Provident Bancorp, Inc.

TABLE OF CONTENTS

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

☒☒ 

☐☐ 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019
OR​
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                 
Commission File Number: 001-39090
PROVIDENT BANCORP, INC.
(Exact
name
of
registrant
as
specified
in
its
charter)​

Maryland
(State
or
other
jurisdiction
of

incorporation
or
organization)​

5 Market Street, Amesbury, Massachusetts
(Address
of
principal
executive
offices)​

84-4132422

I.R.S.
Employer

Identification
No.)

01913

(Zip
Code)

(978) 834-8555

(Registrant’s
telephone
number,
including
area
code)
Securities
registered
pursuant
to
Section
12(b)
of
the
Act:
Trading Symbol

Title of each class

Common
Stock,
$0.01
par
value

PVBC

Name of each exchange on which registered ​
The
NASDAQ
Stock
Market
LLC ​

Indicate
by
check
mark
if
the
registrant
is
a
well-known
seasoned
issuer,
as
defined
in
Rule
405
of
the
Securities
Act.
Yes ☐ No ☒
Indicate
by
check
mark
if
the
registrant
is
not
required
to
file
reports
pursuant
to
Section
13
or
Section
15(d)
of
the
Act.
Yes ☐ No 

Securities
registered
pursuant
to
Section
12(g)
of
the
Act:
None

☒

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
filing
requirements
for
the
past
90
days.
 Yes ☒ No ☐

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
(§
232.405
of
this
chapter)
during
the
preceding
12
months
(or
for
such
shorter
period
that
the
registrant
was
required
to
submit
such
files).
 Yes ☒ No ☐

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

Non-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
by
Rule
12b-2
of
the
Act).
 Yes ☐ No ☒
The
aggregate
market
value
of
the
voting
and
non-voting
common
stock
held
by
non-affiliates
of
the
registrant,
computed
by
reference
to
the
closing
price
as
of
October
17,2019,
as
reported
by
the
Nasdaq
Capital
Market,
was
approximately
$183.6
million.

The
number
of
shares
outstanding
of
the
registrant’s
common
stock
as
of
March
9,
2020
was
19,476,248.

Portions
of
the
Registrant’s
proxy
statement
for
the
2020
Annual
Meeting
of
Stockholders
(Part
III).

DOCUMENTS INCORPORATED BY REFERENCE:

​
​
​
​
​
​
​
​
TABLE OF CONTENTS​

Item
1.


Business

Item
1A.


Risk
Factors

Item
1B.


Unresolved
Staff
Comments

Item
2.


Item
3.


Item
4.


Properties

Legal
Proceedings

Mine
Safety
Disclosures

INDEX

Part
I

Part
II

Item
5.


Item
6.


Item
7.


Market
for
Registrant’s
Common
Equity,
Related
Stockholder
Matters
and
Issuer
Purchases
of
Equity
Securities

Selected
Consolidated
Financial
and
Other
Data

Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations

Item
7A.


Quantitative
and
Qualitative
Disclosures
About
Market
Risk

Item
8.


Item
9.


Financial
Statements
and
Supplementary
Data

Changes
in
and
Disagreements
with
Accountants
on
Accounting
and
Financial
Disclosure

Item
9A.


Controls
and
Procedures

Item
9B.


Other
Information

Part
III

Item
10.


Item
11.


Item
12.


Item
13.


Item
14.


Directors,
Executive
Officers
and
Corporate
Governance

Executive
Compensation

Security
Ownership
of
Certain
Beneficial
Owners
and
Management
and
Related
Stockholders
Matters

Certain
Relationships
and
Related
Transactions,
and
Director
Independence

Principal
Accounting
Fees
and
Services

Part
IV

Item
15.


Exhibits
and
Financial
Statement
Schedules

Item
16.


Form
10-K
Summary

i


Page

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28 ​

30 ​
32 ​

52 ​
52 ​
52 ​

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53 ​

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55 ​
57 ​




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​



TABLE OF CONTENTS​

ITEM 1. 

BUSINESS

FORWARD-LOOKING STATEMENTS

PART I

This
Annual
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
current
beliefs
and
expectations
of
our
management
and
are
inherently
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;

•


changes
in
the
level
and
direction
of
loan
delinquencies
and
charge-offs
and
changes
in
estimates
of
the
adequacy
of
the
allowance
for
loan
losses;

•


our
ability
to
access
cost-effective
funding;

•


fluctuations
in
real
estate
values
and
both
residential
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;

cyber
attacks,
computer
viruses
and
other
technological
risks
that
may
breach
the
security
of
our
websites
or
other
systems
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;

•


our
ability
to
manage
market
risk,
credit
risk
and
operational
risk;

•


our
ability
to
enter
new
markets
successfully
and
capitalize
on
growth
opportunities;

1








TABLE OF CONTENTS

•


•


•


•


•


•


•


•


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;

our
ability
to
retain
key
employees;

effects
of
natural
disasters,
terrorism
and
global
pandemics;

the
effects
of
any
U.S.
government
shutdown;

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.

Provident Bancorp, Inc.

Provident
Bancorp,
Inc.
(the
“Company”)
is
a
Maryland
corporation
that
was
incorporated
in
June
2019
to
be

the
successor
corporation
to
Provident
Bancorp,
Inc.
(“Old
Provident”),
a
Massachusetts
corporation,
upon
completion
of
the
second-step
mutual-to-stock
conversion
(the
“Conversion”)
of
Provident
Bancorp
(the
“MHC”),
the
top
tier
mutual
holding
company
of
Old
Provident.
Old
Provident
was
the
former
mid-tier
holding
company
for
The
Provident
Bank
(the
“Bank”).
Prior
to
completion
of
the
Conversion,
approximately
52%
of
the
shares
of
common
stock
of
Old
Provident
were
owned
by
the
MHC.
In
conjunction
with
the
Conversion,
the
MHC
was
merged
into
the
Company
(and
ceased
to
exist)
and
the
Company
became
its
successor
under
the
name
Provident
Bancorp,
Inc.
At
December
31,
2019,
Provident
Bancorp,
Inc.
had
total
assets
of 
$1.1
billion,
deposits
of 
$849.9
million
and
shareholders’
equity
of
$230.9
million
on
a
consolidated
basis.

The
Company’s
executive
offices
are
located
at
5
Market
Street,
Amesbury,
Massachusetts
01913,
and
the

telephone
number
is
(978)
834-8555.
The
Company
is
subject
to
regulation
and
examination
by
the
Board
of
Governors
of
the
Federal
Reserve
System
and
the
Massachusetts
Commissioner
of
Banks.

On
October
16,
2019,
the
Company
completed
the
Conversion.
The
Company
raised
gross
proceeds
of

$102.1
million
by
selling
a
total
of
10,212,397
shares
of
common
stock
at
$10.00
per
share
in
the
second-step
stock
offering.
The
Company
utilized
$8.2
million
of
the
proceeds
to
fund
an
addition
to
its
Employee
Stock
Ownership
Plan
(“ESOP”)
loan
for
the
acquisition
of
an
additional
816,992
shares
at
$10.00
per
share.
Expenses
incurred
related
to
the
offering
were
$2.4
million,
and
have
been
recorded
against
offering
proceeds.
The
Company
invested
$45.8
million
of
the
net
proceeds
it
received
from
the
sale
into
the
Bank’s
operations
and
has
retained
the
remaining
amount
for
general
corporate
purposes.
Concurrent
with
the
completion
of
the
stock
offering,
each
share
of
Old
Provident
common
stock
owned
by
public
stockholders
(stockholders
other
than
the
MHC)
was
exchanged
for
2.0212
shares
of
Company
common
stock.
A
total
of
19,484,343
shares
of
common
stock
were
outstanding
following
the
completion
of
the
stock
offering.

The Provident Bank

The
Provident
Bank
is
a
community
bank
that
has
served
the
banking
needs
of
its
customers
since
1828.
The

Provident
Bank
is
the
tenth
oldest
financial
institution
in
the
United
States.

The
Provident
Bank
is
a
Massachusetts-chartered
stock
savings
bank
that
operates
from
its
main
office
and
two
branch
offices
in
the
Northeastern
Massachusetts
area,
three
branch
offices
in
Southeastern
New
Hampshire
and
one
branch
located
in
Bedford,
New
Hampshire.
We
also
have
four
loan
production
offices
in
Boston,
Dedham
and
Hingham,
Massachusetts
and
Ponte
Vedra,
Florida.
Our
primary
lending
area

2








TABLE OF CONTENTS

encompasses
Northeastern
Massachusetts
and
Southern
New
Hampshire,
with
a
focus
on
Essex
County,
Massachusetts,
and
Hillsborough
and
Rockingham
Counties,
New
Hampshire.
However,
we
offer
our
enterprise
value
loans
nationwide.
Our
primary
deposit-gathering
area
is
currently
concentrated
in
Essex
County,
Massachusetts,
Rockingham
County,
New
Hampshire,
and
Hillsborough
County,
New
Hampshire,
although
we
also
receive
deposits
from
our
business
customers
who
are
located
nationwide.
We
attract
deposits
from
the
general
public
and
use
those
funds
to
originate
primarily
commercial
real
estate
and
commercial
business
loans,
and
to
invest
in
securities.
In
recent
years,
we
have
been
successful
in
growing
both
deposits
and
loans.
From
December
31,
2015
to
December
31,
2019,
deposits
have
increased
$272.7
million,
or
47.2%,
and
net
loans
have
increased
$404.4
million,
or
72.9%.

The
Provident
Bank
is
subject
to
regulation
and
examination
by
the
Massachusetts
Commissioner
of
Banks
and

the
Federal
Deposit
Insurance
Corporation.

Our
website
address
is
www.theprovidentbank.com.
Information
on
this
website
is
not
and
should
not
be

considered
a
part
of
this
annual
report.

Available Information

The
Company
is
a
public
company
and
files
interim,
quarterly
and
annual
reports
with
the
Securities
and

Exchange
Commission.
These
reports
are
on
file
and
a
matter
of
public
record
with
the
Securities
and
Exchange
Commission.
The
Securities
and
Exchange
Commission
maintains
an
Internet
site
that
contains
reports,
proxy
and
information
statements,
and
other
information
regarding
issuers
that
file
electronically
with
the
SEC
(http://www.sec.gov).
The
Company’s
reports
can
also
be
obtained
for
free
on
our
website,
www.theprovidentbank.com.

Market Area

Our
primary
lending
area
encompasses
a
broad
market
that
includes
Northeastern
Massachusetts
and
Southern
New
Hampshire,
with
a
focus
on
Essex
County,
Massachusetts,
and
Hillsborough
and
Rockingham
Counties,
New
Hampshire,
which
are
part
of,
and
bedroom
communities
to,
the
technology
corridor
between
Boston,
Massachusetts
and
Concord,
New
Hampshire.
In
2018,
we
started
offering
our
enterprise
value
loan
product
nationally.
In
2020,
the
Bank
acquired
a
warehouse
lending
business
located
in
Ponte
Vedra,
Florida.
Our
primary
deposit-gathering
area
is
currently
concentrated
in
Essex
County,
Massachusetts,
and
Rockingham
County
and
Hillsborough
County,
New
Hampshire,
although
we
also
receive
deposits
from
our
business
customers
who
are
located
nationwide.

th

The
greater
Boston
metropolitan
area
is
the
11 
largest
metropolitan
area
in
the
United
States.
Located
adjacent
to
major
transportation
corridors,
the
Boston
metropolitan
area
provides
a
highly
diversified
economic
base,
with
major
employment
sectors
ranging
from
services,
manufacturing
and
wholesale
and
retail
trade,
to
finance,
technology
and
medical
care.
The
largest
employment
sectors
are,
however,
education,
healthcare
and
social
services,
accounting
for
28.0%
of
jobs
in
Massachusetts
as
of
December
31,
2019.
Based
on
data
from
the
U.S.
Department
of
Labor,
the
unemployment
rate
for
Massachusetts
was
2.4%
in
December
2019
compared
to
2.7%
in
December
2018,
and
3.4%
for
the
United
States
as
a
whole
for
December
2019.
The
population
in
Massachusetts
grew
5.1%
from
2012
to
2019,
while
the
national
population
and
the
population
in
Essex
County,
Massachusetts
grew
5.2%
and
6.3%,
respectively,
over
the
same
time
period.
Median
household
income
in
Massachusetts
was
$82,084
for
2019,
compared
to
$63,174
and
$80,645
for
the
nation
and
Essex
County,
respectively.

New
Hampshire
also
provides
a
highly
diversified
economic
base,
with
major
employment
sectors
ranging

from
services
and
manufacturing
to
finance/insurance/real
estate,
but
the
largest
employment
sector
is
education,
healthcare
and
social
services.
Based
on
data
from
the
U.S.
Department
of
Labor,
the
unemployment
rate
for
New
Hampshire
was
2.3%
in
December
2019
compared
to
2.1%
in
December
2018.
The
population
in
New
Hampshire
grew
1.4%
from
2012
to
2019,
while
the
population
in
Hillsborough
and
Rockingham
Counties,
New
Hampshire
grew
1.7%
and
3.3%,
respectively,
over
the
same
time
period.
Median
household
income
in
New
Hampshire
was
$77,568
for
2019,
compared
to
$82,724
and
$91,891
for
Hillsborough
and
Rockingham
Counties,
respectively.

3








TABLE OF CONTENTS

Competition

We
face
significant
competition
for
deposits
and
loans.
Our
most
direct
competition
for
deposits
has

historically
come
from
the
many
financial
institutions
operating
in
our
market
area.
Several
large
holding
companies
operate
banks
in
our
market
area.
Many
of
these
institutions,
such
as
TD
Bank,
Bank
of
America
and
Citizens
Bank,
are
significantly
larger
than
us
and,
therefore,
have
greater
resources.
Additionally,
some
of
our
competitors
offer
products
and
services
that
we
do
not
offer,
such
as
insurance
services,
trust
services,
and
wealth
management.
We
also
face
competition
for
investors’
funds
from
other
financial
service
companies
such
as
brokerage
firms,
fintech
companies,
money
market
funds,
mutual
funds
and
other
corporate
and
government
securities.
Based
on
data
from
the
Federal
Deposit
Insurance
Corporation
as
of
June
30,
2019
(the
latest
date
for
which
information
is
available),
th
The
Provident
Bank
had
1.63%
of
the
deposit
market
share
within
Essex
County,
Massachusetts,
giving
us
the
15
largest
market
share
out
of
34
financial
institutions
with
offices
in
that
county
as
of
that
date
and
had
3.43%
of
the
deposit
market
share
within
Rockingham
County,
New
Hampshire,
giving
us
the
9 
largest
market
share
out
of
25
financial
institutions
with
offices
in
that
county
as
of
that
date.
This
data
excludes
deposits
held
by
credit
unions.

th

Our
competition
for
loans
comes
primarily
from
financial
institutions
in
our
market
area.
Our
experience
in
recent
years
is
that
many
financial
institutions
in
our
market
area,
especially
community
banks
that
are
seeking
to
significantly
expand
their
commercial
loan
portfolios
and
banks
located
in
lower
growth
regions
in
New
Hampshire
and
Maine,
have
been
willing
to
price
commercial
loans
aggressively
in
order
to
gain
market
share.

Lending Activities

Commercial Business Loans.


We
make
commercial
business
loans
primarily
in
our
market
area
to
a
variety
of
small
and
medium
sized
businesses,
including
professional
and
nonprofit
organizations,
and,
to
a
lesser
extent,
sole
proprietorships.
We
also
originate
our
enterprise
value
loans
nationwide,
and
we
originate
our
renewable
energy
loans
primarily
in
New
England
and
New
York.
Our
commercial
business
loans
are
generally
secured
by
business
assets,
and
we
may
support
this
collateral
with
junior
liens
on
real
property.
At
December
31,
2019,
commercial
business
loans
were
$451.8
million,
or
46.3%
of
our
total
loan
portfolio,
and
we
intend
to
increase
the
amount
of
commercial
business
loans
that
we
originate.
As
part
of
our
relationship
driven
focus,
we
encourage
our
commercial
business
borrowers
to
maintain
their
primary
deposit
accounts
with
us,
which
enhances
our
interest
rate
spread
and
overall
profitability.

Commercial
lending
products
include
term
loans
and
revolving
lines
of
credit.
Commercial
loans
and
lines
of

credit
are
made
with
either
variable
or
fixed
rates
of
interest.
Variable
rates
and
rates
on
Small
Business
Administration
(“SBA”)
loans
are
based
on
the
prime
rate
as
published
in
The
Wall
Street
Journal,
plus
a
margin.
Initial
rates
on
non-SBA
fixed-rate
business
loans
are
generally
based
on
a
corresponding
Federal
Home
Loan
Bank
rate,
plus
a
margin.
Commercial
business
loans
typically
have
shorter
maturity
terms
and
higher
interest
rates
than
commercial
real
estate
loans,
but
may
involve
more
credit
risk
because
of
the
type
and
nature
of
the
collateral.
We
are
focusing
our
efforts
on
originating
such
loans
to
experienced,
growing
small-
to
medium-sized,
privately-held
companies
with
local
or
regional
businesses
and
non-profit
entities
that
operate
in
our
market
area.

When
making
commercial
loans,
we
consider
the
financial
statements
of
the
borrower,
our
lending
history
with
the
borrower,
the
debt
service
capabilities
and
global
cash
flows
of
the
borrower
and
other
guarantors,
the
projected
cash
flows
of
the
business
and
the
value
of
the
collateral,
accounts
receivable,
inventory
and
equipment.
Depending
on
the
collateral
used
to
secure
the
loans,
commercial
loans
are
made
in
amounts
of
up
to
80%
of
the
value
of
the
collateral
securing
the
loan.
All
of
these
loans
are
secured
by
assets
of
the
respective
borrowers.

In
2015,
we
started
originating
enterprise
value
loans,
which
we
also
refer
to
as
merger
and
acquisition,
re-
capitalization,
and
shareholder/partner
buyout
loans.
We
began
originating
these
loans
nationwide
in
2018,
and
as
of
December
31,
2019
we
had
a
total
of 
$178.0
million
in
enterprise
value
loans,
with
relationships
in
22
states.
We
originate
these
loans
to
small-
and
medium-size
businesses
in
a
senior
secured
position;
relying
largely
on
the
enterprise
value
of
the
business
and
ongoing
cash
flow
to
support
operational
and
debt
service
requirements.
These
are
fully
amortizing
term
loans
(up
to
seven
years)
with
material
levels
of
equity
and/or
combination
of
seller
financing
behind
our
senior
secured
lending.
In
underwriting
these
loans,
we

4








TABLE OF CONTENTS

generally
require
minimum
fixed
charge
coverage
ratios
of
1.20x
to
1.50x.
The
maximum
senior
loan-to-enterprise
is
generally
65%
or
lower,
although
we
generally
limit
these
loans
to
a
loan-to-value
limitation
of
50%,
as
verified
by
a
quality
of
earnings
review
by
a
certified
public
accounting
firm,
and
we
generally
require
a
maximum
EBITDA
(earnings
before
interest,
tax,
depreciation
and
amortization)
of
less
than
three
times,
as
verified
by
a
third-party
business
valuation.
At
December
31,
2019,
the
largest
loan
was
$13.6
million
and
is
secured
by
all
business
assets.
At
December
31,
2019,
the
loan
was
performing
in
accordance
with
its
original
repayment
terms.

The
following
table
provides
information
with
respect
to
our
enterprise
value
loans
by
type
at
December
31,

2019.

Type of Industry

Consulting
services
Information
technology
and
software
Manufacturing
Landscaping
Repair
services
Other

Total

Balance

(In thousands)
33,142 ​
$
37,878 ​
23,524 ​
16,222 ​
19,944 ​
41,306 ​
$ 178,016 ​

In
2015,
we
started
originating
loans
to
developers
of
commercial-scale
renewable
energy
facilities,
primarily

in
New
England
and
New
York,
and
at
December
31,
2019,
we
had
a
total
of 
$66.1
million
in
renewable
energy
loans.
Our
renewable
energy
loans
primarily
include
loans
secured
by
solar
arrays
and
wind
turbines.
The
average
term
and
amortization
for
these
loans
can
extend
to
15
years
or
more,
given
the
asset
life,
and
are
generally
underwritten
to
a
maximum
term
of
two
years
less
than
the
associated
power
purchase
agreement
(“PPA”)
supporting
the
repayment
of
each
loan.
The
term
of
the
loan
is
also
shorter
than
the
life
expectancy
of
the
related
equipment.
Generally,
the
underwriting
criteria
includes:
a
report
supporting
the
power
generation
capacity
and
ultimately
the
ability
to
generate
sufficient
cash
flows,
assignment
of
the
associated
PPA,
analysis
on
the
quality
of
the
power
off-taker,
an
overall
business
valuation,
and
appropriate
loan
covenants,
which
may
include
maximum
loan-to-value
and
minimum
debt
service
coverage
requirements.
At
December
31,
2019,
$49.9
million,
or
75.5%,
of
our
renewable
energy
loans
was
secured
by
solar
arrays,
and
$14.4
million,
or
21.7%,
was
secured
by
wind
turbines.
The
largest
loan
was
$12.6
million
and
is
secured
by
all
business
assets
of
the
company,
including
the
solar
array
and
an
assignment
of
the
PPA.
At
December
31,
2019,
the
loan
was
performing
in
accordance
with
its
original
repayment
terms.
At
December
31,
2019,
the
weighted
average
age
of
our
renewable
energy
loans
was
19
months.

We
are
currently
developing
international
commercial
financing
as
a
new
product
line.
We
have
focused
our
efforts
on
providing
financing
to
foreign
companies
purchasing
U.S.
capital
equipment
and
services,
and
working
capital
lines
of
credit
to
U.S.
companies
with
foreign
accounts
receivable.
As
of
December
31,
2019,
we
have
originated
$1.4
million
in
foreign
working
capital
lines
of
credit
with
total
exposure
of
$2.4
million.
As
of
that
date,
we
have
not
yet
originated
a
loan
to
a
foreign
company
purchasing
U.S.
capital
equipment
and
services,
but
we
have
had
a
number
of
ongoing
discussions
regarding
originations,
which
could
significantly
grow
the
size
of
this
portfolio.
Given
the
probability
of
origination
for
many
of
these
loans
is
individually
low,
it
is
difficult
to
predict
growth
in
the
portfolio,
if
any.
Because
of
the
guarantees
associated
with
these
loans,
we
may
originate
loans
with
individual
principal
balances
that
are
significantly
larger
than
the
loans
we
currently
originate.
Our
financing
to
foreign
companies
generally
would
be
medium
term
(five
to
seven
years),
with
a
100%
payment,
performance
and
political
risk
guarantee
from
the
U.S.
Export
Import
Bank;
we
believe
the
risk
associated
with
these
loans
is
similar
to
the
risk
associated
with
a
U.S.
Treasury
note.
Our
foreign
capital
lines
of
credit
are
supported
by
a
90%
guarantee
from
either
the
U.S.
Export
Import
Bank
or
the
SBA.

A
portion
of
our
commercial
business
loans
are
guaranteed
by
the
SBA
through
the
SBA
7(a)
loan
program.

The
SBA
7(a)
loan
program
supports,
through
a
U.S.
Government
guarantee,
some
portion
of
the
traditional
commercial
loan
underwriting
that
might
not
be
fully
covered
absent
the
guarantee.
A
typical

5





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TABLE OF CONTENTS

example
would
be
a
business
acquiring
another
business,
where
the
value
purchased
is
an
enterprise
value
(as
opposed
to
tangible
assets),
which
results
in
a
collateral
shortfall
under
traditional
loan
underwriting
requirements.
In
addition,
SBA
7(a)
loans,
through
term
loans,
can
provide
a
good
source
of
permanent
working
capital
for
growing
companies.
The
Provident
Bank
is
a
Preferred
Lender
under
the
SBA’s
PLP
Program,
which
allows
expedited
underwriting
and
approval
of
SBA
7(a)
loans.

We
joined
the
BancAlliance
network
in
2011.
BancAlliance
has
a
membership
of
approximately
200

community
banks
that
together
participate
in
middle
market
commercial
and
industrial
loans
as
a
way
to
diversify
their
commercial
portfolio.
As
of
December
31,
2019,
we
had
$8.4
million
of
outstanding
commercial
business
loans
that
were
originated
through
this
network.
All
of
these
loans
are
participations
in
larger
facilities
agented
by
capital
finance
companies.
We
fully
underwrite
these
loans
in
accordance
with
our
policies
prior
to
approval.
At
December
31,
2019,
loans
totaling
$1.9
million
were
on
non-accrual
status.
The
remaining
loans
totaling
$6.5
million
were
performing
in
accordance
with
their
original
repayment
terms.
Our
last
BancAlliance
loan
origination
was
in
February
2017,
and
at
this
time
we
are
not
anticipating
originating
any
new
loans
through
this
network.

In
2020,
the
Bank
acquired
a
warehouse
lending
line
of
business.
Our
warehouse
lending
business
has
a

national
platform
with
relationship
managers
across
the
United
Sates
that
offer
warehouse
lines
of
credit
to
independent
mortgage
banking
companies,
which
allow
the
lender
to
fund
the
closing
of
residential
mortgage
loans.
Each
advance
on
the
line
is
fully
collateralized
by
residential
mortgage
loans
and
is
paid
off
when
the
lender
sells
the
loan
to
an
outside
investor.
These
investors
include
Federal
National
Mortgage
Association/Federal
Home
Loan
Mortgage
Corporation,
Government
National
Mortgage
Association,
as
well
as
other
large
financial
institutions
who
aggregate
pools
of
loans.
The
sale
of
the
loans
to
investors
is
the
primary
source
of
repayment
of
the
warehouse
lines.
The
guideline
for
debt
to
tangible
net
worth
is
15:1.

The
mortgage
loans
are
predominantly
originated
using
the
agencies’
underwriting
standards.
Our
target
market
is
small
to
mid-cap
mortgage
companies
and
we
offer
warehouse
lines
that
range
from
$3MM
to
$25MM.
These
companies
predominantly
originate
their
loans
directly
to
the
consumer
and
maintain
a
balanced
mix
of
purchase
and
refinance
transactions.
The
average
duration
for
each
loan
is
generally
15
days.

Our
largest
commercial
business
loan
at
December
31,
2019
totaled
$13.6
million,
was
originated
in
2018
and
is
an
enterprise
value
loan.
Our
next
largest
commercial
business
loan
totaled
$12.6
million,
was
originated
in
2019
and
is
a
renewable
energy
loan.
The
third
largest
commercial
loan
totaled
$8.1
million,
was
originated
in
2018
and
is
an
enterprise
value
loan.
As
of
December
31,
2019,
the
loans
were
performing
in
accordance
with
the
original
repayment
terms.

Commercial Real Estate Loans.


At
December
31,
2019,
commercial
real
estate
loans
were
$418.4
million,
or

42.9%,
of
our
total
loan
portfolio.
This
amount
includes
$44.0
million
of
multi-family
residential
real
estate
loans,
which
we
consider
a
subset
of
commercial
real
estate
loans,
and
which
are
described
below.
Our
commercial
real
estate
loans
are
generally
secured
by
properties
used
for
business
purposes
such
as
office
buildings,
industrial
facilities
and
retail
facilities;
however,
we
also
originate
loans
secured
by
investment
real
estate
in
the
form
of
residential
rental
units.
At
December
31,
2019,
$176.0
million
of
our
commercial
real
estate
portfolio
was
secured
by
owner
occupied
commercial
real
estate,
and
$242.4
million
was
secured
by
income
producing,
or
non-owner
occupied
commercial
real
estate.
We
currently
target
new
commercial
real
estate
loan
originations
to
experienced,
growing
small-
and
mid-size
owners
and
investors
in
our
market
area.
The
average
outstanding
loan
in
our
commercial
real
estate
portfolio
was
$571,000
as
of
December
31,
2019,
although
we
originate
commercial
real
estate
loans
with
balances
significantly
larger
than
this
average.
At
December
31,
2019,
our
ten
largest
commercial
real
estate
loans
had
an
average
balance
of
$7.8
million.

We
focus
our
commercial
real
estate
lending
on
properties
within
our
primary
market
areas,
but
we
will
originate
commercial
real
estate
loans
on
properties
located
outside
this
area
based
on
an
established
relationship
with
a
strong
borrower.
We
intend
to
continue
to
grow
our
commercial
real
estate
loan
portfolio
while
maintaining
prudent
underwriting
standards.
In
addition
to
originating
these
loans,
we
occasionally
will
participate
in
commercial
real
estate
loans
with
other
financial
institutions.
Such
participations
are
underwritten
in
accordance
with
our
policies
before
we
will
participate
in
such
loans.

We
originate
a
variety
of
fixed-
and
adjustable-rate
commercial
real
estate
loans
with
terms
and
amortization

periods
generally
up
to
20
years,
although
Loan
Policy
permits
longer
tenors
and
amortization

6








TABLE OF CONTENTS

periods
depending
on
the
risk
profile,
which
may
include
balloon
loans.
Interest
rates
and
payments
on
our
adjustable-rate
loans
adjust
every
three,
five
or
seven
years
and
generally
are
indexed
to
the
corresponding
Federal
Home
Loan
Bank
borrowing
rate
plus
a
margin.
Most
of
our
adjustable-rate
commercial
real
estate
loans
adjust
every
five
years
and
amortize
over
terms
of
20
years.
We
generally
include
pre-payment
penalties
on
commercial
real
estate
loans
we
originate.
Commercial
real
estate
loan
amounts
do
not
exceed
75%
to
80%
of
the
property’s
appraised
value
at
the
time
the
loan
is
originated.
In
addition,
debt
service
ratios,
by
policy,
are
required
to
have
a
minimum
net
operating
income
to
debt
service
coverage
ratio
ranging
from
of
1.10x
to
1.25x
based
on
loan
type
and
the
defined
and
approved
term/amortization.
For
commercial
real
estate
loans
in
excess
of 
$500,000,
we
require
independent
appraisals
from
an
approved
appraisers
list.
For
such
loans
below
$500,000,
we
require
real
estate
evaluations
but
do
not
require
an
independent
appraisal.
We
require
commercial
real
estate
loan
borrowers
with
loan
relationships
in
excess
of 
$1.0
million
to
submit
annual
financial
statements
and/or
rent
rolls
on
the
subject
property,
although
we
may
request
such
information
for
smaller
loans
on
a
case-by-case
basis.
Loans
below
the
$1.0
million
threshold
are
reviewed
annually
using
business
and
consumer
credit
reports,
payment
history,
and
confirmation
of
real
estate
tax
payments.
Commercial
real
estate
properties
may
also
be
subject
to
annual
inspections
to
support
that
appropriate
maintenance
is
being
performed
by
the
owner/borrower.
The
loan
and
its
borrowers
and/or
guarantors
are
subject
to
an
annual
risk
certification
verifying
that
the
loan
is
properly
risk
rated
based
upon
covenant
compliance
(as
applicable)
and
other
terms
as
provided
for
in
the
loan
agreements.
While
this
process
does
not
prevent
loans
from
becoming
delinquent,
it
provides
us
with
the
opportunity
to
better
identify
problem
loans
in
a
timely
manner
and
to
work
with
the
borrower
prior
to
the
loan
becoming
delinquent.

The
following
table
provides
information
with
respect
to
our
commercial
real
estate
loans
by
type
at

December
31,
2019.
The
table
excludes
multi-family
residential
real
estate
loans,
discussed
below.

Type of Loan

Number of Loans

Balance

Residential
one-to-four
family
Mixed
use
Office
Retail
Industrial/manufacturing/warehouse
Hotel/motel/inn
Mobile
home/park

Self-storage
facility

Other
commercial
real
estate

      Total

​ 155
​ 68
​ 81
​ 64
​ 110
​ 19
6
​ 13
​ 133
​ 649

(In thousands)​
29,768 ​
$
32,929 ​
45,964 ​
32,107 ​
65,520 ​
28,391 ​
30,261 ​
28,026 ​
81,424 ​
$ 374,390 ​

If
we
foreclose
on
a
commercial
real
estate
loan,
the
marketing
and
liquidation
period
to
convert
the
real
estate
asset
to
cash
can
be
lengthy
with
substantial
holding
costs.
In
addition,
vacancies,
deferred
maintenance,
repairs
and
market
stigma
can
result
in
prospective
buyers
expecting
sale
price
concessions
to
offset
their
real
or
perceived
economic
losses
for
the
time
it
takes
them
to
return
the
property
to
profitability.
Depending
on
the
individual
circumstances,
initial
charge-offs
and
subsequent
losses
on
commercial
real
estate
loans
can
be
unpredictable
and
substantial.

Our
largest
single
commercial
real
estate
loan
at
December
31,
2019
totaled
$16.2
million,
was
originated
in

2019
and
is
secured
by
non-owner
occupied
commercial
use
property.
Our
next
largest
commercial
real
estate
loan
at
December
31,
2019
was
for
$13.5
million,
was
originated
in
2019
and
is
secured
by
non-owner
occupied
commercial
use
property.
The
third
largest
commercial
real
estate
loan
was
for
$7.0
million,
was
originated
in
2014
and
is
secured
by
non-owner
occupied
commercial
use
property.
All
of
the
collateral
securing
these
loans
is
located
in
our
primary
lending
area.
At
December
31,
2019,
all
of
these
loans
were
performing
in
accordance
with
their
original
repayment
terms.

Multi-Family Residential Real Estate Loans.


At
December
31,
2019,
multi-family
real
estate
loans
were

$44.0
million,
or
4.5%
of
our
total
loan
portfolio.
We
do
not
focus
on
the
origination
of
multi-family

7





​
​
​
​
​
​
​
​
​
​
​
​
​



TABLE OF CONTENTS

real
estate
lending,
but
we
will
originate
these
loans
to
well-qualified
borrowers
when
opportunities
exist
that
meet
our
underwriting
standards.
We
currently
originate
new
individual
multi-family
real
estate
loans
to
experienced,
growing
small-
and
mid-size
owners
and
investors
in
our
market
area.
Our
multi-family
real
estate
loans
are
generally
secured
by
properties
consisting
of
five
to
15
rental
units.
The
average
outstanding
loan
size
in
our
multi-
family
real
estate
portfolio
was
$523,000
as
of
December
31,
2019.
We
generally
do
not
make
multi-family
real
estate
loans
outside
our
primary
market
areas.
In
addition
to
originating
these
loans,
we
also
participate
in
multi-
family
residential
real
estate
loans
with
other
financial
institutions.
Such
participations
are
underwritten
in
accordance
with
our
policies
before
we
will
participate
in
such
loans.

We
originate
a
variety
of
fixed-
and
adjustable-rate
multi-family
real
estate
loans
for
terms
up
to
30
years.
Interest
rates
and
payments
on
our
adjustable-rate
loans
adjust
every
three,
five
or
seven
years
and
generally
are
indexed
to
the
corresponding
Federal
Home
Loan
Bank
borrowing
rate
plus
a
margin.
Most
of
our
adjustable-rate
multi-family
real
estate
loans
adjust
every
five
years
and
amortize
over
terms
of
20
to
25
years.
We
also
include
pre-
payment
penalties
on
loans
we
originate.
Multi-family
real
estate
loan
amounts
do
not
exceed
80%
of
the
property’s
appraised
value
at
the
time
the
loan
is
originated.
Debt
service
ratios,
by
policy,
are
required
to
have
a
minimum
net
operating
income
to
debt
service
coverage
ratio
of
1.20x.
We
require
multi-family
real
estate
loan
borrowers
with
loan
relationships
in
excess
of 
$1.0
million
to
submit
annual
financial
statements
and/or
rent
rolls
on
the
subject
property,
although
we
may
request
such
information
for
smaller
loans
on
a
case-by-case
basis.
Loans
below
the
$1.0
million
threshold
are
reviewed
annually
using
business
and
consumer
credit
reports,
payment
history,
and
confirmation
of
real
estate
tax
payments.
These
properties
may
also
be
subject
to
annual
inspections
to
support
that
appropriate
maintenance
is
being
performed
by
the
owner/borrower.

If
we
foreclose
on
a
multi-family
real
estate
loan,
the
marketing
and
liquidation
period
to
convert
the
real
estate
asset
to
cash
can
be
lengthy
with
substantial
holding
costs.
In
addition,
vacancies,
deferred
maintenance,
repairs
and
market
stigma
can
result
in
prospective
buyers
expecting
sale
price
concessions
to
offset
their
real
or
perceived
economic
losses
for
the
time
it
takes
them
to
return
the
property
to
profitability.
Depending
on
the
individual
circumstances,
initial
charge-offs
and
subsequent
losses
on
commercial
real
estate
loans
can
be
unpredictable
and
substantial.

Our
largest
multi-family
real
estate
loan
at
December
31,
2019
totaled
$5.1
million,
was
originated
in
2016
and

is
secured
by
a
multi-family
property.
At
December
31,
2019,
this
loan
was
performing
in
accordance
with
its
original
repayment
terms.

Construction and Land Development Loans.


At
December
31,
2019,
construction
and
land
development
loans
were
$46.8
million,
or
4.8%
of
our
total
loan
portfolio,
consisting
of 
$20.3
million
of
one-
to
four-family
residential
and
condominium
construction
loans,
$461,000
of
residential
land
or
development
loans,
and
$26.0
million
of
commercial
and
multi-family
real
estate
construction
loans.
At
December
31,
2019,
$19.3
million
of
our
commercial
and
multi-family
real
estate
construction
loans
are
expected
to
convert
to
permanent
loans
upon
completion
of
the
construction
phase.
The
majority
of
the
balance
of
these
loans
is
secured
by
properties
located
in
our
primary
lending
area.

We
primarily
make
construction
loans
for
commercial
development
projects,
including
hotels,
condominiums
and
single
family
residences,
small
industrial
buildings,
retail
and
office
buildings
and
apartment
buildings.
Most
of
our
construction
loans
are
interest-only
loans
that
provide
for
the
payment
of
interest
during
the
construction
phase,
which
is
usually
up
to
12
to
24
months,
although
some
construction
loans
are
renewed,
generally
for
one
or
two
additional
years.
At
the
end
of
the
construction
phase,
the
loan
may
convert
to
a
permanent
mortgage
loan
or
the
loan
may
be
paid
in
full.
Loans
generally
can
be
made
with
a
maximum
loan-to-value
ratio
of
80%
of
the
appraised
market
value
upon
completion
of
the
project.
As
appropriate
to
the
underwriting,
a
discounted
cash
flow
analysis
is
utilized.
Before
making
a
commitment
to
fund
a
construction
loan,
we
require
an
appraisal
of
the
property
by
an
independent
licensed
appraiser
for
construction
and
land
development
loans
in
excess
of 
$500,000.
We
also
will
generally
require
an
inspection
of
the
property
before
disbursement
of
funds
during
the
term
of
the
construction
loan.

We
also
originate
construction
and
site
development
loans
to
contractors
and
builders
to
finance
the
construction
of
single-family
homes
and
subdivisions.
While
we
may
originate
these
loans
whether
or
not
the
collateral
property
underlying
the
loan
is
under
contract
for
sale,
we
consider
each
project
carefully
in
light

8








TABLE OF CONTENTS

of
current
residential
real
estate
market
conditions.
We
actively
monitor
the
number
of
unsold
homes
in
our
construction
loan
portfolio
and
local
housing
markets
to
attempt
to
maintain
an
appropriate
balance
between
home
sales
and
new
loan
originations.
We
generally
will
limit
the
maximum
number
of
speculative
units
(units
that
are
not
pre-sold)
approved
for
each
project
to
two
units.
We
have
attempted
to
diversify
the
risk
associated
with
speculative
construction
lending
by
doing
business
with
experienced
small
and
mid-sized
builders
within
our
market
area.

Residential
real
estate
construction
loans
include
single-family
tract
construction
loans
for
the
construction
of
entry
level
residential
homes.
The
maximum
loan-to-value
limit
applicable
to
these
loans
is
generally
75%
to
80%
of
the
appraised
market
value
upon
completion
of
the
project.
Development
plans
are
required
from
builders
prior
to
making
the
loan.
Our
loan
officers
are
required
to
personally
visit
the
proposed
site
of
the
development
and
the
sites
of
competing
developments.
We
require
that
builders
maintain
adequate
insurance
coverage.
While
maturity
dates
for
residential
construction
loans
are
largely
a
function
of
the
estimated
construction
period
of
the
project,
and
generally
do
not
exceed
one
year,
land
development
loans
generally
are
for
18
to
24
months.
Substantially
all
of
our
residential
construction
loans
have
adjustable
rates
of
interest
based
on
The
Wall
Street
Journal
prime
rate
plus
a
margin.
Construction
loan
proceeds
are
disbursed
periodically
in
increments
as
construction
progresses
and
as
inspection
by
our
approved
inspectors
warrant.

Our
largest
construction
and
land
development
loan
at
December
31,
2019
totaled
$6.9
million,
was
originated

in
2016
and
is
secured
by
non-owner
occupied
commercial
use
property.
At
December
31,
2019,
this
loan
was
performing
in
accordance
with
its
original
repayment
terms.

One- to Four-Family Residential Loans.


Our
one-
to
four-family
residential
loan
portfolio
consists
of
mortgage
loans
that
enable
borrowers
to
purchase
or
refinance
existing
homes,
most
of
which
serve
as
the
primary
residence
of
the
owner.
At
December
31,
2019,
one-
to
four-family
residential
real
estate
loans
were
$45.7
million,
or
4.7%
of
our
total
loan
portfolio,
consisting
of 
$26.7
million
of
fixed-rate
loans
and
$19.0
million
of
adjustable-
rate
loans,
respectively.
This
amount
includes
$18.3
million
of
home
equity
loans
and
lines
of
credit,
which
we
consider
a
subset
of
one-
to
four-family
residential
real
estate
loans,
and
which
are
described
below.

We
discontinued
this
type
of
lending
in
2014
to
focus
on
commercial
loan
originations.
Accordingly,
we
expect

our
portfolio
of
one-
to
four-family
residential
real
estate
loans
to
decrease
over
time
due
to
normal
amortization
and
repayments.
Our
one-
to
four-family
residential
real
estate
loans
generally
do
not
have
prepayment
penalties.

Home Equity Loans and Lines of Credit.


At
December
31,
2019,
the
outstanding
balance
owed
on
home
equity
loans
was
$2.6
million,
or
0.3%
of
our
total
loan
portfolio,
and
the
outstanding
balance
owed
on
home
equity
lines
of
credit
amounted
to
$15.5
million,
or
1.6%
of
our
total
loan
portfolio.
We
discontinued
home
equity
loan
originations
in
2014
to
focus
on
commercial
loan
originations,
but
we
continue
to
offer
home
equity
lines
of
credit.
Home
equity
lines
of
credit
have
adjustable
rates
of
interest
with
ten-year
draws
and
terms
of
15
years
that
are
indexed
to
the
prime
rate
as
published
by
The
Wall
Street
Journal
on
the
last
business
day
of
the
month.
We
offer
home
equity
lines
of
credit
with
cumulative
loan-to-value
ratios
generally
up
to
80%,
when
taking
into
account
both
the
balance
of
the
home
equity
line
of
credit
and
first
mortgage
loan.

Consumer Loans.


We
offer
loans
secured
by
certificate
accounts
and
overdraft
lines
of
credit.
At

December
31,
2019,
consumer
loans
were
$12.7
million,
or
1.3%
of
total
loans.
The
procedures
for
underwriting
consumer
loans
include
an
assessment
of
the
applicant’s
payment
history
on
other
debts
and
ability
to
meet
existing
obligations
and
payments
on
the
proposed
loan.

In
2016,
we
entered
into
an
agreement
to
purchase
pools
of
unsecured
consumer
loans
through
the

BancAlliance
Lending
Club
Program.
This
program
encompasses
loans
risk
graded
by
Lending
Club
as
A
through
C
with
a
680
minimum
credit
score,
out
of
a
possible
risk
grade
of
A
through
G.
The
Lending
Club
retains
the
servicing
of
these
loans.
As
of
December
31,
2019,
we
had
$12.3
million
in
outstanding
consumer
loans
that
were
purchased
through
this
program.
Our
last
Lending
Club
investment
purchase
was
in
May
2018
and
as
of
May
2019,
we
have
stopped
reinvesting
any
proceeds
in
new
pools.
At
this
time
we
are
not
anticipating
purchasing
any
new
loans
through
this
network.

9








TABLE OF CONTENTS

Loan Underwriting Risks

Commercial Business Loans.


Unlike
residential
mortgage
loans,
which
generally
are
made
on
the
basis
of
the

borrower’s
ability
to
make
repayment
from
his
or
her
employment
or
other
income,
and
which
are
secured
by
real
property
whose
value
tends
to
be
more
easily
ascertainable,
commercial
business
loans
are
of
higher
risk
and
typically
are
made
on
the
basis
of
the
borrower’s
ability
to
make
repayment
from
the
cash
flow
of
the
borrower’s
business
and
the
collateral
securing
these
loans
may
fluctuate
in
value.
Our
commercial
business
loans
are
originated
primarily
based
on
the
identified
cash
flow
of
the
borrower
and
secondarily
on
the
underlying
collateral
provided
by
the
borrower.
Most
often,
this
collateral
consists
of
accounts
receivable,
inventory
or
equipment,
the
value
of
which
may
depreciate
over
time,
may
be
more
difficult
to
appraise
and
may
be
more
susceptible
to
fluctuation
in
value.
Credit
support
provided
by
the
borrower
for
most
of
these
loans
and
the
probability
of
repayment
is
based
on
the
liquidation
of
the
pledged
collateral
and
enforcement
of
a
personal
guarantee,
if
any.
As
a
result,
the
availability
of
funds
for
the
repayment
of
commercial
business
loans
may
depend
substantially
on
the
success
of
the
business
itself.
These
types
of
loans
are
generally
more
sensitive
to
regional
and
local
economic
conditions,
making
loss
levels
more
difficult
to
predict.

Enterprise
value
loans
may
expose
us
to
a
greater
risk
of
non-payment
and
loss
than
our
other
business
loans
because:
(1)
repayment
of
such
loans
may
be
dependent
upon
the
successful
execution
of
the
borrower’s
business
plan,
which
may
include
new
management
and
be
based
on
projected
cash
flows
that
may
include
business
synergies,
cost
savings,
and
revenue
growth
that
have
yet
to
be
realized;
(2)
they
may
require
additional
financing
from
their
private
equity
sponsors
or
others,
a
successful
sale
to
a
third
party,
a
public
offering,
or
some
other
form
of
liquidity
event;
or
(3)
in
the
event
of
default
and
liquidation,
there
may
be
reliance
on
the
sale
of
intangible
assets
that
may
have
insufficient
value
to
repay
the
debt
in
full.

Commercial and Multi-Family Real Estate Loans.


Loans
secured
by
commercial
and
multi-family
real
estate

generally
have
larger
balances
and
involve
a
greater
degree
of
risk
than
one-
to
four-family
residential
mortgage
loans.
In
addition,
many
of
our
commercial
borrowers
have
more
than
one
loan
outstanding
with
us.
Consequently,
an
adverse
development
with
respect
to
one
loan
or
one
credit
relationship
can
expose
us
to
a
significantly
greater
risk
of
loss
compared
to
an
adverse
development
with
respect
to
a
one-
to
four-family
residential
mortgage
loan.
Of
primary
concern
in
commercial
and
multi-family
real
estate
lending
is
the
borrower’s
creditworthiness
and
the
feasibility
and
cash
flow
potential
of
the
project.
Payments
on
loans
secured
by
income
producing
properties
often
depend
on
successful
operation
and
management
of
the
properties.
As
a
result,
repayment
of
such
loans
may
be
subject
to
a
greater
extent
than
residential
real
estate
loans
to
adverse
conditions
in
the
real
estate
market
or
the
economy.
To
monitor
cash
flows
on
income
producing
properties,
we
require
borrowers
and
loan
guarantors,
if
any,
to
provide
annual
financial
statements
on
commercial
and
multi-family
real
estate
loans.
In
reaching
a
decision
on
whether
to
make
a
commercial
or
multi-family
real
estate
loan,
we
consider
and
review
a
global
cash
flow
analysis
of
the
borrower
and
consider
the
net
operating
income
of
the
property,
the
borrower’s
expertise,
credit
history
and
profitability
and
the
value
of
the
underlying
property.
We
have
generally
required
that
the
properties
securing
these
real
estate
loans
have
debt
service
coverage
ratios
(the
ratio
of
earnings
before
debt
service
to
debt
service)
of
at
least
1.20x.
In
accordance
with
Loan
Policy,
an
environmental
phase
one
report
may
be
obtained
when
the
possibility
exists
that
hazardous
materials
may
have
existed
on
the
site,
or
the
site
may
have
been
impacted
by
adjoining
properties
that
handled
hazardous
materials.
These
types
of
loans
are
generally
more
sensitive
to
regional
and
local
economic
conditions,
making
loss
levels
more
difficult
to
predict.
In
addition,
some
of
our
commercial
real
estate
loans
are
not
fully
amortizing
and
contain
large
balloon
payments
upon
maturity.
These
balloon
payments
may
require
the
borrower
to
either
sell
or
refinance
the
underlying
property
in
order
to
make
the
balloon
payment,
which
may
increase
the
risk
of
default
or
non-payment.

Further,
if
we
foreclose
on
a
commercial
real
estate
or
multi-family
real
estate
loan,
our
holding
period
for
the

collateral
may
be
longer
than
for
one-
to
four-family
residential
mortgage
loans
because
there
are
fewer
potential
purchasers
of
the
collateral,
which
can
result
in
substantial
holding
costs.
In
addition,
vacancies,
deferred
maintenance,
repairs
and
market
stigma
can
result
in
prospective
buyers
expecting
sale
price
concessions
to
offset
their
real
or
perceived
economic
losses
for
the
time
it
takes
them
to
return
the
property
to
profitability.

10








TABLE OF CONTENTS

Construction and Land Development Loans.


Our
construction
loans
are
based
upon
estimates
of
costs
and
values
associated
with
the
completed
project.
Underwriting
is
focused
on
the
borrowers’
financial
strength,
credit
history
and
demonstrated
ability
to
produce
a
quality
product
and
effectively
market
and
manage
their
operations.
All
construction
loans
for
which
the
builder
does
not
have
a
binding
purchase
agreement
must
be
approved
by
senior
loan
officers.

Construction
lending
involves
additional
risks
when
compared
with
permanent
residential
lending
because
funds
are
advanced
upon
the
security
of
the
project,
which
is
of
uncertain
value
prior
to
its
completion.
Because
of
the
uncertainties
inherent
in
estimating
construction
costs,
as
well
as
the
market
value
of
the
completed
project
and
the
effects
of
governmental
regulation
of
real
property,
it
is
relatively
difficult
to
evaluate
accurately
the
total
funds
required
to
complete
a
project
and
the
related
loan-to-value
ratio.
This
type
of
lending
also
typically
involves
higher
loan
principal
amounts
and
is
often
concentrated
with
a
small
number
of
builders.
In
addition,
generally
during
the
term
of
a
construction
loan,
interest
may
be
funded
by
the
borrower
or
disbursed
from
an
interest
reserve
set
aside
from
the
construction
loan
budget.
These
loans
often
involve
the
disbursement
of
substantial
funds
with
repayment
substantially
dependent
on
the
success
of
the
ultimate
project
and
the
ability
of
the
borrower
to
sell
or
lease
the
property
or
obtain
permanent
take-out
financing,
rather
than
the
ability
of
the
borrower
or
guarantor
to
repay
principal
and
interest.
If
the
appraised
value
of
a
completed
project
proves
to
be
overstated,
we
may
have
inadequate
security
for
the
repayment
of
the
loan
upon
completion
of
construction
of
the
project
and
may
incur
a
loss.
A
discounted
cash
flow
analysis
is
utilized
for
determining
the
value
of
any
construction
project
of
five
or
more
units.
Our
ability
to
continue
to
originate
a
significant
amount
of
construction
loans
is
dependent
on
the
strength
of
the
housing
market
in
our
market
areas.

Land
loans
secured
by
improved
lots
generally
involve
greater
risks
than
residential
mortgage
lending
because
land
loans
are
more
difficult
to
evaluate.
If
the
estimate
of
value
proves
to
be
inaccurate,
in
the
event
of
default
and
foreclosure,
we
may
be
confronted
with
a
property
the
value
of
which
is
insufficient
to
assure
full
payment.
These
types
of
loans
are
generally
more
sensitive
to
regional
and
local
economic
conditions,
making
loss
levels
more
difficult
to
predict.

Adjustable-Rate Loans.


While
we
anticipate
that
adjustable-rate
loans
will
better
offset
the
adverse
effects
of

an
increase
in
interest
rates
as
compared
to
fixed-rate
loans,
an
increased
monthly
mortgage
payment
required
of
adjustable-rate
loan
borrowers
in
a
rising
interest
rate
environment
could
cause
an
increase
in
delinquencies
and
defaults.
The
marketability
of
the
underlying
property
also
may
be
adversely
affected
in
a
high
interest
rate
environment.
In
addition,
although
adjustable-rate
mortgage
loans
make
our
asset
base
more
responsive
to
changes
in
interest
rates,
the
extent
of
this
interest
sensitivity
is
limited
by
the
annual
and
lifetime
interest
rate
adjustment
limits
on
residential
loans.

Consumer Loans.


Consumer
loans
may
entail
greater
risk
than
residential
mortgage
loans,
particularly
in
the

case
of
consumer
loans
that
are
unsecured
or
secured
by
assets
that
depreciate
rapidly,
such
as
motor
vehicles.
Repossessed
collateral
for
a
defaulted
consumer
loan
may
not
provide
an
adequate
source
of
repayment
for
the
outstanding
loan
and
a
small
remaining
deficiency
often
does
not
warrant
further
substantial
collection
efforts
against
the
borrower.
Consumer
loan
collections
depend
on
the
borrower’s
continuing
financial
stability,
and
therefore
are
likely
to
be
adversely
affected
by
various
factors,
including
job
loss,
divorce,
illness
or
personal
bankruptcy.
Furthermore,
the
application
of
various
federal
and
state
laws,
including
federal
and
state
bankruptcy
and
insolvency
laws,
may
limit
the
amount
that
can
be
recovered
on
such
loans.

International Lending.


The
businesses
of
international
customers
may
be
subject
to
risks
that
do
not
affect

customers
in
our
primary
market
area
or
in
the
United
States
generally,
such
as
currency
fluctuations,
U.S.
or
foreign
government
intervention,
economic
and
other
conditions
of
the
country
in
which
the
borrower
is
located
or
operates,
increased
risks
of
theft
or
fraud,
and
increased
risks
of
natural
disasters.

Loan Originations, Purchases and Sales

We
have
grown
our
loan
portfolio
by
developing
expertise
for
customers
who
typically
have
not
been

supported
by
larger
financial
institutions
but
whose
business
needs
are
usually
too
complex
for
smaller
institutions.
Loan
originations
come
from
a
variety
of
sources.
The
primary
sources
of
loan
originations
are
current
customers,
business
development
by
our
relationship
managers,
walk-in
traffic,
our
website,

11








TABLE OF CONTENTS

networking
events
and
referrals
from
customers
as
well
as
our
directors,
trustees
and
corporators,
business
owners,
investors,
entrepreneurs,
builders,
realtors,
and
other
professional
third
parties,
including
brokers.
Loan
originations
are
further
supported
by
lending
services
offered
through
cross-selling
and
employees’
community
service.

Historically,
we
generally
originated
loans
for
our
portfolio.
We
occasionally
sell
participation
interests
in
commercial
real
estate
loans
and
commercial
business
loans
to
local
financial
institutions,
primarily
on
the
portion
of
loans
exceeding
our
borrowing
limits.
At
December
31,
2019,
we
were
servicing
$14.1
million
of
commercial
real
estate
and
commercial
business
loans
where
we
had
sold
an
interest
to
local
financial
institutions.
For
the
years
ended
December
31,
2019
and
2018,
we
sold
loan
participations
of 
$209,000
and
$11.8
million,
respectively.

While
we
generally
do
not
purchase
whole
loans,
we
will
occasionally
purchase
loan
participations
from
other

financial
institutions
or
through
the
BancAlliance
program.
We
will
also
purchase
pools
of
unsecured
consumer
loans
through
the
BancAlliance
Lending
Club
Program,
described
above.
As
of
December
31,
2019,
we
had
$8.4
million
of
outstanding
commercial
business
loans
and
$12.3
million
of
outstanding
consumer
loans
that
were
originated
through
the
BancAlliance
program
and
BancAlliance
Lending
Club
program,
respectively.
We
discontinued
originating
commercial
business
loans
through
the
BancAlliance
program
in
February
2017.
In
May
2018
we
discontinued
making
any
new
investments
and
as
of
May
2019,
we
have
stopped
reinvesting
any
proceeds
in
new
pools.
We
do
not
expect
to
make
any
purchases
through
the
BancAlliance
Lending
Club
program
going
forward.
During
the
year
ended
December
31,
2019
and
2018,
we
had
no
loan
participation
purchases.

Loan Approval Procedures and Authority

Our
lending
activities
follow
written,
non-discriminatory,
underwriting
standards
and
loan
origination

procedures
established
by
The
Provident
Bank’s
board
of
directors
and
management.
The
Provident
Bank’s
board
of
directors
has
granted
loan
approval
authority
to
certain
officers
up
to
prescribed
limits,
depending
on
the
officer’s
experience,
the
type
of
loan
and
whether
the
loan
is
secured
or
unsecured.
All
loans
require
the
approval
of
a
minimum
of
two
lending
officers,
one
of
which
must
be
a
Senior
Vice
President
or
above
(the
exception
is
borrowing
relationships
of 
$25,000
and
below,
which
can
be
approved
by
one
officer
with
sufficient
authority
for
that
loan
type,
as
well
as,
loans
of
any
amount
which
are
100%
cash
secured).
For
loan
relationships
below
$2.0
million,
approval
is
required
by
designated
individuals
with
delegated
loan
authority
as
identified
within
Loan
Policy.
Our
loan
policy
dictates
that
for
loan
relationships
of
between
$2.0
million
and
$3.0
million
approval
is
required
by
two
of
the
following
members
of
Credit
Committee:
Chief
Executive
Officer,
Chief
Financial
Officer
and/or
President/Chief
Lending
Officer.
While
our
loan
policy
dictates
that
loan
relationships
greater
than
$3.0
million
be
presented
to
and
approved
by
Credit
Committee;
our
practice
has
been
to
present
loan
relationships
greater
than
$2.0
million
to
Credit
Committee
for
review
and
formal
approval.
Loans
that
involve
exceptions
to
policy,
including
loans
in
excess
of
our
internal
loans-to-one
borrower
limitation,
must
be
authorized
by
The
Provident
Bank’s
Risk
Committee
of
the
board
of
directors.
Exceptions
are
fully
disclosed
to
the
approving
authority,
either
an
individual
officer
or
the
appropriate
management
or
board
committee
prior
to
commitment.
Exceptions
are
reported
to
the
board
of
directors
quarterly.

When
entering
a
new
lending
line,
we
typically
seek
to
manage
risks
and
costs
by
limiting
initial
activity.
We
then
decide
whether
it
would
be
profitable
and
consistent
with
our
risk
tolerance
levels
to
expand
the
activity,
and
continually
calibrate
and
adjust
our
actions
to
maintain
appropriate
risk
limitations.

Loans-to-One Borrower Limit and Loan Category Concentration

The
maximum
amount
that
we
may
lend
to
one
borrower
and
the
borrower’s
related
entities
is
generally
limited,
by
statute,
to
20%
of
our
capital,
which
is
defined
under
Massachusetts
law
as
the
sum
of
our
capital
stock,
surplus
account
and
undivided
profits.
At
December
31,
2019,
our
regulatory
limit
on
loans-to-one
borrower
was
$36.2
million.
We
generally
establish
our
internal
loans-to-one
borrower
limit
as
90%
of
our
regulatory
limit.
As
of
December
31,
2019,
this
amount
was
$32.6
million,
with
loans
greater
than
this
amount
requiring
approval
by
The
Provident
Bank’s
Risk
Committee
of
the
board
of
directors.

12








TABLE OF CONTENTS

At
December
31,
2019,
our
largest
lending
relationship
consisted
of
ten
commercial
business
loans
with
a
total

exposure
of 
$24.7
million,
secured
by
all
business
assets.
This
relationship
was
performing
in
accordance
with
its
original
repayment
terms
at
December
31,
2019.
Our
second
largest
lending
relationship
consisted
of
18
commercial
business
loans
with
a
total
exposure
of 
$23.4
million,
secured
by
business
assets.
This
relationship
was
performing
in
accordance
with
its
original
repayment
terms
at
December
31,
2019.
Our
third
largest
lending
relationship
consisted
of
nine
commercial
real
estate
loans,
commercial
business
loans,
and
construction
and
land
development
loans
with
a
total
exposure
of 
$20.7
million,
secured
by
non-owner
occupied
investment
real
estate.
This
relationship
was
performing
in
accordance
with
its
original
repayment
terms
at
December
31,
2019.
Our
fourth
largest
lending
relationship
consisted
of
six
commercial
real
estate
loans
and
commercial
business
loans
with
a
total
exposure
of 
$18.6
million,
secured
by
non-owner
occupied
commercial
use
property.
One
commercial
business
loan
totaling
$600,000
within
this
relationship
is
on
non-accrual
and
the
remaining
relationship
is
60
days
past
due.
We
are
working
with
the
borrower
to
restructure
the
loan
and
advance
necessary
funds
for
capital
improvements.
This
relationship
was
evaluated
for
impairment
and
a
specific
reserve
of 
$1.5
million
was
allocated
to
this
relationship
as
of
December
31,
2019.
Our
fifth
largest
lending
relationship
consisted
of
20
commercial
real
estate
loans,
commercial
business
loans,
and
construction
and
land
development
loans
with
a
total
exposure
of 
$17.9
million,
secured
by
a
non-owner
occupied
commercial
use
property.
This
relationship
was
performing
in
accordance
with
its
original
repayment
terms
at
December
31,
2019.

Investment Activities

We
have
legal
authority
to
invest
in
various
types
of
investment
securities
and
liquid
assets,
including
U.S.
Treasury
obligations,
securities
of
various
government-sponsored
enterprises,
residential
mortgage-backed
securities
and
municipal
government
bonds,
deposits
at
the
Federal
Home
Loan
Bank
of
Boston,
certificates
of
deposit
of
federally
insured
institutions,
investment
grade
corporate
bonds
and
investment
grade
marketable
equity
securities,
including
common
stock
and
money
market
mutual
funds.
We
also
are
required
to
maintain
an
investment
in
Federal
Home
Loan
Bank
of
Boston
stock,
which
investment
is
based
on
the
level
of
our
Federal
Home
Loan
Bank
borrowings.
While
we
have
the
authority
under
applicable
law
to
invest
in
derivative
securities,
we
had
no
investments
in
derivative
securities
at
December
31,
2019.

At
December
31,
2019,
our
investment
portfolio
had
a
fair
value
of 
$41.8
million,
and
consisted
primarily
of

U.S.
Government
Agency
mortgage-backed
securities,
and
state
and
municipal
bonds.

Our
investment
objectives
are
to
provide
and
maintain
liquidity,
to
establish
an
acceptable
level
of
interest
rate

and
credit
risk,
to
provide
a
use
of
funds
when
demand
for
loans
is
weak
and
to
generate
a
favorable
return.
Our
board
of
directors
has
the
overall
responsibility
for
the
investment
portfolio,
including
approval
of
our
investment
policy.
The
Risk
Committee
of
the
board
of
directors
and
management
are
responsible
for
implementation
of
the
investment
policy
and
monitoring
our
investment
performance.
Our
Risk
Committee
reviews
the
status
of
our
investment
portfolio
quarterly.

Each
reporting
period,
we
evaluate
all
debt
securities
with
a
decline
in
fair
value
below
the
amortized
cost
of

the
investment
to
determine
whether
or
not
the
impairment
is
deemed
to
be
other-than-temporarily
impaired
(“OTTI”).
OTTI
is
required
to
be
recognized
if 
(1)
we
intend
to
sell
the
security;
(2)
it
is
more
likely
than
not
that
we
will
be
required
to
sell
the
security
before
recovery
of
its
amortized
cost
basis;
or
(3)
for
debt
securities,
the
present
value
of
expected
cash
flows
is
not
sufficient
to
recover
the
entire
amortized
cost
basis.
For
all
impaired
debt
securities
that
we
intend
to
sell,
or
more
likely
than
not
will
be
required
to
sell,
the
full
amount
of
the
depreciation
is
recognized
as
OTTI
resulting
in
a
realized
loss
that
is
a
charged
to
earnings
through
a
reduction
in
our
noninterest
income.
For
all
other
impaired
debt
securities,
credit-related
OTTI
is
recognized
through
earnings
and
non-credit
related
OTTI
is
recognized
in
other
comprehensive
income/loss,
net
of
applicable
taxes.
We
did
not
recognize
any
OTTI
during
the
years
ended
December
31,
2019
or
2018.

Sources of Funds

General.


Deposits
have
traditionally
been
our
primary
source
of
funds
for
use
in
lending
and
investment
activities.
We
also
use
borrowings,
primarily
Federal
Home
Loan
Bank
of
Boston
advances,
brokered
deposits
and
certificates
of
deposit
obtained
from
a
national
exchange,
to
supplement
cash
flow
needs,
lengthen
the
maturities
of
liabilities
for
interest
rate
risk
purposes
and
to
manage
the
cost
of
funds.
In

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TABLE OF CONTENTS

addition,
funds
are
derived
from
scheduled
loan
payments,
investment
securities
maturities
and
sales,
loan
prepayments,
retained
earnings
and
income
on
earning
assets.
While
scheduled
loan
payments
and
income
on
earning
assets
are
relatively
stable
sources
of
funds,
deposit
inflows
and
outflows
can
vary
widely
and
are
influenced
by
prevailing
interest
rates,
market
conditions
and
levels
of
competition.

Deposit Accounts.


The
majority
of
our
deposits
(other
than
certificates
of
deposit)
are
from
depositors
who

reside
in
our
primary
market
areas.
However,
a
significant
portion
of
our
brokered
certificates
of
deposits
and
QwickRate
deposits,
described
below,
are
from
depositors
located
outside
our
primary
market
areas.
We
also
receive
deposits
from
our
nationwide
business
customers.
Deposits
are
attracted
through
the
offering
of
a
broad
selection
of
deposit
instruments,
including
noninterest-bearing
demand
deposits
(such
as
checking
accounts),
interest-bearing
demand
accounts
(such
as
NOW
and
money
market
accounts),
savings
accounts
and
certificates
of
deposit.
In
addition
to
accounts
for
individuals,
we
also
offer
several
commercial
checking
accounts
designed
for
the
businesses
operating
in
our
market
area,
and
we
encourage
our
commercial
borrowing
customers
to
maintain
their
deposit
relationships
with
us.

We
have
grown
our
core
deposits
(which
we
define
as
all
deposits
except
for
certificates
of
deposit)
through
a
variety
of
strategies,
including
investing
in
technology
and
our
employees,
as
well
as
proactive
interaction
with
our
customers.
Our
investment
in
technology
has
enabled
us
to
better
serve
commercial
customers
who
demand
faster
processing
times
and
simplified
online
interaction.
For
example,
we
provide
deposit
and
cash
management
services
for
1031
qualified
intermediaries,
digital
currency
customers,
payroll
providers
and
community
association
management
companies.
Funds
we
receive
from
digital
currency
customers
are
denominated
in
U.S.
dollars;
we
do
not
have
any
digital
assets
or
liabilities
on
our
balance
sheet
and
we
do
not
take
any
digital
currency
exchange
rate
risk.
In
addition,
we
believe
that
our
specialized
commercial
activities
have
provided
opportunities
to
generate
business
deposits
from
those
customers,
including
from
customers
outside
of
our
branch
network,
that
may
not
be
available
to
traditional
community
banks.

At
December
31,
2019,
our
deposits
totaled
$849.9
million.
As
of
that
date,
our
certificates
of
deposit
included

$48.6
million
of
brokered
certificates
of
deposit
and
$8.7
million
of
QwickRate
certificates
of
deposit,
where
we
gather
certificates
of
deposit
nationwide
by
posting
rates
we
will
pay
on
these
deposits.
At
December
31,
2019,
all
of
our
QwickRate
certificates
of
deposit
were
in
amounts
greater
than
$100,000.

Deposit
account
terms
vary
according
to
the
minimum
balance
required,
the
time
period
that
funds
must
remain
on
deposit,
and
the
interest
rate,
among
other
factors.
In
determining
the
terms
of
our
deposit
accounts,
we
consider
the
rates
offered
by
our
competition,
our
liquidity
needs,
profitability,
and
customer
preferences
and
concerns.
We
generally
review
our
deposit
mix
and
pricing
on
a
weekly
basis.
Our
deposit
pricing
strategy
has
generally
been
to
offer
competitive
rates
and
services
and
to
periodically
offer
special
rates
in
order
to
attract
deposits
of
a
specific
type
or
term,
although
we
have
not
done
so
in
recent
periods.
We
do
not
price
our
deposit
products
to
be
among
the
highest
rate
paying
institution
in
our
market
area,
but
instead
focus
on
services
to
gather
deposits.

Borrowings.


We
primarily
utilize
advances
from
the
Federal
Home
Loan
Bank
of
Boston
to
supplement
our

supply
of
investable
funds.
The
Federal
Home
Loan
Bank
functions
as
a
central
reserve
bank
providing
credit
for
its
member
financial
institutions.
As
a
member,
we
are
required
to
own
capital
stock
in
the
Federal
Home
Loan
Bank
and
are
authorized
to
apply
for
advances
on
the
security
of
such
stock
and
certain
of
our
whole
first
mortgage
loans
and
other
assets
(principally
securities
which
are
obligations
of,
or
guaranteed
by,
the
United
States),
provided
certain
standards
related
to
creditworthiness
have
been
met.
Advances
are
made
under
several
different
programs,
each
having
its
own
interest
rate
and
range
of
maturities.
Depending
on
the
program,
limitations
on
the
amount
of
advances
are
based
either
on
a
fixed
percentage
of
an
institution’s
net
worth
or
on
the
Federal
Home
Loan
Bank’s
assessment
of
the
institution’s
creditworthiness.
As
of
December
31,
2019,
we
had
$178.8
million
of
available
borrowing
capacity
with
the
Federal
Home
Loan
Bank
of
Boston,
including
an
available
line
of
credit
of 
$2.0
million
at
an
interest
rate
that
adjusts
daily.
On
that
date,
we
had
$25.0
million
in
advances
outstanding
from
the
Federal
Home
Loan
Bank
of
Boston.
All
of
our
borrowings
from
the
Federal
Home
Loan
Bank
are
secured
by
investment
securities
and
qualified
collateral,
including
one-
to
four-family
loans
and
multi-family
and
commercial
real
estate
loans
held
in
our
portfolio.

14








TABLE OF CONTENTS

Personnel

As
of
December
31,
2019,
we
had
131
full-time
and
13
part-time
employees,
none
of
whom
is
represented
by
a

collective
bargaining
unit.
We
believe
we
have
a
good
working
relationship
with
our
employees.

Subsidiaries

The
Provident
Bank’s
subsidiaries
include
Provident
Security
Corporation
and
5
Market
Street
Security

Corporation,
which
were
established
to
buy,
sell,
and
hold
investments
for
their
own
account

SUPERVISION AND REGULATION

General

The
Provident
Bank
is
a
Massachusetts-chartered
stock
savings
bank.
The
Provident
Bank’s
deposits
are
insured
up
to
applicable
limits
by
the
Federal
Deposit
Insurance
Corporation
and
by
the
Depositors
Insurance
Fund
for
amounts
in
excess
of
the
Federal
Deposit
Insurance
Corporation
insurance
limits.
The
Provident
Bank
is
subject
to
extensive
regulation
by
the
Massachusetts
Commissioner
of
Banks,
as
its
chartering
agency,
and
by
the
Federal
Deposit
Insurance
Corporation,
as
its
primary
deposit
insurer.
The
Provident
Bank
is
required
to
file
reports
with,
and
is
periodically
examined
by,
the
Federal
Deposit
Insurance
Corporation
and
the
Massachusetts
Commissioner
of
Banks
concerning
its
activities
and
financial
condition
and
must
obtain
regulatory
approvals
prior
to
entering
into
certain
transactions,
including,
but
not
limited
to,
mergers
with
or
acquisitions
of
other
financial
institutions.
The
Provident
Bank
is
a
member
of
the
Federal
Home
Loan
Bank
of
Boston.

The
regulation
and
supervision
of
The
Provident
Bank
establish
a
comprehensive
framework
of
activities
in
which
an
institution
can
engage
and
is
intended
primarily
for
the
protection
of
depositors
and
borrowers
and,
for
purposes
of
the
Federal
Deposit
Insurance
Corporation,
the
protection
of
the
insurance
fund.
The
regulatory
structure
also
gives
the
regulatory
authorities
extensive
discretion
in
connection
with
their
supervisory
and
enforcement
activities
and
examination
policies,
including
policies
with
respect
to
the
classification
of
assets
and
the
establishment
of
adequate
loan
loss
reserves
for
regulatory
purposes.

As
a
bank
holding
company,
Provident
Bancorp,
Inc.
is
required
to
comply
with
the
rules
and
regulations
of
the

Federal
Reserve
Board.
It
is
required
to
file
certain
reports
with
the
Federal
Reserve
Board
and
is
subject
to
examination
by
and
the
enforcement
authority
of
the
Federal
Reserve
Board.
Provident
Bancorp,
Inc.
is
also
subject
to
the
rules
and
regulations
of
the
Securities
and
Exchange
Commission
under
the
federal
securities
laws.

Any
change
in
applicable
laws
or
regulations,
whether
by
the
Massachusetts
Commissioner
of
Banks,
the

Federal
Deposit
Insurance
Corporation,
the
Federal
Reserve
Board,
the
Commonwealth
of
Massachusetts
or
Congress,
could
have
a
material
adverse
impact
on
the
operations
and
financial
performance
of
Provident
Bancorp,
Inc.
and
The
Provident
Bank.
In
addition,
Provident
Bancorp,
Inc.
and
The
Provident
Bank
are
affected
by
the
monetary
and
fiscal
policies
of
various
agencies
of
the
United
States
Government,
including
the
Federal
Reserve
Board.
In
view
of
changing
conditions
in
the
national
economy
and
in
the
money
markets,
it
is
impossible
for
management
to
accurately
predict
future
changes
in
monetary
policy
or
the
effect
of
such
changes
on
the
business
or
financial
condition
of
Provident
Bancorp,
Inc.
and
The
Provident
Bank.

Set
forth
below
is
a
brief
description
of
material
regulatory
requirements
that
are
or
will
be
applicable
to
The

Provident
Bank
and
Provident
Bancorp,
Inc.
The
description
is
limited
to
certain
material
aspects
of
the
statutes
and
regulations
addressed,
and
is
not
intended
to
be
a
complete
description
of
such
statutes
and
regulations
and
their
effects
on
The
Provident
Bank
and
Provident
Bancorp,
Inc.

Massachusetts Banking Laws and Supervision

The
Provident
Bank,
as
a
Massachusetts-chartered
stock
savings
bank,
is
regulated
and
supervised
by
the
Massachusetts
Commissioner
of
Banks.
The
Massachusetts
Commissioner
of
Banks
is
required
to
regularly
examine
each
state-chartered
bank.
The
approval
of
the
Massachusetts
Commissioner
of
Banks
is
required
to
establish
or
close
branches,
to
merge
with
another
bank,
to
issue
stock
and
to
undertake
many

15








TABLE OF CONTENTS

other
activities.
Any
Massachusetts
savings
bank
that
does
not
operate
in
accordance
with
the
regulations,
policies
and
directives
of
the
Massachusetts
Commissioner
of
Banks
may
be
sanctioned.
The
Massachusetts
Commissioner
of
Banks
may
suspend
or
remove
directors
or
officers
of
a
savings
bank
who
have
violated
the
law,
conducted
a
bank’s
business
in
a
manner
that
is
unsafe,
unsound
or
contrary
to
the
depositors’
interests,
or
been
negligent
in
the
performance
of
their
duties.
In
addition,
the
Massachusetts
Commissioner
of
Banks
has
the
authority
to
appoint
a
receiver
or
conservator
if
it
is
determined
that
the
bank
is
conducting
its
business
in
an
unsafe
or
unauthorized
manner,
and
under
certain
other
circumstances.

The
powers
that
Massachusetts-chartered
savings
banks
can
exercise
under
these
laws
include,
but
are
not

limited
to,
the
following.

Lending Activities.


A
Massachusetts-chartered
savings
bank
may
make
a
wide
variety
of
mortgage
loans
including
fixed-rate
loans,
adjustable-rate
loans,
variable-rate
loans,
participation
loans,
graduated
payment
loans,
construction
and
development
loans,
condominium
and
co-operative
loans,
second
mortgage
loans
and
other
types
of
loans
that
may
be
made
in
accordance
with
applicable
regulations.
Commercial
loans
may
be
made
to
corporations
and
other
commercial
enterprises
with
or
without
security.
Consumer
and
personal
loans
may
also
be
made
with
or
without
security.

Insurance Sales.


Massachusetts
savings
banks
may
engage
in
insurance
sales
activities
if
the
Massachusetts

Commissioner
of
Banks
has
approved
a
plan
of
operation
for
insurance
activities
and
the
bank
obtains
a
license
from
the
Massachusetts
Division
of
Insurance.
A
savings
bank
may
be
licensed
directly
or
indirectly
through
an
affiliate
or
a
subsidiary
corporation
established
for
this
purpose.
Although
The
Provident
Bank
has
received
approval
for
insurance
sales
activities,
it
does
not
offer
insurance
products.

Investment Activities.


In
general,
Massachusetts-chartered
savings
banks
may
invest
in
preferred
and
common
stock
of
any
corporation
organized
under
the
laws
of
the
United
States
or
any
state
provided
such
investments
do
not
involve
control
of
any
corporation
and
do
not,
in
the
aggregate,
exceed
4.0%
of
the
bank’s
deposits.
Massachusetts-chartered
savings
banks
may
in
addition
invest
an
amount
equal
to
1.0%
of
their
deposits
in
stocks
of
Massachusetts
corporations
or
companies
with
substantial
employment
in
the
Commonwealth
which
have
pledged
to
the
Massachusetts
Commissioner
of
Banks
that
such
monies
will
be
used
for
further
development
within
the
Commonwealth.
At
the
present
time,
The
Provident
Bank
has
the
authority
to
invest
in
equity
securities.
However,
such
investment
authority
is
constrained
by
federal
law.
See
“—
Federal
Bank
Regulation — Investment
Activities”
for
such
federal
restrictions.

Dividends.


A
Massachusetts
stock
bank
may
declare
from
net
profits
cash
dividends
not
more
frequently
than

quarterly
and
non-cash
dividends
at
any
time.
No
dividends
may
be
declared,
credited
or
paid
if
the
bank’s
capital
stock
is
impaired.
A
Massachusetts
savings
bank
with
outstanding
preferred
stock
may
not,
without
the
prior
approval
of
the
Commissioner
of
Banks,
declare
dividends
to
the
common
stock
without
also
declaring
dividends
to
the
preferred
stock.
The
approval
of
the
Massachusetts
Commissioner
of
Banks
is
required
if
the
total
of
all
dividends
declared
in
any
calendar
year
exceeds
the
total
of
its
net
profits
for
that
year
combined
with
its
retained
net
profits
of
the
preceding
two
years,
less
any
required
transfer
to
surplus
or
a
fund
for
the
retirement
of
any
preferred
stock.
Net
profits
for
this
purpose
means
the
remainder
of
all
earnings
from
current
operations
plus
actual
recoveries
on
loans
and
investments
and
other
assets
after
deducting
current
operating
expenses,
actual
losses,
accrued
dividends
on
preferred
stock,
if
any,
and
all
federal
and
state
taxes.

Protection of Personal Information.


Massachusetts
has
adopted
regulatory
requirements
intended
to
protect

personal
information.
The
requirements
are
similar
to
existing
federal
laws
such
as
the
Gramm-Leach-Bliley
Act,
discussed
below
under
“—
Federal
Bank
Regulation — Privacy
Regulations.”
They
require
organizations
to
establish
written
information
security
programs
to
prevent
identity
theft.
The
Massachusetts
regulation
also
contains
technology
system
requirements,
especially
for
the
encryption
of
personal
information
sent
over
wireless
or
public
networks
or
stored
on
portable
devices.

Parity Approval.


A
Massachusetts
bank
may,
in
accordance
with
Massachusetts
law,
exercise
any
power
and
engage
in
any
activity
that
has
been
authorized
for
national
banks,
federal
thrifts
or
state
banks
in
a
state
other
than
Massachusetts,
provided
that
the
activity
is
permissible
under
applicable
federal
law
and
not
specifically
prohibited
by
Massachusetts
law.
Such
powers
and
activities
must
be
subject
to
the
same
limitations
and
restrictions
imposed
on
the
national
bank,
federal
thrift
or
out-of-state
bank
that
exercised

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TABLE OF CONTENTS

the
power
or
activity.
A
Massachusetts
bank
may
exercise
such
powers,
and
engage
in
such
activities
by
providing
30
days’
advanced
written
notice
to
the
Massachusetts
Commissioner
of
Banks.

Loans to One Borrower Limitations.


Massachusetts
banking
law
grants
broad
lending
authority.
However,
with
certain
limited
exceptions,
total
obligations
of
one
borrower
to
a
bank
may
not
exceed
20.0%
of
the
total
of
the
bank’s
capital,
which
is
defined
under
Massachusetts
law
as
the
sum
of
the
bank’s
capital
stock,
surplus
account
and
undivided
profits.

Loans to a Bank’s Insiders.


Massachusetts
law
provides
that
a
Massachusetts
financial
institution
shall
comply
with
Regulation
O
of
the
Federal
Reserve
Board,
which
generally
requires
that
extensions
of
credit
to
insiders:

•


be
made
on
terms
that
are
substantially
the
same
as,
and
follow
credit
underwriting
procedures
that
are
not
less
stringent
than,
those
prevailing
for
comparable
transactions
with
unaffiliated
persons
and
that
do
not
involve
more
than
the
normal
risk
of
repayment
or
present
other
unfavorable
features;
and

•


not
exceed
certain
limitations
on
the
amount
of
credit
extended
to
such
persons,
individually
and
in
the
aggregate,
which
limits
are
based,
in
part,
on
the
amount
of
the
Massachusetts
financial
institution’s
capital.

Regulatory Enforcement Authority.


Any
Massachusetts
bank
that
does
not
operate
in
accordance
with
the
regulations,
policies
and
directives
of
the
Massachusetts
Commissioner
of
Banks
may
be
subject
to
sanctions
for
non-compliance,
including
seizure
of
the
property
and
business
of
the
bank
and
suspension
or
revocation
of
its
charter.
The
Massachusetts
Commissioner
of
Banks
may,
under
certain
circumstances,
suspend
or
remove
officers
or
directors
who
have
violated
the
law,
conducted
the
bank’s
business
in
a
manner
which
is
unsafe,
unsound
or
contrary
to
the
depositors’
interests
or
been
negligent
in
the
performance
of
their
duties.
In
addition,
upon
finding
that
a
bank
has
engaged
in
an
unfair
or
deceptive
act
or
practice,
the
Massachusetts
Commissioner
of
Banks
may
issue
an
order
to
cease
and
desist
and
impose
a
fine
on
the
bank
concerned.
Massachusetts
consumer
protection
and
civil
rights
statutes
applicable
to
The
Provident
Bank
permit
private
individual
and
class
action
law
suits
and
provide
for
the
rescission
of
consumer
transactions,
including
loans,
and
the
recovery
of
statutory
and
punitive
damage
and
attorney’s
fees
in
the
case
of
certain
violations
of
those
statutes.

Depositors Insurance Fund.


All
Massachusetts-chartered
savings
banks
are
required
to
be
members
of
the
Depositors
Insurance
Fund,
a
corporation
that
insures
savings
bank
deposits
in
excess
of
federal
deposit
insurance
coverage.
The
Depositors
Insurance
Fund
is
authorized
to
charge
savings
banks
a
risk-based
assessment
on
deposit
balances
in
excess
of
the
amounts
insured
by
the
Federal
Deposit
Insurance
Corporation.

Massachusetts
has
other
statutes
and
regulations
that
are
similar
to
the
federal
provisions
discussed
below.

Federal Bank Regulation

Capital Requirements.


Federal
regulations
require
Federal
Deposit
Insurance
Corporation-insured
depository
institutions
to
meet
several
minimum
capital
standards:
a
common
equity
Tier
1
capital
to
risk-based
assets
ratio
of
4.5%,
a
Tier
1
capital
to
risk-based
assets
ratio
of
6.0%,
a
total
capital
to
risk-based
assets
ratio
of
8%,
and
a
Tier
1
capital
to
average
assets
leverage
ratio
of
4%.

For
purposes
of
the
regulatory
capital
requirements,
common
equity
Tier
1
capital
is
generally
defined
as
common
stockholders’
equity
and
retained
earnings.
Tier
1
capital
is
generally
defined
as
common
equity
Tier
1
and
additional
Tier
1
capital.
Additional
Tier
1
capital
includes
certain
noncumulative
perpetual
preferred
stock
and
related
surplus
and
minority
interests
in
equity
accounts
of
consolidated
subsidiaries.
Total
capital
includes
Tier
1
capital
(common
equity
Tier
1
capital
plus
additional
Tier
1
capital)
and
Tier
2
capital.
Tier
2
capital
is
comprised
of
capital
instruments
and
related
surplus,
meeting
specified
requirements,
and
may
include
cumulative
preferred
stock
and
long-term
perpetual
preferred
stock,
mandatory
convertible
securities,
intermediate
preferred
stock
and
subordinated
debt.
Also
included
in
Tier
2
capital
is
the
allowance
for
loan
and
lease
losses
limited
to
a
maximum
of
1.25%
of
risk-weighted
assets
and,
for

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TABLE OF CONTENTS

institutions
that
made
such
an
election
regarding
the
treatment
of
Accumulated
Other
Comprehensive
Income
(“AOCI”),
up
to
45%
of
net
unrealized
gains
on
available-for-sale
equity
securities
with
readily
determinable
fair
market
values.
Institutions
that
have
not
exercised
the
AOCI
opt-out
have
AOCI
incorporated
into
common
equity
Tier
1
capital
(including
unrealized
gains
and
losses
on
available-for-sale-securities).
The
Provident
Bank
has
exercised
the
opt-out
and
therefore
does
not
include
AOCI
in
its
regulatory
capital
determinations.
Calculation
of
all
types
of
regulatory
capital
is
subject
to
deductions
and
adjustments
specified
in
the
regulations.

In
determining
the
amount
of
risk-weighted
assets
for
purposes
of
calculating
risk-based
capital
ratios,
all

assets,
including
certain
off-balance
sheet
assets
(e.g.,
recourse
obligations,
direct
credit
substitutes,
residual
interests)
are
multiplied
by
a
risk
weight
factor
assigned
by
the
regulations
based
on
the
risks
believed
inherent
in
the
type
of
asset.
Higher
levels
of
capital
are
required
for
asset
categories
believed
to
present
greater
risk.
For
example,
a
risk
weight
of
0%
is
assigned
to
cash
and
U.S.
government
securities,
a
risk
weight
of
50%
is
generally
assigned
to
prudently
underwritten
first
lien
one
to
four-
family
residential
mortgages,
a
risk
weight
of
100%
is
assigned
to
commercial
and
consumer
loans,
a
risk
weight
of
150%
is
assigned
to
certain
past
due
loans
and
a
risk
weight
of
between
0%
to
600%
is
assigned
to
permissible
equity
interests,
depending
on
certain
specified
factors.

In
addition
to
establishing
the
minimum
regulatory
capital
requirements,
the
regulations
limit
capital
distributions
and
certain
discretionary
bonus
payments
to
management
if
the
institution
does
not
hold
a
“capital
conservation
buffer”
consisting
of
2.5%
of
common
equity
Tier
1
capital
to
risk-weighted
asset
above
the
amount
necessary
to
meet
its
minimum
risk-based
capital
requirements.
The
capital
conservation
buffer
requirement
began
being
phased
in
starting
on
January
1,
2016
at
0.625%
of
risk-weighted
assets
and
increased
each
year
until
fully
implemented
at
2.5%
on
January
1,
2019.
At
December
31,
2019,
The
Provident
Bank
exceeded
the
fully
phased
in
regulatory
requirement
for
the
capital
conservation
buffer.

Legislation
enacted
in
2018
requires
the
federal
banking
agencies,
including
the
Federal
Deposit
Insurance
Corporation,
to
establish
for
qualifying
institutions
with
assets
of
less
than
$10
billion
of
assets
a
“community
bank
leverage
ratio”
of
between
8%
to
10%
tangible
equity/consolidated
assets.
Institutions
with
capital
levels
meeting
or
exceeding
the
specified
requirement
will
be
considered
to
comply
with
the
applicable
regulatory
capital
requirements,
including
all
risk-based
requirements.
A
final
rule
issued
by
the
federal
regulators
established
9%
as
the
community
bank
leverage
ratio
minimum.

The
Federal
Deposit
Insurance
Corporation
Improvement
Act
required
each
federal
banking
agency
to
revise

its
risk-based
capital
standards
for
insured
institutions
to
ensure
that
those
standards
take
adequate
account
of
interest-rate
risk,
concentration
of
credit
risk,
and
the
risk
of
nontraditional
activities,
as
well
as
to
reflect
the
actual
performance
and
expected
risk
of
loss
on
multi-family
residential
loans.
The
Federal
Deposit
Insurance
Corporation,
along
with
the
other
federal
banking
agencies,
adopted
a
regulation
providing
that
the
agencies
will
take
into
account
the
exposure
of
a
bank’s
capital
and
economic
value
to
changes
in
interest
rate
risk
in
assessing
a
bank’s
capital
adequacy.
The
Federal
Deposit
Insurance
Corporation
also
has
authority
to
establish
individual
minimum
capital
requirements
in
appropriate
cases
upon
determination
that
an
institution’s
capital
level
is,
or
is
likely
to
become,
inadequate
in
light
of
the
particular
circumstances.

Standards for Safety and Soundness.


As
required
by
statute,
the
federal
banking
agencies
adopted
final
regulations
and
Interagency
Guidelines
Establishing
Standards
for
Safety
and
Soundness
to
implement
safety
and
soundness
standards.
The
guidelines
set
forth
the
safety
and
soundness
standards
that
the
federal
banking
agencies
use
to
identify
and
address
problems
at
insured
depository
institutions
before
capital
becomes
impaired.
The
guidelines
address
internal
controls
and
information
systems,
internal
audit
system,
credit
underwriting,
loan
documentation,
interest
rate
exposure,
asset
growth,
asset
quality,
earnings
and
compensation,
fees
and
benefits.
The
agencies
have
also
established
standards
for
safeguarding
customer
information.
If
the
appropriate
federal
banking
agency
determines
that
an
institution
fails
to
meet
any
standard
prescribed
by
the
guidelines,
the
agency
may
require
the
institution
to
submit
to
the
agency
an
acceptable
plan
to
achieve
compliance
with
the
standard.

Investment Activities.


All
state-chartered
Federal
Deposit
Insurance
Corporation
insured
banks,
including
savings
banks,
are
generally
limited
in
their
investment
activities
to
principal
and
equity
investments
of
the
type
and
in
the
amount
authorized
for
national
banks,
notwithstanding
state
law,
subject
to
certain
exceptions.
For
example,
state-chartered
banks
may,
with
Federal
Deposit
Insurance
Corporation
approval,

18








TABLE OF CONTENTS

continue
to
exercise
state
authority
to
invest
in
common
or
preferred
stocks
listed
on
a
national
securities
exchange
and
in
the
shares
of
an
investment
company
registered
under
the
Investment
Company
Act
of
1940,
as
amended.
The
maximum
permissible
investment
is
100%
of
Tier
1
Capital,
as
specified
by
the
Federal
Deposit
Insurance
Corporation’s
regulations,
or
the
maximum
amount
permitted
by
Massachusetts
law,
whichever
is
less.

In
addition,
the
Federal
Deposit
Insurance
Corporation
is
authorized
to
permit
such
a
state
bank
to
engage
in

state-authorized
activities
or
investments
not
permissible
for
national
banks
(other
than
non-subsidiary
equity
investments)
if
it
meets
all
applicable
capital
requirements
and
it
is
determined
that
such
activities
or
investments
do
not
pose
a
significant
risk
to
the
Deposit
Insurance
Fund.
The
Federal
Deposit
Insurance
Corporation
has
adopted
procedures
for
institutions
seeking
approval
to
engage
in
such
activities
or
investments.
In
addition,
a
nonmember
bank
may
control
a
subsidiary
that
engages
in
activities
as
principal
that
would
only
be
permitted
for
a
national
bank
to
conduct
in
a
“financial
subsidiary”
if
a
bank
meets
specified
conditions
and
deducts
its
investment
in
the
subsidiary
for
regulatory
capital
purposes.

Interstate Banking and Branching.


Federal
law
permits
well
capitalized
and
well
managed
bank
holding
companies
to
acquire
banks
in
any
state,
subject
to
Federal
Reserve
Board
approval,
certain
concentration
limits
and
other
specified
conditions.
Interstate
mergers
of
banks
are
also
authorized,
subject
to
regulatory
approval
and
other
specified
conditions.
In
addition,
recent
amendments
made
by
the
Dodd-Frank
Act
permit
banks
to
establish
de
novo
branches
on
an
interstate
basis
to
the
extent
that
branching
is
authorized
by
the
law
of
the
host
state
for
the
banks
chartered
by
that
state.

Prompt Corrective Regulatory Action.


Federal
law
requires,
among
other
things,
that
federal
bank
regulatory

authorities
take
“prompt
corrective
action”
with
respect
to
banks
that
do
not
meet
minimum
capital
requirements.
For
these
purposes,
the
law
establishes
five
capital
categories:
well
capitalized,
adequately
capitalized,
undercapitalized,
significantly
undercapitalized
and
critically
undercapitalized.

The
Federal
Deposit
Insurance
Corporation
has
adopted
regulations
to
implement
the
prompt
corrective
action

legislation.
An
institution
is
deemed
to
be
“well
capitalized”
if
it
has
a
total
risk-based
capital
ratio
of
10.0%
or
greater,
a
Tier
1
risk-based
capital
ratio
of
8.0%
or
greater,
a
leverage
ratio
of
5.0%
or
greater
and
a
common
equity
Tier
1
ratio
of
6.5%
or
greater.
An
institution
is
“adequately
capitalized”
if
it
has
a
total
risk-based
capital
ratio
of
8.0%
or
greater,
a
Tier
1
risk-based
capital
ratio
of
6.0%
or
greater,
a
leverage
ratio
of
4.0%
or
greater
and
a
common
equity
Tier
1
ratio
of
4.5%
or
greater.
An
institution
is
“undercapitalized”
if
it
has
a
total
risk-based
capital
ratio
of
less
than
8.0%,
a
Tier
1
risk-based
capital
ratio
of
less
than
6.0%,
a
leverage
ratio
of
less
than
4.0%
or
a
common
equity
Tier
1
ratio
of
less
than
4.5%.
An
institution
is
deemed
to
be
“significantly
undercapitalized”
if
it
has
a
total
risk-based
capital
ratio
of
less
than
6.0%,
a
Tier
1
risk-based
capital
ratio
of
less
than
4.0%,
a
leverage
ratio
of
less
than
3.0%
or
a
common
equity
Tier
1
ratio
of
less
than
3.0%.
An
institution
is
considered
to
be
“critically
undercapitalized”
if
it
has
a
ratio
of
tangible
equity
(as
defined
in
the
regulations)
to
total
assets
that
is
equal
to
or
less
than
2.0%.
As
of
December
31,
2019,
The
Provident
Bank
was
a
“well
capitalized”
institution
under
the
Federal
Deposit
Insurance
Corporation
regulations.

At
each
successive
lower
capital
category,
an
insured
depository
institution
is
subject
to
more
restrictions
and

prohibitions,
including
restrictions
on
growth,
restrictions
on
interest
rates
paid
on
deposits,
restrictions
or
prohibitions
on
payment
of
dividends,
and
restrictions
on
the
acceptance
of
brokered
deposits.
Furthermore,
if
an
insured
depository
institution
is
classified
in
one
of
the
undercapitalized
categories,
it
is
required
to
submit
a
capital
restoration
plan
to
the
appropriate
federal
banking
agency,
and
the
holding
company
must
guarantee
the
performance
of
that
plan.
Based
upon
its
capital
levels,
a
bank
that
is
classified
as
well-capitalized,
adequately
capitalized,
or
undercapitalized
may
be
treated
as
though
it
were
in
the
next
lower
capital
category
if
the
appropriate
federal
banking
agency,
after
notice
and
opportunity
for
hearing,
determines
that
an
unsafe
or
unsound
condition,
or
an
unsafe
or
unsound
practice,
warrants
such
treatment.
An
undercapitalized
bank’s
compliance
with
a
capital
restoration
plan
is
required
to
be
guaranteed
by
any
company
that
controls
the
undercapitalized
institution
in
an
amount
equal
to
the
lesser
of
5.0%
of
the
institution’s
total
assets
when
deemed
undercapitalized
or
the
amount
necessary
to
achieve
the
status
of
adequately
capitalized.
If
an
“undercapitalized”
bank
fails
to
submit
an
acceptable
plan,
it
is
treated
as
if
it
is
“significantly
undercapitalized.”
“Significantly
undercapitalized”
banks
must
comply
with
one
or
more
of
a
number
of
additional
restrictions,
including
but
not
limited
to
an
order
by
the
Federal
Deposit
Insurance
Corporation
to
sell
sufficient
voting
stock
to
become
adequately
capitalized,
requirements
to
reduce
total

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TABLE OF CONTENTS

assets,
cease
receipt
of
deposits
from
correspondent
banks
or
dismiss
directors
or
officers,
and
restrictions
on
interest
rates
paid
on
deposits,
compensation
of
executive
officers
and
capital
distributions
by
the
parent
holding
company.
“Critically
undercapitalized”
institutions
are
subject
to
additional
measures
including,
subject
to
a
narrow
exception,
the
appointment
of
a
receiver
or
conservator
within
270
days
after
it
obtains
such
status.

The
previously
referenced
rulemaking
to
establish
a
“community
bank
leverage
ratio”
adjusted
the
referenced

categories
for
qualifying
institutions
that
opt
into
the
alternative
framework
for
regulatory
capital
requirements.
Institutions
that
exceed
the
community
bank
leverage
ratio
would
be
considered
to
have
met
the
capital
ratio
requirements
to
be
“well
capitalized”
for
the
agencies’
prompt
corrective
rules.

Transaction with Affiliates and Regulation W of the Federal Reserve Regulations.


Transactions
between

banks
and
their
affiliates
are
governed
by
federal
law.
An
affiliate
of
a
bank
is
any
company
or
entity
that
controls,
is
controlled
by
or
is
under
common
control
with
the
bank.
In
a
holding
company
context,
the
parent
bank
holding
company
and
any
companies
which
are
controlled
by
such
parent
holding
company
are
affiliates
of
the
bank
(although
subsidiaries
of
the
bank
itself,
except
financial
subsidiaries,
are
generally
not
considered
affiliates).
Generally,
Section
23A
of
the
Federal
Reserve
Act
and
the
Federal
Reserve
Board’s
Regulation
W
limit
the
extent
to
which
the
bank
or
its
subsidiaries
may
engage
in
“covered
transactions”
with
any
one
affiliate
to
an
amount
equal
to
10.0%
of
such
institution’s
capital
stock
and
surplus,
and
with
all
such
transactions
with
all
affiliates
to
an
amount
equal
to
20.0%
of
such
institution’s
capital
stock
and
surplus.
Section
23B
applies
to
“covered
transactions”
as
well
as
to
certain
other
transactions
and
requires
that
all
such
transactions
be
on
terms
substantially
the
same,
or
at
least
as
favorable,
to
the
institution
or
subsidiary
as
those
provided
to
a
non-affiliate.
The
term
“covered
transaction”
includes
the
making
of
loans
to,
purchase
of
assets
from,
and
issuance
of
a
guarantee
to
an
affiliate,
and
other
similar
transactions.
Section
23B
transactions
also
include
the
provision
of
services
and
the
sale
of
assets
by
a
bank
to
an
affiliate.
In
addition,
loans
or
other
extensions
of
credit
by
the
financial
institution
to
the
affiliate
are
required
to
be
collateralized
in
accordance
with
the
requirements
set
forth
in
Section
23A
of
the
Federal
Reserve
Act.

Sections
22(h)
and
(g)
of
the
Federal
Reserve
Act
place
restrictions
on
loans
to
a
bank’s
insiders,
i.e.,
executive
officers,
directors
and
principal
shareholders.
Under
Section
22(h)
of
the
Federal
Reserve
Act,
loans
to
a
director,
an
executive
officer
and
to
a
greater
than
10.0%
shareholder
of
a
financial
institution,
and
certain
affiliated
interests
of
these,
together
with
all
other
outstanding
loans
to
such
person
and
affiliated
interests,
may
not
exceed
specified
limits.
Section
22(h)
of
the
Federal
Reserve
Act
also
requires
that
loans
to
directors,
executive
officers
and
principal
shareholders
be
made
on
terms
and
conditions
substantially
the
same
as
offered
in
comparable
transactions
to
persons
who
are
not
insiders
and
also
requires
prior
board
approval
for
certain
loans.
In
addition,
the
aggregate
amount
of
extensions
of
credit
by
a
financial
institution
to
insiders
cannot
exceed
the
institution’s
unimpaired
capital
and
surplus.
Section
22(g)
of
the
Federal
Reserve
Act
places
additional
restrictions
on
loans
to
executive
officers.

Enforcement.


The
Federal
Deposit
Insurance
Corporation
has
extensive
enforcement
authority
over
insured

state
savings
banks,
including
The
Provident
Bank.
The
enforcement
authority
includes,
among
other
things,
the
ability
to
assess
civil
money
penalties,
issue
cease
and
desist
orders
and
remove
directors
and
officers.
In
general,
these
enforcement
actions
may
be
initiated
in
response
to
violations
of
laws
and
regulations,
breaches
of
fiduciary
duty
and
unsafe
or
unsound
practices.
The
Federal
Deposit
Insurance
Corporation
is
required,
with
certain
exceptions,
to
appoint
a
receiver
or
conservator
for
an
insured
state
non-member
bank
if
that
bank
was
“critically
undercapitalized”
on
average
during
the
calendar
quarter
beginning
270
days
after
the
date
on
which
the
institution
became
“critically
undercapitalized.”
The
Federal
Deposit
Insurance
Corporation
may
also
appoint
itself
as
conservator
or
receiver
for
an
insured
state
non-member
bank
under
specified
circumstances,
including:
(1)
insolvency;
(2)
substantial
dissipation
of
assets
or
earnings
through
violations
of
law
or
unsafe
or
unsound
practices;
(3)
existence
of
an
unsafe
or
unsound
condition
to
transact
business;
(4)
insufficient
capital;
or
(5)
the
incurrence
of
losses
that
will
deplete
substantially
all
of
the
institution’s
capital
with
no
reasonable
prospect
of
replenishment
without
federal
assistance.

Federal Insurance of Deposit Accounts.


The
Provident
Bank
is
a
member
of
the
Deposit
Insurance
Fund,
which
is
administered
by
the
Federal
Deposit
Insurance
Corporation.
Deposit
accounts
in
The
Provident
Bank
are
insured
up
to
a
maximum
of 
$250,000
for
each
separately
insured
depositor.

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TABLE OF CONTENTS

The
Federal
Deposit
Insurance
Corporation
imposes
an
assessment
for
deposit
insurance
on
all
depository
institutions.
Under
the
Federal
Deposit
Insurance
Corporation’s
risk-based
assessment
system,
insured
institutions
are
assigned
to
risk
categories
based
on
supervisory
evaluations,
regulatory
capital
levels
and
certain
other
factors.
An
institution’s
assessment
rate
depends
upon
the
category
to
which
it
is
assigned
and
certain
adjustments
specified
by
Federal
Deposit
Insurance
Corporation
regulations,
with
less
risky
institutions
paying
lower
rates.
Assessment
rates
(inclusive
of
possible
adjustments)
for
most
banks
with
less
than
$10
billion
of
assets
currently
range
from
1
 ∕2
to
30
basis
points
of
each
institution’s
total
assets
less
tangible
capital.
The
Federal
Deposit
Insurance
Corporation
may
increase
or
decrease
the
scale
uniformly,
except
that
no
adjustment
can
deviate
more
than
two
basis
points
from
the
base
scale
without
notice
and
comment
rulemaking.
The
Federal
Deposit
Insurance
Corporation’s
current
system
represents
a
change,
required
by
the
Dodd-Frank
Act,
from
its
prior
practice
of
basing
the
assessment
on
an
institution’s
volume
of
deposits.

1

The
Dodd-Frank
Act
increased
the
minimum
target
Deposit
Insurance
Fund
ratio
from
1.15%
of
estimated
insured
deposits
to
1.35%
of
estimated
insured
deposits.
The
Federal
Deposit
Insurance
Corporation
was
required
to
seek
to
achieve
the
1.35%
ratio
by
September
30,
2020.
Insured
institutions
with
assets
of 
$10
billion
or
more
were
supposed
to
fund
the
increase.
The
Federal
Deposit
Insurance
Corporation
indicated
in
November
2018
that
the
1.35%
ratio
was
exceeded.
Insured
institutions
of
less
than
$10
billion
of
assets
received
credits
for
the
portion
of
their
assessments
that
contributed
to
raising
the
reserve
ratio
between
1.15%
and
1.35%
effective
when
the
fund
rate
achieved
1.38%.
The
Dodd-Frank
Act
eliminated
the
1.5%
maximum
fund
ratio,
instead
leaving
it
to
the
discretion
of
the
Federal
Deposit
Insurance
Corporation
and
the
Federal
Deposit
Insurance
Corporation
has
exercised
that
discretion
by
establishing
a
long
range
fund
ratio
of
2%.

The
Federal
Deposit
Insurance
Corporation
has
authority
to
increase
insurance
assessments.
A
significant

increase
in
insurance
premiums
would
likely
have
an
adverse
effect
on
the
operating
expenses
and
results
of
operations
of
The
Provident
Bank.
Future
insurance
assessment
rates
cannot
be
predicted.

Insurance
of
deposits
may
be
terminated
by
the
Federal
Deposit
Insurance
Corporation
upon
a
finding
that
the
institution
has
engaged
in
unsafe
or
unsound
practices,
is
in
an
unsafe
or
unsound
condition
to
continue
operations
or
has
violated
any
applicable
law,
regulation,
rule
order
or
regulatory
condition
imposed
in
writing.
We
do
not
know
of
any
practice,
condition
or
violation
that
might
lead
to
termination
of
deposit
insurance.

Privacy Regulations.


Federal
Deposit
Insurance
Corporation
regulations
generally
require
that
The
Provident

Bank
disclose
its
privacy
policy,
including
identifying
with
whom
it
shares
a
customer’s
“non-public
personal
information,”
to
customers
at
the
time
of
establishing
the
customer
relationship
and
annually
thereafter.
In
addition,
The
Provident
Bank
is
required
to
provide
its
customers
with
the
ability
to
“opt-out”
of
having
their
personal
information
shared
with
unaffiliated
third
parties
and
not
to
disclose
account
numbers
or
access
codes
to
non-
affiliated
third
parties
for
marketing
purposes.
The
Provident
Bank
currently
has
a
privacy
protection
policy
in
place
and
believes
that
such
policy
is
in
compliance
with
the
regulations.

Community Reinvestment Act.


Under
the
Community
Reinvestment
Act,
or
CRA,
as
implemented
by
Federal

Deposit
Insurance
Corporation
regulations,
a
non-member
bank
has
a
continuing
and
affirmative
obligation,
consistent
with
its
safe
and
sound
operation,
to
help
meet
the
credit
needs
of
its
entire
community,
including
low-
and
moderate-income
neighborhoods.
The
CRA
does
not
establish
specific
lending
requirements
or
programs
for
financial
institutions
nor
does
it
limit
an
institution’s
discretion
to
develop
the
types
of
products
and
services
that
it
believes
are
best
suited
to
its
particular
community,
consistent
with
the
CRA.
The
CRA
does
require
the
Federal
Deposit
Insurance
Corporation,
in
connection
with
its
examination
of
a
non-member
bank,
to
assess
the
institution’s
record
of
meeting
the
credit
needs
of
its
community
and
to
take
such
record
into
account
in
its
evaluation
of
certain
applications
by
such
institution,
including
applications
to
acquire
branches
and
other
financial
institutions.
The
CRA
requires
the
Federal
Deposit
Insurance
Corporation
to
provide
a
written
evaluation
of
an
institution’s
CRA
performance
utilizing
a
four-tiered
descriptive
rating
system.
The
Provident
Bank’s
latest
Federal
Deposit
Insurance
Corporation
CRA
rating
was
“Satisfactory.”

Massachusetts
has
its
own
statutory
counterpart
to
the
CRA
which
is
also
applicable
to
The
Provident
Bank.

The
Massachusetts
version
is
generally
similar
to
the
CRA
but
utilizes
a
five-tiered
descriptive
rating

21








TABLE OF CONTENTS

system.
Massachusetts
law
requires
the
Massachusetts
Commissioner
of
Banks
to
consider,
but
not
be
limited
to,
a
bank’s
record
of
performance
under
Massachusetts
law
in
considering
any
application
by
the
bank
to
establish
a
branch
or
other
deposit-taking
facility,
to
relocate
an
office
or
to
merge
or
consolidate
with
or
acquire
the
assets
and
assume
the
liabilities
of
any
other
banking
institution.
The
Provident
Bank’s
most
recent
rating
under
Massachusetts
law
was
“Satisfactory.”

Consumer Protection and Fair Lending Regulations.


Massachusetts
savings
banks
are
subject
to
a
variety
of

federal
and
Massachusetts
statutes
and
regulations
that
are
intended
to
protect
consumers
and
prohibit
discrimination
in
the
granting
of
credit.
These
statutes
and
regulations
provide
for
a
range
of
sanctions
for
non-
compliance
with
their
terms,
including
imposition
of
administrative
fines
and
remedial
orders,
and
referral
to
the
Attorney
General
for
prosecution
of
a
civil
action
for
actual
and
punitive
damages
and
injunctive
relief.
Certain
of
these
statutes
authorize
private
individual
and
class
action
lawsuits
and
the
award
of
actual,
statutory
and
punitive
damages
and
attorneys’
fees
for
certain
types
of
violations.

USA PATRIOT Act.


The
Provident
Bank
is
subject
to
the
USA
PATRIOT
Act,
which
gave
federal
agencies
additional
powers
to
address
terrorist
threats
through
enhanced
domestic
security
measures,
expanded
surveillance
powers,
increased
information
sharing,
and
broadened
anti-money
laundering
requirements.
By
way
of
amendments
to
the
Bank
Secrecy
Act,
Title
III
of
the
USA
PATRIOT
Act
provided
measures
intended
to
encourage
information
sharing
among
bank
regulatory
agencies
and
law
enforcement
bodies.
Further,
certain
provisions
of
Title
III
impose
affirmative
obligations
on
a
broad
range
of
financial
institutions,
including
banks,
thrifts,
brokers,
dealers,
credit
unions,
money
transfer
agents,
and
parties
registered
under
the
Commodity
Exchange
Act.

Other Regulations

Interest
and
other
charges
collected
or
contracted
for
by
The
Provident
Bank
are
subject
to
state
usury
laws
and
federal
laws
concerning
interest
rates.
Loan
operations
are
also
subject
to
state
and
federal
laws
applicable
to
credit
transactions,
such
as
the:

•


•


•


•


Home
Mortgage
Disclosure
Act
of
1975,
requiring
financial
institutions
to
provide
information
to
enable
the
public
and
public
officials
to
determine
whether
a
financial
institution
is
fulfilling
its
obligation
to
help
meet
the
housing
needs
of
the
community
it
serves;

Equal
Credit
Opportunity
Act,
prohibiting
discrimination
on
the
basis
of
race,
creed
or
other
prohibited
factors
in
extending
credit;

Fair
Credit
Reporting
Act
of
1978,
governing
the
use
and
provision
of
information
to
credit
reporting
agencies;

Massachusetts
Debt
Collection
Regulations,
establishing
standards,
by
defining
unfair
or
deceptive
acts
or
practices,
for
the
collection
of
debts
from
persons
within
the
Commonwealth
of
Massachusetts
and
the
General
Laws
of
Massachusetts,
Chapter
167E,
which
governs
The
Provident
Bank’s
lending
powers;
and

•


Rules
and
regulations
of
the
various
federal
and
state
agencies
charged
with
the
responsibility
of
implementing
such
federal
and
state
laws.

The
deposit
operations
of
The
Provident
Bank
also
are
subject
to,
among
others,
the:

•


•


•


Right
to
Financial
Privacy
Act,
which
imposes
a
duty
to
maintain
confidentiality
of
consumer
financial
records
and
prescribes
procedures
for
complying
with
administrative
subpoenas
of
financial
records;

Check
Clearing
for
the
21 
Century
Act
(also
known
as
“Check
21”),
which
gives
“substitute
checks,”
such
as
digital
check
images
and
copies
made
from
that
image,
the
same
legal
standing
as
the
original
paper
check;

st

Electronic
Funds
Transfer
Act
and
Regulation
E
promulgated
thereunder,
which
govern
automatic
deposits
to
and
withdrawals
from
deposit
accounts
and
customers’
rights
and
liabilities
arising
from
the
use
of
automated
teller
machines
and
other
electronic
banking
services;
and

•


General
Laws
of
Massachusetts,
Chapter
167D,
which
governs
deposit
powers.

22








TABLE OF CONTENTS

Federal Reserve System

The
Federal
Reserve
Board
regulations
require
depository
institutions
to
maintain
noninterest-earning
reserves

against
their
transaction
accounts
(primarily
NOW
and
regular
checking
accounts).
The
Federal
Reserve
Board
regulations
generally
require
that
reserves
be
maintained
against
aggregate
transaction
accounts
as
follows
for
2020:
for
that
portion
of
transaction
accounts
aggregating
$127.5
million
or
less
(which
may
be
adjusted
annually
by
the
Federal
Reserve
Board)
the
reserve
requirement
is
3.0%
and
the
amounts
greater
than
$127.5
million
require
a
10.0%
reserve
(which
may
be
adjusted
annually
by
the
Federal
Reserve
Board
between
8.0%
and
14.0%).
The
first
$16.9
million
of
otherwise
reservable
balances
(which
may
be
adjusted
by
the
Federal
Reserve
Board)
are
exempted
from
the
reserve
requirements.
The
Provident
Bank
is
in
compliance
with
these
requirements.

Federal Home Loan Bank System

The
Provident
Bank
is
a
member
of
the
Federal
Home
Loan
Bank
System,
which
consists
of
12
regional
Federal
Home
Loan
Banks.
The
Federal
Home
Loan
Bank
provides
a
central
credit
facility
primarily
for
member
institutions.
Members
of
the
Federal
Home
Loan
Bank
are
required
to
acquire
and
hold
shares
of
capital
stock
in
the
Federal
Home
Loan
Bank.
The
Provident
Bank
was
in
compliance
with
this
requirement
at
December
31,
2019.
Based
on
redemption
provisions
of
the
Federal
Home
Loan
Bank
of
Boston,
the
stock
has
no
quoted
market
value
and
is
carried
at
cost.
The
Provident
Bank
reviews
for
impairment
based
on
the
ultimate
recoverability
of
the
cost
basis
of
the
Federal
Home
Loan
Bank
of
Boston
stock.
As
of
December
31,
2019,
no
impairment
has
been
recognized.

At
its
discretion,
the
Federal
Home
Loan
Bank
of
Boston
may
declare
dividends
on
the
stock.
The
Federal
Home
Loan
Banks
are
required
to
provide
funds
for
certain
purposes
including
the
resolution
of
insolvent
thrifts
in
the
late
1980s
and
to
contributing
funds
for
affordable
housing
programs.
These
requirements
could
reduce
the
amount
of
dividends
that
the
Federal
Home
Loan
Banks
pay
to
their
members
and
result
in
the
Federal
Home
Loan
Banks
imposing
a
higher
rate
of
interest
on
advances
to
their
members.
In
2019,
the
Federal
Home
Loan
Bank
of
Boston
paid
dividends
equal
to
an
annual
yield
of
6.25%.
There
can
be
no
assurance
that
such
dividends
will
continue
in
the
future.

Holding Company Regulation

Provident
Bancorp,
Inc.
is
subject
to
examination,
regulation,
and
periodic
reporting
under
the
Bank
Holding

Company
Act
of
1956,
as
amended,
as
administered
by
the
Federal
Reserve
Board.
Provident
Bancorp,
Inc.
is
required
to
obtain
the
prior
approval
of
the
Federal
Reserve
Board
to
acquire
all,
or
substantially
all,
of
the
assets
of
any
bank
or
bank
holding
company.
Prior
Federal
Reserve
Board
approval
would
be
required
for
Provident
Bancorp,
Inc.
to
acquire
direct
or
indirect
ownership
or
control
of
any
voting
securities
of
any
bank
or
bank
holding
company
if,
after
such
acquisition,
it
would,
directly
or
indirectly,
own
or
control
more
than
5%
of
any
class
of
voting
shares
of
the
bank
or
bank
holding
company.
In
addition
to
the
approval
of
the
Federal
Reserve
Board,
prior
approval
may
also
be
necessary
from
other
agencies
having
supervisory
jurisdiction
over
the
bank
to
be
acquired
before
any
bank
acquisition
can
be
completed.

A
bank
holding
company
is
generally
prohibited
from
engaging
in
non-banking
activities,
or
acquiring
direct
or
indirect
control
of
more
than
5%
of
the
voting
securities
of
any
company
engaged
in
non-banking
activities.
One
of
the
principal
exceptions
to
this
prohibition
is
for
activities
found
by
the
Federal
Reserve
Board
to
be
so
closely
related
to
banking
or
managing
or
controlling
banks
as
to
be
a
proper
incident
thereto.
Some
of
the
principal
activities
that
the
Federal
Reserve
Board
has
determined
by
regulation
to
be
so
closely
related
to
banking
are:
(i)
making
or
servicing
loans;
(ii)
performing
certain
data
processing
services;
(iii)
providing
discount
brokerage
services;
(iv)
acting
as
fiduciary,
investment
or
financial
advisor;
(v)
leasing
personal
or
real
property;
(vi)
making
investments
in
corporations
or
projects
designed
primarily
to
promote
community
welfare;
and
(vii)
acquiring
a
savings
and
loan
association
whose
direct
and
indirect
activities
are
limited
to
those
permitted
for
bank
holding
companies.

The
Gramm-Leach-Bliley
Act
of
1999
authorized
a
bank
holding
company
that
meets
specified
conditions,

including
being
“well
capitalized”
and
“well
managed,”
to
opt
to
become
a
“financial
holding

23








TABLE OF CONTENTS

company”
and
thereby
engage
in
a
broader
array
of
financial
activities
than
previously
permitted.
Such
activities
can
include
insurance
underwriting
and
investment
banking.

A
bank
holding
company
is
generally
required
to
give
the
Federal
Reserve
Board
prior
written
notice
of
any

purchase
or
redemption
of
then
outstanding
equity
securities
if
the
gross
consideration
for
the
purchase
or
redemption,
when
combined
with
the
net
consideration
paid
for
all
such
purchases
or
redemptions
during
the
preceding
12
months,
is
equal
to
10%
or
more
of
the
company’s
consolidated
net
worth.
The
Federal
Reserve
Board
may
disapprove
such
a
purchase
or
redemption
if
it
determines
that
the
proposal
would
constitute
an
unsafe
and
unsound
practice,
or
would
violate
any
law,
regulation,
Federal
Reserve
Board
order
or
directive,
or
any
condition
imposed
by,
or
written
agreement
with,
the
Federal
Reserve
Board.
There
is
an
exception
to
this
approval
requirement
for
well-capitalized
bank
holding
companies
that
meet
certain
other
conditions.

The
Federal
Reserve
Board
has
issued
a
policy
statement
regarding
capital
distributions,
including
dividends,
by
bank
holding
companies.
In
general,
the
Federal
Reserve
Board’s
policies
provide
that
dividends
should
be
paid
only
out
of
current
earnings
and
only
if
the
prospective
rate
of
earnings
retention
by
the
bank
holding
company
appears
consistent
with
the
organization’s
capital
needs,
asset
quality
and
overall
financial
condition.
The
Federal
Reserve
Board’s
policies
also
require
that
a
bank
holding
company
serve
as
a
source
of
financial
strength
to
its
subsidiary
banks
by
standing
ready
to
use
available
resources
to
provide
adequate
capital
funds
to
those
banks
during
periods
of
financial
stress
or
adversity
and
by
maintaining
the
financial
flexibility
and
capital-raising
capacity
to
obtain
additional
resources
for
assisting
its
subsidiary
banks
where
necessary.
The
Dodd-Frank
Act
codified
the
source
of
strength
doctrine.
Under
the
prompt
corrective
action
laws,
the
ability
of
a
bank
holding
company
to
pay
dividends
may
be
restricted
if
a
subsidiary
bank
becomes
undercapitalized.
In
addition,
the
Federal
Reserve
Board
has
issued
guidance
that
requires
consultation
with
the
agency
prior
to
a
bank
holding
company’s
payment
of
dividends
or
repurchase
of
stock
under
certain
circumstances.
These
regulatory
policies
could
affect
the
ability
of
Provident
Bancorp,
Inc.
to
pay
dividends,
repurchase
its
stock
or
otherwise
engage
in
capital
distributions.

Under
the
Federal
Deposit
Insurance
Act,
depository
institutions
are
liable
to
the
Federal
Deposit
Insurance

Corporation
for
losses
suffered
or
anticipated
by
the
Federal
Deposit
Insurance
Corporation
in
connection
with
the
default
of
a
commonly
controlled
depository
institution
or
any
assistance
provided
by
the
Federal
Deposit
Insurance
Corporation
to
such
an
institution
in
danger
of
default.

The
status
of
Provident
Bancorp,
Inc.
as
a
registered
bank
holding
company
under
the
Bank
Holding
Company

Act
will
not
exempt
it
from
certain
federal
and
state
laws
and
regulations
applicable
to
corporations
generally,
including,
without
limitation,
certain
provisions
of
the
federal
securities
laws.

Massachusetts Holding Company Regulation.


Under
the
Massachusetts
banking
laws,
a
company
owning
or
controlling
two
or
more
banking
institutions,
including
a
savings
bank,
is
regulated
as
a
bank
holding
company.
The
term
“company”
is
defined
by
the
Massachusetts
banking
laws
similarly
to
the
definition
of 
“company”
under
the
Bank
Holding
Company
Act.
Each
Massachusetts
bank
holding
company:
(i)
must
obtain
the
approval
of
the
Massachusetts
Board
of
Bank
Incorporation
before
engaging
in
certain
transactions,
such
as
the
acquisition
of
more
than
5%
of
the
voting
stock
of
another
banking
institution;
(ii)
must
register,
and
file
reports,
with
the
Massachusetts
Commissioner
of
Banks;
and
(iii)
is
subject
to
examination
by
the
Massachusetts
Commissioner
of
Banks.
Provident
Bancorp,
Inc.
is
not
a
“bank
holding
company”
under
the
Massachusetts
banking
laws.

Federal Securities Laws

Provident
Bancorp,
Inc.’s
common
stock
is
registered
with
the
Securities
and
Exchange
Commission.

Provident
Bancorp,
Inc.
is
subject
to
the
information,
proxy
solicitation,
insider
trading
restrictions
and
other
requirements
under
the
Securities
Exchange
Act
of
1934.

The
registration
under
the
Securities
Act
of
1933
of
shares
of
common
stock
issued
in
the
stock
offering
does

not
cover
the
resale
of
those
shares.
Shares
of
common
stock
purchased
by
persons
who
are
not
affiliates
of
Provident
Bancorp,
Inc.
may
be
resold
without
registration.
Shares
purchased
by
an
affiliate
of
Provident
Bancorp,
Inc.
are
subject
to
the
resale
restrictions
of
Rule
144
under
the
Securities
Act
of
1933.
If
Provident
Bancorp,
Inc.
meets
the
current
public
information
requirements
of
Rule
144
under
the

24








TABLE OF CONTENTS

Securities
Act
of
1933,
each
affiliate
of
Provident
Bancorp,
Inc.
that
complies
with
the
other
conditions
of
Rule
144,
including
those
that
require
the
affiliate’s
sale
to
be
aggregated
with
those
of
other
persons,
would
be
able
to
sell
in
the
public
market,
without
registration,
a
number
of
shares
not
to
exceed,
in
any
three-month
period,
the
greater
of
1%
of
the
outstanding
shares
of
Provident
Bancorp,
Inc.,
or
the
average
weekly
volume
of
trading
in
the
shares
during
the
preceding
four
calendar
weeks.
In
the
future,
Provident
Bancorp,
Inc.
may
permit
affiliates
to
have
their
shares
registered
for
sale
under
the
Securities
Act
of
1933.

Emerging Growth Company Status

The
Jumpstart
Our
Business
Startups
Act
(the
“JOBS
Act”),
which
was
enacted
in
2012,
has
made
numerous
changes
to
the
federal
securities
laws
to
facilitate
access
to
capital
markets.
Under
the
JOBS
Act,
a
company
with
total
annual
gross
revenues
of
less
than
$1.07
billion
during
its
most
recently
completed
fiscal
year
qualifies
as
an
“emerging
growth
company.”
Provident
Bancorp,
Inc.
qualifies
as
an
emerging
growth
company
under
the
JOBS
Act
until
December
31,
2020.

An
“emerging
growth
company”
may
choose
not
to
hold
shareholder
votes
to
approve
annual
executive
compensation
(more
frequently
referred
to
as
“say-on-pay”
votes)
or
executive
compensation
payable
in
connection
with
a
merger
(more
frequently
referred
to
as
“say-on-golden
parachute”
votes).
An
emerging
growth
company
also
is
not
subject
to
the
requirement
that
its
auditors
attest
to
the
effectiveness
of
the
company’s
internal
control
over
financial
reporting,
and
can
provide
scaled
disclosure
regarding
executive
compensation;
however,
Provident
Bancorp,
Inc.
will
also
not
be
subject
to
additional
executive
compensation
disclosure
so
long
as
it
remains
a
“smaller
reporting
company”
under
Securities
and
Exchange
Commission
regulations
(generally
less
than
$250
million
of
voting
and
non-voting
equity
held
by
non-affiliates).
Finally,
an
emerging
growth
company
may
elect
to
comply
with
new
or
amended
accounting
pronouncements
in
the
same
manner
as
a
private
company,
but
must
make
such
election
when
the
company
is
first
required
to
file
a
registration
statement.
Such
an
election
is
irrevocable
during
the
period
a
company
is
an
emerging
growth
company.
Provident
Bancorp,
Inc.
has
elected
to
comply
with
new
or
amended
accounting
pronouncements
in
the
same
manner
as
a
public
company.

A
company
loses
emerging
growth
company
status
on
the
earlier
of:
(i)
the
last
day
of
the
fiscal
year
of
the
company
during
which
it
had
total
annual
gross
revenues
of 
$1.07
billion
or
more;
(ii)
the
last
day
of
the
fiscal
year
of
the
issuer
following
the
fifth
anniversary
of
the
date
of
the
first
sale
of
common
equity
securities
of
the
company
pursuant
to
an
effective
registration
statement
under
the
Securities
Act
of
1933;
(iii)
the
date
on
which
such
company
has,
during
the
previous
three-year
period,
issued
more
than
$1.07
billion
in
non-convertible
debt;
or
(iv)
the
date
on
which
such
company
is
deemed
to
be
a
“large
accelerated
filer”
under
Securities
and
Exchange
Commission
regulations
(generally,
at
least
$700
million
of
voting
and
non-voting
equity
held
by
non-affiliates).

Sarbanes-Oxley Act of 2002

The
Sarbanes-Oxley
Act
of
2002
is
intended
to
improve
corporate
responsibility,
to
provide
for
enhanced

penalties
for
accounting
and
auditing
improprieties
at
publicly
traded
companies
and
to
protect
investors
by
improving
the
accuracy
and
reliability
of
corporate
disclosures
pursuant
to
the
securities
laws.
We
have
policies,
procedures
and
systems
designed
to
comply
with
these
regulations,
and
we
review
and
document
such
policies,
procedures
and
systems
to
ensure
continued
compliance
with
these
regulations.

Change in Control Regulations

Under
the
Change
in
Bank
Control
Act,
no
person,
or
group
of
persons
acting
in
concert,
may
acquire
control
of
a
bank
holding
company
such
as
New
Provident
unless
the
Federal
Reserve
Board
has
been
given
60
days’
prior
written
notice
and
not
disapproved
the
proposed
acquisition.
The
Federal
Reserve
Board
considers
several
factors
in
evaluating
a
notice,
including
the
financial
and
managerial
resources
of
the
acquirer
and
competitive
effects.
Control,
as
defined
under
the
applicable
regulations,
means
the
power,
directly
or
indirectly,
to
direct
the
management
or
policies
of
the
company
or
to
vote
25%
or
more
of
any
class
of
voting
securities
of
the
company.
Acquisition
of
more
than
10%
of
any
class
of
a
bank
holding
company’s
voting
securities
constitutes
a
rebuttable
presumption
of
control
under
certain
circumstances,
including
where,
as
will
be
the
case
with
Provident
Bancorp,
Inc.,
the
issuer
has
registered
securities
under
Section
12
of
the
Securities
Exchange
Act
of
1934.

25








TABLE OF CONTENTS

In
addition,
federal
regulations
provide
that
no
company
may
acquire
control
(as
defined
in
the
Bank
Holding
Company
Act)
of
a
bank
holding
company
without
the
prior
approval
of
the
Federal
Reserve
Board.
Any
company
that
acquires
such
control
becomes
a
“bank
holding
company”
subject
to
registration,
examination
and
regulation
by
the
Federal
Reserve
Board.

TAXATION

Provident
Bancorp,
Inc.
and
The
Provident
Bank
are
subject
to
federal
and
state
income
taxation
in
the
same
general
manner
as
other
corporations,
with
some
exceptions
discussed
below.
The
following
discussion
of
federal
and
state
taxation
is
intended
only
to
summarize
certain
pertinent
tax
matters
and
is
not
a
comprehensive
description
of
the
tax
rules
applicable
to
Provident
Bancorp,
Inc.
or
The
Provident
Bank.

Federal Taxation

General.


Provident
Bancorp
reports
its
income
on
a
calendar
year
basis
using
the
accrual
method
of

accounting.
Provident
Bancorp,
Inc.’s
federal
income
tax
returns
have
been
either
audited
or
closed
under
the
statute
of
limitations
through
December
31,
2015.
For
its
2019
tax
year,
The
Provident
Bank’s
maximum
federal
income
tax
rate
is
21%.

Bad Debt Reserves.


For
taxable
years
beginning
before
January
1,
1996,
thrift
institutions
that
qualified
under

certain
definitional
tests
and
other
conditions
of
the
Internal
Revenue
Code
were
permitted
to
use
certain
favorable
provisions
to
calculate
their
deductions
from
taxable
income
for
annual
additions
to
their
bad
debt
reserve.
A
reserve
could
be
established
for
bad
debts
on
qualifying
real
property
loans,
generally
secured
by
interests
in
real
property
improved
or
to
be
improved,
under
the
percentage
of
taxable
income
method
or
the
experience
method.
The
reserve
for
non-qualifying
loans
was
computed
using
the
experience
method.
Federal
legislation
enacted
in
1996
repealed
the
reserve
method
of
accounting
for
bad
debts
and
the
percentage
of
taxable
income
method
for
tax
years
beginning
after
1995
and
required
savings
institutions
to
recapture
or
take
into
income
certain
portions
of
their
accumulated
bad
debt
reserves.
However,
those
bad
debt
reserves
accumulated
prior
to
1988
(“Base
Year
Reserves”)
were
not
required
to
be
recaptured
unless
the
savings
institution
failed
certain
tests.
The
Provident
Bank
has
recaptured
all
of
its
Base
Year
Reserves.

State Taxation

Financial
institutions
in
Massachusetts
are
required
to
file
combined
income
tax
returns
beginning
with
the
year
ended
December
31,
2009.
The
Massachusetts
excise
tax
rate
for
savings
banks
is
currently
9.0%
of
federal
taxable
income,
adjusted
for
certain
items.
Taxable
income
includes
gross
income
as
defined
under
the
Internal
Revenue
Code,
plus
interest
from
bonds,
notes
and
evidences
of
indebtedness
of
any
state,
including
Massachusetts,
less
deductions,
but
not
the
credits,
allowable
under
the
provisions
of
the
Internal
Revenue
Code,
except
for
those
deductions
relating
to
dividends
received
and
income
or
franchise
taxes
imposed
by
a
state
or
political
subdivision.
Carryforwards
and
carrybacks
of
net
operating
losses
and
capital
losses
are
not
allowed.
Provident
Bancorp
Inc.’s
state
tax
returns,
as
well
as
those
of
its
subsidiaries,
are
not
currently
under
audit.

A
financial
institution
or
business
corporation
is
generally
entitled
to
special
tax
treatment
as
a
“security
corporation”
under
Massachusetts
law
provided
that:
(a)
its
activities
are
limited
to
buying,
selling,
dealing
in
or
holding
securities
on
its
own
behalf
and
not
as
a
broker;
and
(b)
it
has
applied
for,
and
received,
classification
as
a
“security
corporation”
by
the
Commissioner
of
the
Massachusetts
Department
of
Revenue.
A
security
corporation
that
is
also
a
bank
holding
company
under
the
Internal
Revenue
Code
must
pay
a
tax
equal
to
0.33%
of
its
gross
income.
A
security
corporation
that
is
not
a
bank
holding
company
under
the
Internal
Revenue
Code
must
pay
a
tax
equal
to
1.32%
of
its
gross
income.
The
Provident
Bank’s
subsidiaries,
Provident
Security
Corporation
and
5
Market
Street
Security
Corporation,
which
engage
in
securities
transactions
on
their
own
behalf,
are
qualified
as
security
corporations.
As
such,
it
has
received
security
corporation
classification
by
the
Massachusetts
Department
of
Revenue;
and
does
not
conduct
any
activities
deemed
impermissible
under
the
governing
statutes
and
the
various
regulations,
directives,
letter
rulings
and
administrative
pronouncements
issued
by
the
Massachusetts
Department
of
Revenue.

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The
New
Hampshire
Business
Profits
tax
is
assessed
at
the
rate
of
7.7%.
For
this
purpose,
gross
business
profits
generally
mean
federal
taxable
income
subject
to
certain
modifications
provided
for
in
New
Hampshire
law.
The
New
Hampshire
Business
Enterprise
tax
is
assessed
at
0.6%
of
the
total
amount
of
payroll
and
certain
employee
benefits
expense,
interest
expense,
and
dividends
paid
to
shareholders.
The
New
Hampshire
Business
Enterprise
tax
is
applied
as
a
credit
towards
the
New
Hampshire
Business
Profits
tax.

As
a
Maryland
corporation,
the
Company
is
required
to
file
an
annual
report
and
pay
franchise
taxes
to

Maryland.
In
addition,
we
operate
in
other
states,
primarily
due
to
our
nationwide
lending
operations.
However,
the
tax
obligations
in
other
states
related
to
these
operations
are
not
material
to
our
financial
condition
or
results
of
operations.

ITEM 1A.   RISK FACTORS

Not
required
for
a
smaller
reporting
company.

ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

ITEM 2. 

PROPERTIES

At
December
31,
2019,
we
conducted
business
through
our
main
office
and
six
branch
offices
located
in
Amesbury
and
Newburyport,
Massachusetts
and
Bedford,
Exeter,
Portsmouth
and
Seabrook,
New
Hampshire,
as
well
as
four
loan
production
offices
located
in
Boston,
Dedham,
and
Hingham
Massachusetts
and
Ponte
Vedra,
Florida.
We
own
five
of
our
offices,
including
our
main
office,
and
lease
two
of
our
offices.
All
of
our
loan
production
offices
are
leased.
At
December
31,
2019,
the
total
net
book
value
of
our
land,
buildings,
furniture,
fixtures,
equipment
and
lease
right-of-use
assets
was
$18.4
million.

ITEM 3. 

LEGAL PROCEEDINGS

None.

ITEM 4. 

MINE SAFETY DISCLOSURES

Not
applicable.

27


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TABLE OF CONTENTS​

PART II

ITEM 5. 

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)
Market, Holder and Dividend Information.


Our
common
stock
is
traded
on
the
NASDAQ
Capital
Market

under
the
symbol
“PVBC.”
The
approximate
number
of
holders
of
record
of
Provident
Bancorp
Inc.’s
common
stock
as
of
March
6,
2020
was
851.
Certain
shares
of
Provident
Bancorp
Inc.
are
held
in
“nominee”
or
“street”
name
and,
accordingly,
the
number
of
beneficial
owners
of
such
shares
is
not
known
or
included
in
the
foregoing
number.
The
Company
has
not
paid
any
dividends
to
its
stockholders
to
date.

Maryland
law
generally
limits
dividends
if
the
corporation
would
not
be
able
to
pay
its
debts
in
the
usual
course
of
business
after
giving
effect
to
the
dividend
or
if
the
corporation’s
total
assets
would
be
less
than
the
corporation’s
total
liabilities
plus
the
amount
needed
to
satisfy
the
preferential
rights
upon
dissolution
of
stockholders
whose
preferential
rights
on
dissolution
are
superior
to
those
receiving
the
distribution.

(b)
Sales of Unregistered Securities.


Not
applicable.

(c) Use of Proceeds.


On
June
7,
2019,
the
Company
filed
a
Registration
Statement
on
Form
S-1
with
the

Securities
and
Exchange
Commission
in
connection
with
the
second-step
conversion
of
the
MHC
and
the
related
offering
of
common
stock
by
the
Company.
The
Registration
Statement
(File
No.
333-232018)
was
declared
effective
by
the
Securities
and
Exchange
Commission
on
August
7,
2019.
The
Company
registered
25,247,429
shares
of
common
stock,
par
value
$0.01
per
share,
pursuant
to
the
Registration
Statement
for
an
aggregate
offering
value
of 
$252.5
million.
The
stock
offering
commenced
on
August
16,
2019,
and
ended
on
October
16,
2019.

Sandler
O’Neill
&
Partners,
L.P.
(“Sandler”)
was
engaged
to
assist
in
the
marketing
of
the
common
stock.
For

its
services,
Sandler
received
a
fee
of
approximately
$1.0
million.
Sandler
was
also
reimbursed
$205,000
for
its
reasonable
out-of-pocket
expenses,
inclusive
of
its
legal
fees
and
expenses.

The
stock
offering
resulted
in
gross
proceeds
of 
$102.1
million,
through
the
sale
of
10,212,397
shares
of

common
stock
at
a
price
of 
$10.00
per
share.
Expenses
related
to
the
offering
were
approximately
$2.4
million,
including
fees
and
expenses
paid
to
Sandler.
Net
proceeds
of
the
offering
were
approximately
$99.7
million.

The
Company
invested
$45.8
million
of
the
net
proceeds
it
received
from
the
sale
into
the
Bank’s
operations,

utilized
$8.2
million
of
the
proceeds
to
fund
an
addition
to
its
Employee
Stock
Ownership
Plan,
and
has
retained
the
remaining
amount
for
general
corporate
purposes.

(d) Securities Authorized for Issuance Under Equity Compensation Plans.


Information
regarding
stock-
based
compensation
awards
outstanding
and
available
for
future
grants
as
of
December
31,
2019
is
presented
in
Note
9 — Employee
Benefits
&
Share-Based
Compensation
Plans,
in
the
Notes
to
Consolidated
Financial
Statements
included
in
Item
8,
Financial
Statements
and
Supplementary
Data,
within
this
report.

Equity Compensation Plan Information

Number of Securities to Be 
Issued Upon Exercise of 
Outstanding Options, 
Warrants and Rights

Weighted-average 
Exercise Price of 
Outstanding Options, 
(1)
Warrants and Rights

Number of Securities 
Remaining Available 
for Future Issuance 
Under Share-based 
Compensation Plans 
(excluding securities 
reflected in first column)​

Equity
compensation
plans
approved
by

security
holders

​ 816,057

​ $ 8.93

​ 81,365

(1)


Reflects
weighted
average
price
of
stock
options
only

(2)


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

28





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TABLE OF CONTENTS

(e) Stock Repurchases.


The
Company’s
repurchases
of
common
stock
for
the
fourth
quarter
of
2019
were
as

follows:

Period

October
1,
2019 – October
31,
2019
November
1,
2019 – November
30,
2019
December
1,
2019 – December
31,
2019

Total

Total 
Number of 
Shares 
Purchased

(1)

— ​
16,432 ​
— ​
16,432 ​

Average Price 
Paid 
per Share
​ $ —
​ $ 11.75
​ $ —
​ $ —

Total Number of 
Shares Purchased as 
Part of Publicly 
Announced Plans or 
Programs

(2)

Maximum Number of 
Shares that May Yet 
Be Purchased Under 
the Plans or 
Programs

—
—
—

—

—
—
—

(1)


Shares
repurchased
are
related
to
the
surrendering
of
shares
to
cover
tax
withholdings
on
vested
restricted
stock
awards.

(2)


The
Company
does
not
currently
have
a
stock
repurchase
program
or
plan
in
place.

29





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TABLE OF CONTENTS​

ITEM 6. 

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The
following
tables
set
forth
selected
consolidated
historical
financial
and
other
data
of
Provident
Bancorp,

Inc.
for
the
years
ended
and
at
the
dates
indicated.
The
following
is
only
a
summary
and
you
should
read
it
in
conjunction
with
the
business
and
financial
information
regarding
Provident
Bancorp,
Inc.
contained
elsewhere
in
this
Annual
Report.
The
information
at
December
31,
2019
and
2018,
and
for
the
years
ended
December
31,
2019
and
2018,
is
derived
in
part
from
the
audited
consolidated
financial
statements
that
appear
in
this
Annual
Report.

Financial Condition Data:
Total
assets
Cash
and
cash
equivalents
Securities
available-for-sale

Securities
held-to-maturity

Federal
Home
Loan
Bank
stock,
at
cost

Loans
receivable,
net

(1)

Bank-owned
life
insurance

Deferred
tax
asset,
net

Deposits

Borrowings

Total
shareholders’
equity

(2)

At December 31,

2019

2018

2017

2016

2015

(In thousands)

​$1,121,788​
59,658​
41,790​
—​
1,416​
959,286​
26,925​
7,242​
849,905​
24,998​
230,933​

​$974,079​
28,613​
51,403​
—​
2,650​
​ 835,528​
26,226​
6,437​
​ 768,096​
68,022​
​ 125,584​

​$902,265​
47,689​
61,429​
—​
1,854​
​ 742,138​
25,540​
4,920​
​ 750,057​
26,841​
​ 115,777​

​$795,543​
10,705​
​ 117,867​
—​
2,787​
​ 624,425​
19,395​
4,913​
​ 627,982​
49,858​
​ 109,149​

​$743,397​
20,464​
80,984​
44,623​
3,310​
​ 554,929​
18,793​
5,056​
​ 577,235​
57,423​
​ 101,406​

Operating Data:
Interest
and
dividend
income
Interest
expense

Net
interest
and
dividend
income

Provision
for
loan
losses

Net
interest
and
dividend
income
after
provision
for


loan
losses

Gains
on
sales
of
securities,
net
Other
noninterest
income
Noninterest
expense

(3)

Income
before
income
taxes

Income
tax
expense

(4)

Net
income

Earnings
per
common
share:

(5)

Basic

Diluted

For the Year Ended December 31,

2019

2018

2017

2016

2015

(In thousands)

​$51,538​
8,148​
​ 43,390​
5,326​

​ 38,064​
113​
3,998​
​ 27,556​
​ 14,619​
3,811​
​$10,808​

​$42,340​
5,213​
​ 37,127​
3,329​

​ 33,798​
—​
4,178​
​ 25,414​
​ 12,562​
3,237​
​$ 9,325​

​$35,782​
3,726​
​ 32,056​
2,929​

​ 29,127​
5,912​
4,043​
​ 23,749​
​ 15,333​
7,418​
​$ 7,915​

​$28,894​
2,785​
​ 26,109​
703​

​ 25,406​
690​
3,745​
​ 20,477​
9,364​
3,025​
​$ 6,339​

​$25,452​
2,174​
​ 23,278​
805​

​ 22,473​
317​
3,489​
​ 21,093​
5,186​
1,363​
​$ 3,823​

​$
​$

0.60​
0.60​

​$
​$

0.50​
0.50​

​$
​$

0.43​
0.43​

​$
​$

0.34​
0.34​

N/A​
N/A​

(1)


Excludes
loans
held-for-sale.

(2)


Includes
retained
earnings
and
accumulated
other
comprehensive
income/loss.

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(3)


Includes
the
expense
related
to
the
funding
of
the
charitable
foundation
in
2015
of 
$2.2
million

(4)


Includes
the
expense
related
to
the
Tax
Cuts
and
Jobs
Act
in
2017
of 
$2.0
million

(5)


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

Performance Ratios:
Return
on
average
assets
Return
on
average
equity
Interest
rate
spread
Net
interest
margin
Efficiency
ratio
Average
interest-earning
assets
to
average


(2)

(3)

(1)

interest-bearing
liabilities
Average
equity
to
average
assets
Average
common
equity
to
average
assets

Regulatory Capital Ratios:
Total
capital
to
risk
weighted
assets
(bank
only)
Tier
1
capital
to
risk
weighted
assets
(bank
only)
Tier
1
capital
to
average
assets
(bank
only)
Common
equity
tier
1
capital
(bank
only)
Total
capital
to
total
assets
(company)

Asset Quality Ratios:
Allowance
for
loan
losses
as
a
percentage
of
total

loans

(4)

Allowance
for
loan
losses
as
a
percentage
of


non-performing
loans

Net
charge-offs
to
average
outstanding
loans
during
the

year

Non-performing
loans
as
a
percentage
of
total
loans

(4)

Non-performing
loans
as
a
percentage
of
total


At or For the Year Ended December 31,

2019

2018

2017

2016

2015 ​

1.04​
7.38​
4.05​
4.44​
​ 58.15​

%
%
%
%
%

1.03​
7.75​
4.05​
4.33​
​ 61.53​

%
%
%
%
%

0.91​
6.84​
3.71​
3.90​
​ 65.79​

%
%
%
%
%

0.84​
5.98​
3.46​
3.65​
​ 68.59​

%
%
%
%
%

0.56​
4.07​
3.41​
3.58​
​ 78.80​

%
%
%
%
%

​ 146.87​
​ 14.08​
​ 14.08​

%
%
%

​ 146.01​
​ 13.26​
​ 13.26​

%
%
%

​ 142.10​
​ 13.32​
​ 13.32​

%
%
%

​ 147.58​
​ 14.06​
​ 14.06​

%
%
%

​ 148.35​
​ 13.71​
​ 11.29​

%
%
%

​ 17.62​
​ 16.37​
​ 15.18​
​ 16.37​
​ 20.59​

%
%
%
%
%

​ 14.55​
​ 13.30​
​ 12.69​
​ 13.30​
​ 12.89​

%
%
%
%
%

​ 14.96​
​ 13.71​
​ 11.80​
​ 13.71​
​ 12.83​

%
%
%
%
%

​ 15.88​
​ 14.41​
​ 12.59​
​ 14.41​
​ 13.72​

%
%
%
%
%

​ 17.06​
​ 15.64​
​ 13.42​
​ 15.64​
​ 123.64​

%
%
%
%
%

1.42​

%

1.38​

%

1.30​

%

1.36​

%

1.40​

%

​ 237.58​

%

​ 186.55​

%

​ 108.02​

%

​ 542.98​

%

​ 346.10​

%

0.35​

%

0.60​

%

0.18​

%

0.74​

%

0.25​

%

1.20​

%

0.00​

%

0.25​

%

0.02​

%

0.41​

%

assets

0.52​

%

0.64​

%

1.00​

%

0.20​

%

0.31​

%

Total
non-performing
assets
as
a
percentage
of
total

assets

0.52​

%

0.81​

%

1.00​

%

0.20​

%

0.31​

%

Other:
Number
of
offices
Number
of
full-time
equivalent
employees

7​
139​

8​
123​

8​
126​

7​
121​

7​
108​

(1)


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

(2)


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

(3)


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

(4)


Loans
are
presented
before
the
allowance
but
include
deferred
costs/fees.

31





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TABLE OF CONTENTS​

ITEM 7. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This
discussion
and
analysis
reflects
our
consolidated
financial
statements
and
other
relevant
statistical
data,

and
is
intended
to
enhance
your
understanding
of
our
financial
condition
and
results
of
operations.
You
should
read
the
information
in
this
section
in
conjunction
with
the
business
and
financial
information
regarding
Provident
Bancorp,
Inc.,
including
the
financial
statements,
provided
in
this
Annual
Report.

Overview

Total
assets
were
$1.1
billion
at
December
31,
2019,
representing
an
increase
of 
$147.7
million,
or
15.2%,

from
$974.1
million
at
December
31,
2018.
The
increase
resulted
primarily
from
increases
in
net
loans
of 
$123.8
million
and
cash
and
cash
equivalents
of 
$31.0
million.
The
increases
were
partially
offset
by
a
decrease
in
available-for-sale
investment
securities
of 
$9.6
million.

Net
income
increased
$1.5
million,
or
15.9%,
to
$10.8
million
for
the
year
ended
December
31,
2019
from
$9.3
million
for
the
year
ended
December
31,
2018.
The
increase
was
primarily
due
to
an
increase
of
$6.3
million,
or
16.9%,
in
net
interest
and
dividend
income,
offset
by
an
increase
in
provision
for
loan
losses
of 
$2.0
million,
or
60.0%,
and
an
increase
in
salaries
and
employee
benefits
expense
of 
$1.4
million,
or
8.6%.

Critical Accounting Policies

A
summary
of
our
accounting
policies
is
described
in
Note
2
to
the
Consolidated
Financial
Statements
included
in
this
annual
report.
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
policies,
which
involve
the
most
complex
or
subjective
decisions
or
assessments,
are
as
follows:

Allowance for Loan Losses.


The
allowance
for
loan
losses
is
established
as
losses
are
estimated
to
have

occurred
through
a
provision
for
loan
losses
charged
to
earnings.
Loan
losses
are
charged
against
the
allowance
when
management
believes
the
uncollectibility
of
a
loan
balance
is
confirmed.
Subsequent
recoveries,
if
any,
are
credited
to
the
allowance.

The
allowance
for
loan
losses
is
evaluated
on
a
regular
basis
by
management
and
is
based
upon
management’s

periodic
review
of
the
collectability
of
the
loans
in
light
of
historical
experience,
size
and
composition
of
the
loan
portfolio,
adverse
situations
that
may
affect
the
borrower’s
ability
to
repay,
estimated
value
of
any
underlying
collateral
and
prevailing
economic
conditions.
This
evaluation
is
inherently
subjective
as
it
requires
estimates
that
are
susceptible
to
significant
revision
as
more
information
becomes
available.

A
loan
is
considered
impaired
when,
based
on
current
information
and
events,
it
is
probable
that
we
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
determining
impairment
include
payment
status,
collateral
value,
and
the
probability
of
collecting
scheduled
principal
and
interest
payments
when
due.
Loans
that
experience
insignificant
payment
delays
and
payment
shortfalls
generally
are
not
classified
as
impaired.
Management
determines
the
significance
of
payment
delays
and
payment
shortfalls
on
a
case-by-case
basis,
taking
into
consideration
all
of
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.
Impairment
is
measured
on
a
loan
by
loan
basis
for
commercial,
commercial
real
estate
and
construction
loans
by
either
the
present
value
of
expected
future
cash
flows
discounted
at
the
loan’s
effective
interest
rate,
the
loan’s
obtainable
market
price,
or
the
fair
value
of
the
collateral
if
the
loan
is
collateral
dependent.

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TABLE OF CONTENTS

Large
groups
of
smaller
balance
homogeneous
loans
are
collectively
evaluated
for
impairment.
Accordingly,

we
do
not
separately
identify
individual
consumer
and
residential
loans
for
impairment
disclosures.

The
allowance
consists
of
a
general
component,
a
specific
component
for
impaired
loans,
and
in
some
cases
an

unallocated
component.
The
general
component
of
the
allowance
for
loan
losses
is
based
on
historical
loss
experience
adjusted
for
qualitative
factors
stratified
by
the
following
loan
segments:
residential
real
estate,
commercial
real
estate,
construction
and
land
development,
commercial
and
consumer.
Management
uses
a
rolling
average
of
historical
losses
based
on
a
time
frame
appropriate
to
capture
relevant
loss
data
for
each
loan
segment.
This
historical
loss
factor
is
adjusted
for
the
following
qualitative
factors:
levels/trends
in
delinquencies;
trends
in
volume
and
terms
of
loans;
effects
of
changes
in
risk
selection
and
underwriting
standards
and
other
changes
in
lending
policies,
procedures
and
practices;
experience/​ability/depth
of
lending
management
and
staff;
and
national
and
local
economic
trends
and
conditions.
There
were
no
changes
in
our
policies
or
methodology
pertaining
to
the
general
component
of
the
allowance
for
loan
losses
during
2019.

To
determine
the
general
component
of
the
allowance
for
loan
losses,
the
Company’s
loan
portfolio
is
segregated
into
various
risk
categories.
These
risk
categories
and
the
relevant
risk
characteristics
are
as
follows:

Residential
real
estate:


We
generally
do
not
originate
loans
with
a
loan-to-value
ratio
greater
than
80%
and
do

not
originate
subprime
loans.
Loans
with
loan
to
value
ratios
greater
than
80%
require
the
purchase
of
private
mortgage
insurance.
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
have
an
effect
on
the
credit
quality
in
this
segment.

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
are
adversely
impacted
by
a
downturn
in
the
economy
as
evidenced
by
increased
vacancy
rates,
which
in
turn,
will
have
an
effect
on
the
credit
quality
in
this
segment.
Management
periodically
obtains
rent
rolls
and
continually
monitors
the
cash
flows
of
the
assets
securing
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
and
construction
to
permanent
loans
for
which
payment
is
derived
from
cash
flows
of
the
property.
Credit
risk
is
affected
by
cost
overruns,
time
to
sell
at
an
adequate
price,
and
market
conditions.

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,
will
have
an
effect
on
the
credit
quality
in
this
segment.

Consumer:


Loans
in
this
segment
are
generally
unsecured
and
repayment
is
dependent
on
the
credit
quality
of

the
individual
borrower.

The
allocated
component
relates
to
loans
that
are
classified
as
impaired.
Impairment
is
measured
on
a
loan
by

loan
basis
for
commercial,
commercial
real
estate
and
construction
loans
by
either
the
present
value
of
expected
future
cash
flows
discounted
at
the
loan’s
effective
interest
rate
or
the
fair
value
of
the
collateral,
less
estimated
selling
costs,
if
the
loan
is
collateral
dependent.
An
allowance
is
established
when
the
discounted
cash
flows
(or
collateral
value)
of
the
impaired
loan
is
lower
than
the
carrying
value
of
that
loan.

We
periodically
may
agree
to
modify
the
contractual
terms
of
loans.
When
a
loan
is
modified
and
a
concession
is
made
to
a
borrower
experiencing
financial
difficulty,
the
modification
is
considered
a
troubled
debt
restructuring.
All
troubled
debt
restructurings
are
initially
classified
as
impaired.

33








TABLE OF CONTENTS

An
unallocated
component
may
be
maintained
to
cover
uncertainties
that
could
affect
management’s
estimate
of
probable
losses.
The
unallocated
component
of
the
allowance
reflects
the
margin
of
imprecision
inherent
in
the
underlying
assumptions
used
in
the
methodologies
for
estimating
allocated
and
general
reserves
in
the
portfolio.

Stock-based Compensation Plans.


The
Company
measures
and
recognizes
compensation
cost
relating
to

stock-based
payment
transactions
based
on
the
grant-date
fair
value
of
the
equity
instruments
issued.
Stock-based
compensation
is
recognized
over
the
period
the
employee
is
required
to
provide
services
for
the
award.
The
Company
uses
the
Black-Scholes
option-pricing
model
to
determine
the
fair
value
of
stock
options
granted.
The
fair
value
of
restricted
stock
is
recorded
based
on
the
grant
date
fair
value
of
the
equity
instrument
issued.

Income Taxes.


We
recognize
income
taxes
under
the
asset
and
liability
method.
Under
this
method,
deferred
tax
assets
and
liabilities
are
established
for
the
temporary
differences
between
the
accounting
basis
and
the
tax
basis
of
our
assets
and
liabilities
at
enacted
tax
rates
expected
to
be
in
effect
when
the
amounts
related
to
such
temporary
differences
are
realized
or
settled.

The
Company
reduces
the
deferred
tax
asset
by
a
valuation
allowance
if,
based
on
the
weight
of
the
available

evidence,
it
is
not
“more
likely
than
not”
that
some
portion
or
all
of
the
deferred
tax
assets
will
be
realized.
The
Company
assesses
the
realizability
of
its
deferred
tax
assets
by
assessing
the
likelihood
of
the
Company
generating
federal
and
state
income
tax,
as
applicable,
in
future
periods
in
amounts
sufficient
to
offset
the
deferred
tax
charges
in
the
periods
they
are
expected
to
reverse.
Based
on
this
assessment,
management
concluded
that
a
valuation
allowance
was
not
required
as
of
December
31,
2019
and
2018.

We
examine
our
significant
income
tax
positions
annually
to
determine
whether
a
tax
benefit
is
more
likely

than
not
to
be
sustained
upon
examination
by
tax
authorities.

Comparison of Financial Condition at December 31, 2019 and December 31, 2018

Assets.


Our
total
assets
increased
$147.7
million,
or
15.2%,
to
$1.1
billion
at
December
31,
2019
from
$974.1
million
at
December
31,
2018.
The
primary
reasons
for
the
increase
are
increases
in
net
loans
and
cash
and
cash
equivalents,
partially
offset
by
a
decrease
in
investments
in
available-for-sale
securities

Cash and Cash Equivalents.


Cash
and
cash
equivalents
increased
$31.0
million,
or
108.5%,
to
$59.7
million
at
December
31,
2019
from
$28.6
million
at
December
31,
2018.
The
increase
was
primarily
related
to
an
increase
in
short-term
investments
of 
$30.0
million,
or
169.7%,
due
to
the
completion
of
our
second-step
conversion
and
related
stock
offering
in
October
2019.

Investments in Available-for-Sale Securities.


Investments
in
available-for-sale
securities
decreased
$9.6
million
or
18.7%
to
$41.8
million
at
December
31,
2019
from
$51.4
million
at
December
31,
2018.
The
decrease
resulted
primarily
from
principal
pay
downs
partially
offset
by
an
increase
in
the
fair
value
of
the
securities.

Loan Portfolio Analysis.


At
December
31,
2019,
net
loans
were
$959.3
million,
or
85.5%
of
total
assets,

compared
to
$835.5
million,
or
85.8%
of
total
assets
at
December
31,
2018.
Increases
in
commercial
loans
of 
$90.0
million,
or
24.9%,
commercial
real
estate
loans
of 
$53.5
million,
or
14.7%,
and
in
construction
and
land
development
loans
of 
$2.2
million,
or
4.8%,
were
partially
offset
by
decreases
in
residential
real
estate
loans
of 
$11.7
million,
or
20.3%,
and
consumer
loans
of 
$7.1
million,
or
35.7%.
Our
commercial
loan
growth
is
attributed
to
a
continued
focus
on
our
specialty
lending
of
renewable
energy
loans
and
enterprise
value
loans.
Renewable
energy
loans
increased
$15.7
million,
or
31.2%,
to
$66.1
million
at
December
31,
2019
from
$50.4
million
at
December
31,
2018.
Enterprise
value
loans
increased
$39.2
million,
or
28.3%,
to
$178.0
million
at
December
31,
2019
from
$138.8
million
at
December
31,
2018.

34








TABLE OF CONTENTS

The
following
table
sets
forth
the
composition
of
our
loan
portfolio
by
type
of
loan
at
the
dates
indicated,

excluding
loans
held
for
sale.

2019

2018

​ Amount ​

​ Percent ​

​ Amount ​

​ Percent ​

Real
estate:

At December 31,
2017

2016

2015

​ Amount ​
(Dollars in thousands)

​ Percent ​

​ Amount

Percent Amount

Percent​

(1)

Residential
Commercial
Construction
and
land

(2)

development

Commercial
Consumer

Total
loans
Deferred
loan
fees,
net
Allowance
for
loan
losses

Loans,
net

​$ 45,695​
​ 418,356​

%

4.69 ​
42.89 ​

​$ 57,361​
​ 364,867​

%

6.76 ​
43.00 ​

​$ 67,724​
​ 371,510​

%

9.00 ​
49.35 ​

​$ 76,850​
​ 336,102​

%

12.13 ​
53.07 ​

​$ 92,392​
​ 285,356​

%

16.40 ​
50.67 ​

46,763​
​ 451,791​
12,737​
​ 975,342​
(2,212​
)
)
(13,844​
​$959,286​

4.79 ​
46.32 ​
1.31 ​
​ 100.00 ​

%

44,606​
​ 361,782​
19,815​
​ 848,431​
(1,223​
)
)
(11,680​
​$835,528​

5.26 ​
42.64 ​
2.34 ​
​ 100.00 ​

%

55,828​
​ 240,223​
17,455​
​ 752,740​
(845​
)
)
(9,757​
​$742,138​

7.42 ​
31.91 ​
2.32 ​
​ 100.00 ​

%

48,161​
​ 166,157​
6,172​
​ 633,442​
(427​
)
)
(8,590​
​$624,425​

7.60 ​
26.23 ​
0.97 ​
100.00 ​

%

71,535​
​ 112,073​
1,855​
​ 563,211​
(377​
)
)
(7,905​
​$554,929​

12.70 ​
19.90 ​
0.33 ​
100.00 ​

%

(1)
Includes
home
equity
loans
and
lines
of
credit

(2)
Includes
multi-family
real
estate
loans

Loan Maturity.


The
following
table
sets
forth
certain
information
at
December
31,
2019
regarding
the
contractual
maturity
of
our
loan
portfolio.
Demand
loans,
loans
having
no
stated
repayment
schedule
or
maturity,
and
overdraft
loans
are
reported
as
being
due
in
one
year
or
less.
The
table
does
not
include
any
estimate
of
prepayments
that
could
significantly
shorten
the
average
life
of
all
loans
and
may
cause
our
actual
repayment
experience
to
differ
from
that
shown
below.

Amounts
due
in:

One
year
or
less
More
than
one
year
to

five
years

More
than
five
years
through

ten
years

More
than
ten
years

Total

Residential 
Real Estate ​

Commercial 
Real Estate ​

Construction and 
Land Development ​

​ Commercial ​

​ Consumer ​

Total 
Loans

(In thousands)

​ $

64 ​

​ $

15,996 ​

$ 19,154

​ $ 58,527 ​

​$ 1,061 ​

​$ 94,802​

3,135 ​

10,798 ​

8,819

125,555 ​

​ 11,676 ​

​ 159,983​

8,813 ​
33,683 ​
​ $ 45,695 ​

78,037 ​
313,525 ​
​ $ 418,356 ​

— ​

18,790

$ 46,763

210,798 ​
56,911 ​
​ $ 451,791 ​

— ​
— ​
​$ 12,737 ​

​ 297,648​
​ 422,909​
​$975,342​

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TABLE OF CONTENTS

The
following
table
sets
forth
our
fixed
and
adjustable-rate
loans
at
December
31,
2019
that
are
contractually

due
after
December
31,
2020.

Real
estate:

Residential
Commercial
Construction
and
land
development

Commercial
Consumer

Total
loans

Asset Quality

Fixed 
Rates

Floating or 
Adjustable 
Rates

(In thousands)

Total

​$ 26,629​
35,439​
6,838​
​ 210,543​
11,676​
​$291,125​

​$ 19,002
​ 366,921
20,771
​ 182,721

— ​

​$ 589,415

​$ 45,631​
​ 402,360​
27,609​
​ 393,264​
11,676​
​$880,540​

Credit Risk Management.


Our
strategy
for
credit
risk
management
focuses
on
having
well-defined
credit
policies
and
uniform
underwriting
criteria
and
providing
prompt
attention
to
potential
problem
loans.
Management
of
asset
quality
is
accomplished
by
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
for
the
purpose
of
identifying
loan
weakness
in
order
to
minimize
loan
loss
exposure.
From
the
time
of
loan
origination
through
final
repayment,
commercial
real
estate,
construction
and
land
development
and
commercial
business
loans
are
assigned
a
risk
rating
based
on
pre-determined
criteria
and
levels
of
risk.
The
risk
rating
is
monitored
annually
for
most
loans;
however,
it
may
change
during
the
life
of
the
loan
as
appropriate.

When
entering
a
new
lending
line,
we
typically
seek
to
manage
risks
and
costs
by
limiting
initial
activity.
We
then
decide
whether
it
would
be
profitable
and
consistent
with
our
risk
tolerance
levels
to
expand
the
activity,
and
continually
calibrate
and
adjust
our
actions
to
maintain
appropriate
risk
limitations.
We
typically
enter
a
new
lending
line
based
upon
the
experience
of
our
existing
employees,
or
we
may
hire
an
experienced
individual
or
group
of
individuals
to
manage
new
activities.

Internal
and
independent
third-party
loan
reviews
vary
by
loan
type.
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
be
of
a
homogeneous
nature
reducing
the
need
for
detailed
individual
analysis.
Assets
with
these
characteristics,
such
as
consumer
loans
and
loans
secured
by
residential
real
estate,
may
be
reviewed
on
the
basis
of
risk
indicators
such
as
delinquency
or
credit
rating.
In
cases
of
significant
concern,
a
total
re-evaluation
of
the
loan
and
associated
risks
are
documented
by
completing
a
loan
risk
assessment
and
action
plan.
Some
loans
may
be
re-evaluated
in
terms
of
their
fair
market
value
or
net
realizable
value
in
order
to
determine
the
likelihood
of
potential
loss
exposure
and,
consequently,
the
adequacy
of
specific
and
general
loan
loss
reserves.

When
a
borrower
fails
to
make
a
required
loan
payment,
we
take
a
number
of
steps
to
have
the
borrower
cure

the
delinquency
and
restore
the
loan
to
current
status,
including
contacting
the
borrower
by
letter
and
phone
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
real
property
securing
the
loan
generally
is
sold
at
foreclosure.
Management
informs
the
board
of
directors
monthly
of
the
amount
of
loans
delinquent
more
than
30
days.
Management
provides
detailed
information
to
the
board
of
directors
quarterly
on
loans
60
or
more
days
past
due
and
all
loans
in
foreclosure
and
repossessed
property
that
we
own.

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TABLE OF CONTENTS

Delinquent Loans.


The
following
tables
set
forth
our
loan
delinquencies
by
type
and
amount
at
the
dates

indicated.

30 – 59 
Days 
Past Due ​

2019
60 – 89 
Days 
Past Due ​

90 Days 
or more 
Past Due ​

30 – 59 
Days 
Past Due ​

90 Days 
or more 
Past Due ​

30 – 59 
Days 
Past Due ​

2017
60 – 89 
Days 
Past Due ​

90 Days 
or more 
Past Due​

At December 31,
2018
60 – 89 
Days 
Past Due ​
(In thousands)

Real
Estate:

Residential
Commercial
Construction
and
land

development

Commercial
Consumer
Total

​ $ 715 ​
473 ​

​$
154​
​ 18,256​

​ $ 832 ​
1,368 ​

​ $ 321 ​
742 ​

​ $223 ​
​ — ​

​ $

30 ​
519 ​

​ $699 ​
​ — ​

​ $ 178 ​
3,669 ​

​ $ 81 ​
​ — ​

— ​
529 ​
111 ​
​ $ 1,828 ​

—​
85​
58​
​$18,553​

165 ​
484 ​
38 ​
​ $ 2,887 ​

— ​
40 ​
62 ​
​ $ 1,165 ​

​ — ​
​ — ​
46 ​
​ $269 ​

— ​
3,167 ​
59 ​
​ $ 3,775 ​

​ — ​
12 ​
63 ​
​ $774 ​

— ​
— ​
45 ​
​ $ 3,892 ​

​ — ​
​ — ​
60 ​
​ $141 ​

Real
Estate:

Residential
Commercial
Construction
and
land
development

Commercial
Consumer

Total

30 – 59 
Days 
Past Due

2016

60 – 89 
Days 
Past Due

At December 31,

90 Days 
or more 
Past Due

30 – 59 
Days 
Past Due

(In thousands)

2015

60 – 89 
Days 
Past Due

90 Days 
or more 
Past Due​

$— ​
— ​
— ​
29 ​
— ​
$29 ​

$— ​
— ​
— ​
— ​
— ​
$— ​

$ — ​
346 ​
— ​
— ​
— ​
$346 ​

$130 ​
— ​
— ​
— ​
1 ​
$131 ​

$173 ​
— ​
— ​
— ​
1 ​
$174 ​

$365 ​
— ​
— ​
— ​
— ​
$365 ​

Non-performing Assets.


Non-performing
assets
include
loans
that
are
90
or
more
days
past
due
or
on
non-

accrual
status,
including
troubled
debt
restructurings
on
non-accrual
status,
and
real
estate
and
other
loan
collateral
acquired
through
foreclosure
and
repossession.
Troubled
debt
restructurings
include
loans
for
which
either
a
portion
of
interest
or
principal
has
been
forgiven,
loans
modified
at
interest
rates
materially
less
than
current
market
rates,
or
the
borrower
is
experiencing
financial
difficulty.
Loans
90
days
or
greater
past
due
may
remain
on
an
accrual
basis
if
adequately
collateralized
and
in
the
process
of
collection.
At
December
31,
2019,
we
did
not
have
any
accruing
loans
past
due
90
days
or
greater.
For
non-accrual
loans,
interest
previously
accrued
but
not
collected
is
reversed
and
charged
against
income
at
the
time
a
loan
is
placed
on
non-accrual
status.
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
the
lower
of
cost
or
fair
value
less
costs
to
sell
at
the
date
of
foreclosure.
Holding
costs
and
declines
in
fair
value
after
acquisition
of
the
property
result
in
charges
against
income.

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TABLE OF CONTENTS

The
following
table
sets
forth
information
regarding
our
non-performing
assets
at
the
dates
indicated.

Non-accrual
loans:
Real
estate:

Residential
Commercial
Construction
and
land
development

Commercial
Consumer

Total
non-accrual
loans

Accruing
loans
past
due
90
days
or
more

Other
real
estate
owned

Total
non-performing
assets

Total
loans

(1)

Total
assets

Total
non-performing
loans
to
total
loans

(1)

Total
non-performing
assets
to
total
assets

At December 31,

2019

2018

2017

2016

2015

(Dollars in thousands)

​$

969​
1,701​
165​
2,955​
37​
5,827​
—​
—​
​$
5,827​
​$ 973,130​
​$1,121,788​

​$

850​
519​
—​
4,830​
62​
6,261​
—​
1,676​
​$
7,937​
​$847,208​
​$974,079​

​$

364​
7,102​
—​
1,505​
62​
9,033​
—​
—​
​$
9,033​
​$751,895​
​$902,265​

​$

303​
346​
—​
933​
—​
1,582​
—​
—​
​$
1,582​
​$633,015​
​$795,543​

​$

1,031​
106​
—​
1,147​
—​
2,284​
—​
—​
​$
2,284​
​$562,834​
​$743,397​

0.60​
0.52​

%

%

0.74​
0.81​

%

%

1.20​
1.00​

%

%

0.25​
0.20​

%

%

0.41​
0.31​

%

%

(1)


Loans
are
presented
before
allowance
for
loan
losses,
but
include
deferred
loan
costs/fees.

The
decrease
in
non-accrual
loans
at
December
31,
2019
as
compared
to
the
prior
year
was
primarily
due
to

workouts
of
loans
in
our
portfolio.
The
largest
non-performing
loan
outstanding
as
of
December
31,
2019
is
a
$1.9
million
commercial
loan
with
a
specific
reserve
of 
$130,000.

We
have
cooperative
relationships
with
the
vast
majority
of
our
nonperforming
loan
customers.
Substantially

all
non-performing
loans
are
collateralized
by
real
estate
and
the
repayment
is
largely
dependent
on
the
return
of
such
loans
to
performing
status
or
the
liquidation
of
the
underlying
real
estate
collateral.
We
pursue
the
resolution
of
all
non-performing
loans
through
collections,
restructures,
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,
we
will
initiate
appropriate
legal
action
seeking
to
acquire
property
by
deed
in
lieu
of
foreclosure
or
through
foreclosure,
or
to
liquidate
business
assets.

Interest
income
that
would
have
been
recorded
for
the
year
ended
December
31,
2019
had
non-accruing
loans
been
current
according
to
their
original
terms
amounted
to
$317,000.
We
recognized
$42,000
of
interest
income
for
these
loans
for
the
year
ended
December
31,
2019.

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TABLE OF CONTENTS

The
following
table
sets
forth
the
accruing
and
non-accruing
status
of
troubled
debt
restructurings
at
the
dates

indicated.

Troubled
Debt
Restructurings:
Real
estate:

Residential
Commercial
Construction
and
land
development

Commercial

Consumer

Total

Troubled
Debt
Restructurings:
Real
estate:

Residential
Commercial
Construction
and
land
development

Commercial
Consumer

Total

At December 31,

2019

2018

2017

Non- 
Accruing ​

​ Accruing ​

Non- 
Accruing ​

​ Accruing ​

Non- 
Accruing ​

​ Accruing​

(In thousands)

​ $ — ​
— ​
— ​
2,436 ​
— ​
​ $ 2,436 ​

​ $

182 ​
1,243 ​
— ​
371 ​
— ​
​ $ 1,796 ​

​ $ — ​
— ​
— ​
1,089 ​
— ​
​ $ 1,089 ​

​ $

388 ​
1,334 ​
— ​
462 ​
— ​
​ $ 2,184 ​

​$— ​
​ — ​
​ — ​
​ 67
​ — ​
​$67

​ $

404 ​
1,521 ​
— ​
1,698 ​
— ​
​ $ 3,623 ​

At December 31,

2016

2015

Non- 
Accruing

Accruing

Non- 
Accruing

Accruing​

(In thousands)

$ — ​
346 ​
— ​
919 ​
— ​
$ 1,265 ​

$

422 ​
1,610 ​
— ​
727 ​
— ​
$ 2,759 ​

$ — ​
106 ​
— ​
1,147 ​
— ​
$ 1,253 ​

$

436 ​
3,167 ​
— ​
565 ​
— ​
$ 4,168 ​

Total
troubled
debt
restructurings
increased
in
2019
primarily
due
to
two
commercial
business
loans
totaling

$2.6
million
being
modified
under
trouble
debt
restructures.
Impairment
analyses
were
performed
and
a
specific
reserve
of 
$130,000
was
allocated
to
one
of
the
relationships.
The
loans
modified
during
2019
are
paying
in
accordance
with
their
modified
terms.
During
2018,
there
were
no
trouble
debt
restructures.

Interest
income
that
would
have
been
recorded
for
the
year
ended
December
31,
2019
had
troubled
debt
restructurings
been
current
according
to
their
original
terms
amounted
to
$275,000.
We
recognized
$100,000
of
interest
income
for
these
loans
for
the
year
ended
December
31,
2019.

Potential Problem Loans.


We
classify
certain
commercial
real
estate,
construction
and
land
development,
and

commercial
loans
as
“special
mention”,
“substandard”,
or
“doubtful”,
based
on
criteria
consistent
with
guidelines
provided
by
our
banking
regulators.
Certain
potential
problem
loans
represent
loans
that
are
currently
performing,
but
for
which
known
information
about
possible
credit
problems
of
the
related
borrowers
causes
management
to
have
doubts
as
to
the
ability
of
such
borrowers
to
comply
with
the
present
loan
repayment
terms
and
which
may
result
in
such
loans
becoming
nonperforming
at
some
time
in
the
future.
Potential
problem
loans
also
include
non-
accrual
or
restructured
loans
presented
above.
We
expect
the
levels
of
non-performing
assets
and
potential
problem
loans
to
fluctuate
in
response
to
changing
economic
and
market
conditions,
and
the
relative
sizes
of
the
respective
loan
portfolios,
along
with
our
degree
of
success
in
resolving
problem
assets.

Other
potential
problem
loans
are
those
loans
that
are
currently
performing,
but
where
known
information

about
possible
credit
problems
of
the
borrowers
causes
us
to
have
concerns
as
to
the
ability
of

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TABLE OF CONTENTS

16
such
borrowers
to
comply
with
contractual
loan
repayment
terms.
At
December
31,
2019,
other
potential
problem
loans
totaled
$1.8
million,
consisting
of
12
troubled
debt
restructured
loans
that
were
accruing
interest
in
accordance
with
their
modified
terms.

Allowance for Loan Losses.


The
allowance
for
loan
losses
is
maintained
at
levels
considered
adequate
by

management
to
provide
for
probable
loan
losses
inherent
in
the
loan
portfolio
as
of
the
consolidated
balance
sheet
reporting
dates.
The
allowance
for
loan
losses
is
based
on
management’s
assessment
of
various
factors
affecting
the
loan
portfolio,
including
portfolio
composition,
delinquent
and
non-accrual
loans,
national
and
local
business
conditions
and
loss
experience
and
an
overall
evaluation
of
the
quality
of
the
underlying
collateral.

The
following
table
sets
forth
activity
in
our
allowance
for
loan
losses
for
the
years
indicated.

Year Ended December 31,

2019

2018

2017

2016

2015

Allowance
at
beginning
of
year
Provision
for
loan
losses
Charge
offs:
Real
estate:

Residential
Commercial
Construction
and
land
development

Commercial
Consumer

Total
charge-offs

Recoveries:

Real
estate:

Residential

Commercial

Construction
and
land
development

Commercial

Consumer

Total
recoveries

Net
charge-offs

Allowance
at
end
of
year

Non-performing
loans
at
end
of
year

Total
loans
outstanding
at
end
of
year

(1)

Average
loans
outstanding
during
the
year

(1)

Allowance
to
non-performing
loans
Allowance
to
total
loans
outstanding
at
end
of
the

year

Net
chargeoffs
to
average
loans
outstanding
during

​$ 11,680​
5,326​

​$

9,757​
3,329​

(Dollars in thousands)
​$

​$

8,590​
2,929​

—​
—​
—​
1,950​
1,355​
3,305​

7​
—​
—​
35​
101​
143​

—​
670​
—​
190​
699​
1,559​

2​
—​
—​
87​
64​
153​

—​
1,522​
—​
107​
190​
1,819​

—​
45​
—​
—​
12​
57​

7,905​
703​

​$

7,224​
805​

—​
—​
—​
—​
44​
44​

12​
—​
—​
1​
13​
26​

—​
—​
—​
96​
65​
161​

6​
—​
—​
20​
11​
37​

3,162​
​$ 13,844​
​$
5,827​
​$973,130​
​$906,909​

1,406​
​$ 11,680​
​$
6,261​
​$847,208​
​$783,570​

1,762​
9,757​
​$
​$
9,033​
​$751,895​
​$698,859​

18​
8,590​
​$
​$
1,582​
​$633,015​
​$583,156​

124​
7,905​
​$
​$
2,284​
​$562,834​
​$516,405​

237.58​

%

186.55​

%

108.02​

%

542.98​

%

346.10​

%

1.42​

%

1.38​

%

1.30​

%

1.36​

%

1.40​

%

the
year

0.35​

%

0.18​

%

0.25​

%

0.00​

%

0.02​

%

(1)


Loans
are
presented
before
the
allowance
for
loan
losses
but
include
deferred
fees/costs

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TABLE OF CONTENTS

Allocation of Allowance for Loan Losses.


The
following
tables
set
forth
the
allowance
for
loan
losses
allocated
by
loan
category.
The
allowance
for
loan
losses
allocated
to
each
category
is
not
necessarily
indicative
of
future
losses
in
any
particular
category
and
does
not
restrict
the
use
of
the
allowance
to
absorb
losses
in
other
categories.

2019

At December 31,

2018

2017

Allowance 
for Loan 
Losses

% of Loans 
in Category 
to Total Loans

Allowance 
for Loan 
Losses

% of Loans 
in Category 
to Total Loans

Allowance 
for Loan 
Losses

% of Loans 
in Category 
to Total Loans​

(Dollars in thousands)

%

​ $

​ $

254
6,104
749
6,086
650

4.69
​ 42.89
4.79
​ 46.32
1.31

251
4,152
738
5,742
710

6.76
​ 43.00
5.26
​ 42.64
2.34

%

$

300 ​
4,483 ​
965 ​
3,280 ​
649 ​

13,843

​ 100.00

%

11,593

​ 100.00

%

1

​ $ 13,844

87

​ $ 11,680

9,677 ​
80 ​
$ 9,757 ​

%

9.00
​ 49.35
7.42
​ 31.91
2.32

​ 100.00

%

Real
estate:

Residential
Commercial
Construction
and
land
development

Commercial
Consumer

Total
allocated
allowance
for
loan


losses

Unallocated

Total

Real
estate:

Residential
Commercial
Construction
and
land
development

Commercial
Consumer

Total
allocated
allowance
for
loan
losses

Unallocated

Total

At December 31,

2016

2015

Allowance 
for Loan 
Losses

% of Loans 
in Category 
to Total Loans ​

Allowance 
for Loan 
Losses

% of Loans 
in Category 
to Total Loans​

(Dollars in thousands)

​ $

328 ​
4,503 ​
882 ​
2,513 ​
279 ​
8,505 ​
85 ​
​ $ 8,590 ​

​ 12.13
​ 53.07
7.60
​ 26.23
0.97
​ 100.00

%

%

​ $

412 ​
3,827 ​
1,236 ​
2,138 ​
119 ​
7,732 ​
173 ​
​ $ 7,905 ​

​ 16.40
​ 50.67
​ 12.70
​ 19.90
0.33
​ 100.00

%

%

The
allowance
consists
of
general,
specific,
and
unallocated
components.
The
general
component
relates
to
pools
of
non-impaired
loans
and
is
based
on
historical
loss
experience
adjusted
for
qualitative
factors.
The
allocated
component
relates
to
loans
that
are
classified
as
impaired,
whereby
an
allowance
is
established
when
the
discounted
cash
flows,
collateral
value,
less
estimated
selling
costs,
or
observable
market
price
of
the
impaired
loan
is
lower
than
the
carrying
value
of
that
loan.

An
unallocated
component
may
be
maintained
to
cover
uncertainties
that
could
affect
management’s
estimate
of
probable
losses.
The
unallocated
component
of
the
allowance
reflects
the
margin
of
imprecision
inherent
in
the
underlying
assumptions
used
in
the
methodologies
for
estimating
allocated
and
general
reserves
in
the
portfolio.

We
had
impaired
loans
totaling
$24.7
million
and
$7.5
million
as
of
December
31,
2019
and
2018,

respectively.
Impaired
loans
totaling
$20.9
million
and
$1.8
million
had
a
valuation
allowance
of 
$1.7
million
and
$1.1
million
at
December
31,
2019
and
2018,
respectively.
Our
average
investment
in
impaired
loans

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TABLE OF CONTENTS

was
$26.9
million
and
$13.1
million
for
the
years
ended
December
31,
2019
and
2018,
respectively.
During
the
fourth
quarter
of
2019,
a
commercial
real
estate
loan
relationship
with
a
total
balance
of 
$18.6
million
became
impaired
due
to
insufficient
cash
flows
to
pay
the
debt.
We
expect
to
formally
restructure
this
loan
relationship,
and
based
on
a
discounted
cash
flow
calculation
using
the
anticipated
restructure
terms,
we
established
a
specific
reserve
of 
$1.4
million
for
this
relationship.

A
loan
is
considered
impaired
when,
based
on
current
information
and
events,
it
is
probable
that
we
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
determining
impairment
include
payment
status,
collateral
value
and
the
probability
of
collecting
scheduled
principal
and
interest
payments
when
due.
Loans
that
experience
insignificant
payment
delays
and
payment
shortfalls
generally
are
not
classified
as
impaired.
Management
determines
the
significance
of
payment
delays
and
payment
shortfalls
on
a
case-by-case
basis,
taking
into
consideration
all
of
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.
Impairment
is
measured
on
a
loan-by-loan
basis
for
commercial
business,
commercial
real
estate
and
construction
and
land
development
loans
by
either
the
present
value
of
expected
future
cash
flows
discounted
at
the
loan’s
effective
interest
rate,
the
loan’s
obtainable
market
price,
or
the
fair
value
of
the
collateral
if
the
loan
is
collateral
dependent.

Large
groups
of
smaller
balance
homogeneous
loans
are
collectively
evaluated
for
impairment
based
on
payment
status.
Accordingly,
we
do
not
separately
identify
individual
one-
to
four-family
residential
and
consumer
loans
for
impairment
disclosures,
unless
such
loans
are
subject
to
a
troubled
debt
restructuring.
We
periodically
agree
to
modify
the
contractual
terms
of
loans.
When
a
loan
is
modified
and
a
concession
is
made
to
a
borrower
experiencing
financial
difficulty,
the
modification
is
considered
a
troubled
debt
restructuring.
All
troubled
debt
restructurings
are
initially
classified
as
impaired.

We
review
residential
and
commercial
loans
for
impairment
based
on
the
fair
value
of
collateral,
if
collateral-

dependent,
or
the
present
value
of
expected
cash
flows.
Management
has
reviewed
the
collateral
value
for
all
impaired
and
non-accrual
loans
that
were
collateral
dependent
as
of
December
31,
2019
and
considered
any
probable
loss
in
determining
the
allowance
for
loan
losses.

Loans
that
are
partially
charged
off
generally
remain
on
non-accrual
status
until
foreclosure
or
such
time
that

they
are
performing
in
accordance
with
the
terms
of
the
loan
and
have
a
sustained
payment
history
of
at
least
six
months.
The
accrual
of
interest
is
generally
discontinued
when
the
contractual
payment
of
principal
or
interest
has
become
90
days
past
due
or
management
has
serious
doubts
about
further
collectability
of
principal
or
interest,
even
though
the
loan
is
currently
performing.
Loan
losses
are
charged
against
the
allowance
when
we
believe
the
uncollectability
of
a
loan
balance
is
confirmed;
for
collateral-dependent
loans,
generally
when
appraised
values
(as
adjusted
values,
if
applicable)
less
estimated
costs
to
sell,
are
less
than
our
carrying
values.

Although
we
believe
that
we
use
the
best
information
available
to
establish
the
allowance
for
loan
losses,
future

adjustments
to
the
allowance
for
loan
losses
may
be
necessary
and
our
results
of
operations
could
be
adversely
affected
if
circumstances
differ
substantially
from
the
assumptions
used
in
making
the
determinations.
Furthermore,
while
we
believe
we
have
established
our
allowance
for
loan
losses
in
conformity
with
generally
accepted
accounting
principles
in
the
United
States
of
America,
our
regulators,
in
reviewing
our
loan
portfolio,
may
require
us
to
increase
our
allowance
for
loan
losses.
In
addition,
because
future
events
affecting
borrowers
and
collateral
cannot
be
predicted
with
certainty,
the
existing
allowance
for
loan
losses
may
not
be
adequate
or
increases
may
be
necessary
should
the
quality
of
any
loans
deteriorate
as
a
result
of
the
factors
discussed
above.
Any
material
increase
in
the
allowance
for
loan
losses
may
adversely
affect
our
financial
condition
and
results
of
operations.

42








TABLE OF CONTENTS

Securities Portfolio

The
following
table
sets
forth
the
composition
of
our
securities
portfolio
at
the
dates
indicated,

Securities available-for-sale:

State
and
municipal
Asset-backed
securities
Government
mortgage-backed


securities

Total

At December 31,

2019

2018

2017

Amortized 
Cost

Fair 
Value

Amortized 
Cost

Fair 
Value

Amortized 
Cost

Fair 
Value ​

(In thousands)

​ $ 10,808 ​
5,433 ​

​$11,206​
5,500​

​ $ 20,118 ​
6,512 ​

​$20,255​
6,371​

​ $ 20,726 ​
7,524 ​

​$21,454​
7,517​

24,954 ​
​ $ 41,195 ​

​ 25,084​
​$41,790​

25,135 ​
​ $ 51,765 ​

​ 24,777​
​$51,403​

32,421 ​
​ $ 60,671 ​

​ 32,458​
​$61,429​

At
December
31,
2019,
we
had
no
investments
in
a
single
company
or
entity,
other
than
government
and

government
agency
securities,
that
had
an
aggregate
book
value
in
excess
of
10%
of
our
equity.

Portfolio Maturities and Yields.


The
composition
and
maturities
of
the
investment
securities
portfolio
at
December
31,
2019,
are
summarized
in
the
following
table.
Certain
mortgage-backed
securities
have
adjustable
interest
rates
and
will
reprice
annually
within
the
various
maturity
ranges.
These
repricing
schedules
are
not
reflected
in
the
table
below.
No
tax-equivalent
yield
adjustments
have
been
made,
as
the
amount
of
tax-free
interest-
earning
assets
is
immaterial.

More than 
One Year to Five Years
Weighted 
Average 
Yield

Amortized 
Cost

More than 
Five Years to Ten Years
Weighted 
Average 
Yield

Amortized 
Cost

More than 
Ten Years

Total

Amortized 
Cost

Weighted 
Average 
Yield

Amortized 
Cost

Fair 
Value

Weighted 
Average 
Yield ​

(Dollars in thousands)

$ 1,211 ​
610 ​

3.44 ​ $
%
%
2.01 ​

912 ​
— ​

4.30 ​ $ 8,685 ​
4,823 ​

%
%
— ​

​ 3.01
​ 2.75

%
%

$ 10,808 ​
5,433 ​

​$11,206​
5,500​

​ 3.17 ​
%
%
​ 2.67 ​

129 ​
$ 1,950 ​

%
1.14 ​
3,408 ​
2.84 ​ $ 4,320 ​

%

%
2.14 ​
21,417 ​
2.59 ​ $ 34,925 ​

%

​ 2.15
​ 2.45

%

%

24,954 ​
$ 41,195 ​

​ 25,084​
​$41,790​

%
​ 2.15 ​
%
​ 2.48 ​

Securities available-for-sale:
State
and
municipal
Asset-backed
securities
Government
mortgage-backed

securities
Total

Each
reporting
period,
we
evaluate
all
securities
with
a
decline
in
fair
value
below
the
amortized
cost
of
the
investment
to
determine
whether
or
not
the
impairment
is
deemed
to
be
other-than-temporary.
Other-than-temporary
impairment
(“OTTI”)
is
required
to
be
recognized
if 
(1)
we
intend
to
sell
the
security;
(2)
it
is
more
likely
than
not
that
we
will
be
required
to
sell
the
security
before
recovery
of
its
amortized
cost
basis;
or
(3)
for
debt
securities,
the
present
value
of
expected
cash
flows
is
not
sufficient
to
recover
the
entire
amortized
cost
basis.
For
impaired
debt
securities
that
we
intend
to
sell,
or
more
likely
than
not
will
be
required
to
sell,
the
full
amount
of
the
depreciation
is
recognized
as
OTTI,
resulting
in
a
realized
loss
that
is
a
charged
to
earnings
through
a
reduction
in
our
non-interest
income.
For
all
other
impaired
debt
securities,
credit-related
OTTI
is
recognized
through
earnings
and
non-credit
related
OTTI
is
recognized
in
other
comprehensive
income/loss,
net
of
applicable
taxes.
We
did
not
recognize
any
OTTI
during
the
years
ended
December
31,
2019
or
2018.

Deposits

Total
deposits
increased
$81.8
million,
or
10.7%,
to
$849.9
million
at
December
31,
2019
from
$768.1
million

at
December
31,
2018.
Our
continuing
focus
on
the
acquisition
and
expansion
of
core
deposit
relationships,
which
we
define
as
all
deposits
except
for
certificates
of
deposit,
resulted
in
net
growth
in
these
deposits
of 
$84.8
million,
or
12.6%,
to
$755.5
million
at
December
31,
2019,
or
88.9%
of
total
deposits
at
that
date.

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TABLE OF CONTENTS

The
following
tables
set
forth
the
distribution
of
total
deposits
by
account
type
at
the
dates
indicated.

At December 31,

2019

2018

2017

​ Amount

Percent ​

​ Amount

Percent

Amount

Percent ​

Noninterest
bearing
Negotiable
order
of
withdrawal
(NOW)
Savings
accounts
Money
market
deposit
accounts
Certificates
of
deposit

Total

​$222,088​
​ 147,335​
​ 115,593​
​ 270,471​
94,418​
​$849,905​

​ 26.13​
​ 17.34​
​ 13.60​
​ 31.82​
​ 11.11​
​ 100.00​

%
%
%
%
%

%

(Dollars in thousands)
​ 25.43​
​$195,293​
​ 17.81​
​ 136,771​
​ 14.23​
​ 109,322​
​ 29.85​
​ 229,314​
​ 12.68​
97,396​
​ 100.00​
​$768,096​

%
%
%
%
%

%

​$186,222​
​ 123,292​
​ 112,610​
​ 225,735​
​ 102,198​
​$750,057​

​ 24.83​
​ 16.44​
​ 15.01​
​ 30.10​
​ 13.62​
​ 100.00​

%
%
%
%
%

%

As
of
December
31,
2019,
our
certificates
of
deposit
included
$48.6
million
of
brokered
certificates
of
deposit
and
$8.7
million
of
QwickRate
certificates
of
deposit,
where
we
gather
certificates
of
deposit
nationwide
by
posting
rates
we
will
pay
on
these
deposits.

As
of
December
31,
2019,
the
aggregate
amount
of
all
our
certificates
of
deposit
in
amounts
greater
than
or

equal
to
$100,000,
which
excludes
all
brokered
certificates,
was
approximately
$29.8
million.
The
following
table
sets
forth
the
maturity
of
these
certificates
as
of
December
31,
2019.

Maturity Period

Three
months
or
less
Over
three
through
six
months
Over
six
through
twelve
months
Over
twelve
months

Total

Borrowings

At 
December 31, 2019

(In thousands)
​$ 6,325
3,118
​ 13,557
6,818
​$ 29,818

Our
borrowings
at
December
31,
2019
consisted
of
Federal
Home
Loan
Bank
advances.
The
following
table
sets
forth
information
concerning
balances
and
interest
rates
on
Federal
Home
Loan
Bank
advances
for
the
years
indicated.

At or For the Year Ended December 31,

2019

2018

2017

Balance
outstanding
at
end
of
year
Weighted
average
interest
rate
at
end
of
year
Maximum
amount
of
borrowings
outstanding
at
any
month
end
during
the

year

Average
balance
outstanding
during
the
year

Weighted
average
interest
rate
during
the
year

(Dollars in thousands)
​$ 68,022​
2.58​

%

%

​$ 24,998​
2.45​

​ $ 26,841 ​
1.52 ​

%

​$ 122,929​
​$ 72,361​
2.61​

%

​$ 68,125​
​$ 30,987​
2.40​

%

​ $ 79,725 ​
​ $ 51,610 ​
1.52 ​

%

We
had
no
securities
sold
under
agreements
to
repurchase
during
the
years
ended
December
31,
2019,
2018

and
2017.

Borrowings
decreased
$43.0
million,
or
63.3%,
to
$25.0
million
at
December
31,
2019
from
$68.0
million
at

December
31,
2018
primarily
due
to
the
liquidity
provided
from
the
completion
of
our
stock
offering.
All
of
the
borrowings
at
December
31,
2019
are
long-term
with
an
original
maturity
of
more
than
one
year.

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TABLE OF CONTENTS

Shareholders’ Equity

Total
shareholders’
equity
increased
$105.3
million,
or
83.9%,
to
$230.9
million
at
December
31,
2019,
from
$125.6
million
at
December
31,
2018.
The
increase
was
due
primarily
to
raising
$91.6
million
in
capital
due
to
our
second-step
conversion
and
related
stock
offering
and
net
income
of 
$10.8
million.

Average Balance Sheets and Related Yields and Rates

The
following
tables
set
forth
average
balance
sheets,
average
yields
and
costs,
and
certain
other
information
for
the
years
indicated.
No
tax-equivalent
yield
adjustments
have
been
made,
as
we
consider
the
amount
of
tax
free
interest-earning
assets
is
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.

Assets:
Interest-earning
assets:
Loans
Short-term
investments
Investment
securities
Federal
Home
Loan
Bank
stock
Total
interest-earning
assets

Non-interest
earning
assets

Total
assets

Interest-bearing
liabilities:
Savings
accounts
Money
market
accounts
Now
accounts
Certificates
of
deposit

Total
interest-bearing
deposits

Borrowings

Total
interest-bearing
liabilities

Noninterest-bearing
liabilities:
Noninterest-bearing
deposits
Other
noninterest-bearing
liabilities

Total
liabilities

Total
equity
Total
liabilities
and
equity
Net
interest
income
Interest
rate
spread
Net
interest-earning
assets
Net
interest
margin
Average
interest-earning
assets
to
interest-

(3)

(1)

(2)

bearing
liabilities

2019

Interest 
Earned/​ 
Paid

Yield/​ 
Rate ​

Average 
Balance

For the Year Ended December 31,
2018
Interest 
Earned/​ 
Paid

Average 
Balance

Yield/​ 
Rate ​

2017
Interest 
Earned/​ 
Paid

Yield/​ 
Rate ​

Average 
Balance

(Dollars in thousands)

​$49,693​
296​
1,344​
205​
​ 51,538​

5.48 ​
1.55 ​
2.81 ​
6.25 ​
5.27 ​

%
%
%
%
%

​$ 783,570​
15,846​
55,686​
1,925​
​  857,027​
50,411​
​$ 907,438​

​$40,358​
313​
1,560​
109​
​ 42,340​

5.15 ​
1.98 ​
2.80 ​
5.66 ​
4.94 ​

%
%
%
%
%

​$698,859​
8,285​
​ 111,732​
2,874​
​ 821,750​
46,576​
​$868,326​

​$32,510​
100​
3,049​
123​
​ 35,782​

4.65 ​
1.21 ​
2.73 ​
4.28 ​
4.35 ​

%
%
%
%
%

419​
2,857​
423​
2,559​
6,258​
1,890​
8,148​

0.33 ​
1.20 ​
0.39 ​
2.18 ​
1.06 ​
2.61 ​
1.22 ​

%
%
%
%
%
%
%

​$ 116,126​
227,057​
116,816​
95,987​
555,986​
30,987​
586,973​

281​
2,224​
602​
1,361​
4,468​
745​
5,213​

0.24 ​
0.98 ​
0.52 ​
1.42 ​
0.80 ​
2.40 ​
0.89 ​

%
%
%
%
%
%
%

​$116,147​
​ 176,216​
​ 114,292​
​ 120,033​
​ 526,688​
51,610​
​ 578,298​

209​
875​
660​
1,200​
2,944​
782​
3,726​

0.18 ​
0.50 ​
0.58 ​
1.00 ​
0.56 ​
1.52 ​
0.64 ​

%
%
%
%
%
%
%

189,369​
10,759​
787,101​
120,337​
​$ 907,438​

​ 166,055​
8,332​
​ 752,685​
​ 120,337​
​$873,022​

​$43,390​

​$37,127​

​$32,056​

4.05 ​

%

4.44 ​

%

​$ 270,054​

4.05 ​

%

4.33 ​

%

​$243,452​

3.71 ​

%

3.90 ​

%

​$ 906,909​
19,106​
47,793​
3,281​
977,089​
62,522​
​$1,039,611​

​$ 128,438​
238,708​
108,658​
117,126​
592,930​
72,361​
665,291​

212,753​
15,178​
893,222​
146,389​
​$1,039,611​

​$ 311,798​

146.87​

%

146.01​

%

142.10​

%

(1)


Net
interest
rate
spread
represents
the
difference
between
the
weighted
average
yield
on
interest-bearing
assets
and
the
weighted
average
rate
of
interest-bearing
liabilities.

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TABLE OF CONTENTS

(2)


Net
interest-earning
assets
represent
total
interest-earning
assets
less
total
interest-bearing
liabilities.

(3)


Net
interest
margin
represents
net
interest
income
divided
by
average
total
interest-earning
assets

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
effects
attributable
to
changes
in
volume
(changes
in
volume
multiplied
by
prior
rate).
The
net
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
proportionally
based
on
the
changes
due
to
rate
and
the
changes
due
to
volume.

Year Ended December 31, 
2019 vs. 2018

Year Ended December 31, 
2018 vs. 2017

​ Increase (Decrease) Due to ​

Rate

Volume

Total 
Increase 
(Decrease) ​

​ Increase (Decrease) Due to ​

Rate

Volume

Total 
Increase 
(Decrease)​

)

​ $ 2,694
(75
6
12

2,637

$ 6,641 ​
58 ​
)
(222 ​
84 ​
6,561 ​

​ $ 9,335 ​
)
(17 ​
)
(216 ​
96 ​
9,198 ​

​ $ 3,683
88
79
33

3,883

$ 4,165 ​
125 ​
(1,568 ​
)
)
(47 ​
2,675 ​

​ $ 7,848 ​
213 ​
(1,489 ​
)
)
(14 ​
6,558 ​

106
514
(139
851

)

1,332
70

1,402

32 ​
119 ​
)
(40 ​
347 ​
458 ​
1,075 ​
1,533 ​

138 ​
633 ​
)
(179 ​
1,198 ​
1,790 ​
1,145 ​
2,935 ​

)

72
1,040
(72
434

1,474
350

1,824

— ​
309 ​
14 ​
)
(273 ​
50 ​
(387 ​
)
)
(337 ​

72 ​
1,349 ​
)
(58 ​
161 ​
1,524 ​
)
(37 ​
1,487 ​

​ $ 1,236

$ 5,027 ​

​ $ 6,263 ​

​ $ 2,059

$ 3,012 ​

​ $ 5,071 ​

Interest-earning
assets:
Loans
Short-term
investments
Investment
securities
Federal
Home
Loan
Bank
stock

Total
interest-earning
assets

Interest-bearing
liabilities:
Savings
accounts
Money
market
accounts
Now
accounts
Certificates
of
deposit

Total
interest-bearing
deposits

Borrowings

Total
interest-bearing
liabilities

Change
in
net
interest
and
dividend

income

Results of Operations for the Years Ended December 31, 2019 and 2018

General.


Net
income
increased
$1.5
million,
or
15.9%,
to
$10.8
million
for
the
year
ended
December
31,
2019
from
$9.3
million
for
the
year
ended
December
31,
2018.
The
increase
was
primarily
due
to
an
increase
of 
$6.3
million,
or
16.9%,
in
net
interest
and
dividend
income
partially
offset
by
an
increase
in
provision
for
loan
losses
of 
$2.0
million,
or
13.7%,
and
an
increase
in
salaries
and
employee
benefits
expense
of
$1.4
million,
or
8.6%.

Interest and Dividend Income.


Interest
and
dividend
income
increased
$9.2
million,
or
21.7%,
to

$51.5
million
for
the
year
ended
December
31,
2019
from
$42.3
million
for
the
year
ended
December
31,
2018.
This
was
caused
by
an
increase
in
interest
and
fees
on
loans,
which
increased
$9.3
million,
or
23.1%,
partially
offset
by
a
decrease
in
interest
and
dividends
on
securities
of 
$120,000,
or
7.2%.

The
increase
in
interest
income
on
loans
was
due
to
an
increase
in
average
balance
of 
$123.3
million,
or

15.7%,
to
$906.9
million
for
the
year
ended
December
31,
2019
from
$783.6
million
for
the
year
ended
December
31,
2018,
and
an
increase
in
yield
on
loans
of
33
basis
points,
to
5.48%
for
the
year
ended
December
31,
2019
from
5.15%
for
the
year
ended
December
31,
2018,
due
to
our
continued
shift
to
higher-yielding
commercial
loans
and
the
higher
market
interest
rate
environment.

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TABLE OF CONTENTS

The
decrease
in
interest
and
dividends
on
securities
was
due
to
a
decrease
in
the
average
balance
of
investment
securities
of 
$7.9
million,
or
14.2%,
to
$47.8
million
for
the
year
ended
December
31,
2019
from
$55.7
million
for
the
year
ended
December
31,
2018.

Interest Expense.


Interest
expense
increased
$2.9
million,
or
56.3%,
to
$8.1
million
for
the
year
ended
December
31,
2019
from
$5.2
million
for
the
year
ended
December
31,
2018,
due
to
an
increase
in
interest
expense
on
deposits
and
an
increase
in
interest
expense
on
borrowings.
Interest
expense
on
deposits
increased
$1.8
million,
or
40.1%,
to
$6.3
million
for
the
year
ended
December
31,
2019
from
$4.5
million
for
the
year
ended
December
31,
2018,
due
to
our
cost
of
funds
on
interest-bearing
deposits
increasing
26
basis
points
to
1.06%
for
the
year
ended
December
31,
2019
from
0.80%
for
the
year
ended
December
31,
2018
and
an
increase
in
average
balances.
The
increase
in
the
cost
of
funds
was
primarily
due
to
an
increase
in
the
average
rate
paid
on
certificates
of
deposit,
which
increased
76
basis
points
to
2.18%,
and
money
market
accounts,
which
increased
22
basis
points
to
1.20%.

Interest
expense
on
borrowings,
which
consists
of
advances
from
the
Federal
Home
Loan
Bank
of
Boston,
increased
$1.1
million,
or
153.7%,
to
$1.9
million
for
the
year
ended
December
31,
2019
from
$745,000
for
the
year
ended
December
31,
2018.
The
average
balance
of
borrowings
increased
$41.4
million,
or
133.5%,
to
$72.4
million
for
the
year
ended
December
31,
2019
from
$31.0
million
for
the
year
ended
December
31,
2018.
Our
cost
of
borrowings
increased
21
basis
points
to
2.61%
for
the
year
ended
December
31,
2019
compared
to
2.40%
for
the
year
ended
December
31,
2018
due
to
the
rate
environment.

Net Interest and Dividend Income.


Net
interest
and
dividend
income
increased
$6.3
million,
or
16.9%,
to
$43.4
million
for
the
year
ended
December
31,
2019
from
$37.1
million
for
the
year
ended
December
31,
2018.
Our
net
interest
rate
spread
remained
the
same
as
4.05%
for
the
years
ended
December
31,
2019
and,
2018,
while
our
net
interest
margin
increased
11
basis
points
to
4.44%
for
the
year
ended
December
31,
2019
from
4.33%
for
the
year
ended
December
31,
2018.
The
average
yield
we
earned
on
interest-earning
assets
increased
33
basis
points
to
5.27%
for
the
year
ended
December
31,
2019
from
4.94%
for
the
year
ended
December
31,
2018.
The
average
yield
we
paid
on
interest-bearing
liabilities
increased
33
basis
points
to
1.22%
for
the
year
ended
December
31,
2019
from
0.89%
for
the
year
ended
December
31,
2018.

Provision for Loan Losses.


Our
provision
for
loan
losses
was
$5.3
million
for
the
year
ended
December
31,

2019
compared
to
$3.3
million
for
the
year
ended
December
31,
2018.
The
provision
recorded
resulted
in
an
allowance
for
loan
losses
of 
$13.8
million,
or
1.42%
of
total
loans
and
237.6%
of
non-performing
loans
at
December
31,
2019,
compared
to
$11.7
million,
or
1.38%
of
total
loans
and
186.6%
of
non-performing
loans
at
December
31,
2018.
Our
provision
was
higher
in
2019
due
to
an
increase
in
the
specific
allowance
for
impaired
loans
and
continued
growth
in
the
total
loan
portfolio.
The
largest
non-performing
loan
outstanding
as
of
December
31,
2019
is
a
$1.9
million
commercial
loan
with
a
specific
reserve
of 
$130,000.
During
the
fourth
quarter
of
2019,
a
commercial
real
estate
loan
relationship
with
a
total
balance
of 
$18.6
million
became
impaired
due
to
insufficient
cash
flows
to
pay
the
debt.
We
expect
to
formally
restructure
this
loan
relationship,
and
based
on
a
discounted
cash
flow
calculation
using
the
anticipated
restructure
terms,
we
established
a
specific
reserve
of 
$1.4
million
for
this
relationship.
The
increase
in
the
allowance
for
loan
losses
was
based
on
management’s
assessment
of
loan
portfolio
growth
and
composition
changes,
historical
charge-off
trends,
levels
of
problem
loans
and
other
asset
quality
trends.
We
apply
historical
loss
ratios
to
newly
originated
loans,
which,
absent
other
factors,
results
in
an
increase
in
the
allowance
for
loan
losses
as
the
loan
portfolio
increases.
For
further
information
related
to
changes
in
the
provision
and
allowance
for
loan
losses,
refer
to
“—
Asset
Quality — Allowance
for
Loan
Losses.”

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TABLE OF CONTENTS

Noninterest Income.


Noninterest
income
information
is
as
follows.

Years Ended 
December 31,

Change

2019

2018

Amount

Percent​

Customer
service
fees
on
deposit
accounts
Service
charges
and
fees – other
Gain
on
sales
of
securities,
net
Bank
owned
life
insurance
income
Other
income

Total
noninterest
income

$

(Dollars in thousands)
17 ​
​$1,435​
)
(210 ​
​ 1,993​
113 ​
​ —​
13 ​
686​
— ​
64​
)
$ (67 ​
​$4,178​

​$1,452​
​ 1,783​
113​
699​
64​
​$4,111​

%
)%
%
%
%

1.2 ​
(10.5 ​
100 ​
1.9 ​
— ​
(1.6 ​

)%

Gains
on
sales
of
securities,
net,
increased
$113,000,
or
100.0%,
for
the
year
ended
December
31,
2019

compared
to
the
year
ended
December
31,
2018
as
we
repositioned
some
of
our
securities
by
selling
some
municipal
and
mortgage-backed
securities
that
were
close
to
maturity
and
reinvested
the
proceeds
into
longer-term
mortgage-
backed
securities.
Customer
service
fees
on
deposit
accounts
increased
$17,000,
or
1.2%,
primarily
due
to
increased
volume
in
transactional
deposit
accounts.
Service
charges
and
fees
decreased
$210,000,
or
10.5%,
primarily
due
to
one-time
loan
fees
collected
in
2018.
Bank
owned
life
insurance
income
increased
$13,000,
or
1.9%,
due
to
an
increase
in
yields
on
cash
surrender
values
on
the
purchased
policies.
Other
income
remained
the
same
at
$64,000.

Noninterest Expense.


Noninterest
expense
information
is
as
follows.

Salaries
and
employee
benefits
Occupancy
expense
Equipment
expense
Data
processing
Marketing
expense
Professional
fees
Directors’
compensation
Software
amortization
and
implementation

Other

Total
noninterest
expense

Years Ended 
December 31,

Change

2019

2018

Amount

Percent​

​$18,243​
1,968​
444​
738​
385​
1,210​
741​
734​
3,093​
​$27,556​

(Dollars in thousands)
​$1,442​
​$16,801​
235​
1,733​
(27​
471​
(72​
810​
140​
245​
(13​
1,223​
121​
620​
89​
645​
227​
2,866​
​$2,142​
​$25,414​

)
)

)

%
8.6 ​
%
13.6 ​
)%
(5.7 ​
(8.9 ​
)%
%
57.1 ​
(1.1 ​
)%
19.5 ​
%
13.8 ​
%
%
7.9 ​
%
8.4 ​

Salaries
and
employee
benefits
expense
increased
$1.4
million,
or
8.6%,
for
the
year
ended
December
31,
2019

from
the
year
ended
December
31,
2018
primarily
due
to
a
higher
number
of
sales
and
operations
positions
compared
to
2018,
as
well
as
increased
ESOP
expense
of 
$459,000
due
to
the
added
shares
from
the
stock
offering.
Occupancy
expense
increased
$235,000,
or
13.6%,
for
the
year
ended
December
31,
2019
from
the
year
ended
December
31,
2018
primarily
due
to
the
acceleration
of
our
leasehold
improvements
amortization
related
to
the
closure
of
our
Hampton,
New
Hampshire
branch
in
May
2019.
The
increase
of
$140,000,
or
57.1%
in
marketing
expense
is
primarily
due
to
increased
marketing
in
our
new
products
and
review
of
our
website.
Directors’
compensation
increased
$121,000,
or
19.5%,
for
the
year
ended
December
31,
2019
from
the
year
ended
December
31,
2018
primarily
due
to
the
addition
of
a
new
director
in
2019
and
a
full
year
of
stocke-based
compensation
expense
from
the
issuance
of
awards
in
the
second
half
of
2018.
Software
amortization
and
implementation
increased
$89,000,
or
13.8%,
for
the
year
ended
December
31,
2019
from
the
year
ended
December
31,
2018
primarily
due
to
new
software
purchased
to
assist
with
strategic
deposit
initiatives.
Other
noninterest
expense
increased
$227,000,
or
4.7%,
for
the
year
ended

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TABLE OF CONTENTS

December
31,
2019
from
the
year
ended
December
31,
2018
primarily
due
to
telecommunications
expense
from
adding
our
new
offices
in
Portsmouth
and
using
a
new
system
to
connect
our
offices.

Income Tax Provision.


We
recorded
a
provision
for
income
taxes
of 
$3.8
million
for
the
year
ended
December
31,
2019,
reflecting
an
effective
tax
rate
of
26.1%,
compared
to
$3.2
million,
or
an
effective
tax
rate
of
25.8%,
for
the
year
ended
December
31,
2018.

Management of Market Risk

General.


The
majority
of
our
assets
and
liabilities
are
monetary
in
nature.
Consequently,
our
most
significant

form
of
market
risk
is
interest
rate
risk.
Our
assets,
consisting
primarily
of
loans,
have
longer
maturities
than
our
liabilities,
consisting
primarily
of
deposits.
As
a
result,
a
principal
part
of
our
business
strategy
is
to
manage
interest
rate
risk
and
reduce
the
exposure
of
our
net
interest
income
to
changes
in
market
interest
rates.
Accordingly,
we
have
established
a
management-level
Asset/Liability
Management
Committee,
which
takes
initial
responsibility
for
developing
an
asset/liability
management
process
and
related
procedures,
establishing
and
monitoring
reporting
systems
and
developing
asset/liability
strategies.
On
at
least
a
quarterly
basis,
the
Asset/Liability
Management
Committee
reviews
asset/liability
management
with
the
Investment
Asset/Liability
Committee
that
has
been
established
by
the
board
of
directors.
This
committee
also
reviews
any
changes
in
strategies
as
well
as
the
performance
of
any
specific
asset/liability
management
actions
that
have
been
implemented
previously.
On
a
quarterly
basis,
an
outside
consulting
firm
provides
us
with
detailed
information
and
analysis
as
to
asset/liability
management,
including
our
interest
rate
risk
profile.
Ultimate
responsibility
for
effective
asset/liability
management
rests
with
our
board
of
directors.

We
have
sought
to
manage
our
interest
rate
risk
in
order
to
minimize
the
exposure
of
our
earnings
and
capital

to
changes
in
interest
rates.
We
have
implemented
the
following
strategies
to
manage
our
interest
rate
risk:
originating
loans
with
adjustable
interest
rates;
promoting
core
deposit
products;
and
adjusting
the
interest
rates
and
maturities
of
funding
sources,
as
necessary.
In
addition,
we
no
longer
originate
single-family
residential
real
estate
loans,
which
often
have
longer
terms
and
fixed
rates.
By
following
these
strategies,
we
believe
that
we
are
better
positioned
to
react
to
changes
in
market
interest
rates.

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
200
basis
points
from
current
market
rates
and
under
the
assumption
that
interest
rates
decrease
100
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
Provident
Bank,
calculated
on

a
bank-only
basis,
that
would
result
from
changes
in
market
interest
rates
over
twelve-month
periods
beginning
December
31,
2019
and
2018.

Changes in Interest Rates (Basis Points)

200
0

-100

-200

At December 31,

2019

Estimated 
Net Interest Income 
Over Next 12 Months

Change

2018

Estimated 
12-Months Net 
Interest Income

Change​

(Dollars in thousands)

​$ 49,797
​ 50,004
​$ 49,835
N/A

49


)%

)%

(0.40 ​
— ​
(0.30 ​
N/A ​

​$ 42,086
​ 42,726
N/A
​$ 42,160

(1.50 ​
— ​
N/A ​
(1.32 ​

)%

)%




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TABLE OF CONTENTS

Economic Value of Equity Simulation.


We
also
analyze
our
sensitivity
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
100,
200,
300
and
400
basis
points
from
current
market
rates,
and
under
the
assumption
that
interest
rates
decrease
100
basis
points
from
current
market
rates.

The
following
table
presents
the
estimated
changes
in
EVE
of
The
Provident
Bank,
calculated
on
a
bank-only

basis,
that
would
result
from
changes
in
market
interest
rates
as
of
December
31,
2019
and
2018.

At December 31,

2019

2018

Changes in Interest Rates (Basis Points)

400
300

200

100

0

-100

-200

Economic 
Value of 
Equity

​$176,680​
​ 177,055​
​ 176,761​
​ 175,789​
​ 171,464​
​ 160,469​
N/A​

Economic 
Value of 
Equity

Change

Change​

(Dollars in thousands)
%
%

3.00 ​
3.30 ​
3.10 ​
2.50 ​
— ​
(6.40 ​
N/A ​

%

%

)%

​$147,448​
​ 150,100​
​ 152,408​
​ 153,932​
​ 153,061​
​ 147,489​
​ 134,586​

​ (3.70​
​ (1.90​
​ (0.40​
​ 0.60​
​ —​
​ (3.60​
​ (12.10​

)%
)%

)%

%

)%

)%

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,
loan
repayments
and
maturities
and
sales
of
securities.
While
maturities
and
scheduled
amortization
of
loans
and
securities
are
predictable
sources
of
funds,
deposit
flows
and
loan
prepayments
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
invested
generally
in
interest-earning
deposits
and
short-
and
intermediate-term
securities.

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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
December
31,
2019,
cash
and
cash
equivalents
totaled
$59.7
million.
Securities
classified
as
available-for-sale,
which
provide
additional
sources
of
liquidity,
totaled
$41.8
million
at
December
31,
2019.

At
December
31,
2019,
we
had
a
borrowing
capacity
of 
$205.6
million
with
the
Federal
Home
Loan
Bank
of
Boston,
of
which
$25.0
million
in
advances
were
outstanding.
At
December
31,
2019,
we
also
had
an
available
line
of
credit
with
the
Federal
Reserve
Bank
of
Boston’s
borrower-in-custody
program
of
$254.1
million,
none
of
which
was
outstanding
as
of
that
date.

We
have
no
material
commitments
or
demands
that
are
likely
to
affect
our
liquidity
other
than
as
set
forth
below.
In
the
event
loan
demand
were
to
increase
faster
than
expected,
or
any
unforeseen
demand
or
commitment
were
to
occur,
we
could
access
our
borrowing
capacity
with
the
Federal
Home
Loan
Bank
of
Boston
or
obtain
additional
funds
through
brokered
certificates
of
deposit.

At
December
31,
2019
and
2018,
we
had
$29.4
million
and
$42.6
million
in
loan
commitments
outstanding,
respectively.
In
addition
to
commitments
to
originate
loans,
at
December
31,
2019
and
2018,
we
had
$201.9
million
and
$196.1
million
in
unadvanced
funds
to
borrowers,
respectively.
We
also
had
$1.5
million
in
outstanding
letters
of
credit
at
December
31,
2019
and
2018.

Certificates
of
deposit
due
within
one
year
of
December
31,
2019
totaled
$62.0
million,
or
65.6%
of
total
certificates
of
deposit.
If
these
deposits
do
not
remain
with
us,
we
will
be
required
to
seek
other
sources
of
funds,
including
other
certificates
of
deposit
and
Federal
Home
Loan
Bank
of
Boston
advances.
Depending
on
market
conditions,
we
may
be
required
to
pay
higher
rates
on
such
deposits
or
other
borrowings
than
we
currently
pay
on
the
certificates
of
deposit
at
December
31,
2019.
We
believe,
however,
based
on
past
experience
that
a
significant
portion
of
our
certificates
of
deposit
will
remain
with
us.
We
have
the
ability
to
attract
and
retain
deposits
by
adjusting
the
interest
rates
offered.

Our
primary
investing
activities
are
the
origination
of
loans
and
the
purchase
of
securities.
During
the
years
ended
December
31,
2019
and
2018,
we
had
$302.9
million
and
$298.4
million
of
loan
originations,
respectively.
The
loan
originations
included
$302.7
million
and
$286.6
million
of
loans
to
be
held
in
our
portfolio
for
the
years
ended
December
31,
2019
and
2018,
respectively.
During
the
year
ended
December
31,
2019,
we
purchased
$13.7
million
of
securities
and
received
proceeds
from
the
sales
of
securities
totaling
$13.6
million.
During
the
year
ended
December
31,
2018,
we
did
not
purchase
or
sell
any
securities.

Financing
activities
consist
primarily
of
activity
in
deposit
accounts
and
Federal
Home
Loan
Bank
advances.

We
experienced
net
increases
in
total
deposits
of 
$81.8
million
and
$18.0
million
for
the
years
ended
December
31,
2019
and
2018,
respectively.
Deposit
flows
are
affected
by
the
overall
level
of
interest
rates,
the
interest
rates
and
products
offered
by
us
and
our
local
competitors
and
other
factors.
We
generally
manage
the
pricing
of
our
deposits
to
be
competitive.
Borrowings
decreased
$43.0
million
and
increased
$41.2
million
during
the
years
ended
December
31,
2019
and
2018,
respectively.

The
Provident
Bank
is
subject
to
various
regulatory
capital
requirements
administered
by
Massachusetts

Commissioner
of
Banks,
and
the
Federal
Deposit
Insurance
Corporation.
At
December
31,
2019,
The
Provident
Bank
exceeded
all
applicable
regulatory
capital
requirements,
and
was
considered
“well
capitalized”
under
regulatory
guidelines.
See
Note
11
of
the
Notes
to
the
Consolidated
Financial
Statements
for
additional
information.

The
net
proceeds
from
our
stock
offering
significantly
increased
our
liquidity
and
capital
resources.
Over
time,

the
initial
level
of
liquidity
will
be
reduced
as
net
proceeds
from
the
stock
offering
are
used
for
general
corporate
purposes,
including
funding
loans.
Our
financial
condition
and
results
of
operations
have
been
enhanced
by
the
net
proceeds
from
the
stock
offering.
However,
due
to
the
increase
in
equity
resulting
from
the
net
proceeds
raised
in
the
stock
offering,
as
well
as
other
factors
associated
with
the
stock
offering,
our
return
on
equity
has
been
adversely
affected
following
the
stock
offering.

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Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations.


In
the
ordinary
course
of
our
operations,
we
enter
into
certain
contractual
obligations.
Such
obligations
include
operating
leases
for
premises
and
equipment,
agreements
with
respect
to
borrowed
funds
and
deposit
liabilities,
agreements
with
respect
to
investments
and
employment
agreements
with
certain
of
our
executive
officers.
The
following
table
presents
our
contractual
obligations
as
of
December
31,
2019.

Contractual Obligations

Long-term
debt
obligations
Operating
lease
obligations

Total

Payments Due by period

​ Total

One Year 
or Less

More Than 
One Year to 
Three Years ​

More than Three 
Years to 
Five Years

More 
Than Five 
Years

(In thousands)

​$24,998​
7,142​
​$32,140​

​$ 11,498 ​
165 ​
​$ 11,663 ​

​ $ 5,000
344
​ $ 5,344

$ 8,500
347

$ 8,847

​ $ — ​
6,286 ​
​ $ 6,286 ​

Off-Balance Sheet Arrangements.


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.
Our
exposure
to
credit
loss
is
represented
by
the
contractual
amount
of
the
instruments.
We
use
the
same
credit
policies
in
making
commitments
as
we
do
for
on-balance
sheet
instruments.

For
further
information,
see
Note
14
of
the
Notes
to
the
Consolidated
Financial
Statements.

Recent Accounting Pronouncements

For
information
with
respect
to
recent
accounting
pronouncements
that
are
applicable
to
Provident
Bancorp,

Inc.,
see
Note
2
of
the
Notes
to
the
Consolidated
Financial
Statements.

Effect of Inflation and Changing Prices

The
consolidated
financial
statements
and
related
financial
data
included
in
this
annual
report
have
been
prepared
in
accordance
with
generally
accepted
accounting
principles
in
the
United
States
of
America,
which
require
the
measurement
of
financial
position
and
operating
results
in
terms
of
historical
dollars
without
considering
the
change
in
the
relative
purchasing
power
of
money
over
time
due
to
inflation.
The
primary
impact
of
inflation
on
our
operations
is
reflected
in
increased
operating
costs.
Unlike
most
industrial
companies,
virtually
all
the
assets
and
liabilities
of
a
financial
institution
are
monetary
in
nature.
As
a
result,
interest
rates
generally
have
a
more
significant
impact
on
a
financial
institution’s
performance
than
do
general
levels
of
inflation.
Interest
rates
do
not
necessarily
move
in
the
same
direction
or
to
the
same
extent
as
the
prices
of
goods
and
services.

ITEM 7A. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The
information
required
by
this
item
is
incorporated
herein
by
reference
to
Part
II,
Item
7,
“Management’s

Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations.”

ITEM 8. 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The
Consolidated
Financial
Statements,
including
supplemental
data,
of
Provident
Bancorp,
Inc.
begin
on
page

F-1
of
this
Annual
Report.

ITEM 9. 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

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ITEM 9A.   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
December
31,
2019.
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
December
31,
2019,
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.

Management’s
Report
Regarding
Internal
Control
Over
Financial
Reporting

The
Company’s
management
is
responsible
for
establishing
and
maintaining
adequate
internal
control
over
financial
reporting
as
such
terms
are
defined
in
Rule
13a-15(f)
of
the
Exchange
Act
of
1934.
Our
system
of
internal
controls
is
designed
to
provide
reasonable
assurance
that
the
financial
statements
that
we
provide
to
the
public
are
fairly
presented.

Our
internal
control
over
financial
reporting
includes
policies
and
procedures
that
(i)
pertain
to
the
maintenance

of
records
that,
in
reasonable
detail,
accurately
and
fairly
reflect
transactions
and
dispositions
of
assets,
(ii)
provide
reasonable
assurances
that
transactions
are
recorded
as
necessary
to
permit
preparation
of
financial
statements
in
accordance
with
accounting
principles
generally
accepted
in
the
United
States
of
America
and
that
receipts
and
expenditures
are
being
made
only
in
accordance
with
authorizations
of
management
and
the
directors
of
the
Company;
and
(iii)
provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorized
acquisition,
use
or
disposition
of
the
Company’s
assets
that
could
have
a
material
effect
on
our
financial
statements.

All
internal
control
systems,
no
matter
how
well
designed,
have
inherent
limitations.
Therefore,
even
those

systems
determined
to
be
effective
can
provide
only
reasonable
assurance
with
respect
to
financial
statement
preparation
and
presentation.
Accordingly,
absolute
assurance
cannot
be
provided
that
the
effectiveness
of
the
internal
control
systems
may
not
become
inadequate
in
future
periods
because
of
changes
in
conditions,
or
because
the
degree
of
compliance
with
the
policies
or
procedures
may
deteriorate.

Management
assessed
the
effectiveness
of
the
Company’s
internal
control
over
financial
reporting
as
of
December
31,
2019.
In
making
this
assessment,
the
criteria
set
forth
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
in
Internal
Control – Integrated
Framework
(2013)
was
utilized.
Based
on
this
assessment,
management
believes
that,
as
of
December
31,
2019,
the
Company’s
internal
control
over
financial
reporting
is
effective
at
the
reasonable
assurance
level.

The
Annual
Report
on
Form
10-K
does
not
include
an
attestation
report
on
the
Company’s
internal
control
over

financial
reporting
from
the
Company’s
independent
registered
public
accounting
firm
due
to
the
transition
period
established
by
the
Securities
and
Exchange
Commission
for
an
Emerging
Growth
Company.

ITEM 9B.   OTHER INFORMATION

Not
applicable.

53


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TABLE OF CONTENTS​

PART III

ITEM 10. 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The
information
in
the
Company’s
definitive
Proxy
Statement
for
the
2020
Annual
Meeting
of
Stockholders

under
the
captions
“Proposal
1 — Election
of
Directors,”
“Information
About
Executive
Officers,”
“Delinquent
Section
16(a)
Reports,”
“Corporate
Governance — Code
of
Ethics
for
Senior
Officers,”
“Nominating
and
Corporate
Governance
Committee
Procedures — Procedures
to
be
Followed
by
Stockholders,”
“Corporate
Governance — 
Committees
of
the
Board
of
Directors”
and
“—
Audit
Committee”
is
incorporated
herein
by
reference.

A
copy
of
the
Code
of
Ethics
is
available
to
shareholders
on
the
“Corporate
Governance”
portion
of
the

Investor
Relations’
section
on
the
Company’s
website
at
www.theproividentbank.com.

ITEM 11. 

EXECUTIVE COMPENSATION

The
information
in
the
Company’s
definitive
Proxy
Statement
for
the
2020
Annual
Meeting
of
Stockholders

under
the
caption
“Executive
Compensation,”
“Director
Compensation,”
and
“Corporate
Governance — 
Committees
of
the
Board
of
Directors — Compensation
Committee”
is
incorporated
herein
by
reference.

ITEM 12. 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDERS MATTERS

The
information
in
the
Company’s
definitive
Proxy
Statement
for
the
2020
Annual
Meeting
of
Stockholders

under
the
caption
“Stock
Ownership”
is
incorporated
herein
by
reference.

Equity Compensation Plan Information

Information
with
respect
to
equity
plan
information
is
included
in
Item
5
of
this
Annual
Report.

ITEM 13. 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The
information
in
the
Company’s
definitive
Proxy
Statement
for
the
2020
Annual
Meeting
of
Stockholders

under
the
captions
“Transactions
with
Certain
Related
Persons”
and
“Proposal
1 — Election
of
Directors”
is
incorporated
herein
by
reference.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

The
information
in
the
Company’s
definitive
Proxy
Statement
for
the
2020
Annual
Meeting
of
Stockholders
under
the
captions
“Proposal
2 — Ratification
of
Independent
Registered
Public
Accounting
Firm — Audit
Fees”
and
“—
Pre-Approval
of
Services
by
the
Independent
Registered
Public
Accounting
Firm”
is
incorporated
herein
by
reference.

54


​
​
​
​






TABLE OF CONTENTS​

PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)


Financial
Statements

The
following
documents
are
filed
as
part
of
this
Form
10-K.

(i)


Report
of
Independent
Registered
Public
Accounting
Firm

(ii)


Consolidated
Balance
Sheets

(iii)


Consolidated
Statements
of
Income

(iv)


Consolidated
Statements
of
Comprehensive
Income

(v)


Consolidated
Statements
of
Changes
in
Shareholders’
Equity

(vi)


Consolidated
Statements
of
Cash
Flows

(vii)


Notes
to
Consolidated
Financial
Statements

(a)(2)


Financial
Statement
Schedules

None.

(a)(3)


Exhibits

3.1

3.2

4

4.1

4.2

10.1

10.2

10.3

10.4

Articles
of
Organization
of
Provident
Bancorp,
Inc.
(incorporated
by
reference
to
Exhibit
3.1
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-232018),
initially
filed
with
the
Securities
and
Exchange
Commission
on
June
7,
2019)

Bylaws
of
Provident
Bancorp,
Inc.
(incorporated
by
reference
to
Exhibit
3.2
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-232018),
initially
filed
with
the
Securities
and
Exchange
Commission
on
June
7,
2019)

Form
of
Common
Stock
Certificate
of
Provident
Bancorp,
Inc.
(incorporated
by
reference
to
Exhibit
4.1
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-232018),
initially
filed
with
the
Securities
and
Exchange
Commission
on
June
7,
2019)

Form
of
Common
Stock
Certificate
of
Provident
Bancorp,
Inc.
(incorporated
by
reference
to
Exhibit
4.1
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

Description
of
registrant’s
securities

Employment
Agreement
with
David
P.
Mansfield
†
(incorporated
by
reference
to
Exhibit
10.2
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

Employment
Agreement
with
Charles
F.
Withee
†
(incorporated
by
reference
to
Exhibit
10.3
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

Employment
Agreement
with
Carol
L.
Houle
†
(incorporated
by
reference
to
Exhibit
10.4
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

Amended
and
Restated
Supplemental
Executive
Retirement
Agreement
with
David
P.
Mansfield
†
(incorporated
by
reference
to
Exhibit
10.5
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

55








TABLE OF CONTENTS

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

21

23

31.1

Amended
and
Restated
Supplemental
Executive
Retirement
Agreement
with
Charles
F.
Withee
†
(incorporated
by
reference
to
Exhibit
10.6
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

Supplemental
Executive
Retirement
Agreement
with
Carol
L.
Houle
†
(incorporated
by
reference
to
Exhibit
10.7
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

The
Provident
Bank
Executive
Annual
Incentive
Plan
†
(incorporated
by
reference
to
Exhibit
10.8
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

The
Provident
Bank
2005
Amended
and
Restated
Long-Term
Incentive
Plan
†
(incorporated
by
reference
to
Exhibit
10.9
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-202716),
initially
filed
with
the
Securities
and
Exchange
Commission
on
March
13,
2015)

Provident
Bancorp,
Inc.
2016
Equity
Incentive
Plan†
(Incorporated
by
reference
to
Appendix
A
to
the
definitive
proxy
statement
for
the
Special
Meeting
of
Shareholders
of
Provident
Bancorp,
Inc.
(File
No.
001-37504),
filed
by
the
Company
under
the
Exchange
Act
on
August
9,
2016)

Form
of
Incentive
Stock
Option
Award
Agreement†(Incorporated
by
reference
to
Exhibit
10.2
to
the
Registration
Statement
on
Form
S-8
(File
No.
333-214702),
filed
with
the
Securities
and
Exchange
Commission
on
November
18,
2016)

Form
of
Non-Statutory
Incentive
Stock
Option
Award
Agreement†
(Incorporated
by
reference
to
Exhibit
10.3
to
the
Registration
Statement
on
Form
S-8
(File
No.
333-214702),
filed
with
the
Securities
and
Exchange
Commission
on
November
18,
2016)

Form
of
Restricted
Stock
Award
Agreement†
(Incorporated
by
reference
to
Exhibit
10.4
to
the
Registration
Statement
on
Form
S-8
(File
No.
333-214702),
filed
with
the
Securities
and
Exchange
Commission
on
November
18,
2016)

First
Amendment
to
Employment
Agreement
with
David
P.
Mansfield†
(Incorporated
by
reference
to
Exhibit
10.1
to
the
Current
Report
on
Form
8-K
of
Provident
Bancorp,
Inc.
(File
No.
001-37504),
filed
by
the
Company
under
the
Exchange
Act
on
December
26,
2018)

First
Amendment
to
Employment
Agreement
with
Charles
F.
Withee†
(Incorporated
by
reference
to
Exhibit
10.2
to
the
Current
Report
on
Form
8-K
of
Provident
Bancorp,
Inc.
(File
No.
001-37504),
filed
by
the
Company
under
the
Exchange
Act
on
December
26,
2018)

First
Amendment
to
Employment
Agreement
with
Carol
L.
Houle†
(Incorporated
by
reference
to
Exhibit
10.2
to
the
Current
Report
on
Form
8-K
of
Provident
Bancorp,
Inc.
(File
No.
001-37504),
filed
by
the
Company
under
the
Exchange
Act
on
December
26,
2018)

Subsidiaries
of
the
Registrant
(incorporated
by
reference
to
Exhibit
21
to
the
Registration
Statement
on
Form
S-1
of
Provident
Bancorp,
Inc.
(file
no.
333-232018),
initially
filed
with
the
Securities
and
Exchange
Commission
on
June
7,
2019)

Consent
of
Independent
Registered
Public
Accounting
Firm

Certification
of
Chief
Executive
Officer
pursuant
to
Rule
13a-14(a)
of
the
Securities
Exchange
Act
of
1934,
as
amended,
as
adopted
pursuant
to
Section
302
of
the
Sarbanes-Oxley
Act
of
2002

56








TABLE OF CONTENTS​

31.2

Certification
of
Chief
Financial
Officer
pursuant
to
Rule
13a-14(a)
of
the
Securities
Exchange
Act
of
1934,
as
amended,
as
adopted
pursuant
to
Section
302
of
the
Sarbanes-Oxley
Act
of
2002

32

101

Certification
of
Chief
Executive
Officer
and
Chief
Financial
Officer
pursuant
to
18
U.S.C.
Section
1350,
as
adopted
pursuant
to
Section
906
of
the
Sarbanes-Oxley
Act
of
2002

The
following
financial
statements
from
Provident
Bancorp,
Inc.’s
Annual
Report
on
Form
10-K
for
the
year
ended
December
31,
2019,
filed
on
March
13,
2020,
formatted
in
XBRL:
(i)
Consolidated
Balance
Sheets,
(ii)
Consolidated
Statements
of
Income,
(iii)
Consolidated
Statements
of
Comprehensive
Income,
(iv)
Consolidated
Statements
of
Changes
in
Shareholders’
Equity,
(v)
Consolidated
Statements
of
Cash
Flows,
and
(vi)
the
Notes
to
Consolidated
Financial
Statements.

†


Compensatory
arrangements.

ITEM 16.   FORM 10-K SUMMARY

None.

57








TABLE OF CONTENTS

Pursuant
to
the
requirements
of
Section
13
or
15(d)
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.

SIGNATURES

Date:
March
12,
2020

By:

/s/
David
P.
Mansfield

PROVIDENT BANCORP, INC.

David
P.
Mansfield

President
and
Chief
Executive
Officer

Pursuant
to
the
requirements
of
the
Securities
Exchange
Act
of
1934,
this
report
has
been
signed
below
by
the

following
persons
on
behalf
of
the
Registrant
and
in
the
capacities
and
on
the
dates
indicated.

Signatures

Title

Date

/s/
David
P.
Mansfield

David
P.
Mansfield

/s/
Carol
L.
Houle

Carol
L.
Houle

/s/
Frank
G.
Cousins,
Jr.

Frank
G.
Cousins,
Jr.

/s/
James
A.
DeLeo

James
A.
DeLeo

/s/
Lisa
B.
DeStefano

Lisa
B.
DeStefano

/s/
Jay
E.
Gould

Jay
E.
Gould

/s/
Laurie
H.
Knapp

Laurie
H.
Knapp

/s/
Richard
L.
Peeke

Richard
L.
Peeke

/s/
Barbara
A.
Piette

Barbara
A.
Piette

/s/
Joseph
B.
Reilly

Joseph
B.
Reilly

/s/
Arthur
W.
Sullivan

Arthur
W.
Sullivan

/s/
Charles
F.
Withee

Charles
F.
Withee

President
and
Chief
Executive
Officer
(Principal
Executive
Officer)

March
12,
2020

Executive
Vice
President
and
Chief
Financial
Officer
(Principal
Financial
and
Accounting
Officer)

Director

Director

Director

Director

Director

Director

Director

Director

Director

Director

58


March
12,
2020

March
12,
2020

March
12,
2020

March
12,
2020

March
12,
2020

March
12,
2020

March
12,
2020

March
12,
2020

March
12,
2020

March
12,
2020

March
12,
2020




​
​
​



TABLE OF CONTENTS​

PROVIDENT BANCORP, INC. AND SUBSIDIARY

TABLE OF CONTENTS

​Report
of
Independent
Registered
Public
Accounting
Firm
​Consolidated
Balance
Sheets
​Consolidated
Statements
of
Income
​Consolidated
Statements
of
Comprehensive
Income
​Consolidated
Statements
of
Changes
in
Shareholders’
Equity
​Consolidated
Statements
of
Cash
Flows
​Notes
to
Consolidated
Financial
Statements

​ F-1​
​ F-2​
​ F-3​
​ F-4​
​ F-5​
​ F-7​
​ F-8​

F-i





​
​
​
​
​
​
​



TABLE OF CONTENTS​

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
The
Board
of
Directors
and
Shareholders

Provident
Bancorp,
Inc.
and
Subsidiary

Opinion on the Financial Statements

We
have
audited
the
accompanying
consolidated
balance
sheets
of
Provident
Bancorp,
Inc.
and
subsidiary
(the
“Company”)
as
of
December
31,
2019
and
2018,
and
the
related
consolidated
statements
of
income,
comprehensive
income,
changes
in
shareholders’
equity,
and
cash
flows
for
each
of
the
years
in
the
two-year
period
ended
December
31,
2019,
and
the
related
notes
(collectively
referred
to
as
the
financial
statements).
In
our
opinion,
the
financial
statements
present
fairly,
in
all
material
respects,
the
financial
position
of
the
Company
as
of
December
31,
2019
and
2018,
and
the
results
of
their
operations
and
their
cash
flows
for
each
of
the
years
in
the
two-year
period
ended
December
31,
2019,
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
of
America.

Basis for Opinion

These
financial
statements
are
the
responsibility
of
the
Company’s
management.
Our
responsibility
is
to

express
an
opinion
on
the
Company’s
financial
statements
based
on
our
audits.
We
are
a
public
accounting
firm
registered
with
the
Public
Company
Accounting
Oversight
Board
(United
States)
(PCAOB)
and
are
required
to
be
independent
with
respect
to
the
Company
in
accordance
with
the
U.S.
federal
securities
laws
and
the
applicable
rules
and
regulations
of
the
Securities
and
Exchange
Commission
and
the
PCAOB.

We
conducted
our
audits
in
accordance
with
the
standards
of
the
PCAOB.
Those
standards
require
that
we
plan

and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
the
financial
statements
are
free
of
material
misstatement,
whether
due
to
error
or
fraud.
The
Company
is
not
required
to
have,
nor
were
we
engaged
to
perform,
an
audit
of
its
internal
control
over
financial
reporting.
As
part
of
our
audits,
we
are
required
to
obtain
an
understanding
of
internal
control
over
financial
reporting,
but
not
for
the
purpose
of
expressing
an
opinion
on
the
effectiveness
of
the
Company’s
internal
control
over
financial
reporting.
Accordingly,
we
express
no
such
opinion.

Our
audits
included
performing
procedures
to
assess
the
risks
of
material
misstatement
of
the
financial
statements,
whether
due
to
error
or
fraud,
and
performing
procedures
that
respond
to
those
risks.
Such
procedures
included
examining,
on
a
test
basis,
evidence
regarding
the
amounts
and
disclosures
in
the
financial
statements.
Our
audits
also
included
evaluating
the
accounting
principles
used
and
significant
estimates
made
by
management,
as
well
as
evaluating
the
overall
presentation
of
the
financial
statements.
We
believe
that
our
audits
provide
a
reasonable
basis
for
our
opinion.

/s/
Whittlesey
PC

We
have
served
as
the
Company’s
auditor
since
2013.

Hartford,
Connecticut

March
13,
2020

F-1








TABLE OF CONTENTS​

PROVIDENT BANCORP, INC. AND SUBSIDIARY 
CONSOLIDATED BALANCE SHEETS 
December 31, 2019 and 2018

(In thousands)
Assets
Cash
and
due
from
banks
Short-term
investments

Cash
and
cash
equivalents

Investments
in
available-for-sale
securities
(at
fair
value)
Federal
Home
Loan
Bank
stock,
at
cost
Loans,
net
Bank
owned
life
insurance
Premises
and
equipment,
net
Other
real
estate
owned
Accrued
interest
receivable
Deferred
tax
asset,
net
Other
assets

Total assets

Liabilities and Shareholders’ Equity
Liabilities

Deposits:

Noninterest-bearing
Interest-bearing

Total
deposits

Borrowings
Operating
lease
liabilities
Other
liabilities

Total
liabilities

Shareholders’
equity

2019

2018

​$

11,990​
47,668​
59,658​
41,790​
1,416​
959,286​
26,925​
18,441​
—​
2,854​
7,242​
4,176​
​$1,121,788​

​$ 10,941​
17,672​
28,613​
51,403​
2,650​
​ 835,528​
26,226​
16,086​
1,676​
2,638​
6,437​
2,822​
​$974,079​

​$ 222,088​
627,817​
849,905​
24,998​
3,877​
12,075​
890,855​

​$195,293​
​ 572,803​
​ 768,096​
68,022​
—​
12,377​
​ 848,495​

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


and
outstanding

—​

—​

Common
stock,
2019:
$0.01
par
value:
100,000,000
shares
authorized;
19,473,818

shares
issued
and
outstanding;
2018:
no
par
value,
100,000,000
shares
authorized,
19,529,200
shares
issued,
19,455,503
shares

outstanding

(1)

Additional
paid
in
capital
Retained
earnings
Accumulated
other
comprehensive
income
(loss)
Unearned
compensation – ESOP
Treasury
stock:
0
and
73,697
shares
at
December
31,
2019
and
2018,
respectively

(1)

Total
shareholders’
equity

Total liabilities and shareholders’ equity

195​
146,174​
94,159​
458​
(10,053​
—​

)

—​
45,895​
83,351​
(255​
(2,619​
(788​

)
)
)

230,933​
​$1,121,788​

​ 125,584​
​$974,079​

(1)


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

The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.


F-2





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TABLE OF CONTENTS​

PROVIDENT BANCORP, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF INCOME 
For the Years Ended December 31, 2019 and 2018

(In thousands)
Interest and dividend income:
Interest
and
fees
on
loans
Interest
and
dividends
on
securities
Interest
on
short-term
investments

Total
interest
and
dividend
income

Interest expense:

Interest
on
deposits
Interest
on
borrowings

Total
interest
expense

Net interest and dividend income
Provision for loan losses

Net interest and dividend income after provision for loan losses

Noninterest income:

Customer
service
fees
on
deposit
accounts
Service
charges
and
fees – other
Gain
on
sales
of
securities,
net
Bank
owned
life
insurance
Other
income

Total
noninterest
income

Noninterest expense:

Salaries
and
employee
benefits
Occupancy
expense
Equipment
expense
Data
processing
Marketing
expense
Professional
fees
Directors’
compensation
Software
amortization
and
implementation
Other

Total
noninterest
expense

Income before income tax expense
Income tax expense

Net income

(1)

Earnings per share:
Basic
Diluted

Weighted Average Shares:

(1)

Basic
Diluted

2019

2018

49,693​
1,549​
296​
51,538​

6,258​
1,890​
8,148​
43,390​
5,326​
38,064​

1,452​
1,783​
113​
699​
64​
4,111​

18,243​
1,968​
444​
738​
385​
1,210​
741​
734​
3,093​
27,556​
14,619​
3,811​
10,808​

0.60​
0.60​

​$

​$

​$
​$

40,358​
1,669​
313​
42,340​

4,468​
745​
5,213​
37,127​
3,329​
33,798​

1,435​
1,993​
—​
686​
64​
4,178​

16,801​
1,733​
471​
810​
245​
1,223​
620​
645​
2,866​
25,414​
12,562​
3,237​
9,325​

0.50​
0.50​

​$

​$

​$
​$

​ 17,958,186​
​ 18,066,968​

​ 18,676,062​
​ 18,809,926​

(1)


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

The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.


F-3





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TABLE OF CONTENTS​

PROVIDENT BANCORP, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
For the Years Ended December 31, 2019 and 2018

(In thousands)

Net income

Other
comprehensive
income
(loss):

Unrealized
holding
gains
(losses)
on
available-for-sale
securities
Reclassification
adjustment
for
realized
gains
in
net
income

Unrealized
gains
(losses)
Income
tax
effect

Other
comprehensive
income
(loss),
net
of
tax

Total comprehensive income

2019
​$10,808​

2018
​$ 9,325​

)

)

1,070​
(113​
957​
(244​
713​
​$11,521​

)

)

)

​ (1,120​
—​
​ (1,120​
276​
(844​
​$ 8,481​

The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.


F-4





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TABLE OF CONTENTS​

PROVIDENT BANCORP, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY 
For the Years Ended December 31, 2019 and 2018

Shares of 
Common 
(1)
Stock

​ 19,461,116​
—​
—​

Common 
Stock ​
​ $ — ​
​ — ​
​ — ​

Additional 
Paid-in 
Capital

​$ 44,592 ​
— ​
— ​

Retained 
Earnings ​
​$74,047​
9,325​
—​

Accumulated 
Other 
Comprehensive 
Income (Loss) ​
​ $ 589
​ — ​
(844

)

Unearned 
Compensation 
ESOP

)
​ $ (2,857 ​
— ​
— ​

Treasury 
Stock ​
)
​ $ (594 ​
— ​
— ​

Total

​$115,777​
9,325​
(844​

)

—​

—​

​ — ​

​ — ​

(21​

)

​ — ​

— ​

— ​

—​

​ — ​

928 ​

9,827​

​ — ​

2,041​

​ — ​

)

(17,481​
—​
​ 19,455,503​
—​

​ — ​
​ — ​
​ — ​
​ — ​

— ​
375 ​
45,895 ​
— ​

—​
—​
​ 83,351​
​ 10,808​

— ​

— ​

— ​

— ​
238 ​
)
(2,619 ​
— ​

— ​

— ​

— ​

— ​

— ​

21 ​

)
(215 ​
— ​
)
(788 ​
— ​

— ​

— ​

— ​

928​

—​

—​

)

(215​
613​
​ 125,584​
10,808​

713​

999​

—​

​ — ​
​ — ​
(255
​ — ​

)

713

​ — ​

​ — ​

—​

​ — ​

— ​

—​

​ — ​

999 ​

5,907​

​ — ​

— ​

(In thousands, except share data)

Balance, December 31, 2017

Net
income
Other
comprehensive
loss
Stock-based
compensation

expense

Restricted
stock
award


grants

Exercise
of
stock
options,


net

Treasury
stock
acquired
ESOP
shares
earned

Balance, December 31, 2018

Net
income
Other
comprehensive


income

Stock-based
compensation

expense

Restricted
stock
award


grants

Corporate
reorganization:

Conversion
of
Provident

Bancorp

(788,152​

)

195 ​

91,383 ​

Purchase
by
ESOP
Treasury
stock
retired
Contribution
from

Provident
Bancorp

816,992​
—​

​ — ​
​ — ​

8,170 ​
)
(788 ​

—​

​ — ​

372 ​

​ — ​

​ — ​
​ — ​

— ​

)
(8,170 ​
— ​

— ​

— ​
788 ​

91,578​

—​
—​

​ — ​

— ​

— ​

372​

Shares
surrendered
related
to

tax
withholdings
on
restricted
stock
awards

ESOP
shares
earned

Balance, December 31, 2019

)

(16,432​
—​
​ 19,473,818​

​ — ​
​ — ​
​ $ 195 ​

)
(193 ​
336 ​
​$146,174 ​

—​
—​
​$94,159​

​ — ​
​ — ​
​ $ 458

— ​
736 ​
)
​ $ (10,053 ​

— ​
— ​
​ $ — ​

)

(193​
1,072​
​$230,933​

(1)


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

The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.


F-5


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—​
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TABLE OF CONTENTS​

PROVIDENT BANCORP, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
For the Years Ended December 31, 2019 and 2018

(In thousands)

Cash flows from operating activities:

2019

2018

Net
income
Adjustments
to
reconcile
net
income
to
net
cash
provided
by
operating
activities:

​$ 10,808​

​$

9,325​

Amortization
of
securities
premiums,
net
of
accretion

ESOP
expense

Gain
on
sale
of
securities,
net

Change
in
deferred
loan
fees,
net

Provision
for
loan
losses

Depreciation
and
amortization

(Gain)
loss
on
disposal
of
premises
and
equipment

Increase
in
accrued
interest
receivable

Deferred
tax
benefit

Share-based
compensation
expense

Increase
in
cash
surrender
value
of
life
insurance

Expense
recovery
from
sale
of
other
real
estate
owned

Principal
repayments
of
operating
lease
liabilities

(Increase)
decrease
in
other
assets

(Decrease)
increase
in
other
liabilities

Net
cash
provided
by
operating
activities

Cash flows from investing activities:

Purchases
of
available-for-sale
securities

Proceeds
from
sales
of
available-for-sale
securities
Proceeds
from
pay
downs,
maturities
and
calls
of
available-for-sale


securities

Redemption
(purchase)
of
Federal
Home
Loan
Bank
Stock

Loan
originations
and
purchases,
net
of
paydowns

Additions
to
premises
and
equipment

Additions
to
assets
held-for-sale

Additions
to
other
real
estate
owned

Proceeds
from
sale
of
equipment

Proceeds
from
sales
of
other
real
estate
owned

Cash
received
from
Provident
Bancorp

Net
cash
used
in
investing
activities

218​
1,072​
(113​
989​
5,326​
1,391​
(9​
(216​
(1,049​
999​
(699​
(138​
(61​
(810​
(200​
17,508​

)

)

)

)

)

)

)

)

)

)

(13,729​
13,565​

10,629​
1,234​
​ (124,358​
(6,245​
—​
(64​
85​
1,878​
372​
​ (116,633​

)

)

)

)

274​
613​
—​
378​
3,329​
914​
6​
(293​
(1,241​
928​
(686​
—​
—​
420​
2,787​
16,754​

)

)

)

—​
—​

8,632​
(796​
​ (100,073​
(2,399​
(147​
(52​
—​
—​
—​
(94,835​

)

)

)

)

)

)

The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.


F-6





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TABLE OF CONTENTS

PROVIDENT BANCORP, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) 
For the Years Ended December 31, 2019 and 2018

(In thousands)

Cash flows from financing activities:

Net
increase
in
demand
deposits,
NOW
and
savings
accounts
Net
decrease
in
time
deposits
Proceeds
from
advances
from
the
Federal
Home
Loan
Bank
Net
change
in
short-term
borrowings
Payments
made
on
Federal
Home
Loan
Bank
long-term
advances
Proceeds
from
sale
of
common
stock,
net
Shares
surrendered
related
to
tax
withholdings
on
restricted
stock
awards

Purchase
of
treasury
stock

Net
cash
provided
by
financing
activities

Net
increase
(decrease)
in
cash
and
cash
equivalents

Cash
and
cash
equivalents
at
beginning
of
year

Cash and cash equivalents at end of year

Supplemental disclosures:

Interest
paid

Income
taxes
paid

Recognition
of
right-of-use
assets
in
premises
and
equipment

(1)

Recognition
of
operating
lease
liabilities

(1)

Reclassification
of
accrued
rent
from
other
liabilities
to
premises
and


equipment

(1)

Loan
originated
from
sale
of
premises
and
equipment

Loans
transferred
to
other
assets

Loan
transferred
to
other
real
estate
owned

Assets
held-for-sale
transferred
to
premises
and
equipment

(1)


Adoption
of
ASU
2016-02,
Leases
(Note
13)

2019

2018

84,787
(2,978
—
(38,024
(5,000
91,578
(193

)

)
)

)

—

)

22,841
(4,802
10,000
31,181
—
—
—

(215

)

130,170

59,005

31,045

28,613

(19,076

)

47,689

$ 59,658

$ 28,613

$

8,148

$ 5,326

5,008

3,836

3,938

102

6,455

740

—

—

3,638

—

—

—

—

1,352

1,624

3,433

The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.


F-7





TABLE OF CONTENTS​

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — NATURE OF OPERATIONS

Provident
Bancorp,
Inc.
(the
“Company”)
is
a
Maryland
corporation
that
was
incorporated
in
June
2019
to
be

the
successor
corporation
to
Provident
Bancorp,
Inc.
(“Old
Provident”),
a
Massachusetts
corporation,
upon
completion
of
the
second-step
mutual-to-stock
conversion
(the
“Conversion”)
of
Provident
Bancorp
(the
“MHC”),
the
top
tier
mutual
holding
company
of
Old
Provident.
Old
Provident
was
the
former
mid-tier
holding
company
for
The
Provident
Bank
(the
“Bank”).
Prior
to
completion
of
the
Conversion,
approximately
52%
of
the
shares
of
common
stock
of
Old
Provident
were
owned
by
the
MHC.
In
conjunction
with
the
Conversion,
the
MHC
was
merged
into
the
Company
(and
ceased
to
exist)
and
the
Company
became
its
successor
under
the
name
Provident
Bancorp,
Inc.
The
Conversion
was
completed
October
16,
2019.
The
Company
raised
gross
proceeds
of 
$102.1
million
by
selling
a
total
of
10,212,397
shares
of
common
stock
at
$10.00
per
share
in
the
second-step
stock
offering.
The
Company
utilized
$8.2
million
of
the
proceeds
to
fund
an
addition
to
its
Employee
Stock
Ownership
Plan
(“ESOP”)
loan
for
the
acquisition
of
an
additional
816,992
shares
at
$10.00
per
share.
Expenses
incurred
related
to
the
offering
were
$2.4
million,
and
have
been
recorded
against
offering
proceeds.
The
Company
invested
$45.8
million
of
the
net
proceeds
it
received
from
the
sale
into
the
Bank’s
operations
and
has
retained
the
remaining
amount
for
general
corporate
purposes.
Concurrent
with
the
completion
of
the
stock
offering,
each
share
of
Old
Provident
common
stock
owned
by
public
stockholders
(stockholders
other
than
the
MHC)
was
exchanged
for
2.0212
shares
of
Company
common
stock.
A
total
of
19,484,343
shares
of
common
stock
were
outstanding
following
the
completion
of
the
stock
offering.

The
Company
is
headquartered
in
Amesbury,
Massachusetts.
The
Bank
operates
its
business
from
seven
banking
offices
located
in
Amesbury
and
Newburyport,
Massachusetts
and
Portsmouth,
Exeter,
Bedford,
and
Seabrook,
New
Hampshire.
The
Bank
provides
a
variety
of
financial
services
to
individuals
and
small
businesses.
Its
primary
deposit
products
are
checking,
savings
and
term
certificate
accounts
and
its
primary
lending
products
are
commercial
mortgages
and
commercial
loans.

NOTE 2 — ACCOUNTING POLICIES

The
accounting
and
reporting
policies
of
the
Company
conform
to
accounting
principles
generally
accepted
in

the
United
States
of
America
(“GAAP”)
and
predominant
practices
within
the
banking
industry.
The
consolidated
financial
statements
were
prepared
using
the
accrual
basis
of
accounting.

Use
of
Estimates

The
preparation
of
financial
statements
in
conformity
with
GAAP
requires
management
to
make
estimates
and

assumptions
that
affect
the
reported
amounts
of
assets
and
liabilities
and
disclosure
of
contingent
assets
and
liabilities
at
the
date
of
the
financial
statements
and
the
reported
amounts
of
revenues
and
expenses
during
the
reporting
period.
Actual
results
could
differ
from
those
estimates.

Material
estimates
that
are
particularly
susceptible
to
significant
change
in
the
near-term
relate
to
the
determination
of
the
allowance
for
loan
losses,
stock-based
compensation
expense
and
deferred
income
taxes.

Basis
of
Presentation

The
consolidated
financial
statements
include
the
accounts
of
Provident
Bancorp,
Inc.,
its
wholly
owned
subsidiary,
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.
All
material
intercompany
balances
and
transactions
have
been
eliminated
in
consolidation.

F-8








TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant
Concentrations
of
Credit
Risk

The
primary
lending
area
for
the
Company
encompasses
a
broad
market
that
includes
Northeastern

Massachusetts
and
Southern
New
Hampshire,
with
a
focus
on
Essex
County,
Massachusetts,
and
Hillsborough
and
Rockingham
Counties,
New
Hampshire,
which
are
part
of,
and
bedroom
communities
to,
the
technology
corridor
between
Boston,
Massachusetts
and
Concord,
New
Hampshire.
In
2018,
the
Bank
started
offering
its
enterprise
value
loan
product
nationally.
In
2020,
the
Bank
acquired
a
warehouse
lending
business
located
in
Ponte
Vedra,
Florida.
The
primary
deposit-gathering
area
is
currently
concentrated
in
Essex
County,
Massachusetts,
and
Rockingham
County
and
Hillsborough
County,
New
Hampshire.
The
Company
believes
that
it
does
not
have
any
significant
loan
concentrations
or
investment
securities
in
any
one
industry
or
with
any
customer.

Reclassification

Certain
amounts
in
the
prior
year
have
been
reclassified
to
be
consistent
with
the
current
year’s
consolidated

financial
statement
presentation,
and
the
reclassifications
had
no
effect
on
the
net
income
reported
in
the
consolidated
income
statement.

Cash
and
Cash
Equivalents

For
purposes
of
reporting
cash
flows,
cash
and
cash
equivalents
include
cash,
amounts
due
from
banks,
and

short-term
investments
comprised
of
interest-bearing
demand
deposits
with
other
banks
and
federal
funds
sold.

Investment
Securities

Investments
in
debt
securities
are
adjusted
for
amortization
of
premiums
and
accretion
of
discounts
so
as
to

approximate
the
interest
method.
Gains
or
losses
on
sales
of
investment
securities
are
computed
on
a
specific
identification
basis
and
are
recorded
as
of
the
trade
date.

Debt
securities
may
be
classified
into
one
of
three
categories:
held-to-maturity,
available-for-sale
or
trading.

These
security
classifications
may
be
modified
after
acquisition
only
under
certain
specified
conditions.
In
general,
securities
may
be
classified
as
held-to-maturity
only
if
the
Company
has
the
positive
intent
and
ability
to
hold
them
to
maturity.
Trading
securities
are
defined
as
those
bought
and
held
principally
for
the
purpose
of
selling
them
in
the
near
term.
All
other
securities
must
be
classified
as
available-for-sale.

•


•


Held-to-maturity
securities,
if
any,
are
measured
at
amortized
cost
in
the
consolidated
balance
sheets.
Unrealized
holding
gains
and
losses
are
not
included
in
earnings
or
as
a
separate
component
of
shareholders’
equity.

Available-for-sale
securities
are
carried
at
fair
value
on
the
consolidated
balance
sheets.
Unrealized
holding
gains
and
losses
are
not
included
in
earnings,
but
are
reported
as
a
net
amount
(less
expected
tax)
as
a
separate
component
of
shareholders’
equity
until
realized.

•


Trading
securities,
if
any,
are
carried
at
fair
value
on
the
consolidated
balance
sheets.
Unrealized
holding
gains
and
losses
for
trading
securities
are
included
in
earnings.

The
Company
evaluates
securities
within
the
Company’s
available
for
sale
portfolio
for
other-than-temporary
impairment
(“OTTI”)
at
least
quarterly.
If
the
fair
value
of
a
debt
security
is
below
the
amortized
cost
basis
of
the
security,
OTTI
is
required
to
be
recognized
if
any
of
the
following
are
met:
(1)
the
Company
intends
to
sell
the
security;
(2)
it
is
“more
likely
than
not”
that
the
Company
will
be
required
to
sell
the
security
before
recovery
of
its
amortized
cost
basis;
or
(3)
the
present
value
of
expected
cash
flows
is
not
sufficient
to
recover
the
entire
amortized
cost
basis.
For
all
impaired
debt
securities
that
the
Company
intends
to
sell,
or
more
likely
than
not
will
be
required
to
sell,
the
full
amount
of
the
depreciation
is
recognized
as
OTTI
through
earnings.
Credit-related
OTTI
for
all
other
impaired
debt
securities
is
recognized
through
earnings.
Non-credit
related
OTTI
for
such
debt
securities
is
recognized
in
other
comprehensive
income,
net
of
applicable
taxes.

F-9








TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Federal
Home
Loan
Bank
Stock

As
a
member
of
the
Federal
Home
Loan
Bank
of
Boston
(the
“FHLB”),
the
Company
is
required
to
invest
in

$100
par
value
stock
of
the
FHLB.
The
FHLB
capital
structure
mandates
that
members
own
stock
as
determined
by
their
Total
Stock
Investment
Requirement
which
is
the
sum
of
a
member’s
Membership
Stock
Investment
Requirement
and
Activity-Based
Stock
Investment
Requirement.
FHLB
stock
is
a
non-marketable
equity
security
that
is
carried
at
cost
and
evaluated
for
impairment
when
deemed
necessary.

Loans

Loan
receivables
that
management
has
the
intent
and
ability
to
hold
until
maturity
or
payoff
are
reported
at

their
outstanding
principal
balances
adjusted
for
amounts
due
to
borrowers
on
unadvanced
loans,
any
charge-offs,
the
allowance
for
loan
losses
and
any
deferred
fees
or
costs
on
originated
loans,
or
unamortized
premiums
or
discounts
on
purchased
loans.

Interest
income
is
accrued
on
the
unpaid
principal
balance.

Loan
origination
and
commitment
fees
and
certain
direct
origination
costs
are
deferred,
and
the
net
amount
is
recognized
as
an
adjustment
of
the
related
loan
yield
using
the
interest
method.
The
Company
is
amortizing
these
amounts
over
the
contractual
life
of
the
related
loans.

Residential
real
estate
loans
are
generally
placed
on
non-accrual
status
when
reaching
90
days
past
due
or
in
process
of
collection.
Past
due
status
is
based
on
the
contractual
terms
of
the
loan.
All
closed-end
consumer
loans
90
days
or
more
past
due
and
any
equity
line
in
the
process
of
foreclosure
are
placed
on
non-accrual
status.
Secured
consumer
loans
are
written
down
to
realizable
value
and
unsecured
consumer
loans
are
charged-off
upon
reaching
120
or
180
days
past
due
depending
on
the
type
of
loan.
Commercial
real
estate
loans
and
commercial
business
loans
and
leases
which
are
90
days
or
more
past
due
are
generally
placed
on
non-accrual
status,
unless
secured
by
sufficient
cash
or
other
assets
immediately
convertible
to
cash.
When
a
loan
has
been
placed
on
non-accrual
status,
previously
accrued
and
uncollected
interest
is
reversed
against
interest
on
loans.
A
loan
can
be
returned
to
accrual
status
when
collectability
of
principal
is
reasonably
assured
and
the
loan
has
performed
for
a
period
of
time,
generally
six
months.
Interest
income
received
on
non-accrual
loans
is
accounted
for
on
the
cash
basis
or
cost-
recovery
method,
until
qualifying
for
return
to
accrual.

Cash
receipts
of
interest
income
on
impaired
loans
are
credited
to
principal
to
the
extent
necessary
to
eliminate

doubt
as
to
the
collectability
of
the
net
carrying
amount
of
the
loan.
Some
or
all
of
the
cash
receipts
of
interest
income
on
impaired
loans
is
recognized
as
interest
income
if
the
remaining
net
carrying
amount
of
the
loan
is
deemed
to
be
fully
collectible.
When
recognition
of
interest
income
on
an
impaired
loan
on
a
cash
basis
is
appropriate,
the
amount
of
income
that
is
recognized
is
limited
to
that
which
would
have
been
accrued
on
the
net
carrying
amount
of
the
loan
at
the
contractual
interest
rate.
Any
cash
interest
payments
received
in
excess
of
the
limit
and
not
applied
to
reduce
the
net
carrying
amount
of
the
loan
are
recorded
as
recoveries
of
charge-offs
until
the
charge-offs
are
fully
recovered.

Allowance
for
Loan
Losses

The
allowance
for
loan
losses
is
established
as
losses
are
estimated
to
have
occurred
through
a
provision
for

loan
losses
charged
to
earnings.
Loan
losses
are
charged
against
the
allowance
when
management
believes
the
uncollectibality
of
a
loan
balance
is
confirmed.
Subsequent
recoveries,
if
any,
are
credited
to
the
allowance.

The
allowance
for
loan
losses
is
evaluated
on
a
regular
basis
by
management
and
is
based
upon
management’s

periodic
review
of
the
collectability
of
the
loans
in
light
of
historical
experience,
the
size
and
composition
of
the
loan
portfolio,
adverse
situations
that
may
affect
the
borrower’s
ability
to
repay,
estimated
value
of
any
underlying
collateral
and
prevailing
economic
conditions.
This
evaluation
is
inherently
subjective
as
it
requires
estimates
that
are
susceptible
to
significant
revision
as
more
information
becomes
available.
The
allowance
for
loan
losses
is
allocated
to
loan
types
using
both
a
formula-based
approach
(general
component)
and
an
analysis
of
certain
individual
loans
for
impairment
(allocated
component).

F-10








TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A
loan
is
considered
impaired
when,
based
on
current
information
and
events,
it
is
probable
that
the
Company
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
determining
impairment
include
payment
status,
collateral
value,
and
the
probability
of
collecting
scheduled
principal
and
interest
payments
when
due.
Loans
that
experience
insignificant
payment
delays
and
payment
shortfalls
generally
are
not
classified
as
impaired.
Management
determines
the
significance
of
payment
delays
and
payment
shortfalls
on
a
case-by-case
basis,
taking
into
consideration
all
of
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.
Impairment
is
measured
on
a
loan-by-loan
basis
for
commercial,
commercial
real
estate
and
construction
loans
by
either
the
present
value
of
expected
future
cash
flows
discounted
at
the
loan’s
effective
interest
rate,
the
loan’s
obtainable
market
price,
or
the
fair
value
of
the
collateral
if
the
loan
is
collateral
dependent.

Large
groups
of
smaller
balance
homogeneous
loans
are
collectively
evaluated
for
impairment.
Accordingly,

the
Company
does
not
separately
identify
individual
consumer
and
residential
loans
for
impairment
disclosures.

The
general
component
of
the
allowance
for
loan
losses
is
based
on
historical
loss
experience
adjusted
for

qualitative
factors
stratified
by
the
following
loan
segments:
residential
real
estate,
commercial
real
estate,
construction
and
land
development,
commercial
and
consumer.
Management
uses
a
rolling
average
of
historical
losses
based
on
a
time
frame
appropriate
to
capture
relevant
loss
data
for
each
loan
segment.
These
historical
loss
factors
are
adjusted
for
the
following
qualitative
factors:
levels/trends
in
delinquencies;
trends
in
volume
and
terms
of
loans;
effects
of
changes
in
risk
selection
and
underwriting
standards
and
other
changes
in
lending
policies,
procedures
and
practices;
experience/ability/depth
of
lending
management
and
staff;
and
national
and
local
economic
trends
and
conditions.

The
qualitative
factors
are
determined
based
on
the
various
risk
characteristics
of
each
loan
segment.
Risk

characteristics
relevant
to
each
portfolio
segment
are
as
follows:

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
resulting
in
increased
vacancy
rates,
which
in
turn,
will
have
an
effect
on
the
credit
quality
in
this
segment.
Management
periodically
obtains
rent
rolls
and
continually
monitors
the
cash
flows
and
collateral
value
of
these
loans.

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,
will
have
an
effect
on
the
credit
quality
in
this
segment.

Residential
real
estate:


The
Company
generally
does
not
originate
loans
with
a
loan-to-value
ratio
greater
than
80%
and
does
not
grant
subprime
loans.
Loans
with
loan
to
value
ratios
greater
than
80%
require
the
purchase
of
private
mortgage
insurance.
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
and
value
of
collateral.
The
overall
health
of
the
economy,
including
unemployment
rates
and
housing
prices,
will
have
an
effect
on
the
credit
quality
in
this
segment.

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
and
construction
to
permanent
loans
for
which
payment
is
derived
from
cash
flows
of
the
property.
Credit
risk
is
affected
by
cost
overruns,
time
to
sell
at
an
adequate
price,
and
market
conditions.

Consumer:


Loans
in
this
segment
are
generally
unsecured
and
repayment
is
dependent
on
the
credit
quality
of

the
individual
borrower.

The
allocated
component
relates
to
loans
that
are
classified
as
impaired.
Impairment
is
measured
on
a
loan-by-

loan
basis
for
commercial,
commercial
real
estate
and
construction
loans
by
either
the
present
value
of
expected
future
cash
flows
discounted
at
the
loan’s
effective
interest
rate
or
the
fair
value
of
the
collateral,

F-11








TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

less
estimated
selling
costs,
if
the
loan
is
collateral
dependent.
An
allowance
is
established
when
the
discounted
cash
flows
(or
collateral
value)
of
the
impaired
loan
is
lower
than
the
carrying
value
of
that
loan.

The
Company
from
time
to
time,
may
agree
to
modify
the
contractual
terms
of
loans.
When
a
loan
is
modified
and
a
concession
is
made
to
a
borrower
experiencing
financial
difficulty,
the
modified
loan
is
considered
a
troubled
debt
restructuring
(“TDR”).
All
TDRs
are
initially
classified
as
impaired.

An
unallocated
component
can
be
maintained
to
cover
uncertainties
that
could
affect
management’s
estimate
of

probable
losses.
The
unallocated
component
of
the
allowance
reflects
the
margin
of
imprecision
inherent
in
the
underlying
assumptions
used
in
the
methodologies
for
estimating
allocated
and
general
reserves
in
the
portfolio.

Bank-Owned
Life
Insurance

Bank-owned
life
insurance
policies
are
reflected
on
the
consolidated
balance
sheets
at
cash
surrender
value.
Changes
in
the
net
cash
surrender
value
of
the
policies,
as
well
as
insurance
proceeds
received,
are
reflected
in
non-
interest
income
on
the
consolidated
statements
of
income
and
are
not
subject
to
income
taxes.

Premises
and
Equipment

Premises
and
equipment
are
stated
at
cost,
less
accumulated
depreciation
and
amortization.
Cost
and
related

allowances
for
depreciation
and
amortization
of
premises
and
equipment
retired
or
otherwise
disposed
of
are
removed
from
the
respective
accounts
with
any
gain
or
loss
included
in
income
or
expense.
Generally,
depreciation
on
the
buildings
and
equipment
is
calculated
principally
on
the
straight
line
method,
and
depreciation
and
amortization
expense
is
charged
against
operations
over
the
estimated
useful
lives
of
the
related
assets.

Other
Real
Estate
Owned
and
Repossessed
Assets

Assets
acquired
through,
or
in
lieu
of,
loan
foreclosure
or
repossession
are
held
for
sale
and
are
initially
recorded
at
the
lower
of
the
investment
in
the
loan
or
fair
value
less
estimated
costs
to
sell
at
the
date
of
foreclosure
or
repossession,
establishing
a
new
cost
basis.
Subsequently,
valuations
are
periodically
performed
by
management
and
the
assets
are
carried
at
the
lower
of
carrying
amount
or
fair
value
less
estimated
costs
to
sell.
Revenue
and
expenses
from
operations,
changes
in
the
valuation
allowance,
any
direct
write-downs
and
gains
or
losses
on
sales
are
included
in
other
real
estate
owned
expense.

Leases

The
Company
determines
if
an
arrangement
is
a
lease
at
inception.
Lease
right-of-use
(ROU)
assets
represent

the
Company’s
right
to
use
an
underlying
asset
for
the
lease
term
and
operating
lease
liabilities
represent
the
Company’s
obligation
to
make
lease
payments
arising
from
the
lease.
Lease
ROU
assets
and
lease
liabilities
are
recognized
at
commencement
date
based
on
the
present
value
of
lease
payments
over
the
lease
term.
As
the
Company’s
leases
do
not
provide
an
implicit
rate,
the
Company
uses
its
incremental
borrowing
rate
based
on
the
information
available
at
commencement
date
in
determining
the
present
value
of
lease
payments.
The
lease
ROU
asset
also
includes
any
lease
payments
made
and
excludes
lease
incentives.
The
lease
terms
may
include
options
to
extend
or
terminate
the
lease
when
it
is
reasonably
certain
that
the
Company
will
exercise
that
option.
Lease
expense
for
lease
payments
is
recognized
on
a
straight-line
basis
over
the
lease
term.
The
Company
has
lease
agreements
with
lease
and
non-lease
components,
which
are
generally
accounted
for
separately.

F-12








TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising

The
Company
directly
expenses
costs
associated
with
advertising
as
they
are
incurred.

Earnings
per
Share

Basic
earnings
per
share
represents
income
available
to
common
stockholders
divided
by
the
weighted-average
number
of
common
shares
outstanding
during
the
period.
Unallocated
ESOP
shares
are
not
deemed
outstanding
for
earnings
per
share
calculations.
Diluted
earnings
per
share
reflects
additional
common
shares
that
would
have
been
outstanding
if
dilutive
potential
common
shares
had
been
issued,
as
well
as
any
adjustment
to
income
that
would
result
from
the
assumed
issuance.

Employee
Stock
Ownership
Plan

Compensation
expense
for
The
Provident
Bank
Employee
Stock
Ownership
Plan
(the
“ESOP”)
is
recorded
at

an
amount
equal
to
the
shares
allocated
by
the
ESOP
multiplied
by
the
average
fair
value
of
the
shares
during
the
period.
The
Company
recognizes
compensation
expense
ratably
over
the
year
based
upon
the
Company’s
estimate
of
the
number
of
shares
expected
to
be
allocated
by
the
ESOP.
Unearned
compensation
applicable
to
the
ESOP
is
reflected
as
a
reduction
of
shareholders’
equity
on
the
consolidated
balance
sheets.
The
difference
between
the
average
fair
value
and
the
cost
of
the
shares
by
the
ESOP
is
recorded
as
an
adjustment
to
additional
paid-in-capital.

Stock-based
Compensation
Plans

The
Company
measures
and
recognizes
compensation
cost
relating
to
stock-based
payment
transactions
based

on
the
grant-date
fair
value
of
the
equity
instruments
issued.
Stock-based
compensation
is
recognized
over
the
period
the
employee
is
required
to
provide
services
for
the
award.
The
Company
uses
the
Black-Scholes
option-
pricing
model
to
determine
the
fair
value
of
stock
options
granted.
The
fair
value
of
restricted
stock
is
recorded
based
on
the
grant
date
value
of
the
equity
instrument
issued.

Treasury
Stock

Old
Provident
repurchased
common
stock
was
recorded
as
treasury
stock
at
cost.

Income
Taxes

The
Company
recognizes
income
taxes
under
the
asset
and
liability
method.
Under
this
method,
deferred
tax

assets
and
liabilities
are
established
for
the
temporary
differences
between
the
accounting
basis
and
the
tax
basis
of
the
Company’s
assets
and
liabilities
at
enacted
tax
rates
expected
to
be
in
effect
when
the
amounts
related
to
such
temporary
differences
are
realized
or
settled.
A
tax
valuation
allowance
is
established,
as
needed,
to
reduce
net
deferred
tax
assets
to
the
amount
expected
to
be
realized.

The
Company
examines
its
significant
income
tax
positions
annually
to
determine
whether
a
tax
benefit
is

more
likely
than
not
to
be
sustained
upon
examination
by
tax
authorities.

Fair
Values
of
Financial
Instruments

GAAP
requires
that
the
Company
disclose
estimated
fair
values
for
its
financial
instruments.
Fair
value

methods
and
assumptions
used
by
the
Company
in
estimating
its
fair
value
disclosures
are
as
follows:

Cash
and
cash
equivalents:


The
carrying
amounts
of
cash
and
cash
equivalents
approximate
fair
values.

Investments:


Fair
values
for
investments
are
based
on
quoted
market
prices,
where
available.
If
quoted
market
prices
are
not
available,
fair
values
are
based
on
quoted
market
prices
of
comparable
instruments
or
pricing
models.
See
Note
15
for
further
details.

Loans
receivable:


For
variable-rate
loans
that
reprice
frequently
and
with
no
significant
change
in
credit
risk,

fair
values
are
based
on
carrying
values.
The
fair
values
for
other
loans
are
estimated
using

F-13








TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

discounted
cash
flow
analyses,
using
interest
rates
currently
being
offered
for
loans
with
similar
terms
to
borrowers
of
similar
credit
quality.

Accrued
interest
receivable:


The
carrying
amount
of
accrued
interest
receivable
approximates
its
fair
value.

Deposit
liabilities:


The
fair
values
disclosed
for
deposits
(e.g.,
interest
and
non-interest
checking,
passbook
savings,
and
money
market
accounts)
are,
by
definition,
equal
to
the
amount
payable
on
demand
at
the
reporting
date
(i.e.,
their
carrying
amounts).
Fair
values
for
fixed-rate
certificates
of
deposit
are
estimated
using
a
discounted
cash
flow
calculation
that
applies
interest
rates
currently
being
offered
on
certificates
to
a
schedule
of
aggregated
expected
monthly
maturities
on
time
deposits.

Borrowings:


Fair
values
of
Federal
Reserve
Bank
(“FRB”)
Discount
Window
and
Federal
Home
Loan
Bank

advances
are
estimated
using
discounted
cash
flow
analyses
based
on
the
Company’s
current
incremental
borrowing
rates
for
similar
types
of
borrowing
arrangements.

Off-balance
sheet
instruments:


The
fair
value
of
commitments
to
originate
loans
is
estimated
using
the
fees
currently
charged
to
enter
similar
agreements,
taking
into
account
the
remaining
terms
of
the
agreements
and
the
present
creditworthiness
of
the
counterparties.
For
fixed-rate
loan
commitments
and
the
unadvanced
portions
of
loans,
fair
value
also
considers
the
difference
between
current
levels
of
interest
rates
and
the
committed
rates.
The
fair
value
of
letters
of
credit
is
based
on
fees
currently
charged
for
similar
agreements
or
on
the
estimated
cost
to
terminate
them
or
otherwise
settle
the
obligation
with
the
counterparties
at
the
reporting
date.

Recent
Accounting
Pronouncements

ASU
2016-02,
Leases
(Topic
842).


The
amendments
in
this
update
require
lessees
to
recognize,
on
the
balance
sheet,
assets
and
liabilities
for
the
rights
and
obligations
created
by
leases.
Accounting
by
lessors
will
remain
largely
unchanged.
The
guidance
was
effective
for
the
Company
on
January
1,
2019.
In
July
2018,
the
FASB
issued
2018-
11,
which
allows
a
modified
retrospective
transition
where
the
lessees
and
lessors
are
required
to
recognize
and
measure
leases
at
the
beginning
of
the
earliest
period
presented
or
as
a
cumulative
effect
adjustment
as
of
the
date
of
adoption.
The
Company
adopted
ASU
2016-02
on
January
1,
2019
as
a
cumulative
effect
adjustment
as
of
that
date.
The
Company’s
assets
and
liabilities
increased
by
$3.8
million
at
the
adoption
date
(see
Note
13).

ASU
No.
2016-13,
Financial
Instruments — Credit
Losses
(Topic
326):


“Measurement
of
Credit
Losses
on

Financial
Instruments.”
The
ASU
changes
the
impairment
model
for
most
financial
assets
and
certain
other
instruments.
For
trade
and
other
receivables,
held-to-maturity
debt
securities,
loans
and
other
instruments,
entities
will
be
required
to
use
a
new
forward-looking
“expected
loss”
model
that
will
replace
today’s
“incurred
loss”
model
and
can
result
in
the
earlier
recognition
of
credit
losses.
For
available-for-sale
debt
securities
with
unrealized
losses,
entities
will
measure
credit
losses
in
a
manner
similar
to
current
practice,
except
that
the
losses
will
be
recognized
as
an
allowance.
On
October
16,
2019,
the
FASB
approved
a
delay
on
the
implementation
until
January
2023
for
smaller
reporting
companies
as
defined
by
the
SEC.
The
amendments
in
this
update
will
be
effective
for
the
Company
on
January
1,
2023.
Early
adoption
is
permitted
as
of
the
fiscal
years
beginning
after
December
15,
2018,
including
interim
periods
within
those
fiscal
years.
Management
is
currently
evaluating
the
impact
of
its
pending
adoption
of
this
guidance
on
the
Company’s
financial
statements.

ASU
No.
2017-08,
Receivables — Nonrefundable
Fees
and
Other
Costs
(subtopic
310-20):


“Premium
Amortization
on
Purchased
Callable
Debt
Securities.”
This
ASU
shortens
the
amortization
period
for
certain
callable
debt
securities
held
at
a
premium.
Specifically,
the
amendments
require
the
premium
to
be
amortized
to
the
earliest
call
date.
The
amendments
do
not
require
an
accounting
change
for
securities
held
at
a
discount;
the
discount
continues
to
be
amortized
to
maturity.
The
amendments
were
effective
for
the
Company
on
January
1,
2019.
The
Company
adopted
this
guidance
on
January
1,
2019
and
there
was
no
impact
on
the
Company’s
financial
statements.

F-14








TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASU
No.
2018-13,
Fair
Value
Measurement
(Topic
820):


“Disclosure
Framework — Changes
to
the

Disclosure
Requirements
for
Fair
Value
Measurement.”
This
ASU
eliminates,
adds
and
modifies
certain
disclosure
requirements
for
fair
value
measurements.
Among
the
changes,
entities
will
no
longer
be
required
to
disclose
the
amount
of
and
reasons
for
transfers
between
Level
1
and
Level
2
of
the
fair
value
hierarchy,
but
will
be
required
to
disclose
the
range
and
weighted
average
used
to
develop
significant
unobservable
inputs
for
Level
3
fair
value
measurements.
This
ASU
will
be
effective
for
the
Company
on
January
1,
2020.
As
the
guidance
only
revises
disclosure
requirements,
the
adoption
of
this
guidance
is
not
expected
to
have
a
material
impact
on
the
Company’s
financial
statements.

NOTE 3 — INVESTMENTS SECURITIES AVAILABLE-FOR-SALE

The
following
summarizes
the
amortized
cost
of
investment
securities
classified
as
available-for-sale
and
their

approximate
fair
values
at
December
31,
2019
and
2018:

(In thousands)

December 31, 2019
State
and
municipal
Asset-backed
securities
Government
mortgage-backed
securities

Total
available-for-sale
securities

December 31, 2018
State
and
municipal
Asset-backed
securities
Government
mortgage-backed
securities

Total
available-for-sale
securities

Amortized 
Cost Basis ​

Gross 
Unrealized 
Gains

Gross 
Unrealized 
Losses

Fair 
Value ​

​ $ 10,808 ​
5,433 ​
24,954 ​
​ $ 41,195 ​

​ $ 20,118 ​
6,512 ​
25,135 ​
​ $ 51,765 ​

​ $ 398
71
197
​ $ 666

​ $ — ​
4
67
​ $ 71

​$11,206​
5,500​
​ 25,084​
​$41,790​

​ $ 272
​ — ​
138

​ $ 410

​ $ 135
141
496

​ $ 772

​$20,255​
6,371​
​ 24,777​
​$51,403​

The
scheduled
maturities
of
debt
securities
were
as
follows
at
December
31,
2019.
Actual
maturities
of
mortgage-backed
securities
may
differ
from
contractual
maturities
because
the
mortgages
underlying
the
securities
may
be
repaid
without
any
penalties.
Because
mortgage-backed
securities
are
not
due
at
a
single
maturity
date,
they
are
not
included
in
the
maturity
categories
in
the
following
maturity
summary.

(In thousands)

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

Available-for-Sale

Amortized 
Cost
$ 1,211 ​
912 ​
8,685 ​
24,954 ​
5,433 ​
$ 41,195 ​

Fair 
Value ​
​$ 1,218​
917​
9,071​
​ 25,084​
5,500​
​$41,790​

During
the
year
ended
December
31,
2019,
gross
realized
gains
on
sales
and
calls
were
$216,000,
and
gross

realized
losses
were
$103,000.
There
were
no
realized
gains
or
losses
on
sales
and
calls
during
the
year
ended
December
31,
2018.

There
were
no
securities
of
issuers
whose
aggregate
carrying
amount
exceeded
10%
of
equity
at
December
31,

2019.

Securities
with
carrying
amounts
of 
$30.6
million
and
$31.1
million
were
pledged
to
secure
available
borrowings
with
the
Federal
Reserve
Bank
and
Federal
Home
Loan
Bank
at
December
31,
2019
and
2018,
respectively.

F-15





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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
more,
and
are
temporarily
impaired,
are
as
follows
at
December
31,
2019
and
2018:

(In thousands)

December 31, 2019
Temporarily
impaired
securities:

Less than 12 Months

12 Months or Longer

Total

Fair 
Value

Unrealized 
Losses

Fair 
Value

Unrealized 
Losses

Fair 
Value

Unrealized 
Losses

Asset-backed
securities
Government
mortgage-backed
securities

Total
temporarily
impaired
securities

​$

606​
5,207​
​$ 5,813​

​ $

4
8
​ $ 12

​$ —​
5,418​
​$ 5,418​

​ $ — ​$
59
​ $ 59

606​
​ 10,625​
​$11,231​

​ $

4 ​
67 ​
​ $ 71 ​

December 31, 2018
Temporarily
impaired
securities:

State
and
municipal

Asset-backed
securities

Government
mortgage-backed
securities

Total
temporarily
impaired
securities

​$ 6,137​
3,833​
2,864​
​$12,834​

​ $ 115
98

32

​ $ 245

​$

597​
2,538​
​ 14,152​
​$17,287​

​ $ 20
43

464

​ $ 527

​$ 6,734​
6,371​
​ 17,016​
​$30,121​

​ $ 135 ​
141 ​
496 ​
​ $ 772 ​

Because
the
decline
in
fair
value
of
the
debt
securities
is
primarily
attributable
to
changes
in
market
interest

rates
and
not
credit
quality,
and
because
the
Company
has
the
intent
and
ability
to
hold
these
investments
until
market
price
recovery
or
maturity,
these
investments
are
not
considered
other-than-temporarily
impaired.

NOTE 4 — LOANS

Loans
consisted
of
the
following
at
December
31,
2019
and
2018:

(In thousands)

Commercial
real
estate
Commercial
Residential
real
estate
Construction
and
land
development
Consumer

Allowance
for
loan
losses
Deferred
loan
fees,
net

Net
loans

2019
​$418,356​
​ 451,791​
45,695​
46,763​
12,737​
​ 975,342​
(13,844​
(2,212​
​$959,286​

)
)

2018
​$364,867​
​ 361,782​
57,361​
44,606​
19,815​
​ 848,431​
(11,680​
(1,223​
​$835,528​

)
)

F-16





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The
following
tables
set
forth
information
regarding
the
allowance
for
loans
and
impaired
loans
by
portfolio

segment
as
of
and
for
the
years
ended
December
31,
2019
and
2018:

(In thousands)

December 31, 2019
Allowance
for
loan
losses:
Beginning
balance
Charge-offs
Recoveries
Provision
(credit)

Ending
balance

Ending
balance:

Individually
evaluated
for


impairment

Ending
balance:

Collectively
evaluated
for


impairment

Total
allowance
for
loan
losses

ending
balance

Loans:
Ending
balance:

Individually
evaluated
for


impairment

Ending
balance:

Collectively
evaluated
for


impairment

Commercial 
Real Estate Commercial

Residential 
Real Estate

Construction 
and Land 

Development Consumer Unallocated

Total

$

$

4,152 ​ $
— ​
— ​
1,952 ​
6,104 ​ $

5,742 ​
)
(1,950 ​
35 ​
2,259 ​
6,086 ​

$

$

251 ​
— ​
7 ​
)
(4 ​
254 ​

​ $

​$

738
— ​
— ​
11

)

710
(1,355
101
1,194

​$ 87
​ — ​
​ — ​
)

(86

​ $

749

​$

650

​$ 1

)

​$ 11,680​
(3,305​
143​
5,326​
​$ 13,844​

$

1,508 ​ $

174 ​

$

— ​

​ $

— ​$

— ​$ — ​$

1,682​

4,596 ​

5,912 ​

254 ​

749

650

1

12,162​

$

6,104 ​ $

6,086 ​

$

254 ​

​ $

749

​$

650

​$ 1

​$ 13,844​

$

20,990 ​ $

3,326 ​

$

182 ​

​ $

165

​$

— ​

​$ 24,663​

​ 950,679​

​$975,342​

397,366 ​

448,465 ​

45,513 ​

46,598

​ 12,737

Total
loans
ending
balance

$ 418,356 ​ $ 451,791 ​

$ 45,695 ​

​ $ 46,763

​$ 12,737

F-17





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commercial 
Real Estate Commercial

Residential 
Real Estate

Construction 
and Land 

Development Consumer Unallocated

Total

$

$

$

4,483 ​ $
)
(670 ​
— ​
339 ​
4,152 ​ $

3,280 ​
)
(190 ​
87 ​
2,565 ​
5,742 ​

$

$

300 ​
— ​
2 ​
)
(51 ​
251 ​

​ $

​$

965
— ​
— ​
)

(227

)

649
(699
64
696

​$80
​ — ​
​ — ​
7

​ $

738

​$

710

​$87

)

​$

9,757​
(1,559​
153​
3,329​
​$ 11,680​

62 ​ $

1,039 ​

$

— ​

​ $

— ​$

—

​$— ​

​$

1,101​

4,090 ​

4,703 ​

251 ​

738

710

​ 87

10,579​

$

4,152 ​ $

5,742 ​

$

251 ​

​ $

738

​$

710

​$87

​$ 11,680​

$

1,853 ​ $

5,291 ​

$

388 ​

​ $

— ​$

—

​$

7,532​

(In thousands)

December 31, 2018
Allowance
for
loan
losses:
Beginning
balance
Charge-offs
Recoveries
Provision
(credit)

Ending
balance

Ending
balance:

Individually
evaluated
for

impairment

Ending
balance:

Collectively
evaluated
for

impairment

Total
allowance
for
loan
losses

ending
balance

Loans:
Ending
balance:

Individually
evaluated
for

impairment

Ending
balance:

Collectively
evaluated
for

impairment

Total
loans
ending
balance

$ 364,867 ​ $ 361,782 ​

$ 57,361 ​

​ $ 44,606

​$ 19,815

363,014 ​

356,491 ​

56,973 ​

44,606

​ 19,815

​ 840,899​

​$848,431​

At
December
31,
2019
and
2018,
loans
with
an
aggregate
principal
balance
of 
$450.6
million
and
$393.8

million,
respectively,
were
pledged
to
secure
possible
borrowings
from
the
Federal
Reserve
Bank.

F-18





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The
following
tables
set
forth
information
regarding
past-due
and
non-accrual
loans
by
portfolio
segment
at

December
31,
2019
and
2018:

(In thousands)

December 31, 2019
Commercial
real
estate
Commercial
Residential
real
estate
Construction
and
land

development

Consumer

Total

December 31, 2018
Commercial
real
estate
Commercial
Residential
real
estate
Construction
and
land

development

Consumer

Total

30 – 59 
Days

60 – 89 
Days

90 Days 
or More 
Past Due

Total 
Past Due

Total 
Current

Total 
Loans

90 Days 
or More 
Past Due 
and Accruing

Nonaccrual 
Loans

​$ 473​
529​
715​

​$18,256​ $ 1,368 ​
484 ​
832 ​

85​
154​

​$20,097​
1,098​
1,701​

​$398,259​
​ 450,693​
43,994​

​$418,356​
​ 451,791​
45,695​

​ —​
111​
​$1,828​

—​
58​

165 ​
38 ​
​$18,553​ $ 2,887 ​

165​
207​
​$23,268​

46,598​
12,530​
​$952,074​

46,763​
12,737​
​$975,342​

​$ 742​
40​
321​

​$ —​ $ 519 ​
3,167 ​
30 ​

—​
223​

​$ 1,261​
3,207​
574​

​$363,606​
​ 358,575​
56,787​

​$364,867​
​ 361,782​
57,361​

​ —​

62​
​$1,165​

—​

— ​

—​

44,606​

44,606​

46​
59 ​
269​ $ 3,775 ​

167​
​$ 5,209​

19,648​
​$843,222​

19,815​
​$848,431​

​$

​$ — ​
​ — ​
​ — ​

​ — ​
​ — ​
​$ — ​

​$ — ​
​ — ​
​ — ​

​ — ​

​ — ​
​$ — ​

$ 1,701 ​
2,955 ​
969 ​

165 ​
37 ​
$ 5,827 ​

$

519 ​
4,830 ​
850 ​

— ​

62 ​
$ 6,261 ​

Information
about
the
Company’s
impaired
loans
by
portfolio
segment
was
as
follows
at
December
31,
2019

and
2018:

(In thousands)

December 31, 2019
With
no
related
allowance
recorded:
Commercial
real
estate
Commercial
Residential
real
estate
Construction
and
land
development
Consumer

Total
impaired
with
no
related
allowance

With
an
allowance
recorded:
Commercial
real
estate
Commercial

Residential
real
estate

Construction
and
land
development

Consumer

Total
impaired
with
an
allowance
recorded

Recorded 
Investment ​

Unpaid 
Principal 
Balance ​

Related 
Allowance ​

Average 
Recorded 
Investment ​

Interest 
Income 
Recognized​

​$ 2,082 ​
1,745 ​
182 ​
165 ​
— ​
​$ 4,174 ​

​ $ — ​
— ​
— ​
— ​
— ​
​ $ — ​

​ $ 2,144 ​
2,323 ​
303 ​
273 ​
— ​
​ $ 5,043 ​

​$18,921 ​
2,085 ​
— ​
— ​
— ​
​$21,006 ​

​ $ 1,508 ​
174 ​
— ​
— ​
— ​
​ $ 1,682 ​

​ $ 18,921 ​
2,972 ​
— ​
— ​
— ​
​ $ 21,893 ​

​$ 59
26
16
​ — ​
​ — ​
​$ 101

​$ — ​
​ — ​
​ — ​
​ — ​
​ — ​
​$ — ​

​ $ 2,070 ​
1,348 ​
182 ​
165 ​
— ​
​ $ 3,765 ​

​ $ 18,920 ​
1,978 ​
— ​
— ​
— ​
​ $ 20,898 ​

F-19





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands)

Total
Commercial
real
estate
Commercial
Residential
real
estate
Construction
and
land
development
Consumer

Total
impaired
loans

(In thousands)

December 31, 2018
With
no
related
allowance
recorded:
Commercial
real
estate
Commercial
Residential
real
estate
Construction
and
land
development
Consumer

Total
impaired
with
no
related
allowance

With
an
allowance
recorded:
Commercial
real
estate
Commercial

Residential
real
estate

Construction
and
land
development

Consumer

Total
impaired
with
an
allowance
recorded

Total

Commercial
real
estate

Commercial

Residential
real
estate

Construction
and
land
development

Consumer

Total
impaired
loans

Recorded 
Investment ​

Unpaid 
Principal 
Balance ​

Related 
Allowance

Average 
Recorded 
Investment

Interest 
Income 
Recognized​

​ $ 20,990 ​
3,326 ​
182 ​
165 ​
— ​
​ $ 24,663 ​

​$21,003 ​
3,830 ​
182 ​
165 ​
— ​
​$25,180 ​

​ $ 1,508 ​
174 ​
— ​
— ​
— ​
​ $ 1,682 ​

$ 21,065 ​
5,295 ​
303 ​
273 ​
— ​
$ 26,936 ​

​$ 59
26
16
​ — ​
​ — ​
​$ 101

Recorded 
Investment ​

Unpaid 
Principal 
Balance ​

Related 
Allowance ​

Average 
Recorded 
Investment ​

Interest 
Income 
Recognized​

​ $ 1,334 ​
4,050 ​
388 ​
— ​
— ​
​ $ 5,772 ​

​ $ 1,334 ​
4,110 ​
388 ​
— ​
— ​
​ $ 5,832 ​

​ $ — ​
— ​
— ​
— ​
— ​
​ $ — ​

​ $ 5,614 ​
4,894 ​
396 ​
— ​
— ​
​ $ 10,904 ​

​ $

519 ​
1,241 ​
— ​
— ​
— ​
​ $ 1,760 ​

​ $

519 ​
1,267 ​
— ​
— ​
— ​
​ $ 1,786 ​

​ $

62 ​
1,039 ​
— ​
— ​
— ​
​ $ 1,101 ​

​ $

519 ​
1,695 ​
— ​
— ​
— ​
​ $ 2,214 ​

​ $ 1,853 ​
5,291 ​
388 ​
— ​
— ​
​ $ 7,532 ​

​ $ 1,853 ​
5,377 ​
388 ​
— ​
— ​
​ $ 7,618 ​

​ $

62 ​
1,039 ​
— ​
— ​
— ​
​ $ 1,101 ​

​ $ 6,133 ​
6,589 ​
396 ​
— ​
— ​
​ $ 13,118 ​

​$ 69
38
20
​ — ​
​ — ​
​$ 127

​$ — ​
52
​ — ​
​ — ​
​ — ​
​$ 52

​$ 69
90

20
​ — ​
​ — ​
​$ 179

F-20





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The
following
summarizes
troubled
debt
restructurings
entered
into
during
the
year
ended
December
31,
2019:

(Dollars in thousands)

Year-Ended December 31, 2019
Troubled
debt
restructurings:

Commercial

Pre-Modification 
Outstanding 
Recorded 
Investment

Post-Modification 
Outstanding 
Recorded 
Investment

Number of 
Contracts ​

2

2

$ 2,640

$ 2,640

$ 2,640

$ 2,640

In
2019,
we
approved
two
troubled
debt
restructures
totaling
$2.6
million.
Both
commercial
loans
were
placed

on
an
extended
12-month
interest-only
period
with
re-amortization
to
follow.
An
impairment
analysis
was
performed
and
a
specific
reserve
of 
$130,000
was
allocated
to
one
of
the
relationships.

The
loans
modified
as
troubled
debt
restructuring
during
2019
did
not
default
during
the
period
after

modification.

There
were
no
troubled
debt
restructurings
entered
into
during
the
year
ended
December
31,
2018.

At
December
31,
2019
and
2018,
there
were
no
commitments
to
lend
additional
funds
to
borrowers
whose

loans
were
modified
in
troubled
debt
restructurings.

Credit
Quality
Information

The
Company
utilizes
a
seven
grade
internal
loan
rating
system
for
commercial
real
estate,
construction
and

land
development,
and
commercial
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,
and
commercial
loans.

For
residential
real
estate
and
consumer
loans,
the
Company
initially
assesses
credit
quality
based
upon
the

borrower’s
ability
to
pay
and
rates
such
loans
as
pass.
Subsequent
risk
rating
downgrades
are
based
upon
the
borrower’s
payment
activity.
All
other
residential
and
consumer
loans
are
not
formally
rated.

F-21





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The
following
tables
present
the
Company’s
loans
by
risk
rating
and
portfolio
segment
at
December
31,
2019

and
2018:

(In thousands)

December 31, 2019
Grade:
Pass
Special
mention
Substandard
Not
formally
rated

Total

December 31, 2018
Grade:

Pass

Special
mention

Substandard

Doubtful

Not
formally
rated

Total

Commercial 
Real Estate ​

​ Commercial ​

Residential 
Real Estate ​

Construction 
and Land 
Development ​

​ Consumer ​

Total

​ $ 396,217 ​
1,936 ​
20,203 ​
— ​
​ $ 418,356 ​

​ $ 433,076 ​
14,044 ​
4,671 ​
— ​
​ $ 451,791 ​

​ $

— ​
— ​
1,379 ​
44,316 ​
​ $ 45,695 ​

​ $ 46,598 ​
— ​
165 ​
— ​
​ $ 46,763 ​

​$

— ​
— ​
— ​
​ 12,737 ​
​$ 12,737 ​

​$875,891​
15,980​
26,418​
57,053​
​$975,342​

​ $ 356,415 ​
6,531 ​
1,921 ​
— ​
— ​
​ $ 364,867 ​

​ $ 339,079 ​
11,339 ​
10,447 ​
917 ​
— ​
​ $ 361,782 ​

​ $

— ​
— ​
571 ​
— ​
56,790 ​
​ $ 57,361 ​

​ $ 44,606 ​
— ​
— ​
— ​
— ​
​ $ 44,606 ​

​$

— ​
— ​
— ​
— ​
​ 19,815 ​
​$ 19,815 ​

​$740,100​
17,870​
12,939​
917​
76,605​
​$848,431​

Loans
serviced
for
others
are
not
included
in
the
accompanying
consolidated
balance
sheets.
The
unpaid

principal
balances
of
mortgage
and
other
loans
serviced
for
others
were
$16.0
million
and
$18.8
million
at
December
31,
2019
and
2018,
respectively.

Certain
directors
and
executive
officers
of
the
Company
and
companies
in
which
they
have
significant
ownership
interests
were
customers
of
the
Bank
during
2019.
The
following
is
a
summary
of
the
loans
to
such
persons
and
their
companies
at
December
31,
2019
and
2018:

(In thousands)

Balance beginning January 1, 2018

Effect
of
changes
in
composition
of
related
parties
Advances
Principal
payments

Ending balance, December 31, 2018

Balance beginning January 1, 2019

Advances
Principal
payments

Ending balance, December 31, 2019

F-22


​$ 22,273​
(339​
11​
(9,988​
​$ 11,957​

)

)

​$ 11,957​
5,303​
​ (13,555​
​$ 3,705​

)




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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 — PREMISES AND EQUIPMENT

The
following
is
a
summary
of
premises
and
equipment
at
December
31,
2019
and
2018:

(In thousands)

Land
Buildings
and
leasehold
improvements
Furniture
and
equipment
Leasehold
improvements
Lease
right-of-use
assets
Construction
in
progress

Accumulated
depreciation
and
amortization

Premises
and
equipment,
net

2019
​$ 2,424​
​ 13,401​
4,854​
3,526​
3,713​
29​
​ 27,947​
(9,506​
​$18,441​

)

2018
​$ 2,424​
9,241​
4,520​
4,234​
—​
5,748​
​ 26,167​
​ (10,081​
​$ 16,086​

)

Depreciation
and
amortization
expense
was
$1.2
million
and
$721,000
for
the
years
ended
December
31,
2019

and
2018,
respectively.

NOTE 6 — DEPOSITS

The
following
is
a
summary
of
deposit
balances
by
type
at
December
31,
2019
and
2018:

(In thousands)

NOW
and
demand
Regular
savings
Money
market
deposits

Total
non-certificate
accounts

Certificate
accounts
of 
$250,000
or
more
Certificate
accounts
less
than
$250,000

Total
certificate
accounts

Total
deposits

2019
​$369,423​
​ 115,593​
​ 270,471​
​ 755,487​

15,575​
78,843​
94,418​
​$849,905​

2018
​$332,064​
​ 109,322​
​ 229,314​
​ 670,700​

14,164​
83,232​
97,396​
​$768,096​

At
December
31,
2019
and
2018,
the
aggregate
amount
of
brokered
certificates
of
deposit
was
$48.6
million
and
$55.8
million
respectively.
Brokered
certificates
of
deposit
are
not
included
in
the
totals
for
time
deposits
in
denominations
over
$250,000
listed
above.

At
December
31,
2019,
the
scheduled
maturities
for
certificate
accounts
for
each
of
the
following
five
years
are

as
follows:

(In thousands)

2020
2021
2022
2023
2024

Total

​$61,954​
​ 25,042​
6,747​
524​
151​
​$94,418​

Deposits
from
related
parties
held
by
the
Company
at
December
31,
2019
and
2018
amounted
to
$7.8
million

and
$7.4
million,
respectively.

F-23





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 — BORROWINGS

Advances
consist
of
funds
borrowed
from
the
FHLB
and
the
FRB
borrower-in-custody
(“BIC”)
program.

Maturities
of
advances
from
the
FHLB
and
FRB
for
years
ending
after
December
31,
2019
and
2018
are
summarized
as
follows:

(In thousands)

2019
2020
2021
2023

Total

2019
​$ —​
​ 11,498​
5,000​
8,500​
​$24,998​

2018
​$43,071​
​ 11,451​
5,000​
8,500​
​$68,022​

Borrowings
from
the
FRB
BIC
program
are
secured
by
a
Uniform
Commercial
Code
(“UCC”)
financing
statement
on
qualified
collateral,
consisting
of
certain
commercial
loans
and
qualified
mortgage-backed
government
securities.
There
were
no
outstanding
FRB
borrowings
at
December
31,
2019.
At
December
31,
2018,
FRB
borrowings
consisted
of
overnight
borrowings
totaling
$8.1
million

Borrowings
from
the
FHLB,
which
aggregated
$25.0
million
and
$59.9
million
at
December
31,
2019
and
2018,
respectively,
are
secured
by
a
blanket
lien
on
qualified
collateral,
consisting
primarily
of
loans
with
first
mortgages
secured
by
one
to
four
family
properties,
certain
commercial
loans
and
qualified
mortgage-backed
government
securities.
At
December
31,
2019,
the
interest
rates
on
FHLB
advances
ranged
from
1.53%
to
3.01%,
and
the
weighted
average
interest
rate
on
FHLB
advances
was
2.45%.

In
2015,
the
Bank
modified
$3.5
million
of
its
FHLB
borrowings
and
extended
the
maturity.
The
Bank
incurred

a
prepayment
penalty
of 
$233,000.
In
accordance
with
ASC
470,
the
prepayment
penalty
is
being
amortized
over
the
life
of
the
newly
modified
borrowing.

NOTE 8 — INCOME TAXES

The
components
of
income
tax
expense
are
as
follows
for
the
years
ended
December
31,
2019
and
2018:

(In thousands)

Current
tax
expense
(benefit):

Federal
State
Net
operating
loss
carryforward

Deferred
tax
benefit:

Federal
State

Income
tax
expense

F-24


2019

2018

​$ 3,477​
​ 1,392​
(9​
​ 4,860​

)

​$ 3,214​
​ 1,278​
(14​
​ 4,478​

)

)
)

)

(724​
(325​
​ (1,049​
​$ 3,811​

)
)

)

(926​
(315​
​ (1,241​
​$ 3,237​




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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The
following
is
a
summary
of
the
differences
between
the
statutory
federal
income
tax
rate
and
the
effective

tax
rates
for
the
years
ended
December
31,
2019
and
2018:

Federal
income
tax
at
statutory
rate
Increase
(decrease)
in
tax
resulting
from:
State
tax,
net
of
federal
tax
benefit
Tax
exempt
income
and
dividends
received
deduction
Other

Effective
tax
rate

2019
​ 21.0​

%

2018 ​
​ 21.0​

%

​ 5.8​
​ (0.6​
​ (0.1​
​ 26.1​

)
)

%

)

​ 5.7​
​ (1.0​
​ 0.1​
​ 25.8​

%

The
following
is
a
summary
of
the
Company’s
gross
deferred
tax
assets
and
gross
deferred
tax
liabilities
at

December
31,
2019
and
2018:

(In thousands)
Deferred
tax
assets:

Allowance
for
loan
losses
Depreciation
Net
operating
loss
carryforward
Employee
benefit
plans
and
share-based
compensation
plans
Deferred
loan
fees,
net
Reserve
for
unfunded
commitments
Net
unrealized
loss
on
securities
Other

Gross
deferred
tax
assets

Deferred
tax
liabilities:
Prepaid
expenses
FHLB
restructure
fees
Net
unrealized
holding
gain
on
securities

Gross
deferred
tax
liabilities

Net
deferred
tax
asset

2019

2018 ​

​$3,837​
71​
7​
​ 2,707​
613​
31​
​ —​
164​
​ 7,430​

​$3,251​
160​
16​
​ 2,498​
339​
31​
107​
109​
​ 6,511​

)
)
)

)

(43​
(8​
(137​
(188​
​$7,242​

)
)

)

(45​
(29​
​ —​
(74​
​$6,437​

At
December
31,
2019,
the
Company
had
federal
net
operating
loss
carryovers
of 
$34,000.
The
carryovers

were
transferred
to
the
Company
upon
the
merger
with
Amesbury
Cooperative
Bank
during
the
year
ended
December
31,
2001.
The
losses
will
expire
in
2020
and
are
subject
to
certain
annual
limitations
which
amount
to
$42,000
per
year.

The
Company
reduces
the
deferred
tax
asset
by
a
valuation
allowance
if,
based
on
the
weight
of
the
available

evidence,
it
is
not
“more
likely
than
not”
that
some
portion
or
all
of
the
deferred
tax
assets
will
be
realized.
The
Company
assesses
the
realizability
of
its
deferred
tax
assets
by
assessing
the
likelihood
of
the
Company
generating
federal
and
state
income
tax,
as
applicable,
in
future
periods
in
amounts
sufficient
to
offset
the
deferred
tax
charges
in
the
periods
they
are
expected
to
reverse.
Based
on
this
assessment,
management
concluded
that
a
valuation
allowance
was
not
required
as
of
December
31,
2019
and
2018.

It
is
the
Company’s
policy
to
provide
for
uncertain
tax
positions
and
the
related
interest
and
penalties
based
upon
management’s
assessment
of
whether
a
tax
benefit
is
more
likely
than
not
to
be
sustained
upon
examination
by
tax
authorities.
At
December
31,
2019
and
2018,
there
was
no
material
uncertain
tax
positions
related
to
federal
and
state
income
tax
matters.
The
Company
is
currently
open
to
audit
under
the
statute
of
limitations
by
the
Internal
Revenue
Service
and
state
taxing
authorities
for
the
years
ended
December
31,
2016
through
December
31,
2018.

F-25





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 — EMPLOYEE BENEFITS & SHARE-BASED COMPENSATION PLANS

401(k) Plan

The
Company
sponsors
a
401(k)
plan.
All
employees
are
eligible
to
join
the
401(k)
plan.
A
Safe
Harbor
Plan
was
adopted
by
the
Company
effective
January
1,
2007.
Under
the
Safe
Harbor
Plan,
the
Company
matches
100%
of
employee
contributions
up
to
6%
of
compensation.
In
addition,
the
Company
may
make
a
discretionary
contribution
to
the
401(k)
plan
determined
on
an
annual
basis.
Employees
may
contribute
up
to
75%
of
their
salary
subject
to
certain
limits
based
on
federal
tax
laws.
The
expense
recognized
under
the
401(k)
plan
was
$598,000
and
$494,000
for
the
years
ended
December
31,
2019
and
2018,
respectively.

Supplemental Executive Retirement Plans

The
Company
has
Supplemental
Executive
Retirement
Agreements
with
certain
executive
officers.
These
agreements
are
designed
to
supplement
the
benefits
available
through
the
Company’s
retirement
plan.
The
liability
for
the
retirement
benefits
amounted
to
$7.8
million
and
$6.8
million
at
December
31,
2019
and
2018,
respectively,
and
is
included
in
other
liabilities.
The
expense
recognized
for
these
benefits
was
$1.0
million
and
$1.1
million
for
the
years
ended
December
31,
2019
and
2018,
respectively.

Employee Stock Ownership Plan

The
Company
established
an
ESOP
for
its
eligible
employees
effective
January
1,
2015
to
provide
eligible

employees
the
opportunity
to
own
Company
stock.
The
plan
is
a
tax-qualified
plan
for
the
benefit
of
all
Company
employees.
Contributions
are
allocated
to
eligible
participants
on
the
basis
of
compensation,
subject
to
federal
tax
law
limits.
The
ESOP
acquired
721,876
shares
in
the
Company’s
initial
stock
offering
with
the
proceeds
of
the
loan
totaling
$3.6
million.
The
loan
was
payable
annually
over
15
years
at
a
rate
per
annum
equal
to
the
prime
rate.
In
conjunction
with
the
Conversion,
the
Company
refinanced
the
original
loan
to
the
ESOP
with
an
additional
$8.2
million
payable
over
15
years
at
a
rate
per
annum
equal
to
the
prime
rate
(4.75%
as
December
31,
2019)
to
acquire
an
additional
816,992
shares
at
$10.00
per
share,
representing
8%
of
the
shares
sold
in
the
Company’s
second-step
offering.
After
the
Conversion,
the
unallocated
shares
had
an
average
price
of 
$8.20
per
share.
Shares
used
as
collateral
to
secure
the
loan
are
released
and
available
for
allocation
to
eligible
employees
as
the
principal
and
interest
on
the
loan
is
paid.
The
number
of
shares
committed
to
be
released
per
year
through
2033
is
89,757.

Shares
held
by
the
ESOP
include
the
following:

Allocated
Committed
to
be
allocated
Unallocated

Total

December 31, 2019

192,499
89,757
​ 1,256,612
​ 1,538,868

December 31, 2018​
​ 144,374
​ 48,125
​ 529,377
​ 721,876

The
fair
value
of
unallocated
shares
was
approximately
$15.6
million
at
December
31,
2019.

Share
amounts
related
to
periods
prior
to
the
date
of
the
Conversion
(October
16,
2019)
have
been
restated
to

give
the
retroactive
recognition
to
the
exchange
ratio
applied
in
the
Conversion
(2.0212-to-one).

Shared-Based Compensation Plan

Under
the
Provident
Bancorp,
Inc.
2016
Equity
Incentive
Plan
(the
“Equity
Plan”),
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
Plan,
with
902,344
shares
reserved
for
options.
The
exercise
price
of
each
option
equals
the
market
price
of
the
Company’s
stock
on
the
date
of
grant
and
the
maximum
term
of
each
option
is
ten
years.
The
total
number
of
shares

F-26





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

reserved
for
restricted
stock
or
restricted
units
is
360,935.
The
value
of
restricted
stock
grants
is
based
on
the
market
price
of
the
stock
on
grant
date.
Options
and
awards
vest
ratably
over
three
to
five
years.

Expense
related
to
options
and
restricted
stock
granted
to
directors
is
recognized
as
directors’
fees
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:

•


Volatility
is
based
on
peer
group
volatility
because
the
Company
does
not
have
a
sufficient
trading
history.

•


•


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
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.

The
fair
value
of
options
granted
in
2019
and
2018
is
based
on
the
following
assumptions:

Vesting
period
(years)
Expiration
date
(years)
Expected
volatility

Expected
life
(years)

Expected
dividend
yield

Risk
free
interest
rate

Fair
value
per
option

2019

3​
10​
​ 31.15​
7.5​
0.00​
1.83​
​$ 4.80​

%

%

%

2018 ​
5​
10​
​ 21.23​
7.5​
0.00​
2.97​
​$ 4.31​

%

%

%

A
summary
of
the
status
of
the
Company’s
stock
option
grants
for
the
year
ended
December
31,
2019,
is

presented
in
the
table
below:

Stock 
Option 
Awards

Weighted 
Average 
Exercise Price

Weighted 
Average 
Remaining 
Contractual 
Term (years)

Aggregate 
Intrinsic 
Value

Outstanding
at
January
1,
2019

Granted

Forfeited

Exercised

Outstanding
at
December
31,
2019

Outstanding
and
expected
to
vest
at
December
31,
2019

Vested
and
Exercisable
at
December
31,
2019

Unrecognized
compensation
cost

Weighted
average
remaining
recognition


period
(years)

$ 8.85

12.91

—

—

$ 8.93

$ 8.93

$ 8.73

​ 801,276​
14,781​
—​
—​
​ 816,057​
​ 816,057​

​ 465,994​
​$899,000​

2.17​

​ 7.02
​ 7.02

​ 6.92

​$2,908,000​
​$2,908,000​

​$1,741,000​

Total
expense
for
the
stock
options
was
$406,000
and
$404,000
for
the
years
ended
December
31,
2019
and

2018,
respectively.

F-27





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share
amounts
related
to
periods
prior
to
the
date
of
the
Conversion
(October
16,
2019)
have
been
restated
to

give
the
retroactive
recognition
to
the
exchange
ratio
applied
in
the
Conversion
(2.0212-to-one).

Restricted
Stock

Shares
issued
upon
vesting
may
be
either
authorized
but
unissued
shares
or
reacquired
shares
held
by
the
Company.
Any
shares
not
issued
because
vesting
requirements
are
not
met
will
again
be
available
for
issuance
under
the
plan.
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
unvested
restricted
stock
awards
under
the
Equity
Plan
for
the
year

ended
December
31,
2019:

Unvested
restricted
stock
awards
at
January
1,
2019

Granted
Forfeited
Vested

Unvested
restricted
stock
awards
at
December
31,
2018

Unrecognized
compensation
cost

Weighted
average
remaining
recognition
period
(years)

Weighted 
Average 
Grant Price​
$ 8.97 ​
12.91 ​
— ​
8.85 ​
$ 9.19 ​

Number of 
Shares
198,216​
5,907​
—​
(64,104​
140,019​
​$1,210,000​
2.14​

)

Total
expense
for
the
restricted
stock
awards
was
$593,000
and
$524,000
for
the
years
ended
December
31,

2019
and
2018,
respectively.

Share
amounts
related
to
periods
prior
to
the
date
of
the
Conversion
(October
16,
2019)
have
been
restated
to

give
the
retroactive
recognition
to
the
exchange
ratio
applied
in
the
Conversion
(2.0212-to-one).

NOTE 10 — EARNINGS PER SHARE

Earnings
per
share
consisted
of
the
following
components
for
the
year
ended
December
31,
2019
and
2018.

(Dollars in thousands)
Net
income
attributable
to
common
shareholders

Average
number
of
common
shares
issued
Less:

average
unallocated
ESOP
shares
average
unvested
restricted
stock
average
treasury
stock
acquired

2019

2018

​$

10,808​

​$

9,325​

​ 19,511,700​

​ 19,523,492​

(1,345,983​
(152,682​
(54,849​

)
)
)

(572,680​
(214,314​
(60,436​

)
)
)

Average
number
of
common
shares
outstanding
to
calculate
basic

earnings
per
common
share

​ 17,958,186​

​ 18,676,062​

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

108,782​

133,864​

​ 18,066,968​

​ 18,809,926​

​$
​$

0.60​
0.60​

​$
​$

0.50​
0.50​

F-28





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share
amounts
related
to
periods
prior
to
the
date
of
the
Conversion
(October
16,
2019)
have
been
restated
to

give
the
retroactive
recognition
to
the
exchange
ratio
applied
in
the
Conversion
(2.0212-to-one).

NOTE 11 — REGULATORY MATTERS

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.

Effective
January
1,
2015
(with
a
phase-in
period
of
two
to
four
years
for
certain
components),
the
Bank
became
subject
to
capital
regulations
adopted
by
the
Federal
Deposit
Insurance
Corporation
(“FDIC”),
which
implement
the
Basel
III
regulatory
capital
reforms
and
the
changes
required
by
the
Dodd-Frank
Act.
The
regulations
require
a
new
Common
Equity
Tier
1
(“CET1”)
capital
ratio
of
4.5%,
a
minimum
Tier
1
capital
to
risk-weighted
assets
ratio
of
6.0%,
a
minimum
total
capital
to
risk-weighted
assets
ratio
of
8.0%
and
a
minimum
Tier
1
leverage
ratio
of
4.0%.
CET1
generally
consists
of
common
stock
and
retained
earnings,
subject
to
applicable
adjustments
and
deductions.
Under
new
prompt
corrective
action
regulations,
in
order
to
be
considered
“well
capitalized,”
the
Bank
must
maintain
a
CET1
capital
ratio
of
6.5%
and
a
Tier
1
ratio
of
8.0%,
a
total
risk
based
capital
ratio
of
10%
and
a
Tier
1
leverage
ratio
of
5.0%.
As
of
December
31,
2019
and
2018,
the
FDIC
categorized
the
Bank
as
well
capitalized
under
the
regulatory
framework
for
prompt
corrective
action.
In
addition
to
establishing
the
minimum
regulatory
capital
requirements,
the
regulations
limit
capital
distributions
and
certain
discretionary
bonus
payments
to
management
if
the
institution
does
not
hold
a
“capital
conservation
buffer”
consisting
of
2.5%
of
common
equity
Tier
1
capital
to
risk-weighted
asset
above
the
amount
necessary
to
meet
its
minimum
risk-based
capital
requirements.
The
capital
conservation
buffer
requirement
began
being
phased
in
starting
on
January
1,
2016
at
0.625%
of
risk-weighted
assets
and
increased
each
year
until
fully
implemented
at
2.5%
on
January
1,
2019.
At
December
31,
2019,
the
Bank
exceeded
the
fully
phased
in
regulatory
requirement
for
the
capital
conservation
buffer.

The
Bank’s
actual
capital
amounts
and
ratios
at
December
31,
2019
and
2018
are
summarized
as
follows:

(Dollars in thousands)

December 31, 2019

Total
Capital
(to
Risk
Weighted
Assets)
Tier
1
Capital
(to
Risk
Weighted
Assets)
Common
Equity
Tier
1
Capital
(to
Risk

Actual 
Capital

For Capital 
Adequacy Purposes ​

To Be Well 
Capitalized Under 
Prompt Corrective 
Action Provisions

​ Amount

​ Ratio ​

​ Amount

Ratio ​

​ Amount

Ratio ​

​$181,135​
​ 168,273​

%

​ 17.62​
​ 16.37​

​$ 82,238​
​ 61,679​

%
​ ≥8.0 ​
​ ≥6.0 ​

​$102,798​
82,238​

%

​ ≥10.0​
​ ≥8.0​

Weighted
Assets)

​ 168,273​

​ 16.37​

​ 46,259​

​ ≥4.5 ​

66,819​

​ ≥6.5​

Tier
1
Capital
(to
Average
Assets)

​ 168,273​

​ 15.18​

​ 44,352​

​ ≥4.0 ​

55,440​

​ ≥5.0​

December 31, 2018

Total
Capital
(to
Risk
Weighted
Assets)
Tier
1
Capital
(to
Risk
Weighted
Assets)
Common
Equity
Tier
1
Capital
(to
Risk

​$128,939​
​ 117,855​

%

​ 14.55​
​ 13.30​

​$ 70,891​
​ 53,168​

%
​ ≥8.0 ​
​ ≥6.0 ​

​$ 88,614​
70,891​

%

​ ≥10.0​
​ ≥8.0​

Weighted
Assets)

​ 117,855​

​ 13.30​

​ 39,876​

​ ≥4.5 ​

57,599​

​ ≥6.5​

Tier
1
Capital
(to
Average
Assets)

​ 117,855​

​ 12.69​

​ 37,157​

​ ≥4.0 ​

46,446​

​ ≥5.0​

F-29





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Liquidation
Accounts

Upon
the
completion
of
Old
Provident’s
stock
offering
in
2015,
a
special
“liquidation
account”
was
established

for
the
benefit
of
certain
depositors
of
the
Bank
in
an
amount
equal
to
the
percentage
ownership
interest
in
the
equity
of
Old
Provident
held
by
persons
other
than
the
MHC
as
of
the
date
of
the
latest
balance
sheet
contained
in
the
2015
prospectus.
The
Company
is
not
permitted
to
pay
dividends
on
its
capital
stock
if
the
Company’s
shareholders’
equity
would
be
reduced
below
the
amount
of
the
liquidation
account.
The
liquidation
account
is
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
account.

Upon
the
completion
of
the
Conversion,
a
special
“liquidation
accounts”
for
the
benefit
of
certain
depositors
of
The
Provident
Bank
in
an
amount
equal
to
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)
was
established.
The
Company
and
The
Provident
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
Provident
Bank,
would
be
reduced
below
the
amount
of
the
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.

NOTE 12 — COMMITMENTS AND CONTINGENT LIABILITIES

Litigation

In
April
2018,
the
Bank
conducted
a
foreclosure
sale
of
certain
real
and
personal
property
which
secured
four

non-accruing
loans
originally
made
by
the
Bank.
The
aggregate
outstanding
principal
balance
of
these
loans
was
approximately
$7.5
million,
of
which
(a)
approximately
$4.9
million
was
due
and
owing
to
the
Bank
and
(b)
approximately
$2.6
million
was
due
and
owing
to
another
financial
institution
who
purchased
participation
interests
in
certain
of
these
loans
(the
“Participant”).
The
Bank
received
approximately
$8.3
million
in
proceeds
from
this
foreclosure
sale.
The
U.S.
Small
Business
Administration
(“SBA”),
which
also
made
a
secured
loan
to
the
same
obligors,
disputed
the
Bank’s
retention
of,
and
claimed
priority
to,
a
portion
of
the
proceeds
generated
from
this
foreclosure
sale,
alleging
a
breach
of
contract
and
sought
monetary
damages
in
the
approximate
amount
of 
$2.0
million.
As
previously
disclosed,
the
Company
had
segregated
into
a
separate
deposit
account
the
entire
amount
in
dispute,
including
the
amount
that
would
be
provided
to
the
Participant.
In
June
2019,
the
Company
settled
this
matter
with
the
SBA
and
the
Participant
for
the
amounts
we
had
segregated
and
the
settlement
did
not
have
a
significant
impact
on
the
Company’s
financial
condition
or
results
of
operations.

From
time
to
time,
the
Company
is
involved
in
litigation
incidental
to
its
business.
The
Company
does
not
believe
that
the
ultimate
resolution
of
these
legal
matters
will
have
a
significant
impact
on
the
Company’s
financial
condition
and
results
of
operations.

NOTE 13 — LEASES

Effective
January
1,
2019,
the
Company
adopted
ASU
No.
2016-02,
Leases
(Topic
842).
This
standard
required

the
Company
to
recognize
on
the
balance
sheet
right-of-use
assets
and
lease
liabilities,
which
approximate
the
present
value
of
the
Company’s
remaining
lease
payments.
As
of
December
31,
2019,
the
Company
recognized
right-of-use
assets
and
operating
lease
liabilities
totaling
$3.7
million
and
$3.9
million,
respectively.
The
right-of-
use
assets
are
included
in
premises
and
equipment
in
the
consolidated
balance
sheet.

In
July
2018,
the
FASB
issued
ASU
No.
2018-11,
which
provided
a
practical
expedient
package
for
lessees.

The
Company
has
elected
to
use
the
expedient
package
and
did
not
reassess
whether
any
existing
contracts
contain
leases;
did
not
reassess
the
lease
classification
for
existing
leases;
and
did
not
reassess
initial
direct
costs
for
any
existing
leases.
As
a
result,
all
leases
are
considered
operating
leases.
The
Company’s

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

leases
do
not
provide
an
implicit
rate
so
an
incremental
borrowing
rate
based
on
the
information
available
at
adoption
date
was
used
in
determining
the
present
value
of
future
payments.

The
lease
liabilities
recognized
by
the
Company
represent
two
leased
branch
locations.
The
Company’s
leases
have
remaining
initial
contractual
lease
terms
ranging
from
4.5
to
16
years.
The
Company’s
leases
include
options
to
extend
the
lease
for
up
to
20
years.
The
lease
liabilities
recognized
include
certain
lease
extensions
as
it
is
expected
that
the
Company
will
use
substantially
all
lease
renewal
options.
Rent
expense
for
the
operating
leases
is
being
recorded
on
the
straight-line
basis
for
the
remaining
lease
term.

The
maturities
of
the
annual
cash
flows
for
the
Company’s
lease
liabilities
and
other
information
as
of

December
31,
2019
are
summarized
as
follows:

(In thousands)

2020
2021
2022
2023
2024
Years
thereafter

Total
lease
payments

Less
imputed
interest

Total
lease
liabilities

Weighted-average
remaining
lease
term – operating
leases
​Weighted-average
discount
rate – operating
leases

​$

165​
172​
172​
172​
175​
​ 6,286​
​ 7,142​
​ (3,265​
​$ 3,877​

)

31.9
years​
%
3.78

The
total
rental
expense
amounted
to
$375,000
and
$460,000
for
the
years
ended
December
31,
2019
and
2018,

respectively.

NOTE 14 — FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The
Company
is
party
to
financial
instruments
with
off-balance
sheet
risk
in
the
normal
course
of
business
to

meet
the
financing
needs
of
its
customers.
These
financial
instruments
include
commitments
to
originate
loans,
standby
letters
of
credit
and
unadvanced
funds
on
loans.
The
instruments
involve,
to
varying
degrees,
elements
of
credit
risk
in
excess
of
the
amount
recognized
in
the
balance
sheet.
The
contract
amounts
of
those
instruments
reflect
the
extent
of
involvement
the
Company
has
in
particular
classes
of
financial
instruments.

The
Company’s
exposure
to
credit
loss
in
the
event
of
nonperformance
by
the
other
party
to
the
financial

instrument
for
loan
commitments
and
standby
letters
of
credit
is
represented
by
the
contractual
amounts
of
those
instruments.
The
Company
uses
the
same
credit
policies
in
making
commitments
and
conditional
obligations
as
it
does
for
on-balance
sheet
instruments.

Commitments
to
originate
loans
are
agreements
to
lend
to
a
customer
provided
there
is
no
violation
of
any

condition
established
in
the
contract.
Commitments
generally
have
fixed
expiration
dates
or
other
termination
clauses
and
may
require
payment
of
a
fee.
Since
many
of
the
commitments
are
expected
to
expire
without
being
drawn
upon,
the
total
commitment
amounts
do
not
necessarily
represent
future
cash
requirements.
The
Company
evaluates
each
customer’s
creditworthiness
on
a
case-by-case
basis.
The
amount
of
collateral
obtained,
if
deemed
necessary
by
the
Company
upon
extension
of
credit,
is
based
on
management’s
credit
evaluation
of
the
borrower.
Collateral
held
varies,
but
may
include
secured
interests
in
real
property,
accounts
receivable,
inventory,
property,
plant
and
equipment
and
income
producing
properties.

Standby
letters
of
credit
are
conditional
commitments
issued
by
the
Company
to
guarantee
the
performance
by

a
customer
to
a
third
party.
The
credit
risk
involved
in
issuing
letters
of
credit
is
essentially

F-31





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the
same
as
that
involved
in
extending
loan
facilities
to
customers.
At
December
31,
2019
and
2018,
the
maximum
potential
amount
of
the
Company’s
obligation
was
$1.5
million
for
financial
and
standby
letters
of
credit.
The
Company’s
outstanding
letters
of
credit
generally
have
a
term
of
less
than
one
year.
If
a
letter
of
credit
is
drawn
upon,
the
Company
may
seek
recourse
through
the
customer’s
underlying
line
of
credit.
If
the
customer’s
line
of
credit
is
also
in
default,
the
Company
may
take
possession
of
the
collateral,
if
any,
securing
the
line
of
credit.

Notional
amounts
of
financial
instruments
with
off-balance
sheet
credit
risk
are
as
follows
at
December
31,

2019
and
2018:

(In thousands)

Commitments
to
originate
loans
Letters
of
credit
Unadvanced
portions
of
loans

NOTE 15 — FAIR VALUE MEASUREMENTS

2019
​$ 29,388​
1,463​
​ 201,921​
​$232,772​

2018
​$ 42,625​
1,546​
​ 196,104​
​$240,275​

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 — Observable
inputs
other
than
level
1
prices,
such
as
quoted
prices
for
similar
assets;
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).

A
financial
instrument’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
U.S.
Government
and
federal
agency,
state
and
municipal,
asset-backed
and
government
mortgage-backed
securities
available-for-sale
are
generally
classified
within
Level
2
of
the
fair
value
hierarchy.
For
these
investments,
we
obtain
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.

F-32





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The
following
summarizes
assets
measured
at
fair
value
on
a
recurring
basis
at
December
31,
2019
and
2018:

(In thousands)

December 31, 2019
State
and
municipal
Asset-backed
securities
Mortgage-backed
securities

Totals

December 31, 2018
State
and
municipal
Asset-backed
securities

Mortgage-backed
securities

Totals

Fair Value Measurements at Reporting Date Using

Quoted Prices in 
Active Markets for 
Identical Assets 
Level 1

Significant 
Other Observable 
Inputs 
Level 2

Significant 
Unobservable 
Inputs 
Level 3

​ $ —
​ —
​ —
​ $ —

​ $ —
​ —
​ —
​ $ —

$ 11,206
5,500
25,084

$ 41,790

$ 20,255
6,371

24,777

$ 51,403

​ $ — ​
​ — ​
​ — ​
​ $ — ​

​ $ — ​
​ — ​
​ — ​
​ $ — ​

​ Total

​$11,206​
5,500​
​ 25,084​
​$41,790​

​$20,255​
6,371​
​ 24,777​
​$51,403​

The
Company
did
not
have
any
transfers
of
assets
measured
at
fair
value
on
a
recurring
basis
between
Levels
1

and
2
of
the
fair
value
hierarchy
during
the
years
ended
December
31,
2019
and
2018.

Fair
Values
of
Assets
Measured
on
a
Nonrecurring
Basis

The
Company’s
only
assets
measured
at
fair
value
on
a
nonrecurring
basis
are
loans
identified
as
impaired
for

which
a
write-off
or
specific
reserve
has
been
recorded,
and
other
real
estate
owned.

Certain
impaired
loans
of
the
Company
are
reported
at
the
fair
value
of
the
underlying
collateral,
less
estimated

selling
costs.
The
Company
classifies
impaired
loans
as
Level
3
in
the
fair
value
hierarchy.
Collateral
values
are
estimated
using
Level
2
inputs
based
upon
appraisals
of
similar
properties
obtained
from
a
third
party,
but
can
be
adjusted
and
therefore
classified
as
Level
3.
The
Company
classifies
other
real
estate
owned
as
Level
2
in
the
fair
value
hierarchy
if
the
Company
has
received
a
purchase
and
sales
agreement.

The
following
summarizes
assets
measured
at
fair
value
on
a
nonrecurring
basis
at
December
31,
2019
and

2018:

(In thousands)

December 31, 2019
Impaired
loans

December 31, 2018

Impaired
loans

Other
real
estate
owned

Fair Value Measurements at Reporting Date Using:

Quoted Prices in 
Active Markets for 
Identical Assets 
Level 1

Significant 
Other Observable 
Inputs 
Level 2

Significant 
Unobservable 
Inputs 
Level 3

​ Total

​$2,020​

​ $ —

$ —

​ $ 2,020

​$ 659​
​ 1,676​

​ $ —
​ —

$ —

1,676

​ $

659
— ​

F-33





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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
December
31,
2019
and
2018:

(In thousands)

December 31, 2019
Impaired
loans

December 31, 2018
Impaired
loans

Fair Value

Valuation Technique

Unobservable Input

$ 2,020

Real
estate
appraisals

and
business
valuation

Discount
for
dated
appraisals

and
comparable
company
evaluations

$ 659

Real
estate
appraisals

and
business
valuation

Discount
for
dated
appraisals

and
comparable
company
evaluations

NOTE 16 — DISCLOSURES ABOUT 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
December
31,
2019
and
2018:

(In thousands)

December 31, 2019
Financial
assets:

Cash
and
cash
equivalents

Available-for-sale
securities

Federal
Home
Loan
Bank
of
Boston
stock

Loans,
net

Accrued
interest
receivable

Financial
liabilities:

Deposits

Borrowings

December 31, 2018

Financial
assets:

Cash
and
cash
equivalents

Available-for-sale
securities

Federal
Home
Loan
Bank
of
Boston
stock

Loans,
net

Accrued
interest
receivable

Financial
liabilities:

Deposits

Borrowings

Carrying 
Amount

​$ 59,658​
41,790​
1,416​
​ 959,286​
2,854​

​ 849,905​
24,998​

​$ 28,613​
51,403​
2,650​
​ 835,528​
2,638​

​ 768,096​
68,022​

Fair Value

Level 1

Level 2

Level 3

Total

​$59,658​
—​
1,416​
—​
—​

​$ —​
​ 41,790​
—​
—​
2,854​

​$

—​
—​
—​
​ 958,270​
—​

​$ 59,658​
41,790​
1,416​
​ 958,270​
2,854​

—​
—​

—​
​ 25,351​

​ 850,774​
—​

​ 850,774​
25,351​

​$28,613​
—​
2,650​
—​
—​

​$ —​
​ 51,403​
—​
—​
2,638​

​$

—​
—​
—​
​ 827,090​
—​

​$ 28,613​
51,403​
2,650​
​ 827,090​
2,638​

—​
—​

—​
​ 67,846​

​ 768,010​
—​

​ 768,010​
67,846​

The
carrying
amounts
of
financial
instruments
shown
above
are
included
in
the
consolidated
balance
sheets

under
the
indicated
captions.
Accounting
policies
related
to
financial
instruments
are
described
in
Note
2.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 — CONDENSED FINANCIAL STATEMENTS OF PARENT ONLY

Financial
information
pertaining
only
to
Provident
Bancorp,
Inc.
is
as
follows:

Provident Bancorp, Inc. – Parent Only Balance Sheet 
(In thousands)

Assets
Cash
and
due
from
banks
Investment
in
common
stock
of
The
Provident
Bank
Other
assets

Total assets

Liabilities and Shareholders’ Equity
Accrued
expenses
Shareholders’
equity

Total liabilities and shareholders’ equity

Provident Bancorp, Inc. – Parent Only Income Statement 
(In thousands)

Total
income
Operating
expenses

Income
before
income
taxes
and
equity
in
undistributed
net
income
of
The

Provident
Bank

Applicable
income
tax
provision

Income
before
equity
in
income
of
subsidiaries

Equity
in
undistributed
net
income
of
The
Provident
Bank

Net income

Provident Bancorp, Inc. – Parent Only Statement of Cash Flows 
(In thousands)

Cash flows from operating activities:

Net
income
Adjustments
to
reconcile
net
income
to
net
cash
provided
by
operating

activities:

Equity
in
undistributed
earnings
of
subsidiaries
(Increase)
decrease
in
other
assets
Increase
in
other
liabilities

Net
cash
(used
in)
provided
by
operating
activities

Cash flows from investing activities:
Investment
in
The
Provident
Bank
Purchase
of
other
investment
Capital
contribution
from
Provident
Bancorp

Net
cash
used
in
investing
activities

F-35


2019

2018

​$ 51,634​
​ 168,737​
10,636​
​$231,007​

​$
5,249​
​ 117,615​
2,755​
​$125,619​

​$
74​
​ 230,933​
​$231,007​

​$
35​
​ 125,584​
​$125,619​

Years Ended 
December 31,

2019

​$

245​
105​

140​
39​
101​
​ 10,707​
​$10,808​

2018 ​
​$ 140​
90​

50​
14​
36​
​ 9,289​
​$9,325​

Twelve Months Ended 
December 31,

2019

2018

​$ 10,808​

​$ 9,325​

​ (10,707​
(7,381​
39​
(7,241​

)
)

)

)

​ (9,289​
13​
191​
240​

​ (37,631​
(500​
372​
​ (37,759​

)
)

)

—​
—​
—​
—​




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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Provident Bancorp, Inc. – Parent Only Statement of Cash Flows 
(In thousands)

Cash flows from financing activities:

Proceeds
from
sale
of
common
stock,
net
Shares
surrendered
related
to
tax
withholdings
on
restricted
stock
awards

Purchase
of
treasury
stock

Net
cash
used
in
financing
activities

Net
increase
in
cash
and
cash
equivalents

Cash
and
cash
equivalents
at
beginning
of
year

Cash and cash equivalents at end of year

NOTE 18 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Twelve Months Ended 
December 31,

2019

2018

)

​ 91,578​
(193​
—​
​ 91,385​

— ​
— ​
(215 ​
)
)
(215 ​

​ 46,385​
5,249​
​$ 51,634​

25 ​
​ 5,224 ​
​$ 5,249 ​

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

(In thousands)

2019

2018

2019

2018

2019

2018

2019

2018

Interest
and
dividend
income
Interest
expense

​$

​$

12,129​
1,971​

​$

9,753​
1,034​

​$

12,731​
2,130​

​$

10,377​
1,213​

​$

13,316​
2,259​

​$

10,833​
1,429​

​$

13,362​
1,788​

11,377​
1,537​

Net
interest
and
dividend


income

Provision
for
loan
losses
Gain
on
sale
of
securities,
net
Other
income

Total
noninterest
income
Total
noninterest
expense
Income
tax
expense

Net income

(1)
Earnings per share :

Basic

Diluted

Weighted Average Shares

(1)

:

10,158​

1,462​
113​
933​
1,046​
6,746​
778​
2,218​

​$

8,719​

656​
—​
1,013​
1,013​
6,376​
678​
2,022​

0.12​

0.12​

​$

​$

0.11​

0.11​

​$

​$

​$

10,601​

1,354​
—​
1,056​
1,056​
6,883​
889​
2,531​

0.14​

0.14​

​$

​$

​$

​$

​$

​$

9,164​

638​
—​
1,118​
1,118​
6,411​
843​
2,390​

0.13​

0.13​

​$

​$

​$

11,057​

833​
—​
1,040​
1,040​
6,461​
1,295​
3,508​

0.19​

0.19​

​$

​$

​$

9,404​

1,421​
—​
1,059​
1,059​
6,223​
741​
2,078​

0.11​

0.11​

​$

​$

​$

11,574​

1,677​
—​
969​
969​
7,466​
849​
2,551​

0.15​

0.15​

​$

​$

​$

9,840​

614​
—​
988​
988​
6,404​
975​
2,835​

0.15​

0.15​

Basic
Diluted

​ 18,730,676​
​ 18,807,840​

​ 18,635,191​
​ 18,787,060​

​ 18,758,735​
​ 18,895,918​

​ 18,663,245​
​ 18,802,061​

​ 18,786,692​
​ 18,965,924​

​ 18,690,778​
​ 18,909,155​

​ 18,006,471​
​ 18,135,220​

​ 18,714,004​
​ 18,876,858​

(1)


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

F-36





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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 — SUBSEQUENT EVENTS

On
December
20,
2019,
the
Bank
entered
into
an
asset
purchase
agreement
(the
“Agreement”)
with
People’s

United
Bank,
N.A.
(the
“Seller”)
to
purchase
the
United
Bank’s
legacy
ResX
Warehouse
Lending
portfolio.
The
purchase
price
of
the
transaction
was
$72.7
million,
and
the
Company
acquired
the
loan
portfolio,
plus
aggregate
accrued
interest
and
fees,
the
fixed
assets,
and
prepaid
expenses.

The
transaction
closed
on
January
17,
2020,
and
the
Company
has
not
yet
completed
the
allocation
of
the

purchase
price,
however
it
is
expected
that
substantially
all
of
the
purchase
price
will
be
allocated
to
the
loan
portfolio,
as
the
Company
did
not
pay
a
premium
to
the
seller
for
the
assets
acquired.

F-37








Description of Registrant’s Securities

Exhibit 4.2

Unless
otherwise
indicated
or
the
context
otherwise
requires,
references
in
this
Exhibit
4.2
to
“we,
“us”
and
“our”
refer
collectively
to
Provident
Bancorp,
Inc.
and
The
Provident
Bank
or
to
any
of
those
entities,
depending
on
the
context.
In
addition,
we
may
refer
to
Provident
Bancorp,
Inc.
as
“Provident
Bancorp”.

General

Provident
Bancorp
is
authorized
to
issue
100,000,000
shares
of
common
stock,
par
value
of
$0.01
per
share,
and
50,000,000
shares
of
preferred
stock,
par

value
$0.01
per
share.
Each
share
of
common
stock
has
the
same
relative
rights
as,
and
is
identical
in
all
respects
to,
each
other
share
of
common
stock.
All
of
our
shares
of
common
stock
are
duly
authorized,
fully
paid
and
nonassessable.

Common Stock

Dividends.
Provident
Bancorp
may
pay
dividends
to
an
amount
equal
to
the
excess
of
our
capital
surplus
over
payments
that
would
be
owed
upon

dissolution
to
stockholders
whose
preferential
rights
upon
dissolution
are
superior
to
those
receiving
the
dividend,
and
up
to
an
amount
that
would
not
make
us
insolvent,
as
and
when
declared
by
our
Board
of
Directors.
The
payment
of
dividends
by
Provident
Bancorp
is
also
subject
to
limitations
that
are
imposed
by
law
and
applicable
regulation,
including
restrictions
on
payments
of
dividends
that
would
reduce
Provident
Bancorp’s
assets
below
the
then-adjusted
balance
of
its
liquidation
account.
The
holders
of
common
stock
of
Provident
Bancorp
will
be
entitled
to
receive
and
share
equally
in
dividends
as
may
be
declared
by
our
Board
of
Directors
out
of
funds
legally
available
therefor.
If
Provident
Bancorp
issues
shares
of
preferred
stock,
the
holders
thereof
may
have
a
priority
over
the
holders
of
the
common
stock
with
respect
to
dividends.

Voting Rights.
The
holders
of
common
stock
of
Provident
Bancorp
will
have
exclusive
voting
rights
in
Provident
Bancorp.
They
elect
Provident

Bancorp’s
Board
of
Directors
and
act
on
other
matters
as
are
required
to
be
presented
to
them
under
Maryland
law
or
as
are
otherwise
presented
to
them
by
the
Board
of
Directors.
Generally,
each
holder
of
common
stock
is
entitled
to
one
vote
per
share
and
does
not
have
any
right
to
cumulate
votes
in
the
election
of
directors.
Any
person
who
beneficially
owns
more
than
10%
of
the
outstanding
shares
of
Provident
Bancorp’s
common
stock,
however,
will
not
be
entitled
or
permitted
to
vote
any
shares
of
common
stock
held
in
excess
of
the
10%
limit.
If
Provident
Bancorp
issues
shares
of
preferred
stock,
holders
of
the
preferred
stock
may
also
possess
voting
rights.
Certain
matters
require
the
approval
of
80%
of
our
outstanding
common
stock.

Liquidation.
In
the
event
of
any
liquidation,
dissolution
or
winding
up
of
The
Provident
Bank,
Provident
Bancorp,
as
the
holder
of
100%
of
The
Provident
Bank’s
capital
stock,
would
be
entitled
to
receive
all
assets
of
The
Provident
Bank
available
for
distribution,
after
payment
or
provision
for
payment
of
all
debts
and
liabilities
of
The
Provident
Bank,
including
all
deposit
accounts
and
accrued
interest
thereon,
and
after
distribution
of
the
balance
in
the
liquidation
account
to
Eligible
Account
Holders
(as
defined
in
the
Plan
of
Conversion
of
the
former
mutual
holding
company,
Provident
Bancorp).
In
the
event
of
liquidation,
dissolution
or
winding
up
of
Provident
Bancorp,
the
holders
of
its
common
stock
would
be
entitled
to
receive,
after
payment
or
provision
for
payment
of
all
its
debts
and
liabilities
(including
payments
with
respect
to
its
liquidation
account),
all
of
the
assets
of
Provident
Bancorp
available
for
distribution.
If
preferred
stock
is
issued,
the
holders
thereof
may
have
a
priority
over
the
holders
of
the
common
stock
in
the
event
of
liquidation
or
dissolution.

Preemptive Rights.
Holders
of
the
common
stock
of
Provident
Bancorp
are
not
entitled
to
preemptive
rights
with
respect
to
any
shares
that
may
be
issued.

The
common
stock
is
not
subject
to
redemption.

Preferred Stock

None
of
the
shares
of
Provident
Bancorp’s
authorized
preferred
stock
are
outstanding.
Preferred
stock
may
be
issued
with
preferences
and
designations
as

our
Board
of
Directors
may
from
time
to
time
determine.
Our
Board
of
Directors
may,
without
stockholder
approval,
issue
shares
of
preferred
stock
with
voting,
dividend,
liquidation
and
conversion
rights
that
could
dilute
the
voting
strength
of
the
holders
of
the
common
stock
and
may
assist
management
in
impeding
an
unfriendly
takeover
or
attempted
change
in
control.



 


 
 


 








 




Maryland Law and Articles of Incorporation and Bylaws of Provident Bancorp

Maryland
law,
as
well
as
Provident
Bancorp’s
articles
of
incorporation
and
bylaws,
contain
a
number
of
provisions
relating
to
corporate
governance
and
rights
of
stockholders
that
may
discourage
future
takeover
attempts.
As
a
result,
stockholders
who
might
desire
to
participate
in
such
transactions
may
not
have
an
opportunity
to
do
so.
In
addition,
these
provisions
will
also
render
the
removal
of
the
Board
of
Directors
or
management
of
Provident
Bancorp
more
difficult.

Directors.
The
Board
of
Directors
is
divided
into
three
classes.
The
members
of
each
class
are
elected
for
a
term
of
three
years
and
only
one
class
of

directors
is
elected
annually.
Thus,
it
would
take
at
least
two
annual
elections
to
replace
a
majority
of
the
Board
of
Directors.
The
bylaws
establish
qualifications
for
board
members,
including
restrictions
on
affiliations
with
competitors
of
The
Provident
Bank
and
restrictions
based
upon
prior
legal
or
regulatory
violations.
Further,
the
bylaws
impose
notice
and
information
requirements
in
connection
with
the
nomination
by
stockholders
of
candidates
for
election
to
the
Board
of
Directors
or
the
proposal
by
stockholders
of
business
to
be
acted
upon
at
an
annual
meeting
of
stockholders.
Such
notice
and
information
requirements
are
applicable
to
all
stockholder
business
proposals
and
nominations,
and
are
in
addition
to
any
requirements
under
the
federal
securities
laws.

Restrictions on Call of Special Meetings.
The
articles
of
incorporation
and
bylaws
provide
that
special
meetings
of
stockholders
can
be
called
by
the

President,
the
Chief
Executive
Officer,
the
Chairman,
by
a
majority
of
the
whole
Board
of
Directors
or
upon
the
written
request
of
stockholders
entitled
to
cast
at
least
a
majority
of
all
votes
entitled
to
vote
at
the
meeting.

Prohibition of Cumulative Voting.
The
articles
of
incorporation
prohibit
cumulative
voting
for
the
election
of
directors.

Limitation of Voting Rights.
The
articles
of
incorporation
provide
that
in
no
event
will
any
person
who
beneficially
owns
more
than
10%
of
the
then-

outstanding
shares
of
common
stock,
be
entitled
or
permitted
to
vote
any
of
the
shares
of
common
stock
held
in
excess
of
the
10%
limit.

Restrictions on Removing Directors from Office.
The
articles
of
incorporation
provide
that
directors
may
be
removed
only
for
cause,
and
only
by
the

affirmative
vote
of
the
holders
of
at
least
two-thirds
of
the
voting
power
of
all
of
Provident
Bancorp’s
then-outstanding
common
stock
entitled
to
vote
(after
giving
effect
to
the
limitation
on
voting
rights
discussed
above
in
“—Limitation
of
Voting
Rights”).

Forum Selection for Certain Stockholder Lawsuits. The
articles
of
incorporation
provide
that,
unless
Provident
Bancorp
consents
in
writing
to
the

selection
of
an
alternative
forum,
the
sole
and
exclusive
forum
for
(i)
any
derivative
action
or
proceeding
brought
on
behalf
of
Provident
Bancorp,
(ii)
any
action
asserting
a
claim
of
breach
of
a
fiduciary
duty
owed
by
any
director,
officer
or
other
employee
of
Provident
Bancorp
to
Provident
Bancorp
or
Provident
Bancorp
stockholders,
(iii)
any
action
asserting
a
claim
arising
pursuant
to
any
provision
of
the
Maryland
General
Corporation
Law,
or
(iv)
any
action
asserting
a
claim
governed
by
the
internal
affairs
doctrine
shall
be
a
state
or
federal
court
located
within
the
state
of
Maryland,
in
all
cases
subject
to
the
court’s
having
personal
jurisdiction
over
the
indispensible
parties
named
as
defendants.
Under
the
articles
of
incorporation,
any
person
or
entity
purchasing
or
otherwise
acquiring
any
interest
in
shares
of
capital
stock
of
Provident
Bancorp
shall
be
deemed
to
have
notice
of
and
consented
to
the
exclusive
forum
provisions
of
the
articles
of
incorporation.

Authorized but Unissued Shares.
Provident
Bancorp
has
authorized
but
unissued
shares
of
common
and
preferred
stock.
The
articles
of
incorporation
authorize
50,000,000
shares
of
serial
preferred
stock.
Provident
Bancorp
is
authorized
to
issue
preferred
stock
from
time
to
time
in
one
or
more
series
subject
to
applicable
provisions
of
law,
and
the
Board
of
Directors
is
authorized
to
fix
the
designations,
and
relative
preferences,
limitations,
voting
rights,
if
any,
including
without
limitation,
offering
rights
of
such
shares
(which
could
be
multiple
or
as
a
separate
class).
In
the
event
of
a
proposed
merger,
tender
offer
or
other
attempt
to
gain
control
of
Provident
Bancorp
that
the
Board
of
Directors
does
not
approve,
it
may
be
possible
for
the
Board
of
Directors
to
authorize
the
issuance
of
a
series
of
preferred
stock
with
rights
and
preferences
that
would
impede
the
completion
of
the
transaction.
An
effect
of
the
possible
issuance
of
preferred
stock
therefore
may
be
to
deter
a
future
attempt
to
gain
control
of
Provident
Bancorp.





 


















Amendments to Articles of Incorporation and Bylaws.
Amendments
to
the
articles
of
incorporation
must
be
approved
by
the
Board
of
Directors
and
by
the
affirmative
vote
of
at
least
two-thirds
of
the
outstanding
shares
of
common
stock,
or
by
the
affirmative
vote
of
a
majority
of
the
outstanding
shares
of
common
stock
if
at
least
two-thirds
of
the
members
of
the
whole
Board
of
Directors
approves
such
amendment;
provided,
however,
that
approval
by
at
least
80%
of
the
outstanding
voting
stock
is
generally
required
to
amend
certain
provisions.

The
articles
of
incorporation
also
provide
that
the
bylaws
may
be
amended
by
the
affirmative
vote
of
a
majority
of
Provident
Bancorp’s
directors
or
by
the

stockholders
by
the
affirmative
vote
of
at
least
80%
of
the
total
votes
eligible
to
be
cast
at
a
duly
constituted
meeting
of
stockholders.
Any
amendment
of
this
super-majority
requirement
for
amendment
of
the
bylaws
would
also
require
the
approval
of
80%
of
the
total
votes
eligible
to
be
cast.

Business Combinations.
Maryland
law
restricts
mergers,
consolidations,
sales
of
assets
and
other
business
combinations
between
Provident
Bancorp
and

an
“interested
stockholder,”
and
provides
certain
vote
standards
for
other
mergers,
consolidations,
sales
of
assets
and
other
business
combinations.

Evaluation of Offers.
The
articles
of
incorporation
provide
that
Provident
Bancorp’s
Board
of
Directors,
when
evaluating
a
transaction
that
would
or
may
involve
a
change
in
control
of
Provident
Bancorp
(whether
by
purchases
of
its
securities,
merger,
consolidation,
share
exchange,
dissolution,
liquidation,
sale
of
all
or
substantially
all
of
its
assets,
proxy
solicitation
or
otherwise),
may,
in
connection
with
the
exercise
of
its
business
judgment
in
determining
what
is
in
the
best
interests
of
Provident
Bancorp
and
its
stockholders
and
in
making
any
recommendation
to
the
stockholders,
give
due
consideration
to
all
relevant
factors,
including,
but
not
limited
to,
certain
enumerated
factors.

Purpose and Anti-Takeover Effects of Provident Bancorp’s Articles of Incorporation and Bylaws.
Our
Board
of
Directors
believes
that
the
provisions
described
above
are
prudent
and
reduce
our
vulnerability
to
takeover
attempts
and
certain
other
transactions
that
have
not
been
negotiated
with
and
approved
by
our
Board
of
Directors.
We
believe
these
provisions
are
in
the
best
interests
of
Provident
Bancorp
and
its
stockholders.
Our
Board
of
Directors
believes
that
it
is
in
the
best
position
to
determine
the
true
value
of
Provident
Bancorp
and
to
negotiate
more
effectively
for
what
may
be
in
the
best
interests
of
all
our
stockholders.
Accordingly,
our
Board
of
Directors
believes
that
it
is
in
the
best
interests
of
Provident
Bancorp
and
all
of
our
stockholders
to
encourage
potential
acquirers
to
negotiate
directly
with
the
Board
of
Directors
and
that
these
provisions
will
encourage
such
negotiations
and
discourage
hostile
takeover
attempts.
It
is
also
the
view
of
our
Board
of
Directors
that
these
provisions
should
not
discourage
persons
from
proposing
a
merger
or
other
transaction
at
a
price
reflective
of
the
true
value
of
Provident
Bancorp
and
that
is
in
the
best
interests
of
all
our
stockholders.

Takeover
attempts
that
have
not
been
negotiated
with
and
approved
by
our
Board
of
Directors
present
the
risk
of
a
takeover
on
terms
that
may
be
less

favorable
than
might
otherwise
be
available.
A
transaction
that
is
negotiated
and
approved
by
our
Board
of
Directors,
on
the
other
hand,
can
be
carefully
planned
and
undertaken
at
an
opportune
time
in
order
to
obtain
maximum
value
for
our
stockholders,
with
due
consideration
given
to
matters
such
as
the
management
and
business
of
the
acquiring
corporation.

Although
a
tender
offer
or
other
takeover
attempt
may
be
made
at
a
price
substantially
above
the
current
market
price,
such
offers
are
sometimes
made
for

less
than
all
of
the
outstanding
shares
of
a
target
company.
As
a
result,
stockholders
may
be
presented
with
the
alternative
of
partially
liquidating
their
investment
at
a
time
that
may
be
disadvantageous,
or
retaining
their
investment
in
an
enterprise
that
is
under
different
management
and
whose
objectives
may
not
be
similar
to
those
of
the
remaining
stockholders.

Despite
our
belief
as
to
the
benefits
to
stockholders
of
these
provisions
of
Provident
Bancorp’s
articles
of
incorporation
and
bylaws,
these
provisions
also

may
have
the
effect
of
discouraging
a
future
takeover
attempt
that
would
not
be
approved
by
our
Board
of
Directors,
but
pursuant
to
which
stockholders
may
receive
a
substantial
premium
for
their
shares
over
then
current
market
prices.
As
a
result,
stockholders
who
might
desire
to
participate
in
such
a
transaction
may
not
have
any
opportunity
to
do
so.
Such
provisions
will
also
make
it
more
difficult
to
remove
our
Board
of
Directors
and
management.
Our
Board
of
Directors,
however,
has
concluded
that
the
potential
benefits
outweigh
the
possible
disadvantages.























Federal Conversion Regulations

Federal
Reserve
Board
regulations
prohibit
any
person
from
making
an
offer,
announcing
an
intent
to
make
an
offer
or
participating
in
any
other
arrangement
to
purchase
stock
or
acquire
stock
or
subscription
rights
in
a
converting
institution
or
its
holding
company
from
another
person
prior
to
completion
of
its
conversion.
Further,
without
the
prior
written
approval
of
the
Federal
Reserve
Board,
no
person
may
make
an
offer
or
announcement
of
an
offer
to
purchase
shares
or
actually
acquire
shares
of
a
converted
institution
or
its
holding
company
for
a
period
of
three
years
from
the
date
of
the
completion
of
the
conversion
if,
upon
the
completion
of
such
offer,
announcement
or
acquisition,
the
person
would
become
the
beneficial
owner
of
more
than
10%
of
the
outstanding
stock
of
the
institution
or
its
holding
company.
The
Federal
Reserve
Board
has
defined
“person”
to
include
any
individual,
group
acting
in
concert,
corporation,
partnership,
association,
joint
stock
company,
trust,
unincorporated
organization
or
similar
company,
a
syndicate
or
any
other
group
formed
for
the
purpose
of
acquiring,
holding
or
disposing
of
securities
of
an
insured
institution.
However,
offers
made
exclusively
to
a
bank
or
its
holding
company,
or
to
an
underwriter
or
member
of
a
selling
group
acting
on
the
converting
institution’s
or
its
holding
company’s
behalf
for
resale
to
the
general
public,
are
excepted.
The
regulation
also
provides
civil
penalties
for
willful
violation
or
assistance
in
any
such
violation
of
the
regulation
by
any
person
connected
with
the
management
of
the
converting
institution
or
its
holding
company
or
who
controls
more
than
10%
of
the
outstanding
shares
or
voting
rights
of
a
converted
institution
or
its
holding
company.

Massachusetts Conversion Regulations

Massachusetts
regulations
provide
that,
without
prior
written
notice
to
us
and
the
prior
written
approval
of
the
Massachusetts
Commissioner
of
Banks,
no

person
may
directly
or
indirectly
offer
to
acquire
the
beneficial
ownership
of
more
than
10%
of
a
converted
holding
company
for
a
period
of
three
years
from
the
date
of
the
completion
of
the
conversion.
Where
a
person,
directly
or
indirectly,
acquires
beneficial
ownership
of
more
than
10%
of
a
converted
holding
company,
without
prior
written
notice
to
the
converted
holding
company
and
the
prior
written
approval
of
the
Massachusetts
Commissioner
of
Banks,
the
securities
beneficially
owned
by
such
person
in
excess
of
10%
shall
not
be
counted
as
shares
entitled
to
vote,
shall
not
be
voted
by
any
person
or
counted
as
voting
shares
in
connection
with
any
matter
submitted
to
the
stockholders
for
a
vote,
and
shall
not
be
counted
as
outstanding
for
purposes
of
determining
the
affirmative
vote
necessary
to
approve
any
matter
submitted
to
stockholders
for
a
vote,
and
the
Massachusetts
Commissioner
of
Banks
may
take
any
further
action
he
may
deem
appropriate.
The
regulation
provides
for
civil
penalties
for
a
violation
of
this
regulation.

Change in Control Law and Regulations

Under
the
Change
in
Bank
Control
Act,
no
person,
or
group
of
persons
acting
in
concert,
may
acquire
control
of
a
bank
holding
company
such
as

Provident
Bancorp
unless
the
Federal
Reserve
Board
has
been
given
60
days’
prior
written
notice
and
not
disapproved
the
proposed
acquisition.
The
Federal
Reserve
Board
considers
several
factors
in
evaluating
a
notice,
including
the
financial
and
managerial
resources
of
the
acquirer
and
competitive
effects.
Control,
as
defined
under
the
applicable
regulations,
means
the
power,
directly
or
indirectly,
to
direct
the
management
or
policies
of
the
company
or
to
vote
25%
or
more
of
any
class
of
voting
securities
of
the
company.
Acquisition
of
more
than
10%
of
any
class
of
a
bank
holding
company’s
voting
securities
constitutes
a
rebuttable
presumption
of
control
under
certain
circumstances,
including
where,
as
is
the
case
with
Provident
Bancorp,
the
issuer
has
registered
securities
under
Section
12
of
the
Securities
Exchange
Act
of
1934.

In
addition,
federal
regulations
provide
that
no
company
may
acquire
control
(as
defined
in
the
Bank
Holding
Company
Act)
of
a
bank
holding
company

without
the
prior
approval
of
the
Federal
Reserve
Board.
Any
company
that
acquires
such
control
becomes
a
“bank
holding
company”
subject
to
registration,
examination
and
regulation
by
the
Federal
Reserve
Board.





 


 


 






Massachusetts Banking Law

Under
Massachusetts
banking
laws,
a
company
owning
or
controlling
two
or
more
banking
institutions,
including
a
savings
bank,
is
regulated
as
a
bank
holding
company.
Each
Massachusetts
bank
holding
company:
(i)
must
obtain
the
approval
of
the
Massachusetts
Board
of
Bank
Incorporation
before
engaging
in
certain
transactions,
such
as
the
acquisition
of
more
than
5%
of
the
voting
stock
of
another
banking
institution;
(ii)
must
register,
and
file
reports,
with
the
Massachusetts
Division
of
Banks;
and
(iii)
is
subject
to
examination
by
the
Massachusetts
Division
of
Banks.
Provident
Bancorp
would
become
a
Massachusetts
bank
holding
company
if
it
acquires
a
second
banking
institution
and
holds
and
operates
it
separately
from
The
Provident
Bank.
In
addition,
for
a
period
of
three
years
following
completion
of
a
conversion
to
stock
form,
no
person
may
directly
or
indirectly
offer
to
acquire
or
acquire
beneficial
ownership
of
more
than
10%
of
any
class
of
equity
security
of
a
converting
mutual
savings
bank
or
mutual
holding
company
without
prior
written
approval
of
the
Massachusetts
Commissioner
of
Banks.

Benefit Plans

In
addition
to
the
provisions
of
Provident
Bancorp’s
articles
of
incorporation
and
bylaws
described
above,
benefit
plans
of
Provident
Bancorp
and
The
Provident
Bank
that
may
authorize
the
issuance
of
equity
to
its
board
of
directors,
officers
and
employees
adopted
in
connection
with
or
following
the
offering
contain
or
may
contain
provisions
which
also
may
discourage
hostile
takeover
attempts
which
the
board
of
directors
of
The
Provident
Bank
might
conclude
are
not
in
the
best
interests
of
Provident
Bancorp
and
The
Provident
Bank
or
Provident
Bancorp’s
stockholders.







 














Consent of Independent Registered Public Accounting Firm

We
hereby
consent
to
the
incorporation
by
reference
in
these
Registration
Statements
on
Form
S-8
(333-
234401
and
333-234402),
of
Provident
Bancorp,
Inc.
of
our
report
dated
March
13,
2020,
with
respect
to
the
consolidated
financial
statements
of
Provident
Bancorp,
Inc.,
which
appears
in
this
Annual
Report
on
Form
10-K.

EXHIBIT 23​

/s/
Whittlesey
PC

Hartford,
Connecticut

March
13,
2020







EXHIBIT 31.1​

CERTIFICATION OF CHIEF EXECUTIVE OFFICER 
PURSUANT TO RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, 
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,
David
P.
Mansfield,
certify
that:

1.


I
have
reviewed
this
Annual
Report
on
Form
10-K
of
Provident
Bancorp,
Inc.;

2.


3.


4.


Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statements
made,
in
light
of
the
circumstances
under
which
such
statements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;

Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financial
condition,
results
of
operations
and
cash
flows
of
the
registrant
as
of,
and
for,
the
periods
presented
in
this
report;

The
registrant’s
other
certifying
officer
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15(e))
and
internal
control
over
financial
reporting
(as
defined
in
Exchange
Act
Rules
13a-15(f)
and
15d-15(f))
for
the
registrant
and
have:

(a)


(b)


(c)


(d)


Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
registrant,
including
its
consolidated
subsidiaries,
is
made
known
to
us
by
others
within
those
entities,
particularly
during
the
period
in
which
this
report
is
being
prepared;

Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting
to
be
designed
under
our
supervision,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles;

Evaluated
the
effectiveness
of
the
registrant’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
of
the
disclosure
controls
and
procedures,
as
of
the
end
of
the
period
covered
by
this
report
based
on
such
evaluation;
and

Disclosed
in
this
report
any
change
in
the
registrant’s
internal
control
over
financial
reporting
that
occurred
during
the
registrant’s
most
recent
fiscal
quarter
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
the
registrant’s
internal
control
over
financial
reporting;
and

5.


The
registrant’s
other
certifying
officer
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
registrant’s
auditors
and
the
audit
committee
of
the
registrant’s
board
of
directors:

(a)


All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
the
registrant’s
ability
to
record,
process,
summarize
and
report
financial
information;
and

(b)


Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
registrant’s
internal
control
over
financial
reporting.

Date:
March
13,
2020

/s/
David
P.
Mansfield

David
P.
Mansfield

President
and
Chief
Executive
Officer







EXHIBIT 31.2​

CERTIFICATION OF CHIEF FINANCIAL OFFICER 
PURSUANT TO RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, 
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,
Carol
L.
Houle,
certify
that:

1.


I
have
reviewed
this
Annual
Report
on
Form
10-K
of
Provident
Bancorp,
Inc.;

2.


3.


4.


Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statements
made,
in
light
of
the
circumstances
under
which
such
statements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;

Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financial
condition,
results
of
operations
and
cash
flows
of
the
registrant
as
of,
and
for,
the
periods
presented
in
this
report;

The
registrant’s
other
certifying
officer
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15(e))
and
internal
control
over
financial
reporting
(as
defined
in
Exchange
Act
Rules
13a-15(f)
and
15d-15(f))
for
the
registrant
and
have:

(a)


(b)


(c)


(d)


Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
registrant,
including
its
consolidated
subsidiaries,
is
made
known
to
us
by
others
within
those
entities,
particularly
during
the
period
in
which
this
report
is
being
prepared;

Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting
to
be
designed
under
our
supervision,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles;

Evaluated
the
effectiveness
of
the
registrant’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
of
the
disclosure
controls
and
procedures,
as
of
the
end
of
the
period
covered
by
this
report
based
on
such
evaluation;
and

Disclosed
in
this
report
any
change
in
the
registrant’s
internal
control
over
financial
reporting
that
occurred
during
the
registrant’s
most
recent
fiscal
quarter
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
the
registrant’s
internal
control
over
financial
reporting;
and

5.


The
registrant’s
other
certifying
officer
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
registrant’s
auditors
and
the
audit
committee
of
the
registrant’s
board
of
directors:

(a)


All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
the
registrant’s
ability
to
record,
process,
summarize
and
report
financial
information;
and

(b)


Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
registrant’s
internal
control
over
financial
reporting.

Date:
March
13,
2020

/s/
Carol
L.
Houle

Carol
L.
Houle

Executive
Vice
President
and
Chief
Financial
Officer







CERTIFICATION PURSUANT TO 
18 U.S.C. SECTION 1350 
AS ADOPTED PURSUANT TO 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EXHIBIT 32​

David
P.
Mansfield,
President
and
Chief
Executive
Officer
of
Provident
Bancorp,
Inc.
(the
“Company”),
and

Carol
L.
Houle,
Executive
Vice
President
and
Chief
Financial
Officer
of
the
Company,
each
certify
in
his
or
her
capacity
as
an
officer
of
the
Company
that
they
have
reviewed
the
annual
report
on
Form
10-K
for
the
year
ended
December
31,
2019
(the
“Report”)
and
that
to
the
best
of
their
knowledge:

1.


2.


the
Report
fully
complies
with
the
requirements
of
Sections
13(a)
or
15(d)
of
the
Securities
Exchange
Act
of
1934;
and

the
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
results
of
operations
of
the
Company.

Date:
March
13,
2020

/s/
David
P.
Mansfield

David
P.
Mansfield

President
and
Chief
Executive
Officer

Date:
March
13,
2020

/s/
Carol
L.
Houle

A
signed
original
of
this
written
statement
required
by
Section
906
has
been
provided
to
the
Company
and
will

be
retained
by
the
Company
and
furnished
to
the
Securities
and
Exchange
Commission
or
its
staff
upon
request.

Carol
L.
Houle

Executive
Vice
President
and
Chief
Financial
Officer