| Interest on long-term borrowings |
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| Total interest expense |
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| Net interest and dividend income |
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| Credit loss expense (benefit) - loans |
( |
) | ||||||
| Credit loss benefit - off-balance sheet credit exposures |
( |
) | ( |
) | ||||
| Total credit loss benefit |
( |
) | ( |
) | ||||
| Net interest and dividend income after credit loss benefit |
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| Noninterest income: |
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| Customer service fees on deposit accounts |
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| Service charges and fees - other |
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| Bank owned life insurance income |
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| Other income |
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| Total noninterest income |
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| Noninterest expense: |
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| Salaries and employee benefits |
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| Occupancy expense |
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| Equipment expense |
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| Deposit insurance |
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| Data processing |
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| Marketing expense |
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| Professional fees |
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| Directors' compensation |
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| Software depreciation and implementation |
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| Insurance expense |
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| Service fees |
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| Other |
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| Total noninterest expense |
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| Income before income tax expense |
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| Income tax expense |
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| Net income |
$ | $ | ||||||
| Earnings per share: |
||||||||
| Basic |
$ | $ | ||||||
| Diluted |
$ | |||||||
| Weighted Average Shares: |
||||||||
| Basic |
||||||||
| Diluted |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended |
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| March 31, |
||||||||
| 2025 |
2024 |
|||||||
| (In thousands) |
||||||||
| Net income |
$ | $ | ||||||
| Other comprehensive income (loss): |
||||||||
| Unrealized holding gains (losses) arising during the period on debt securities available-for-sale |
( |
) | ||||||
| Unrealized gain (loss) |
( |
) | ||||||
| Income tax effect |
( |
) | ||||||
| Total other comprehensive income (loss) |
( |
) | ||||||
| Comprehensive income |
$ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| For the three months ended March 31, 2025 and 2024 |
||||||||||||||||||||||||||||
| Accumulated |
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| Shares of |
Additional |
Other |
Unearned |
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| Common |
Common |
Paid-in |
Retained |
Comprehensive |
Compensation |
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| (In thousands, except share data) |
Stock |
Stock |
Capital |
Earnings |
(Loss) Income |
ESOP |
Total |
|||||||||||||||||||||
| Balance, December 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net income |
— | |||||||||||||||||||||||||||
| Other comprehensive income |
— | |||||||||||||||||||||||||||
| Stock-based compensation expense, net of forfeitures |
— | |||||||||||||||||||||||||||
| Restricted stock award grants, net |
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| ESOP shares earned |
— | |||||||||||||||||||||||||||
| Balance, March 31, 2025 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Balance, December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net income |
— | |||||||||||||||||||||||||||
| Other comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Stock-based compensation expense, net of forfeitures |
— | |||||||||||||||||||||||||||
| Restricted stock award grants, net |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| ESOP shares earned |
— | |||||||||||||||||||||||||||
| Balance, March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended |
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| March 31, |
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| (In thousands) |
2025 |
2024 |
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| Cash flows from operating activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Amortization of securities premiums, net of accretion |
||||||||
| ESOP expense |
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| Change in deferred loan fees, net |
( |
) | ( |
) | ||||
| Benefit for credit losses |
( |
) | ( |
) | ||||
| Depreciation and amortization |
||||||||
| Decrease in accrued interest receivable |
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| Deferred tax expense |
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| Share-based compensation expense |
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| Bank-owned life insurance income |
( |
) | ( |
) | ||||
| Principal repayments of operating lease obligations |
( |
) | ( |
) | ||||
| Net increase in other assets |
( |
) | ( |
) | ||||
| Net decrease in other liabilities |
( |
) | ( |
) | ||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| Cash flows from investing activities: |
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| Proceeds from pay downs, maturities and calls of debt securities available-for-sale |
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| Redemption of Federal Home Loan Bank stock |
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| Loan originations net of principal collections |
( |
) | ( |
) | ||||
| Additions to premises and equipment |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Net (decrease) increase in noninterest-bearing accounts |
( |
) | ||||||
| Net decrease in interest-bearing accounts |
( |
) | ( |
) | ||||
| Net change in short-term borrowings |
( |
) | ||||||
| Repayments on long-term borrowings |
( |
) | ( |
) | ||||
| Shares surrendered related to tax withholdings on restricted stock awards |
( |
) | ||||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosures: |
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| Interest paid |
$ | $ | ||||||
| Income taxes paid |
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Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited financial statements of Provident Bancorp, Inc. (the “Company”) were prepared in accordance with the instructions for Form 10-Q and with Regulation S-X and do not include information or footnotes necessary for a complete presentation of the financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). However, in the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the quarter ended March 31, 2025 are not necessarily indicative of the results that may be expected for future periods, including the entire fiscal year. These financial statements should be read in conjunction with the annual financial statements and notes thereto included in the annual report on Form 10-K the Company filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025.
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiary BankProv (the “Bank”), and the Bank’s wholly owned subsidiaries, Provident Security Corporation, and 5 Market Street Security Corporation. Provident Security Corporation and 5 Market Street Security Corporation were established to buy, sell, and hold investments for their own account.
(2) Corporate Structure
The Company is a Maryland corporation whose primary purpose is to act as the holding company for BankProv. The Bank’s headquarters and main office are located in Amesbury, Massachusetts, and it operates two branch offices in Northeastern Massachusetts, three branch offices in Southeastern New Hampshire and one branch in Bedford, New Hampshire. The Bank also has a loan production office in Ponte Vedra, Florida. BankProv is a Massachusetts-chartered stock savings bank that offers both traditional and innovative banking solutions to its consumer and commercial customers. The Bank’s primary deposit products are checking, savings, and term certificate accounts and its primary lending products are commercial real estate, commercial, and mortgage warehouse loans.
(3) Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (“ASU 2023-09”), to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 requires annual disclosure of specific categories in the rate reconciliation table and separate disclosure for reconciling items that exceed a quantitative threshold. ASU 2023-09 also requires annual disclosure of the amount of income taxes paid disaggregated by federal, state, and foreign taxes, and separately, the amount of income taxes paid disaggregated by individual taxing jurisdictions in which income taxes paid exceed a quantitative threshold. ASU 2023-09 is effective for the Company for fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this Accounting Standard Update with respect to its consolidated financial statements.
(4) Debt Securities
Debt securities are classified as available-for-sale when they might be sold before maturity. Debt securities available-for-sale are valued at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.
The following table summarizes the amortized cost, allowance for credit losses, and fair value of debt securities available-for-sale at March 31, 2025 and December 31, 2024 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:
| Amortized | Gross | Gross | Allowance | |||||||||||||||||
| Cost | Unrealized | Unrealized | for Credit | Fair | ||||||||||||||||
| (In thousands) | Basis | Gains | Losses | Losses | Value | |||||||||||||||
| March 31, 2025 | ||||||||||||||||||||
| State and municipal securities | $ | $ | $ | $ | $ | |||||||||||||||
| Asset-backed securities | ||||||||||||||||||||
| Government mortgage-backed securities | ||||||||||||||||||||
| Total debt securities available-for-sale | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| State and municipal securities | $ | $ | $ | $ | $ | |||||||||||||||
| Asset-backed securities | ||||||||||||||||||||
| Government mortgage-backed securities | ||||||||||||||||||||
| Total debt securities available-for-sale | $ | $ | $ | $ | $ | |||||||||||||||
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
There were
Securities with carrying amounts million and $
The scheduled maturities of debt securities at March 31, 2025 are summarized in the table below. Actual maturities of asset and mortgage-backed securities may differ from contractual maturities because the assets and mortgages underlying the securities may be repaid without any penalties. Because asset- and mortgage-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary:
| Available-for-Sale | ||||||||
| Amortized | Fair | |||||||
| (In thousands) | Cost | Value | ||||||
| Due in one year | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Government mortgage-backed securities | ||||||||
| Asset-backed securities | ||||||||
| $ | $ | |||||||
At the time a debt security is placed on non-accrual status, generally when any principal or interest payments become 90 days or more delinquent or if full collection of interest or principal becomes uncertain, interest accrued but not received is reversed against interest income. There were
The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or longer are as follows at March 31, 2025 and December 31, 2024:
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| (In thousands) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
| March 31, 2025 | ||||||||||||||||||||||||
| Temporarily impaired securities: | ||||||||||||||||||||||||
| State and municipal securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||
| Government mortgage-backed securities | ||||||||||||||||||||||||
| Total temporarily impaired debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| Temporarily impaired securities: | ||||||||||||||||||||||||
| State and municipal | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||
| Government mortgage-backed securities | ||||||||||||||||||||||||
| Total temporarily impaired debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company expects to recover its amortized cost basis on all debt securities. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell these securities in an unrealized loss position as of March 31, 2025, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.
As a result of the analysis below, which is presented by investment type, we determined that no allowance for credit loss for investment securities was required as of March 31, 2025.
State and municipal securities: At March 31, 2025,
Asset-backed securities: At March 31, 2025,
Government mortgage-backed securities: At March 31, 2025, all
Allowance for Credit Losses – Available-For-Sale Securities:
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through a provision for credit losses charged to earnings. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive (loss) income.
Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes an available for sale security is uncollectible, or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable on available-for-sale debt securities totaled $
(5) Loans and Allowance for Credit Losses for Loans
Loans:
A summary of loans is as follows:
| At | At | |||||||
| March 31, | December 31, | |||||||
| (In thousands) | 2025 | 2024 | ||||||
| Commercial real estate | $ | $ | ||||||
| Construction and land development | ||||||||
| Residential real estate | ||||||||
| Mortgage warehouse | ||||||||
| Commercial | ||||||||
| Enterprise value | ||||||||
| Consumer | ||||||||
| Total loans | ||||||||
| Allowance for credit losses for loans | ( | ) | ( | ) | ||||
| Net loans | $ | $ | ||||||
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost net of the allowance for credit losses for loans. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs. Accrued interest receivable on loans totaled $
At the time a loan is placed on non-accrual status, generally at 90 days past due, or earlier if collection of principal or interest is considered doubtful, all interest accrued but not received is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for a return to accrual status. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Credit Losses for Loans:
The allowance for credit losses for loans (“ACLL”) is a valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected. Loans are charged off against the allowance when management believes the collectability of a loan balance is no longer probable. Subsequent recoveries, if any, are credited to the allowance and do not exceed the aggregate of amounts previously charged-off. The Company employs a process and methodology to estimate the ACLL that evaluates both quantitative and qualitative factors. The methodology for evaluating quantitative factors involves pooling loans into portfolio segments that share similar risk characteristics.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments:
Commercial real estate: Loans in this segment are primarily income-producing properties throughout Massachusetts and New Hampshire. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, can have an effect on the credit quality in this segment. Management periodically obtains rent rolls and continually monitors the cash flows of these loans.
Construction and land development: Loans in this segment primarily include speculative and pre-sold real estate development loans for which payment is derived from sale of the property or a conversion of the construction loans to permanent loans for which payment is then derived from cash flows of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, inaccurate estimates of the value of the completed project, and market conditions.
Residential real estate: All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will affect the credit quality in this segment. We no longer originate residential real estate loans, and previously we did not typically originate loans with a loan-to-value ratio greater than
Mortgage warehouse: Loans in this segment are primarily facility lines to non-bank mortgage origination companies. The underlying collateral of these loans are residential real estate loans. Loans are originated by the mortgage companies for sale into secondary markets, which is typically within
Commercial: Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, can have an affect on the credit quality in this segment.
Enterprise value: Loans in this segment are made to small- and medium-size businesses in a senior secured position and are generally secured by the enterprise value of the business. The enterprise value consists of the going concern value of the business and takes into account the value of business assets (both tangible and intangible). Repayment is expected from the cash flows of the business. Economic and industry specific conditions can affect the credit quality of this segment.
Consumer: Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.
Management estimates the ACLL balance using relevant and reliable information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Generally, management considers its forecasts to be reasonable and supportable for a period of up to four quarters and then utilizes a four-quarter straight-line reversion period. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as portfolio mix, delinquency levels, or term, as well as for changes in economic conditions, such as changes in unemployment rates, property values, gross domestic product (“GDP”), home pricing index (“HPI”), or other relevant factors. Incorporated in the estimate for the ACLL is consideration of qualitative factors, which include the following for all loan pools:
| ● | Changes in lending policies and procedures, including changes in underwriting standards and collections, charge offs, and recovery practices; |
| ● | Changes in the experience, depth, and ability of lending management; |
| ● | Changes in the quality of the organization's loan review system; |
| ● | The existence and effect of any concentrations of credit and changes in the levels of such concentrations; |
| ● | The effect of other external factors (i.e. legal and regulatory requirements) on the level of estimated credit losses; and | |
| ● | Changes in volume and trends in classified loans, delinquencies, and loans on non-accrual status. |
In addition to the above, the mortgage warehouse pool includes a qualitative factor for changes in international, national, regional, and local conditions as the ACLL model for this loan pool does not apply an economic regression model in the calculation of the estimated loss rate. The determination of qualitative factors involves significant judgment.
The allowance for unfunded commitments is maintained by the Company at a level determined to be sufficient to absorb current expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit).
The Company measures the ACLL using the following methods:
| Portfolio Segment | Measurement Method | Loss Driver | ||
| Commercial real estate | Discounted cash flow | National unemployment rate, national GDP | ||
| Construction and land development | Discounted cash flow | National unemployment rate, national GDP | ||
| Residential real estate | Discounted cash flow | National unemployment rate, national HPI | ||
| Mortgage warehouse | Remaining life method | Not applicable | ||
| Commercial | Discounted cash flow | National unemployment rate, national GDP | ||
| Enterprise value | Discounted cash flow | National unemployment rate, national GDP | ||
| Consumer | Discounted cash flow | National unemployment rate, national GDP |
When the discounted cash flow method is used to determine the ACLL, management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a modification will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
When the remaining life method is used to determine the ACLL, a calculated loss rate is applied to the pool of loans based on the remaining life expectation of the pool. The remaining life expectation is based on management’s reasonable expectation at the reporting date.
Loans that do not share risk characteristics, whether or not they are performing in accordance with their loan terms, are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. The Company will individually evaluate a loan when, based on current information and events, it is probable that it will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in making this determination include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Insignificant payment delays and payment shortfalls generally are not considered reason enough to individually analyze a loan. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. When management determines that a loan should be individually analyzed, expected credit losses are based on either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral at the reporting date, adjusted for selling costs, as appropriate.
The following table presents the activity in the allowance for credit losses for loans by portfolio segment for the three months ended March 31, 2025 and 2024:
| (In thousands) | Commercial real estate | Construction and land development | Residential real estate | Mortgage warehouse | Commercial | Enterprise value | Digital asset | Consumer | Total | |||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||
| Provision (credit) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||
| Provision (credit) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
The following table presents loan delinquencies by portfolio segment at March 31, 2025 and December 31, 2024:
| 90 Days | Total | |||||||||||||||||||||||
| 30 - 59 | 60 - 89 | or More | Past | Total | Total | |||||||||||||||||||
| (In thousands) | Days | Days | Past Due | Due | Current | Loans | ||||||||||||||||||
| March 31, 2025 | ||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Construction and land development | ||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||
| Mortgage warehouse | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Enterprise value | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Construction and land development | ||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||
| Mortgage warehouse | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Enterprise value | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table presents the amortized cost basis of loans on non-accrual with no allowance for credit loss, loans on non-accrual, and loans 90 days or more past due but still accruing as of March 31, 2025 and December 31, 2024:
| Non-accrual | 90 Days | |||||||||||
| With No | or More | |||||||||||
| Allowance | Non-accrual | Past Due | ||||||||||
| (In thousands) | for Credit Loss | Loans | and Accruing | |||||||||
| March 31, 2025 | ||||||||||||
| Commercial real estate | $ | $ | $ | |||||||||
| Residential real estate | ||||||||||||
| Commercial | ||||||||||||
| Enterprise value | ||||||||||||
| Consumer | ||||||||||||
| Total | $ | $ | $ | |||||||||
| December 31, 2024 | ||||||||||||
| Commercial real estate | $ | $ | $ | |||||||||
| Residential real estate | ||||||||||||
| Commercial | ||||||||||||
| Enterprise value | ||||||||||||
| Consumer | ||||||||||||
| Total | $ | $ | $ | |||||||||
The Company did recognize interest income on non-accrual loans during the three months ended March 31, 2025 or 2024.
The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2025 and December 31, 2024:
| Commercial | Business | |||||||||||
| Real | Business | Enterprise | ||||||||||
| (In thousands) | Estate | Assets | Value | |||||||||
| March 31, 2025 | ||||||||||||
| Commercial real estate | $ | $ | $ | |||||||||
| Commercial | ||||||||||||
| Enterprise value | ||||||||||||
| Total | $ | $ | $ | |||||||||
| December 31, 2024 | ||||||||||||
| Commercial real estate | $ | $ | $ | |||||||||
| Commercial | ||||||||||||
| Enterprise value | ||||||||||||
| Total | $ | $ | $ | |||||||||
Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing the following types of modifications: principal forgiveness, other-than-insignificant payment delays, term extensions, interest rate reductions, or a combination of these modifications. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses on loans.
The following table presents the amortized cost basis of loans at March 31, 2025 and 2024 that were both experiencing financial difficulty and modified during the three months ended March 31, 2025 and 2024, respectively, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below:
| (Dollars in thousands) | Other-Than-Insignificant Payment Delay | Combination Term Extension and Other-Than-Insignificant Payment Delay | Total Class of Financing Receivable $ | Total Class of Financing Receivable % | ||||||||||||
| March 31, 2025 | ||||||||||||||||
| Enterprise value | $ | $ | $ | % | ||||||||||||
| Total | $ | $ | $ | % | ||||||||||||
| March 31, 2024 | ||||||||||||||||
| Commercial real estate | $ | $ | $ | % | ||||||||||||
| Commercial | % | |||||||||||||||
| Total | $ | $ | $ | % | ||||||||||||
In certain instances, if a borrower continues to experience financial difficulty following a modification, additional concessions may be granted. As of March 31, 2025, the modifications made to borrowers experiencing financial difficulty included $
The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three months ended March 31, 2025 and 2024:
| Weighted-Average Other-Than-Insignificant Payment Delay | Weighted-Average Term Extension and Other-Than-Insignificant Payment Delay | |||||||||||
| Months | Months | Months | ||||||||||
| March 31, 2025 | ||||||||||||
| Enterprise value | — | — | ||||||||||
| March 31, 2024 | ||||||||||||
| Commercial real estate | ||||||||||||
| Commercial | — | — | ||||||||||
As of March 31, 2025 and March 31, 2024, the Company had additional commitments to lend to borrowers experiencing financial difficulty whose loan terms were modified during the three months preceding each respective date. The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The table below shows the delinquency status of loans that were modified to borrowers experiencing financial difficulty within the preceding 12 months from March 31, 2025 and 2024:
| 30 - 59 | 60 - 89 | 90 Days or More | ||||||||||||||||||
| (In thousands) | Current | Days Past Due | Days Past Due | Past Due | Total Past Due | |||||||||||||||
| March 31, 2025 | ||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | |||||||||||||||
| Enterprise value | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| March 31, 2024 | ||||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial | ||||||||||||||||||||
| Enterprise value | ||||||||||||||||||||
| Digital asset | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
As of March 31, 2025, $
The following table provides the amortized cost basis of loans that had a payment default during the period and were modified within the preceding 12 months from default to borrowers experiencing financial difficulty:
| (Dollars in thousands) | Other-Than-Insignificant Payment Delay | Combination Term Extension and Other-Than-Insignificant Payment Delay | Total Class of Financing Receivable | |||||||||
| March 31, 2025 | ||||||||||||
| Enterprise value | $ | $ | $ | |||||||||
| Total | $ | $ | $ | |||||||||
As of March 31, 2024, there were
Credit Quality Information
The Company utilizes a seven-grade internal loan risk rating system for commercial real estate, construction and land development, commercial, and enterprise value loans as follows:
Loans rated 1-3: Loans in these categories are considered “pass” rated loans with low to average risk.
Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.
Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.
Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.
Loans rated 7: Loans in this category are considered uncollectible “loss” and of such little value that their continuance as loans is not warranted.
On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and land development, commercial, and enterprise value loans.
On an annual basis, or more often if needed, the Company completes a credit recertification on all mortgage warehouse originators.
For residential real estate loans, the Company initially assesses credit quality based upon the borrower’s ability to pay and rates such loans as pass. Ongoing monitoring is based upon the borrower’s payment activity.
Consumer loans are not formally rated.
Based on the most recent analysis performed, the risk category of loans by class of loans and their corresponding gross write-offs for the three months ended March 31, 2025 is presented below:
| Term Loans at Amortized Cost by Origination Year | ||||||||||||||||||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost | Revolving Loans Converted to Term Loans | Total | |||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Construction and land development | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Total construction and land development | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total residential real estate | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Mortgage warehouse | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Total mortgage warehouse | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Enterprise Value | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total enterprise value | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Not formally rated | ||||||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
The following table presents the risk category of loans by class of loans as of December 31, 2024 and their corresponding gross write-offs for the year then ended:
| Term Loans at Amortized Cost by Origination Year | ||||||||||||||||||||||||||||||||||||
| (In thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans Amortized Cost | Revolving Loans Converted to Term Loans | Total | |||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Construction and land development | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Total construction and land development | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total residential real estate | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Mortgage warehouse | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Total mortgage warehouse | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Enterprise Value | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total enterprise value | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Digital asset | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Not formally rated | ||||||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(6) Deposits
A summary of deposit balances, by type is as follows:
| At | At | |||||||
| March 31, | December 31, | |||||||
| (In thousands) | 2025 | 2024 | ||||||
| Noninterest-bearing: | ||||||||
| Demand | $ | $ | ||||||
| Interest-bearing: | ||||||||
| NOW | ||||||||
| Regular savings | ||||||||
| Money market deposits | ||||||||
| Certificates of deposit: | ||||||||
| Certificate accounts of $250,000 or more | ||||||||
| Certificate accounts less than $250,000 | ||||||||
| Total interest-bearing | ||||||||
| Total deposits | $ | $ | ||||||
At March 31, 2025 and December 31, 2024, the aggregate amount of brokered certificates of deposit was $
(7) Borrowings
Advances consist of funds borrowed from the Federal Home Loan Bank (the “FHLB”) and the Federal Reserve Bank of Boston's (“FRB”) borrower-in-custody (“BIC”) program. Maturities of advances from the FHLB and FRB as of March 31, 2025 are summarized as follows:
| (In thousands) | ||||
| Fiscal Year-End | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ |
Advances from the FHLB are secured by qualified collateral, consisting primarily of certain commercial real estate loans, qualified mortgage-backed government securities and certain loans with mortgages secured by one- to four-family properties. At March 31, 2025, advances from the FHLB consisted of short-term advances of $
Borrowings from the FRB BIC program are secured by a Uniform Commercial Code financing statement on qualified collateral, consisting of certain commercial loans. The Company had the ability to borrow $
(8) Fair Value Measurements
The Company reports certain assets at fair value in accordance with GAAP, which defines fair value and establishes a framework for measuring fair value in accordance with generally accepted accounting principles. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:
Basis of Fair Value Measurements
| ● | Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| ● | Level 2 – Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; |
| ● | Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). |
An asset’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Fair Values of Assets Measured on a Recurring Basis
The Company’s investments in state and municipal, asset-backed and government mortgage-backed debt securities available-for-sale are generally classified within Level 2 of the fair value hierarchy. For these investments, the Company obtains fair value measurements from independent pricing services. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.
The following summarizes financial instruments measured at fair value on a recurring basis at March 31, 2025 and December 31, 2024:
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Significant | Significant | |||||||||||||||
| Other Observable | Unobservable | |||||||||||||||
| Inputs | Inputs | |||||||||||||||
| (In thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| March 31, 2025 | ||||||||||||||||
| State and municipal securities | $ | $ | $ | $ | ||||||||||||
| Asset-backed securities | ||||||||||||||||
| Government mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| State and municipal securities | $ | $ | $ | $ | ||||||||||||
| Asset-backed securities | ||||||||||||||||
| Government mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Fair Values of Assets Measured on a Non-Recurring Basis
The Company may also be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from the application of lower-of-cost-or market accounting or write-downs of individual assets.
Certain loans were adjusted to fair value, less cost to sell, of the underlying collateral securing these loans resulting in losses. The loss is not recorded directly as an adjustment to current earnings, but rather as a component in determining the allowance for credit losses for loans. Fair value was measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for specific properties.
The following summarizes assets measured at fair value on a nonrecurring basis at March 31, 2025 and December 31, 2024:
| Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
| Quoted Prices in | Significant | Significant | ||||||||||||||
| Active Markets for | Other Observable | Unobservable | ||||||||||||||
| Identical Assets | Inputs | Inputs | ||||||||||||||
| (In thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| March 31, 2025 | ||||||||||||||||
| Loans | ||||||||||||||||
| Enterprise value | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| Loans | ||||||||||||||||
| Enterprise value | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following is a summary of the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis at March 31, 2025 and December 31, 2024:
| (In thousands) | Fair Value | Valuation Technique | Unobservable Input | Range | ||||||||
| March 31, 2025 | ||||||||||||
| Loans | ||||||||||||
| Enterprise value | $ | Business valuation | Market assumptions | |||||||||
| December 31, 2024 | ||||||||||||
| Loans | ||||||||||||
| Enterprise value | $ | Business valuation | Market assumptions | |||||||||
At March 31, 2025, the contractual balance of enterprise value loans measured at fair value on a nonrecurring basis was $
Fair Values of Financial Instruments
GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The carrying amounts and estimated fair values of the Company’s financial instruments, all of which are held or issued for purposes other than trading, are as follows at March 31, 2025 and December 31, 2024:
| Carrying | Fair Value | |||||||||||||||||||
| (In thousands) | Amount | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| March 31, 2025 | ||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Available-for-sale debt securities | ||||||||||||||||||||
| Federal Home Loan Bank of Boston stock | N/A | N/A | N/A | N/A | ||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Assets held for sale | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| Borrowings | ||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Available-for-sale debt securities | ||||||||||||||||||||
| Federal Home Loan Bank of Boston stock | N/A | N/A | N/A | N/A | ||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Assets held for sale | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| Borrowings | |
| ||||||||||||||||||
The carrying amounts of financial instruments shown above are included in the consolidated balance sheets under the indicated captions.
(9) Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The Bank is subject to capital regulations that require a Common Equity Tier 1 (“CET1”) capital ratio of
Federal banking agencies have established a community bank leverage ratio (“CBLR”) framework for community banking organizations having total consolidated assets of less than $
The Bank’s actual capital amounts and ratios at March 31, 2025 and December 31, 2024 are summarized as follows:
| Actual | To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||
| (Dollars in thousands) | Amount | Ratio | Amount | Ratio | |||||||||||||
| March 31, 2025 | |||||||||||||||||
| Community Bank Leverage Ratio | $ | % | $ | > | % | ||||||||||||
| December 31, 2024 | |||||||||||||||||
| Community Bank Leverage Ratio | $ | % | $ | > | % | ||||||||||||
Liquidation Accounts
Upon the completion of the Company’s initial stock offering in 2015 and the second step offering in 2019, liquidation accounts were established for the benefit of certain depositors of the Bank in amounts equal to:
| 1. | The product of (i) the percentage of the stock issued in the initial stock offering in 2015 to persons other than Provident Bancorp, the top tier mutual holding company (“MHC”) of the Company and (ii) the net worth of the mid-tier holding company as of the date of the latest balance sheet contained in the prospectus utilized in connection with the offering; and |
| 2. | The MHC’s ownership interest in the retained earnings of the Company as of the date of the latest balance sheet contained in the 2019 prospectus plus the MHC’s net assets (excluding its ownership of the Company). |
The Company and the Bank are not permitted to pay dividends on their capital stock if the shareholders’ equity of the Company, or the shareholder’s equity of the Bank, would be reduced below the amount of the respective liquidation accounts. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts.
Other Restrictions
The Company’s principal source of funds for dividend payments is dividends received from the Bank. Federal and state banking regulations restrict the amount of dividends that may be paid in a year, without prior approval of regulatory agencies, to the net income of the Bank for the year plus the retained net income of the previous two years. For the three months ended March 31, 2025, the Bank reported net income of $
The Company may, at times, repurchase its own shares in the open market. Such transactions are subject to the notice provisions for stock repurchases of the Board of Governors of the Federal Reserve System. In December 2024, the Company announced its plan to repurchase
(10) Employee Stock Ownership Plan
The Bank maintains an employee stock ownership plan (the “ESOP”) to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified plan for the benefit of all eligible Bank employees. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax law limits. The ESOP acquired
Shares held by the ESOP include the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Allocated | ||||||||
| Committed to be allocated | ||||||||
| Unallocated | ||||||||
| Total | ||||||||
The fair value of unallocated shares was approximately $
Total compensation expense recognized in connection with the ESOP for the three months ended March 31, 2025 and 2024 was $
(11) Earnings Per Common Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. Unallocated ESOP shares, treasury stock, and unvested restricted stock are not deemed outstanding for earnings per share calculations.
| Three Months Ended | ||||||||
| (Dollars in thousands, except per share | March 31, | March 31, | ||||||
| dollar amounts) | 2025 | 2024 | ||||||
| Net income attributable to common shareholders | $ | $ | ||||||
| Average number of common shares issued | ||||||||
| Less: | ||||||||
| Average unallocated ESOP shares | ( | ) | ( | ) | ||||
| Average unvested restricted stock | ( | ) | ( | ) | ||||
| Average number of common shares outstanding to calculate basic earnings per common share | ||||||||
| Effect of dilutive unvested restricted stock and stock option awards | ||||||||
| Average number of common shares outstanding to calculate diluted earnings per common share | ||||||||
| Earnings per common share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
Stock options for
(12) Share-Based Compensation
The Company maintains the Provident Bancorp, Inc. 2020 Equity Incentive Plan (the “2020 Equity Plan”) and the Provident Bancorp, Inc. 2016 Equity Incentive Plan (the “2016 Equity Plan”, and collectively with the 2020 Equity Plan, the “Equity Plans”). Under the Equity Plans, the Company may grant options, restricted stock, restricted units or performance awards to its directors, officers, and employees. Both incentive stock options and non-qualified stock options may be granted under the Equity Plans, with
Expense related to options and restricted stock granted to directors is recognized in directors’ compensation within non-interest expense.
Stock Options
The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:
| ● | Expected volatility is based on historical volatility of the Company’s common stock price; |
| ● | Expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term, and the vesting period; |
| ● | The dividend yield assumption is based on the Company’s expectation of dividend payouts; and |
| ● | The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option. |
There were no options granted during the three months ended March 31, 2025.
A summary of the status of the Company’s stock options for the three months ended March 31, 2025 is presented in the table below:
| Stock Option Awards | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2024 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Exercised | ||||||||||||||||
| Outstanding at March 31, 2025 | $ | $ | ||||||||||||||
| Outstanding and expected to vest at March 31, 2025 | $ | $ | ||||||||||||||
| Vested and Exercisable at March 31, 2025 | $ | $ | ||||||||||||||
| Unrecognized compensation cost | $ | |||||||||||||||
| Weighted average remaining recognition period (years) | ||||||||||||||||
For the three months ended March 31, 2025 and 2024, expense for the stock options was $
Restricted Stock
Shares issued upon the granting of restricted stock may be either authorized but unissued shares or reacquired shares held by the Company. Any shares forfeited because vesting requirements are not met will be available for issuance under the Equity Plans. The fair market value of shares awarded, based on the market prices at the date of grant, is recorded as unearned compensation and amortized over the applicable vesting period.
The following table presents the activity in restricted stock awards under the Equity Plans for the three months ended March 31, 2025:
| Unvested Restricted Stock Awards | Weighted Average Grant Date Price | |||||||
| Unvested restricted stock awards at December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Forfeited | ||||||||
| Vested | ( | ) | ||||||
| Unvested restricted stock awards at March 31, 2025 | $ | |||||||
| Unrecognized compensation cost | $ | |||||||
| Weighted average remaining recognition period (years) | ||||||||
For the three months ended March 31, 2025 and 2024, expense for the restricted stock awards was $
(13) Leases
The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s balance sheet.
Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For the leases that do not provide an implicit rate, the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine present value of operating lease liabilities. The Company’s lease terms may include lease extension and termination options when it is reasonably certain that the Company will exercise the option. The Company recognized ROU assets totaling $
Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For the three months ended March 31, 2025 and 2024, rent expense, including variable lease components, for the operating leases totaled $
The following table presents information regarding the Company’s operating leases:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Weighted-average discount rate | % | % | ||||||
| Range of lease expiration dates (in years) | 3 - 10 years | 3 - 11 years | ||||||
| Range of lease renewal options (in years) | 0 - 30 years | 0 - 30 years | ||||||
| Weighted-average remaining lease term (in years) | ||||||||
The following table presents the undiscounted annual lease payments under the terms of the Company’s operating leases at March 31, 2025 and December 31, 2024, including a reconciliation to the present value of operating lease liabilities recognized in the Consolidated Balance Sheets:
| March 31, | December 31, | |||||||
| Fiscal Year-End | 2025 | 2024 | ||||||
| (In thousands) | ||||||||
| 2025 | $ | $ | ||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total lease liabilities | $ | $ | ||||||
The lease liabilities recognized include certain lease extensions as it is expected that the Company will use substantially all lease renewal options.
(14) Revenue Recognition
Revenue from contracts with customers in the scope of Accounting Standards Codification (“ASC Topic 606”) is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.
The Company’s performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.
The Company recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Additionally, revenue is collected from loan fees, such as letters of credit, line renewal fees and application fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.
(15) Qualified Affordable Housing Project Investments
The Bank invests in qualified affordable housing projects. At March 31, 2025 and December 31, 2024, the balance of the investment for qualified affordable housing projects was $
(16) Assets Held for Sale
During the third quarter of 2024 the Bank entered into a preliminary agreement with a third-party for a sale and leaseback transaction, expected to close within one year, related to its flagship branch and limited administrative space. Upon entering the preliminary agreement, the building, with a carrying value of $
(17) Segment Information
The Company's sole reportable segment is determined by the Chief Financial Officer, who is the designated chief operating decision maker, based upon information provided to him regarding the Company's banking products and services offered. Please refer to the consolidated statements of operations and the consolidated balance sheets included herein.
The Company only has reportable segment, distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the Company, which are then aggregated since operating performance, products and service, and customers are similar. The chief operating decision maker assesses the financial performance of the Company's business components by evaluating revenue streams and significant expenses in determining the Company's segment and the allocation of resources. The chief operating decision maker uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. Consolidated net income is used by the chief operating decision maker to benchmark the Company against its competitors. The benchmarking analysis is used in assessing performance and establishing compensation.
(18) Commitments and Contingencies
On October 24, 2024, the Company received a letter from the staff of the Boston Regional Office of the SEC informing the Company that the staff had made a preliminary determination to recommend that the SEC file an action against the Company for violating certain sections of the federal securities laws (the “Wells Notice”). The staff has indicated that the Wells Notice relates to the Company’s disclosures regarding loans that the Company made to companies engaged in the mining of cryptocurrency – a line of business the Company ceased originating new loans in as of October 2022. The Wells Notice indicates that the staff’s recommendation to the SEC may involve a civil injunction action or other action allowed by law, and may seek remedies that include an injunction, disgorgement, pre-judgment interest, civil money penalties, and such other relief as may be available.
The Company is pursuing the Wells Notice process and continues to discuss a potential resolution with the staff. The results, costs, timing and other potential consequences of the above matter are unknown at this time. Associated legal costs are expensed as incurred.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations at March 31, 2025 and December 31, 2024 and for the three months ended March 31, 2025 and 2024 is intended to assist in understanding our financial condition and results of operations. Operating results for the three-month period ended March 31, 2025 may not be indicative of results for all of 2025 or any other period. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto, appearing in Part 1, Item 1 of this report.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:
| ● | statements of our goals, intentions and expectations; | |
| ● | statements regarding our business plans, prospects, growth and operating strategies; | |
| ● | statements regarding the quality of our loan and investment portfolios; and | |
| ● | estimates of our risks and future costs and benefits. |
These forward-looking statements are based on our current beliefs and expectations and are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
| ● | general economic conditions, either nationally or in our market areas, that are worse than expected, including potential recessionary conditions or slowed economic growth caused by supply chain disruptions or otherwise; | |
| ● | any concentration risk within our lending and deposit portfolio; | |
| ● | changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for credit losses; | |
| ● | our ability to access cost-effective funding; | |
| ● | fluctuations in real estate values and commercial real estate market conditions; | |
| ● | demand for loans and deposits in our market area; | |
| ● | changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; | |
| ● | negative impact from unfavorable regulatory penalties and/or settlements; | |
| ● | cyber attacks, computer viruses and other technological risks that may breach the security of our websites or other systems, or those of third parties upon which we rely, to obtain unauthorized access to confidential information and destroy data or disable our systems; | |
| ● | technological changes that may be more difficult or expensive than expected; | |
| ● | the ability of third-party providers to perform their obligations to us; | |
| ● | the ability of the U.S. Government to manage federal debt limits; | |
| ● | our ability to continue to implement or change our business strategies; | |
| ● | competition among depository and other financial institutions; | |
| ● | inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets; | |
| ● | adverse changes in the securities markets; | |
| ● | changes in and impacts of laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, tax policy and rates, and capital requirements, and our ability to comply with such laws and regulations; | |
| ● | our ability to address any issues raised in regulatory examinations; | |
| ● | our ability to manage market risk, credit risk and operational risk; | |
| ● | our ability to enter new markets successfully and capitalize on growth opportunities; | |
| ● | our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; | |
| ● | changes in consumer spending, borrowing and savings habits; | |
| ● | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; | |
| ● | the ability to raise capital to implement our business plan, if necessary; | |
| ● | the effect of potential future supervisory action against us or BankProv and our ability to address any issues raised in our regulatory exams; | |
| ● | our ability to retain key employees; | |
| ● | effects of natural disasters and global pandemics; | |
| ● | the effects of any U.S. government shutdown; | |
| ● | the effects of domestic and international hostilities, including terrorism; | |
| ● | the implementation of tariffs, and the potential for retaliatory trade measures from other nations, which could raise the cost of goods and services; | |
| ● | our ability to control costs and expenses, particularly in relation to the non-discretionary costs associated with operating as a publicly traded company; | |
| ● | our compensation expense associated with equity allocated or awarded to our employees; and | |
| ● | changes in the financial condition, results of operations or future prospects of issuers of securities that we own. |
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policy, which involves the most complex or subjective decisions or assessments, is as follows:
Allowance for Credit Losses for Loans. The allowance for credit losses for loans (“ACLL”) represents management’s estimate of expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the ACLL is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACLL in those future periods.
The appropriateness of the ACLL could change significantly because current economic conditions and forecasts can change and future events are inherently difficult to predict. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. One of the most significant judgments used in determining the allowance for credit losses is the macroeconomic forecast provided by a third party. Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses.
While management utilizes its best judgment and information available, the ultimate adequacy of our ACLL is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, and changes in interest rates. For more information regarding the Allowance for Credit losses for Loans refer to Note 5 - Loans and Allowance for Credit Losses for Loans of the Notes to the Unaudited Consolidated Financial Statements.
Balance Sheet Analysis
The Bank achieved substantive growth during the first quarter of 2025 in all targeted lending areas, which was partially offset by the accelerated reduction of the enterprise value loan portfolio. The strategy to transform the balance sheet to that of a traditional community bank has positively impacted the Bank’s earnings power while reducing exposure to riskier segments, despite a net reduction in the balance sheet during that period.
Assets. Total assets were $1.55 billion at March 31, 2025, a decrease of $39.2 million, or 2.5%, from $1.59 billion at December 31, 2024. The decrease resulted primarily from a decrease in cash and cash equivalents.
Cash and Cash Equivalents. Cash and cash equivalents decreased $44.2 million, or 26.1%, to $125.0 million at March 31, 2025, compared to $169.1 million at December 31, 2024, primarily due to a decrease in deposits. For more information on cash sources and uses please refer to “– Liquidity and Capital Resources”.
Loan Portfolio Analysis. Net loans were $1.31 billion at March 31, 2025, an increase of $5.7 million, or 0.4%, from December 31, 2024. The increase in net loans was primarily driven by commercial loan growth of $36.7 million, or 4.9%, with growth in each of the commercial, commercial real estate, and construction and land development loan segments. Mortgage warehouse loans also increased $16.9 million, or 6.5%, from December 31, 2024. This growth was partially offset by the decrease in enterprise value loans of $47.3 million, or 15.3%, bringing this segment below 20.0% of the Bank's loan portfolio.
Loan Portfolio Concentrations. The following table provides information with respect to our loan portfolio concentrations at March 31, 2025 and December 31, 2024:
| At March 31, 2025 |
At December 31, 2024 |
|||||||||||||||
| (Dollars in thousands) |
Amount |
Percent of total loans |
Amount |
Percent of total loans |
||||||||||||
| Commercial real estate |
$ | 587,541 | 44.10 | % | $ | 559,325 | 42.16 | % | ||||||||
| Construction and land development |
32,401 | 2.43 | 28,097 | 2.12 | ||||||||||||
| Residential real estate |
5,647 | 0.42 | 6,008 | 0.45 | ||||||||||||
| Mortgage warehouse |
276,069 | 20.72 | 259,181 | 19.54 | ||||||||||||
| Commercial |
168,087 | 12.62 | 163,927 | 12.36 | ||||||||||||
| Enterprise value |
262,445 | 19.70 | 309,786 | 23.35 | ||||||||||||
| Consumer |
165 | 0.01 | 271 | 0.02 | ||||||||||||
| Total loans |
1,332,355 | 100.00 | % | 1,326,595 | 100.00 | % | ||||||||||
| Allowance for credit losses for loans |
(21,160 | ) | (21,087 | ) | ||||||||||||
| Net loans |
$ | 1,311,195 | $ | 1,305,508 | ||||||||||||
Commercial Real Estate Concentrations. The following table provides information with respect to our commercial real estate concentrations at March 31, 2025 and December 31, 2024:
| At March 31, 2025 |
At December 31, 2024 |
|||||||||||||||||||||||
| Percent of |
Percent of |
Percent of |
Percent of |
|||||||||||||||||||||
| (Dollars in thousands) |
Amortized cost |
commercial real estate |
total loans |
Amortized cost |
commercial real estate |
total loans |
||||||||||||||||||
| Industrial/manufacturing/warehouse |
$ | 93,137 | 15.85 | % | 6.99 | % | $ | 93,551 | 16.73 | % | 7.05 | % | ||||||||||||
| Self-storage facility |
79,828 | 13.59 | 5.99 | 80,301 | 14.36 | 6.05 | ||||||||||||||||||
| Multifamily |
70,407 | 11.98 | 5.28 | 67,068 | 11.99 | 5.06 | ||||||||||||||||||
| Office |
63,454 | 10.80 | 4.76 | 62,228 | 11.13 | 4.69 | ||||||||||||||||||
| Mixed use |
43,959 | 7.48 | 3.30 | 44,322 | 7.92 | 3.34 | ||||||||||||||||||
| Mobile home park |
40,924 | 6.97 | 3.07 | 32,124 | 5.74 | 2.42 | ||||||||||||||||||
| Hotel/motel/inn |
38,560 | 6.56 | 2.90 | 40,118 | 7.17 | 3.02 | ||||||||||||||||||
| Campground/RV park |
34,666 | 5.90 | 2.60 | 22,176 | 3.96 | 1.67 | ||||||||||||||||||
| Residential one-to-four family |
28,909 | 4.92 | 2.17 | 27,699 | 4.95 | 2.09 | ||||||||||||||||||
| Retail |
25,295 | 4.31 | 1.90 | 20,621 | 3.69 | 1.55 | ||||||||||||||||||
| Other commercial real estate |
68,402 | 11.64 | 5.14 | 69,117 | 12.36 | 5.22 | ||||||||||||||||||
| Total |
$ | 587,541 | 100.00 | % | 44.10 | % | $ | 559,325 | 100.00 | % | 42.16 | % | ||||||||||||
Enterprise Value Concentrations. The Bank has focused on reducing the risk exposure in this portfolio, including continuing to build our credit management practices with improved analytics that provide for enhanced monitoring of early warning risk indicators. This effort has resulted in more detailed industry information, as noted in the table below where loans previously classified as Other were re-classified during the first quarter of 2025 to improve the reporting of our concentrations and industry diversification. The following table provides information with respect to our enterprise value concentrations at March 31, 2025 and December 31, 2024:
| As of March 31, 2025 |
At December 31, 2024 |
|||||||||||||||||||||||
| Percent of |
Percent of |
Percent of |
Percent of |
|||||||||||||||||||||
| (Dollars in thousands) |
Amortized cost |
enterprise value |
total loans |
Amortized cost |
enterprise value |
total loans |
||||||||||||||||||
| Consulting services |
$ | 51,268 | 19.53 | % | 3.85 | % | $ | 61,840 | 19.96 | % | 4.66 | % | ||||||||||||
| Healthcare and social assistance |
36,598 | 13.95 | 2.75 | 33,352 | 10.77 | 2.51 | ||||||||||||||||||
| Professional services |
34,311 | 13.07 | 2.58 | 37,898 | 12.23 | 2.86 | ||||||||||||||||||
| Advertising |
29,104 | 11.09 | 2.18 | 36,464 | 11.77 | 2.75 | ||||||||||||||||||
| Construction |
25,030 | 9.54 | 1.88 | 13,895 | 4.49 | 1.05 | ||||||||||||||||||
| Personal services |
24,974 | 9.52 | 1.87 | 26,035 | 8.40 | 1.96 | ||||||||||||||||||
| Industrial/manufacturing/warehouse |
23,802 | 9.07 | 1.79 | 24,697 | 7.97 | 1.86 | ||||||||||||||||||
| Real estate services |
19,633 | 7.48 | 1.47 | 27,935 | 9.02 | 2.11 | ||||||||||||||||||
| Other |
17,725 | 6.75 | 1.33 | 47,670 | 15.39 | 3.59 | ||||||||||||||||||
| Total |
$ | 262,445 | 100.00 | % | 19.70 | % | $ | 309,786 | 100.00 | % | 23.35 | % | ||||||||||||
Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies, uniform underwriting criteria, and providing prompt attention to potential problem loans. Management of asset quality is accomplished through strong internal controls, monitoring and reporting of key risk indicators, and both internal and independent third-party loan reviews. The primary objective of our loan review process is to measure borrower performance and assess risk to identify loan weakness in order to minimize loan loss exposure. From the time of loan origination through final repayment, commercial real estate, enterprise value, construction and land development and commercial loans are assigned a risk rating. We use an internal loan grading system and formally review the ratings annually for most loans, in addition to independent third-party review.
Internal and independent third-party loan reviews vary by loan type and, depending on the size and complexity of the loan, some loans may warrant detailed individual review, while other loans may have less risk, based upon size, or inclusion in a homogeneous pool, reducing the need for detailed individual analysis. Assets with these characteristics, such as consumer loans and residential mortgages, may be reviewed based on risk indicators such as delinquency or credit rating. In cases of significant concern, a total re-evaluation of a loan and its associated risks are documented. We may re-evaluate the fair market value or net realizable value to determine the likelihood of potential loss exposure and, consequently, the adequacy of specific and general credit loss reserves.
When a borrower fails to make a required loan payment, we take steps to have the borrower cure the delinquency and restore the loan to current status, including contacting the borrower at regular intervals. When the borrower is in default, we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the property securing the loan generally is sold at foreclosure. On a monthly and/or quarterly basis, management provides the Board of Directors delinquency reports and analysis, including information on any foreclosures, if applicable.
Delinquencies. Total past due loans increased $15.3 million to $17.5 million at March 31, 2025 from $2.2 million at December 31, 2024. The increase was primarily driven by enterprise value relationships of $10.4 million and $3.6 million, that became delinquent during the first quarter of 2025. The $3.6 million is part of a relationship totaling $4.0 million that was downgraded to special mention as of March 31, 2025, and the $10.4 million relationship is further described below, with our non-performing assets. The remaining increase in delinquent loans of $1.3 million pertain to enterprise value loans that received a four-month payment delay during the first quarter of 2025. However, interest payments on the loan remained outstanding and delinquent.
Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status and real estate and other loan collateral acquired through foreclosure and repossession. All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is initially recorded at fair value less costs to sell, establishing a new cost basis. Declines in fair value subsequent to foreclosure will result in charges against income, while operating costs after acquisition are expensed.
The following table sets forth information regarding our non-performing assets at the dates indicated:
| (Dollars in thousands) |
At March 31, 2025 |
At December 31, 2024 |
||||||
| Non-accrual loans: |
||||||||
| Commercial real estate |
$ | 217 | $ | 57 | ||||
| Residential real estate |
360 | 366 | ||||||
| Commercial |
1,543 | 1,543 | ||||||
| Enterprise value |
29,298 | 18,920 | ||||||
| Consumer |
1 | 1 | ||||||
| Total non-accrual loans |
31,419 | 20,887 | ||||||
| Total non-performing assets |
$ | 31,419 | $ | 20,887 | ||||
| Allowance for credit losses for loans as a percent of non-performing loans |
67.35 | % | 100.96 | % | ||||
| Non-performing loans as a percent of total loans (1) |
2.36 | % | 1.57 | % | ||||
| Non-performing loans as a percent of total assets |
2.02 | % | 1.31 | % | ||||
| (1) | Loans are presented at amortized cost. |
Non-accrual loans increased $10.5 million, or 50.4%, to $31.4 million, or 2.36% of total loans outstanding at March 31, 2025, from $20.9 million, or 1.57% of total loans outstanding at December 31, 2024. The increase in non-accrual loans as of March 31, 2025 was primarily driven by a $10.4 million enterprise value loan relationship that was placed on non-accrual status and individually analyzed for reserves during the first quarter of 2025. Based on third-party valuation, which indicated sufficient collateral, the Bank has not taken a reserve against this relationship as of March 31, 2025. The enterprise value relationship is with a behavioral health company with multiple mental health and addiction treatment facilities located in Massachusetts. The Bank is evaluating a loan workout facility that was proposed after March 31, 2025, which would make rate and term concessions to secure a path to full repayment and under terms acceptable to the Bank. The Bank does not expect any material changes to the ACLL as a result of this loan workout facility. Additionally, the separate $17.7 million enterprise value relationship placed on non-accrual status in 2024 continues to have unstable operating results and required an additional reserve of $647,000 during the first quarter of 2025.
Repayment of non-performing loans is largely dependent on the return of such loans to performing status or the liquidation of the underlying collateral. The Company pursues the resolution of all non-performing loans through collections, modifications, voluntary liquidation of collateral by the borrower and, where necessary, legal action. When attempts to work with a customer to return a loan to performing status, including restructuring the loan, are unsuccessful, the Company will initiate appropriate legal action seeking to acquire property by deed in lieu of foreclosure or through foreclosure, or to liquidate business assets.
Activity in the Allowance for Credit Losses for Loans. The following table sets forth activity in our allowance for credit losses for the periods indicated:
| Three Months Ended March 31, |
||||||||
| (Dollars in thousands) |
2025 |
2024 |
||||||
| Allowance at beginning of period |
$ | 21,087 | $ | 21,571 | ||||
| Credit loss expense (benefit) for loans |
70 | (5,543 | ) | |||||
| Charge-offs: |
||||||||
| Commercial |
— | 5 | ||||||
| Consumer |
7 | 18 | ||||||
| Total charge-offs |
7 | 23 | ||||||
| Recoveries: |
||||||||
| Commercial |
10 | — | ||||||
| Consumer |
— | 1 | ||||||
| Total recoveries |
10 | 1 | ||||||
| Net (recoveries) charge-offs |
(3 | ) | 22 | |||||
| Allowance at end of period |
$ | 21,160 | $ | 16,006 | ||||
| Allowance to total loans outstanding at end of period |
1.59 | % | 1.18 | % | ||||
| Net charge-offs to average loans outstanding during the period (annualized) |
(0.00 | )% | 0.01 | % | ||||
The increase in the allowance between March 31, 2025 and March 31, 2024 was primarily due to one enterprise value relationship with an amortized cost of $17.6 million which incurred $10.8 million in individually analyzed reserves since March 31, 2024. The increase in the allowance for credit losses for loans was partially offset by an $880,000 recovery and reductions in the general allowance due to updated loss rates resulting from the annual refresh of our current expected credit loss model in the fourth quarter of 2024, and changes in the loan portfolio mix since March 31, 2024.
Deposits. Total deposits were $1.18 billion at March 31, 2025, a decrease of $124.4 million, or 9.5%, from $1.31 billion at December 31, 2024. This decrease was primarily due to decreases of $34.5 million in specialty deposits, $13.1 million in deposits related to our enterprise value loan portfolio, $25.2 million in brokered deposits, and $20.8 million in deposits obtained through listing services.
The following table sets forth the distribution of total deposits by account type at the dates indicated:
| At March 31, 2025 |
At December 31, 2024 |
|||||||||||||||
| (Dollars in thousands) |
Amount |
Percent |
Amount |
Percent |
||||||||||||
| Noninterest-bearing: |
||||||||||||||||
| Retail deposits |
||||||||||||||||
| Demand |
$ | 302,275 | 25.52 | % | $ | 351,528 | 26.86 | % | ||||||||
| Interest-bearing: |
||||||||||||||||
| Retail deposits |
||||||||||||||||
| NOW |
69,394 | 5.86 | % | 83,270 | 6.36 | % | ||||||||||
| Regular savings |
86,169 | 7.28 | % | 87,340 | 6.67 | % | ||||||||||
| Money market deposits |
445,312 | 37.59 | % | 463,686 | 35.42 | % | ||||||||||
| Certificates of deposit |
129,620 | 10.94 | % | 125,365 | 9.58 | % | ||||||||||
| Brokered deposits |
||||||||||||||||
| Money market deposits |
1 | — | % | 1 | — | % | ||||||||||
| Certificates of deposit |
124,959 | 10.55 | % | 150,189 | 11.47 | % | ||||||||||
| Listing service deposits |
||||||||||||||||
| Regular savings |
26,792 | 2.26 | % | 44,858 | 3.43 | % | ||||||||||
| Certificates of deposit |
— | — | % | 2,723 | 0.21 | % | ||||||||||
| Total |
$ | 1,184,522 | 100.00 | % | $ | 1,308,960 | 100.00 | % | ||||||||
Borrowings. Total borrowings were $127.5 million at March 31, 2025, an increase of $83.0 million, or 186.2%, from December 31, 2024. As a result of the decrease in deposits, the Bank utilized overnight borrowings to meet short-term liquidity obligations at March 31, 2025.
Shareholders’ Equity. As of March 31, 2025, shareholders’ equity totaled $234.0 million, an increase of $2.9 million, or 1.3%, from December 31, 2024. The increase includes the Company's net income, which totaled $2.2 million for the quarter ended March 31, 2025. Shareholders’ equity to total assets was 15.1% at March 31, 2025, compared to 14.5% at December 31, 2024. Book value per share was $13.16 at March 31, 2025, an increase from $12.99 at December 31, 2024. Market value per share increased to $11.48 at March 31, 2025, an increase of 0.7% from $11.40 at December 31, 2024. As of March 31, 2025, the Bank was categorized as well capitalized under the Federal Deposit Insurance Corporation regulatory framework for prompt corrective action.
Results of Operations for the Three Months Ended March 31, 2025 and 2024
General. The Company reported net income for the quarter ended March 31, 2025 of $2.2 million, or $0.13 per diluted share, compared to $5.0 million, or $0.30 per diluted share, for the quarter ended March 31, 2024. The Company’s return on average assets was 0.58% for the quarter ended March 31, 2025, compared to 1.26% for the quarter ended March 31, 2024. The Company's return on average equity was 3.71% for the quarter ended March 31, 2025, compared to 8.93% for the quarter ended March 31, 2024.
Net Interest and Dividend Income. Net interest and dividend income was $12.9 million, an increase of $389,000, or 3.1%, compared to the quarter ended March 31, 2024. The interest rate spread and net interest margin were 2.62% and 3.65%, respectively, for the quarter ended March 31, 2025, compared to 2.28% and 3.38%, respectively, for the quarter ended March 31, 2024.
Average Balance Sheet and Related Yields and Rates. The following table sets forth the average balance sheets, annualized average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the amount of tax-free interest-earning assets was immaterial. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.
| For the Three Months Ended |
|||||||||||||||||||||
| March 31, 2025 |
March 31, 2024 |
||||||||||||||||||||
| Interest |
Interest |
||||||||||||||||||||
| Average |
Earned/ |
Yield/ |
Average |
Earned/ |
Yield/ |
||||||||||||||||
| (Dollars in thousands) |
Balance |
Paid |
Rate (5) |
Balance |
Paid |
Rate (5) |
|||||||||||||||
| Assets: |
|||||||||||||||||||||
| Interest-earning assets: |
|||||||||||||||||||||
| Loans (1) |
$ | 1,291,583 | $ | 19,307 | 5.98% |
$ | 1,323,260 | $ | 20,069 | 6.07 | % | ||||||||||
| Short-term investments |
90,198 | 1,013 | 4.49% |
123,546 | 1,729 | 5.60 | % | ||||||||||||||
| Debt securities available-for-sale |
25,594 | 190 | 2.97% |
28,234 | 205 | 2.90 | % | ||||||||||||||
| Federal Home Loan Bank stock |
2,696 | 70 | 10.39% |
1,783 | 32 | 7.18 | % | ||||||||||||||
| Total interest-earning assets |
1,410,071 | 20,580 | 5.84% |
1,476,823 | 22,035 | 5.97 | % | ||||||||||||||
| Noninterest earning assets |
92,277 | 98,890 | |||||||||||||||||||
| Total assets |
$ | 1,502,348 | $ | 1,575,713 | |||||||||||||||||
| Liabilities and shareholders' equity: |
|||||||||||||||||||||
| Interest-bearing liabilities: |
|||||||||||||||||||||
| Savings accounts |
$ | 118,713 | $ | 264 | 0.89% |
$ | 244,148 | $ | 1,961 | 3.21 | % | ||||||||||
| Money market accounts |
447,792 | 3,756 | 3.36% |
454,883 | 4,238 | 3.73 | % | ||||||||||||||
| NOW accounts |
72,893 | 257 | 1.41% |
82,831 | 183 | 0.88 | % | ||||||||||||||
| Certificates of deposit |
268,879 | 3,092 | 4.60% |
230,616 | 2,958 | 5.13 | % | ||||||||||||||
| Total interest-bearing deposits |
908,277 | 7,369 | 3.25% |
1,012,478 | 9,340 | 3.69 | % | ||||||||||||||
| Borrowings |
|||||||||||||||||||||
| Short-term borrowings |
37,922 | 306 | 3.23% |
12,181 | 178 | 5.85 | % | ||||||||||||||
| Long-term borrowings |
9,542 | 30 | 1.26% |
9,675 | 31 | 1.28 | % | ||||||||||||||
| Total borrowings |
47,464 | 336 | 2.83% |
21,856 | 209 | 3.83 | % | ||||||||||||||
| Total interest-bearing liabilities |
955,741 | 7,705 | 3.22% |
1,034,334 | 9,549 | 3.69 | % | ||||||||||||||
| Noninterest-bearing liabilities: |
|||||||||||||||||||||
| Noninterest-bearing deposits |
304,601 | 306,349 | |||||||||||||||||||
| Other noninterest-bearing liabilities |
8,277 | 12,041 | |||||||||||||||||||
| Total liabilities |
1,268,619 | 1,352,724 | |||||||||||||||||||
| Total equity |
233,729 | 222,989 | |||||||||||||||||||
| Total liabilities and equity |
$ | 1,502,348 | $ | 1,575,713 | |||||||||||||||||
| Net interest income |
$ | 12,875 | $ | 12,486 | |||||||||||||||||
| Interest rate spread (2) |
2.62% |
2.28 | % | ||||||||||||||||||
| Net interest-earning assets (3) |
$ | 454,330 | $ | 442,489 | |||||||||||||||||
| Net interest margin (4) |
3.65% |
3.38 | % | ||||||||||||||||||
| Average interest-earning assets to interest-bearing liabilities |
147.54 | % | 142.78 | % | |||||||||||||||||
| (1) |
Interest earned/paid on loans includes $780,000 and $734,000 in loan fee income for the three months ended March 31, 2025 and March 31, 2024, respectively. |
| (2) |
Interest rate spread represents the difference between the weighted average yield on interest-bearing assets and the weighted average of interest-bearing liabilities. |
| (3) |
Net interest-earning assets represent total interest earning assets less total interest-bearing liabilities. |
| (4) |
Net interest margin represents net interest income divided by average total interest-earning assets. |
| (5) |
Annualized. |
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effect attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.
| For the Three Months Ended March 31, 2025 |
||||||||||||
| Compared to the Three Months Ended March 31, 2024 |
||||||||||||
| Increase (Decrease) Due to |
Total |
|||||||||||
| (In thousands) |
Rate |
Volume |
Increase (Decrease) |
|||||||||
| Interest-earning assets: |
||||||||||||
| Loans |
$ | (286 | ) | $ | (476 | ) | $ | (762 | ) | |||
| Short-term investments |
(303 | ) | (413 | ) | (716 | ) | ||||||
| Debt securities available-for-sale |
5 | (20 | ) | (15 | ) | |||||||
| Federal Home Loan Bank stock |
18 | 20 | 38 | |||||||||
| Total interest-earning assets |
(566 | ) | (889 | ) | (1,455 | ) | ||||||
| Interest-bearing liabilities: |
||||||||||||
| Savings accounts |
(992 | ) | (705 | ) | (1,697 | ) | ||||||
| Money market accounts |
(417 | ) | (65 | ) | (482 | ) | ||||||
| NOW accounts |
98 | (24 | ) | 74 | ||||||||
| Certificates of deposit |
(326 | ) | 460 | 134 | ||||||||
| Total interest-bearing deposits |
(1,637 | ) | (334 | ) | (1,971 | ) | ||||||
| Borrowings |
||||||||||||
| Short-term borrowings |
(109 | ) | 237 | 128 | ||||||||
| Long-term borrowings |
(1 | ) | — | (1 | ) | |||||||
| Total borrowings |
(110 | ) | 237 | 127 | ||||||||
| Total interest-bearing liabilities |
(1,747 | ) | (97 | ) | (1,844 | ) | ||||||
| Change in net interest income |
$ | 1,181 | $ | (792 | ) | $ | 389 | |||||
Interest and Dividend Income. Total interest and dividend income was $20.6 million for the quarter ended March 31, 2025, a decrease of $1.5 million, or 6.6%, from the quarter ended March 31, 2024. The Company’s yield on interest-earning assets was 5.84% for the quarter ended March 31, 2025, down 13 basis from the quarter ended March 31, 2024 due to the lower market interest rate environment. Interest and fees on loans decreased $762,000, or 3.8%, from the quarter ended March 31, 2024. This decrease was primarily driven by a decrease in the average balance of loans of $31.7 million, or 2.4%, from March 31, 2024. The yield on loans was 5.98% for the quarter, which represents a decrease of nine basis points from the quarter ended March 31, 2024. This decrease in yield reflects the impact of lower prevailing interest rates, coupled with the significant reduction in our enterprise value portfolio, which typically generates higher rates relative to our other portfolios. Interest on short-term investments decreased $716,000, or 41.4%, from the quarter ended March 31, 2024. This decrease was primarily driven by a decrease in the average balance of short-term investments of $33.3 million, or 27.0%, from March 31, 2024. The yield on short-term investments was 4.49% for the quarter, which represents a decrease of 111 basis points from the quarter ended March 31, 2024.
Interest Expense. Total interest expense was $7.7 million for the quarter ended March 31, 2025, a decrease of $1.8 million, or 19.3%, from the quarter ended March 31, 2024. The decrease in interest expense was primarily driven by a decrease in the cost and average balance of interest-bearing deposits. The cost of interest-bearing deposits was 3.25% for the quarter ended March 31, 2025, a decrease of 44 basis points from 3.69% for the quarter ended March 31, 2024. The average balance of interest-bearing deposits decreased $104.2 million, or 10.3%, from March 31, 2024. This decrease was primarily driven by reductions in higher-cost brokered and listing service deposits. Interest expense on borrowings totaled $336,000 for the quarter ended March 31, 2025, an increase of $127,000, or 60.8%, from the quarter ended March 31, 2024. The increase in interest expense on borrowings was primarily driven by an increase in the average balance of borrowings of $25.6 million, or 117.2%, partially offset by a 100-basis point decrease in the cost of borrowings. The Company’s total cost of interest-bearing liabilities was 3.22% for the quarter ended March 31, 2025, a decrease of 47 basis points from 3.69% for the quarter ended March 31, 2024.
Provision for Credit Losses. The Company recognized a $12,000 credit loss benefit for the quarter ended March 31, 2025, compared to a $5.6 million benefit for the quarter ended March 31, 2024. The benefit for the quarter ended March 31, 2025 was primarily driven by a decrease in pooled reserves, mainly due to the $47.3 million decrease in the enterprise value portfolio, which typically carries a higher reserve rate than other loan segments. This was partially offset by an additional $647,000 individually analyzed reserve on a $17.6 million enterprise value relationship which carried a total reserve of $10.8 million as of March 31, 2025. The $5.6 million benefit for the quarter ended March 31, 2024 was primarily due to a $4.9 million reduction in reserves on individually analyzed loans.
Noninterest Income. Noninterest income remained consistent at $1.4 million for the quarters ended March 31, 2025 and March 31, 2024.
Noninterest Expense. Noninterest expense was $11.4 million for the quarter ended March 31, 2025, compared to $12.7 million for the quarter ended March 31, 2024. The $1.3 million, or 10.2%, decrease was primarily due to lower professional fees as well as reduced salaries and employee benefits, reflecting the Bank's ongoing efforts to improve operational efficiency.
Income Tax Expense. The Company recorded an income tax provision of $665,000 for the quarter ended March 31, 2025, reflecting an effective tax rate of 23.5%, compared to a provision of $1.7 million, or an effective tax rate of 25.5%, for the quarter ended March 31, 2024.
Management of Market Risk
Net Interest Income Simulation. We analyze our sensitivity to changes in interest rates through a net interest income simulation model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period in the current interest rate environment. We then calculate what the net interest income would be for the same period under the assumption that interest rates increase or decrease by 100, 200, and 300 basis points from current market rates, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.
The following table presents the estimated changes in net interest income of the Company that would result from changes in market interest rates over the twelve-month period beginning March 31, 2025:
| At March 31, 2025 |
||||||||
| (Dollars in thousands) |
Estimated Net Interest Income Over Next 12 Months |
Change |
||||||
| Changes in Interest Rates (Basis Points) |
||||||||
| 300 | $ | 50,784 | (8.10 | )% | ||||
| 200 | 52,350 | (5.20 | )% | |||||
| 100 | 53,852 | (2.50 | )% | |||||
| 0 | 55,235 | — | ||||||
| (100) | 55,875 | 1.20 | % | |||||
| (200) | 56,044 | 1.50 | % | |||||
| (300) | 55,584 | 0.60 | % | |||||
Economic Value of Equity Simulation. We also analyze the sensitivity of our financial condition to changes in interest rates through an economic value of equity (“EVE”) model. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. The EVE ratio represents the dollar amount of our EVE divided by the present value of our total assets for a given interest rate scenario. EVE attempts to quantify our economic value using a discounted cash flow methodology while the EVE ratio reflects that value as a form of capital ratio. We estimate what our EVE would be as of a specific date. We then calculate what EVE would be as of the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate EVE under the assumptions that interest rates increase or decrease by 100, 200, and 300 basis points from current market rates.
The following table presents the estimated changes in EVE of the Company that would result from changes in market interest rates as of March 31, 2025:
| At March 31, 2025 |
||||||||
| (Dollars in thousands) |
Economic Value of Equity |
Change |
||||||
| Changes in Interest Rates (Basis Points) |
||||||||
| 300 | $ | 267,530 | (7.60 | )% | ||||
| 200 | 274,444 | (5.20 | )% | |||||
| 100 | 282,782 | (2.30 | )% | |||||
| 0 | 289,559 | — | ||||||
| (100) | 290,564 | 0.30 | % | |||||
| (200) | 286,969 | (0.90 | )% | |||||
| (300) | 277,091 | (4.30 | )% | |||||
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the tables presented above assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, borrowings, and loan repayments and maturities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, mortgage prepayments and sales of securities are greatly influenced by general interest rates, economic conditions and competition.
We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are generally invested in interest-earning deposits and short- and intermediate-term securities.
Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2025, cash and cash equivalents totaled $125.0 million. Debt securities classified as available-for-sale, which provide additional sources of liquidity, totaled $25.2 million at March 31, 2025. Warehouse loans which have a short-term duration, totaled $235.1 million as of March 31, 2025, also provide an additional source of liquidity.
At March 31, 2025, we had a borrowing capacity of $157.2 million with the Federal Home Loan Bank of Boston, of which $35.0 million in short-term advances and $9.5 million in advances with original maturities greater than one year were outstanding. At March 31, 2025, we also had an available line of credit with the Federal Reserve Bank of Boston’s borrower-in-custody program of $317.7 million, of which $83.0 million in overnight advances were outstanding.
We have no material commitments or demands that are likely to affect our liquidity other than as set forth below. In the event unforeseen loan demand or commitment utilization were to occur, or we experienced unexpected deposit outflows, we could access our borrowing capacity with the Federal Home Loan Bank of Boston or the Federal Reserve Bank of Boston, or obtain additional funds through brokered deposit markets.
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. At March 31, 2025 and December 31, 2024, we had $10.1 million and $15.0 million in loan commitments outstanding, respectively. In addition to commitments to originate loans, at March 31, 2025 and December 31, 2024, we had $140.7 million and $156.5 million in unadvanced funds to borrowers, respectively. We also had $1.5 million in outstanding letters of credit at March 31, 2025 and December 31, 2024.
A significant decrease in deposits could result in the Company having to seek other sources of funds, including brokered deposits, listing service deposits, Federal Home Loan Bank of Boston advances, and borrowings through the borrower-in-custody program with the Federal Reserve Bank of Boston. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay. We believe, however, based on past experience that a significant portion of our deposits will remain with us and we are confident in our ability to attract and retain deposits by adjusting the interest rates offered to meet customer expectations.
The Company maintains access to multiple sources of liquidity. If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If economic conditions cause large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.
BankProv is subject to various regulatory capital requirements administered by Massachusetts Commissioner of Banks and the FDIC. At March 31, 2025, BankProv exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines. See Note 9 – Regulatory Capital of the Notes to the Unaudited Consolidated Financial Statements for additional information.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management Market Risk”.
Item 4. Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2025. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
During the quarter ended March 31, 2025, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
On October 24, 2024, the Company received a letter from the staff of the Boston Regional Office of the SEC informing the Company that the staff had made a preliminary determination to recommend that the SEC file an action against the Company for violating certain sections of the federal securities laws (the “Wells Notice”). The staff has indicated that the Wells Notice relates to the Company’s disclosures regarding loans that the Company made to companies engaged in the mining of cryptocurrency – a line of business the Company ceased originating new loans in as of October 2022. The Wells Notice indicates that the staff’s recommendation to the SEC may involve a civil injunction action or other action allowed by law, and may seek remedies that include an injunction, disgorgement, pre-judgment interest, civil money penalties, and such other relief as may be available.
The Company is pursuing the Wells Notice process and continues to discuss a potential resolution with the staff. The results, costs, timing and other potential consequences of the above matter are unknown at this time. Associated legal costs are expensed as incurred.
There have been no material changes in risk factors applicable to the Company from those disclosed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
| (a) |
Not applicable. |
| (b) |
Not applicable. |
| (c) |
In December 2024, the Company announced its plan to repurchase 883,366 shares of its common stock. The repurchase program was adopted following the receipt of non-objection from the FRB. The Company did not repurchase any common stock under this program during the three months ended March 31, 2025. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Director and Section 16 Officer Rule 10b5-1 Trading Arrangements
During the three months ended March 31, 2025, director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
| 3.4 | Amendment to Bylaws of Provident Bancorp, Inc. (3) |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| 101 |
The following financial statements from the Provident Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets at March 31, 2025 and December 31, 2024; (ii) Consolidated Statements of Operations for the three months ended March 31, 2025 and 2024; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2025 and 2024; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2025 and 2024; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024; and (vi) Notes to Unaudited Consolidated Financial Statements. |
| 104 |
Cover Page Interactive Data File (formatted as iXBRL and contained in exhibit 101). |
| (1) | Incorporated by reference to the Company’s Registration Statement on Form S-1 (file no. 333-232018), initially filed with the Securities and Exchange Commission on June 7, 2019. |
| (2) |
Incorporated by reference to the Company’s Current Report on Form 8-K (file no. 001-39090), filed with the Securities and Exchange Commission on March 29, 2021. |
| (3) | Incorporated by reference to the Company’s Current Report on Form 8-K (file no. 001-39090), filed with the Securities and Exchange Commission on January 26, 2024. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PROVIDENT BANCORP, INC. |
|
| Date: May 8, 2025 |
/s/ Joseph B. Reilly |
| Joseph B. Reilly |
|
| President and Chief Executive Officer |
|
| Date: May 8, 2025 |
/s/ Kenneth R. Fisher |
| Kenneth R. Fisher |
|
| Executive Vice President and Chief Financial Officer |