A close-up photograph of a computer used to mine cryptocurrency, also called a "mining rig." Photo by MoneyBright | CC BY 2.0
BankProv saw positive earnings in the fourth quarter after a review of impaired loans in its cryptocurrency mining portfolio led to a $35 million loss in the previous quarter.
Amesbury-based Provident Bancorp Inc., the bank’s parent company, had fourth quarter net income of $2.7 million, or $0.16 per diluted share, compared to a net loss of $35.3 million, or a loss of $2.15 per diluted share, in the third quarter and net income of $3.6 million, or $0.21 per diluted share, in the fourth quarter of 2021.
The net loss for full-year 2022 was $21.5 million, or a loss of $1.30 per diluted share, compared to net income of $16.1 million, or $0.93 per diluted share, in 2021.
The bank had just released third quarter financial results two weeks ago in its 10-Q quarterly report filed with the Securities and Exchange Commission. The bank revealed in the third quarter report that it had sold impaired loans in its cryptocurrency mining portfolio in December, prompting the bank to retroactively make a $56.3 million provision for loan losses for the third quarter to cover net charge-offs for the impaired loans.
Net charge-offs for the third quarter totaled $46.2 million, and the fourth quarter had $7,000 in net charge-offs. The bank ended up releasing $970,000 from reserves in the fourth quarter because of the reduced balance in its loan portfolio.
In addition to no longer originating loans for cryptocurrency mining rigs, the bank had said in the third quarter report that it had identified weaknesses in its controls and procedures related to the cryptocurrency mining portfolio, including conflicts of interest.
BankProv’s CEO, Dave Mansfield, resigned in December.
“As we reflect on 2022, we are eager to take its lessons and emerge a better, stronger bank,” Carol Houle, the bank’s chief financial officer who is also currently the interim co-president and co-CEO, said in the statement. “Despite our 2022 losses, we enter 2023 well capitalized and well diversified. During the fourth quarter, we took decisive action to reduce our exposure to loans secured by cryptocurrency mining rigs. Not only are we no longer originating these types of loans, we have also reduced that portfolio to nearly half what it was at September 30, 2022. The remaining sectors of our loan portfolio continue to perform in accordance with our historical experience, and it is in large part due to our long-term strategy of portfolio diversification that we have been able to weather recent volatility and losses.”
The bank’s fourth quarter expenses reflected some of the measures it took to address its difficulties. The bank had fourth quarter noninterest expenses of $17.2 million, up $5.2 million from the third quarter and $5.4 million from the fourth quarter of 2021.
Professional fees increased in the fourth quarter in part due to increased legal, audit and compliance costs related to the review of BankProv’s digital asset lending practices, the bank said. Professional fees in the fourth quarter increased by $1.8 million, or 242.7 percent, compared to the third quarter.
Salaries and employee benefits went up 25.1 percent from the third quarter, primarily due to $1.5 million in expenses related to Mansfield’s separation from employment. The bank said it also increased staff to support the development and implementation of new technologies and products.
BankProv had total assets at the end of 2022 of $1.64 billion, down 7.7 percent from the third quarter and 5.4 percent from the fourth quarter of 2021. Net loans totaled $1.41 billion, down $62.4 million from the third quarter and $17.8 million from the end of 2021. The bank had a digital asset portfolio of $41.2 million as of Dec. 31, including $26.7 million in loans secured by cryptocurrency mining rigs.
Deposits totaled $1.28 billion as of Dec. 31, down 13 percent compared to Sept. 30 and 12.4 percent from Dec. 31, 2021.
“The Bank will continue the tradition of providing a full suite of commercial products and banking solutions,” Joe Reilly, interim co-president and co-CEO, said in the earnings statement. “We will continue to leverage new technology and to utilize the infrastructure we’ve developed to service new and existing Banking as a Service (“BaaS”) customers. Additionally, I am personally excited to make use of my experience in community banking to further deepen the Bank’s connection to our local markets and communities.”
