iStock illustration
BankProv’s third quarter losses could exceed $27 million, and a majority of a cryptocurrency-related loan portfolio could be impaired, the bank said yesterday in a securities filing.
Amesbury-based Provident Bancorp, BankProv’s parent company, estimates that it could have a third quarter net loss of $27.5 million but needs additional time to complete its third quarter results, according to an SEC 8-K filing.
The bank sought to build out a significant line of business focused on providing financing to companies in the cryptocurrency industry starting in 2020, a move that came with its rebranding as BankProv.
“The Company is still evaluating the actual level of losses due to the recent decline in the cryptocurrency mining industry, and such losses may exceed this estimate,” the bank said in the filing.
The bank said it would not complete its 10-Q quarterly report in the required time frame, citing uncertainty around its digital asset mining portfolio.
“During the third quarter of 2022, the volatility in Bitcoin and rising energy costs called into question the financial stability of the Company’s borrowers who hold digital asset mining loans, the collectability of all principal and interest related to these loans, as well as the value of the cryptocurrency mining rigs that serve as the underlying collateral,” the filing said.
BankProv had agreed to forgive a borrower’s $27.4 million digital asset mining loan and repossess cryptocurrency mining rigs in September, which the bank partially wrote down, according to yesterday’s filing.
After forgiving the $27.4 million loan, BankProv ended the third quarter with a digital asset mining loan portfolio of $76.5 million. A detailed review of this portfolio followed, triggered in part by this loan loss, the filing said. The bank estimated that a majority of the portfolio amount is impaired and expected to be placed on non-accrual status, resulting in significant specific reserves.
Provident Bancorp’s stock, which trades on the Nasdaq as PVBC, had fallen nearly 20 percent Wednesday morning.
Investment banking company Stephens downgraded the stock from overweight to equal-weight yesterday and estimated in a research brief that the bank could see a 12 percent reduction in tangible book value and a nearly $50 million increase in non-performing assets.
BankProv’s problems come as the cryptocurrency industry is being shaken by the failure of popular exchange platform FTX last week. Short billions of dollars to pay back customers, experiencing the equivalent of a bank run and unable to find another company to buy it, the exchange has sought bankruptcy protection.
