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Provident Bancorp rocked by cryptocurrency losses, ‘delinquent’ with earnings report

PORTSMOUTH — Provident Bancorp Inc. is facing third-quarter losses of as much as $27.5 million because of cryptocurrency-related issues, according to filings with the U.S. Securities and Exchange Commission.

Provident Bancorp Inc., which is the holding company for BankProv, is headquartered in Amesbury, Massachusetts. It has numerous Seacoast branches, and offices in downtown Portsmouth at 25 Maplewood Ave.

The company received a “delinquency letter” from Nasdaq Stock Market officials in November because it failed to file its third-quarter earnings report on time, according to the SEC filings and its own press releases.

In addition, the bank’s stock dropped from close to $18 per share a year ago to less than $7 at mid-week.

The company’s struggles revolve around cryptocurrencies, according to SEC filings. Cryptocurrencies are virtual or digital currencies, which are typically unregulated and known for their volatility, according to TD Ameritrade, an online brokerage.

“Unlike traditional currencies, such as the U.S. dollar, they’re not controlled by any central government or authority,” the company stated on its website.

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Provident’s earnings report is late

Provident Bancorp filed a report with the SEC acknowledging it could not file its quarterly financial reports on time, according to a copy of the filing.

The company “currently estimates that it will report a net loss of approximately $27.5 million for the quarter ended September 30, 2022, compared to net income of $5.1 million for the quarter ended September 30, 2021,” according to the filing.

“The company is still evaluating the actual level of losses … and such losses may exceed this estimate,” according to the filing.

The net loss projected by the company “resulted from a provision for loan losses for the quarter ended September 30, 2022.”

“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 loans, the collectability of all principal and interest related to these loans,” as well as the value of other cryptocurrency instruments “that serve as the underlying collateral,” according to the filing. 

Provident Bancorp Inc. further explained it “entered into an asset purchase agreement whereby the bank repossessed” cryptocurrecny-related collateral “in exchange for the forgiveness of a $28 million loan to a borrower.”  

“As of today, the bank has not entered into an agreement for the resale of the collateral. The company is in the process of completing its evaluation of the write-down of the collateral and the impact on its consolidated financial statements as a whole,” the company said in the press release which was issued earlier this fall.

Provident: ‘Sound financial footing’

In response to questions from Seacoast Media Group, Provident Bancorp Chief Financial Officer Carol Houle issued a statement late Tuesday.

“BankProv has an almost 200-year track record of sound banking practices and financial expertise. Like many others in the industry, we experienced quarterly losses related to the cryptocurrency market,” she said. “The bank has announced that it has no direct exposure to the bankrupt FTX or BlockFi or any of their entities. The bank has no outstanding loans to, investments in, or deposits from, and has not partnered with either firm.”

“Throughout our history, we built a well-diversified portfolio to minimize the risks inherent in any one sector. While we have indicated in our public filings that the filing of the 10Q report will be delayed, we are working to file it as soon as possible,” she added. “We remain comfortable and confident that we are on sound financial footing for the future.”

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Neither Houle nor the company’s spokesperson responded to a direct question from Seacoast Media Group asking if the recent financial losses would impact jobs at Provident.

BlockFi is a cryptocurrency lender that filed for bankruptcy Monday because of its financial ties to FTX, the New York Times reported.

FTX, a cryptocurrency exchange, filed for bankruptcy itself earlier in November, as reported by USA Today and media around the world.

A disappearing investment?

TD Ameritrade, a well-known financial services company, writes that if you invest in cryptocurrencies “nothing exists yet to back you up, like the Federal Deposit Insurance Corporation does for U.S. bank customers.”

“That means investors are entirely responsible for the security of any cryptocurrency holdings,” TD Ameritrade states. “Additionally, cryptocurrency prices and prices for any related securities can be very volatile. Considering the possibility that the entire value of a cryptocurrency investment could disappear, investors who don’t think they could handle the market swings might want to steer clear.”

Likewise, former SEC Chairman Jay Clayton said with cryptocurrencies “there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.”

Nasdaq issues ‘notice of delinquency’

In late November, Nasdaq sent the bank “a notice of delinquency or failure to satisfy a continued listing rule” for not filing its financial reports as required.

The bank must submit “a plan of compliance within 60 calendar days, or no later than January 16, 2023, addressing how it intends to regain compliance with Nasdaq’s listing rules,” according to a copy of the letter.

The notice does not impact the bank’s ability to trade stock on Nasdaq.

Provident is not in NH’s jurisdiction

Asked about the issues with Provident Bancorp, a representatives from the New Hampshire Banking Department said the company “is not a chartered institution in New Hampshire (and) does not fall under the jurisdiction of the Banking Department.”

“We are unable to comment on anything related to this situation, but would recommend that consumers with any banking-related concerns contact the bank’s primary regulator,” department officials said in a statement released Wednesday afternoon. “BankProv is regulated by the Massachusetts Division of Banks, and its primary federal regulator is the Federal Deposit Insurance Corporation (FDIC).”

The Massachusetts Division of Banks (DOB) confirmed it is aware of the Provident Bankcorp situation and is monitoring it.

Portsmouth Mayor Deaglan McEachern said he was unaware of the news when reached Tuesday.

“It’s not something that we’ve been asked about. Nobody has reached out to us about it,” he said.

The mayor has met some of the members of Provident Bancorp’s leadership team, and said they’ve been “great members of the community.”

“I wish them all the best moving forward,” he said.

McEachern confirmed that the city of Portsmouth “has not invested a cent” in any cryptocurrencies and is not allowed to under state regulations.

Asked about cryptocurrency in general, McEachern said, “When it comes to investment advice, I don’t think you should listen to the mayor of Portsmouth, and I also don’t think you should listen to Tom Brady.”

Brady previously endorsed FTX and has been named in a recent lawsuit because of his support for the now bankrupt company.

Read More:Provident Bancorp rocked by cryptocurrency losses, ‘delinquent’ with earnings report