As filed with the Securities and Exchange
Commission on March 13, 2015
Registration No. 333-________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Provident Bancorp, Inc. and
SBERA 401(k) Plan as Adopted by The Provident
Bank
(Exact Name of Registrant as Specified in Its
Charter)
|
Massachusetts
|
6712
|
45-3231576
|
|
(State or Other Jurisdiction of
|
(Primary Standard Industrial
|
(I.R.S. Employer
|
|
Incorporation or Organization)
|
Classification Code Number)
|
Identification Number)
|
5 Market Street
Amesbury, MA 01913
(978) 388-0050
(Address, Including Zip Code, and Telephone
Number, Including Area Code, of
Registrant’s Principal Executive Offices)
Mr. David P. Mansfield
President and Chief Executive Officer
5 Market Street
Amesbury, MA 01913
(978) 388-0050
(Address, Including Zip Code, and Telephone
Number, Including Area Code, of
Agent for Service)
Copies to:
|
Lawrence M. F. Spaccasi, Esq.
Edward A. Quint, Esq.
Luse Gorman, PC
5335 Wisconsin Avenue, N.W., Suite 780
Washington, D.C. 20015
(202) 274-2000
|
Michael K. Krebs, Esq.
Thomas V. Powers, Esq.
Nutter McClennen & Fish LLP
155 Seaport Boulevard
Boston, MA 02210
(617) 439-2000
|
Approximate date of commencement of proposed
sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following
box:
x
If this Form is filed to register additional shares
for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering:
¨
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering:
¨
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering:
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
|
|
Large accelerated filer
|
¨
|
Accelerated filer
|
¨
|
|
|
Non-accelerated filer
|
¨
|
Smaller reporting company
|
x
|
|
|
(Do not check if a smaller reporting company)
|
|
|
CALCULATION OF REGISTRATION FEE
Title of each class of
securities to be registered
|
|
Amount to be
registered
|
|
Proposed maximum
offering price per share
|
|
|
Proposed maximum
aggregate offering price
|
|
|
Amount of
registration fee
|
|
|
Common
Stock, no par value per share
|
|
5,072,052
shares
|
|
$
|
10.00
|
|
|
$
|
50,720,520
|
(1)
|
|
$
|
5,894
|
|
|
Participation
interests
|
|
965,677 interests
(2)
|
|
|
|
|
|
|
|
|
|
|
|
(2
)
|
|
Senior
Non-Cumulative Perpetual Preferred Stock, Series A
|
|
17,145 shares
|
|
$
|
1,000
|
(3)
|
|
$
|
17,145,000
|
|
|
$
|
1,993
|
|
|
|
(1)
|
Estimated solely for the purpose of calculating the registration
fee.
|
|
|
(2)
|
The securities of Provident Bancorp, Inc. to be purchased
by the SBERA 401(k) Plan as Adopted by The Provident Bank are included in the amount shown for the common stock. Accordingly,
in accordance with Rule 457(h)(2), no separate fee is required for the participation interests.
|
|
|
(3)
|
Represents the liquidation preference amount per share
of the Series C Noncumulative Perpetual Preferred Stock being registered for resale, which the registrant sold to the United States
Department of Treasury pursuant to the Small Business Lending Fund Program.
|
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
Prospectus Supplement
Interests in
SBERA 401(k) PLAN AS ADOPTED BY
THE PROVIDENT BANK
Offering of Participation Interests in up
to 965,677 Shares of
PROVIDENT BANCORP, INC.
Common Stock
Provident Bancorp, Inc., a Massachusetts corporation,
is offering shares of common stock for sale at $10.00 per share in an initial public stock offering. In connection with the stock
offering, Provident Bancorp, Inc. is allowing employees and former employees of The Provident Bank, who are participants in the
SBERA 401(k) Plan as Adopted by The Provident Bank (the “401(k) Plan”) to invest all or a portion of their accounts
in stock units representing an indirect ownership interest in Provident Bancorp, Inc. common stock, no par value per share. Based
upon the value of the 401(k) Plan assets at December 31, 2014, the trustee of the 401(k) Plan could acquire up to 965,677
shares
of Provident Bancorp, Inc. Common Stock, at the purchase price of $10.00 per stock unit. This prospectus supplement relates to
the initial election of 401(k) Plan participants to direct the trustee of the 401(k) Plan to invest all or a portion of their 401(k)
Plan accounts in stock units representing an indirect ownership interest in Provident Bancorp, Inc. Common Stock at the time of
the stock offering.
The prospectus of Provident Bancorp, Inc. dated
[date]
, is provided with this prospectus supplement. It contains detailed information regarding the stock offering of Provident
Bancorp, Inc. and the financial condition, results of operations and business of Provident Bancorp, Inc. and The Provident Bank.
This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together
with the prospectus and keep both for future reference.
________________________________
For a discussion of risks that you should
consider, see “Risk Factors” beginning on page [#] of the prospectus.
The interests in the 401(k) Plan and the
offering of the shares of Provident Bancorp, Inc. Common Stock have not been approved or disapproved by the Board of Governors
of the Federal Reserve System, the Massachusetts Commissioner of Banks, the Securities and Exchange Commission or any other federal
or state agency. Any representation to the contrary is a criminal offense.
The securities offered in this prospectus
supplement are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund.
This prospectus supplement may be used only
in connection with offers and sales by Provident Bancorp, Inc. in the stock offering of Provident Bancorp, Inc. Common Stock acquired
by the 401(k) Plan. No one may use this prospectus supplement to reoffer or resell interests in shares of Common Stock acquired
through the 401(k) Plan.
You should rely only on the information contained
in this prospectus supplement and the prospectus. Provident Bancorp, Inc., The Provident Bank and the 401(k) Plan have not authorized
anyone to provide you with information that is different.
This prospectus supplement does not constitute
an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to
make an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any
sale of Provident Bancorp, Inc. Common Stock shall under any circumstances imply that there has been no change in the affairs of
Provident Bancorp, Inc., The Provident Bank, or the 401(k) Plan since the date of this prospectus supplement, or that the information
contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus
supplement.
The date of this prospectus supplement is
[date]
.
TABLE OF CONTENTS
THE OFFERING
|
|
|
|
|
Securities Offered
|
Provident
Bancorp, Inc. is offering participants of the 401(k) Plan the opportunity to purchase stock units representing an indirect ownership
interest (also referred to as a “participation interest”) in Provident Bancorp, Inc. Common Stock acquired by the 401(k)
Plan. Based on the fair market value of the 401(k) Plan’s assets as of December 31, 2014, at the purchase price of $10.00
per share, the 401(k) Plan may acquire up to 965,677
shares
of Provident Bancorp, Inc. Common Stock in the stock offering.
Only employees
of The Provident Bank may become participants in the 401(k) Plan and only participants, including former employees of The Provident
Bank with an account balance in the 401(k) Plan, may purchase stock units representing an interest in shares of Provident Bancorp,
Inc. Common Stock in the 401(k) Plan. Your investment in stock units in connection with the stock offering through an investment
in the Provident Bancorp Stock Account (described below) is subject to the purchase priorities listed below under “Purchase
Priorities.”
Information with regard to the 401(k) Plan and your opportunity
to invest in stock units through an investment in the Provident Bancorp Stock Account is contained in this prospectus supplement
and information with regard to the financial condition, results of operations and business of Provident Bancorp, Inc. and The Provident
Bank is contained in the accompanying prospectus. The address of the principal executive office of Provident Bancorp, Inc. and
The Provident Bank is 5 Market Street, Amesbury, MA 01913. The Provident Bank’s telephone number at this address is (978)
834-8555.
All questions about this prospectus supplement and completing
the Special Investment Election Form should be addressed to Tammy Medico, Vice President, Human Resources, at The Provident Bank;
telephone #: (___) ___-____; email: [email].
Questions about the stock offering, the
prospectus, or purchasing Provident Bancorp, Inc. Common Stock in the stock offering outside the 401(k) Plan may be directed to
the Stock Information Center, at (___
) ___-____
, Monday through Friday, 10:00 a.m. through
4:00 p.m., Eastern Time.
|
|
Election to Purchase Common Stock
|
You may elect to transfer all or a part of your 401(k) Plan account (subject to the limitations described below) to the Provident Bancorp Stock Account to be used to purchase stock units representing an
|
|
|
interest in shares of Provident Bancorp, Inc. Common Stock in the
stock offering at $10.00 per share. The trustee of the 401(k) Plan will purchase Provident Bancorp, Inc. Common Stock at $10.00
per share, in accordance with your directions. However, such directions are subject to purchase priorities and purchase limitations,
as described below. Following the stock offering, the shares of Provident Bancorp, Inc. Common Stock acquired by the trustee in
the stock offering will held in an account in the 401(k) Plan titled the “Provident Bancorp Stock Account.”
|
|
Purchase Priorities
|
All 401(k) Plan participants are eligible to subscribe for stock
units representing an indirect ownership interest in Provident Bancorp, Inc. Common Stock in the stock offering. However, such
directions are subject to the purchase priorities in the Provident Bancorp, Inc. Plan of Stock Issuance, which provides for a subscription
offering and a direct community offering. In the offering, purchase priorities, in descending order, are as follows and apply in
case more shares of Provident Bancorp, Inc. Common Stock are ordered than are available for sale (an “oversubscription”):
Subscription Offering:
(1) Depositors of The Provident
Bank with aggregate account balances of at least $50 as of the close of business on February 28, 2014, have first priority.
(2) The Provident Bank’s
tax-qualified plans, including the employee stock ownership plan and the 401(k) Plan, have second priority.
(3) Employees, officers, directors,
trustees and corporators of The Provident Bank or Provident Bancorp, Inc., who do not have a higher priority to purchase, will
have third priority, to the extent there are shares remaining after satisfaction of subscriptions by persons in the priority categories
above.
Community Offering, if held:
(4) Shares of Provident Bancorp,
Inc. Common Stock not purchased in the subscription offering may be offered for sale to the public in a “direct community
offering,” with the following preferences: (i) natural persons (including trusts of natural persons) residing in the Massachusetts
cities and towns of Amesbury, Merrimac, Newbury, Newburyport, Salisbury and West Newbury, and the New Hampshire cities and towns
of Brentwood, Exeter, Greenland, Hampton, Hampton Falls, Kensington, New Castle, Newfields,
|
|
|
Newington, Newmarket, North Hampton, Portsmouth, Rye, Seabrook,
South Hampton and Stratham and (iv) members of the general public.
If you fall into subscription offering
categories (1) or (3), you have subscription rights to purchase Provident Bancorp, Inc. Common Stock
in the subscription offering. If you are not eligible in the subscription offering, you may be eligible to purchase in the direct
community offering, if shares remain available for sale in the direct community offering. You may use funds in the 401(k) Plan
to pay for stock units representing an indirect interest in shares of Provident Bancorp, Inc. Common Stock. However, if you elect
to purchase stock units through the 401(k) Plan and fall into subscription offering category (3) or are eligible in the direct
community offering, your purchase order may be filled through priority category (2) reserved for The Provident Bank’s tax-qualified
plans. You may place an order for the purchase of stock units representing an interest in Provident Bancorp, Inc. Common Stock
through the 401(k) Plan by using the enclosed Special Investment Election Form, to be completed and submitted in the manner described
below under “How to Order Common Stock in the Stock Offering through the 401(k) Plan.”
The above-listed purchase priorities will also apply to any purchase
of Provident Bancorp, Inc. Common Stock outside of the 401(k) Plan.
If you are eligible in the
subscription offering, as listed above, you will separately receive an offering materials package in the mail, including a stock
order form. You may use the stock order form to subscribe for shares outside the 401(k) Plan. Please refer to the offering prospectus
for information on how to make such purchases. If you wish to subscribe for shares of Provident Bancorp, Inc. Common Stock outside
the 401(k) Plan and you are not eligible to participate in the subscription offering, you may request offering materials by calling
our Stock Information Center,
at (___) ___-____
. Your order would be placed in the community
offering, if held. Orders received in the subscription offering take precedence over the community offering orders in the event
the stock offering is oversubscribed.
|
|
Purchase in the Stock Offering and Oversubscriptions
|
The trustee of the 401(k) Plan will purchase shares of Provident Bancorp, Inc. Common Stock in the stock offering in accordance with your investment direction set forth on the Special Investment Election Form. At the conclusion of the “401(k) Offering Period” (as defined below in the Section on “How to Order Common Stock in the Stock Offering Through the 401(k) Plan”), the amount that you designate to be used to purchase stock units will be sold from your existing investment funds held in the 401(k) Plan and the
|
|
|
proceeds transferred to a separate account maintained by the 401(k)
Plan (the “Provident Bancorp Stock Account”). The proceeds transferred to the Provident Bancorp Stock Account will
be held separately from all other 401(k) Plan assets pending the formal completion of the stock offering several weeks later. Prior
to the completion of the stock offering, we will determine whether all, or any portion of, your order will be filled (if the offering
is oversubscribed, you may not receive any, or all of, your order, depending on your purchase priority, as described above). The
amount that can be used toward your order of stock units will be applied to the purchase of shares of Provident Bancorp, Inc. Common
Stock.
In the event the offering is oversubscribed,
i.e.
,
there are more orders for Provident Bancorp, Inc. Common Stock than shares available for sale in the stock offering, and the trustee
is unable to use the full amount allocated by you to purchase Provident Bancorp, Inc. Common Stock in the offering, the amount
that cannot be invested in Provident Bancorp, Inc. Common Stock, and any interest earned on such amount, will be transferred out
of the Provident Bancorp Stock Account and reinvested in the existing investment funds of the 401(k) Plan, in accordance with your
then existing investment elections (in proportion to your investment direction for future contributions).
If you choose not to direct the investment of
your 401(k) Plan account balance towards the purchase of Provident Bancorp, Inc. Common Stock in the stock offering, your account
balances will remain in the investment funds of the 401(k) Plan as previously directed by you.
|
|
Composition of the Provident Bancorp Stock Account
|
Shares purchased by the 401(k) Plan in the stock offering will be
held by the Provident Bancorp Stock Account. The Provident Bancorp Stock Account is neither a mutual fund nor a diversified or
managed investment option. Rather, it is merely a recordkeeping mechanism established by Savings Banks Employees Retirement Association
(“SBERA”), the 401(k) Plan custodian and recordkeeper, to track the shares purchased by the participants in the stock
offering through the 401(k) Plan. The Provident Bancorp Stock Account will initially invest 100% of the amounts allocated to the
fund (other than amounts returned to the other investment accounts due to an oversubscription) in Provident Bancorp, Inc. Common
Stock and a stock unit will be initially valued at $10.00, the offering price of the Common Stock.
After the closing of the stock offering, as 401(k) Plan participants
begin to trade their stock units or acquire new stock units, the
|
|
|
Provident Bancorp Stock Account will maintain a cash component for
liquidity purposes. Liquidity is required in order to facilitate daily transactions, such as investment transfers or distributions
from the Provident Bancorp Stock Account. Following the stock offering, each day, the stock unit value of the Provident Bancorp
Stock Account will be determined by dividing the total market value of the Provident Bancorp Stock Account at the end of the day
by the total number of units held in the Provident Bancorp Stock Account by all participants as of the previous day’s end.
The change in stock unit value reflects the day’s change in stock price, any cash dividends accrued and the interest earned
on the cash component of the Provident Bancorp Stock Account, less any investment management fees. The market value and unit holdings
of your account in the Provident Bancorp Stock Account will be reported to you on your regular participant statements.
Investment in the Provident Bancorp Stock Account involves special
risks common to investments in shares of Provident Bancorp, Inc. Common Stock.
For a discussion
of material risks you should consider, see the “Risk Factors” section of the accompanying prospectus and the section
of the prospectus supplement called “Notice of Your Rights Concerning Employer Securities” (see below).
|
|
Election to Purchase Common Stock in the Stock Offering through the 401(k) Plan
|
In connection with the stock offering, the 401(k) Plan will permit
you to direct the trustee to transfer all or a part of your 401(k) Plan account balance to the Provident Bancorp Stock Account
for the purchase of stock units representing an ownership interest in Provident Bancorp, Inc. Common Stock. The trustee of the
401(k) Plan will subscribe for shares of the Provident Bancorp, Inc. Common Stock offered for sale in the stock offering, in accordance
with each participant’s direction. The trustee will pay $10.00 per share, which will be the same price paid by all other
persons who purchase shares in the subscription and community offerings. In order to purchase Provident Bancorp, Inc. Common Stock
through the 401(k) Plan, the minimum investment is $250, which will purchase 25 shares. The prospectus describes further the maximum
purchase limits for investors in the stock offering.
|
|
Value of 401(k) Plan Assets
|
As of December 31, 2014, the market value of
the assets of the 401(k) Plan was approximately $9,656,770, all of which is eligible to purchase or acquire Provident Bancorp,
Inc. Common Stock in the offering. SBERA informed each participant of the value of his or her account balance under the 401(k)
Plan as of December 31, 2014.
|
|
How to Order Common Stock in the Stock Offering
|
Enclosed is a Special Investment Election Form on which you can elect to purchase Provident Bancorp, Inc. Common Stock in the
|
|
Through the 401(k) Plan
|
stock offering. This is done by following the
procedures described below. Please note the following stipulations concerning this election:
·
You
can elect to transfer all or a portion of your account in the 401(k) Plan to the Provident Bancorp Stock Account.
·
Your
election is subject to a minimum purchase of 25 shares, which equals $250.
·
Your
election, plus any stock order you placed outside the 401(k) Plan, are together subject to a maximum purchase of 15,000 shares,
which equals $150,000, or 25,000
shares ($250,000) if you purchase in concert with an associate or a group of persons acting
in concert (as more fully described in the prospectus).
·
The
election period for the 401(k) Plan purchases ends at 5:00 p.m., Eastern Time, on [date] (the “401(k) Plan Offering Period”)
.
·
Following
the 401(k) Offering Period, the 401(k) Plan trustee will sell the applicable percentage of each of your investment funds that you
have elected to sell in order to purchase shares in the Provident Bancorp Stock Account and will transfer the proceeds upon settlement
to the Provident Bancorp Stock Account. The 401(k) Plan trustee will process such sales for all participants on a single day following
the 401(k) Offering Period and before the close of the subscription offering period.
·
During
the 401(k) Plan Offering Period, you will continue to have the ability to make intra-plan transfers among the various investment
funds in the 401(k) Plan. However, you will not be permitted to change the investment amounts that you designated to be transferred
to the Provident Bancorp Stock Account to purchase stock in the stock offering.
·
The
amount you elect to transfer to the Provident Bancorp Stock Account will be held separately by the 401(k) Plan until the formal
closing of the stock offering occurs, which will be several weeks after the completion of the 401(k) Plan Offering Period. Once
transferred to the Provident Bancorp Stock Account, you will not have access to this money and this money will
not
be available
for distributions, loans or withdrawals until it is used to purchase Provident Bancorp, Inc. Common Stock.
|
|
|
If you wish to purchase Provident Bancorp, Inc.
Common Stock in the stock offering through the 401(k) Plan, you should indicate that decision on your Special Investment Election
Form.
If you do not wish to make an election, you should check box D on the Special Investment Election Form. You may return
the form in one of several ways: (1) using the enclosed self-addressed envelope, (2) by faxing it to (___) ___-____, (3) by delivering
it in person, (4) by email at [email] or (5) by interoffice mail to Tammy Medico, Vice President, Human Resources, to be received
no later than 5:00 p.m., Eastern Time, on [date].
|
|
Special Investment Election Form Delivery Deadline
|
If you wish
to purchase stock units representing an ownership interest in Provident Bancorp, Inc. Common Stock through the 401(k) Plan,
you
must return your Special Investment Election Form to
Tammy Medico, Vice President of Human Resources, The
Provident Bank, to be received no later than 5:00 p.m., Eastern Time, on [date]. You may return your Special Investment Election
Form by hand delivery, mail (using the self-addressed envelope), email (sending it to [email]), by faxing it to (___) ___-____
or by interoffice mail, so long as it is received by the time specified
.
|
|
Irrevocability of Transfer Direction
|
Once you make an election to purchase shares
of Provident Bancorp, Inc. Common Stock in the stock offering through the 401(k) Plan, you may not change your election
.
Your
election is irrevocable
.
|
|
Future Direction to Purchase and Sell Common Stock
|
You will be able to purchase or sell shares of Provident Bancorp,
Inc. Common Stock through the 401(k) Plan after
the stock offering. In accordance with 401(k) Plan procedures, you may direct
that your future contributions or your account balance in the 401(k) Plan be transferred to Provident Bancorp Stock Account to
be used to purchase shares of Provident Bancorp, Inc. Common Stock. After the stock offering, to the extent that shares are available,
the trustee of the 401(k) Plan will acquire shares of Provident Bancorp, Inc. Common Stock at your election in open market transactions
at the prevailing price, which may be less than or more than $10.00 per share. You may change your investment allocation on a daily
basis.
Special restrictions may apply to purchasing shares
of Provident Bancorp, Inc. Common Stock by the participants who are subject to the provisions of Section 16(b) of the Securities
Exchange Act of 1934, as amended, relating to the purchase and sale of securities by officers, directors and principal stockholders
of Provident Bancorp, Inc.
|
|
|
Please note that if you are an officer of The Provident Bank
who is restricted by the regulations of the Board of Governors of the Federal Reserve System from selling shares of Provident Bancorp,
Inc. Common Stock acquired in the stock offering for one year, the Provident Bancorp, Inc. Common Stock that you purchased in the
stock offering will not be tradable until the one-year trading restriction has lapsed
.
|
|
Voting Rights of Common Stock
|
The Provident Bancorp Stock Account is included in the SBERA Trust. The Plan Administrator, Thomas J. Forese, Jr., President of SBERA, will vote all shares of Provident Bancorp, Inc. Common Stock in the Provident Bancorp Stock Account, except for votes involving a change in control, in which case the participants and beneficiaries will vote using a pass-through arrangement. The Plan Administrator has a fiduciary obligation to vote the shares of Provident Bancorp, Inc. Common Stock, including the interests credited to your account, solely in the best interests of the Plan’s participants and beneficiaries.
|
DESCRIPTION OF THE PLAN
Introduction
The Provident Bank originally adopted the 401(k)
Plan, effective as of February 1, 1996, and the 401(k) Plan has been restated, effective as of January 1, 2015
.
The 401(k)
Plan is a tax-qualified plan with a cash or deferred compensation feature established in accordance with the requirements under
Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”).
The Provident Bank intends that the 401(k) Plan,
in operation, will comply with the requirements under Section 401(a) and Section 401(k) of the Code. The Provident Bank will adopt
any amendments to the 401(k) Plan that may be necessary to ensure the continuing qualified status of the 401(k) Plan under the
Code and applicable Treasury Regulations.
Employee Retirement Income Security Act (“ERISA”).
The 401(k) Plan is an “individual account plan” other than a “money purchase pension plan” within the meaning
of ERISA. As such, the 401(k) Plan is subject to all of the provisions of Title I (Protection of Employee Benefit Rights) and Title
II (Amendments to the Code Relating to Retirement Plans) of ERISA, except for the funding requirements contained in Part 3 of Title
I of ERISA which by their terms do not apply to an individual account plan (other than a money purchase plan). The 401(k) Plan
is not subject to Title IV (Plan Termination Insurance) of ERISA. The funding requirements contained in Title IV of ERISA are not
applicable to participants or beneficiaries under the 401(k) Plan.
Reference to Full Text of 401(k) Plan.
The
following portions of this prospectus supplement summarize certain provisions of the 401(k) Plan. They are not complete and are
qualified in their entirety by the full text of the 401(k) Plan. Copies of the 401(k) Plan are available to employees for review
by filing a request with the Vice President of Human Resources, The Provident Bank, Tammy Medico, 5 Market Street, Amesbury, MA
01913. Alternatively, you may also receive a copy of the Summary Plan Description to the 401(k) Plan by either going on to your
account at
www.sbera.com
and downloading a copy or by filing a request with Tammy Medico, Vice President, Human Resources,
The Provident Bank. You are urged to read carefully the full text of the 401(k) Plan.
Eligibility and Participation
Employees of The Provident Bank are eligible
to participate in elective deferrals in the 401(k) Plan upon attainment of age 21 and without regard to having attained a specific
period of service. However, an employee is only eligible to receive safe harbor matching contributions and employer discretionary
contributions after attaining age 21 and completing one (1) year of service with The Provident Bank. Employees who satisfy the
eligibility requirements are eligible to enter the 401(k) Plan on the first day of month after satisfying the eligibility requirements.
The plan year (“Plan Year”) is January 1 to December 31.
As of December 31, 2014, there were approximately
87 active employee participants and 39 former employee participants with account balances in the 401(k) Plan.
Contributions under the 401(k) Plan
Elective deferrals
.
You are permitted
to defer, on a pre-tax basis or an after-tax basis (Roth), from 1% to 75% of your compensation, subject to certain restrictions
imposed by the Code, and to have that amount contributed to the 401(k) Plan on your behalf. For purposes of the 401(k) Plan, “compensation”
means your W-2 compensation received from The Provident Bank and subject to income tax withholding at the source, with all pre-tax
contributions included, but excluding any long-term incentive plan payments. In 2015, the annual compensation of each participant
taken into account under the 401(k) Plan is limited to $265,000. (Limits established by the Internal Revenue Service are subject
to increase pursuant to an annual cost-of-living adjustment, as permitted by the Code).
You may
elect to modify the amount contributed to the 401(k) Plan on the first day of the beginning of the next payroll period. You may
stop making contributions to the Plan at any time.
Safe Harbor Matching Contributions.
The
Provident Bank will make a safe harbor matching contribution to employees who satisfy the eligibility requirements for the 401(k)
Plan. The safe harbor matching contribution is equal to 100% of each participant’s eligible compensation up to 6% of salary.
The safe harbor matching contribution will be contributed by The Provident Bank at the end of the plan year, however, you do not
have to be employed on the last day of the plan year in order to share in the safe harbor matching contribution. Each year, The
Provident Bank will advise participants of its intention to make the safe-harbor matching contribution and the amount of such contribution.
Employer Discretionary Contributions
.
In its discretion, The Provident Bank may make contributions to the 401(k) Plan. The Provident Bank will advise you of the percentage
of the employer discretionary contribution, if any, that will be made for a given year. You need to be employed at the end of the
plan year in order to receive an allocation of the employer discretionary contribution, if made.
Rollover Contributions
. You are permitted
to make rollover contributions to the 401(k) Plan.
Limitations on Contributions
Limitations on Employee Elective deferrals
.
For the Plan Year beginning January 1, 2015, the amount of your before-tax and after-tax (Roth) contributions may not exceed
$18,000 per calendar year. In addition, if you are at least 50 years old in 2015, you will be able to make a “catch-up”
contribution of up to $6,000 in addition to the $18,000 limit. The “catch-up” contribution limit may be adjusted periodically
by law, based on changes in the cost of living. Contributions in excess of these limits, as applicable to you, are known as excess
deferrals. If you defer amounts in excess of these limitations, as applicable to you, your gross income for federal income tax
purposes will include the excess in the year of the deferral.
In addition, unless the excess deferral
is distributed before April 15 of the following year, it will be taxed again in the year distributed. Income on the excess deferral
distributed by April 15 of the immediately succeeding year will be treated, for federal income tax purposes, as earned and received
by you in the tax year in which the contribution is made.
Contribution Limit
.
Generally,
the law imposes a maximum limit on the amount of contributions you may receive under the 401(k) Plan. This limit applies to all
contributions to the 401(k) Plan, including your elective deferrals and all other employer contributions made on your behalf during
the year, excluding catch-up contributions, earnings and any transfers/rollovers. For the Plan Year beginning January 1, 2015,
this total cannot exceed the lesser of $53,000 or 100% of your annual base compensation or, if applicable, $59,000 or 100% of your
annual base compensation, including catch-up contributions.
Benefits under the 401(k) Plan
Vesting
.
At all times, you have
a fully vested, non forfeitable interest in the salary deferral contributions you have made to the 401(k) Plan. Employer safe harbor
matching contributions, if made, are also 100% vested. Employer discretionary contributions, if made, are subject to a three-year
cliff vesting schedule in which such amounts vest at the rate of 0% during the first two years of service and then become 100%
vested upon the completion of three years of service. In the event of your death, disability, attainment of the normal retirement
date (date of your 65
th
birthday) or attainment of the early retirement date (date you attain age 55 and complete at
least 10 years of service), your employer contributions would immediately become fully vested.
Withdrawals and Distributions from the 401(k) Plan
Applicable federal law requires the 401(k) Plan
to impose substantial restrictions on the right of a 401(k) Plan participant to withdraw amounts held for his or her benefit under
the 401(k) Plan prior to the participant’s termination of employment with the employer.
Withdrawals upon Termination
. You may
request a distribution from your account following your termination of employment. Following your termination, you may elect to
leave your account balance in the 401(k) Plan and defer commencement of receipt of your vested balance until no later than April
1 of the calendar year following the calendar year in which you attain age 70½.
Withdrawal upon Disability
. If you
are disabled in accordance with the definition of disability under the 401(k) Plan, you will be entitled to the same withdrawal
rights as if you had terminated your employment.
Withdrawal upon Death
. If you die while
you are a participant in the 401(k) Plan, the value of your entire account will be payable to your beneficiary in accordance with
the 401(k) Plan.
In-Service Distribution
. While employed,
you are eligible to receive an in-service distribution of your elective deferrals from your account after your attainment of age
59½. However, you may not receive an in-service withdrawal of the following contributions: safe-harbor matching contributions
or vested employer discretionary contributions. You may receive an in-service withdrawal of your rollover contributions, if any,
at any time.
Hardship
. In the event you incur a financial
hardship, you may request an in-service withdrawal of a portion of your 401(k) Plan account, in accordance with the procedures
set forth in the 401(k) Plan.
Loans
. You are eligible to obtain a loan
from the Plan, in accordance with The Provident Bank’s established loan procedures.
Form of Distribution
. The normal form
of benefit under the 401(k) Plan is a lump-sum distribution. Alternatively, when you are eligible for a distribution, you can request
distributions in installment payments (not to exceed the life expectancy of you and your designated beneficiary). You can also
receive a partial payment from the 401(k) Plan, in an amount not less than $1,000.
Investment of Contributions and Account Balances
All amounts credited to your accounts under
the 401(k) Plan are held in the Savings Banks Employees Retirement Association Trust (the “Trust”) which is administered
by SBERA. Prior to the effective date of the offering, you were provided the opportunity to direct the investment of your account
into one of the following investment options:
All Asset Account
Bond Account
The SBERA Account
Money Market Account
Index 500 Account
Equity Account
Large Cap Value Account
Small Cap Value Account
Large Cap Growth Account
Small Cap Growth Account
International Equity Account
LifePath 2020
LifePath 2025
LifePath 2030
LifePath 2035
LifePath 2040
LifePath 2045
LifePath 2050
LifePath 2055
LifePath Retirement
Performance History and Description of Funds
The following provides performance data with
respect to the investment options available under the 401(k) Plan:
|
|
|
|
|
|
Performance
as of December 31, 2014
|
|
|
Fund
|
|
Expense
Ratio*
(%)
|
|
|
Total
Return
YTD (%)
|
|
|
Total
Return
1 Yr
(%)
|
|
|
Total
Return
Annualized
3 Yrs
(%)
|
|
|
Total
Return
Annualized
5 Yrs
(%)
|
|
|
Total
Return
Annualized
10 Yrs
(%)
|
|
|
Money Market Account
|
|
|
0.19
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.02
|
|
|
|
0.06
|
|
|
|
1.59
|
|
|
Bond Account
|
|
|
0.32
|
|
|
|
5.40
|
|
|
|
5.40
|
|
|
|
3.79
|
|
|
|
5.10
|
|
|
|
5.15
|
|
|
Life Path Retirement
|
|
|
0.15
|
|
|
|
5.24
|
|
|
|
5.24
|
|
|
|
6.90
|
|
|
|
7.02
|
|
|
|
5.45
|
|
|
Life Path 2020
|
|
|
0.15
|
|
|
|
5.41
|
|
|
|
5.41
|
|
|
|
8.91
|
|
|
|
8.0
|
|
|
|
5.46
|
|
|
Life Path 2025
|
|
|
0.15
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Life Path 2030
|
|
|
0.15
|
|
|
|
5.62
|
|
|
|
5.62
|
|
|
|
11.01
|
|
|
|
9.01
|
|
|
|
5.59
|
|
|
Life Path 2035
|
|
|
0.15
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Life Path 2040
|
|
|
0.15
|
|
|
|
5.75
|
|
|
|
5.75
|
|
|
|
12.69
|
|
|
|
9.79
|
|
|
|
5.65
|
|
|
Life Path 2045
|
|
|
0.15
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Life Path 2050
|
|
|
0.15
|
|
|
|
5.89
|
|
|
|
5.89
|
|
|
|
14.15
|
|
|
|
10.44
|
|
|
|
N/A
|
|
|
Life Path 2055
|
|
|
0.15
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
All Asset Account
|
|
|
0.87
|
|
|
|
0.84
|
|
|
|
0.84
|
|
|
|
5.45
|
|
|
|
6.42
|
|
|
|
5.55
|
|
|
SBERA Account
|
|
|
0.63
|
|
|
|
3.78
|
|
|
|
3.78
|
|
|
|
12.21
|
|
|
|
9.76
|
|
|
|
6.41
|
|
|
Equity Account
|
|
|
0.51
|
|
|
|
4.76
|
|
|
|
4.76
|
|
|
|
16.97
|
|
|
|
12.44
|
|
|
|
7.22
|
|
|
Index 500 Account
|
|
|
0.05
|
|
|
|
13.61
|
|
|
|
13.61
|
|
|
|
20.33
|
|
|
|
15.42
|
|
|
|
7.69
|
|
|
Large Cap Growth Account
|
|
|
0.60
|
|
|
|
10.12
|
|
|
|
10.12
|
|
|
|
18.97
|
|
|
|
14.93
|
|
|
|
7.67
|
|
|
Small Cap Growth Account
|
|
|
1.04
|
|
|
|
-1.68
|
|
|
|
-1.68
|
|
|
|
18.58
|
|
|
|
17.03
|
|
|
|
11.26
|
|
|
International Equity Account
|
|
|
0.55
|
|
|
|
-5.91
|
|
|
|
-5.91
|
|
|
|
7.79
|
|
|
|
2.30
|
|
|
|
3.13
|
|
|
Large Cap Value Account
|
|
|
0.47
|
|
|
|
10.34
|
|
|
|
10.34
|
|
|
|
18.53
|
|
|
|
14.22
|
|
|
|
6.97
|
|
|
Small Cap Value Account
|
|
|
0.98
|
|
|
|
2.53
|
|
|
|
2.53
|
|
|
|
18.46
|
|
|
|
15.02
|
|
|
|
6.18
|
|
_____________________________
*Includes Annual Investment Management Fees and Annual Custody Fees
where applicable.
The following is a description of each of the
401(k) Plan’s investment funds and other investments:
Money Market Account
─ Provides
income consistent with preservation of principal. SBERA’s Investment Policy Statement requires the Money Market Account to
be invested exclusively in U.S. Treasury or other obligations guaranteed by the U.S. Government or its agencies. All securities
in this account must have a maturity of six (6) months or less.
Bond Account
─ This account seeks
to match the performance of the Barclays Capital Aggregate Bond Index. This account utilizes a fund-of-funds approach to achieve
its returns. The account utilizes a passive asset allocation approach which maintains a set relative percentage across the three
underlying managers. The underlying managers utilize a combination of passive and active management to active their return objectives.
This account is administered by the Savings Banks Employees Retirement Association.
Equity Account
─ This account seeks
long-term growth of capital and income by investing in common stocks of domestic and foreign companies. This is a fund-to-funds
account managed by eight underlying investment managers. The investment managers are selected by SBERA’s Board of Trustees
and are subject to change periodically. Each investment manager’s allocation is rebalanced monthly with their strategic asset
allocation determined by the Board.
Large Cap Value Account
─ This
account seeks a superior total return with only a moderate degree of risk. The account seeks to achieve its investment objective
by investing primarily in U.S. Dollar-denominated equity securities of companies with market capitalizations of at least $2 Billion.
The account seeks to achieve a total return greater than the S&P 500 over a full market cycle and indices comprised of value-oriented
stocks over shorter periods. The Account may invest in cash and cash equivalents.
Index 500 Account
─ This account
seeks to provide long-term growth of capital and income investment results that parallel the performance of the Standard &
Poor’s 500 Composite Stock Price Index. This is a passively managed low-cost index account which uses a “full replication”
approach where the portfolio holds all of the 500 underlying securities in proportion to their weighting in the index thus minimizing
the potential return variance from the index. This account is administered by State Street Global Advisors.
International Equity Account
─
This account seeks to match the performance of the MSCI EAFE index and thus provide long-term capital and income appreciate. This
account utilizes a fund-of-funds approach to achieve its returns. The account utilizes a passive asset allocation approach which
maintains a set relative percentage across the three underlying managers. The account utilizes a combination of passive and active
underlying managers to achieve its returns. This account is administered by the Savings Banks Employees Retirement Association.
Small Cap Value Account
─ This
account seeks to outperform the Russell 2000 Value Index. This account uses a disciplined, team-oriented approach which aims to
generate consistent above-average risk-adjusted performance, focusing on valuation, fundamentals, and
catalyst identification as
a cornerstone to successful value investing, while maintaining the integrity of its specific investment mandates. The portfolio
manager emphasizes free cash flow, balance sheets and long-term market potential.
Small Cap Growth Account
─ This
account seeks to outperform the Russell 2000 Growth Index. This account uses bottoms-up, research-intensive approach to identify
small cap growth stocks with the greatest potential to achieve superior price appreciation over a 12 to 18 month time horizon.
In general, the portfolio manager constructs a 100-120 stock portfolio consisting of companies with market capitalizations between
$50M and $1.5B that have demonstrated the ability to grow earnings and sales at least 10% per year.
Large Cap Growth Account
─ This
account seeks long-term returns in excess of the target benchmark by offering investors a highly disciplined, mathematical investment
strategy while reducing the risk of significant under performance. The Account’s strategies are based on a rigorous mathematical
theory that seeks to demonstrate by combining securities with high relative volatility, but low covariance, a portfolio could be
constructed that would outperform a benchmark over the long term.
All Asset Account
─ This account
seeks to produce returns which are 500 basis points above the Consumer Price Index (CPI) which measures inflation experienced by
consumers in their day-to-day living expenses. The account employs an active, multi-market strategy that fundamentally seeks to
provide necessary long-term real inflation-adjusted returns, along with significant asset class diversification. The strategy is
designed as a fund-of-funds that allocates among a full range of strategies.
The SBERA Account
─ This account
seeks to produce the results that parallel the performance of the SBERA Defined Benefit Plan Assets which is to provide investors
with long-term growth of capital and income. This account is passively managed “full replication” fund-of funds approach
of holding the investments of the SBERA Defined Benefit Assets. The account is rebalanced monthly. This account is administered
by the Savings Bank Employees Retirement Association.
LifePath Accounts
─ The LifePath
series are designed to be complete investment solutions for individuals. Each LifePath strategy is a broadly diversified portfolio,
designed for both a particular risk tolerance and when the money will be needed. The LifePath series include LifePath 2055, 2050,
2045, 2040, 2035, 2030, 2025, 2020 and LifePath Retirement. The number, as in LifePath 2020, represents the approximate year when
you plan to start withdrawing your money. As time goes by, the investment managers gradually adjust the portfolio’s mix to
compensate for the level of risk that is appropriate for the number of years before account drawdown. LifePath Retirement is for
those already in retirement and withdrawing funds.
Provident Bancorp Stock Account
In connection with the stock offering, the Plan
now offers the Provident Bancorp Stock Account as an additional choice to the investment options described above. The Provident
Bancorp Stock Account invests primarily in Provident Bancorp, Inc. Common Stock. In
connection with the stock offering, you may,
in the manner described earlier, direct the trustee to invest up to 100% of your Plan account in the Provident Bancorp Stock Account
as a one-time special election. Subsequent to the stock offering, you may elect to invest all or a portion of your elective deferral
contributions in the Provident Bancorp Stock Account; you may also elect to transfer into the Provident Bancorp Stock Account all
or a portion of your accounts currently invested in other funds under the Plan.
The Provident Bancorp Stock Account consists
primarily of investment in Provident Bancorp, Inc. Common Stock. After the stock offering, the trustee of the Plan will use amounts
held by it in the Provident Bancorp Stock Account to purchase additional shares of common stock of the Provident Bancorp, Inc.
As of the date of this prospectus supplement,
there is no established market for Provident Bancorp, Inc. Common Stock. Accordingly, there is no record of the historical performance
of the Provident Bancorp Stock Account. Performance of the Provident Bancorp Stock Account depends on a number of factors, including
the financial condition and profitability of Provident Bancorp, Inc. and The Provident Bank and market conditions for shares of
Provident Bancorp, Inc. Common Stock generally.
Investments in the Stock Account involve special
risks common to investments in the shares of common stock of Provident Bancorp, Inc. In making a decision to invest all or a part
of your account balance in the Provident Bancorp Stock Account, you should carefully consider the information set forth on page
18 of this prospectus supplement under “Notice of Your Rights Concerning Employer Securities — The Importance of Diversifying
Your Retirement Savings.”
For a discussion of material risks you should
consider, see the “Risk Factors” section of the accompanying prospectus and the section of the prospectus supplement
called “Notice of Your Rights Concerning Employer Securities” (see below).
An investment in any of the investment options
listed above is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund. As with any investment option, there is always a risk that you may lose money
on your investment in any of the investment options listed above.
Administration of the 401(k) Plan
The Trustee and Custodian
. The
trustee of the 401(k) Plan is the Savings Banks Employees Retirement Association (“SBERA”). SBERA serves as trustee
for all the investment funds under the Plan, including during the offering period for Provident Bancorp, Inc. Common Stock. Following
the offering period, SBERA will also serve as the trustee of the Provident Bancorp Stock Account.
Plan Administrator
.
Pursuant
to the terms of the Plan, the Plan is administered by the Plan administrator, SBERA. The address of the Plan Administrator is 12
Gill Street, Suite 2600, Woburn, MA 01801,
telephone number (781) 938-6559. The Plan Administrator is responsible for the
administration of the Plan, interpretation of the provisions of the Plan, prescribing procedures for filing applications for benefits,
preparation and distribution of information
explaining the Plan, maintenance of Plan records, books of account and all other data
necessary for the proper administration of the Plan, preparation and filing of all returns and reports relating to the Plan which
are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to
be made to participants, beneficiaries and others under Sections 104 and 105 of ERISA.
Reports to 401(k) Plan Participants
.
The 401(k) Plan administrator will furnish you a statement at least quarterly showing the balance in your account as of the end
of that period, the amount of contributions allocated to your account for that period, and any adjustments to your account to reflect
earnings or losses (if any).
Amendment and Termination
It is the intention of The Provident Bank to
continue the 401(k) Plan indefinitely. Nevertheless, The Provident Bank may terminate the 401(k) Plan at any time. If the 401(k)
Plan is terminated in whole or in part, then regardless of other provisions in the 401(k) Plan, you will have a fully vested interest
in your accounts. The Provident Bank reserves the right to make any amendment or amendments to the 401(k) Plan which do not cause
any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries;
provided, however, that The Provident Bank may make any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.
Merger, Consolidation or Transfer
In the event of the merger or consolidation
of the 401(k) Plan with another plan, or the transfer of the trust assets to another plan, the 401(k) Plan requires that you would,
if either the 401(k) Plan or the other plan terminates, receive a benefit immediately after the merger, consolidation or transfer
which is equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation
or transfer, if the 401(k) Plan had then terminated.
Federal Income Tax Consequences
The following is a brief summary of the material
federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the
material federal income tax consequences relating to the 401(k) Plan. Statutory provisions change, as do their interpretations,
and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax
laws may not be the same as under the federal income tax laws. Please consult your tax advisor with respect to any distribution
from the 401(k) Plan and transactions involving the 401(k) Plan.
As a “tax-qualified retirement plan,”
the Code affords the 401(k) Plan special tax treatment, including:
|
|
(1)
|
the sponsoring employer is allowed an immediate tax deduction for the amount contributed to the 401(k) Plan each year;
|
|
|
(2)
|
participants pay no current income tax on amounts contributed by the employer on their behalf; and
|
|
|
(3)
|
earnings of the 401(k) Plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.
|
The Provident Bank will administer the 401(k)
Plan to comply with the requirements of the Code as of the applicable effective date of any change in the law.
Lump-Sum Distribution
. A distribution
from the 401(k) Plan to a participant or the beneficiary of a participant will qualify as a lump-sum distribution if it is made
within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant
attains age 59½, and consists of the balance credited to participants under the 401(k) Plan and all other profit sharing
plans, if any, maintained by The Provident Bank. The portion of any lump-sum distribution required to be included in your taxable
income for federal income tax purposes consists of the entire amount of the lump-sum distribution, less the amount of after-tax
contributions, if any, you have made to this 401(k) Plan and any other profit sharing plans maintained by The Provident Bank, which
is included in the distribution.
Provident Bancorp, Inc. Common Stock Included
in Lump-Sum Distribution
. If a lump-sum distribution includes Provident Bancorp, Inc. Common Stock, the distribution generally
will be taxed in the manner described above, except that the total taxable amount may be reduced by the amount of any net unrealized
appreciation with respect to Provident Bancorp, Inc. Common Stock; that is, the excess of the value of Provident Bancorp, Inc.
at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of Provident Bancorp,
Inc. Common Stock, for purposes of computing gain or loss on its subsequent sale, equals the value of Provident Bancorp, Inc. Common
Stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable
disposition of Provident Bancorp, Inc. Common Stock, to the extent of the amount of net unrealized appreciation at the time of
distribution, will constitute long-term capital gain, regardless of the holding period of Provident Bancorp, Inc. Common Stock.
Any gain on a subsequent sale or other taxable disposition of Provident Bancorp, Inc. Common Stock, in excess of the amount of
net unrealized appreciation at the time of distribution, will be considered long-term capital gain. The recipient of a distribution
may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent
allowed by regulations to be issued by the Internal Revenue Service.
Distributions: Rollovers and Direct Transfers
to Another Qualified Plan or to an IRA
. You may roll over virtually all distributions from the 401(k) Plan to another qualified
plan or to an individual retirement account in accordance with the terms of the other plan or account.
Notice of Your Rights Concerning Employer Securities
Federal law provides specific rights concerning
investments in employer securities. Because you may in the future have investments in Provident Bancorp, Inc. Common Stock under
the 401(k) Plan, you should take the time to read the following information carefully.
Your Rights Concerning Employer Securities
.
The 401(k) Plan must allow you to elect to move any portion of your account that is invested in Provident Bancorp, Inc. Common
Stock from that investment into other investment alternatives under the 401(k) Plan. You may contact the 401(k) Plan administrator
shown above for specific information regarding this right, including how to make this election. In deciding whether to exercise
this right, you will want to give careful consideration to the information below that describes the importance of diversification.
All of the investment options under the 401(k) Plan are available to you if you decide to diversify out of your investment in Provident
Bancorp, Inc. Common Stock.
The Importance of Diversifying Your Retirement
Savings
. To help achieve long-term retirement security, you should give careful consideration to the benefits of a well-balanced
and diversified investment portfolio. Spreading your assets among different types of investments can help you achieve a favorable
rate of return, while minimizing your overall risk of losing money. This is because market or other economic conditions that cause
one category of assets, or one particular security, to perform very well often cause another asset category, or another particular
security, to perform poorly. If you invest more than 20% of your retirement savings in any one company or industry, your savings
may not be properly diversified. Although diversification is not a guarantee against loss, it is an effective strategy to help
you manage investment risk.
In deciding how to invest your retirement savings,
you should take into account all of your assets, including any retirement savings outside of the 401(k) Plan. No single approach
is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting
their goals, and different tolerance for risk. Therefore, you should carefully consider the rights described here and how these
rights affect the amount of money that you invest in employer common stock through the 401(k) Plan.
It is also important to periodically review
your investment portfolio, your investment objectives, and the investment options under the 401(k) Plan to help ensure that your
retirement savings will meet your retirement goals.
Additional Employee Retirement Income Security Act (“ERISA”)
Considerations
As noted above, the 401(k) Plan is subject to
certain provisions of ERISA, including special provisions relating to control over the 401(k) Plan’s assets by participants
and beneficiaries. The 401(k) Plan’s feature that allows you to direct the investment of your account balances is intended
to satisfy the requirements of Section 404(c) of ERISA relating to control over plan assets by a participant or beneficiary. The
effect of this is two-fold. First, you will not be deemed a “fiduciary” because of your exercise of investment discretion.
Second, no person who otherwise is a fiduciary, such as The Provident Bank, the 401(k) Plan administrator, or the 401(k) Plan’s
trustee is liable under the fiduciary responsibility provision of ERISA for any loss which results from your exercise of control
over the assets in your 401(k) Plan account.
Because you will be entitled to invest a portion
of your account balance in the 401(k) Plan in Provident Bancorp, Inc. Common Stock, the regulations under Section 404(c) of the
ERISA require that the 401(k) Plan establish procedures that ensure the confidentiality of your decision to purchase, hold, or
sell employer securities, except to the extent that disclosure of such information is necessary to comply with federal or state
laws not preempted by ERISA. These
regulations also require that your exercise of voting and similar rights with respect to Provident
Bancorp, Inc. Common Stock be conducted in a way that ensures the confidentiality of your exercise of these rights.
Securities and Exchange Commission Reporting and Short-Swing
Profit Liability
Section 16 of the Securities Exchange Act of
1934 imposes reporting and liability requirements on officers, directors, and persons beneficially owning more than 10% of public
companies such as Provident Bancorp, Inc.. Section 16(a) of the Securities Exchange Act of 1934 requires the filing of reports
of beneficial ownership. Within 10 days of becoming an officer, director or person beneficially owning more than 10% of the shares
of Provident Bancorp, Inc., a Form 3 reporting initial beneficial ownership must be filed with the Securities and Exchange Commission.
Changes in beneficial ownership, such as purchases, sales and gifts generally must be reported periodically, either on a Form 4
within two business days after the change occurs, or annually on a Form 5 within 45 days after the close of Provident Bancorp,
Inc.’s fiscal year. Discretionary transactions in and beneficial ownership of Provident Bancorp, Inc. Common Stock by officers,
directors and persons beneficially owning more than 10% of Provident Bancorp, Inc. Common Stock generally must be reported to the
Securities and Exchange Commission by such individuals.
In addition to the reporting requirements described
above, Section 16(b) of the Securities Exchange Act of 1934 provides for the recovery by Provident Bancorp, Inc. of profits realized
by an officer, director or any person beneficially owning more than 10% of Provident Bancorp, Inc. Common Stock resulting from
non-exempt purchases and sales of Provident Bancorp, Inc. Common Stock within any six-month period.
The Securities and Exchange Commission has adopted
rules that provide exemptions from the profit recovery provisions of Section 16(b) for all transactions in employer securities
within an employee benefit plan, provided certain requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the accounts of Section 16(b) persons.
Except for distributions of Provident Bancorp,
Inc. Common Stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order,
persons affected by Section 16(b) are required to hold shares of Provident Bancorp, Inc. Common Stock distributed from the 401(k)
Plan for six months following such distribution and are prohibited from directing additional purchases of Provident Bancorp, Inc.
Common Stock for six months after receiving such a distribution.
Financial Information Regarding 401(k) Plan Assets
Financial information representing the net assets
available for 401(k) Plan benefits and the change in net assets available for 401(k) Plan benefits at December 31, 2014, is available
upon written request to the 401(k) Plan administrator at the address shown above.
LEGAL OPINION
The validity of the issuance of Provident Bancorp,
Inc. Common Stock has been passed upon by Luse Gorman, PC, Washington, D.C., which firm acted as special counsel in connection
with Provident Bancorp, Inc.’s stock offering.
SUBSCRIPTION AND COMMUNITY
OFFERING PROSPECTUS
PROVIDENT
BANCORP, INC.
(Holding Company for The Provident Bank)
Up to 4,222,800 Shares of Common Stock
(Subject to Increase to up to 4,856,220 Shares)
Provident Bancorp, Inc.,
a Massachusetts corporation, is offering up to 4,222,800 shares of common stock for sale at $10.00 per share on a best efforts
basis. The shares we are offering will represent 45.0% of our outstanding shares of common stock. Additionally, we will contribute
2.0% of our outstanding shares of common stock and $250,000 in cash to The Provident Community Charitable Organization, Inc., a
charitable foundation that we are forming in connection with the stock offering. Provident Bancorp, our Massachusetts-chartered
mutual holding company parent, will own the remainder of our outstanding shares of common stock and will be our majority shareholder.
We expect that our common stock will be traded on the Nasdaq Capital Market under the symbol “PVBC.” We are an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012.
The shares of common stock
are first being offered in a subscription offering to eligible depositors and tax-qualified employee benefit plans of The Provident
Bank. Employees, officers, trustees, directors and corporators of The Provident Bank or Provident Bancorp also have rights to purchase
shares in the subscription offering, subject to the priority rights of depositors and The Provident Bank’s tax-qualified
employee benefit plans. Shares not purchased in the subscription offering may be offered for sale to the general public in a community
offering, with a preference given to residents of the communities served by The Provident Bank. Any shares of common stock not
purchased in the subscription or community offerings may be offered to the public through a syndicate of broker-dealers, referred
to in this prospectus as the syndicated offering. The syndicated offering may commence before the subscription and community offerings
(including any extensions) have expired. However, no shares purchased in the subscription offering or the community offering will
be issued until the completion of any syndicated offering.
The Secretary of the United
States Treasury (or the U.S. Treasury), our Senior Non-Cumulative Perpetual Preferred Stock, Series A shareholder, may offer and
sell up to 17,145 shares of our Senior Non-Cumulative Perpetual Preferred Stock, Series A, also referred to as the SBLF preferred
stock. The U.S. Treasury is not offering any shares of the SBLF preferred stock in connection with the offering of our common stock.
If and when any sales occur, we will not receive any proceeds from the sale of the SBLF preferred stock by the U.S. Treasury. There
is no established public market for the SBLF preferred stock. We will use reasonable best efforts to list, or make available for
quotation, our SBLF preferred stock, if and when any shares of the SBLF preferred stock are offered and sold.
We may sell up to 4,856,220
shares of common stock because of demand for the shares of common stock or changes in market conditions, without resoliciting subscribers.
We must sell a minimum of 3,121,200 shares in order to complete the offering.
The minimum order is 25 shares.
The subscription and community offerings are expected to expire at 5:00 p.m., Eastern Time, on [expiration date]. We may extend
this expiration date without notice to you until [extension date]. Once submitted, orders are irrevocable unless the subscription
and community offerings are terminated or extended, with regulatory approval, beyond [extension date], or the number of shares
of common stock to be sold is increased to more than 4,856,220 shares or decreased to less than 3,121,200 shares. If the subscription
and community offerings are extended past [extension date], all subscribers will be notified and given an opportunity to confirm,
change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest or cancel
your deposit account withdrawal authorization. If the number of shares to be sold in the offering is increased to more than 4,856,220
shares or decreased to less than 3,121,200 shares, we will resolicit subscribers, and all funds delivered to us to purchase shares
of common stock in the subscription and community offerings will be returned promptly with interest. Funds received in the subscription
and the community offerings will be held in a segregated account at The Provident Bank and will earn interest at [interest rate]%
per annum until completion or termination of the offering.
Sandler O’Neill &
Partners, L.P. will assist us in selling the shares on a best efforts basis in the subscription and community offerings, and will
serve as sole book-running manager for any syndicated offering. Sandler O’Neill & Partners, L.P. is not required to purchase
any shares of common stock that are sold in the offering.
OFFERING SUMMARY
Price: $10.00 per Share
|
|
|
Minimum
|
|
|
Midpoint
|
|
|
Maximum
|
|
|
Adjusted Maximum
|
|
|
Number of shares
|
|
|
3,121,200
|
|
|
|
3,672,000
|
|
|
|
4,222,800
|
|
|
|
4,856,220
|
|
|
Gross offering proceeds (1)
|
|
$
|
31,212,000
|
|
|
$
|
36,720,000
|
|
|
$
|
42,228,000
|
|
|
$
|
48,562,200
|
|
|
Estimated offering expenses, excluding selling agent and underwriters’ commissions
|
|
$
|
1,294,750
|
|
|
$
|
1,294,750
|
|
|
$
|
1,294,750
|
|
|
$
|
1,294,750
|
|
|
Selling agent and underwriters’ commissions (2)
|
|
$
|
421,041
|
|
|
$
|
471,518
|
|
|
$
|
521,996
|
|
|
$
|
580,046
|
|
|
Estimated net proceeds
|
|
$
|
29,496,209
|
|
|
$
|
34,953,732
|
|
|
$
|
40,411,254
|
|
|
$
|
46,687,404
|
|
|
Estimated net proceeds per share
|
|
$
|
9.45
|
|
|
$
|
9.52
|
|
|
$
|
9.57
|
|
|
$
|
9.61
|
|
|
|
(1)
|
Excludes the sale of shares of SBLF preferred stock. We will not receive any proceeds from
the sale of shares of SBLF preferred stock by the U.S. Treasury.
|
|
|
(2)
|
The amounts shown assume that all of the shares are sold in the subscription
and community offerings with a fee of 1.0% payable on all shares, excluding insider purchases and shares purchased by our employee
stock ownership plan, for which no selling agent fee will be paid. A fee of 5.5% will be payable on any shares sold in a syndicated
offering. See “Pro Forma Data” and “The Stock Offering—Plan of Distribution; Selling Agent and Underwriter
Compensation” for information regarding compensation to be received by Sandler O’Neill & Partners, L.P. in the
subscription and community offerings and the compensation to be received by Sandler O’Neill & Partners, L.P. and the
other broker-dealers that may participate in the syndicated offering. If all shares of common stock were sold in the syndicated
offering, excluding insider purchases and shares purchased by our employee stock ownership plan, for
which
no selling agent fee will be paid, the selling agent and underwriters’ commissions would be approximately $1.5 million, $1.8
million, $2.1 million and $2.4 million at the minimum, midpoint, maximum and adjusted maximum levels of the offering, respectively.
|
This investment involves
a degree of risk, including the possible loss of principal.
Please read “Risk
Factors” beginning on page 16.
Shares of our common stock and our SBLF
Preferred Stock are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any
other government agency or the Depositors Insurance Fund. None of the Securities and Exchange Commission, the Board of Governors
of the Federal Reserve System, the Massachusetts Commissioner of Banks, the Federal Deposit Insurance Corporation, nor any state
securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
Sandler
O’Neill + Partners, L.P.
For assistance, please contact the Stock Information
Center at [stock center #].
The date of this prospectus is [prospectus date].
[MAP TO BE INSERTED ON INSIDE FRONT COVER]
TABLE OF CONTENTS
SUMMARY
The following summary explains material information
in this prospectus. It may not contain all of the information that is important to you. Before making an investment decision, you
should read this entire document carefully, including the consolidated financial statements and the notes thereto, and the section
entitled “Risk Factors.”
In this prospectus, the terms “we,”
“our,” and “us” refer to Provident Bancorp, Inc. and The Provident Bank unless the context indicates another
meaning.
The Companies; Our Business
Provident Bancorp
Provident Bancorp, Inc.
The Provident Bank
Provident Bancorp
is our Massachusetts
chartered mutual holding company parent. As a mutual holding company, Provident Bancorp is a non-stock company. Upon completion
of the offering, Provident Bancorp will own a majority of Provident Bancorp, Inc.’s outstanding shares of common stock. So
long as Provident Bancorp exists, it will own a majority of the voting stock of Provident Bancorp, Inc. and, through its board
of trustees, will be able to exercise voting control over virtually all matters put to a vote of shareholders. Following the offering,
Provident Bancorp does not intend to engage in any business activity other than those relating to owning a majority of the common
stock of Provident Bancorp, Inc.
Provident Bancorp, Inc.
is a Massachusetts
corporation that was formed in 2011 by The Provident Bank to be its holding company. This offering is made by Provident Bancorp,
Inc. Provident Bancorp, Inc. owns all of The Provident Bank’s capital stock. At December 31, 2014, Provident Bancorp, Inc.
had total assets of $658.6 million, deposits of $536.9 million and shareholder’s equity of $75.8 million on a consolidated
basis. Provident Bancorp, Inc.’s executive offices are located at
5 Market Street, Amesbury,
Massachusetts 01913, and the telephone number is
(978) 388-0050.
The Provident Bank
is a Massachusetts-chartered
stock savings bank that has served the banking needs of its customers since 1828. We are the tenth oldest financial institution
in the United States. We operate from our main office and two branch offices in the Northeastern Massachusetts area and four branch
offices in Southeastern New Hampshire, as well as two loan production offices located in Bedford, New Hampshire and Nashua, New
Hampshire. We have also leased property in Bedford, New Hampshire for the establishment of a new branch office that we expect to
open in the fourth quarter of 2015. Our primary lending area encompasses 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. Our primary deposit-gathering
area is concentrated in Essex County, Massachusetts and Rockingham County, New Hampshire, and will expand to Hillsborough County,
New Hampshire when we open our Bedford branch office. We attract deposits from the general public and use those funds to originate
loans, primarily commercial real estate, construction and land 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, 2010 to December 31, 2014, deposits have
increased $157.5 million, or 41.5%, and loans have increased $163.6 million, or 48.4%.
The Provident Bank is subject to comprehensive
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 prospectus.
Our Organizational Structure and the Proposed Stock Offering
The following diagram shows our current organizational
structure.
The following diagram shows our organizational structure following the stock offering.
Business Strategy
Our objective is to be the premier community
business bank in the markets we serve, providing a full range of banking products and services to small and medium sized commercial
customers. In recent years, we have focused significant effort and invested heavily in our infrastructure to create sophisticated
and competitive products and services, a strong, experienced work force and awareness of our business banking brand. Our business
lending, comprised of commercial business loans, commercial real estate loans, multifamily loans and construction and land development
loans, comprised 78.6% of our total loan portfolio at December 31, 2014 compared to 65.7% at December 31, 2010.
We have been effective in competing against
both larger regional banks and smaller banks operating in our markets. We compete against the larger banks through our responsive
and personalized service, providing our customers with quicker decision making, customized products where appropriate and access
to our senior managers. Our larger capital base, highly experienced commercial bankers and a sophisticated product and service
mix,
including a suite of cash management services and technology solutions
and support, enable us to compete effectively against smaller banks. Recent consolidation of financial institutions in and around
our markets has further created opportunity for expansion in our markets.
We intend to continue our business banking focus
as we seek to grow our franchise, particularly in southern New Hampshire. To accomplish our goal, we are pursuing the following
strategies:
|
|
·
|
Maintain a disciplined focus on targeting high growth business
customers.
We have developed specific parameters to identify high growth commercial customers who will value our products
and services. High growth customers who use multiple products and services offer us greater profitability potential. We have invested
significantly in technology to provide sophisticated products and services to address our customers’ evolving needs and enhance
convenience. Our technology platform enables us to evaluate the profitability of each customer, product, and branch office. We
do not merely provide our technology platform to our customers, but we send our customer service representatives to our customers’
businesses to provide on-site training for using our products and services. We can also identify gaps in our customer relationships
and contact customers with ideas to improve their utilization of our products and services, providing them with added convenience
and cost savings and improving profitability to us.
|
Our business development team and lenders work closely together
to identify prospects and create a targeted marketing plan to pursue each prospect. Also, over the last several years, a number
of local community banks in our markets have been acquired by other institutions, primarily larger regional banks. We believe that
a number of the business customers of these banks may prefer doing business with a local institution, and we intend to actively
target those customers. The capital raised in this offering will also support an increase in our lending limit capacity, providing
us the ability to extend lending relationships with existing customers.
|
|
·
|
Expand our market share in existing and nearby markets.
We
have selectively entered new higher growth markets in New Hampshire through the hiring of experienced loan, business development
and credit officers and the establishment of loan production offices (LPOs) and
de novo
branch offices. We believe that
hiring experienced bankers who are established in markets we enter and establishing an LPO in advance of any significant branch
expansion provides quality market penetration in an expedient and cost effective manner. We intend to continue our efforts to expand
in these markets, and expect to open a new branch office in Bedford, New Hampshire in the fourth quarter of 2015.
|
|
|
·
|
Manage credit risk to maintain a low level of non-performing
assets.
We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management
focuses on having a very experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan
underwriting criteria and active credit monitoring. Our non-performing assets to total assets ratio was 0.59% at December 31, 2014.
|
|
|
·
|
Increase core deposits, especially low cost demand deposits.
Deposits are our primary source of funds for lending. We value core deposits (which we define as all deposits except for
certificates of deposit), and in particular non-interest bearing demand deposits, because they represent a lower cost of funding
and are less sensitive to withdrawal when interest rates fluctuate. Non-interest bearing demand deposits represented 39.5% of our
deposit base at December 31, 2014. Growth in non-interest bearing demand deposits has been driven by growth in our business loans,
the expansion of our deposit products and services and greater emphasis on obtaining the deposit relationship by our commercial
lenders and business development teams.
|
|
|
·
|
Improve operating efficiency.
As we continue to grow,
we also intend to focus efforts to control our operating expenses. We analyze branch product and service usage and align branch
staffing
|
based on activity volumes at different times in the most
efficient and cost effective manner. We are also
disciplined
in evaluating the cost and expected
benefit of all expansion opportunities. We believe these initiatives and discipline will contribute
to improved operating efficiency and profitability. Our efficiency ratio has improved to 70.0% for the year ended December 31,
2014 from 82.9% for the year ended December 31, 2010. Although we expect to incur additional costs as a result of becoming a publicly-traded
company, including the costs of anticipated stock benefit plans, we intend to continue our efforts to control our costs.
|
|
·
|
Maintain an experienced customer service focused employee base.
Exceptional service, local involvement and timely decision making are integral parts of our business banking strategy and
we have attracted highly qualified and motivated individuals. Our compensation and incentive systems are aligned with our strategies
to grow business loans and core deposits, in particular commercial demand deposits, while maintaining asset quality. We have an
established corporate culture based on personal accountability, high ethical standards and significant commitment to training and
career development.
|
Reasons for the Offering
Our primary reasons for conducting the stock
offering are to:
|
|
·
|
Enhance our capital base to support our continued growth.
Since December 31, 2010, we have grown our assets by
32.3% to $658.6 million as of December 31, 2014. We have not only grown our assets but also our infrastructure. We have added two
loan production offices during that period. We have also leased property in Bedford, New Hampshire for the establishment of a new
branch office that we expect to open in the fourth quarter of 2015. We intend to continue to grow our franchise organically and
through strategic transactions as those opportunities arise. While The Provident Bank exceeds all regulatory capital requirements,
the proceeds from the offering will strengthen our regulatory capital position and enable us to support our planned growth and
expansion.
|
|
|
·
|
Redeem some or all of our stock issued under the Small Business Lending Fund.
We issued $17.1 million of preferred
stock to the U.S. Treasury in March 2011 under the Small Business Lending Fund, which we refer to in this prospectus as SBLF preferred
stock. The dividend rate we pay on SBLF preferred stock was 1.00% as of December 31, 2014, but will increase to 9.00% in March
2016. The proceeds from the stock offering will enable us to redeem some or all of the SBLF preferred stock before the dividend
rate increases, and we intend to redeem at least 50% of the SBLF preferred stock.
|
|
|
·
|
Offer our depositors, employees, officers, directors and corporators an equity ownership interest in The Provident Bank.
We believe that offering stock to our depositors, employees, officers, directors and corporators will provide these constituencies
with an economic interest in our future success. The stock offering will further enable us to attract and retain management and
employees through various stock benefit plans, including an employee stock ownership plan and one or more equity incentive plans.
|
|
|
·
|
Support our local communities through a contribution to the charitable foundation.
The contribution to the charitable
foundation will complement our existing charitable activities, which should enable the communities that we serve to share in our
long-term growth.
|
|
|
·
|
Facilitate future mergers and acquisitions
. Although we do not currently have any understandings or agreements
regarding any specific acquisition transaction, the additional capital raised in the offering will make us a more attractive and
competitive bidder for mergers and acquisitions of other financial institutions or business lines as opportunities arise.
|
Terms of the Offering
We are offering between 3,121,200 and 4,222,800
shares of common stock in a subscription offering to eligible depositors of The Provident Bank, our tax-qualified employee benefit
plans, and our employees, officers, trustees, directors and corporators, and, to the extent shares remain available, to the general
public in a community offering. If necessary, we will also offer shares to the general public in a syndicated offering. The number
of shares of common stock to be sold may be increased to up to 4,856,220 shares as a result of demand for the shares of common
stock in the offering or changes in market conditions. Unless the number of shares of common stock to be offered is increased to
more than 4,856,220 shares or decreased to fewer than 3,121,200 shares, or the subscription and community offerings are extended
beyond [extension date], subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the
subscription and community offerings are extended past [extension date], all subscribers will be notified and given an opportunity
to confirm, change or cancel their orders. If you do not respond to this notice, your order will be cancelled and we will promptly
return your funds with interest at [interest rate]% per annum or cancel your deposit account withdrawal authorization. If the number
of shares to be sold is increased to more than 4,856,220 shares or decreased to less than 3,121,200 shares, all subscribers’
stock orders will be canceled, all withdrawal authorizations will be canceled and funds delivered to us to purchase shares of common
stock in the subscription and community offerings will be returned promptly with interest at [interest rate]% per annum. We will
then resolicit subscribers, giving them an opportunity to place new orders for a period of time. No shares purchased in the subscription
offering and community offering will be issued until the completion of any syndicated offering.
The purchase price of each share of common stock
offered for sale in the offering is $10.00. All investors will pay the same purchase price per share, regardless of whether the
shares are purchased in the subscription offering, the community offering or a syndicated offering. Investors will not be charged
a commission to purchase shares of common stock in the offering. Sandler O’Neill & Partners, L.P., our marketing agent
in the subscription and community offerings, will use its best efforts to assist us in selling shares of our common stock in the
subscription and community offerings but is not obligated to purchase any shares of common stock in the subscription and community
offerings.
How We Determined the Offering Range and the $10.00 Per Share
Stock Price
The amount of common stock we are offering for
sale is based on an independent appraisal of the estimated market value of Provident Bancorp, Inc., assuming the offering has been
completed. RP Financial, LC., our independent appraiser, has estimated that, as of February 13, 2015, and assuming we were undertaking
a minority stock offering, this market value, including the shares to be issued to the charitable foundation, was $81.6 million.
Based on applicable regulations, this market value forms the midpoint of a valuation range with a minimum of $69.4 million and
a maximum of $93.8 million. Based on this valuation range, the 45.0% ownership interest of Provident Bancorp being sold in the
offering and the $10.00 per share price, the number of shares of common stock being offered for sale by Provident Bancorp, Inc.
ranges from 3,121,200 shares to 4,222,800 shares. The $10.00 per share price was selected primarily because it is the price
most commonly used in minority stock offerings and mutual-to-stock conversions of financial institutions. If demand for shares
or market conditions warrant, the appraisal can be increased by 15%, which would result in an appraised value of $107.9 million
and an offering of 4,856,220 shares of common stock.
The appraisal is based in part on Provident Bancorp, Inc.’s
financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common
stock in the offering, and an analysis of a peer group of 10 publicly traded bank holding companies and savings and loan holding
companies that RP Financial, LC. considers comparable to Provident Bancorp, Inc. The appraisal peer group consists of the following
companies, all of which are traded on the Nasdaq Stock Market.
|
Company Name
|
|
Ticker
Symbol
|
|
Headquarters
|
|
Total Assets (1)
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
BSB Bancorp, Inc.
|
|
BLMT
|
|
Belmont, MA
|
|
$
|
1,426
|
|
|
SI Financial Group, Inc.
|
|
SIFI
|
|
Willimantic, CT
|
|
$
|
1,351
|
|
|
Westfield Bancorp, Inc.
|
|
WFD
|
|
Westfield, MA
|
|
$
|
1,320
|
|
|
Fox Chase Bancorp, Inc.
|
|
FXCB
|
|
Hatboro, PA
|
|
$
|
1,095
|
|
|
Cape Bancorp, Inc.
|
|
CBNJ
|
|
Cape May Court House, NJ
|
|
$
|
1,080
|
|
|
Ocean Shore Holding Co.
|
|
OSHC
|
|
Ocean City, NJ
|
|
$
|
1,025
|
|
|
Oneida Financial Corp.
|
|
ONFC
|
|
Oneida, NY
|
|
$
|
798
|
|
|
Malvern Bancorp, Inc.
|
|
MLVF
|
|
Paoli, PA
|
|
$
|
603
|
|
|
Wellesley Bancorp, Inc.
|
|
WEBK
|
|
Wellesley, MA
|
|
$
|
535
|
|
|
Prudential Bancorp, Inc.
|
|
PBIP
|
|
Philadelphia, PA
|
|
$
|
527
|
|
|
|
(1)
|
Asset size for all companies is as of December 31, 2014.
|
The following table presents a summary of selected
pricing ratios for Provident Bancorp, Inc. (on a pro forma basis) as of and for the twelve months ended December 31, 2014, and
for the peer group companies based on earnings and other information as of and for the twelve months ended December 31, 2014, with
stock prices as of February 13, 2015, as reflected in the appraisal report. Information in this table is not presented on a fully
converted basis (i.e. the table assumes that 45.0% of our outstanding shares of common stock are sold in the stock offering, as
opposed to 100% of our outstanding shares of common stock). Compared to the average pricing of the peer group, our pro forma pricing
ratios at the midpoint of the offering range indicated a discount of 5.34% on a price-to-book value basis, a discount of 11.81%
on a price-to-tangible book value basis, and a discount of 9.91% on a price-to-earnings basis.
|
|
|
Non-fully converted
price-to-earnings
multiple (1)
|
|
|
Non-fully converted
price-to-book
value ratio
|
|
|
Non-fully converted
price-to-tangible
book value ratio
|
|
|
Provident Bancorp, Inc. (on a pro forma basis, assuming completion of the stock offering)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Maximum
|
|
|
26.71
|
x
|
|
|
107.99
|
%
|
|
|
107.99
|
%
|
|
Maximum
|
|
|
23.04
|
x
|
|
|
99.50
|
%
|
|
|
99.50
|
%
|
|
Midpoint
|
|
|
19.90
|
x
|
|
|
91.16
|
%
|
|
|
91.16
|
%
|
|
Minimum
|
|
|
16.80
|
x
|
|
|
81.97
|
%
|
|
|
81.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation of peer group companies, all of which are fully converted (on an historical basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
22.09
|
x
|
|
|
96.30
|
%
|
|
|
103.37
|
%
|
|
Medians
|
|
|
22.59
|
x
|
|
|
94.89
|
%
|
|
|
100.47
|
%
|
|
|
(1)
|
Price-to-earnings
multiples calculated by RP Financial, LC. in the independent appraisal are based on an
estimate of “core” or recurring earnings. These ratios are different than
those presented in “Pro Forma Data.”
|
The following table also presents a summary
of selected pricing ratios for Provident Bancorp, Inc. (on a pro forma basis) as of and for the twelve months ended December 31,
2014, and for the peer group companies based on earnings and other information as of and for the twelve months ended December 31,
2014, with stock prices as of February 13, 2015, as reflected in the appraisal report. However, information in this table is presented
on a fully converted basis (i.e. the table assumes that we are converting to full stock form and all of our outstanding shares
of common stock are sold in the stock offering). Compared to the average pricing of the peer group, our pro forma
pricing ratios at the midpoint of the offering range indicated a
discount of 33.26% on a price-to-book value basis, a discount of 37.83% on a price-to-tangible book value basis, and a discount
of 7.92% on a price-to-earnings basis.
|
|
|
Fully converted
price-to-earnings
multiple
|
|
|
Fully converted
price-to-book
value ratio
|
|
|
Fully converted
price-to-tangible
book value ratio
|
|
|
Provident Bancorp, Inc. (on a pro forma basis, assuming completion of the stock offering)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Maximum
|
|
|
27.63
|
x
|
|
|
72.41
|
%
|
|
|
72.41
|
%
|
|
Maximum
|
|
|
23.71
|
x
|
|
|
68.40
|
%
|
|
|
68.40
|
%
|
|
Midpoint
|
|
|
20.34
|
x
|
|
|
64.27
|
%
|
|
|
64.27
|
%
|
|
Minimum
|
|
|
17.14
|
x
|
|
|
59.45
|
%
|
|
|
59.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation of peer group companies, all of which are fully converted (on an historical basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
22.09
|
x
|
|
|
96.30
|
%
|
|
|
103.37
|
%
|
|
Medians
|
|
|
22.56
|
x
|
|
|
94.89
|
%
|
|
|
100.47
|
%
|
The pro forma fully-converted calculations for
Provident Bancorp, Inc. include the following assumptions:
|
|
·
|
8% of the shares sold in a second-step stock offering would be purchased by an employee stock ownership plan, with the expense
to be amortized over 15 years;
|
|
|
·
|
4% of the shares sold in a second-step stock offering would be purchased by a stock-based benefit plan, with the expense to
be amortized over five years;
|
|
|
·
|
Options equal to 10% of the shares sold in a second-step stock offering would be granted under a stock-based benefit plan,
with option expense of $2.17 per option, and with the expense to be amortized over five years; and
|
|
|
·
|
stock offering expenses would equal 3.0% of the stock offering amount.
|
With respect to Provident Bancorp, Inc., the
pro forma fully-converted calculations use the same assumptions as applied to the peer group companies, but also assume the impact
of the establishment of our charitable foundation and that the expense of the employee stock ownership plan would be amortized
over 15 years.
The independent appraisal does not indicate
trading market value. Do not assume or expect that our valuation as indicated in the appraisal means that after the stock offering
the shares of our common stock will trade at or above the $10.00 per share purchase price. Furthermore, the pricing ratios presented
in the appraisal were used by RP Financial, LC. to estimate our pro forma
appraised value for regulatory purposes and not
to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of
the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and
market location.
For a more complete discussion of the amount
of common stock we are offering for sale and the independent appraisal, see “The Stock Offering—Stock Pricing and Number
of Shares to be Issued.”
How We Intend to Use the Proceeds From the Offering
We intend to invest at least 50% of the net
proceeds from the stock offering in The Provident Bank, fund the loan to our employee stock ownership plan to finance its purchase
of shares of common stock in the stock offering, redeem some or all of the SBLF preferred stock, contribute $250,000 to the charitable
foundation and retain the remainder of the net proceeds from the offering at Provident Bancorp, Inc. Specifically, we intend to
redeem at least 50% of the SBLF preferred stock. However, we may redeem a higher amount if we sell shares of common stock at the
higher end of the offering range, and we may redeem a lower amount and/or delay redemption if market or other conditions warrant
our maintaining the capital provided by the SBLF preferred stock.
Assuming we sell 3,672,000 shares of common stock in the stock offering
at the midpoint of the offering range, and we have net proceeds of $35.0 million, we intend to invest $17.5 million in The Provident
Bank, loan to our employee stock ownership plan $3.1 million to fund its purchase of shares of common stock, redeem $8.6 million
of SBLF preferred stock, contribute $250,000 to the charitable foundation and retain the remaining $5.6 million of the net proceeds
at Provident Bancorp, Inc. There is no premium or penalty associated with the redemption of the SBLF preferred stock. Any redemption
of the SBLF preferred stock will require the prior approval of the Federal Reserve Board. As of the date of this prospectus, we
have not submitted an application to the Federal Reserve Board, and therefore there can be no assurance that we will receive such
approval.
Provident Bancorp, Inc. may use the funds it
retains for investment, to repurchase shares of common stock, to acquire other financial institutions or financial services companies,
to pay cash dividends (although we have no current intention to pay cash dividends) and for other general corporate purposes. The
Provident Bank may use the proceeds it receives to support increased lending, enhance existing, or support the development of new,
products and services, or expand its branch network by establishing or acquiring new branches or by acquiring other financial institutions
or financial services companies. We do not currently have any agreement or understanding regarding any acquisition transaction.
Please see the section of this prospectus entitled
“How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the proceeds from
the offering.
Persons Who May Order Shares of Common Stock in the Offering
We are offering the shares of common stock in
a subscription offering in the following descending order of priority:
|
|
(i)
|
To depositors with accounts at The Provident Bank with aggregate balances of at least $50 at the close of business on February
28, 2014.
|
|
|
(ii)
|
To our tax-qualified employee benefit plans (including The Provident Bank’s employee stock ownership plan and The Provident
Bank’s 401(k) plan), which may subscribe for, in the aggregate, up to 10% of the shares of common stock sold in the offering.
We expect our employee stock ownership plan to purchase 8% of the shares of common stock sold in the stock offering.
|
|
|
(iii)
|
To employees, officers, directors, trustees and corporators of The Provident Bank or Provident Bancorp who do not have a higher
purchase priority.
|
Shares of common stock not purchased in the
subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural
persons residing in the Massachusetts cities and towns of Amesbury, Merrimac, Newbury, Newburyport, Salisbury and West Newbury,
and the New Hampshire cities and towns of Brentwood, Exeter, Greenland, Hampton, Hampton Falls, Kensington, New Castle, Newfields,
Newington, Newmarket, North Hampton, Portsmouth, Rye, Seabrook, South Hampton and Stratham. The community offering may begin concurrently
with, during or promptly after the subscription offering. We also may offer for sale shares of common stock not purchased in the
subscription offering and the community offering through a syndicated offering. Sandler O’Neill & Partners, L.P. will
act as sole book-running manager for the syndicated offering. We have the right to accept or reject, in our sole discretion, orders
received in the community offering or syndicated offering, and our interpretation of the terms and conditions of the plan of stock
issuance will be final. Any determination to accept or reject stock orders in the community offering or syndicated offering will
be based on the facts and circumstances available to management at the time of the determination.
If we receive orders for more shares than we
are offering, we may not be able to fully or partially fill your order. A detailed description of the subscription offering, the
community offering and the syndicated offering, as well as a discussion regarding allocation procedures, can be found in the section
of this prospectus entitled “The Stock Offering.”
Limits on How Much Common Stock You May Purchase
The minimum number of shares of common stock
that may be purchased is 25 shares.
Generally, no individual may purchase more than
15,000 shares ($150,000) of common stock. If any of the following persons purchase shares of common stock, their purchases, in
all categories of the offering, when combined with your purchases, cannot exceed 25,000 shares ($250,000) of common stock:
|
|
·
|
most companies, trusts or other entities in which you are a senior officer, partner, trustee or have a substantial beneficial
interest; or
|
|
|
·
|
your spouse or any relative of you or your spouse living in your house or who is a director, trustee, or officer of Provident
Bancorp, Inc., Provident Bancorp, Provident Bancorp, Inc. or The Provident Bank; or
|
|
|
·
|
other persons who may be your associates or persons acting in concert with you.
|
Unless we determine otherwise, persons having
the same address and persons exercising subscription rights through qualifying deposit accounts registered to the same address
will be subject to the overall purchase limitation of 25,000 shares ($250,000).
The following relatives of directors, trustees,
officers and corporators will be considered “associates” of these individuals regardless of whether they share a household
with the director, trustee or officer: any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. This also includes adoptive relationships.
Subject to regulatory approval, we may increase
or decrease the purchase limitations at any time. See the detailed description of the purchase limitations in “The Stock
Offering—Additional Limitations on Common Stock Purchases.”
How You May Purchase Shares of Common Stock in the Subscription
Offering and the Community Offering
In the subscription offering and community offering,
you may pay for your shares only by:
|
|
(i)
|
personal check, bank check or money order made payable directly to Provident Bancorp, Inc.; or
|
|
|
(ii)
|
authorizing us to withdraw available funds from your deposit account(s) at The Provident Bank.
|
The Provident Bank is not permitted to lend
funds to anyone to purchase shares of common stock in the offering. Additionally, you may not use a line of credit check from The
Provident Bank or any type of third party check to pay for shares of common stock. Please do not submit cash. No wire transfer
will be accepted without our prior approval. You may not designate withdrawal from The Provident Bank’s accounts with check-writing
privileges; instead, please submit a check. You may not authorize direct withdrawal from an individual retirement account, or IRA,
held at The Provident Bank. See “—Using Individual Retirement Account Funds to Purchase Shares of Common Stock.”
You may subscribe for shares of common stock
in the subscription and community offerings by delivering a signed and completed original stock order form, together with full
payment payable to Provident Bancorp, Inc. or authorization to withdraw funds from one or more of your deposit accounts at The
Provident Bank, provided that the stock order form is
received
before 5:00 p.m., Eastern Time, on [expiration date], which
is the end of the subscription offering period. You may submit your stock order form and payment by mail using the stock order
reply envelope provided or by overnight delivery to our Stock Information Center, which will be located [stock center address].
You may also hand-deliver stock order forms to the Stock Information Center. Hand-delivered
stock order forms will only be accepted at this location. We will
not accept stock order forms at our banking offices.
Please do not mail stock order forms to The Provident Bank’s offices.
Please see “The Stock Offering—Procedure
for Purchasing Shares in Subscription and Community Offerings—Payment for Shares” for a complete description of how
to purchase shares in the subscription and community offerings.
Using Individual Retirement Account Funds to
Purchase Shares of Common Stock
You may be able to subscribe for shares of common
stock using funds in your individual retirement account, or IRA. If you wish to use some or all of the funds in an individual retirement
account held at The Provident Bank, the applicable funds must be transferred to a self-directed account maintained by an independent
trustee, such as a brokerage firm, and the purchase must be made through that account. If you do not have such an account, you
will need to establish one before placing your stock order. A one-time and/or annual administrative fee may be payable to the independent
trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend
that you contact our Stock Information Center promptly, preferably at least two weeks before the [expiration date] offering deadline,
for assistance with purchases using your individual retirement account or other retirement account you may have at The Provident
Bank
or elsewhere
. Whether you may use such funds to purchase shares in the stock offering may depend on timing constraints
and, possibly, limitations imposed by the institution where the funds are held.
See “The Stock Offering—Procedure
for Purchasing Shares in Subscription and Community Offerings—Payment for Shares” and “—Using Individual
Retirement Account Funds” for a complete description of how to use IRA funds to purchase shares of common stock in the stock
offering.
Market for Common Stock
We expect that our common stock will be traded
on the Nasdaq Capital Market under the symbol “PVBC.” Sandler O’Neill & Partners, L.P. has advised us that
it intends to make a market in our common stock following the offering, but is under no obligation to do so.
Our Dividend Policy
Following completion of the stock offering,
our Board of Directors will have the authority to declare dividends on our common stock, subject to our capital requirements, our
financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.
However, due to regulatory restrictions described below, we do not currently anticipate paying cash dividends on our common stock.
If Provident Bancorp, Inc. pays dividends to
its shareholders, it also will be required to pay dividends to Provident Bancorp, unless Provident Bancorp is permitted by the
Federal Reserve Board to waive the receipt of dividends. The Federal Reserve Board’s current position is to not permit a
mutual holding company that is regulated as a bank holding company (as opposed to a savings and loan holding company) to waive
dividends declared by its subsidiary. In addition, Massachusetts banking regulations prohibit Provident Bancorp from waiving dividends
declared and paid by Provident Bancorp, Inc. unless the Massachusetts Commissioner of Banks does not object to the waiver and provided
the waiver is not detrimental to the safe and sound operation of The Provident Bank. Accordingly, because dividends will be required
to be paid to Provident Bancorp along with all other shareholders, the amount of dividends available for all other shareholders
will be less than if Provident Bancorp were permitted to waive the receipt of dividends.
Any declarations of dividends will also be subject
to contractual restrictions with respect to our SBLF preferred stock. See “Description of Capital Stock of Provident Bancorp,
Inc.—Preferred Stock—Senior Non-Cumulative Perpetual Preferred Stock, Series A—Dividends.”
For information regarding our proposed dividend
policy, see “Our Dividend Policy.”
Purchases by Directors and Executive Officers
We expect our directors and executive officers,
together with their associates, to subscribe for [insider purchase shares] shares of common stock in the offering, representing
[insider ownership %]% of shares to be sold at the minimum of the offering range. The purchase price paid by them will be the same
$10.00 per share price paid by all other persons who purchase shares of common stock in the offering.
See “Subscriptions by Directors and Executive
Officers” for more information on the proposed purchases of shares of common stock by our directors and executive officers.
Deadline for Orders of Shares of Common Stock in the Subscription
and Community Offerings
The deadline for purchasing shares of common
stock in the subscription and community offerings is 5:00 p.m., Eastern Time, on [expiration date], unless we extend this deadline.
If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment,
must be received (not postmarked) by this time.
Although we will make reasonable attempts to
provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription
rights will expire at 5:00 p.m., Eastern Time, on [expiration date], whether or not we have been able to locate each person entitled
to subscription rights.
See “The Stock Offering— Procedure
for Purchasing Shares in Subscription and Community Offerings—Expiration Date” for a complete description of the deadline
for purchasing shares in the stock offering.
You May Not Sell or Transfer Your Subscription Rights
Applicable regulations prohibit you from transferring
your subscription rights. If you order shares of common stock in the subscription offering, you will be required to certify that
you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription
rights or the shares that you are purchasing. We intend to take legal action, including reporting persons to federal or state agencies,
against anyone who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have
reason to believe you have sold or transferred your subscription rights. On the order form, you cannot add the names of others
for joint stock registration unless they are also named on the qualifying deposit account. Doing so may jeopardize your subscription
rights. In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the
account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information,
may result in a loss of part or all of your share allocation if there is an oversubscription.
Delivery of Shares of Common Stock
All shares of common stock sold will be issued
in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued
in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration
address noted by them on their stock order forms as soon as practicable following consummation of the stock offering. We expect
trading in the stock to begin on the day of completion of the stock offering or the next business day. The stock offering is expected
to be completed as soon as practicable following satisfaction of the conditions described below in “—Conditions to
Completion of the Stock Offering.”
Until a statement reflecting ownership of shares of common stock is available and delivered
to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock
will have begun trading.
Your ability to sell your shares of common stock before receiving your statement will depend on arrangements
you may make with a brokerage firm.
Conditions to Completion of the Stock Offering
We cannot complete the stock offering unless:
|
|
·
|
The plan of stock issuance is approved by at least a majority of the corporators of Provident Bancorp, including a majority
of the “independent” corporators;
|
|
|
·
|
We sell at least the minimum number of shares of common stock offered in the offering;
|
|
|
·
|
We receive approval from the Federal Reserve Board; and
|
|
|
·
|
We receive the approval of the Massachusetts Commissioner of Banks to complete the stock offering.
|
Steps We May Take if We Do Not Receive Orders for the Minimum
Number of Shares
If we do not receive orders for at least 3,121,200
shares of common stock, we may take several steps in order to sell the minimum number of shares of common stock in the offering
range. Specifically, we may:
|
|
(i)
|
increase the purchase and ownership limitations; and/or
|
|
|
(ii)
|
seek regulatory approval to extend the offering beyond [extension date], so long as we resolicit subscribers who previously
submitted subscriptions in the offering.
|
If we extend the offering past [extension date],
all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this
notice, we will cancel your stock order and promptly return your funds with interest with interest at [interest rate]% per annum
for funds received in the subscription and community offering or cancel your deposit account withdrawal authorization. If one or
more purchase limitations are increased, subscribers in the subscription offering who ordered the maximum amount will be, and,
in our sole discretion, some other large purchasers may be, given the opportunity to increase their subscriptions up to the then-applicable
limit.
Possible Change in the Offering Range
RP Financial, LC. will update its appraisal
before we complete the offering. If, as a result of demand for the shares or changes in market conditions, RP Financial, LC. determines
that our pro forma market value has increased, we may sell up to 4,856,220 shares in the offering without further notice to you.
If our pro forma market value at that time is either below $69.4 million or above $107.9 million, then, after consulting with the
Federal Reserve Board and the Massachusetts Commissioner of Banks, we may:
|
|
·
|
terminate the stock offering and promptly return all funds (with interest paid on funds received in the subscription and community
offerings);
|
|
|
·
|
set a new offering range; or
|
|
|
·
|
take such other actions as may be permitted by the Federal Reserve Board, the Massachusetts Commissioner of Banks and the Securities
and Exchange Commission.
|
If we set a new offering range, we will promptly
return funds, with interest at [interest rate]% per annum for funds received for purchases in the subscription and community offerings,
and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit
subscribers, allowing them to place a new stock order for a period of time.
Possible Termination of the Offering
We may terminate the offering at any time with
regulatory approval. If we terminate the offering, we will promptly return your funds with interest at [interest rate]% per annum,
and we will cancel deposit account withdrawal authorizations.
Our Contribution of Shares of Common Stock to the Charitable
Foundation
To further our commitment to our local community,
we intend to establish and fund a new charitable foundation as part of the stock offering. The new charitable foundation, The Provident
Community Charitable Organization, Inc., will complement our existing charitable organization. Assuming we receive final approval
from the Massachusetts Commissioner of Banks and the Federal Reserve Board to establish and fund the charitable foundation, we
intend to contribute to the charitable foundation shares of our common stock equal to 2.0% of the shares to be outstanding following
the offering and $250,000 in cash. At the minimum, midpoint, maximum and adjusted maximum of the offering range, we would contribute
to the charitable foundation 138,720, 163,200, 187,680 and 215,832 shares of common stock. As a result of the contribution, we
expect to record an after-tax expense of approximately $1.4 million during the quarter in which the stock offering is completed,
assuming we sell 4,856,220 shares of common stock in the stock offering.
The charitable foundation will be dedicated
exclusively to supporting charitable causes and community development activities in the communities in which we operate. The contribution
of common stock and cash to the charitable foundation will:
|
|
·
|
dilute the voting interests of purchasers of shares of our common stock in the stock offering; and
|
|
|
·
|
result in an expense, and a reduction in capital, during the quarter in which the contribution is made, equal to the full amount
of the contribution to the charitable foundation, offset in part by a corresponding tax benefit.
|
The amount of common stock that we would offer
for sale would be greater if the offering were to be completed without the establishment and funding of the charitable foundation.
For a further discussion of the financial impact of the charitable foundation, including its effect on those who purchase shares
in the offering, see “Risk Factors—The contribution to the charitable foundation will dilute your ownership interest
and adversely affect net income in 2015”, “Risk Factors—Our contribution to the charitable foundation may not
be tax deductible, which could reduce our profits”, “Comparison of Valuation and Pro Forma Information With and Without
the Charitable Foundation” and “The Provident Community Charitable Organization, Inc.”.
Benefits to Management and Potential Dilution to Shareholders
Resulting from the Stock Offering
We expect our employee stock ownership plan,
which is a tax-qualified retirement plan for the benefit of all employees of The Provident Bank, to purchase up to 8% of the shares
of common stock we sell in the offering. If market conditions warrant, in the judgment of its trustees, the employee stock ownership
plan’s subscription order will not be filled and the employee stock ownership plan may elect to purchase shares in the open
market following the completion of the stock offering, subject to the approval of the Federal Reserve Board and the Massachusetts
Commissioner of Banks.
We intend to implement
one or more new stock-based benefit plans no earlier than six months after completion of the stock offering. Shareholder approval
of these plans would be required. We have not determined whether we would adopt the plans within 12 months following the completion
of the stock offering or more than 12 months following the completion of the stock offering. If we implement stock-based benefit
plans within 12 months following the completion of the stock offering, the stock-based benefit plans would reserve a number of
shares (i) up to 4% of the shares of common stock sold in the offering (including shares contributed to our charitable foundation,
and reduced by amounts purchased by our 401(k) plan using its purchase priority in the stock offering) for awards of
restricted
stock to key employees and directors, at no cost to the recipients, and (ii) up to 10% of the shares of
common stock sold in the offering (including shares
contributed to our charitable foundation), for issuance pursuant to the exercise of stock options by key employees and directors.
If the stock-based benefit plan is adopted more than 12 months after the completion of the stock offering, it would not be subject
to the percentage limitations set forth above. We have not yet determined the number of shares that would be reserved for issuance
under these plans.
The following table summarizes the number of
shares of common stock and the aggregate dollar value of grants that are available under one or more stock-based benefit plans
if such plans reserve for restricted stock awards and stock options, respectively, a number of shares of common stock equal to
4% and 10% of the shares sold in the stock offering and contributed to our charitable foundation. The table shows the dilution
to shareholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market.
A portion of the stock grants shown in the table below may be made to non-management employees. The table also sets forth the number
of shares of common stock to be acquired by the employee stock ownership plan for allocation to all qualifying employees.
|
|
|
Number of Shares to be Granted or Purchased
|
|
|
|
|
|
Value of Grants (In
Thousands) (1)
|
|
|
|
|
At
Minimum
of Offering
Range
|
|
|
At
Adjusted
Maximum
of
Offering
Range
|
|
|
As a
Percentage
of Common
Stock to be
Sold in the
Offering and
Issued to the
Charitable
Foundation
|
|
|
As a
Percentage
of Common
Stock to be
Outstanding
|
|
|
Dilution
Resulting
From
Issuance of
Shares for
Stock-Based
Benefit Plans
|
|
|
At
Minimum
of
Offering
Range
|
|
|
At
Adjusted
Maximum
of Offering
Range
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock ownership plan
|
|
|
260,794
|
|
|
|
405,764
|
|
|
|
8.00
|
%
|
|
|
3.76
|
%
|
|
|
N/A
|
(2)
|
|
$
|
2,608
|
|
|
$
|
4,058
|
|
|
Restricted stock awards
|
|
|
130,397
|
|
|
|
202,882
|
|
|
|
4.00
|
|
|
|
1.88
|
|
|
|
1.85
|
%
|
|
|
1,304
|
|
|
|
2,029
|
|
|
Stock options
|
|
|
325,992
|
|
|
|
507,205
|
|
|
|
10.00
|
|
|
|
4.70
|
|
|
|
4.49
|
%
|
|
|
923
|
|
|
|
1,435
|
|
|
Total
|
|
|
717,183
|
|
|
|
1,115,851
|
|
|
|
22.00
|
%
|
|
|
10.34
|
%
|
|
|
6.17
|
%
|
|
$
|
4,835
|
|
|
$
|
7,522
|
|
|
|
(1)
|
The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made. For
purposes of this table, fair value for stock awards is assumed to be the same as the offering price of $10.00 per share. The fair
value of stock options has been estimated at $2.83 per option using the Black-Scholes option pricing model with the following assumptions:
a grant-date share price and option exercise price of $10.00; an expected option term of 10 years; no dividend yield; a risk-free
rate of return of 2.17%; and expected volatility of 14.98%. The actual value of option grants will be determined by the grant-date
fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing
model ultimately adopted.
|
|
|
(2)
|
No dilution is reflected for the employee stock ownership plan because such shares are assumed to be purchased in the stock
offering.
|
Tax Consequences
Provident Bancorp, Provident Bancorp, Inc. and
The Provident Bank have received an opinion of counsel, Luse Gorman, PC, regarding the material federal income tax consequences
of the stock offering, and have received an opinion of [tax accountant] regarding the material Massachusetts [and New Hampshire]
state tax consequences of the stock offering. As a general matter, the stock offering will not be a taxable transaction for purposes
of federal or state income taxes to Provident Bancorp, Provident Bancorp, Inc., The Provident Bank or persons eligible to subscribe
in the subscription offering.
Emerging Growth Company Status
We qualify as an “emerging growth company”
under the Jumpstart Our Business Startups Act of 2012. For as long as we are an emerging growth company, we may choose to take
advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies.
See “Risk Factors—We are an emerging growth company, and any decision on our part to comply only with certain reduced
reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors”
and “Supervision and Regulation—Emerging Growth Company Status.”
SBLF Preferred Stock Piggyback Registration
We are a participant in the SBLF Program. As
part of the SBLF Program, we issued to the U.S. Treasury 17,145 shares of our Senior Non-Cumulative Perpetual Preferred Stock,
Series A, no par value, or SBLF preferred stock. We agreed to provide the holders of our SBLF Preferred Stock, currently only the
U.S. Treasury, with “piggyback” registration rights to certain registrations of our securities, including the registration
of which this prospectus is part. The U.S. Treasury has exercised its piggyback registration rights and, as a result, we have included
the U.S. Treasury’s SBLF preferred stock in the registration statement of which this prospectus is part.
How You Can Obtain Additional Information—Stock Information
Center
Our banking personnel may not, by law, assist
with investment-related questions about the offering. If you have any questions regarding the stock offering, please call our Stock
Information Center. The telephone number is [stock center #]. The Stock Information Center is open Monday through Friday between
10:00 a.m. and 4:00 p.m., Eastern Time. The Stock Information Center will be closed on weekends and bank holidays. Please
note that the Stock Information Center will be closed from 12:00 noon Friday, May 22, through 12:00 noon Tuesday, May 26, in observance
of the Memorial Day holiday.
RISK FACTORS
You should consider carefully the following
risk factors in evaluating an investment in the shares of common stock.
Risks Related to Our Business
Our emphasis on commercial real estate, multi-family real estate,
construction and land development and commercial business lending involves risks that could adversely affect our financial condition
and results of operations.
In recent years, we have shifted our loan originations
to focus on commercial real estate, multi-family real estate, construction and land development and commercial business loans.
We expect this focus to continue as we discontinued one- to four-family residential real estate lending in 2014. As of December 31,
2014, our commercial real estate, multi-family real estate, construction and land development and commercial business loans totaled
$394.4 million, or 78.6% of our loan portfolio. As a result, our credit risk profile may be higher than traditional savings institutions
that have higher concentrations of one- to four-family residential loans. These types of commercial lending activities, while potentially
more profitable than one- to four-family residential lending, are generally more sensitive to regional and local economic conditions,
making loss levels more difficult to predict. These loans also generally have relatively large balances to single borrowers or
related groups of borrowers. Accordingly, any charge-offs may be larger on a per loan basis than those incurred with our residential
or consumer loan portfolios. Collateral evaluation and financial statement analysis in these types of loans also requires a more
detailed analysis at the time of loan underwriting and on an ongoing basis.
The credit risk related to commercial real estate
and multi-family loans is considered to be greater than the risk related to one- to four-family residential or consumer loans because
the repayment of commercial real estate loans and multi-family loans typically is dependent on the successful operation of the
borrower’s business or the income stream of the real estate securing the loan as collateral, both of which can be significantly
affected by conditions in the real estate markets or in the economy. For example, if the cash flow from the borrower’s project
is reduced as a result of leases not being obtained or renewed, the borrower’s ability to repay the loan may be impaired.
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 insubstantial 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.
Commercial business loans expose us to additional
risks since they typically are made on the basis of the borrower’s ability to make repayments from the cash flow of the borrower’s
business and are secured by non-real estate collateral that may depreciate over time, may be illiquid and may fluctuate in value
based on the success of the business.
Construction and land development lending involves
additional risks when compared to one- to four-family residential real estate 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.
A secondary market for most types of commercial
real estate, multi-family and commercial business loans is not readily liquid, so we generally do not have an economically feasible
opportunity to mitigate credit risk by selling part or all of our interest in these loans.
Our portfolio of loans with a higher risk of loss is increasing
and the unseasoned nature of our commercial loan portfolio may result in errors in judging its collectability, which may lead to
additional provisions for loan losses or charge-offs, which would hurt our profits.
Our commercial loan portfolio, which includes
commercial real estate, multi-family, commercial business and construction and land development loans, has increased to $394.4
million, or 78.6% of total loans, at December 31, 2014 from $235.1 million, or 67.1% of total loans, at December 31, 2011. A large
portion of our commercial loan portfolio is unseasoned, meaning they were originated recently. Our limited experience with these
borrowers does not provide us with a significant payment history pattern with which to judge future collectability. Further, these
loans have not been subjected to unfavorable economic conditions. As a result, it is difficult to predict the future performance
of this part of our loan portfolio. These loans may have delinquency or charge-off levels above our historical experience, which
could adversely affect our future performance.
Our business strategy includes the continuation of significant
growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to
manage our growth effectively.
We expect to continue to experience growth in
the amount of our assets, the level of our deposits and the scale of our operations. Achieving our growth targets requires us to
attract customers that currently bank at other financial institutions in our market, thereby increasing our share of the market.
Our ability to successfully grow will depend on a variety of factors, including our ability to attract and retain experienced bankers,
the continued availability of desirable business opportunities, the competitive responses from other financial institutions in
our market areas and our ability to manage our growth. Growth opportunities may not be available or we may not be able to manage
our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could be negatively
affected.
The level of our commercial real estate loan portfolio subjects
us to additional regulatory scrutiny.
The Federal Deposit Insurance Corporation and
the other federal bank regulatory agencies have promulgated joint guidance on sound risk management practices for financial institutions
with concentrations in commercial real estate lending. Under the guidance, a financial institution that, like us, is
actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution
may have a concentration in commercial real estate lending if, among other factors, (i) total reported loans for construction,
land acquisition and development, and other land represent 100% or more of total capital, or (ii) total reported loans secured
by multi-family and non-farm residential properties, loans for construction, land acquisition and development and other land, and
loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related
entities, represent 300% or more of total capital. Based on these factors we have a concentration in multi-family and
commercial real estate lending, as such loans represent 211% of total bank capital as of December 31, 2014. The particular focus
of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as
collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate
collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is to
guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The
guidance states that management should employ heightened risk management practices including board and management oversight and
strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. While
we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with
this guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation
of the
guidance that may result in additional costs to us or that may result
in a curtailment of our multi-family and commercial real estate lending and/or the requirement that we maintain higher levels of
regulatory capital, either of which would adversely affect our loan originations and profitability.
If our allowance for loan losses is not sufficient to cover actual
loan losses, our earnings could decrease.
We maintain an allowance for loan losses, which
is established through a provision for loan losses that represents management’s best estimate of probable losses within the
existing portfolio of loans. We make various assumptions and judgments about the collectability of our loan portfolio, including
the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of
loans. In determining the adequacy of the allowance for loan losses, we rely on our experience and our evaluation of economic conditions.
If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan
portfolio and adjustment may be necessary to allow for different economic conditions or adverse developments in our loan portfolio.
Consequently, a problem with one or more loans could require us to significantly increase the level of our provision for loan losses.
In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our
provision for loan losses or recognize further loan charge-offs. Material additions to the allowance would materially decrease
our net income.
A worsening of economic conditions could reduce demand for our
products and services and/or result in increases in our level of non-performing loans, which could have an adverse effect on our
results of operations.
Unlike larger financial institutions that are
more geographically diversified, our profitability depends primarily on the general economic conditions in Northeastern Massachusetts
and Southern New Hampshire. Local economic conditions have a significant impact on our commercial real estate and construction
and consumer loans, the ability of the borrowers to repay these loans and the value of the collateral securing these loans. Almost
all of our loans are to borrowers located in or secured by collateral located in Northeastern Massachusetts and Southern New Hampshire.
A deterioration in economic conditions could
result in the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity
and results of operations:
|
|
·
|
demand for our products and services may decline;
|
|
|
·
|
loan delinquencies, problem assets and foreclosures may increase;
|
|
|
·
|
collateral for loans, especially real estate, may decline in value, in turn reducing customers’
future borrowing power, and reducing the value of assets and collateral associated with existing loans;
|
|
|
·
|
the value of our securities portfolio may decline; and
|
|
|
·
|
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments
to us.
|
Moreover, a significant decline in general economic
conditions, caused by inflation, recession, acts of terrorism, an outbreak of hostilities or other international or domestic calamities,
unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively
affect the financial results of our banking operations. In addition, deflationary pressures, while possibly lowering our operating
costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying
collateral securing loans, which could negatively affect our financial performance.
A continuation of the historically low interest rate environment
may hurt our net interest income and operating results.
During the past seven years it has been the
policy of the Federal Reserve Board to maintain interest rates at historically low levels through its targeted federal funds rate
and the purchase of mortgage-backed securities. As a result, market rates on the loans we have originated and the yields on securities
we have purchased have been at lower levels than available prior to 2008. As a general matter, our interest-bearing liabilities
reprice or mature more quickly than our interest-earning assets, which can lower interest expense as interest rates decrease. However,
our ability to lower our interest expense will be limited at these interest rate levels while the average yield on our interest-earning
assets may continue to decrease. Although some analysts have interpreted recent comments from the Federal Reserve Board as indicating
the Federal Reserve Board may seek to begin increasing interest rates later in 2015, future developments in United States or global
economic conditions may cause the Federal Reserve Board to defer such action. In that case, a continuation of a low interest rate
environment may adversely affect our net interest income, which in turn would likely have an adverse effect on our profitability.
Changes in interest rates could hurt our profits.
Our profitability, like that of most financial
institutions, depends to a large extent upon our net interest income, which is the difference between our interest income on interest-earning
assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds.
Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate-sensitive
assets and liabilities in response to these movements. Factors such as inflation, recession and instability in financial markets,
among other factors beyond our control, may affect interest rates.
If interest rates rise, and if rates on our
deposits reprice upwards faster than the rates on our long-term loans and investments, we would experience compression of our interest
rate spread, which would have a negative effect on our profitability. Furthermore, increases in interest rates may adversely affect
the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase
as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related
securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk
as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our
income.
Any substantial, unexpected, prolonged change
in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations.
While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, changes in interest rates
can still have a material adverse effect on our financial condition and results of operations. Changes in the level of interest
rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize
gains from the sale of our assets, all of which ultimately affect our earnings. Also, our interest rate risk modeling techniques
and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected
operating results. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion
and Analysis of Results of Operations and Financial Condition—Risk Management—Asset/Liability Management.”
Changes in the valuation of our securities portfolio could hurt
our profits and reduce our capital levels.
Our securities portfolio may be impacted by
fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market
value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management
evaluates securities for other-than-temporary impairment on a quarterly basis, with more frequent evaluation for selected issues.
In analyzing a debt issuer’s financial condition, management considers whether the securities are issued by the federal government
or its agencies, whether downgrades by bond rating agencies have occurred, industry analysts’ reports and, to a lesser extent
given the relatively insignificant levels of depreciation in our debt portfolio, spread differentials between the effective rates
on instruments in the portfolio compared to risk-free rates. In analyzing an
equity issuer’s financial condition, management considers
industry analysts’ reports, financial performance and projected target prices of investment analysts within a one-year time
frame. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential
loss to earnings may occur. Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale
securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase
or decrease our shareholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities,
net of taxes. Declines in market value could result in other-than-temporary impairments of these assets, which would lead to accounting
charges that could have a material adverse effect on our net income and capital levels. Refer to “Management’s Discussion
and Analysis of Results of Operations and Financial Condition—Securities Portfolio.”
Effective December 10, 2013, pursuant to the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), federal banking and securities
regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”). Generally, subject
to a transition period and certain exceptions, the Volcker Rule restricts insured depository institutions and their affiliated
companies from engaging in short-term proprietary trading of certain securities, investing in funds with collateral comprised of
less than 100% loans that are not registered with the Securities and Exchange Commission and from engaging in hedging activities
that do not hedge a specific identified risk. After the transition period, the Volcker Rule prohibitions and restrictions will
apply to banking entities unless an exception applies.
During the year ended December 31, 2013, we
marked to market value and recorded a loss of $141,000 on a trust preferred security that we were required to divest under the
Volcker Rule. We subsequently sold this security in 2014 with no additional losses recorded. We continue to analyze the impact
of the Volcker Rule on our investment portfolio, and whether any changes are required to our investment strategies that could negatively
affect our earnings.
The building of market share through de novo branching and expansion
of our commercial real estate and commercial business lending capacity could cause our expenses to increase faster than revenues.
We intend to continue to build market share
in the Northeastern Massachusetts and Southern New Hampshire area through de novo branching and expansion of our commercial real
estate and commercial business lending capacity. We anticipate establishing a new branch office in Bedford, New Hampshire in the
fourth quarter of 2015, and we expect to add two commercial lenders per year during the years ending December 31, 2015, 2016 and
2017. There can be considerable costs involved in opening branches and expansion of lending capacity that generally require a period
of time to generate the necessary revenues to offset their costs, especially in areas in which we do not have an established presence.
Accordingly, any such business expansion can be expected to negatively impact our earnings for some period of time until certain
economies of scale are reached. Our expenses could be further increased if we encounter delays in the opening of any of our new
branches. Finally, our business expansion may not be successful after establishment.
Strong competition within our market area could hurt our profits
and slow growth.
We face intense
competition in making loans and attracting deposits. Price competition for loans and deposits sometimes results in us charging
lower interest rates on our loans and paying higher interest rates on our deposits and may reduce our net interest income. Competition
also makes it more difficult and costly to attract and retain qualified employees. Many of the institutions with which we compete
have substantially greater resources and lending limits than we have and may offer services that we do not provide. Our competitors
often aggressively price loan and deposit products when they enter into new lines of business or new market areas. We expect competition
to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation
in the financial services industry. If we are not able to effectively compete in our market area, our profitability may be negatively
affected. The greater resources and broader offering of deposit and loan products of some of our competitors may also limit our
ability to increase our interest-earning assets. For more
information about our market area and the competition we face,
see “Business of The Provident Bank—Market Area” and “—Competition.”
The dividend rate on our SBLF preferred
stock will increase to 9.0% during the first quarter of 2016 if we have not redeemed the SBLF preferred stock, which would impact
the net income available to holders of our common stock and earnings per share of our common stock.
The per annum dividend
rate on the 17,145 shares of our SBLF preferred stock we sold to the U.S. Treasury in connection with our participation in the
SBLF program is currently 1.00%. During the first quarter of 2016, the per annum dividend rate will increase to a fixed rate of
9.0% if any SBLF preferred stock remains outstanding at that time. The total dividends paid on our SBLF preferred stock for the
year ended December 31, 2014 were $172,000. Assuming the increased dividend rate of 9.0% per annum and assuming we have
not redeemed any of our SBLF preferred stock, the total dividends payable on our SBLF preferred stock would be $1.5 million for
the 12-month period beginning in March 2016, and such dividends payable would increase to $772,000 in the event we repaid only
half of our SBLF preferred stock before March 2016. Any such increase in the dividend rate could have a material negative effect
on our financial condition, including reducing our net income available to holders of our common stock and our earnings per share.
We have become subject to more stringent capital requirements,
which may adversely impact our return on equity, require us to raise additional capital, or constrain us from paying dividends
or repurchasing shares.
In July 2013, the federal banking agencies approved
a new rule that has substantially amended regulatory risk-based capital rules. The final rule implements the regulatory capital
reforms from the Basel Committee on Banking Supervision (“Basel III”) and changes required by the Dodd-Frank Act.
The final rule includes new minimum risk-based
capital and leverage ratios, which were effective for us on January 1, 2015, and refines the definition of what constitutes “capital”
for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio
of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged
from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also requires unrealized gains and losses on certain
“available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements
unless a one-time opt-out is exercised. The Provident Bank has elected to exercise its one-time option to opt-out of the requirement
under the final rule to include certain “available-for-sale” securities holdings for purposes of calculating its regulatory
capital requirements. The final rule also establishes a “capital conservation buffer” of 2.5%, and will result in the
following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-based assets capital ratio of
8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in
January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution
will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital
level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can
be utilized for such actions.
We have analyzed the effects of these new capital
requirements, and we believe that, upon completion of the offering, we would meet all of these new requirements, including the
full 2.5% capital conservation buffer, as if these new requirements had been in effect as of December 31, 2014.
The application
of more stringent capital requirements could, among other things, result in lower returns on equity, require the raising of additional
capital, and result in regulatory actions if we were to be unable to comply with such requirements. Furthermore, the imposition
of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of
our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation of changes to asset
risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional
capital conservation buffers could result in management modifying its business strategy, and could limit our ability to make distributions,
including paying out dividends or buying back shares. Specifically, beginning in 2016, The Provident Bank’s ability to pay
dividends will be limited if it does not have the capital conservation buffer required by the new
capital rules, which may
further limit our ability to pay dividends to shareholders. See “Supervision and Regulation—Federal Bank Regulation—Capital
Requirements.”
Changes in laws and regulations and the
cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.
Provident Bancorp, Inc. and The Provident Bank
are subject to extensive regulation, supervision and examination by the Massachusetts Commissioner of Banks, the Federal Deposit
Insurance Corporation and the Federal Reserve Board. Such regulation and supervision governs the activities in which an institution
and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers
of The Provident Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory
and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination
of the level of our allowance for loan losses. These regulations, along with the currently existing tax, accounting, securities,
insurance, monetary laws, rules, standards, policies, and interpretations control the methods by which financial institutions conduct
business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such
regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a
material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment
and discretion in their interpretation by us and our independent accounting firms. These changes could materially impact, potentially
even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.
The Dodd-Frank Act is significantly changing
the current bank regulatory structure and affects the lending, deposit, investment, trading and operating activities of financial
institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing
rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion
in drafting the implementing rules and regulations, and consequently, many of the details and much of the impacts of the Dodd-Frank
Act may not be known for many months or years.
The Dodd-Frank Act created a new Consumer Financial
Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau
has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions,
including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection
Bureau has examination and enforcement authority over all banks with more than $10 billion in assets. Banks with $10 billion or
less in assets will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank
Act also weakened the federal preemption rules that have been applicable for national banks and federal savings associations, and
gives state attorneys general the ability to enforce federal consumer protection laws.
The Dodd-Frank Act requires minimum leverage
(Tier 1) and risk based capital requirements for bank holding companies and savings and loan holding companies that are no less
than those applicable to banks, which will limit our ability to borrow at the holding company level and invest the proceeds from
such borrowings as capital in The Provident Bank, and will exclude certain instruments that previously have been eligible for inclusion
by bank holding companies as Tier 1 capital, such as trust preferred securities.
The full impact of the Dodd-Frank Act on our
business will not be known until all of the regulations implementing the statute are adopted and implemented. As a result, we cannot
at this time predict the extent to which the Dodd-Frank Act will impact our business, operations or financial condition. However,
compliance with these new laws and regulations may require us to make changes to our business and operations and will likely result
in additional costs and divert management’s time from other business activities, any of which may adversely impact our results
of operations, liquidity or financial condition.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or
other laws and regulations could result in fines or sanctions.
The USA PATRIOT and Bank Secrecy Acts require
financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist
activities. If such activities are detected,
financial institutions are obligated to file suspicious activity
reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions
to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure
to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing
new branches. During the last year, several banking institutions have received large fines for non-compliance with these laws and
regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations,
these policies and procedures may not be effective in preventing violations of these laws and regulations.
Legal and regulatory proceedings and related matters could adversely
affect us or the financial services industry in general.
We, and other participants in the financial
services industry upon whom we rely to operate, have been and may in the future become involved in legal and regulatory proceedings.
Most of the proceedings we consider to be in the normal course of our business or typical for the industry; however, it is inherently
difficult to assess the outcome of these matters, and other participants in the financial services industry or we may not prevail
in any proceeding or litigation. There could be substantial cost and management diversion in such litigation and proceedings, and
any adverse determination could have a materially adverse effect on our business, brand or image, or our financial condition and
results of our operations.
Our funding sources may prove insufficient to replace deposits
at maturity and support our future growth.
We must maintain sufficient funds to respond
to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition
to core deposit growth and repayments and maturities of loans and investments. These additional sources consist primarily of Federal
Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased and brokered certificates of deposit. As we continue
to grow, we are likely to become more dependent on these sources. Adverse operating results or changes in industry conditions could
lead to difficulty or an inability in accessing these additional funding sources. Our financial flexibility will be severely constrained
if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable
interest rates. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues
may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.
Our success depends on hiring and retaining certain key personnel.
Our performance largely depends on the talents
and efforts of highly skilled individuals. We rely on key personnel to manage and operate our business, including major revenue
generating functions such as loan and deposit generation. The loss of key staff may adversely affect our ability to maintain and
manage these functions effectively, which could negatively affect our revenues. In addition, loss of key personnel could result
in increased recruiting and hiring expenses, which could cause a decrease in our net income. Our continued ability to compete effectively
depends on our ability to attract new employees and to retain and motivate our existing employees.
System failure or breaches of our network security could subject
us to increased operating costs as well as litigation and other liabilities.
The computer systems
and network infrastructure we and our third-party service providers use could be vulnerable to unforeseen problems. Our operations
are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications
failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other
disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material
adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions
could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure,
which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with
us. Although we, with the help of third-party service providers,
intend to continue to implement security technology and establish
operational procedures designed to prevent such damage, our security measures may not be successful. In addition, advances in computer
capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the
algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security
measures could have a material adverse effect on our financial condition and results of operations.
It is possible that a significant amount of
time and money may be spent to rectify the harm caused by a breach or hack. While we have general liability insurance, there are
limitations on coverage as well as dollar amount. Furthermore, cyber incidents carry a greater risk of injury to our reputation.
Finally, depending on the type of incident, banking regulators can impose restrictions on our business and consumer laws may require
reimbursement of customer loss.
Our business may be adversely affected by fraud and other financial
crimes.
Our loans to businesses and individuals and
our deposit relationships and related transactions are subject to exposure to the risk of loss due to fraud and other financial
crimes. While we have policies and procedures designed to prevent such losses, losses may still occur.
Managing reputational risk is important to attracting and maintaining
customers, investors and employees.
Threats to our reputation can come from many
sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure
to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our customers. We
have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures
may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit,
may result in the loss of customers and employees, costly litigation and increased governmental regulation, all of which could
adversely affect our operating results.
Changes in management’s estimates and assumptions may have
a material impact on our consolidated financial statements and our financial condition or operating results.
In preparing this prospectus as well as periodic
reports we will be required to file under the Securities Exchange Act of 1934, including our consolidated financial statements,
our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified
date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject
to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information
becomes known. Areas requiring significant estimates and assumptions by management include our valuation of investment securities,
our determination of our income tax provision, and our evaluation of the adequacy of our allowance for loan losses.
Our risk management framework may not be effective in mitigating
risk and reducing the potential for significant losses.
Our risk management
framework is designed to minimize risk and loss to us. We seek to identify, measure, monitor, report and control our exposure to
risk, including strategic, market, liquidity, compliance and operational risks. While we use a broad and diversified set of risk
monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future
development of currently unanticipated or unknown risks. Recent economic conditions and heightened legislative and regulatory scrutiny
of the financial
services industry, among other developments, have increased our level of risk. Accordingly, we could suffer
losses as a result of our failure to properly anticipate and manage these risks.
We are subject to environmental
liability risk associated with lending activities
A significant
portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect
to one or more of these properties. During the ordinary course of business, we may foreclose on and take title to properties securing
defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous
conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury
and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected
any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may
materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future
laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental
liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action
on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation
costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.
Risks Related to the Offering
The future price of the shares of common stock may be less
than the $10.00 purchase price per share in the offering.
If you purchase shares
of common stock in the offering, you may not be able to sell them later at or above the $10.00 purchase price in the offering.
In many cases, shares of common stock issued by newly converted savings institutions or mutual holding companies have traded below
the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an
independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind
as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions
and projections, all of which are subject to change from time to time. After the shares begin trading, the trading price of our
common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates,
the overall performance of the economy, changes in federal tax laws, new regulations, investor perceptions of Provident Bancorp,
Inc. and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to
our operating performance.
Our failure to effectively deploy the net proceeds may have
an adverse effect on our financial performance.
We
intend to invest between $14.7 million and $20.2 million of the net proceeds of the offering (or $23.3 million at the adjusted
maximum of the offering range) in The Provident Bank. We may use the remaining net proceeds to invest in short-term investments
and for general corporate purposes, including, subject to regulatory limitations, the repurchase shares of common stock and the
payment of dividends. We also expect to use a portion of the net proceeds we retain to redeem at least half of the SBLF preferred
stock we issued to the U.S. Treasury and to fund a loan to our employee stock ownership plan to purchase shares of common stock
in the offering. Following this redemption, we would retain between $3.3 million and $7.8 million of the net proceeds of the offering
(or $10.4 million at the adjusted maximum of the offering range). The Provident Bank may use the net proceeds it receives to fund
new loans, expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions
or other financial services companies, or for other general corporate purposes. However, with the exception of funding the loan
to the employee stock ownership plan, redeeming the SBLF preferred stock and funding the charitable foundation, we have not allocated
specific amounts of the net proceeds for any of these purposes, and we will have significant flexibility in determining the amount
of the net proceeds we apply to different uses and when we apply or reinvest such proceeds. Also, certain of these uses, such as
opening new branches or acquiring other financial institutions, may require the approval of the Massachusetts Commissioner of Banks,
the Federal Deposit Insurance Corporation or the Federal Reserve Board. We have not established a timetable for reinvesting the
net proceeds, and we cannot predict how long we will require to reinvest the net proceeds. Our
failure to utilize these
funds effectively would reduce our profitability and may adversely affect the value of our common stock.
Our return on equity may be low following the stock offering.
This could negatively affect the trading price of our shares of common stock.
Net income divided by average shareholders’
equity, known as “return on equity,” is a ratio many investors use to compare the performance of financial institutions.
Our return on equity may be low until we are able to leverage the additional capital we receive from the stock offering. Our return
on equity will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit
plans we intend to adopt. Until we can increase our net interest income and non-interest income and deploy the capital raised in
the stock offering, we expect our return on equity to be low, which may reduce the market price of our shares of common stock.
The contribution to the charitable foundation will dilute your
ownership interest and adversely affect net income in 2015.
We intend to establish and fund a new charitable
foundation in connection with the stock offering. We will contribute shares of our common stock equal to 2.0% of the shares to
be outstanding following the offering and $250,000 in cash. At the minimum, midpoint, maximum and adjusted maximum of the offering
range, we will contribute to the charitable foundation 138,720, 163,200, 187,680 and 215,832 shares of common stock, respectively.
The contribution will have an adverse effect on our net income for the quarter and year in which we make the issuance and contribution
to the charitable foundation. The after-tax expense of the contribution will reduce net income in fiscal 2015 by approximately
$1.4 million, assuming we sell shares of common stock at the adjusted maximum of the offering range. We had net income of $4.6
million for the year ended December 31, 2014. In addition, persons purchasing shares in the stock offering will have their ownership
and voting interests in Provident Bancorp, Inc. diluted by up to 2.0% due to the issuance of shares of common stock to the charitable
foundation.
Our contribution to the charitable foundation may not be tax
deductible, which could reduce our profits.
We may not have sufficient profits to be able
to fully use the tax deduction from our contribution to the charitable foundation. Pursuant to the Internal Revenue Code, an entity
is permitted to deduct up to 10% of its taxable income (generally income before federal income taxes and charitable contributions
expense) in any one year for charitable contributions. Any contribution in excess of the 10% limit may be deducted for federal
income tax purposes over each of the five years following the year in which the charitable contribution is made. Accordingly, a
charitable contribution could, if necessary, be deducted over a six-year period. Based on $6.5 million of taxable income before
income tax expense (as calculated for purposes of determining the deductibility of charitable contributions) for the year ended
December 31, 2014 that can be used, and assuming that our taxable income before income tax expense remained at that level in future
years following the stock offering, we estimate that we would be able to deduct for federal income tax purposes all of the contribution
to the charitable foundation.
We are an emerging growth company, and any decision on our part
to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our
common stock less attractive to investors.
We are an emerging
growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions
from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including,
but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of
any golden parachute payments not previously approved. As an emerging growth company, we also will not be subject to Section 404(b)
of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness
of our internal control over financial reporting. We could be an emerging growth
company for up to five years following
the completion of this offering. We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal
year following the fifth anniversary of this offering, (ii) the
first fiscal year after our annual gross revenues are $1.0 billion
or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible
debt securities or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded
$700 million as of the end of the second quarter of that fiscal year. Investors may find our common stock less attractive if we
choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce
future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more
volatile.
We will need to implement additional financial and accounting
systems, procedures and controls in order to satisfy our new public company reporting requirements.
Upon completion of the stock offering, we will
become a public reporting company. The federal securities laws and regulations of the Securities and Exchange Commission require
that we file annual, quarterly and current reports, and that we maintain effective disclosure controls and procedures and internal
controls over financial reporting. We expect that the obligations of being a public company, including substantial public reporting
obligations, will require significant expenditures and place additional demands on our management team. These obligations will
increase our operating expenses and could divert management’s attention from our banking operations.
Compliance with the Sarbanes-Oxley Act of 2002
and the related rules and regulations of the Securities and Exchange Commission will require us to certify the adequacy of our
internal controls and procedures, which could require us to upgrade our systems, and/or hire additional staff, which would increase
our operating costs.
Our stock-based benefit plans will increase our expenses and
reduce our income.
We intend to adopt one or more new stock-based
benefit plans after the stock offering, subject to shareholder approval, which will increase our annual compensation and benefit
expenses related to the stock options and stock awards granted to participants under the new stock-based benefit plans. The actual
amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards actually
granted under the plans, the fair market value of our stock or options on the date of grant, the vesting period, and other factors
which we cannot predict at this time. In the event we adopt stock-based benefit plans within 12 months following the stock offering,
the total shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such
plans would be limited to 4% and 10%, respectively, of the total shares of our common stock sold in the stock offering and issued
to the charitable foundation. If we award restricted shares of common stock or grant options in excess of these amounts under stock-based
benefit plans adopted more than 12 months after the completion of the stock offering, our costs would increase further.
In addition, we will recognize expense for our
employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize expense
for restricted stock awards and stock options over the vesting period of awards made to recipients. The expense in the first year
following the offering for shares purchased in the offering and for our new stock-based benefit plans has been estimated to be
approximately $963,000 ($663,000 after tax) at the adjusted maximum of the offering range as set forth in the pro forma financial
information under “Pro Forma Data,” assuming the $10.00 per share purchase price as fair market value. Actual expense
may be higher if the price of our common stock at the time the shares are allocated or awarded is greater than $10.00 per share.
For further discussion of our proposed stock-based plans, see “Management—Benefits to be Considered Following Completion
of the Stock Offering.”
The implementation of stock-based benefit plans may dilute
your ownership interest. Historically, shareholders have approved these stock-based benefit plans.
We
intend to adopt one or more new stock-based benefit plans following the stock offering. These plans may be funded either through
open market purchases or from the issuance of authorized but unissued shares of
common stock. Our ability to repurchase
shares of common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on stock
repurchases, the availability of stock in the market, the
trading price of the stock, our capital levels, alternative uses
for our capital and our financial performance. While our intention is to fund the new stock-based benefit plans through open market
purchases, shareholders would experience a 6.2% dilution in ownership interest in the event newly issued shares of our common stock
are used to fund stock options and shares of restricted common stock in amounts equal to 10% and 4%, respectively, of the shares
sold in the offering and issued to the charitable foundation. In the event we adopt the plans more than 12 months following the
stock offering, new stock-based benefit plans would not be subject to these limitations and shareholders could experience greater
dilution.
Although the implementation of new stock-based
benefit plans would be subject to shareholder approval, historically, the overwhelming majority of stock-based benefit plans adopted
by savings institutions and their holding companies following mutual-to-stock conversions and minority stock offerings have been
approved by shareholders.
We have not determined when we will adopt one or more new stock-based
benefit plans. Stock-based benefit plans adopted more than 12 months following the completion of the stock offering may exceed
regulatory restrictions on the size of stock-based benefit plans adopted within 12 months, which would further increase our costs.
If we adopt stock-based benefit plans more than
12 months following the completion of the stock offering, then grants of shares of common stock or stock options under our existing
and proposed stock-based benefit plans may exceed 4% and 10%, respectively, of shares of common stock sold in the stock offering
and issued to the charitable foundation. Stock-based benefit plans that provide for awards in excess of these amounts would increase
our costs beyond the amounts estimated in “—Our stock-based benefit plans will increase our expenses and reduce our
income.” Stock-based benefit plans that provide for awards in excess of these amounts could also result in dilution to shareholders
in excess of that described in “—The implementation of stock-based benefit plans may dilute your ownership interest.
Historically, shareholders have approved these stock-based benefit plans.” Although the implementation of stock-based benefit
plans would be subject to shareholder approval, the timing of the implementation of such plans will be at the discretion of our
Board of Directors.
Various factors may make takeover attempts more difficult to
achieve.
Certain provisions of our articles of organization
and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party
to acquire control of Provident Bancorp, Inc. without our Board of Directors’ approval. Provident Bancorp, as our mutual
holding company majority shareholder, will be able to control the outcome of virtually all matters presented to our shareholders
for their approval, including any proposal to acquire us. Accordingly, Provident Bancorp may prevent the sale of control or merger
of Provident Bancorp, Inc. or its subsidiaries even if such a transaction were favored by a majority of our other shareholders.
See “—The ability of Provident Bancorp, our majority shareholder, to exercise voting control over virtually all matters
put to a vote of our shareholders, and to be able to prevent our shareholders from forcing a sale or second-step conversion transaction,
may adversely affect the price at which our common stock will trade after the offering.”
Under regulations
applicable to the stock offering, for a period of three years following completion of the stock offering, no person may acquire
beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board and the Massachusetts
Commissioner of Banks. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve
Board before acquiring control of a bank holding company. Acquisition of 10% or more of any class of voting stock of a bank holding
company, including shares of our common stock or shares of our SBLF preferred stock were those shares to become entitled to vote
upon the election of two directors because of missed dividends, creates a rebuttable presumption that the acquirer “controls”
the bank holding company. Also, a bank holding company must obtain the prior approval of the
Federal Reserve Board before,
among other things, acquiring direct or indirect ownership or control of more than 5% of any class of voting shares of any bank,
including The Provident Bank.
There also are provisions in our articles of
organization that may be used to delay or block a takeover attempt, including a provision that prohibits any person from voting
more than 10% of the shares of common stock
outstanding. Furthermore, shares of restricted stock and stock options
that we have granted or may grant to employees and directors, stock ownership by our management and directors, employment agreements
that we have entered into with our executive officers and other factors may make it more difficult for companies or persons to
acquire control of Provident Bancorp, Inc. without the consent of our Board of Directors. Taken as a whole, these statutory provisions
and provisions in our articles of organization could result in our being less attractive to a potential acquirer and thus could
adversely affect the market price of our common stock.
For additional information, see “Restrictions
on Acquisition of Provident Bancorp, Inc.,” “Management—Employment Agreements”
and “—Benefits
to be Considered Following Completion of the Stock Offering.”
The ability of Provident Bancorp, our majority shareholder,
to exercise voting control over virtually all matters put to a vote of our shareholders, and to be able to prevent our shareholders
from forcing a sale or second-step conversion transaction, may adversely affect the price at which our common stock will trade
after the offering.
Upon the completion of the offering, Provident
Bancorp, our mutual holding company parent, will own a majority of the shares of our common stock, and therefore through its board
of trustees, Provident Bancorp will control the election of our directors and any decision to enter into a corporate transaction
that requires the approval of our shareholders. The same directors and officers who manage Provident Bancorp, Inc. and The Provident
Bank also manage Provident Bancorp. Provident Bancorp has no present plan or intent to complete a second-step conversion transaction
and to sell its remaining equity interest in us. So long as Provident Bancorp continues to hold a majority of our outstanding common
stock, it will have the ability to control the election of our directors and the outcome of virtually all other matters being voted
on by our shareholders. For example, Provident Bancorp, through its board of trustees, may exercise its voting control to defeat
a shareholder nominee for election to our board of directors. In addition, our shareholders will not be able to force a merger
or second-step conversion without Provident Bancorp’s consent. Provident Bancorp’s voting control over us may adversely
affect the price at which our common stock will trade after the offering as compared to the common stock of fully converted banking
companies.
Our stock value may be negatively affected by applicable regulations
that restrict stock repurchases.
Applicable regulations restrict us from repurchasing
our shares of common stock during the first year following the stock offering unless extraordinary circumstances exist, and limit
us from repurchasing our shares of common stock during the first three years following the stock offering. Stock repurchases are
a capital management tool that can enhance the value of a company’s stock, and our inability to repurchase our shares of
common stock during the first year following the stock offering and limitations on our ability to repurchase our shares of common
stock during the first three years following the stock offering may negatively affect our stock price.
If we declare dividends on our common stock, Provident Bancorp
will be prohibited from waiving the receipt of dividends.
Provident Bancorp,
Inc.’s Board of Directors will have the authority to declare dividends on our common stock, subject to statutory and regulatory
requirements. If Provident Bancorp, Inc. pays dividends to its shareholders, it also will be required to pay dividends to Provident
Bancorp, unless Provident Bancorp is permitted by the Federal Reserve Board to waive the receipt of dividends. The Federal Reserve
Board’s current position is to not permit a bank holding company to waive dividends declared by its subsidiary. In addition,
Massachusetts banking regulations prohibit Provident Bancorp from waiving dividends declared and paid by Provident Bancorp, Inc.
unless the Massachusetts Commissioner of Banks does not object to the waiver and provided the waiver is not detrimental to the
safe and sound operation of The Provident Bank. Accordingly, because dividends will be required to be paid
to Provident
Bancorp along with all other shareholders, the amount of dividends available for all other shareholders will be less than if Provident
Bancorp were permitted to waive the receipt of dividends.
Failure to pay dividends on our SBLF
preferred stock may have negative consequences, including limiting our ability to pay dividends in the future.
Our SBLF preferred
stock pays a noncumulative quarterly dividend in arrears. Such dividends are not cumulative but we may only declare and pay dividends
on our common stock (or any other equity securities junior to the SBLF preferred stock) if we have declared and paid dividends
on the SBLF preferred stock for the current dividend period. See “Our Dividend Policy.”
We have never issued common stock to the public, there is no
guarantee that a liquid market will develop and our mutual holding company structure may reduce the liquidity of our common stock.
We have never issued common stock to the public
and there is no established market for our common stock. We expect that our common stock will be listed for trading on the Nasdaq
Capital Market under the symbol “PVBC”, subject to completion of the offering and compliance with certain conditions,
including the presence of at least three registered and active market makers. Sandler O’Neill & Partners, L.P. has advised
us that it intends to make a market in shares of our common stock following the offering, but it is under no obligation to do so
or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments from at least
two other broker-dealers to make a market in shares of our common stock, we may not be able to obtain such commitments. This would
result in our common stock not being listed for trading on the Nasdaq Capital Market, which could reduce the liquidity of our common
stock. Furthermore, Provident Bancorp’s voting control over us means that Provident Bancorp may prevent the sale of control
or merger of Provident Bancorp, Inc. or its subsidiaries even if such a transaction were favored by a majority of our other shareholders.
This could adversely affect the price at which our common stock will trade as stockholders may be less willing to invest in us
after the offering as compared to the common stock of fully converted banking companies.
You may not revoke your decision
to purchase Provident Bancorp, Inc. common stock in the subscription or community offerings after you send us your order.
Funds submitted or automatic withdrawals authorized
in connection with the purchase of shares of common stock in the subscription and community offerings will be held by us until
the completion or termination of the stock offering, including any extension of the expiration date and consummation of a syndicated
offering. Because completion of the stock offering will be subject to regulatory approvals and an update of the independent appraisal
prepared by RP Financial, LC., among other factors, there may be one or more delays in completing the stock offering. Orders submitted
in the subscription and community offerings are irrevocable, and purchasers will have no access to their funds unless the offering
is terminated, or extended beyond [extension date], or the number of shares to be sold in the offering is increased to more than
4,856,220 shares or decreased to fewer than 3,121,200 shares.
The distribution of subscription rights could have adverse income
tax consequences.
If the subscription rights granted to certain
current or former depositors of The Provident Bank are deemed to have an ascertainable value, receipt of such rights may be taxable
in an amount equal to such value. Whether subscription rights are considered to have ascertainable value is an inherently factual
determination. We have received an opinion of counsel, Luse Gorman, PC, that it is more likely than not that such rights have no
value; however, such opinion is not binding on the Internal Revenue Service.
Risks Related to
an Investment in the SBLF Preferred Stock
An active trading market for the SBLF
preferred stock may not develop or be maintained.
The
SBLF preferred stock is not currently listed on any securities exchange or available for quotation on any national quotation system.
We will use reasonable best efforts to list, or make available for quotation, the SBLF
preferred stock in the future, if
and when any shares of SBLF preferred stock are offered and sold. An active trading market for the SBLF preferred stock may not
develop, or if developed, may not be maintained. If an active market
does not develop and is not maintained, the market value and liquidity
of the SBLF preferred stock may be materially and adversely affected.
Holders of SBLF preferred stock have
limited voting rights.
The holders of SBLF
preferred stock have no voting rights except with respect to certain fundamental changes in the terms of the SBLF preferred stock
and certain other matters and as may be required by applicable law. If dividends on the SBLF preferred stock are not paid in full
for five quarterly dividend periods, whether or not consecutive, the holders of the SBLF preferred stock have the right to appoint
a non-voting observer on our board of directors. Further, if dividends are not paid in full for six quarterly dividend periods,
whether or not consecutive, the total number of positions on our board of directors will automatically increase by two and the
holders of the SBLF preferred stock, acting as a class, will have the right to elect two individuals to serve in the new director
positions. These rights and the terms of such directors will end when we have paid in full all accrued and unpaid dividends and
paid dividends for at least four consecutive dividend periods.
The SBLF preferred stock is subject
to various prohibitions and other restrictions on our payment of dividends.
Our ability to pay
dividends on the SBLF preferred stock is restricted by Federal Reserve Board supervisory policies and guidance. Dividends may not
be paid if our historical or projected earnings are not sufficient.
Our board of directors may decide not
to declare any dividends on the SBLF preferred stock.
Our board of directors
or any authorized committee of our board of directors may decide not to declare a dividend on the SBLF preferred stock in respect
of any dividend period. In such case, the holders of SBLF preferred stock will have no right to receive any dividend for such period,
and we will have no obligation to pay such a dividend, regardless of whether any dividends are declared for any subsequent dividend
periods. Although we have been paying dividends on the SBLF preferred stock, our board of directors may in the future deem that
we either do not have the ability or face circumstances that may make it advisable for us not to declare and pay such dividends.
If we redeem the SBLF preferred stock,
holders of SBLF preferred stock may not be able to reinvest the redemption proceeds in a comparable investment at the same or a
greater rate of return.
We have the right to
redeem the SBLF preferred stock, in whole or in part, at our option at any time, subject to prior regulatory approval. If we choose
to redeem the SBLF preferred stock, we are likely to do so if we are able to obtain a lower cost of capital. If prevailing interest
rates are relatively low if or when we choose to redeem the SBLF preferred stock, holders of SBLF preferred stock generally will
not be able to reinvest the redemption proceeds in a comparable investment at the same or greater rate of return. For more information
regarding the redemption of our SBLF preferred stock, see “How We Intend to Use the Proceeds.”
Shares of our preferred stock are not
insured deposits and may lose value.
Shares of our preferred
stock are not insured by the Federal Deposit Insurance Corporation, any other government agency or the Depositors Insurance Fund
and are subject to investment risk, including possible loss of principal.
SELECTED CONSOLIDATED FINANCIAL AND OTHER
DATA
The following tables set forth selected consolidated
historical financial and other data of Provident Bancorp, Inc. and its Subsidiary for the years 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 prospectus, including the consolidated financial statements beginning on page F-1 of
this prospectus. The information at December 31, 2014 and 2013, and for the years ended December 31, 2014 and 2013, is derived
in part from the audited consolidated financial statements that appear in this prospectus. The information at December 31, 2012,
2011 and 2010 and for the years ended December 31, 2012, 2011 and 2010 is derived in part from audited consolidated financial statements
that do not appear in this prospectus.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In thousands)
|
|
|
Selected Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
658,606
|
|
|
$
|
624,659
|
|
|
$
|
576,450
|
|
|
$
|
530,577
|
|
|
$
|
498,026
|
|
|
Cash and cash equivalents
|
|
|
9,558
|
|
|
|
15,356
|
|
|
|
23,101
|
|
|
|
24,789
|
|
|
|
17,329
|
|
|
Securities available for sale
|
|
|
76,032
|
|
|
|
87,647
|
|
|
|
113,385
|
|
|
|
109,745
|
|
|
|
106,944
|
|
|
Securities held to maturity
|
|
|
45,559
|
|
|
|
46,729
|
|
|
|
34,510
|
|
|
|
21,621
|
|
|
|
9,493
|
|
|
Federal Home Loan Bank stock, at cost
|
|
|
3,642
|
|
|
|
5,318
|
|
|
|
3,799
|
|
|
|
4,067
|
|
|
|
4,067
|
|
|
Loans receivable, net
|
|
|
494,183
|
|
|
|
439,712
|
|
|
|
377,118
|
|
|
|
345,565
|
|
|
|
333,895
|
|
|
Bank-owned life insurance
|
|
|
12,144
|
|
|
|
11,764
|
|
|
|
5,461
|
|
|
|
5,546
|
|
|
|
5,108
|
|
|
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
755
|
|
|
|
99
|
|
|
Deferred tax asset, net
|
|
|
3,632
|
|
|
|
3,754
|
|
|
|
3,809
|
|
|
|
3,063
|
|
|
|
3,297
|
|
|
Deposits
|
|
|
536,934
|
|
|
|
508,554
|
|
|
|
449,664
|
|
|
|
404,308
|
|
|
|
379,455
|
|
|
Advances from Federal Home Loan Bank
|
|
|
39,237
|
|
|
|
40,988
|
|
|
|
49,461
|
|
|
|
33,602
|
|
|
|
49,249
|
|
|
Securities sold under agreement to repurchase
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,264
|
|
|
|
19,067
|
|
|
Series A preferred stock
|
|
|
17,145
|
|
|
|
17,145
|
|
|
|
17,145
|
|
|
|
17,145
|
|
|
|
—
|
|
|
Total shareholder’s equity
|
|
|
75,791
|
|
|
|
69,827
|
|
|
|
67,060
|
|
|
|
64,725
|
|
|
|
44,551
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In thousands)
|
|
|
Selected Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
23,311
|
|
|
$
|
21,638
|
|
|
$
|
20,829
|
|
|
$
|
21,246
|
|
|
$
|
22,334
|
|
|
Interest expense
|
|
|
2,291
|
|
|
|
2,625
|
|
|
|
3,714
|
|
|
|
4,248
|
|
|
|
5,616
|
|
|
Net interest and dividend income
|
|
|
21,020
|
|
|
|
19,013
|
|
|
|
17,115
|
|
|
|
16,998
|
|
|
|
16,718
|
|
|
Provision for loan losses
|
|
|
1,452
|
|
|
|
1,175
|
|
|
|
681
|
|
|
|
458
|
|
|
|
468
|
|
Net interest and dividend income
after provision for loan losses
|
|
|
19,568
|
|
|
|
17,838
|
|
|
|
16,434
|
|
|
|
16,540
|
|
|
|
16,250
|
|
|
Noninterest income
|
|
|
3,868
|
|
|
|
5,143
|
|
|
|
3,778
|
|
|
|
6,870
|
|
|
|
3,550
|
|
|
Noninterest expense
|
|
|
17,421
|
|
|
|
17,362
|
|
|
|
16,829
|
|
|
|
16,629
|
|
|
|
16,799
|
|
|
Income before income tax expense
|
|
|
6,015
|
|
|
|
5,619
|
|
|
|
3,383
|
|
|
|
6,781
|
|
|
|
3,001
|
|
|
Income tax expense
|
|
|
1,453
|
|
|
|
1,607
|
|
|
|
818
|
|
|
|
2,242
|
|
|
|
796
|
|
|
Net income
|
|
$
|
4,562
|
|
|
$
|
4,012
|
|
|
$
|
2,565
|
|
|
$
|
4,539
|
|
|
$
|
2,205
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.71
|
%
|
|
|
0.66
|
%
|
|
|
0.47
|
%
|
|
|
0.91
|
%
|
|
|
0.44
|
%
|
|
Return on average equity
|
|
|
6.24
|
%
|
|
|
5.85
|
%
|
|
|
3.83
|
%
|
|
|
10.56
|
%
|
|
|
4.34
|
%
|
|
Interest rate spread (1)
|
|
|
3.32
|
%
|
|
|
3.16
|
%
|
|
|
3.05
|
%
|
|
|
3.43
|
%
|
|
|
3.38
|
%
|
|
Net interest margin (2)
|
|
|
3.47
|
%
|
|
|
3.31
|
%
|
|
|
3.27
|
%
|
|
|
3.59
|
%
|
|
|
3.50
|
%
|
|
Efficiency ratio (3)
|
|
|
70.00
|
%
|
|
|
71.87
|
%
|
|
|
80.55
|
%
|
|
|
69.67
|
%
|
|
|
82.88
|
%
|
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
137.29
|
%
|
|
|
133.59
|
%
|
|
|
130.21
|
%
|
|
|
117.73
|
%
|
|
|
110.39
|
%
|
|
Average equity to average assets
|
|
|
11.43
|
%
|
|
|
11.35
|
%
|
|
|
12.15
|
%
|
|
|
10.17
|
%
|
|
|
8.53
|
%
|
|
Average common equity to average assets
|
|
|
8.75
|
%
|
|
|
8.18
|
%
|
|
|
9.04
|
%
|
|
|
9.31
|
%
|
|
|
8.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets (bank only)
|
|
|
15.37
|
%
|
|
|
16.61
|
%
|
|
|
17.87
|
%
|
|
|
19.08
|
%
|
|
|
13.73
|
%
|
|
Tier 1 capital to risk weighted assets (bank only)
|
|
|
13.87
|
%
|
|
|
15.16
|
%
|
|
|
16.35
|
%
|
|
|
17.50
|
%
|
|
|
11.77
|
%
|
|
Tier 1 capital to average assets (bank only)
|
|
|
11.30
|
%
|
|
|
11.08
|
%
|
|
|
11.36
|
%
|
|
|
12.72
|
%
|
|
|
8.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of total loans (4)
|
|
|
1.44
|
%
|
|
|
1.36
|
%
|
|
|
1.31
|
%
|
|
|
1.29
|
%
|
|
|
1.30
|
%
|
|
Allowance for loan losses as a percentage of non-performing loans
|
|
|
187.49
|
%
|
|
|
183.15
|
%
|
|
|
179.61
|
%
|
|
|
155.57
|
%
|
|
|
191.45
|
%
|
|
Net charge-offs to average outstanding loans during the year
|
|
|
0.06
|
%
|
|
|
0.03
|
%
|
|
|
0.05
|
%
|
|
|
0.10
|
%
|
|
|
0.06
|
%
|
|
Non-performing loans as a percentage of total loans (4)
|
|
|
0.77
|
%
|
|
|
0.74
|
%
|
|
|
0.73
|
%
|
|
|
0.83
|
%
|
|
|
0.68
|
%
|
|
Non-performing loans as a percentage of total assets
|
|
|
0.59
|
%
|
|
|
0.53
|
%
|
|
|
0.48
|
%
|
|
|
0.55
|
%
|
|
|
0.46
|
%
|
|
Total non-performing assets as a percentage of total assets
|
|
|
0.59
|
%
|
|
|
0.53
|
%
|
|
|
0.48
|
%
|
|
|
0.69
|
%
|
|
|
0.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
Number of full-time equivalent employees
|
|
|
103
|
|
|
|
111
|
|
|
|
109
|
|
|
|
104
|
|
|
|
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.
|
|
(4)
|
|
Loans are presented before the allowance for loan losses but include deferred fees/costs.
|
FORWARD-LOOKING STATEMENTS
This prospectus 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;
|
|
|
·
|
our ability to continue to implement 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 laws or government regulations or policies affecting financial institutions, including changes in regulatory fees
and capital requirements, including as a result of Basel III;
|
|
|
·
|
the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing
regulations
;
|
|
|
·
|
our ability to manage market risk, credit risk and operational risk in the current economic conditions;
|
|
|
·
|
our ability to enter new markets successfully and capitalize on growth opportunities;
|
|
|
·
|
our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into
our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill
charges related thereto;
|
|
|
·
|
changes in consumer spending, borrowing and savings habits;
|
|
|
·
|
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards
Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
|
|
|
·
|
our ability to retain key employees;
|
|
|
·
|
our compensation expense associated with equity allocated or awarded to our employees;
|
|
|
·
|
our ability to redeem the SBLF preferred stock before the dividend rate on the preferred stock increases to 9.0% per annum;
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. Please see “Risk
Factors” beginning on page 16.
HOW WE INTEND TO USE THE PROCEEDS FROM THE
OFFERING
Although we cannot determine what the actual
net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate
that the net proceeds will be between $29.5 million and $40.4 million, or $46.7 million if the offering range is increased by 15%.
We intend to distribute the net proceeds as
follows:
|
|
|
Based Upon the Sale at $10.00 Per Share of
|
|
|
|
|
3,121,200 Shares
|
|
|
3,672,000 Shares
|
|
|
4,222,800 Shares
|
|
|
4,856,220 Shares (1)
|
|
|
|
|
Amount
|
|
|
Percent of
Net
Proceeds
|
|
|
Amount
|
|
|
Percent of
Net
Proceeds
|
|
|
Amount
|
|
|
Percent of
Net
Proceeds
|
|
|
Amount
|
|
|
Percent of
Net
Proceeds
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering proceeds
|
|
$
|
31,212
|
|
|
|
|
|
|
$
|
36,720
|
|
|
|
|
|
|
$
|
42,228
|
|
|
|
|
|
|
$
|
48,562
|
|
|
|
|
|
|
Less offering expenses
|
|
|
(1,716
|
)
|
|
|
|
|
|
|
(1,766
|
)
|
|
|
|
|
|
|
(1,817
|
)
|
|
|
|
|
|
|
(1,875
|
)
|
|
|
|
|
|
Net offering proceeds
|
|
$
|
29,496
|
|
|
|
100.0
|
%
|
|
$
|
34,954
|
|
|
|
100.0
|
%
|
|
$
|
40,411
|
|
|
|
100.0
|
%
|
|
$
|
46,687
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of net proceeds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To The Provident Bank
|
|
$
|
14,748
|
|
|
|
50.0
|
%
|
|
$
|
17,477
|
|
|
|
50.0
|
%
|
|
$
|
20,206
|
|
|
|
50.0
|
%
|
|
$
|
23,344
|
|
|
|
50.0
|
%
|
|
To fund loan to employee
stock ownership plan
|
|
$
|
2,608
|
|
|
|
8.8
|
%
|
|
$
|
3,068
|
|
|
|
8.8
|
%
|
|
$
|
3,528
|
|
|
|
8.7
|
%
|
|
$
|
4,058
|
|
|
|
8.7
|
%
|
|
To the charitable foundation
|
|
$
|
250
|
|
|
|
0.8
|
%
|
|
$
|
250
|
|
|
|
0.7
|
%
|
|
$
|
250
|
|
|
|
0.6
|
%
|
|
$
|
250
|
|
|
|
0.5
|
%
|
|
To redeem SBLF preferred
stock
|
|
$
|
8,600
|
|
|
|
29.2
|
%
|
|
$
|
8,600
|
|
|
|
24.6
|
%
|
|
$
|
8,600
|
|
|
|
21.3
|
%
|
|
$
|
8,600
|
|
|
|
18.4
|
%
|
To be retained by Provident
Bancorp,
Inc.
|
|
$
|
3,290
|
|
|
|
11.2
|
%
|
|
$
|
5,559
|
|
|
|
15.9
|
%
|
|
$
|
7,827
|
|
|
|
19.4
|
%
|
|
$
|
10,436
|
|
|
|
22.4
|
%
|
|
|
(1)
|
As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering
range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
|
Payments for shares of common stock made through
withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction
of The Provident Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or
less than our estimates. For example, our expenses would increase if fewer shares were sold in the subscription and community offerings
and more in the syndicated offering than we have assumed.
Provident Bancorp, Inc. may use the proceeds
it retains from the offering:
|
|
·
|
to redeem some or all of the SBLF preferred stock. Specifically, we intend to redeem at least 50% of the SBLF preferred stock.
We would expect to redeem the SBLF preferred stock prior to the March 2016 date on which the dividend rate increases to 9.00%.
However, we may redeem a higher amount if we sell shares of our common stock at the higher end of the offering range, and we may
redeem a lower amount and/or delay redemption if market or other conditions warrant our maintaining the capital provided by the
SBLF preferred stock;
|
|
|
·
|
to invest in securities;
|
|
|
·
|
to repurchase shares of our common stock, including repurchases to fund stock-based benefit plans;
|
|
|
·
|
to finance the potential acquisition of financial institutions or financial services companies, although we do not currently
have any agreements or understandings regarding any specific acquisition transaction;
|
|
|
·
|
to pay cash dividends to shareholders (although we do we do not currently anticipate paying cash dividends on our common stock);
and
|
|
·
|
|
for other general corporate purposes.
|
Any redemption of the SBLF preferred stock will
require the prior approval of the Federal Reserve Board. As of the date of this prospectus, we have not submitted an application
to the Federal Reserve Board, and therefore there can be no assurance that we will receive such approval.
See “Our Dividend Policy” for a
discussion of our expected dividend policy following the completion of the stock offering. Under current federal regulations, we
may not repurchase shares of our common stock during the first year following the completion of the stock offering, except when
extraordinary circumstances exist and with prior regulatory approval, or except to fund management recognition plans (which would
require notification to the Federal Reserve Board) or tax qualified employee stock benefit plans. In addition, under Massachusetts
regulations, we may not repurchase shares of our common stock during the first three years following the completion of the stock
offering except to fund tax-qualified or nontax-qualified employee stock benefit plans, or except in amounts not greater than 5%
of our outstanding shares of common stock where compelling and valid business reasons are established to the satisfaction of the
Massachusetts Commissioner of Banks.
The Provident Bank may use the net proceeds
it receives from the offering:
|
|
·
|
to enhance existing products and services and to support the development of new products and services;
|
|
|
·
|
to expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions
or other financial services companies as opportunities arise, although we do not currently have any understandings or agreements
to acquire a financial institution or other entity;
|
|
|
·
|
to invest in securities; and
|
|
|
·
|
for other general corporate purposes.
|
Initially, a substantial portion of the net
proceeds will be invested in short-term investments, investment-grade debt obligations and U.S. Government mortgage-backed securities.
We have not determined specific amounts of the net proceeds that would be used for the purposes described above. The use of the
proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets,
laws and regulations affecting the financial services industry, the attractiveness of potential acquisitions to expand our operations,
and overall market conditions. The use of the proceeds may also change depending on our ability to receive regulatory approval
to establish new branches or acquire other financial institutions.
We expect our return on equity to be low until
we are able to effectively deploy the additional capital raised in the offering. See “Risk Factors—Risks Related to
the Offering—Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.”
We will not receive any proceeds from any sale
of the SBLF preferred stock by the U.S. Treasury.
OUR DIVIDEND POLICY
Following completion of the stock offering,
our Board of Directors will have the authority to declare dividends on our common stock, subject to our capital requirements, our
financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.
However, due to the regulatory restrictions described below, we do not currently anticipate paying cash dividends on our common
stock. The payment and amount of any dividend payments will depend upon a number of factors. We cannot assure
you that we will pay dividends in the future, or that any such dividends
will not be reduced or eliminated in the future.
Provident Bancorp, Inc. will not be permitted
to pay dividends on its common stock if its shareholders’ equity would be reduced below the amount of the liquidation account
established by Provident Bancorp, Inc. in connection with the stock offering. The source of dividends will depend on the net proceeds
retained by Provident Bancorp, Inc. and earnings thereon, and dividends from The Provident Bank. In addition, Provident Bancorp,
Inc. will be subject to state law limitations and federal bank regulatory policy on the payment of dividends. Massachusetts law
prohibits distributions to shareholders if, after giving effect to the distribution, the corporation would not be able to pay its
debts as they become due in the usual course of business or the corporation’s total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the
distribution.
If Provident Bancorp, Inc. pays dividends to
its shareholders, it will be required to pay dividends to Provident Bancorp. The Federal Reserve Board’s current policy prohibits
the waiver of dividends by mutual holding companies that are regulated as bank holding companies (as opposed to savings and loan
holding companies). Any such payment would dilute our minority shareholders. In addition, Massachusetts banking regulations prohibit
Provident Bancorp from waiving dividends declared and paid by Provident Bancorp, Inc. unless the Massachusetts Commissioner of
Banks does not object to the waiver and provided the waiver is not detrimental to the safe and sound operation of The Provident
Bank. Accordingly, we do not currently anticipate that Provident Bancorp will be permitted to waive dividends paid by Provident
Bancorp, Inc. See “Risk Factors—If we declare dividends on our common stock, Provident Bancorp will be prohibited from
waiving the receipt of dividends.”
The SBLF preferred stock issued in connection
with our participation in the SBLF program pays a noncumulative quarterly dividend in arrears. Such dividends are not cumulative,
but we may only declare and pay dividends on our common stock (or any other equity securities junior to the SBLF preferred stock)
if full dividends on all outstanding shares of SBLF preferred stock for the most recently completed dividend period have been or
are contemporaneously declared and paid. If a dividend is not declared and paid in full on the SBLF preferred stock for any dividend
period, then from the last day of that dividend period until the last day of the third dividend period immediately following it,
no dividend or distribution may be declared or paid on our common stock.
After the completion of the stock offering,
The Provident Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized.
The Provident Bank must file an application with the Federal Deposit Insurance Corporation for approval of a capital distribution
if the total capital distributions for the applicable calendar year exceed the sum of The Provident Bank’s net income for
that year to date plus its retained net income for the preceding two years, or The Provident Bank would not be at least adequately
capitalized following the distribution.
In addition, Massachusetts banking law and Federal
Deposit Insurance Corporation regulations impose limitations on capital distributions by savings institutions. See “Supervision
and Regulation—Massachusetts Banking Laws and Supervision—Dividends.”
Any payment of dividends by The Provident Bank
to Provident Bancorp, Inc. that would be deemed to be drawn from The Provident Bank’s bad debt reserves established prior
to 1988, if any, would require a payment of taxes at the then-current tax rate by The Provident Bank on the amount of earnings
deemed to be removed from the pre-1988 bad debt reserves for such distribution. The Provident Bank does not intend to make any
distribution that would create such a federal tax liability. See “The Stock Offering—Liquidation Rights.” For
further information concerning additional federal law and regulations regarding the ability of The Provident Bank to make capital
distributions, including the payment of dividends to Provident Bancorp, Inc., see “Taxation—Federal Taxation”
and “Supervision and Regulation—Dividends.”
We will file a consolidated federal tax return
with The Provident Bank. Accordingly, it is anticipated that any cash distributions made by us to our shareholders would be treated
as cash dividends and not as a non-taxable
return of capital for federal tax purposes. Additionally, during
the three-year period following the stock offering, we will not be permitted to make any capital distribution to shareholders that
would be treated by recipients as a tax-free return of capital for federal income tax purposes.
MARKET FOR THE COMMON STOCK
We have never issued capital stock and there
is no established market for our shares of common stock. We expect that our shares of common stock will be listed for trading on
the Nasdaq Capital Market under the symbol “PVBC”, subject to completion of the offering and compliance with certain
conditions, including the presence of at least three registered and active market makers. Sandler, O’Neill & Partners,
L.P. has advised us that it intends to make a market in shares of our common stock following the offering, but it is under no obligation
to do so or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments
from at least two other broker-dealers to make a market in shares of our common stock, there can be no assurance that we will be
successful in obtaining such commitments.
The development and maintenance of a public
market, having the desirable characteristics of depth, liquidity and orderliness, depends on the existence of willing buyers and
sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of
shares of our common stock at any particular time may be limited, which may have an adverse effect on the price at which shares
of our common stock can be sold. There can be no assurance that persons purchasing the shares of common stock will be able to sell
their shares at or above the $10.00 offering purchase price per share. You should have a long-term investment intent if you purchase
shares of our common stock and you should recognize that there may be a limited trading market in the shares of common stock.
HISTORICAL AND PRO FORMA REGULATORY CAPITAL
COMPLIANCE
At December 31, 2014, The Provident Bank exceeded
all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth
the historical equity capital and regulatory capital of The Provident Bank at December 31, 2014, and the pro forma equity capital
and regulatory capital of The Provident Bank, after giving effect to the sale of shares of common stock at $10.00 per share. Effective
January 1, 2015, the well capitalized threshold for the Tier 1 risk-based capital requirement was increased from 6.0% to 8.0%.
Additionally, effective January 1, 2015, a new capital standard, common equity Tier 1 capital, was implemented, with a 6.5% ratio
requirement for a financial institution to be considered well capitalized. The table below reflects these newly implemented regulatory
capital requirements as if they were in effect at December 31, 2014. The table assumes the receipt by The Provident Bank of 50%
of the net offering proceeds. See “How We Intend to Use the Proceeds from the Offering.”
|
|
|
The Provident Bank
Historical at
|
|
|
Pro Forma at December 31, 2014, Based Upon the Sale in the Offering of
|
|
|
|
|
December 31, 2014
|
|
|
3,121,200 Shares
|
|
|
3,672,000 Shares
|
|
|
4,222,800 Shares
|
|
|
4,856,220 Shares
(1)
|
|
|
|
|
Amount
|
|
|
Percent of
Assets (2)
|
|
|
Amount
|
|
|
Percent of
Assets (2)
|
|
|
Amount
|
|
|
Percent of
Assets (2)
|
|
|
Amount
|
|
|
Percent of
Assets (2)
|
|
|
Amount
|
|
|
Percent of
Assets (2)
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Equity
|
|
$
|
75,694
|
|
|
|
11.49
|
%
|
|
$
|
86,530
|
|
|
|
12.87
|
%
|
|
$
|
88,569
|
|
|
|
13.13
|
%
|
|
$
|
90,607
|
|
|
|
13.38
|
%
|
|
$
|
92,951
|
|
|
|
13.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage capital
|
|
$
|
73,282
|
|
|
|
11.31
|
%
|
|
$
|
84,118
|
|
|
|
12.72
|
%
|
|
$
|
86,157
|
|
|
|
12.98
|
%
|
|
$
|
88,195
|
|
|
|
13.24
|
%
|
|
$
|
90,539
|
|
|
|
13.53
|
%
|
|
Tier
1 leverage requirement
|
|
|
32,393
|
|
|
|
5.00
|
|
|
|
33,065
|
|
|
|
5.00
|
|
|
|
33,190
|
|
|
|
5.00
|
|
|
|
33,315
|
|
|
|
5.00
|
|
|
|
33,459
|
|
|
|
5.00
|
|
|
Excess
|
|
$
|
40,889
|
|
|
|
6.31
|
%
|
|
$
|
51,053
|
|
|
|
7.72
|
%
|
|
$
|
52,967
|
|
|
|
7.98
|
%
|
|
$
|
54,880
|
|
|
|
8.24
|
%
|
|
$
|
57,080
|
|
|
|
8.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital
(3)
|
|
$
|
73,282
|
|
|
|
13.87
|
%
|
|
$
|
84,118
|
|
|
|
15.84
|
%
|
|
$
|
86,157
|
|
|
|
16.21
|
%
|
|
$
|
88,195
|
|
|
|
16.57
|
%
|
|
$
|
90,539
|
|
|
|
17.00
|
%
|
|
Tier
1 risk-based requirement
|
|
|
51,829
|
|
|
|
8.00
|
|
|
|
52,905
|
|
|
|
8.00
|
|
|
|
53,104
|
|
|
|
8.00
|
|
|
|
53,304
|
|
|
|
8.00
|
|
|
|
53,534
|
|
|
|
8.00
|
|
|
Excess
|
|
$
|
21,453
|
|
|
|
5.87
|
%
|
|
$
|
31,213
|
|
|
|
7.84
|
%
|
|
$
|
33,053
|
|
|
|
8.21
|
%
|
|
$
|
34,891
|
|
|
|
8.57
|
%
|
|
$
|
37,005
|
|
|
|
9.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
(3)
|
|
$
|
81,229
|
|
|
|
15.37
|
%
|
|
$
|
92,065
|
|
|
|
17.33
|
%
|
|
$
|
94,104
|
|
|
|
17.70
|
%
|
|
$
|
96,142
|
|
|
|
18.07
|
%
|
|
$
|
98,486
|
|
|
|
18.49
|
%
|
|
Total
risk-based requirement
|
|
|
52,841
|
|
|
|
10.00
|
|
|
|
53,110
|
|
|
|
10.00
|
|
|
|
53,160
|
|
|
|
10.00
|
|
|
|
53,210
|
|
|
|
10.00
|
|
|
|
53,268
|
|
|
|
10.00
|
|
|
Excess
|
|
$
|
28,388
|
|
|
|
5.37
|
%
|
|
$
|
38,955
|
|
|
|
7.33
|
%
|
|
$
|
40,944
|
|
|
|
7.70
|
%
|
|
$
|
42,932
|
|
|
|
8.07
|
%
|
|
$
|
45,218
|
|
|
|
8.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital
|
|
$
|
73,282
|
|
|
|
11.31
|
%
|
|
$
|
84,118
|
|
|
|
12.72
|
%
|
|
$
|
86,157
|
|
|
|
12.98
|
%
|
|
$
|
88,195
|
|
|
|
13.24
|
%
|
|
$
|
90,539
|
|
|
|
13.53
|
%
|
|
Common
equity tier 1 requirement
|
|
|
34,347
|
|
|
|
6.50
|
|
|
|
34,522
|
|
|
|
6.50
|
|
|
|
34,554
|
|
|
|
6.50
|
|
|
|
34,587
|
|
|
|
6.50
|
|
|
|
34,624
|
|
|
|
6.50
|
|
|
Excess
|
|
$
|
38,935
|
|
|
|
4.81
|
%
|
|
$
|
49,596
|
|
|
|
6.22
|
%
|
|
$
|
51,603
|
|
|
|
6.48
|
%
|
|
$
|
53,608
|
|
|
|
6.74
|
%
|
|
$
|
55,915
|
|
|
|
7.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of capital infused into The Provident Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds
|
|
|
|
|
|
|
|
|
|
$
|
14,748
|
|
|
|
|
|
|
$
|
17,477
|
|
|
|
|
|
|
$
|
20,206
|
|
|
|
|
|
|
$
|
23,344
|
|
|
|
|
|
|
Less: Common
stock acquired by employee stock ownership plan
|
|
|
|
|
|
|
|
|
|
|
(2,608
|
)
|
|
|
|
|
|
|
(3,068
|
)
|
|
|
|
|
|
|
(3,528
|
)
|
|
|
|
|
|
|
(4,058
|
)
|
|
|
|
|
|
Less: Common
stock acquired by stock-based benefit plan
|
|
|
|
|
|
|
|
|
|
|
(1,304
|
)
|
|
|
|
|
|
|
(1,534
|
)
|
|
|
|
|
|
|
(1,764
|
)
|
|
|
|
|
|
|
(2,029
|
)
|
|
|
|
|
|
Pro forma increase
|
|
|
|
|
|
|
|
|
|
$
|
10,836
|
|
|
|
|
|
|
$
|
12,875
|
|
|
|
|
|
|
$
|
14,914
|
|
|
|
|
|
|
$
|
17,257
|
|
|
|
|
|
_______________________
|
|
(1)
|
As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering
range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
|
|
|
(2)
|
Equity and Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are
shown as a percentage of risk-weighted assets.
|
|
|
(3)
|
Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.
|
CAPITALIZATION
The following table presents the historical
consolidated capitalization of Provident Bancorp, Inc. at December 31, 2014 and the pro forma consolidated capitalization of Provident
Bancorp, Inc. after giving effect to the stock offering based upon the assumptions set forth in the “Pro Forma Data”
section. The pro forma capitalization information provided in the table below also assumes that the redemption of approximately
50% of the SBLF preferred stock was completed as of December 31, 2014. See “How We Intend to Use the Proceeds From the Offering.”
|
|
|
Provident
Bancorp, Inc.
Historical at
|
|
|
Pro Forma at December 31, 2014
Based upon the Sale in the Offering at
$10.00 per Share of
|
|
|
|
|
December 31,
2014
|
|
|
3,121,200
Shares
|
|
|
3,672,000
Shares
|
|
|
4,222,800
Shares
|
|
|
4,856,220
Shares (1)
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Deposits (2)
|
|
$
|
536,934
|
|
|
$
|
536,934
|
|
|
$
|
536,934
|
|
|
$
|
536,934
|
|
|
$
|
536,934
|
|
|
Borrowed funds
|
|
|
39,237
|
|
|
|
39,237
|
|
|
|
39,237
|
|
|
|
39,237
|
|
|
|
39,237
|
|
|
Total deposits and borrowed funds
|
|
$
|
576,171
|
|
|
$
|
576,171
|
|
|
$
|
576,171
|
|
|
$
|
576,171
|
|
|
$
|
576,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 32,855 shares authorized
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Senior Non-Cumulative Perpetual Preferred Stock, Series A, 17,145 shares authorized
|
|
|
17,145
|
|
|
|
8,545
|
|
|
|
8,545
|
|
|
|
8,545
|
|
|
|
8,545
|
|
|
Common stock, no par value, 30,000,000 shares authorized; shares to be issued as reflected (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Additional paid-in capital
|
|
|
275
|
|
|
|
31,158
|
|
|
|
36,861
|
|
|
|
42,563
|
|
|
|
49,121
|
|
|
Tax benefit of contribution to the charitable foundation
|
|
|
—
|
|
|
|
655
|
|
|
|
753
|
|
|
|
851
|
|
|
|
963
|
|
|
Retained earnings (4)
|
|
|
55,959
|
|
|
|
55,959
|
|
|
|
55,959
|
|
|
|
55,959
|
|
|
|
55,959
|
|
|
Accumulated other comprehensive income
|
|
|
2,412
|
|
|
|
2,412
|
|
|
|
2,412
|
|
|
|
2,412
|
|
|
|
2,412
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense of stock contribution to the charitable foundation
|
|
|
—
|
|
|
|
(1,387
|
)
|
|
|
(1,632
|
)
|
|
|
(1,877
|
)
|
|
|
(2,158
|
)
|
|
Expense of cash contribution to the charitable foundation
|
|
|
—
|
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
Common stock held by employee stock ownership plan (5)
|
|
|
—
|
|
|
|
(2,608
|
)
|
|
|
(3,068
|
)
|
|
|
(3,528
|
)
|
|
|
(4,058
|
)
|
|
Common stock to be acquired by stock-based benefit plan (6)
|
|
|
—
|
|
|
|
(1,304
|
)
|
|
|
(1,534
|
)
|
|
|
(1,764
|
)
|
|
|
(2,029
|
)
|
|
Total shareholders’ equity
|
|
$
|
75,791
|
|
|
$
|
93,180
|
|
|
$
|
98,046
|
|
|
$
|
102,911
|
|
|
$
|
108,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares offered for sale
|
|
|
—
|
|
|
|
3,121,200
|
|
|
|
3,672,000
|
|
|
|
4,222,800
|
|
|
|
4,856,220
|
|
|
Shares issued to charitable foundation
|
|
|
—
|
|
|
|
138,720
|
|
|
|
163,200
|
|
|
|
187,680
|
|
|
|
215,832
|
|
|
Shares issued to Provident Bancorp
|
|
|
—
|
|
|
|
3,676,080
|
|
|
|
4,324,800
|
|
|
|
4,973,520
|
|
|
|
5,719,548
|
|
|
Total shares outstanding
|
|
|
—
|
|
|
|
6,936,000
|
|
|
|
8,160,000
|
|
|
|
9,384,000
|
|
|
|
10,791,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity as a percentage of total assets (7)
|
|
|
11.51
|
%
|
|
|
13.78
|
%
|
|
|
14.40
|
%
|
|
|
15.01
|
%
|
|
|
15.70
|
%
|
|
Common shareholders’ equity as a percentage of total assets (7)
|
|
|
8.90
|
%
|
|
|
12.52
|
%
|
|
|
13.15
|
%
|
|
|
13.76
|
%
|
|
|
14.46
|
%
|
|
|
(1)
|
As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering
range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
|
|
|
(2)
|
Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the stock offering. These
withdrawals would reduce pro forma deposits and assets by the amount of the withdrawals.
|
(footnotes continue on following page)
(continued from previous page)
|
|
(3)
|
No effect has been given to the issuance of additional shares of Provident Bancorp, Inc. common stock pursuant to the exercise
of options under one or more stock-based benefit plans. If the plans are implemented within the first year after the closing of
the offering, an amount up to 10% of the shares of Provident Bancorp, Inc. common stock sold in the offering and issued to the
foundation will be reserved for issuance upon the exercise of options under the plans. See “Management.”
|
|
|
(4)
|
The retained earnings of The Provident Bank will be substantially restricted after the stock offering. See “The Stock
Offering—Liquidation Rights” and “Supervision and Regulation—Massachusetts Banking Laws and Supervision—Dividends.”
|
|
|
(5)
|
Assumes that 8% of the shares sold in the offering and issued to the foundation will be acquired by the employee stock ownership
plan financed by a loan from Provident Bancorp, Inc. The loan will be repaid principally from The Provident Bank’s contributions
to the employee stock ownership plan. Since Provident Bancorp, Inc. will finance the employee stock ownership plan debt, this debt
will be eliminated through consolidation and no liability will be reflected on Provident Bancorp, Inc.’s consolidated financial
statements. Accordingly, the amount of shares of common stock acquired by the employee stock ownership plan is shown in this table
as a reduction of total shareholders’ equity.
|
|
|
(6)
|
Assumes a number of shares of common stock equal to 4% of the shares of common stock to be sold in the offering and issued
to the charitable foundation will be purchased for grant by one or more stock-based benefit plans. The funds to be used by such
plans to purchase the shares will be provided by Provident Bancorp, Inc. The dollar amount of common stock to be purchased is based
on the $10.00 per share subscription price in the offering and represents unearned compensation. This amount does not reflect possible
increases or decreases in the value of common stock relative to the subscription price in the offering. Provident Bancorp, Inc.
will accrue compensation expense to reflect the vesting of shares pursuant to such stock-based benefit plans and will credit capital
in an amount equal to the charge to operations. Implementation of such plans will require shareholder approval.
|
|
|
(7)
|
We had no intangible assets as of December 31, 2014.
|
PRO FORMA DATA
The following table summarizes historical and
pro forma data of Provident Bancorp, Inc. as of and for the year ended December 31, 2014. This information is based on assumptions
set forth below and in the table, and should not be used as a basis for projections of market value of the shares of common stock
following the stock offering.
The net proceeds in the table are based upon
the following assumptions:
|
|
(i)
|
all of all shares of common stock will be sold in the subscription and community offerings;
|
|
|
(ii)
|
our employees, directors, trustees, corporators and their associates will purchase
300,000 shares of common stock;
|
|
|
(iii)
|
our employee stock ownership plan will purchase 8% of the shares of common stock sold in the offering with a loan from Provident
Bancorp, Inc. The loan will be repaid in substantially equal payments of principal and interest (at the prime rate of interest,
calculated as of the date of the origination of the loan)
over a period of 15 years. Interest income that we earn on the
loan will offset the interest paid by The Provident Bank;
|
|
|
(iv)
|
The Provident Bank will contribute $250,000 in cash to the charitable foundation;
|
|
|
(v)
|
we will pay Sandler O’Neill & Partners, L.P. a fee equal to 1.0% of the aggregate amount of common stock sold in
the subscription and community offerings;
|
|
|
(vi)
|
no fee will be paid with respect to shares of common stock purchased by our tax-qualified and non-qualified employee stock
benefit plans, or stock purchased by our officers, directors, trustees, corporators and employees, and their immediate families;
and
|
|
|
(vii)
|
total expenses of the offering, other than the fees and commissions to be paid to Sandler O’Neill & Partners, L.P.
and other broker-dealers, will be $1.3 million.
|
We calculated pro forma consolidated net income
for the year ended December 31, 2014 as if the estimated net proceeds we received had been invested at the beginning of the year
at an assumed interest rate of 1.65% (0.99% on an after-tax basis). This represents the yield on the five-year U.S. Treasury Note
as of December 31, 2014, which, in light of current market interest rates, we consider to more accurately reflect the pro forma
reinvestment rate than the arithmetic average of the weighted average yield earned on our interest earning assets and the weighted
average rate paid on our deposits, which is the reinvestment rate generally required by federal regulations.
We further believe that the reinvestment rate
is factually supportable because:
|
|
·
|
the yield on the U.S Treasury Note can be determined and/or estimated from third-party sources; and
|
|
|
·
|
we believe that U.S. Treasury securities are not subject to credit losses due to a U.S. Government guarantee of payment of
principal and interest.
|
We calculated historical and pro forma per share
amounts by dividing historical and pro forma amounts of consolidated net income and shareholders’ equity by the indicated
number of shares of common stock. For purposes of pro forma earnings per share calculations, we adjusted these figures to give
effect to the shares of common stock purchased by the employee stock ownership plan. We computed per share amounts as if the shares
of common stock were outstanding at the beginning of the year, but we did not adjust per share historical or pro forma shareholders’
equity to reflect the earnings on the estimated net proceeds.
The pro forma table gives effect to the implementation of one or
more stock-based benefit plans. Subject to the receipt of shareholder approval, we have assumed that stock-based benefit plans
will acquire for restricted stock awards a number of shares of common stock equal to 4% of the shares of common stock sold in the
stock offering and issued to the charitable foundation at the same price for which they were sold in the stock offering. We assume
that awards of common stock granted under such plans vest over a five-year period.
We have also assumed that options will be granted
under stock-based benefit plans to acquire shares of common stock equal to 10% of the shares of common stock sold in the stock
offering and issued to the charitable foundation. In preparing the table below, we assumed that shareholder approval was obtained,
that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that
the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate
a grant-date fair value of $2.83 for each option. In addition to the terms of the options described above, the Black-Scholes option
pricing model assumed an estimated volatility rate of 14.98% for the shares of common stock, no dividend yield, an expected option
term of 10 years and a risk-free rate of return of 2.17%.
We may grant options and award shares of common
stock under one or more stock-based benefit plans in excess of 10% and 4%, respectively, of the shares of common stock sold in
the stock offering and issued to the charitable foundation and that vest sooner than over a five-year period if the stock-based
benefit plans are adopted more than one year following the stock offering.
As discussed under “How We Intend to Use
the Proceeds from the Stock Offering,” we intend to contribute 50% of the net proceeds from the stock offering to The Provident
Bank, and we will retain the remainder of the net proceeds from the stock offering. We will use a portion of the proceeds we retain
for the purpose of funding a loan to the employee stock ownership plan and retain the rest of the proceeds for future use.
The pro forma table does not give effect to:
|
|
·
|
withdrawals from deposit accounts to purchase shares of common stock in the stock offering;
|
|
|
·
|
our results of operations after the stock offering;
|
|
|
·
|
increased fees that we would pay Sandler O’Neill & Partners, L.P. and other broker-dealers if we conducted a syndicated
offering; or
|
|
|
·
|
changes in the market price of the shares of common stock after the stock offering.
|
The following pro forma information may not
be representative of the financial effects of the offering at the dates on which the offering actually occurs, and should not be
taken as indicative of future results of operations. Pro forma consolidated shareholders’ equity represents the difference
between the stated amounts of our assets and liabilities. The pro forma shareholders’ equity is not intended to represent
the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution
to shareholders if we liquidated. Moreover, pro forma shareholders’ equity per share does not give effect to the liquidation
accounts to be established in the stock offering or, in the unlikely event of a liquidation of The Provident Bank, to the tax effect
of the recapture of the bad debt reserve. See “The Stock Offering—Liquidation Rights.”
|
|
|
At or for the Year Ended December 31, 2014
Based upon the Sale at $10.00 Per Share of
|
|
|
|
|
3,121,200
Shares
|
|
|
3,672,000
Shares
|
|
|
4,222,800
Shares
|
|
|
4,856,220
Shares (1)
|
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds of offering
|
|
$
|
31,212
|
|
|
$
|
36,720
|
|
|
$
|
42,228
|
|
|
$
|
48,562
|
|
|
Market value of shares issued to charitable foundation
|
|
|
1,387
|
|
|
|
1,632
|
|
|
|
1,877
|
|
|
|
2,158
|
|
|
Pro forma market capitalization
|
|
$
|
32,599
|
|
|
$
|
38,352
|
|
|
$
|
44,105
|
|
|
$
|
50,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds of offering
|
|
$
|
31,212
|
|
|
$
|
36,720
|
|
|
$
|
42,228
|
|
|
$
|
48,562
|
|
|
Expenses
|
|
|
1,716
|
|
|
|
1,766
|
|
|
|
1,817
|
|
|
|
1,875
|
|
|
Estimated net proceeds
|
|
|
29,496
|
|
|
|
34,954
|
|
|
|
40,411
|
|
|
|
46,687
|
|
|
Cash contribution to charitable foundation
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
Common stock purchased by employee stock ownership plan
|
|
|
(2,608
|
)
|
|
|
(3,068
|
)
|
|
|
(3,528
|
)
|
|
|
(4,058
|
)
|
|
Common stock purchased by stock-based benefit plans
|
|
|
(1,304
|
)
|
|
|
(1,534
|
)
|
|
|
(1,764
|
)
|
|
|
(2,029
|
)
|
|
Estimated net proceeds, as adjusted
|
|
$
|
25,334
|
|
|
$
|
30,102
|
|
|
$
|
34,869
|
|
|
$
|
40,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
4,562
|
|
|
$
|
4,562
|
|
|
$
|
4,562
|
|
|
$
|
4,562
|
|
|
Income on adjusted net proceeds, net of tax
|
|
|
251
|
|
|
|
298
|
|
|
|
345
|
|
|
|
399
|
|
|
Employee stock ownership plan (2)
|
|
|
(104
|
)
|
|
|
(123
|
)
|
|
|
(141
|
)
|
|
|
(162
|
)
|
|
Stock awards (3)
|
|
|
(156
|
)
|
|
|
(184
|
)
|
|
|
(212
|
)
|
|
|
(243
|
)
|
|
Stock options (4)
|
|
|
(166
|
)
|
|
|
(195
|
)
|
|
|
(225
|
)
|
|
|
(258
|
)
|
|
Pro forma net income (5)(6)
|
|
$
|
4,387
|
|
|
$
|
4,358
|
|
|
$
|
4,329
|
|
|
$
|
4,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
0.68
|
|
|
$
|
0.58
|
|
|
$
|
0.50
|
|
|
$
|
0.44
|
|
|
Income on adjusted net proceeds, net of tax
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.04
|
|
|
Employee stock ownership plan (2)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
Stock awards (3)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
Stock options (4)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
Pro forma earnings per share (5)(6)(7)
|
|
$
|
0.66
|
|
|
$
|
0.56
|
|
|
$
|
0.48
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price to pro forma net earnings per share (7)
|
|
|
15.15
|
x
|
|
|
17.86
|
x
|
|
|
20.83
|
x
|
|
|
23.81
|
x
|
|
Number of shares used in earnings per share calculations
|
|
|
6,692,593
|
|
|
|
7,873,638
|
|
|
|
9,054,684
|
|
|
|
10,412,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders’ equity (8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
58,646
|
|
|
$
|
58,646
|
|
|
$
|
58,646
|
|
|
$
|
58,646
|
|
|
Estimated net proceeds
|
|
|
29,496
|
|
|
|
34,954
|
|
|
|
40,411
|
|
|
|
46,687
|
|
|
Stock contribution to charitable foundation
|
|
|
1,387
|
|
|
|
1,632
|
|
|
|
1,877
|
|
|
|
2,158
|
|
|
Tax expense of stock contribution to charitable foundation
|
|
|
(1,387
|
)
|
|
|
(1,632
|
)
|
|
|
(1,877
|
)
|
|
|
(2,158
|
)
|
|
Cash contribution to charitable foundation
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
|
(250
|
)
|
|
Tax benefit of contribution to charitable foundation
|
|
|
655
|
|
|
|
753
|
|
|
|
851
|
|
|
|
963
|
|
|
Common stock acquired by employee stock ownership plan (2)
|
|
|
(2,608
|
)
|
|
|
(3,068
|
)
|
|
|
(3,528
|
)
|
|
|
(4,058
|
)
|
|
Common stock acquired by stock-based benefit plans (3)
|
|
|
(1,304
|
)
|
|
|
(1,534
|
)
|
|
|
(1,764
|
)
|
|
|
(2,029
|
)
|
|
Pro forma common shareholders’ equity (9)(10)
|
|
$
|
84,635
|
|
|
$
|
89,501
|
|
|
$
|
94,366
|
|
|
$
|
99,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders’ equity per share (8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
8.46
|
|
|
$
|
7.19
|
|
|
$
|
6.25
|
|
|
$
|
5.43
|
|
|
Estimated net proceeds
|
|
|
4.25
|
|
|
|
4.29
|
|
|
|
4.31
|
|
|
|
4.33
|
|
|
Stock contribution to charitable foundation
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
0.20
|
|
|
Tax expense of stock contribution to charitable foundation
|
|
|
(0.20
|
)
|
|
|
(0.20
|
)
|
|
|
(0.20
|
)
|
|
|
(0.20
|
)
|
|
Cash contribution to charitable foundation
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.02
|
)
|
|
Tax benefit of contribution to charitable foundation
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.09
|
|
|
Common stock acquired by employee stock ownership plan (2)
|
|
|
(0.38
|
)
|
|
|
(0.38
|
)
|
|
|
(0.38
|
)
|
|
|
(0.38
|
)
|
|
Common stock acquired by stock-based benefit plans (3)
|
|
|
(0.19
|
)
|
|
|
(0.19
|
)
|
|
|
(0.19
|
)
|
|
|
(0.19
|
)
|
|
Pro forma common shareholders’ equity per share (9)(10)
|
|
$
|
12.20
|
|
|
$
|
10.97
|
|
|
$
|
10.05
|
|
|
$
|
9.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as percentage of pro forma common shareholders’ equity per share (10)
|
|
|
81.97
|
%
|
|
|
91.16
|
%
|
|
|
99.50
|
%
|
|
|
107.99
|
%
|
|
Number of shares outstanding for pro forma book value per share calculations
|
|
|
6,936,000
|
|
|
|
8,160,000
|
|
|
|
9,384,000
|
|
|
|
10,791,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(footnotes begin on following page)
|
|
(1)
|
As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering
range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
|
|
|
(2)
|
Assumes that 8% of the shares of common stock sold in the offering and issued to the charitable foundation will be purchased
by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to have been
borrowed by the employee stock ownership plan from Provident Bancorp, Inc., and the outstanding loan with respect to existing shares
of Provident Bancorp, Inc. held by the employee stock ownership plan will be refinanced and consolidated with the new loan. The
Provident Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required
principal and interest payments on the debt. The Provident Bank’s total annual payments on the employee stock ownership plan
debt are based upon 15 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) 718-40, “Compensation—Stock Compensation—Employee Stock Ownership Plans”
(“ASC 718-40”) requires that an employer record compensation expense in an amount equal to the fair value of the shares
committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated
in equal annual installments based on the number of loan repayment installments assumed to be paid by The Provident Bank, the fair
value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective
combined federal and state tax rate of 40.0%. The unallocated employee stock ownership plan shares are reflected as a reduction
of shareholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The
pro forma net income further assumes that 17,386, 20,454, 23,523 and 27,051 shares were committed to be released during the year
at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, and in accordance with ASC 718-40,
only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes
of net income per share calculations.
|
|
|
(3)
|
Assumes that one or more stock-based benefit plans purchase an aggregate number of shares of common stock equal to 4% of the
shares to be sold in the offering and issued to the charitable foundation. Shareholder approval of the plans and purchases by the
plans may not occur earlier than six months after the completion of the stock offering. The shares may be acquired directly from
Provident Bancorp, Inc. or through open market purchases. Shares in the stock-based benefit plan are assumed to vest over a period
of five years. The funds to be used to purchase the shares will be provided by Provident Bancorp, Inc. The table assumes that (i) the
stock-based benefit plan acquires the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed
to the plan is amortized as an expense during the year ended December 31, 2014, and (iii) the plan expense reflects an effective
combined federal and state tax rate of 40.0%. The issuance of authorized but unissued shares of common stock to fund these awards
would dilute shareholders’ ownership and voting interests by approximately 1.8%.
|
|
|
(4)
|
Assumes that options are granted under one or more stock-based benefit plans to acquire an aggregate number of shares of common
stock equal to 10% of the shares to be sold in the offering and issued to the charitable foundation. Shareholder approval of the
plans may not occur earlier than six months after the completion of the stock offering. In calculating the pro forma effect of
the stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the common stock
at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing
model was $2.83 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line
basis over a five-year vesting period of the options, and that 25% of the amortization expense (or the assumed portion relating
to options granted to directors) resulted in a tax benefit using an assumed tax rate of 40.0%. The actual expense will be determined
by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used
and the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock-based benefit plans will
result in no additional shares under the treasury stock method for purposes of calculating earnings per share. There can be no
assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the
shares used to satisfy the exercise of options comes from authorized but unissued shares, our net income per share and shareholders’
equity per share would decrease. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options
under such plan would dilute shareholders’ ownership and voting interests by approximately 4.5%.
|
|
|
(5)
|
Net income per share computations are determined by taking the number of shares assumed to be sold in the offering and issued
to the charitable foundation and, in accordance with ASC 718-40, subtracting the employee stock ownership plan shares which have
not been committed for release during the year. See note 1, above. The number of shares of common stock actually sold and
the corresponding number of outstanding shares may be more or less than the assumed amounts.
|
(footnotes continue on following
page)
(continued from previous page)
|
|
(6)
|
Does not give effect to the non-recurring expense that will be recognized during 2015 as a result of the contribution to the
charitable foundation. The following table shows the estimated after-tax expense associated with the contribution to the charitable
foundation, as well as pro forma net income and pro forma net income per share assuming the contribution to the charitable foundation
had been expensed during the year ended June 30, 2014.
|
|
|
|
For the Year Ended December 31, 2014
Based upon the Sale at $10.00 Per Share of
|
|
|
|
|
3,121,200
Shares
|
|
|
3,672,000
Shares
|
|
|
4,222,800
Shares
|
|
|
4,856,220
Shares
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
After-tax expense of stock and cash contribution to charitable foundation
|
|
$
|
982
|
|
|
$
|
1,129
|
|
|
$
|
1,276
|
|
|
$
|
1,445
|
|
|
Pro forma net income, adjusted for foundation contribution
|
|
|
3,405
|
|
|
|
3,229
|
|
|
|
3,053
|
|
|
|
2,853
|
|
|
Pro forma net income per share
|
|
|
0.51
|
|
|
|
0.41
|
|
|
|
0.34
|
|
|
|
0.27
|
|
The pro forma data assume that we will realize 100% of
the income tax benefit as a result of the contribution to the charitable foundation based on a 40.0% tax rate. The realization
of the tax benefit is limited annually to 10% of our annual taxable income. However, for federal and state tax purposes, we can
carry forward any unused portion of the deduction for five years following the year in which the contribution is made.
|
|
(7)
|
Does not reflect the payment of dividends on SBLF preferred stock, which totaled $172,000 for the year ended December 31, 2015.
Assuming the repayment of 50% of our SBLF preferred stock during the year ended December 31, 2014, pro forma net income per share
available to common shareholders would have been $0.64, $0.54, $0.47 and $0.40, respectively, at the minimum, midpoint, maximum
and adjusted maximum of the offering range, and offering price to pro forma net earnings per share would be 15.63x, 18.52x, 21.28x
and 25.00x, respectively.
|
|
|
(8)
|
Excludes SBLF preferred stock.
|
|
|
(9)
|
The retained earnings of The Provident Bank will be substantially restricted after the stock offering. See “Our Dividend
Policy,” “The Stock Offering—Liquidation Rights” and “Supervision and Regulation—Massachusetts
Banking Laws and Supervision—Dividends.”
|
|
|
(10)
|
We had no intangible assets as of December 31, 2014.
|
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT THE CHARITABLE FOUNDATION
As reflected in the table below, if the charitable
foundation is not established and funded as part of the stock offering, RP Financial, LC. estimates that our pro forma valuation
would be greater and, as a result, a greater number of shares of common stock would be issued in the stock offering. At the minimum,
midpoint, maximum and adjusted maximum of the valuation range, our pro forma valuation is $69.4 million, $81.6 million, $93.8 million
and $107.9 million with the charitable foundation, as compared to $71.0 million, $83.5 million, $96.0 million and $110.4 million,
respectively, without the charitable foundation. There is no assurance that in the event the charitable foundation were not formed,
the appraisal prepared at that time would conclude that our pro forma market value would be the same as that estimated in the table
below. Any appraisal prepared at that time would be based on the facts and circumstances existing at that time, including, among
other things, market and economic conditions.
For comparative purposes only, set forth below
are certain pricing ratios and financial data and ratios at and for the year ended December 31, 2014 at the minimum, midpoint,
maximum and adjusted maximum of the offering range, assuming the stock offering was completed at the beginning of the year, with
and without the charitable foundation.
|
|
|
Minimum of Offering Range
|
|
|
Midpoint of Offering Range
|
|
|
Maximum of Offering Range
|
|
|
Adjusted Maximum of
Offering Range
|
|
|
|
|
With
Foundation
|
|
|
Without
Foundation
|
|
|
With
Foundation
|
|
|
Without
Foundation
|
|
|
With
Foundation
|
|
|
Without
Foundation
|
|
|
With
Foundation
|
|
|
Without
Foundation
|
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated stock offering amount
|
|
$
|
31,212
|
|
|
$
|
33,358
|
|
|
$
|
36,720
|
|
|
$
|
39,245
|
|
|
$
|
42,228
|
|
|
$
|
45,132
|
|
|
$
|
48,562
|
|
|
$
|
51,902
|
|
|
Estimated full value
|
|
|
69,360
|
|
|
|
70,975
|
|
|
|
81,600
|
|
|
|
83,500
|
|
|
|
93,840
|
|
|
|
96,025
|
|
|
|
107,916
|
|
|
|
110,429
|
|
|
Total assets
|
|
|
684,595
|
|
|
|
686,225
|
|
|
|
689,460
|
|
|
|
691,351
|
|
|
|
694,325
|
|
|
|
696,477
|
|
|
|
699,920
|
|
|
|
702,372
|
|
|
Total liabilities
|
|
|
582,815
|
|
|
|
582,815
|
|
|
|
582,815
|
|
|
|
582,815
|
|
|
|
582,815
|
|
|
|
582,815
|
|
|
|
582,815
|
|
|
|
582,815
|
|
|
Pro forma shareholders’ equity
|
|
|
93,180
|
|
|
|
94,810
|
|
|
|
98,045
|
|
|
|
99,936
|
|
|
|
102,910
|
|
|
|
105,062
|
|
|
|
108,505
|
|
|
|
110,957
|
|
|
Pro forma net income (1)
|
|
|
4,387
|
|
|
|
4,398
|
|
|
|
4,358
|
|
|
|
4,372
|
|
|
|
4,329
|
|
|
|
4,346
|
|
|
|
4,298
|
|
|
|
4,316
|
|
|
Pro forma shareholders’
equity per share
|
|
|
12.20
|
|
|
|
12.15
|
|
|
|
10.97
|
|
|
|
10.95
|
|
|
|
10.05
|
|
|
|
10.05
|
|
|
|
9.26
|
|
|
|
9.27
|
|
|
Pro forma net income per share
|
|
|
0.66
|
|
|
|
0.65
|
|
|
|
0.56
|
|
|
|
0.55
|
|
|
|
0.48
|
|
|
|
0.47
|
|
|
|
0.42
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma pricing ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as a
percentage of pro forma shareholders’ equity per share
|
|
|
81.97
|
%
|
|
|
82.30
|
%
|
|
|
91.16
|
%
|
|
|
91.32
|
%
|
|
|
99.50
|
%
|
|
|
99.50
|
%
|
|
|
107.99
|
%
|
|
|
107.87
|
%
|
|
Offering price to pro
forma net income per share
|
|
|
15.15
|
x
|
|
|
15.38
|
x
|
|
|
17.86
|
x
|
|
|
18.18
|
x
|
|
|
20.83
|
x
|
|
|
21.28
|
x
|
|
|
23.81
|
x
|
|
|
24.39
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma financial ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on assets
|
|
|
0.64
|
%
|
|
|
0.64
|
%
|
|
|
0.63
|
%
|
|
|
0.63
|
%
|
|
|
0.62
|
%
|
|
|
0.62
|
%
|
|
|
0.61
|
%
|
|
|
0.61
|
%
|
|
Return
on equity
|
|
|
4.71
|
%
|
|
|
4.64
|
%
|
|
|
4.44
|
%
|
|
|
4.37
|
%
|
|
|
4.21
|
%
|
|
|
4.14
|
%
|
|
|
3.96
|
%
|
|
|
3.89
|
%
|
|
Equity
to assets
|
|
|
13.61
|
%
|
|
|
13.82
|
%
|
|
|
14.22
|
%
|
|
|
14.46
|
%
|
|
|
14.82
|
%
|
|
|
15.08
|
%
|
|
|
15.50
|
%
|
|
|
15.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares issued
|
|
|
6,936,000
|
|
|
|
7,097,500
|
|
|
|
8,160,000
|
|
|
|
8,350,000
|
|
|
|
9,384,000
|
|
|
|
9,602,500
|
|
|
|
10,791,600
|
|
|
|
11,042,875
|
|
(footnotes on following page)
|
|
(1)
|
The following table shows the estimated after-tax expense associated with the contribution to the charitable foundation, as
well as pro forma net income, pro forma net income per share, pro forma return on assets and pro forma return on shareholders’
equity assuming the contribution to the charitable foundation was expensed during the year ended December 31, 2014.
|
|
|
|
Minimum of
Offering Range
|
|
|
Midpoint of
Offering Range
|
|
|
Maximum of
Offering
Range
|
|
|
Adjusted
Maximum of
Offering Range
|
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax expense of stock and cash contribution to foundation
|
|
$
|
(982
|
)
|
|
$
|
(1,129
|
)
|
|
$
|
(1,276
|
)
|
|
$
|
(1,445
|
)
|
|
Pro forma net income
|
|
$
|
3,405
|
|
|
$
|
3,229
|
|
|
$
|
3,053
|
|
|
$
|
2,853
|
|
|
Pro forma net income per share
|
|
$
|
0.51
|
|
|
$
|
0.41
|
|
|
$
|
0.34
|
|
|
$
|
0.27
|
|
|
Offering price to pro forma net income per share
|
|
|
19.61
|
x
|
|
|
24.39
|
x
|
|
|
29.41
|
x
|
|
|
37.04
|
x
|
|
Pro forma return on assets
|
|
|
0.50
|
%
|
|
|
0.47
|
%
|
|
|
0.44
|
%
|
|
|
0.41
|
%
|
|
Pro forma return on equity
|
|
|
3.65
|
%
|
|
|
3.29
|
%
|
|
|
2.97
|
%
|
|
|
2.63
|
%
|
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. The information in this section has been derived in part from the audited financial statements that
appear beginning on page F-1 of this prospectus and other audited financial statements that are not included herein. You should
read the information in this section in conjunction with the business and financial information regarding Provident Bancorp, Inc.
and the financial statements provided in this prospectus.
Overview
Our profitability is highly dependent on our
net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities,
and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds.
Our net income increased $550,000, or 13.7%,
to $4.6 million for the year ended December 31, 2014 from $4.0 million for the year ended December 31, 2013. The increase was due
to an increase in net interest and dividend income, partially offset by a decrease in gain on sales of securities and an increase
in the provision for loan losses. The increase in net interest and dividend income was caused by an increase in interest and fees
on loans, which increased $1.6 million, or 8.7%, to $20.0 million for the year ended December 31, 2014 from $18.4 million for the
year ended December 31, 2013. This increase was due to our continued success in originating construction and land development loans,
commercial real estate loans and commercial business loans.
Noninterest income decreased $1.2 million, or
23.6%, to $3.9 million for the year ended December 31, 2014 from $5.1 million for the year ended December 31, 2013. Gains on sales,
calls and donated securities, net, decreased for the year ended December 31, 2014 from the year ended December 31, 2013. Although
we sold $12.4 million of securities during the year ended December 31, 2014 compared to $8.1 million of such sales during the year
ended December 31, 2013, our sales resulted in higher gains during the year ended December 31, 2013. During the year ended December
31, 2014, we recognized $228,000 of noninterest income related to the contribution of appreciated securities, compared to $60,000
of such gains during the year ended December 31, 2013.
Our provision for loan losses was $1.5 million
for the year ended December 31, 2014 compared to $1.2 million for the year ended December 31, 2013. The increase in the
allowance for loan losses resulted primarily from an increase in our loan portfolio as 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.”
Following the completion of the offering, we
expect our net interest income to increase from the investment of the offering proceeds. We also expect noninterest expenses to
increase because of actual and planned growth, as well as from increased compensation expenses associated with the purchase of
shares of common stock by our employee stock ownership plan and the possible implementation of one or more stock-based benefit
plans, if approved by our stockholders no earlier than six months after the completion of the conversion. For further information,
see “Summary—Benefits to Management and Potential Dilution to Shareholders Resulting from the Stock Offering;”
“Risk Factors—Risks Related to Our Business—Our stock-based benefit plans will increase our expenses and reduce
our income;” “Management—Benefits to be Considered Following Completion of the Stock Offering;” and “Risk
Factors—Risks Related to Our Business—Our business strategy includes the continuation of significant growth plans,
and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth
effectively.”
Business Strategy
Our objective is to be the premier community
business bank in the markets we serve, providing a full range of banking products and services to small and medium sized commercial
customers. In recent years, we have focused significant effort and invested heavily in our infrastructure to create sophisticated
and competitive products and services, a strong, experienced work force and awareness of our business banking brand. Our business
lending, comprised of commercial business loans, commercial real estate loans, multifamily loans and construction and land development
loans, comprised 78.6% of our total loan portfolio at December 31, 2014 compared to 65.7% at December 31, 2010.
We have been effective in competing against
both larger regional banks and smaller banks operating in our markets. We compete against the larger banks through our responsive
and personalized service, providing our customers with quicker decision making, customized products where appropriate and access
to our senior managers. Our larger capital base, highly experienced commercial bankers and a sophisticated product and service
mix, including a suite of cash management services and technology solutions and support, enable us to compete effectively against
smaller banks. Recent consolidation of financial institutions in and around our markets has further created opportunity for expansion
in our markets.
We intend to continue our business banking focus
as we seek to grow our franchise, particularly in southern New Hampshire. To accomplish our goal, we are pursuing the following
strategies:
|
|
·
|
Maintain a disciplined focus on targeting high growth business
customers.
We have developed specific parameters to identify high growth commercial customers who will value our products
and services. High growth customers who use multiple products and services offer us greater profitability potential. We have invested
significantly in technology to provide sophisticated products and services to address our customers’ evolving needs and enhance
convenience. Our technology platform enables us to evaluate the profitability of each customer, product, and branch office. We
do not merely provide our technology platform to our customers, but we send our customer service representatives to our customers’
businesses to provide on-site training for using our products and services. We can also identify gaps in our customer relationships
and contact customers with ideas to improve their utilization of our products and services, providing them with added convenience
and cost savings and improving profitability to us.
|
Our business development team and lenders work closely together
to identify prospects and create a targeted marketing plan to pursue each prospect. Also, over the last several years, a number
of local community banks in our markets have been acquired by other institutions, primarily larger regional banks. We believe that
a number of the business customers of these banks may prefer doing business with a local institution, and we intend to actively
target those customers. The capital raised in this offering will also support an increase in our lending limit capacity, providing
us the ability to extend lending relationships with existing customers.
|
|
·
|
Expand our market share in existing and nearby markets.
We
have selectively entered new higher growth markets in New Hampshire through the hiring of experienced loan, business development
and credit officers and the establishment of loan production offices (LPOs) and
de novo
branch offices. We believe that
hiring experienced bankers who are established in markets we enter and establishing an LPO in advance of any significant branch
expansion provides quality market penetration in an expedient and cost effective manner. We intend to continue our efforts to expand
in these markets, and expect to open a new branch office in Bedford, New Hampshire in the fourth quarter of 2015.
|
|
|
·
|
Manage credit risk to maintain a low level of non-performing
assets.
We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management
focuses on having a very experienced team of credit professionals, well-defined credit policies and
|
|
|
|
procedures, appropriate loan
underwriting
criteria and active
credit monitoring. Our non-performing assets to total assets ratio was 0.59% at December 31, 2014.
|
|
|
·
|
Increase core deposits, especially low cost demand deposits.
Deposits are our primary source of funds for lending. We value core deposits (which we define as all deposits except for
certificates of deposit), and in particular non-interest bearing demand deposits, because they represent a lower cost of funding
and are less sensitive to withdrawal when interest rates fluctuate. Non-interest bearing demand deposits represented 39.5% of our
deposit base at December 31, 2014. Growth in non-interest bearing demand deposits has been driven by growth in our business loans,
the expansion of our deposit products and services and greater emphasis on obtaining the deposit relationship by our commercial
lenders and business development teams.
|
|
|
·
|
Improve operating efficiency.
As we continue to grow,
we also intend to focus efforts to control our operating expenses. We analyze branch product and service usage and align branch
staffing based on activity volumes at different times in the most efficient and cost effective manner. We are also disciplined
in evaluating the cost and expected benefit of all expansion opportunities. We believe these initiatives and discipline will contribute
to improved operating efficiency and profitability. Our efficiency ratio has improved to 70.0% for the year ended December 31,
2014 from 82.9% for the year ended December 31, 2010. Although we expect to incur additional costs as a result of becoming a publicly-traded
company, including the costs of anticipated stock benefit plans, we intend to continue our efforts to control our costs.
|
|
|
·
|
Maintain an experienced customer service focused employee base.
Exceptional service, local involvement and timely decision making are integral parts of our business banking strategy and
we have attracted highly qualified and motivated individuals. Our compensation and incentive systems are aligned with our strategies
to grow business loans and core deposits, in particular commercial demand deposits, while maintaining asset quality. We have an
established corporate culture based on personal accountability, high ethical standards and significant commitment to training and
career development.
|
Critical Accounting Policies
A summary of our accounting policies is described
in Note 2 to the Consolidated Financial Statements included in this prospectus. 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 collectibility of the loans in light
of historical experience, the nature and volume 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 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, we do 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. 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 2014.
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:
Residential real estate
: We generally
do not originate loans with a loan-to-value ratio greater than 80% and do 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. 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 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 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.
An unallocated component is 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.
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.
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.
Balance Sheet Analysis
Assets
.
Our total assets increased
$33.9 million, or 5.4%, to $658.6 million at December 31, 2014 from $624.7 million at December 31, 2013. The increase
resulted primarily from an increase in loans, partially offset by decreases in securities available for sale and cash and cash
equivalents.
Cash and Cash Equivalents.
Cash
and cash equivalents decreased $5.8 million, or 37.8%, to $9.6 million at December 31, 2014 from $15.4 million at December 31,
2013. The decrease in cash and cash equivalents resulted from our using excess liquidity to fund loan growth, discussed below.
Loan Portfolio Analysis.
At December 31,
2014, net loans were $494.2 million, or 75.0% of total assets, compared to $439.7 million, or 70.4% of total assets at December
31, 2013. The increase in loans during the year was caused by increases in construction and land development loans, commercial
real estate loans and commercial business loans. We have experienced continued success in increasing these types of loan originations,
as described above in “—Management Strategy.” During the year ended December 31, 2014, we discontinued single-family
residential real estate lending, with the exception of home equity lines of credit. We believe that new federal regulations governing
the origination of single-family residential real estate loans would increase our costs and expand the risks associated with this
type of lending beyond the benefits that we could realize from originating these loans. We have instead focused our lending activities
on commercial loans.
The following table sets forth the composition
of our loan portfolio by type of loan at the dates indicated, excluding loans held for sale.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential (1)
|
|
$
|
104,568
|
|
|
|
20.84
|
%
|
|
$
|
111,244
|
|
|
|
24.93
|
%
|
|
$
|
109,725
|
|
|
|
28.69
|
%
|
|
$
|
113,962
|
|
|
|
32.55
|
%
|
|
$
|
115,081
|
|
|
|
34.03
|
%
|
|
Commercial (2)
|
|
|
249,691
|
|
|
|
49.76
|
|
|
|
223,642
|
|
|
|
50.12
|
|
|
|
189,031
|
|
|
|
49.42
|
|
|
|
181,277
|
|
|
|
51.78
|
|
|
|
174,713
|
|
|
|
51.66
|
|
|
Construction and land
development
|
|
|
47,079
|
|
|
|
9.38
|
|
|
|
20,588
|
|
|
|
4.61
|
|
|
|
12,520
|
|
|
|
3.27
|
|
|
|
12,769
|
|
|
|
3.65
|
|
|
|
20,225
|
|
|
|
5.98
|
|
|
Commercial business loans
|
|
|
97,589
|
|
|
|
19.45
|
|
|
|
87,405
|
|
|
|
19.59
|
|
|
|
67,528
|
|
|
|
17.66
|
|
|
|
41,040
|
|
|
|
11.72
|
|
|
|
27,180
|
|
|
|
8.04
|
|
|
Consumer loans
|
|
|
2,863
|
|
|
|
0.57
|
|
|
|
3,329
|
|
|
|
0.75
|
|
|
|
3,666
|
|
|
|
0.96
|
|
|
|
1,054
|
|
|
|
0.30
|
|
|
|
1,014
|
|
|
|
0.30
|
|
|
|
|
|
501,790
|
|
|
|
100.00
|
%
|
|
|
446,208
|
|
|
|
100.00
|
%
|
|
|
382,470
|
|
|
|
100.00
|
%
|
|
|
350,102
|
|
|
|
100.00
|
%
|
|
|
338,213
|
|
|
|
100.00
|
%
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees,
net
|
|
|
(383
|
)
|
|
|
|
|
|
|
(419
|
)
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
Allowance
for losses
|
|
|
(7,224
|
)
|
|
|
|
|
|
|
(6,077
|
)
|
|
|
|
|
|
|
(5,013
|
)
|
|
|
|
|
|
|
(4,507
|
)
|
|
|
|
|
|
|
(4,390
|
)
|
|
|
|
|
|
Total
loans
|
|
$
|
494,183
|
|
|
|
|
|
|
$
|
439,712
|
|
|
|
|
|
|
$
|
377,118
|
|
|
|
|
|
|
$
|
345,564
|
|
|
|
|
|
|
$
|
333,896
|
|
|
|
|
|
|
|
(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, 2014 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.
|
December 31, 2014
|
|
Residential
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Construction
and Land
Development
|
|
|
Commercial
Business
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
43
|
|
|
$
|
18,816
|
|
|
$
|
11,162
|
|
|
$
|
22,540
|
|
|
$
|
263
|
|
|
$
|
52,824
|
|
|
More than one to five years
|
|
|
3,526
|
|
|
|
18,164
|
|
|
|
12,487
|
|
|
|
37,777
|
|
|
|
2,600
|
|
|
|
74,554
|
|
|
More than five years to ten years
|
|
|
17,836
|
|
|
|
16,801
|
|
|
|
86
|
|
|
|
30,492
|
|
|
|
—
|
|
|
|
64,715
|
|
|
More than ten years
|
|
|
83,163
|
|
|
|
196,410
|
|
|
|
23,344
|
|
|
|
6,780
|
|
|
|
—
|
|
|
|
309,697
|
|
|
Total
|
|
$
|
104,568
|
|
|
$
|
249,691
|
|
|
$
|
47,079
|
|
|
$
|
97,589
|
|
|
$
|
2,863
|
|
|
$
|
501,790
|
|
The following table sets forth our fixed and
adjustable-rate loans at December 31, 2014 that are contractually due after December 31, 2015.
|
|
|
Due After December 31, 2014
|
|
|
|
|
Fixed
|
|
|
Adjustable
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
74,928
|
|
|
$
|
29,597
|
|
|
$
|
104,525
|
|
|
Commercial
|
|
|
7,516
|
|
|
|
223,359
|
|
|
|
230,875
|
|
|
Construction and land development
|
|
|
13,175
|
|
|
|
22,742
|
|
|
|
35,917
|
|
|
Commercial business loans
|
|
|
40,236
|
|
|
|
34,813
|
|
|
|
75,049
|
|
|
Consumer loans
|
|
|
2,600
|
|
|
|
—
|
|
|
|
2,600
|
|
|
Total loans
|
|
$
|
138,455
|
|
|
$
|
310,511
|
|
|
$
|
448,966
|
|
Asset Quality
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.
Internal and independent third-party loan reviews
vary by loan type, as well as the nature and complexity of the loan. 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.
Delinquent Loans.
The following
tables set forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.
|
|
|
At
December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
90
Days
or More Past Due
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
90
Days
or More Past Due
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
90
Days
or More Past Due
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
—
|
|
|
$
|
404
|
|
|
$
|
423
|
|
|
$
|
427
|
|
|
$
|
345
|
|
|
$
|
937
|
|
|
$
|
1,112
|
|
|
$
|
—
|
|
|
$
|
112
|
|
|
Commercial
|
|
|
110
|
|
|
|
132
|
|
|
|
363
|
|
|
|
366
|
|
|
|
141
|
|
|
|
464
|
|
|
|
425
|
|
|
|
—
|
|
|
|
150
|
|
|
Construction and land
development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
149
|
|
|
|
108
|
|
|
|
350
|
|
|
|
238
|
|
|
|
24
|
|
|
|
31
|
|
|
|
1,081
|
|
|
|
118
|
|
|
|
50
|
|
|
Consumer
loans
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
268
|
|
|
$
|
644
|
|
|
$
|
1,136
|
|
|
$
|
1,085
|
|
|
$
|
510
|
|
|
$
|
1,432
|
|
|
$
|
2,629
|
|
|
$
|
118
|
|
|
$
|
312
|
|
|
|
|
At
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
90
Days
or More
Past Due
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
90
Days
or More
Past Due
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
773
|
|
|
$
|
—
|
|
|
$
|
238
|
|
|
$
|
175
|
|
|
$
|
—
|
|
|
$
|
899
|
|
|
Commercial
|
|
|
1,648
|
|
|
|
—
|
|
|
|
—
|
|
|
|
510
|
|
|
|
—
|
|
|
|
297
|
|
|
Construction and land
development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
56
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
|
|
15
|
|
|
|
—
|
|
|
Consumer
loans
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
2,504
|
|
|
$
|
—
|
|
|
$
|
238
|
|
|
$
|
707
|
|
|
$
|
15
|
|
|
$
|
1,196
|
|
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, or loans modified at interest rates materially less
than current market rates. 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, 2014, 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 fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Holding costs and declines
in fair value after acquisition of the property result in charges against income.
The following table sets forth information regarding
our non-performing assets at the dates indicated.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,564
|
|
|
$
|
1,608
|
|
|
$
|
1,348
|
|
|
$
|
1,218
|
|
|
$
|
1,727
|
|
|
Commercial
|
|
|
1,773
|
|
|
|
1,049
|
|
|
|
920
|
|
|
|
1,160
|
|
|
|
268
|
|
|
Construction and land development
|
|
|
—
|
|
|
|
185
|
|
|
|
206
|
|
|
|
219
|
|
|
|
219
|
|
|
Commercial business loans
|
|
|
516
|
|
|
|
474
|
|
|
|
317
|
|
|
|
300
|
|
|
|
79
|
|
|
Consumer loans
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total non-accrual loans
|
|
|
3,853
|
|
|
|
3,318
|
|
|
|
2,791
|
|
|
|
2,897
|
|
|
|
2,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
755
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
3,853
|
|
|
$
|
3,318
|
|
|
$
|
2,791
|
|
|
$
|
3,652
|
|
|
$
|
2,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (1)
|
|
$
|
501,407
|
|
|
$
|
445,789
|
|
|
$
|
382,131
|
|
|
$
|
350,075
|
|
|
$
|
338,286
|
|
|
Total assets
|
|
$
|
658,606
|
|
|
$
|
624,659
|
|
|
$
|
576,460
|
|
|
$
|
530,598
|
|
|
$
|
498,026
|
|
Total non-performing loans to total
loans (1)
|
|
|
0.77
|
%
|
|
|
0.74
|
%
|
|
|
0.73
|
%
|
|
|
0.83
|
%
|
|
|
0.68
|
%
|
|
Total non-performing assets to total assets
|
|
|
0.59
|
%
|
|
|
0.53
|
%
|
|
|
0.48
|
%
|
|
|
0.55
|
%
|
|
|
0.46
|
%
|
(1)
Loans
are presented before the allowance for loan losses but include deferred fees/costs.
Interest income that would have been recorded
for the year ended December 31, 2014 had nonaccruing loans been current according to their original terms amounted to $263,000.
We recognized $153,000 of interest income for these loans for the year ended December 31, 2014.
As of December 31, 2014, 2013, 2012, 2011 and
2010 we had $3.5 million, $3.0 million, $3.0 million, $2.3 million and $2.5 million of troubled debt restructurings, respectively.
The following table sets forth the accruing and non-accruing status of troubled debt restructurings at the dates indicated.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
|
|
(In Thousands)
|
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
—
|
|
|
$
|
221
|
|
|
$
|
185
|
|
|
$
|
227
|
|
|
$
|
206
|
|
|
$
|
363
|
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
1,029
|
|
|
$
|
624
|
|
|
Commercial
|
|
|
1,490
|
|
|
|
1,385
|
|
|
|
729
|
|
|
|
1,438
|
|
|
|
768
|
|
|
|
1,495
|
|
|
|
503
|
|
|
|
1,127
|
|
|
|
847
|
|
|
|
—
|
|
|
Construction and land
development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
202
|
|
|
|
196
|
|
|
|
266
|
|
|
|
139
|
|
|
|
38
|
|
|
|
154
|
|
|
|
301
|
|
|
|
169
|
|
|
|
50
|
|
|
|
—
|
|
|
Consumer loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
1,692
|
|
|
$
|
1,802
|
|
|
$
|
1,180
|
|
|
$
|
1,804
|
|
|
$
|
1,012
|
|
|
$
|
2,012
|
|
|
$
|
1,023
|
|
|
$
|
1,296
|
|
|
$
|
1,926
|
|
|
$
|
624
|
|
Interest income that would have been recorded for the year ended
December 31, 2014 had troubled debt restructurings been current according to their original terms, amounted to $95,000. We recognized
$93,000 of interest income for these loans for the year ended December 31, 2014.
Potential Problem Loans.
Certain
loans are identified during our loan review process that are currently performing in accordance with their contractual terms and
we expect to receive payment in full of principal and interest, but it is deemed probable that we will be unable to collect all
the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. This may result
from deteriorating conditions such as cash flows, collateral values or creditworthiness of the borrower. These loans are classified
as impaired but are not accounted for on a non-accrual basis.
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 such borrowers to comply with contractual loan repayment terms. At December 31, 2014, other potential problem
loans totaled loans totaled $1.8 million, consisting of five 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.
|
|
|
Years Ended December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at beginning of year
|
|
$
|
6,077
|
|
|
$
|
5,013
|
|
|
$
|
4,507
|
|
|
$
|
4,390
|
|
|
$
|
4,118
|
|
|
Provision for loan losses
|
|
|
1,452
|
|
|
|
1,175
|
|
|
|
681
|
|
|
|
458
|
|
|
|
468
|
|
|
Charge offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
30
|
|
|
|
50
|
|
|
|
65
|
|
|
|
112
|
|
|
|
180
|
|
|
Commercial
|
|
|
243
|
|
|
|
—
|
|
|
|
148
|
|
|
|
245
|
|
|
|
20
|
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
—
|
|
|
|
19
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer loans
|
|
|
91
|
|
|
|
85
|
|
|
|
76
|
|
|
|
50
|
|
|
|
52
|
|
|
Total charge-offs
|
|
|
364
|
|
|
|
154
|
|
|
|
305
|
|
|
|
407
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
24
|
|
|
|
37
|
|
|
|
16
|
|
|
|
33
|
|
|
|
13
|
|
|
Commercial
|
|
|
24
|
|
|
|
—
|
|
|
|
55
|
|
|
|
12
|
|
|
|
14
|
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
5
|
|
|
|
5
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer loans
|
|
|
6
|
|
|
|
1
|
|
|
|
48
|
|
|
|
21
|
|
|
|
29
|
|
|
Total recoveries
|
|
|
59
|
|
|
|
43
|
|
|
|
130
|
|
|
|
66
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(305
|
)
|
|
|
(111
|
)
|
|
|
(175
|
)
|
|
|
(341
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of year
|
|
$
|
7,224
|
|
|
$
|
6,077
|
|
|
$
|
5,013
|
|
|
$
|
4,507
|
|
|
$
|
4,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans at end of year
|
|
$
|
3,853
|
|
|
$
|
3,318
|
|
|
$
|
2,791
|
|
|
$
|
2,897
|
|
|
$
|
2,293
|
|
Total loans outstanding at end of
year (1)
|
|
$
|
501,407
|
|
|
$
|
445,789
|
|
|
$
|
382,131
|
|
|
$
|
350,075
|
|
|
$
|
338,286
|
|
|
Average loans outstanding during the year (1)
|
|
$
|
471,628
|
|
|
$
|
419,084
|
|
|
$
|
360,543
|
|
|
$
|
343,086
|
|
|
$
|
338,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to non-performing loans
|
|
|
187.49
|
%
|
|
|
183.15
|
%
|
|
|
179.61
|
%
|
|
|
155.57
|
%
|
|
|
191.45
|
%
|
|
Allowance to total loans outstanding at the end of the year
|
|
|
1.44
|
%
|
|
|
1.36
|
%
|
|
|
1.31
|
%
|
|
|
1.29
|
%
|
|
|
1.30
|
%
|
|
Net charge-offs to average loans outstanding during the year
|
|
|
0.06
|
%
|
|
|
0.03
|
%
|
|
|
0.05
|
%
|
|
|
0.10
|
%
|
|
|
0.06
|
|
|
(1)
|
|
Loans are presented before the allowance for loan losses but include deferred fees/costs.
|
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.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Allowance
for Loan
Losses
|
|
|
Percent of
Loans in Each
Category to
Total Loans
|
|
|
Allowance
for Loan
Losses
|
|
|
Percent of
Loans in Each
Category to
Total Loans
|
|
|
Allowance
for Loan
Losses
|
|
|
Percent of
Loans in Each
Category to
Total Loans
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
560
|
|
|
|
20.84
|
%
|
|
$
|
725
|
|
|
|
24.93
|
%
|
|
$
|
1,038
|
|
|
|
28.69
|
%
|
|
Commercial
|
|
|
3,500
|
|
|
|
49.76
|
|
|
|
3,207
|
|
|
|
50.12
|
|
|
|
2,499
|
|
|
|
49.42
|
|
|
Construction and land development
|
|
|
872
|
|
|
|
9.38
|
|
|
|
363
|
|
|
|
4.61
|
|
|
|
192
|
|
|
|
3.27
|
|
|
Commercial business loans
|
|
|
1,751
|
|
|
|
19.45
|
|
|
|
1,331
|
|
|
|
19.59
|
|
|
|
795
|
|
|
|
17.66
|
|
|
Consumer loans
|
|
|
184
|
|
|
|
0.57
|
|
|
|
206
|
|
|
|
0.75
|
|
|
|
155
|
|
|
|
0.96
|
|
|
Total allocated allowance
|
|
|
6,867
|
|
|
|
100.00
|
%
|
|
|
5,832
|
|
|
|
100.00
|
%
|
|
|
4,679
|
|
|
|
100.00
|
%
|
|
Unallocated
|
|
|
357
|
|
|
|
|
|
|
|
245
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
Total
|
|
$
|
7,224
|
|
|
|
|
|
|
$
|
6,077
|
|
|
|
|
|
|
$
|
5,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Allowance
for Loan
Losses
|
|
|
Percent of
Loans in Each
Category to
Total Loans
|
|
|
Allowance
for Loan
Losses
|
|
|
Percent of
Loans in Each
Category to
Total Loans
|
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
805
|
|
|
|
32.55
|
%
|
|
$
|
651
|
|
|
|
34.03
|
%
|
|
Commercial
|
|
|
2,736
|
|
|
|
51.78
|
|
|
|
2,653
|
|
|
|
51.66
|
|
|
Construction and land development
|
|
|
199
|
|
|
|
3.65
|
|
|
|
281
|
|
|
|
5.98
|
|
|
Commercial business loans
|
|
|
534
|
|
|
|
11.72
|
|
|
|
366
|
|
|
|
8.04
|
|
|
Consumer loans
|
|
|
68
|
|
|
|
0.30
|
|
|
|
66
|
|
|
|
0.30
|
|
|
Total allocated allowance
|
|
|
4,342
|
|
|
|
100.00
|
%
|
|
|
4,017
|
|
|
|
100.00
|
%
|
|
Unallocated
|
|
|
165
|
|
|
|
|
|
|
|
373
|
|
|
|
|
|
|
Total
|
|
$
|
4,507
|
|
|
|
|
|
|
$
|
4,390
|
|
|
|
|
|
The allowance consists of general and allocated
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 or observable market price of the impaired loan is lower than the carrying value
of that loan.
We had impaired loans totaling $5.3 million
and $3.6 million as of December 31, 2014 and 2013, respectively. At December 31, 2014, impaired loans totaling $315,000
had a valuation allowance of $62,000. Impaired loans totaling $803,000 had a valuation allowance of $426,000 at December 31,
2013. Our average investment in impaired loans was $4.4 million and $3.4 million for the years ended December 31, 2014 and
2013, respectively.
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. Impairment is measured on a loan by loan basis 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,
2014 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, there can be no assurance that regulators, in reviewing our loan
portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers
and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate
or that increases will not 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.
Securities Portfolio
The following table sets forth the amortized
cost and estimated fair value of our available-for-sale securities portfolio at the dates indicated. Our securities portfolio has
decreased in recent years as we have used excess cash to fund our loan growth instead of re-investing the proceeds in investment
securities.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
|
|
(In thousands)
|
|
|
U.S. Government and federal agency
|
|
$
|
1,991
|
|
|
$
|
2,084
|
|
|
$
|
4,391
|
|
|
$
|
4,403
|
|
|
$
|
6,260
|
|
|
$
|
6,535
|
|
|
State and municipal
|
|
|
3,479
|
|
|
|
3,901
|
|
|
|
3,485
|
|
|
|
3,629
|
|
|
|
4,087
|
|
|
|
4,605
|
|
|
Corporate debt
|
|
|
1,000
|
|
|
|
1,114
|
|
|
|
1,000
|
|
|
|
1,153
|
|
|
|
1,000
|
|
|
|
1,174
|
|
|
Government asset-backed securities
|
|
|
2,733
|
|
|
|
2,645
|
|
|
|
738
|
|
|
|
723
|
|
|
|
—
|
|
|
|
—
|
|
|
Government mortgage-backed securities
|
|
|
54,063
|
|
|
|
54,853
|
|
|
|
67,515
|
|
|
|
67,478
|
|
|
|
92,231
|
|
|
|
93,931
|
|
|
Trust preferred securities
|
|
|
1,502
|
|
|
|
1,122
|
|
|
|
2,706
|
|
|
|
1,392
|
|
|
|
2,847
|
|
|
|
621
|
|
|
Marketable equity securities
|
|
|
7,349
|
|
|
|
10,313
|
|
|
|
6,487
|
|
|
|
8,869
|
|
|
|
4,137
|
|
|
|
6,519
|
|
|
Total
|
|
$
|
72,117
|
|
|
$
|
76,032
|
|
|
$
|
86,322
|
|
|
$
|
87,647
|
|
|
$
|
110,562
|
|
|
$
|
113,385
|
|
The following table sets forth the amortized
cost and estimated fair value of our held-to-maturity securities portfolio at the dates indicated.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
45,559
|
|
|
$
|
47,435
|
|
|
$
|
46,729
|
|
|
$
|
45,524
|
|
|
$
|
34,510
|
|
|
$
|
35,146
|
|
|
Total
|
|
$
|
45,559
|
|
|
$
|
47,435
|
|
|
$
|
46,729
|
|
|
$
|
45,524
|
|
|
$
|
34,510
|
|
|
$
|
36,146
|
|
At December 31, 2014, 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, 2014, are summarized in the following table.
The table excludes marketable equity securities with an amortized cost of $8.1 million and a fair value of $11.0 million at December
31, 2014, as such securities do not have a maturity date or stated yield. 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 we the amount of tax free interest-earning assets is immaterial.
|
|
|
One Year or Less
|
|
|
More than One Year
through Five Years
|
|
|
More than Five Years
through Ten Years
|
|
|
More than Ten Years
|
|
|
Total
|
|
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Weighted
Average
Yield
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
1,991
|
|
|
|
3.26
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
1,991
|
|
|
$
|
2,084
|
|
|
|
3.26
|
%
|
|
State
and municipal
|
|
|
100
|
|
|
|
3.00
|
%
|
|
|
241
|
|
|
|
5.46
|
%
|
|
|
520
|
|
|
|
3.49
|
%
|
|
|
2,618
|
|
|
|
5.22
|
%
|
|
|
3,479
|
|
|
|
3,901
|
|
|
|
4.78
|
%
|
|
Corporate
debt
|
|
|
—
|
|
|
|
—
|
%
|
|
|
1,000
|
|
|
|
6.40
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
1,000
|
|
|
|
1,114
|
|
|
|
6.40
|
%
|
|
Government
asset-backed securities
|
|
|
—
|
|
|
|
—
|
%
|
|
|
1,251
|
|
|
|
2.19
|
%
|
|
|
1,475
|
|
|
|
1.93
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
2,732
|
|
|
|
2,645
|
|
|
|
2.05
|
%
|
|
Government
mortgage-backed securities
|
|
|
11,021
|
|
|
|
1.71
|
%
|
|
|
25,624
|
|
|
|
2.08
|
%
|
|
|
12,109
|
|
|
|
2.33
|
%
|
|
|
5,309
|
|
|
|
2.64
|
%
|
|
|
54,063
|
|
|
|
54,853
|
|
|
|
2.11
|
%
|
|
Trust
preferred securities
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
|
|
1,509
|
|
|
|
—
|
%
|
|
|
1,502
|
|
|
|
1,122
|
|
|
|
—
|
%
|
|
Total
|
|
$
|
11,121
|
|
|
|
1.72
|
%
|
|
$
|
30,113
|
|
|
|
2.31
|
%
|
|
$
|
14,104
|
|
|
|
2.33
|
%
|
|
$
|
9,429
|
|
|
|
2.94
|
%
|
|
$
|
64,767
|
|
|
$
|
65,719
|
|
|
|
2.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
90
|
|
|
|
3.81
|
%
|
|
$
|
2,305
|
|
|
|
2.36
|
%
|
|
$
|
4,649
|
|
|
|
3.12
|
%
|
|
$
|
38,515
|
|
|
|
3.29
|
%
|
|
$
|
45,559
|
|
|
$
|
47,435
|
|
|
|
3.23
|
%
|
|
Total
|
|
$
|
90
|
|
|
|
3.81
|
%
|
|
$
|
2,305
|
|
|
|
2.36
|
%
|
|
$
|
4,649
|
|
|
|
3.12
|
%
|
|
$
|
38,515
|
|
|
|
3.29
|
%
|
|
$
|
45,559
|
|
|
$
|
47,435
|
|
|
|
3.23
|
%
|
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. Marketable equity securities are evaluated for OTTI based on the severity and duration of the impairment
and, if deemed to be other than temporary, the declines in fair value are reflected in earnings as realized losses. 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 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,
2014 or 2013. However, during the year ended December 31, 2013, we marked to market value and recorded a loss of $141,000 on a
trust preferred security that we were required to divest under the Volcker Rule. We subsequently sold this security in 2014 with
no additional losses recorded.
Deposits
Total deposits increased $28.3 million, or 5.6%,
to $536.9 million at December 31, 2014 from $508.6 million at December 31, 2013. 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 $27.9 million, or 7.3%, to $412.3 million at December 31, 2014, or 76.9% of total deposits at that
date.
The following tables set forth the distribution
of total deposits by account type at the dates indicated.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest bearing
|
|
$
|
128,407
|
|
|
|
23.91
|
%
|
|
$
|
109,257
|
|
|
|
21.48
|
%
|
|
$
|
90,948
|
|
|
|
20.13
|
%
|
|
Negotiable order of withdrawal (NOW)
|
|
|
83,521
|
|
|
|
15.56
|
|
|
|
83,505
|
|
|
|
16.42
|
|
|
|
99,954
|
|
|
|
22.15
|
|
|
Statement savings
|
|
|
90,389
|
|
|
|
16.83
|
|
|
|
84,769
|
|
|
|
16.68
|
|
|
|
82,043
|
|
|
|
18.18
|
|
|
Money market
|
|
|
110,468
|
|
|
|
20.57
|
|
|
|
107,712
|
|
|
|
21.19
|
|
|
|
103,263
|
|
|
|
22.89
|
|
|
Certificates of deposit
|
|
|
124,149
|
|
|
|
23.12
|
|
|
|
123,311
|
|
|
|
24.26
|
|
|
|
75,116
|
|
|
|
16.65
|
|
|
Total
|
|
$
|
536,934
|
|
|
|
100.00
|
%
|
|
$
|
508,554
|
|
|
|
100.00
|
%
|
|
$
|
451,324
|
|
|
|
100.00
|
%
|
As of December 31, 2014, our certificates of
deposit included $67.0 million of brokered certificates of deposit and $14.9 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, 2014, nearly all of
our brokered certificates of deposit and QwickRate certificates of deposit were in amounts greater than $100,000.
As of December 31, 2014, the aggregate amount
of all our certificates of deposit in amounts greater than or equal to $100,000 was approximately $96.8 million. The following
table sets forth the maturity of these certificates as of December 31, 2014.
|
|
|
At
December 31, 2014
|
|
|
|
|
(In thousands)
|
|
|
Maturity Period:
|
|
|
|
|
|
Three months or less
|
|
$
|
13,641
|
|
|
Over three through six months
|
|
|
10,584
|
|
|
Over six through twelve months
|
|
|
8,310
|
|
|
Over twelve months
|
|
|
64,246
|
|
|
Total
|
|
$
|
96,781
|
|
Borrowings
Our borrowings at December 31, 2014 consisted
primarily of Federal Home Loan Bank advances. The following table sets forth information concerning balances and interest rates
on Federal Home Loan Bank advances at the dates and for the years indicated.
|
|
|
At or For the Year
Ended December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(Dollars in Thousands)
|
|
|
Balance outstanding at end of year
|
|
$
|
39,237
|
|
|
$
|
40,988
|
|
|
$
|
49,461
|
|
|
Weighted average interest rate at the end of year
|
|
|
1.43
|
%
|
|
|
1.34
|
%
|
|
|
2.23
|
%
|
|
Maximum amount of borrowings outstanding at any month end during the year
|
|
$
|
55,988
|
|
|
$
|
109,520
|
|
|
$
|
51,549
|
|
|
Average balance outstanding during the year
|
|
$
|
42,360
|
|
|
$
|
67,241
|
|
|
$
|
38,623
|
|
|
Weighted average interest rate during the year
|
|
|
1.34
|
%
|
|
|
1.35
|
%
|
|
|
3.05
|
%
|
The following table sets forth information concerning
balances and interest rates on securities sold under agreements to repurchase for the year ended December 31, 2012. We had no securities
sold under agreements to repurchase during the years ended December 31, 2014 and 2013.
|
|
|
At
or For the
Year Ended
December 31,
2012
|
|
|
|
|
(Dollars in
Thousands)
|
|
|
Balance outstanding at end of year
|
|
$
|
—
|
|
|
Weighted average interest rate at the end of year
|
|
|
—
|
%
|
|
Maximum amount of borrowings outstanding at any month end during the year
|
|
$
|
16,064
|
|
|
Average balance outstanding during the year
|
|
$
|
7,227
|
|
|
Weighted average interest rate during the year
|
|
|
4.21
|
%
|
Shareholder’s Equity
Total shareholder’s equity increased $6.0
million, or 8.5%, to $75.8 million at December 31, 2014, from $69.8 million at December 31, 2013. The increase for the
year ended December 31, 2014 was due primarily to $4.6 million in net income and an increase of $1.6 million in accumulated other
comprehensive income reflecting an increase in the fair value of available-for-sale securities, partially offset by the payment
of $172,000 of dividends on our SBLF preferred stock.
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 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.
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Average
Outstanding
Balance
|
|
|
Interest
|
|
|
Average
Yield/Rate
|
|
|
Average
Outstanding
Balance
|
|
|
Interest
|
|
|
Average
Yield/Rate
|
|
|
Average
Outstanding
Balance
|
|
|
Interest
|
|
|
Average
Yield/Rate
|
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
471,628
|
|
|
$
|
20,030
|
|
|
|
4.25
|
%
|
|
$
|
419,084
|
|
|
$
|
18,368
|
|
|
|
4.38
|
%
|
|
$
|
360,543
|
|
|
$
|
17,626
|
|
|
|
4.89
|
%
|
|
Interest-earning deposits
|
|
|
1,628
|
|
|
|
7
|
|
|
|
0.43
|
|
|
|
6,947
|
|
|
|
23
|
|
|
|
0.33
|
|
|
|
20,342
|
|
|
|
45
|
|
|
|
0.22
|
|
|
Investment securities
|
|
|
128,510
|
|
|
|
3,200
|
|
|
|
2.49
|
|
|
|
142,647
|
|
|
|
3,230
|
|
|
|
2.26
|
|
|
|
138,052
|
|
|
|
3,138
|
|
|
|
2.27
|
|
|
Federal
Home Loan Bank of Boston stock
|
|
|
4,541
|
|
|
|
74
|
|
|
|
1.62
|
|
|
|
4,870
|
|
|
|
17
|
|
|
|
0.35
|
|
|
|
3,849
|
|
|
|
20
|
|
|
|
0.52
|
|
|
Total interest-earning
assets
|
|
|
606,307
|
|
|
|
23,311
|
|
|
|
3.84
|
|
|
|
573,548
|
|
|
|
21,638
|
|
|
|
3.77
|
|
|
|
522,786
|
|
|
|
20,829
|
|
|
|
3.98
|
|
|
Non-interest-earning assets
|
|
|
33,156
|
|
|
|
|
|
|
|
|
|
|
|
31,811
|
|
|
|
|
|
|
|
|
|
|
|
28,662
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
639,463
|
|
|
|
|
|
|
|
|
|
|
$
|
605,389
|
|
|
|
|
|
|
|
|
|
|
$
|
551,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
87,677
|
|
|
|
106
|
|
|
|
0.12
|
|
|
$
|
84,514
|
|
|
|
104
|
|
|
|
0.12
|
|
|
$
|
79,686
|
|
|
|
130
|
|
|
|
0.16
|
|
|
Money market accounts
|
|
|
111,218
|
|
|
|
309
|
|
|
|
0.28
|
|
|
|
105,277
|
|
|
|
312
|
|
|
|
0.30
|
|
|
|
114,114
|
|
|
|
477
|
|
|
|
0.42
|
|
|
NOW accounts
|
|
|
74,464
|
|
|
|
117
|
|
|
|
0.16
|
|
|
|
81,216
|
|
|
|
132
|
|
|
|
0.16
|
|
|
|
85,415
|
|
|
|
242
|
|
|
|
0.28
|
|
|
Certificates of deposit
|
|
|
125,599
|
|
|
|
1,192
|
|
|
|
0.95
|
|
|
|
89,094
|
|
|
|
1,169
|
|
|
|
1.31
|
|
|
|
76,423
|
|
|
|
1,383
|
|
|
|
1.81
|
|
|
Total interest-bearing
deposits
|
|
|
398,958
|
|
|
|
1,724
|
|
|
|
0.43
|
|
|
|
360,101
|
|
|
|
1,717
|
|
|
|
0.48
|
|
|
|
355,638
|
|
|
|
2,232
|
|
|
|
0.63
|
|
|
Federal Home Loan Bank advances
|
|
|
42,361
|
|
|
|
567
|
|
|
|
1.34
|
|
|
|
67,241
|
|
|
|
908
|
|
|
|
1.35
|
|
|
|
38,623
|
|
|
|
1,178
|
|
|
|
3.05
|
|
|
Securities
sold under agreements to repurchase
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,227
|
|
|
|
304
|
|
|
|
4.21
|
|
|
Total interest-bearing
liabilities
|
|
|
441,319
|
|
|
|
2,291
|
|
|
|
0.52
|
|
|
|
429,342
|
|
|
|
2,625
|
|
|
|
0.61
|
|
|
|
401,488
|
|
|
|
3,714
|
|
|
|
0.93
|
|
|
Non-interest-bearing deposits
|
|
|
119,436
|
|
|
|
|
|
|
|
|
|
|
|
100,504
|
|
|
|
|
|
|
|
|
|
|
|
75,809
|
|
|
|
|
|
|
|
|
|
|
Other
non-interest-bearing liabilities
|
|
|
5,622
|
|
|
|
|
|
|
|
|
|
|
|
8,772
|
|
|
|
|
|
|
|
|
|
|
|
7,169
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
566,378
|
|
|
|
|
|
|
|
|
|
|
|
536,618
|
|
|
|
|
|
|
|
|
|
|
|
484,466
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
73,085
|
|
|
|
|
|
|
|
|
|
|
|
68,741
|
|
|
|
|
|
|
|
|
|
|
|
66,982
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and total equity
|
|
$
|
639,463
|
|
|
|
|
|
|
|
|
|
|
$
|
605,359
|
|
|
|
|
|
|
|
|
|
|
$
|
551,448
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
21,020
|
|
|
|
|
|
|
|
|
|
|
$
|
19,013
|
|
|
|
|
|
|
|
|
|
|
$
|
17,115
|
|
|
|
|
|
Net interest rate
spread
(1)
|
|
|
|
|
|
|
|
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
3.16
|
%
|
|
|
|
|
|
|
|
|
|
|
3.05
|
%
|
|
Net
interest-earning assets (2)
|
|
$
|
164,988
|
|
|
|
|
|
|
|
|
|
|
$
|
146,206
|
|
|
|
|
|
|
|
|
|
|
$
|
121,298
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (3)
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
|
|
|
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
|
Average interest-earning assets
to interest-bearing liabilities
|
|
|
137.4
|
%
|
|
|
|
|
|
|
|
|
|
|
133.6
|
%
|
|
|
|
|
|
|
|
|
|
|
130.2
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted
average rate of interest-bearing liabilities.
|
|
|
(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,
2014 vs. 2013
|
|
|
Year
Ended December 31,
2013 vs. 2012
|
|
|
|
|
Increase
(Decrease) Due to
|
|
|
Total
Increase
|
|
|
Increase
(Decrease) Due to
|
|
|
Total
Increase
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
|
|
(In thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
2,246
|
|
|
$
|
(584
|
)
|
|
$
|
1,662
|
|
|
$
|
2,681
|
|
|
$
|
(1,939
|
)
|
|
$
|
742
|
|
|
Interest-earning deposits
|
|
|
(21
|
)
|
|
|
5
|
|
|
|
(16
|
)
|
|
|
(38
|
)
|
|
|
16
|
|
|
|
(22
|
)
|
|
Investment securities
|
|
|
(336
|
)
|
|
|
306
|
|
|
|
(30
|
)
|
|
|
210
|
|
|
|
(118
|
)
|
|
|
92
|
|
|
Federal
Home Loan Bank of Boston stock
|
|
|
(1
|
)
|
|
|
58
|
|
|
|
57
|
|
|
|
5
|
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
Total
interest-earning assets
|
|
|
1,888
|
|
|
|
(215
|
)
|
|
|
1,673
|
|
|
|
2,858
|
|
|
|
(2,049
|
)
|
|
|
809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
7
|
|
|
|
(33
|
)
|
|
|
(26
|
)
|
|
Money market accounts
|
|
|
17
|
|
|
|
(20
|
)
|
|
|
(3
|
)
|
|
|
(35
|
)
|
|
|
(130
|
)
|
|
|
(165
|
)
|
|
NOW accounts
|
|
|
(11
|
)
|
|
|
(4
|
)
|
|
|
(15
|
)
|
|
|
(11
|
)
|
|
|
(99
|
)
|
|
|
(110
|
)
|
|
Certificates of deposit
|
|
|
400
|
|
|
|
(377
|
)
|
|
|
23
|
|
|
|
206
|
|
|
|
(420
|
)
|
|
|
(214
|
)
|
|
Total deposits
|
|
|
410
|
|
|
|
(403
|
)
|
|
|
7
|
|
|
|
167
|
|
|
|
(682
|
)
|
|
|
(515
|
)
|
|
Federal Home Loan Bank advances
|
|
|
(333
|
)
|
|
|
(8
|
)
|
|
|
(341
|
)
|
|
|
595
|
|
|
|
(865
|
)
|
|
|
(270
|
)
|
|
Securities
sold under agreements to repurchase
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(152
|
)
|
|
|
(152
|
)
|
|
|
(304
|
)
|
|
Total
interest-bearing liabilities
|
|
|
77
|
|
|
|
(411
|
)
|
|
|
(334
|
)
|
|
|
610
|
|
|
|
(1,699
|
)
|
|
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net interest income
|
|
$
|
1,811
|
|
|
$
|
196
|
|
|
$
|
2,007
|
|
|
$
|
2,248
|
|
|
$
|
(350
|
)
|
|
$
|
1,898
|
|
Results of Operations for the Years
Ended December 31, 2014 and 2013
General.
Net income increased
$550,000, or 13.7%, to $4.6 million for the year ended December 31, 2014 from $4.0 million for the year ended December 31, 2013.
The increase was due to an increase in net interest and dividend income, partially offset by a decrease in noninterest income and
an increase in the provision for loan losses.
Interest and Dividend Income.
Interest
and dividend income increased $1.7 million, or 7.9%, to $23.3 million for the year ended December 31, 2014 from $21.6 million for
the year ended December 31, 2013. This was caused by an increase in interest and fees on loans, which increased $1.6 million, or
8.7%, to $20.0 million for the year ended December 31, 2014 from $18.4 million for the year ended December 31, 2013.
The increase in
interest income on loans was due to an increase in average balance of $52.5 million, or 12.5%, to $471.6 million for the year ended
December 31, 2014 from $419.1 million for the year ended December 31, 2013. This increase was due to our continued success in originating
construction and land development loans, commercial real estate loans and commercial business loans. The increase in average balance
of loans was partially offset by a 13 basis point decrease in yield, to 4.25% for the year ended December 31, 2014 from 4.38% for
the year
ended December 31, 2013, due to the continued payoff of higher-yielding loans and our originating new loans in
a lower interest rate environment.
Interest on investment securities decreased
$30,000 to $3.2 million for each of the years ended December 31, 2014 and 2013. A decrease in average balance of $14.1 million,
or 9.9%, offset a 23 basis increase in yield on investment securities to 2.49% during the year ended December 31, 2014 from 2.26%
for the year ended December 31, 2013. We have been able to use excess cash to originate loans that provide higher interest rates
than the rates we could receive on investment securities. However, we increased the yield we earned on investment securities during
2014 by selling a group of lower yielding collateralized mortgage obligations (CMO), which we had originally purchased in anticipation
of increases in market interest rates, and purchasing new securities with higher yields.
Interest Expense.
Interest expense
decreased $334,000, or 12.7%, to $2.3 million for the year ended December 31, 2014 from $2.6 million for the year ended December
31, 2013, caused by a decrease in interest expense on borrowings. Interest expense on borrowings, consisting solely of Federal
Home Loan Bank advances, decreased $341,000, or 37.6%, to $567,000 for the year ended December 31, 2014 from $908,000 for the year
ended December 31, 2013, as our average balance of borrowings decreased $24.9 million, or 37.0%, to $42.4 million for the year
ended December 31, 2014 from $67.2 million for the year ended December 31, 2013. We have been able to use cash generated by an
increase in lower-cost deposits to fund our operations.
Interest expense on deposits was $1.7 million
for each of the years ended December 31, 2014 and 2013. However, our average balance of interest-bearing deposits increased $39.0
million, or 10.8%, to $399.0 million for the year ended December 31, 2014 from $360.0 million for the year ended December 31, 2013.
The increase resulted from increases in the average balance of all deposit categories, except for NOW accounts. The primary increase
in our average balance of interest-bearing deposits was due to an increase in certificates of deposit, which increased $36.5 million,
or 41.0%, to $125.6 million for the year ended December 31, 2014 from $89.0 million for the year ended December 31, 2013, as we
increased our usage of brokered certificates of deposit during 2014.
However, the average interest rate we paid on certificates
of deposit decreased 36 basis points to 0.95% for the year ended December 31, 2014 from 1.31% for the year ended December 31, 2013.
Our overall cost of funds for the year ended
December 31, 2014 was enhanced by an increase in non-interest bearing deposits, which increased to $119.4 million for the year
ended December 31, 2014 from $100.5 million for the year ended December 31, 2013, as we have been successful in obtaining non-interest
bearing deposits from commercial loan customers.
Net Interest and Dividend Income.
Net
interest income increased $2.0 million, or 10.5%, to $21.0 million for the year ended December 31, 2014 from $19.0 million for
the year ended December 31, 2013. Our net interest rate spread increased 16 basis points to 3.32% for the year ended December 31,
2014 from 3.16% for the year ended December 31, 2013, while our net interest margin increased 16 basis points to 3.47% for the
year ended December 31, 2014 from 3.31% for the year ended December 31, 2013. The average yield we earned on interest-earning assets
increased while at the same time we were able to decrease the average rate we paid on interest-bearing liabilities.
Provision for Loan Losses.
Our
provision for loan losses was $1.5 million for the year ended December 31, 2014 compared to $1.2 million for the year ended
December 31, 2013. The provisions recorded resulted in an allowance for loan losses of $7.2 million, or 1.44% of total loans
and 187.5% of non-performing loans at December 31, 2014, compared to $6.1 million, or 1.36% of total loans and 183.2% of non-performing
loans at December 31, 2013. The increase in the allowance for loan losses resulted primarily from an increase in our loan portfolio
as 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.”
Noninterest Income.
Noninterest income information
is as follows.
|
|
|
Years Ended
December 31,
|
|
|
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
149
|
|
|
$
|
156
|
|
|
$
|
(7
|
)
|
|
|
(4.5
|
)%
|
|
Other service charges and fees
|
|
|
1,821
|
|
|
|
1,783
|
|
|
|
38
|
|
|
|
2.1
|
|
|
Gain on sales, calls and donated securities, net
|
|
|
428
|
|
|
|
2,253
|
|
|
|
(1,825
|
)
|
|
|
(77.3
|
)
|
|
Writedown of securities
|
|
|
—
|
|
|
|
(141
|
)
|
|
|
141
|
|
|
|
100.0
|
|
|
Loss on sales and writedowns of foreclosed real estate, net
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
33
|
|
|
|
100.0
|
|
|
Other income
|
|
|
1,470
|
|
|
|
1,125
|
|
|
|
345
|
|
|
|
30.6
|
|
|
Total non-interest income
|
|
$
|
3,868
|
|
|
$
|
5,143
|
|
|
$
|
(1,275
|
)
|
|
|
(24.8
|
)%
|
Gains on sales, calls and donated securities,
net, decreased for the year ended December 31, 2014 from the year ended December 31, 2013. Although we sold $12.4 million of securities
during the year ended December 31, 2014 compared to $8.1 million of such sales during the year ended December 31, 2013, our sales
resulted in higher gains during the year ended December 31, 2013. During the year ended December 31, 2014, we recognized $228,000
of noninterest income related to the contribution of appreciated securities, compared to $60,000 of such gains during the year
ended December 31, 2013.
Noninterest Expense.
Noninterest
expense information is as follows.
|
|
|
Years Ended
December 31,
|
|
|
Change
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
10,687
|
|
|
$
|
11,007
|
|
|
$
|
(320
|
)
|
|
|
(2.9
|
)%
|
|
Occupancy expense
|
|
|
1,308
|
|
|
|
1,267
|
|
|
|
41
|
|
|
|
3.2
|
|
|
Equipment expense
|
|
|
617
|
|
|
|
429
|
|
|
|
188
|
|
|
|
43.8
|
|
|
FDIC assessment
|
|
|
361
|
|
|
|
356
|
|
|
|
5
|
|
|
|
1.4
|
|
|
Data processing
|
|
|
507
|
|
|
|
490
|
|
|
|
17
|
|
|
|
3.5
|
|
|
Marketing expense
|
|
|
79
|
|
|
|
234
|
|
|
|
(155
|
)
|
|
|
(66.2
|
)
|
|
Professional services
|
|
|
519
|
|
|
|
518
|
|
|
|
1
|
|
|
|
0.2
|
|
|
Other
|
|
|
3,343
|
|
|
|
3,061
|
|
|
|
282
|
|
|
|
9.2
|
|
|
Total non-interest expense
|
|
$
|
17,421
|
|
|
$
|
17,362
|
|
|
$
|
59
|
|
|
|
0.3
|
%
|
Equipment expense increased for the year ended
December 31, 2014 from the year ended December 31, 2013 due to increased depreciation on equipment, as we made technology upgrades
at the end of 2013and installed a new telephone system in 2014. Salaries and employee benefits expense decreased for the year ended
December 31, 2014 from the year ended December 31, 2013 due to accruals made in 2013 for payments to our former President and Chief
Executive Officer in connection with his retirement. Marketing expense decreased for the year ended December 31, 2014 from the
year ended December 31, 2013 as we brought our marketing in-house and did not use an outside advertising company. Other expense
increased mainly due to an increase in our charitable contributions, which totaled $425,000 for the year ended December 31, 2014
compared to $227,000 for the year ended December 31, 2013.
Income Tax Provision.
We recorded
a provision for income taxes of $1.5 million for the year ended December 31, 2014, reflecting an effective tax rate of 24.2%,
compared to $1.6 million, or 28.1%, for the year ended December 31, 2013. The changes in the income tax provision were primarily
due to changes in the components of pre-tax income. Our effective tax rates are below statutory federal and states rates due primarily
to tax-exempt income related to investments in bank owned life insurance and municipal securities.
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, who take 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 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. 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, 2014 and 2013.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
Changes in
Interest Rates
(Basis Points)
|
|
Estimated 12-
Months Net
Interest
Income
|
|
|
Change
|
|
|
Estimated 12-
Months Net
Interest
Income
|
|
|
Change
|
|
|
(Dollars in thousands)
|
|
|
|
200
|
|
$
|
22,763
|
|
|
|
0.43
|
%
|
|
$
|
20,118
|
|
|
|
(1.21
|
)%
|
|
0
|
|
$
|
22,666
|
|
|
|
—
|
|
|
$
|
20,365
|
|
|
|
—
|
|
|
-100
|
|
$
|
22,502
|
|
|
|
(0.72
|
)%
|
|
$
|
20,207
|
|
|
|
(0.77
|
)%
|
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, 2014 and 2013.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
Changes in
Interest Rates
(Basis Points)
|
|
Economic
Value of Equity
|
|
|
Change
|
|
|
Economic
Value of Equity
|
|
|
Change
|
|
|
(Dollars in thousands)
|
|
|
|
400
|
|
$
|
80,288
|
|
|
|
(9.7
|
)%
|
|
$
|
67,571
|
|
|
|
(21.4
|
)%
|
|
300
|
|
$
|
82,799
|
|
|
|
(6.9
|
)%
|
|
$
|
71,472
|
|
|
|
(16.8
|
)%
|
|
200
|
|
$
|
85,104
|
|
|
|
(4.3
|
)%
|
|
$
|
74,546
|
|
|
|
(13.3
|
)%
|
|
100
|
|
$
|
87,853
|
|
|
|
(1.2
|
)%
|
|
$
|
80,849
|
|
|
|
(5.9
|
)%
|
|
0
|
|
$
|
88,916
|
|
|
|
—
|
|
|
$
|
85,963
|
|
|
|
—
|
|
|
-100
|
|
$
|
83,778
|
|
|
|
(6.8
|
)%
|
|
$
|
83,926
|
|
|
|
(2.4
|
)%
|
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 mortgage 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.
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, 2014, cash and cash equivalents totaled $9.6 million. This amount is lower than historical amounts due to our using
excess cash to fund loan originations. Securities classified as available-for-sale, which provide additional sources of liquidity,
totaled $76.0 million at December 31, 2014.
At December 31, 2014, we had the ability to
borrow a total of $146.2 million from the Federal Home Loan Bank of Boston. On that date, we had $39.2 million in advances
outstanding. At December 31, 2014, we also had an available line of credit with the Federal Reserve Bank of Boston’s borrower-in-custody
program of $122.3 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 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, 2014 and 2013, we had $9.1 million
and $3.6 million in loan commitments outstanding, respectively. In addition to commitments to originate loans, at December 31,
2014 and 2013, we had $115.4 million and $97.6 million in unadvanced funds to borrowers, respectively. We also had $3.6 million
and $3.1 million in outstanding letters of credit at December 31, 2014 and 2013, respectively.
Certificates of deposit due within one year
of December 31, 2014 totaled $53.2 million, or
9.9% of total deposits. 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, 2014. 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 year ended December 31, 2014, we originated $168.7 million of loans, including
$161.6
million of loans to be held in our portfolio, and we purchased $13.5 million of securities. During the year ended
December 31, 2013, we originated $177.6 million of loans, including $176.2 million of loans to be held in our portfolio, and we
purchased $25.2 million of securities.
Financing activities consist primarily of activity
in deposit accounts and Federal Home Loan Bank advances. We experienced net increases in total deposits of $28.4 million and $57.1
for the years ended December 31, 2014 and 2013, 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. Federal Home Loan Bank advances reflected a net decrease of $1.8 million and $8.5 million during
the years ended December 31, 2014 and 2013, respectively. We have been able to use the cash generated from the increases in deposits
to fund loan growth in recent periods.
The Provident Bank is subject to various regulatory
capital requirements administered by Massachusetts Commissioner of Banks, the Federal Deposit Insurance Corporation. At December
31, 2014, The Provident Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized”
under regulatory guidelines. See “Historical and Pro Forma Regulatory Capital Compliance” and Note 12 of the Notes
to the Consolidated Financial Statements for additional information.
We paid $172,000 in
dividends on our SBLF preferred stock during the year ended December 31, 2014. The per annum dividend rate on the SBLF preferred
stock is currently 1.00%, but during the first quarter of 2016, the per annum dividend rate will increase to a fixed rate of 9.0%
if any SBLF preferred stock remains outstanding at that time. Assuming the increased dividend rate of 9.0% per annum and assuming
we have redeemed only half of our SBLF preferred stock before March 2016, our annual dividends payable would increase to $772,000,
which could have a negative effect on our liquidity and capital resources, including reducing our net income available to holders
of our common stock and our earnings per share.
The net proceeds from the stock offering will
significantly increase 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 the funding of loans. Our financial condition and results
of operations will be enhanced by the net proceeds from the stock offering, resulting in increased net interest-earning assets
and net interest income. 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 will be adversely affected following the stock offering.
See “Risk Factors—Our return on equity may be low following the stock offering. This could negatively affect the trading
price of our shares of common stock.”
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, 2014.
|
Contractual Obligations
|
|
|
|
Less Than
One Year
|
|
|
More Than
One Year
Through
Three Years
|
|
|
More Than
Three Years
Through Five
Years
|
|
|
Over Five
Years
|
|
|
Total
|
|
|
|
|
(In Thousands)
|
|
|
Long-term debt obligations
|
|
$
|
21,600
|
|
|
$
|
8,525
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,125
|
|
|
Capital lease obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Operating lease obligations
|
|
|
234
|
|
|
|
418
|
|
|
|
405
|
|
|
|
1,047
|
|
|
|
2,104
|
|
|
Purchase obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total Contractual Obligations
|
|
$
|
21,834
|
|
|
$
|
8,943
|
|
|
$
|
405
|
|
|
$
|
1,047
|
|
|
$
|
32,229
|
|
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,
please 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 prospectus 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.
BUSINESS OF PROVIDENT BANCORP, INC.
Provident Bancorp, Inc. is a Massachusetts corporation
that was organized in 2011 and that owns all of the outstanding shares of common stock of The Provident Bank. Provident Bancorp,
Inc. will contribute at least 50% of the net proceeds from the stock offering to The Provident Bank as additional capital. Provident
Bancorp, Inc. expects to use a portion of the net proceeds of the stock offering to redeem the SBLF preferred stock, and will also
lend a portion of the net proceeds to the Employee Stock Ownership Plan. Provident Bancorp, Inc. intends to invest the remainder
of the net proceeds of the offering as discussed under “How We Intend to Use the Proceeds From the Offering.”
In the future, Provident Bancorp, Inc. may pursue other business
activities, including mergers and acquisitions, investment alternatives and diversification of operations. There are, however,
no current understandings or agreements for these activities. See “Supervision and Regulation—Holding Company Regulation”
for a discussion of the activities that are permitted for bank holding companies.
Following the offering, Provident Bancorp, Inc.’s
cash flow will primarily depend on earnings from the investment of the net proceeds from the offering that it retains and any dividends
received from The Provident Bank. Provident Bancorp, Inc. uses the support staff and offices of The Provident Bank and pays The
Provident Bank for these services. If Provident Bancorp, Inc. expands or changes its business in the future, it may hire its own
employees.
At December 31, 2014, Provident Bancorp, Inc.
had total assets of $658.6 million, deposits of $536.9 million and shareholder’s equity of $75.8 million on a consolidated
basis.
BUSINESS OF THE PROVIDENT BANK
The Provident Bank is a community bank that
has served the banking needs of its customers since 1828. We are 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 and four branch
offices in Southeastern New Hampshire, as well as two loan production offices located in Bedford, New Hampshire and Nashua, New
Hampshire. We have also leased property in Bedford, New Hampshire for the establishment of a new branch office that we expect to
open in the fourth quarter of 2015. Our primary lending area encompasses Northeastern Massachusetts and southern New Hampshire,
with a focus on Essex County, Massachusetts, and Hillsborough and Rockingham Counties, New Hampshire. Our primary deposit-gathering
area is currently concentrated in Essex County, Massachusetts and Rockingham County, New Hampshire, and will expand to Hillsborough
County, New Hampshire when we open our Bedford branch office. We attract deposits from the general public and use those funds to
originate primarily loans, primarily commercial real estate, construction and land 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, 2010 to December
31, 2014, deposits have increased $157.5 million, or 41.5%, and loans have increased $160.6 million, or 48.4%.
The Provident Bank is subject to comprehensive
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 prospectus.
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. Our primary deposit-gathering area is currently concentrated in Essex County, Massachusetts
and Rockingham County, New Hampshire. We expect our deposit-gathering area to expand to Hillsborough County, New Hampshire
when we open our new branch office in Bedford, New Hampshire.
The greater
Boston metropolitan area is the 10th 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 sector however, is
health care and social services,
accounting for 19.43% of businesses in Massachusetts as of June 30, 2014. Based on
data from the U.S. Department
of Labor, the unemployment rate for Massachusetts was 4.8%
in December 2014 compared to 7.1% in December 2013, and 5.6% for the United States as a whole for December 2014. The population
in Massachusetts grew 2.39% from 2010 to 2014, while the national population and the population in Essex County, Massachusetts
grew 2.74% and 2.66%, respectively, over the same time period. Median household income in Massachusetts was $65,736 for
2014, compared to $51,579 and $65,986 for the national average and Essex County, respectively.
New Hampshire also provides a highly diversified
economic base, with major employment sectors ranging from services, manufacturing and retail trade, to finance, technology, medical
care and the federal and state governments. Based on data from the U.S. Department of Labor, the unemployment rate
for New Hampshire was 3.8% in December 2014 compared to 4.6% in December 2013. The population in New Hampshire grew 0.54%
from 2010 to 2014, while the population in Hillsborough and Rockingham Counties, New Hampshire grew 0.57% and 1.07%, respectively,
over the same time period. Median household income in New Hampshire was $64,840 for 2014, compared to $67,867 and $76,173
for Hillsborough and Rockingham Counties, respectively.
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 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, money market funds, mutual funds and other corporate and government
securities. Based on data from the Federal Deposit Insurance Corporation as of June 30, 2014 (the latest date for which information
is available), The Provident Bank had 1.79% of the deposit market share within Essex County, Massachusetts, giving us the 14th
largest market share out of 38 financial institutions with offices in that county as of that date, and had 3.38% of the deposit
market share within Rockingham County, New Hampshire, giving us the 9th largest market share out of 23 financial institutions with
offices in that county as of that date.
Our competition for loans comes primarily from
financial institutions in our market area. Some of our competitors offer products and services that we do not offer, such as insurance
services, trust services, and wealth management. 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 Real Estate Loans.
At
December 31, 2014, commercial real estate loans were $249.7 million, or 49.8%, of our total loan portfolio. This amount includes
$26.2 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. At December 31, 2014, $98.0 million of our commercial real estate portfolio
was owner occupied commercial real estate, and $151.7 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 $394,000 as of December
31, 2014, although we originate commercial real estate loans with balances significantly larger than this average. At December
31, 2014, our ten largest commercial real estate loans had an average balance of $4.2 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 also 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, 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, aggregate debt service ratios, including the guarantor’s cash flow and the borrower’s other projects are,
by policy, required to have a minimum income to debt service ratio of 1.20x. For commercial real estate loans in excess of $250,000,
we require independent appraisals from an approved appraisers list. For such loans below $250,000, we require internal evaluations
but do not require an independent appraisal. We require commercial real estate loan borrowers with loan relationships in excess
of $500,000 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. Commercial real estate properties may also be subject to annual inspections with pictures
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 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 the dates indicated. The table excludes multi-family residential real estate
loans, discussed below.
|
Type of Loan
|
|
Number of Loans
|
|
|
Balance
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mixed use
|
|
|
97
|
|
|
$
|
47,493
|
|
|
Retail
|
|
|
51
|
|
|
|
37,940
|
|
|
Office
|
|
|
72
|
|
|
|
29,494
|
|
|
Industrial/manufacturing/warehouse
|
|
|
78
|
|
|
|
26,875
|
|
|
Gas stations
|
|
|
27
|
|
|
|
18,369
|
|
|
Restaurant/fast food
|
|
|
31
|
|
|
|
12,578
|
|
|
Residential one- to four-family non-owner occupied
|
|
|
3
|
|
|
|
1,474
|
|
|
Other
|
|
|
63
|
|
|
|
49,236
|
|
|
Total
|
|
|
422
|
|
|
$
|
223,459
|
|
If we foreclose on a commercial real estate
loan, the marketing and liquidation period to convert the real estate asset to cash can be a lengthy process 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, 2014, totaled $5.4 million, was originated in October 2013 and secured by non-owner occupied commercial use property.
Our next largest commercial real estate loan at December 31, 2014, was for $5.4 million, was originated in September 2008 and secured
by 15 mixed use properties consisting of 37 residential units and 15 commercial units. The third largest commercial real estate
loan was for $5.0 million, was originated in December 2014 and was secured by a hotel and conference center. The collateral securing
these loans is all located in our primary lending area. At December 31, 2014, all of these loans were performing in accordance
with their terms.
Multi-Family Residential Real Estate Loans.
At December 31,
2014, multi-family real estate loans were $26.2 million, or 5.2%, of our total loan portfolio. We do not focus on the origination
of multi-family 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 $359,000 as of December
31, 2014. 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 75% to 80% of the
property’s appraised value at the time the loan is originated. Aggregate debt service ratios, including the guarantor’s
cash flow and the borrower’s other projects are, by policy, required to have a minimum income to debt service ratio of 1.20x.
We require multi-family real estate loan borrowers with loan relationships in excess of $500,000 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.
These properties may also be subject to annual inspections with pictures 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 a lengthy process 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, 2014 totaled $2.2 million, was originated in September 2003 and is secured by a 13-unit apartment building. At December
31, 2014, this loan was performing in accordance with its terms.
Commercial Business Loans.
We
make commercial business loans primarily in our market area to a variety of small and medium sized businesses, including professionals
and nonprofit organizations, and, to a lesser extent, sole proprietorships. These loans are generally secured by business assets,
and we may support this collateral with junior liens on real property. At December 31, 2014, commercial business loans were
$97.6 million, or 19.4% 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 loans are based on the prime rate as published in
The Wall Street Journal
,
plus a margin. Initial rates on non-Small Business Administration 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 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.
A portion of our commercial business loans are
guaranteed by the U.S. Small Business Administration (“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 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. In 2014, The Provident Bank was distinguished as the highest producer of SBA 7(a) loans, in terms of dollar generation,
in the State of New Hampshire. This is noteworthy because The Provident Bank competes against large regional and national banks
that have a statewide presence and lending groups dedicated solely to the production of SBA 7(a) loans.
We joined the BancAlliance network in May 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, 2014, we had $16.1 million of outstanding commercial
business loans that were originated through this network. All of these loans are participations in a larger facility agented by
capital finance companies. We fully underwrite these loans in accordance with our policies prior to approval. We limited participation
in 2014 due to our organic growth in commercial and industrial loans, but may continue participation in the future depending on
the terms of the program and market conditions. We expect that the volume of such originations, if any, will be substantially less
than we originated through BancAlliance from 2011 through 2013.
Our largest commercial business loan at December
31, 2014 totaled $3.3 million, was originated in 2011 to a municipality located in New Hampshire and is unsecured.
Construction and Land Development Loans.
At December 31, 2014, construction and land development loans were $47.1 million, or 9.4% of our total loan portfolio
consisting of $3.5 million of one- to four-family residential and condominium construction loans, $1.4 million of residential land
or development loans, and $42.1 million of commercial and multi-family real estate construction loans. $428,000 of our one- to
four-family construction loans and residential land or development loans and $32.5 million of our commercial and multi-family real
estate construction loans at December 31, 2014 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 $250,000. 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 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 (loans that are not pre-sold) approved for each builder to three 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, 2014 totaled $7.9 million, was originated in 2014 and is secured by retail property located outside our primary
market area. At December 31, 2014, this loan was performing in accordance with its 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, 2014, one- to four-family residential
real estate loans were $104.6 million, or 20.8% of our total loan portfolio, consisting of $74.9 of fixed-rate loans and $29.6
of adjustable-rate loans, respectively. This amount includes $23.7 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.
We did not offer loans with negative amortization
and did not offer interest-only one- to four-family residential real estate loans, although we may provide for interest-only payments
with respect to loan modifications. We generally retained one- to four-family residential real estate loans in our portfolio. At
December 31, 2014, we were only servicing eight loans with an outstanding balance of $1.0 million, with all such loans serviced
for Fannie Mae.
Home Equity Loans and Lines of Credit.
At December 31, 2014, the outstanding balance owed on home equity loans was $8.4 million, or 1.7% of our total loan
portfolio, and the outstanding balance owed on home equity lines of credit amounted to $15.3 million, or 3.0% 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.
The procedures for underwriting home equity
lines of credit include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations
and payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the underwriting
process also includes a comparison of the value of the collateral to the proposed loan amount.
Consumer Loans.
We offer loans secured by certificate
accounts and overdraft lines of credit. At December 31, 2014, consumer loans were $2.9 million, or 0.6% 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.
Loan Underwriting Risks
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. 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 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 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. An environmental phase one report is 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.
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.
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 real estate, accounts receivable, inventory or equipment. 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. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and
may fluctuate in value.
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.
Loan Originations, Purchases and Sales
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, networking events and referrals from customers as well as our directors, trustees and corporators, business owners,
investors, entrepreneurs, builders, realtors, existing customers and other professional third parties, including brokers. Loan
originations are further supported by lending services offered through our internet website, cross-selling, and employees’
community service.
Historically, we generally originated loans
for our portfolio. We occasionally sold residential real estate loans in the secondary market, primarily with servicing retained.
At December 31, 2014, we were only servicing eight loans, totaling $1.0 million. In addition, we sell participation interests in
commercial real estate loans to local financial institutions, primarily on the portion of loans exceeding our borrowing limits.
For the years ended December 31, 2014 and 2013, we sold loan participations of $7.1 million and $1.1 million. At December 31,
2014, we were servicing $1.0 million of residential real estate loans for others.
We generally do not purchase whole loans, but
we will purchase loan participations from other financial institutions or through the BancAlliance program, described above. During
the years ended December 31, 2014 and 2013, we purchased $10.9 million and $14.1 million of loan originations, respectively. As
of December 31, 2014, we had $16.1 million of outstanding commercial business loans that were originated through this network.
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. Loans to relationships of $1.0 million and below require approval by members of senior management. Loans to relationships
greater than $1.0 million up to
our internal loans-to-one borrower limitation ($10.9 million as of December 31, 2014) require
approval by management’s Credit committee. 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 Loan 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 monthly.
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, 2014, our regulatory limit on
loans-to-one borrower was $14.7 million, and this limit will increase following the completion of the offering. We generally establish
our internal loans-to-one borrower limit as 75% of our regulatory limit. As of December 31, 2014, this amount was $10.9 million,
with loans greater than this amount requiring approval by The Provident Bank’s Loan Committee of the Board of Directors.
Both our regulatory and internal limits will increase following completion of the offering. However, we will establish our internal
limitation as if our regulatory capital was reduced by the amount of SBLF preferred stock we have outstanding.
At December 31, 2014, our largest lending relationship
consisted of 10 loans for $11.3 million, secured by commercial owner occupied real estate and business assets. This relationship
was performing in accordance with its original repayment terms at December 31, 2014. Our second largest lending relationship
consisted of one loan for $10.5 million, secured by a commercial hotel to be constructed. This loan had no outstanding balance
at December 31, 2014. Our third largest lending relationship consisted of six loans for $9.5 million, secured by commercial
non-owner occupied real estate. This relationship was performing in accordance with its original repayment terms at December 31,
2014. Our fourth largest lending relationship consisted of sixteen loans for $8.5 million, secured by commercial and residential
investment properties. This relationship was performing in accordance with its original repayment terms at December 31, 2014.
Our fifth largest lending relationship consisted of two loans for $8.3 million, secured by commercial owner occupied real estate.
This relationship was performing in accordance with its original repayment terms at December 31, 2014.
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 governments, 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. Our equity securities generally pay dividends. 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, 2014.
At December 31, 2014, our investment portfolio
had a fair value of $123.5 million, and consisted primarily of U.S. Government Agency mortgage-backed securities, investment-grade
marketable equity 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 Executive Committee of the Board of Directors and management are responsible for
implementation of the investment policy and monitoring our investment performance. Our Executive Committee reviews the status of
our investment portfolio monthly.
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 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. Marketable
equity securities are evaluated for OTTI based on the severity and duration of the impairment and, if deemed to be other than temporary,
the declines in fair value are reflected in earnings as realized losses. 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 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, 2014 or 2013.
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 exchange 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 addition, funds
are derived from scheduled loan payments, investment maturities, 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 substantial
majority of our deposits (other than certificates of deposit) are from depositors who reside in our primary market area. However,
a significant portion of our brokered certificates of deposits and QwickRate deposits, described below, are from depositors located
outside our primary market area. Deposits are attracted through the offering of a broad selection of deposit instruments, including
non-interest-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 customers to maintain
their deposit relationships with us. At December 31, 2014, our deposits totaled $536.9 million. As of that date, our certificates
of deposit included $67.0 million of brokered certificates of deposit and $14.9 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, 2014, nearly all of
our brokered certificates of deposit and 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, 2014, we had $146.2 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 $39.2 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.
Personnel
As of December 31, 2014, we had 92 full-time
and 24 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 and Affiliates
The Provident Bank’s subsidiaries include
Provident Security Corporation, which was established to buy, sell, and hold investments for its own account, and 5 Market Street
Security Corporation, an inactive corporation, which was established to buy, sell, and hold investments for its own account.
Legal Proceedings
Periodically, there have been various claims
and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests,
claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party
to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations
or cash flows.
Properties
At December 31, 2014, we conducted business
through our main office and six branch offices located in Amesbury and Newburyport, Massachusetts and Exeter, Hampton, Portsmouth
and Seabrook, New Hampshire, as well as two loan production offices located in Bedford, New Hampshire and Nashua, New Hampshire.
We also lease land in Bedford, New Hampshire for the establishment of a new branch office that we expect to open in the fourth
quarter of 2015. We own four of our offices and lease three of our offices. At December 31, 2014, the total net book value
of our land, buildings, furniture, fixtures and equipment was $10.5 million.
SUPERVISION AND REGULATION
General
The Provident Bank is a Massachusetts-charted
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 bank holding companies, Provident Bancorp,
Inc. and Provident Bancorp are required to comply with the rules and regulations of the Federal Reserve Board. They are required
to file certain reports with the Federal
Reserve Board and are subject to examination by and
the enforcement authority of the Federal Reserve Board. Provident Bancorp, Inc. will also be subject to the rules and regulations
of the Securities and Exchange Commission under the federal securities laws.
The Dodd-Frank Act made extensive changes in
the regulation of depository institutions and their holding companies. The Dodd-Frank Act created a new Consumer Financial Protection
Bureau as an independent bureau of the Federal Reserve Board. On July 21, 2011, the Consumer Financial Protection Bureau assumed
responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function
previously assigned to prudential regulators, and now has the authority to impose new requirements. However, institutions of less
than $10 billion in assets, such as The Provident Bank, continue to be examined for compliance with consumer protection and fair
lending laws and regulations by, and be subject to the enforcement authority of, their federal prudential regulator, although the
Consumer Financial Protection Bureau has back-up authority to examine and enforce consumer protection laws against all institutions,
including institutions with less than $10 billion in assets.
In addition to creating the Consumer Financial
Protection Bureau, the Dodd-Frank Act, among other things, directed changes in the way that institutions are assessed for deposit
insurance, mandated the imposition of tougher consolidated capital requirements on holding companies, required the issuance of
regulations requiring originators of securitized loans to retain a percentage of the risk for the transferred loans, imposed regulatory
rate-setting for certain debit card interchange fees, repealed restrictions on the payment of interest on commercial demand deposits
and contained a number of reforms related to mortgage originations. Many of the provisions of the Dodd-Frank Act are subject to
delayed effective dates and/or still require the issuance of implementing regulations. Their impact on operations cannot yet be
fully assessed. However, there is significant possibility that the Dodd-Frank Act will, at a minimum, result in increased regulatory
burden, compliance costs and interest expense for The Provident Bank, Provident Bancorp, Inc. and Provident Bancorp.
The Dodd-Frank Act contained the so-called “Volcker
Rule,” which generally prohibits banking organizations from engaging in proprietary trading and from investing in, sponsoring
or having certain relationships with hedge or private equity funds (“covered funds”). In December 2013, federal agencies
issued a final rule implementing the Volcker Rule which, among other things, requires banking organizations to restructure and
limit certain of their investments in and relationships with covered funds.
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,
Provident Bancorp, Inc. and The Provident Bank. In addition, Provident Bancorp, Provident Bancorp, Inc. and The Provident Bank
will be 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, 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, Provident Bancorp, Inc. and Provident Bancorp. 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, Provident Bancorp, Inc. and Provident Bancorp.
Massachusetts Banking Laws and Supervision
The Provident Bank, as a Massachusetts 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 or to undertake many other activities. Any Massachusetts 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 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 Commonwealth of Massachusetts recently adopted
a law modernizing the Massachusetts banking law. Where indicated in the following discussion, the new provisions of Massachusetts
banking law took effect on April 7, 2015.
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
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 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 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 the power or activity. Beginning
in April 2015, Massachusetts law provides that 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.
The
Massachusetts banking laws prohibited any executive officer, director or trustee from borrowing, otherwise becoming indebted, or
becoming liable for a loan or other extension of credit by such bank to any other person, except for any of the following loans
or extensions of credit: (i) loans or extensions of credit, secured or unsecured, to an officer of the bank in an amount not
exceeding $100,000; (ii) loans or extensions of credit intended or secured for educational purposes to an officer of the bank
in an amount not exceeding $200,000; (iii) loans or extensions of credit secured by a mortgage on residential real estate
to be occupied, in whole or in part, by the officer to whom the loan or extension of credit is made, in an amount not exceeding
$750,000 and (iv) loans or extensions of credit to a director or trustee of the bank who is not also an officer of the bank
in an amount permissible under the bank’s loan to one borrower limit. Massachusetts banking laws also prohibited officers
and directors from receiving a preferential interest rate or terms on loans or extensions of credit.
Beginning in April 2015, 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 deposits 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.
Under Federal
Deposit Insurance Corporation regulations, federally insured state-chartered banks that are not members of the Federal Reserve
System (“state non-member banks”), such as The Provident Bank, are required to comply with minimum leverage capital
requirements. For an institution determined by the Federal Deposit Insurance Corporation to not be anticipating or experiencing
significant growth and to be, in general, a strong banking organization rated composite 1 under the Uniform Financial Institutions
Ranking System established by the Federal Financial Institutions Examination Council, the minimum capital leverage requirement
is a ratio of Tier 1 capital to total assets of 3.0%. For all other institutions, the minimum leverage capital ratio is not less
than 4.0%. Tier 1 capital is the sum of common shareholders’ equity, noncumulative perpetual preferred stock (including any
related surplus) and minority investments in certain subsidiaries, less intangible assets (except for certain servicing rights
and credit card relationships) and certain other specified items.
The Federal Deposit Insurance Corporation regulations
require state non-member banks to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets.
The ratio of regulatory capital to regulatory risk-weighted assets is referred to as a bank’s “risk-based capital ratio.”
Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items (including recourse obligations,
direct credit substitutes and residual interests) to risk-weighted categories ranging from 0.0% to 200.0%, with higher levels of
capital being required for the categories perceived as representing greater risk.
State non-member banks must maintain a minimum
ratio of total capital to risk-weighted assets of at least 8.0%, of which at least one-half must be Tier 1 capital. Total capital
consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of
up to 1.25% of risk-weighted assets, cumulative preferred stock and certain other capital instruments, and a portion of the net
unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the amount of the institution’s
Tier 1 capital. Banks that engage in specified levels of trading activities are subject to adjustments in their risk based capital
calculation to ensure the maintenance of sufficient capital to support market risk.
In July 2013,
the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that has revised their
leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements
that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things,
the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum
Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets), sets the leverage ratio at a uniform 4%
of total assets and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status
and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The
final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included
for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. The Provident Bank has elected
to exercise its one-time option to opt-out of the requirement under the final rule to include certain “available-for-sale”
securities holdings for purposes of calculating its regulatory capital requirements. The rule limits a banking organization’s
capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold
a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition
to the amount necessary to meet its minimum risk-based capital requirements. The final rule became effective on January 1, 2015.
The “capital
conservation buffer” will be phased in from January 1, 2016 to January 1, 2019, when the full capital
conservation buffer will be effective.
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, continue to
exercise state authority to invest in common or preferred stocks listed on a national securities exchange or the NASDAQ Global
Market and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. The maximum
permissible investment is 100.0% 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. The Provident Bank received approval from the Federal
Deposit Insurance Corporation to retain and acquire such equity instruments equal to the lesser of 100% of The Provident Bank’s
Tier 1 capital or the maximum permissible amount specified by Massachusetts law. Such grandfathered authority may be terminated
under certain circumstances including a determination by the Federal Deposit Insurance Corporation that such investments pose a
safety and soundness risk.
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, among other things, recent amendments made by the Dodd-Frank
Act permit banks to establish de novo branches on an interstate basis provided 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%. 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, 2014, The Provident Bank was classified as a “well capitalized” institution.
“Undercapitalized” banks must adhere
to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan.
A bank’s compliance with such a 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 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.
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 limits 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 substantially the same
as offered in comparable transactions to other persons 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.
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) currently range from 2
1
/
2
to 45 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.
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 must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10
billion or more are supposed to fund the increase. 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 recently 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.
In addition to the Federal Deposit Insurance
Corporation assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval
of the Federal Deposit Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on bonds
issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by
the FICO are due to mature in 2017 through 2019. For the quarter ended December 31, 2014, the annualized FICO assessment was
equal to 0.62 basis points of total assets less tangible capital.
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 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 21st 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;
|
|
|
•
|
Electronic Funds Transfer Act and Regulation E promulgated thereunder, and, as to The Provident Bank Chapter 167B of the General
Laws of Massachusetts, 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 The Provident Bank’s deposit powers.
|
Federal Reserve System
The Federal Reserve Board regulations require
depository institutions to maintain non-interest-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 that portion of transaction accounts aggregating $89.0 million or less (which may be adjusted by the Federal
Reserve Board) the reserve requirement is 3.0% and the amounts greater than $89.0 million require a 10.0% reserve (which may be
adjusted annually by the Federal Reserve Board between 8.0% and 14.0%). The first $13.3 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, 2014. 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, 2014, 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. As a result
of losses incurred, the Federal Home Loan Bank of Boston suspended and did not pay dividends in 2009 and 2010. However, the Federal
Home Loan Bank of Boston resumed payment of quarterly dividends in 2011, and in 2014 paid dividends equal to an annual yield of
1.63%. There can be no assurance that such dividends will continue in the future. Further, there can be no assurance that the impact
of recent or future legislation on the Federal Home Loan Banks also will not cause a decrease in the value of the Federal Home
Loan Bank of Boston stock held by The Provident Bank.
Holding Company Regulation
Provident Bancorp, Inc. and Provident Bancorp
are 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. and Provident Bancorp are 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. or Provident Bancorp 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 company” and thereby engage in a broader array of financial activities than previously
permitted. Such activities can include insurance underwriting and investment banking.
Provident Bancorp
is subject to the Federal Reserve Board’s capital adequacy guidelines for bank holding companies (on a consolidated basis),
which have historically been similar to, though less stringent than, those of the Federal Deposit Insurance Corporation for The
Provident Bank. The Dodd-Frank Act, however, required the Federal
Reserve Board to promulgate consolidated capital requirements
for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital,
than those applicable to institutions themselves. Instruments such as cumulative preferred stock and trust preferred securities
would no longer be includable as Tier 1 capital, as is currently the case with bank holding companies, subject to certain grandfathering
rules. The previously discussed final rule regarding regulatory capital requirements implements the Dodd-Frank Act as to bank holding
company capital standards. Consolidated regulatory capital requirements identical to those applicable to the subsidiary banks apply
to bank holding companies (with greater than $500 million of assets) as of January 1, 2015. As is the case with institutions themselves,
the capital conservation buffer will be phased in between 2016 and 2019.
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. These regulatory policies could affect the ability of Provident Bancorp, Inc. to pay dividends 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. and Provident
Bancorp as registered bank holding companies under the Bank Holding Company Act will not exempt them 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.
Federal Securities Laws
Provident Bancorp, Inc.’s common stock
will be registered with the Securities and Exchange Commission after the stock offering. Provident Bancorp, Inc. will be 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. will be 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 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 April 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 $1.0 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.
An “emerging growth company” may
choose not to hold stockholder 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 the auditor attestation requirement or additional executive compensation
disclosure so long as it remains a “smaller reporting company” under Securities and Exchange Commission regulations
(generally less than $75 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 $1.0 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 $1.0 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 Provident Bancorp,
Inc. or 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 will be the case with Provident Bancorp, Inc., 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 company”
subject to registration, examination and regulation by the Federal Reserve Board.
TAXATION
Provident Bancorp, 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. Currently, Provident Bancorp, Provident Bancorp, Inc. and The Provident Bank are included as part of
Provident Bancorp’s consolidated tax group. However, upon completion of the stock offering, Provident Bancorp, Inc. and The
Provident Bank will no longer be part of Provident Bancorp’s consolidated tax group since Provident Bancorp will no longer
own at least 80% of the common stock of Provident Bancorp, Inc. 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, 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’s federal income tax
returns have been either audited or closed under the statute of limitations through December 31, 2010. For its 2014 tax year,
The Provident Bank’s maximum federal income tax rate was 34.00%.
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’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 subsidiary, Provident Security Corporation, which engages in securities transactions on its own
behalf, is qualified as a security corporation. 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.
The New Hampshire Business Profits tax is assessed
at the rate of 8.5%. For this purpose, gross business profits generally means federal taxable income subject to certain modifications
provided for in New Hampshire law. The New Hampshire Business Enterprise tax is assessed at 0.75% of the total amount of payroll
and certain employee benefits expense, interest expense, and dividends paid to stockholders. The New Hampshire Business Enterprise
tax is applied as a credit towards the New Hampshire Business Profits tax.
MANAGEMENT
Our Directors
Directors of Provident Bancorp, Inc. serve three-year
staggered terms so that approximately one-third of the directors are elected at each annual meeting. The following table states
our directors’ names, their ages as of December 31, 2014, the years when they began serving as directors of The Provident
Bank and the years when their current terms expire.
|
Name (1)
|
|
Position(s) Held With
Provident Bancorp, Inc. and The
Provident Bank
|
|
Age
|
|
Director
Since
|
|
Current Term
Expires
|
|
John K. Bosen
|
|
Director
|
|
50
|
|
2008
|
|
2016
|
|
Frank G. Cousins, Jr.
|
|
Director
|
|
56
|
|
2003
|
|
2018
|
|
Charles R. Cullen
|
|
Chairman of the Board
|
|
63
|
|
2002
|
|
2017
|
|
Robert A. Gonthier, Jr.
|
|
Director
|
|
73
|
|
1991
|
|
2016
|
|
Laurie H. Knapp
|
|
Director
|
|
57
|
|
1998
|
|
2017
|
|
David P. Mansfield
|
|
Director, President and Chief Executive Officer, Provident Bancorp, Inc.; Director and Chief Executive Officer, The Provident Bank
|
|
53
|
|
2013
|
|
2016
|
|
Richard L. Peeke
|
|
Director
|
|
70
|
|
1990
|
|
2018
|
|
Wayne S. Tatro
|
|
Director
|
|
73
|
|
1995
|
|
2017
|
|
|
(1)
|
The mailing address for each person listed is 5 Market Street, Amesbury, Massachusetts 01913.
|
The business experience for the past five years
of each of our directors is set forth below. The biographies also contain information regarding the person’s experience,
qualifications, attributes or skills that caused the board of directors to determine that the person should serve as a director.
Each director is also a director of The Provident Bank. Unless otherwise indicated, directors have held their positions for the
past five years.
John K. Bosen
is an attorney and
owner of Bosen & Associates, P.L.L.C., located in Portsmouth, New Hampshire, which he founded in April of 2004. Mr. Bosen’s
practice focuses in the areas of business law, real estate, and litigation. He is a member of both the New Hampshire and Massachusetts
Bar Associations. He is also admitted to practice before the United States District Court, District of New Hampshire, and the United
States Court of Appeals for the First Circuit. Mr. Bosen’s experience as an attorney assists the board of directors in analyzing
and addressing the legal requirements of Provident Bancorp, Inc. and The Provident Bank, including any litigation matters.
Frank G. Cousins, Jr.
has served
as the Sheriff of Essex County, Massachusetts for 18 years. Mr. Cousins’ years of service as a law enforcement officer in
our community provides valuable insight into the economic and business needs of our community, as well as insight into where we
can best serve our community in other ways, including charitable donations.
Charles R. Cullen
is the Chairman
of the Board of Provident Bancorp, Inc. and The Provident Bank, and previously served as President and Chief Executive Officer
of The Provident Bank from May 2003 until May 2013, with over 40 years experience in the banking industry. Mr. Cullen’s experience
in banking, and specifically at The Provident Bank, provides him with extensive knowledge of our operations, as well as banking
regulation and internal controls.
Robert A. Gonthier, Jr.
retired in 1999 as the Vice
President of Procurement of Gould Shawmut, a national distributor of fuses. Mr. Gonthier was employed by the company for 32 years.
Mr. Gonthier’s years of experience in business assists us in developing strategic planning.
Laurie H. Knapp
is a certified
public accountant and sole owner of Laurie H. Knapp CPA PC, an accounting firm located in Amesbury, Massachusetts. Ms. Knapp specializes
in personal and corporate taxes. Her experience as a certified public accountant provides the board of directors with experience
when assessing our accounting practices and with respect to tax matters.
David P. Mansfield
has served
as the President and Chief Executive Officer of Provident Bancorp, Inc. and Chief Executive Officer of The Provident Bank since
May 2013, having joined The Provident Bank as Chief Financial Officer in 2001. Mr. Mansfield previously worked as a bank examiner
for both the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporate, and is a Certified Financial
Analyst. Mr. Mansfield’s positions as President and Chief Executive Officer foster clear accountability, effective decision-making,
a clear and direct channel of communication from senior management to the full board of directors, and alignment on corporate strategy.
Richard L. Peeke
is a former insurance
executive who retired in 2007 after 41 years of experience in the insurance industry. Mr. Peeke’s experience as a National
General Adjuster at AIG gives him unique insights into our challenges, opportunities and operations in the insurance products field
and with respect to our insurance needs.
Wayne S. Tatro
retired in 2001
following a 37-year career at LeBaron Bonney, a family owned business that began in the 1930’s. Mr. Tatro was part owner
and president of the company. The company manufactured upholstery for antique cars, and distributed their products both nationally
and internationally. The company was sold in 1998 and Mr. Tatro continued to work there until his retirement in 2001. Mr. Tatro’s
experience owning a business provides us insight with respect to our commercial business customers, and his long career in one
of our local markets provides us valuable insight regarding our market area.
Executive Officers Who Are Not Directors
of Provident Bancorp, Inc.
The following
sets forth information regarding our executive officers who are not directors of Provident Bancorp, Inc. Age information is as
of December 31, 2014. The executive officers of Provident Bancorp, Inc. and The Provident Bank are elected annually.
Charles F. Withee
, age 52, is
The Provident Bank’s President and Chief Lending Officer, positions he has held since May 2013. Mr. Withee is also a director
of The Provident Bank. Mr. Withee joined The Provident Bank as Senior Lender in 2004, and had nearly 30 years of commercial banking
experience in Massachusetts and New Hampshire.
Carol L. Houle,
age 44, is Executive
Vice President and Chief Financial Officer of Provident Bancorp, Inc. and The Provident Bank. Ms. Houle is a Certified Public Accountant,
and joined The Provident Bank in September 2013. Previously, Ms. Houle was a partner at the accounting firm of Shatswell, MacLeod
& Company, P.C., where she worked for 17 years.
Board Independence
The board of directors has determined that each
of our directors, with the exception of directors Mansfield and Cullen, is “independent” as defined in, and for purposes
of satisfying the listing standards of, the Nasdaq Stock
Market. Director Mansfield is not independent because he is an executive
officer of Provident Bancorp, Inc. We do not consider Director Cullen to be independent due to continued payments he receives as
our former President and Chief Executive Officer under our long-term non-equity incentive plan.
In determining the independence of the directors
listed above, the board of directors considered the following relationship between The Provident Bank and our directors and officers,
which is not required to be reported under “ —Transactions With Certain Related Persons” below. Bosen & Associates,
P.L.L.C.
,
of which Director John K. Bosen is a partner and owner, received legal fees of $19,234 from The Provident Bank
in 2014. The Provident Bank has made loans to the following directors or their related entities: John K. Bosen, line of credit
and term loan; Laurie H. Knapp, commercial real estate loan and residential mortgage loan; Richard L. Peeke, home equity line of
credit; and Wayne S. Tatro, residential mortgage loan. The Provident Bank also provides overdraft lines of credit to all of its
directors.
Transactions With Certain Related Persons
The Sarbanes-Oxley Act of 2002 generally prohibits
publicly traded companies from making loans to their executive officers and directors, but it contains a specific exemption from
the prohibition for loans made by federally insured financial institutions, such as The Provident Bank, to their executive officers
and directors in compliance with federal banking regulations. At December 31, 2014, all of our loans to directors and executive
officers were made in the ordinary course of business, were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable loans with persons not related to The Provident Bank, and did not involve
more than the normal risk of collectability or present other unfavorable features. These loans were performing according to their
original terms at December 31, 2014, and were made in compliance with federal banking regulations.
Committees of the Board of Directors
We conduct business through meetings of our
board of directors and its committees. The board of directors of Provident Bancorp, Inc. has established standing committees, including
a Compensation Committee, an Executive Committee (which serves as a Nominating Committee) and an Audit Committee. Each of these
committees operates under a written charter, which governs its composition, responsibilities and operations.
The table below sets forth the directors of
each of the listed standing committees. The board of directors of Provident Bancorp, Inc. has designated director
_______________
as an “audit committee financial expert,” as that term is defined by the rules and regulations of the Securities and
Exchange Commission.
|
Compensation
|
|
Audit
|
|
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_____________________
* Denotes committee chair.
Executive Compensation
Summary Compensation Table
. The
table below summarizes the total compensation paid to, or earned by, Mr. Mansfield, who serves as our Chief Executive Officer,
Mr. Withee, who serves as our President and Chief Lending Officer, and Ms. Houle, who serves as our Executive Vice President and
Chief Financial Officer for the year ended December 31, 2014. We refer to these individuals as “Named Executive Officers.”
|
Summary Compensation Table for the Year Ended December 31, 2014
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)(1)
|
|
|
All Other
Compensation
($)(2)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David P. Mansfield
Chief Executive Officer
|
|
|
2014
|
|
|
|
310,577
|
|
|
|
120,000
|
|
|
|
82,922
|
|
|
|
9,583
|
|
|
|
523,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles F. Withee
President and Chief Lending Officer
|
|
|
2014
|
|
|
|
259,231
|
|
|
|
87,500
|
|
|
|
63,921
|
|
|
|
10,328
|
|
|
|
420,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carol L. Houle
Executive Vice President and- Chief Financial Officer
|
|
|
2014
|
|
|
|
186,346
|
|
|
|
54,000
|
|
|
|
―
|
|
|
|
1,662
|
|
|
|
242,008
|
|
__________________
|
|
(1)
|
Represents cash incentives earned under The Provident Bank 2005 Amended and Restated Long-Term
Incentive Plan. Please see “—Non-Equity Incentive Program” for further details.
|
|
|
(2)
|
The amounts reflect what we have paid to, or reimbursed, the applicable Named Executive Officer for various benefits we provide.
A break-down of the various elements of compensation in this column is set forth in the table immediately below. For the year ended
December 31, 2014, neither Messrs. Mansfield nor Withee nor Ms. Houle received perquisites or personal benefits that, in the aggregate,
were greater than or equal to $10,000.
|
|
All Other Compensation
|
|
Name
|
|
Year
|
|
|
Employer Matching
Contribution to
401(k) Plan(1)
($)
|
|
|
Long-Term
Disability
Premiums
($)
|
|
|
Club Dues
($)
|
|
|
Total
($)
|
|
|
David P. Mansfield
|
|
|
2014
|
|
|
|
5,500
|
|
|
|
4,083
|
|
|
|
―
|
|
|
|
9,583
|
|
|
Charles F. Withee
|
|
|
2014
|
|
|
|
5,500
|
|
|
|
―
|
|
|
|
4,828
|
|
|
|
10,328
|
|
|
Carol L. Houle
|
|
|
2014
|
|
|
|
1,662
|
|
|
|
―
|
|
|
|
―
|
|
|
|
1,662
|
|
__________________
|
|
(a)
|
Represents the matching contributions made by The Provident Bank to the Named Executive Officer’s 401(k) plan account
for the plan year.
|
Employment Agreements
The Provident Bank has entered into employment
agreements with Messrs. Mansfield and Withee and Ms. Houle. The employment agreements with Messrs. Mansfield and Withee have terms
of three years. The employment agreement with Ms. Houle has a term of two years. Beginning as of January 1, 2016, and continuing
as of each January 1 thereafter, the disinterested members of the board of directors must conduct a comprehensive performance evaluation
and affirmatively approve any extension of the agreements for an additional year or determine not to extend the term of any of
the agreements.
The employment agreements provide Messrs. Mansfield
and Withee and Ms. Houle with base salaries of $400,000, $300,000 and $210,000, respectively. The Provident Bank may increase the
base salaries from time to time. In addition to base salaries, the executives are entitled to participate in any employee benefit
plans and bonus programs in effect from time to time for senior executives of The Provident Bank. The Provident Bank will also
reimburse the executives for all reasonable business expenses incurred by them in the performance of their duties and responsibilities.
In the event of
an executive’s involuntary termination of employment for reasons other than cause, disability or death, or in the event of
his or her resignation for “good reason,” in either case prior to the attainment of age 65, he or she will receive
a severance payment equal to three times (in the case of Messrs. Mansfield and Withee) or two times (in the case of Ms. Houle)
the sum of (i) his or her base salary then in effect and (ii) his or her “Annual Bonus.” For purposes of the employment
agreements, the term “Annual Bonus” means the average of the aggregate bonuses paid (or accrued, but not yet paid)
to the executive for the three calendar years immediately
preceding the termination of employment. The Provident Bank will
make the payments in 12 monthly installments,
unless the termination of employment occurs within two years of
a change in control, in which case The Provident Bank will make the payment in a lump sum at the time of the termination of employment.
In addition, the executives will be entitled to receive from The Provident Bank continued life insurance and non-taxable medical
and dental insurance coverage through the then remaining unexpired term of the agreement and all outstanding awards under The Provident
Bank Amended and Restated Long-Term Incentive Plan will become immediately and fully vested. Under the employment agreements, the
term “good reason” includes: (i) the failure of the board of directors to elect or continue to employ the executive
in his or her current position or a material reduction in the executive’s authority, duties or responsibilities, (ii) a reduction
in the executive’s base salary, or (iii) a material breach of any provision of the agreement that is not cured within 30
days of notice of the breach from the executive. In addition, the term “good reason” includes, if the event occurs
within two years following a change in control, (i) a relocation of his or her principal place of employment by more than ten miles,
(ii) the failure of The Provident Bank to continue to provide the executive with certain employee benefits substantially similar
to those available to the executive prior to the change in control or (iii) the failure of The Provident Bank to obtain a satisfactory
agreement from any successor to assume and honor the employment agreement.
In addition, should The Provident Bank terminate
an executive’s employment following the executive becoming disabled, The Provident Bank will continue to pay the executive
his or her base salary from the date of the termination of employment until the earlier of (i) the expiration of 180 days, (ii)
the date on which long-term disability benefits are payable to the executive under any plan covering employees of The Provident
Bank, (iii) the executive’s death or (iv) the date the term of the employment agreement expires. If at the end of 180 days,
the executive is not yet receiving disability payments under a plan covering employees of The Provident Bank, The Provident Bank
will continue to pay the executive his or her base salary at a rate of 60% until the earlier of (i) the date he or she becomes
entitled to disability benefits under such a plan, (ii) his or her death or (iii) the expiration of the term of the employment
agreement. In the event of the death of any of the executives, The Provident Bank will pay his or her beneficiaries the base salary
the executive would have earned for six months following his or her death, and his or her family will continue to receive medical
coverage for one year at the same out-of pocket expense that the executive paid prior to his or her death.
If the executive voluntarily terminates employment
on account of his or her “retirement” (that is on or after attaining age 62 for Messrs. Mansfield and Withee, or 65
for Ms. Houle), the executive will be entitled to continue to receive medical benefits at the same level in effect on, and on the
same out-of-pocket cost to the executive as of, his or her termination of employment for a period of one year. The executive will
not be entitled to any severance benefits under the employment agreement if The Provident Bank terminates the executive’s
employment for “cause” (as defined under the employment agreement).
Upon any termination of employment that would
entitle an executive to a severance payment (other than a termination in connection with a change in control), the executive will
be required to adhere to one-year non-competition and non-solicitation covenants.
Non-Equity Incentive Program
For 2014, under
The Provident Bank 2005 Amended and Restated Long-Term Incentive Plan, each Named Executive Officer was eligible to receive an
annual incentive award up to a maximum of 30% of his or her base salary, provided certain individual and bank-wide performance
objectives were satisfied (which were objectively determinable). The bank-wide performance objectives for 2014 focused on the following
metrics: (i) net income; (ii) loan growth; and (iii) deposit growth. Each performance objective was assigned a percentage weight
to reflect its importance and the Named Executive Officer’s direct impact in meeting the performance objective. If the performance
objectives are achieved, awards are made based on phantom shares tied to increases in The Provident Bank’s capital from a
baseline in 1999. Grants vest after five years (or, if sooner, upon death, disability or attainment of age 62). Once vested, the
phantom shares are paid in cash within 2.5 months of the following year
end. Due to the maximum satisfaction of each of
the performance objectives, each Named Executive Officer earned an annual incentive award for the year ended December 31, 2014
equal to 30% of base salary. We anticipate that we will exclude the effects of the capital we will raise in the offering in determining
future increases in The Provident Bank’s capital for purposes of the Amended and Restated Long-Term Incentive Plan.
Executive Annual Incentive Plan
The Provident Bank has adopted The Provident
Bank Executive Annual Incentive Plan, which will supersede and replace its current annual bonus arrangement and better align the
interests of the executives of The Provident Bank with the overall performance of The Provident Bank and Provident Bancorp, Inc.
Employees selected by the Compensation Committee,
which will include the Named Executive Officers, are eligible to participate in the plan. For each plan year (which is the calendar
year), each participant will receive an award agreement which will provide the annual bonus award amount, designated as a percentage
of base salary, and the performance objectives that must be satisfied for the participant to receive the annual bonus award. The
specific performance objectives will be determined annually by the Compensation Committee, but generally include objective performance
targets on financial performance, growth, asset quality and risk management and subjective performance objectives, such as particular
qualitative factors for the participant, based on his or her duties to The Provident Bank. Each performance objective will specify
level of achievements at “threshold,” “target” and “maximum” levels and will be weighted by
priority as a percentage of the total annual bonus award payable to the participant.
The annual bonus award will be payable to each
participant in a cash lump sum within 2.5 months following the end of each plan year, to the extent the performance objectives
are determined to be satisfied by the Compensation Committee.
Benefit Plans
401(k) Plan
. The Provident Bank
currently maintains a tax-qualified profit sharing plan with a salary deferral feature under Section 401(k) of the Internal Revenue
Code (the “401(k) Plan”). All employees who have attained age 21 are eligible to participate in the 401(k) Plan, provided,
however that the employee must complete one year of service to be eligible to receive a safe harbor matching contribution or discretionary
profit sharing contribution from The Provident Bank.
A participant may contribute up to 100% of his
or her compensation to the 401(k) Plan on a pre-tax basis, subject to the limitations imposed by the Internal Revenue Code. For
2015, the pre-tax deferral contribution limit is $18,000 provided, however, that a participant over age 50 may contribute, on a
pre-tax basis, an additional $6,000 to the 401(k) Plan (subject to applicable cost-of-living adjustments in future years). In addition
to salary deferral contributions, the 401(k) Plan provides that The Provident Bank will make a safe harbor matching contribution
to each participant’s account equal to 100% of the participant’s contribution, up to a maximum of 6% of the participant’s
compensation earned during the plan year. A participant is always 100% vested in his or her salary deferral contributions and safe
harbor matching contributions. However, a participant will vest 100% in his or her discretionary profit sharing contributions following
the completion of three years of service. Participants also become fully vested in the event of their death or disability. The
401(k) Plan permits a participant to direct the investment of his or her own account into various investment options.
Generally, a participant (or participant’s
beneficiary) may receive a distribution from his or her vested account at retirement, age 59½ (while employed with The Provident
Bank), death, disability or termination of employment, and elect for the distribution to be paid in the form of a lump sum or other
alternative forms of payment permitted by the plan.
In connection with the stock offering, we intend to allow participants
to invest their account balances under the 401(k) Plan in Provident Bancorp, Inc. common stock. We may also allow participants
in the 401(k) Plan to invest future elective deferrals and employer matching contributions in Provident Bancorp, Inc. common stock.
Employee Stock Ownership Plan
.
In connection with the stock offering, The Provident Bank intends to implement an employee stock ownership plan for eligible
employees. Eligible employees who have attained age 21 and completed one year of service will begin participation in the employee
stock ownership plan on the later of first day of the next calendar month.
The employee stock ownership plan trustee is
expected to purchase, on behalf of the employee stock ownership plan, 8% of the total number of shares of Provident Bancorp, Inc.
common stock sold in the offering and issued to the charitable foundation. We anticipate that the employee stock ownership plan
will fund its stock purchase with a loan from Provident Bancorp, Inc. equal to the aggregate purchase price of the common stock.
The loan will be repaid principally through The Provident Bank’s contribution to the employee stock ownership plan and dividends
payable on common stock held by the employee stock ownership plan over the anticipated 15-year term of the loan. The interest rate
for the employee stock ownership plan loan is expected to be an adjustable-rate equal to the prime rate, as published in
The
Wall Street Journal
,
on the closing date of the offering. Thereafter the interest rate will adjust annually and will
be the prime rate on the first business day of the calendar year, retroactive to January 1 of such year.
The trustee will hold the shares purchased by
the employee stock ownership plan in an unallocated suspense account. Shares will be released from the suspense account on a pro-rata
basis as the loan is repaid by the employee stock ownership plan. The trustee will allocate the shares released among the participants’
accounts on the basis of each participant’s proportional share of compensation relative to all participants. Participants
will become 100% vested in their benefit after the completion of three years of service. Participants who were employed immediately
prior to the stock offering will receive credit for vesting purposes for years of service prior to adoption of the employee stock
ownership plan. Participants also will become fully vested upon normal retirement, death or disability, a change in control, or
termination of the employee stock ownership plan. Generally, participants will receive distributions from the employee stock ownership
plan upon severance from employment. The employee stock ownership plan reallocates any unvested shares forfeited upon termination
of employment among the remaining participants.
The employee stock ownership plan permits participants
to direct the trustee as to how to vote the shares of common stock allocated to their accounts. The trustee votes unallocated shares
and allocated shares for which participants do not provide instructions on any matter in the same ratio as those shares for which
participants provide instructions, subject to fulfillment of the trustee’s fiduciary responsibilities.
Supplemental
Executive Retirement Plans
. The Provident Bank has entered into supplemental executive retirement agreements (“SERPs”)
with Messrs. Mansfield and Withee and Ms. Houle. Under the SERPs, each executive becomes entitled to receive a benefit following
his or her separation from service other than on account of cause (as defined in the agreements). Upon a separation from service,
The Provident Bank will pay a lump sum benefit to the executive equal to the actuarial equivalent of a 20-year stream of annual
payments of a certain benefit percentage multiplied by the executive’s final average compensation. Under the agreements,
the benefit percentage equals a certain percentage (62% for Mr. Mansfield, 60% for Mr. Withee and 20% for Ms. Houle) multiplied
by a factor that represents the service of the executive through his or her attainment of age 62. Messrs. Mansfield and Withee
are fully vested, while Ms. Houle is subject to a five-year cliff vesting schedule. The executives’ SERP benefits will be
immediately forfeited in the event of a termination by The Provident Bank as a result of a “specially defined cause”
(as such term is defined in the SERPs). The benefit percentage factor will automatically equal 62%, 60% or 20% in the event of
the executive’s death or disability or upon a change in control, and Ms. Houle would also become fully vested under such
circumstances. In the case of Messrs. Mansfield and Withee, if the executive dies, or terminates employment involuntarily or with
“good reason” within three years or a change in control or if the executive experiences a disability, he will become
entitled to the retirement benefit he would have earned at age 62 by providing for an assumed increase in his annual compensation
for each year from his separation from service,
death or disability until the date he would have attained age 62. If Messrs.
Mansfield or Withee experiences a disability, the benefits will be paid to them at age 62.
Director Compensation
Set forth below is a summary of the compensation
for each of our non-employee directors for the year ended December 31, 2014.
|
Name
|
|
Fees Earned or
Paid in Cash
($)
|
|
|
Non-equity
Incentive Plan
Compensation
(1) ($)
|
|
|
Total
($)
|
|
|
John K. Bosen
|
|
|
29,000
|
|
|
|
8,464
|
|
|
|
37,464
|
|
|
Frank G. Cousins, Jr.
|
|
|
30,000
|
|
|
|
8,464
|
|
|
|
38,464
|
|
|
Charles R. Cullen
|
|
|
36,663
|
|
|
|
98,637
|
|
|
|
135,300
|
|
|
Robert A. Gonthier, Jr.
|
|
|
29,000
|
|
|
|
8,464
|
|
|
|
37,464
|
|
|
Laurie H. Knapp
|
|
|
29,000
|
|
|
|
8,464
|
|
|
|
37,464
|
|
|
Richard L. Peeke
|
|
|
29,000
|
|
|
|
8,464
|
|
|
|
37,464
|
|
|
Wayne S. Tatro
|
|
|
29,000
|
|
|
|
8,464
|
|
|
|
37,464
|
|
|
|
(1)
|
Represents amounts earned for 2014 under The Provident Bank 2005 Amended and Restated Long-Term Incentive Plan, described above.
|
Director Fees
In 2014, each director (other than the Chairman
of the Board) received a fee of $1,500 for each board meeting attended and $1,000 for each committee meeting attended. The Chairman
of the Board receives a $40,000 annual retainer. The Loan Committee met twice monthly and each member of that committee was paid
$2,500 for all meetings held in a month. Directors who are also employees are not compensated for serving as directors
.
Benefits to be Considered Following Completion of the Stock
Offering
Following the stock offering, we intend to adopt
one or more new stock-based benefit plans that will provide for grants of stock options and restricted common stock awards. If
adopted within 12 months following the completion of the stock offering, the aggregate number of shares reserved for the exercise
of stock options or available for stock awards under the stock-based benefit plans would be limited to 10% and 4%, respectively,
of the shares sold in the stock offering and issued to the charitable foundation.
The stock-based benefit plans will not be established
sooner than six months after the stock offering, and if adopted within one year after the stock offering, the plans must be approved
by at least two-thirds of the votes eligible to be cast by our shareholders, unless otherwise determined by the Massachusetts Commissioner
of Banks, in which case such plans must be approved by a majority of the votes eligible to be cast by our shareholders. If stock-based
benefit plans are established more than one year after the stock offering, they must be approved by a majority of votes cast by
our shareholders. The following additional restrictions would apply to our stock-based benefit plans only if such plans are adopted
within one year after the stock offering:
|
|
·
|
non-employee directors in the aggregate may not receive more than 30% of the options and restricted stock awards authorized
under the plans;
|
|
|
·
|
any one non-employee director may not receive more than 5% of the options and restricted stock awards authorized under the
plans;
|
|
|
·
|
any officer or employee may not receive more than 25% of the options and restricted stock awards authorized under the plans;
|
|
|
·
|
any tax-qualified employee stock benefit plans and restricted stock plan, in the aggregate, may not acquire more than 10% of
the shares sold in the offering, unless The Provident Bank has tangible
|
|
|
|
capital of 10% or more, in which case tax-qualified employee stock benefit plans and restricted stock plans may acquire up
to 12% of the shares sold in the offering;
|
|
|
|
|
|
|
·
|
the options and restricted stock awards may not vest more rapidly than 20% per year, beginning on the first anniversary of
shareholder approval of the plans;
|
|
|
·
|
accelerated vesting is not permitted except for death, disability or upon a change in control of The Provident Bank or Provident
Bancorp, Inc.; and
|
|
|
·
|
our executive officers or directors must exercise or forfeit their options in the event that The Provident Bank becomes critically
undercapitalized, is subject to enforcement action or receives a capital directive.
|
We have not determined whether we will present
stock-based benefit plans for shareholder approval prior to or more than 12 months after the completion of the stock offering.
In the event either federal or state regulators change their regulations or policies regarding stock-based benefit plans, including
any regulations or policies restricting the size of awards and vesting of benefits as described above, the restrictions described
above may not be applicable.
We may obtain the shares needed for our stock-based
benefit plans by issuing additional shares of common stock from authorized but unissued shares or through stock repurchases.
The actual value of the shares awarded under
stock-based benefit plans would be based in part on the price of Provident Bancorp, Inc.’s common stock at the time the shares
are awarded. The stock-based benefit plans are subject to shareholder approval, and cannot be implemented until at least six months
after the offering. The following table presents the total value of all shares of restricted stock that would be available for
issuance under the stock-based benefit plans, assuming the shares are awarded when the market price of our common stock ranges
from $8.00 per share to $14.00 per share.
|
Share Price
|
|
|
130,397 Shares
Awarded at Minimum
of Offering Range
|
|
|
153,408 Shares
Awarded at Midpoint
of Offering Range
|
|
|
176,419 Shares
Awarded at Maximum
of Offering Range
|
|
|
202,882 Shares
Awarded at
Adjusted Maximum
of Offering Range
|
|
|
(In thousands, except share price
information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8.00
|
|
|
$
|
1,043
|
|
|
$
|
1,227
|
|
|
$
|
1,411
|
|
|
$
|
1,623
|
|
|
|
10.00
|
|
|
|
1,304
|
|
|
|
1,534
|
|
|
|
1,764
|
|
|
|
2,029
|
|
|
|
12.00
|
|
|
|
1,565
|
|
|
|
1,841
|
|
|
|
2,117
|
|
|
|
2,435
|
|
|
|
14.00
|
|
|
|
1,826
|
|
|
|
2,148
|
|
|
|
2,470
|
|
|
|
2,840
|
|
The grant-date fair value of the options granted
under the stock-based benefit plans will be based in part on the price of shares of common stock of Provident Bancorp, Inc. at
the time the options are granted. The value also will depend on the various assumptions utilized in the option pricing model ultimately
adopted. The following table presents the total estimated value of the options to be available for grant under the stock-based
benefit plans, assuming the market price and exercise price for the stock options are equal and the range of market prices for
the shares is $8.00 per share to $14.00 per share. The Black-Scholes option pricing model provides an estimate only of the fair
value of the options, and the actual value of the options may differ significantly from the value set forth in this table.
|
Exercise Price
|
|
|
Grant-Date Fair
Value Per Option
|
|
|
325,992 Options at
Minimum of
Offering Range
|
|
|
383,520 Options at
Midpoint of
Offering Range
|
|
|
441,048 Options at
Maximum of
Offering Range
|
|
|
507,205 Options at
Adjusted
Maximum of
Offering Range
|
|
|
(In thousands, except exercise
price and fair value information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8.00
|
|
|
$
|
2.26
|
|
|
$
|
737
|
|
|
$
|
867
|
|
|
$
|
997
|
|
|
$
|
1,146
|
|
|
|
10.00
|
|
|
|
2.83
|
|
|
|
923
|
|
|
|
1,085
|
|
|
|
1,248
|
|
|
|
1,435
|
|
|
|
12.00
|
|
|
|
3.40
|
|
|
|
1,108
|
|
|
|
1,303
|
|
|
|
1,500
|
|
|
|
1,724
|
|
|
|
14.00
|
|
|
|
3.96
|
|
|
|
1,291
|
|
|
|
1,519
|
|
|
|
1,747
|
|
|
|
2,009
|
|
The tables presented above are provided
for informational purposes only. There can be no assurance that our stock price will not trade below $10.00 per share. Before you
make an investment decision, we urge you to read this prospectus carefully, including, but not limited to, the section entitled
“Risk Factors” beginning on page 16.
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE
OFFICERS
The table below sets forth, for each of Provident
Bancorp, Inc.’s directors and executive officers, including their associates, and for all of these individuals as a group,
the proposed purchases of subscription shares. There can be no assurance that any individual director or executive officer, or
the directors and executive officers as a group, will purchase any specific number of shares of our common stock. In the event
the individual maximum purchase limitation is increased, persons subscribing for the maximum amount may increase their purchase
order. See “The Stock Offering—Additional Limitations on Common Stock Purchases.” Directors and officers will
purchase shares of common stock at the same $10.00 purchase price per share and on the same terms as other purchasers in the offering.
This table excludes shares of common stock to be purchased by the employee stock ownership plan, as well as any stock awards or
stock option grants that may be made no earlier than six months after the completion of the offering. Federal and state regulations
prohibit our directors and officers from selling the shares they purchase in the offering for one year after the date of purchase.
Subscriptions by management through our 401(k) plan are included in the proposed purchases set forth below and will be counted
as part of the maximum number of shares such individuals may subscribe for in the stock offering and as part of the maximum number
of shares directors and officers may purchase in the stock offering.
|
Name of Beneficial Owner
|
|
Number of
Shares
|
|
|
Aggregate
Purchase
Price
|
|
|
Percentage
of Shares
Outstanding
at Minimum
of Offering
Range (1)
|
|
|
John K. Bosen
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
Frank G. Cousins, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles R. Cullen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Gonthier, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurie H. Knapp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard L. Peeke
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David P. Mansfield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne S. Tatro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles F. Withee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carol L. Houle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for Directors and Executive Officers
|
|
|
[insider
purchase shares]
|
|
|
$
|
|
|
|
|
|
%
|
|
|
(1)
|
At the adjusted maximum of the offering range, directors and executive officers would
beneficially own _______________ shares, or _________% of our outstanding shares of common stock.
|
THE STOCK
OFFERING
The Board of Trustees of Provident Bancorp and
the Board of Directors of Provident Bancorp, Inc. have approved the plan of stock issuance. The plan of stock issuance has also
been approved by the corporators of Provident Bancorp. We have filed an application with respect to the stock offering with the
Federal Reserve Board, and the approval of the Federal Reserve Board is required before we can consummate the stock offering. We
have filed an application with respect to the stock offering with the Massachusetts Commissioner of Banks, and the Massachusetts
Commissioner of Banks has authorized us to commence the offering. However, the final approval of the Massachusetts Commissioner
of Banks is required before we can consummate the stock offering. Any approval by the Massachusetts Commissioner of Banks or the
Federal Reserve Board does not constitute a recommendation or endorsement of the plan of stock issuance.
For a discussion of the offering of the SBLF
preferred stock, see “—SBLF Preferred Stock,” below.”
General
The Board of Trustees of Provident Bancorp and
the Board of Directors of Provident Bancorp, Inc. adopted the plan of stock issuance on March 10, 2015. When the stock offering
is completed, purchasers in the stock offering will own 45.0% of our outstanding shares of common stock, Provident Bancorp will
own 53.0% of our outstanding shares of common stock and The Provident Community Charitable Organization, Inc. will own 2% of our
shares of common stock. A diagram of our corporate structure before and after the stock offering is set forth in the “Summary”
section of this prospectus.
Pursuant to the plan of stock issuance, we will
offer shares of common stock for sale in the subscription offering to our eligible account holders, our tax-qualified employee
benefit plans, including our employee stock ownership plan and 401(k) plans, and our employees, officers, trustees, directors and
corporators. In addition, we will offer common stock for sale in a community offering to members of the general public, with a
preference given to natural persons residing in the Massachusetts cities and towns of Amesbury, Merrimac, Newbury, Newburyport,
Salisbury and West Newbury, and the New Hampshire cities and towns of Brentwood, Exeter, Greenland, Hampton, Hampton Falls, Kensington,
New Castle, Newfields, Newington, Newmarket, North Hampton, Portsmouth, Rye, Seabrook, South Hampton and Stratham.
We have the right to accept or reject, in whole
or in part, any orders to purchase shares of the common stock received in the community offering. The community offering will begin
at the same time as the subscription offering and must be completed within 45 days after the completion of the subscription offering
unless otherwise extended by the Massachusetts Commissioner of Banks. See “—Community Offering.”
We also may offer for sale shares of common
stock not purchased in the subscription or community offerings through a syndicated offering in which Sandler O’Neill &
Partners, L.P. will be sole book-running manager. See “—Syndicated or Firm Commitment Underwritten Offering”
herein.
We intend to retain between $3.3 million and
$7.8 million of the net proceeds of the offering and to invest between $14.7 million and $20.2 million of the net proceeds in The
Provident Bank. The stock offering will be consummated only upon the issuance of at least the minimum number of shares of our common
stock offered pursuant to the plan of stock issuance.
We determined the number of shares of common
stock to be offered in the offering based upon an independent valuation appraisal of the estimated pro forma market value of Provident
Bancorp, Inc. All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged
a commission to purchase shares of common stock. The independent valuation will be updated and the final number of the shares of
common stock to be issued in the offering will be determined at the completion of the offering. See “—Stock Pricing
and Number of Shares to be Issued” for more information as to the determination of the estimated pro forma market value of
the common stock.
The following is a brief summary of the stock
offering and is qualified in its entirety by reference to the provisions of the plan of stock issuance. A copy of the plan of stock
issuance is available for inspection at each branch office of The Provident Bank. The plan of stock issuance is also filed as an
exhibit to Provident Bancorp’s applications for a minority stock issuance by a subsidiary of a mutual holding company of
which this prospectus is a part, copies of which may be obtained from the Federal Reserve Board or inspected, without charge, at
the Massachusetts Division of Banks. The plan of stock issuance is also filed as an exhibit to the registration statement we have
filed with the Securities and Exchange Commission, of which this prospectus is a part. Copies of the registration statement may
be obtained from the Securities and Exchange Commission or online at the Securities and Exchange Commission’s website,
www.sec.gov
.
See “Where You Can Find Additional Information.”
Reasons for the Stock Offering
Our primary reasons for conducting the stock
offering are to:
|
|
·
|
Enhance our capital base to support our continued growth.
Since December 31, 2010, we have grown our assets by
32.3% to $658.6 million as of December 31, 2014. We have not only grown our assets but also our infrastructure. We have added two
loan production offices during that period. We have also leased property in Bedford, New Hampshire for the establishment of a new
branch office that we expect to open in the fourth quarter of 2015. We intend to continue to grow our franchise organically and
through strategic transactions as those opportunities arise. While The Provident Bank exceeds all regulatory capital requirements,
the proceeds from the offering will strengthen our regulatory capital position and enable us to support our planned growth and
expansion.
|
|
|
·
|
Redeem some or all of our stock issued under the Small Business Lending Fund.
We issued $17.1 million of SBLF
preferred stock to the U.S. Treasury in 2011. The dividend rate we pay on the SBLF preferred stock was 1.00% as of December 31,
2014, but will increase to 9.00% in March 2016. The proceeds from the stock offering will enable us to redeem some or all of the
SBLF preferred stock before the dividend rate increases, and we intend to redeem at least 50% of the SBLF preferred stock prior
to the scheduled increase in the dividend rate.
|
|
|
·
|
Offer our depositors, employees, officers, directors and corporators an equity ownership interest in The Provident Bank.
We believe that offering stock to our depositors, employees, officers, directors and corporators will provide these constituencies
with an economic interest in our future success. The stock offering will further enable us to attract and retain management and
employees through various stock benefit plans, including an employee stock ownership plan and one or more equity incentive plans.
|
|
|
·
|
Support our local communities through a contribution to the charitable foundation.
The contribution to the charitable
foundation will complement our existing charitable activities, which should enable the communities that we serve to share in our
long-term growth.
|
|
|
·
|
Facilitate future mergers and acquisitions
. Although we do not currently have any understandings or agreements
regarding any specific acquisition transaction, the additional capital raised in the offering will make us a more attractive and
competitive bidder for mergers and acquisitions of other financial institutions or business lines as opportunities arise.
|
Approvals Required
The affirmative vote of a majority of the total
votes eligible to be cast by the corporators of Provident Bancorp, including the “independent” corporators, is required
to approve the plan of stock issuance. These approvals were received at a special meeting of corporators held on ___________, 2015.
We have filed an application with respect to the stock offering with the Federal Reserve Board, and the approval of the Federal
Reserve Board is required before we can consummate the stock offering. We have filed an application with respect
to the stock offering with the Massachusetts Commissioner of Banks,
and the Massachusetts Commissioner of Banks has authorized us to commence the stock offering. However, the final approval of the
Massachusetts Commissioner of Banks is required before we can consummate the stock offering.
Stock Pricing and Number of Shares to be Issued
The plan of stock issuance and applicable regulations
require that the aggregate purchase price of the common stock sold in the offering must be based on the appraised pro forma market
value of the common stock, as determined by an independent valuation. We have retained RP Financial, LC. to prepare an independent
valuation appraisal. For its services in preparing the initial valuation, RP Financial, LC. will receive a fee of $75,000, as well
as payment for reimbursable expenses and an additional $10,000 for each updated valuation prepared. We have paid RP Financial,
LC. no other fees during the previous three years. We have agreed to indemnify RP Financial, LC. and its employees and affiliates
against specified losses, including any losses in connection with claims under the federal securities laws, arising out of its
services as independent appraiser, except where such liability results from RP Financial, LC.’s bad faith or negligence.
The independent valuation was prepared by RP
Financial, LC. in reliance upon the information contained in this prospectus, including the consolidated financial statements of
Provident Bancorp, Inc. RP Financial, LC. also considered the following factors, among others:
|
|
·
|
the present results and financial condition of Provident Bancorp, Inc. and the projected results and financial condition of
Provident Bancorp, Inc.;
|
|
|
·
|
the economic and demographic conditions in Provident Bancorp, Inc.’s existing market area;
|
|
|
·
|
certain historical, financial and other information relating to Provident Bancorp, Inc.;
|
|
|
·
|
a comparative evaluation of the operating and financial characteristics of Provident Bancorp, Inc. with those of other publicly
traded savings institutions;
|
|
|
·
|
the effect of the stock offering on Provident Bancorp, Inc.’s shareholders’ equity and earnings potential;
|
|
|
·
|
the proposed dividend policy of Provident Bancorp, Inc.; and
|
|
|
·
|
the trading market for securities of comparable institutions and general conditions in the market for such securities.
|
The independent valuation is also based on an
analysis of a peer group of publicly traded bank holding companies and savings and loan holding companies that RP Financial, LC.
considered comparable to Provident Bancorp, Inc. under regulatory guidelines applicable to the independent valuation. Under these
guidelines, a minimum of ten peer group companies are selected from the universe of all publicly-traded financial institutions
with relatively comparable resources, strategies and financial and other operating characteristics. Such companies must also be
traded on an exchange (such as Nasdaq or the New York Stock Exchange). The peer group companies selected for Provident Bancorp,
Inc. also consisted of fully-converted stock institutions that were not subject to an actual or rumored acquisition and that had
been in fully-converted form for at least one year. In addition, RP Financial, LC. limited the peer group companies to the following
two selection criteria: (i) institutions located in the Northeast United States with assets between $500 million and $1.5 billion,
tangible equity-to-assets ratios of greater than 8.0% and positive core earnings; and (ii) Mid-Atlantic institutions with assets
between $500 million and $1.5 billion, tangible equity-to-assets ratios of greater than 8.0% and positive core earnings.
The independent valuation appraisal considered
the pro forma effect of the offering. Consistent with federal appraisal guidelines, the appraisal applied three primary methodologies:
(i) the pro forma price-to-book
value approach applied
to both reported book value and tangible book value; (ii) the pro forma price-to-earnings
approach applied to reported and
core earnings; and (iii) the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were
based on the current market valuations of the peer group companies. RP Financial, LC. placed the greatest emphasis on the price-to-earnings
and price-to-book approaches in estimating pro forma market value. RP Financial, LC. did not consider a pro forma price-to-assets
approach to be meaningful in preparing the appraisal, as this approach is more meaningful when a company has low equity or earnings.
The price-to-assets approach is less meaningful for a company like us, as we have equity in excess of regulatory capital requirements
and positive reported and core earnings.
In applying each of the valuation methods, RP
Financial, LC. considered adjustments to the pro forma market value based on a comparison of Provident Bancorp, Inc. with the peer
group. RP Financial, LC. made slight upward adjustments for: (i) profitability, growth and viability of earnings; (ii) asset growth;
and (iii) primary market area. RP Financial, LC. made slight downward adjustments for: (i) dividends; and (ii) marketing of the
issue. RP Financial, LC. made no adjustments for: (i) financial condition; (ii) liquidity of the shares; (iii) management; and
(iv) effect of government regulations and regulatory reform.
The slight upward adjustment for profitability,
growth and viability of earnings reflected our reported earnings being higher than the peer group’s on a return on average
assets basis, and we maintained more favorable ratios for net interest income, net gains and effective tax rate. The slight upward
adjustment for asset growth reflected more favorable asset and loan growth when compared to the peer group, as well as a pro forma
tangible equity-to-assets ratio that would be comparable to or exceed the peer group’s tangible equity-to-assets ratio, providing
us with similar or greater leverage capacity than the peer group. The slight upward adjustment for primary market area reflected
Essex County’s relatively strong population growth and a lower unemployment rate. The slight downward adjustment for dividends
reflects the assumption that any dividends we pay would also have to be paid to Provident Bancorp, which would increase the implied
dilution to minority shareholders in a second-step offering. The slight downward adjustment for marketing of the shares reflects
limited acquisition speculation due to Provident Bancorp owning a majority of our outstanding shares, uncertainty of investor appeal
for a mutual holding company stock offering, as this would be the first such offering conducted in four years, and the stocks of
the publicly-traded mutual holding companies trade at a discount on a fully-converted price-to-book basis, on average, relative
to the stocks of publicly-traded thrift institutions that are 100% owned by public shareholders.
Included in RP Financial, LC.’s independent
valuation were certain assumptions as to the pro forma earnings of Provident Bancorp, Inc. after the stock offering that were used
in determining the appraised value. These assumptions included estimated expenses, an assumed after-tax rate of return of 0.99%
as of December 31, 2014 on the net offering proceeds and purchases in the open market of common stock by the stock-based benefit
plan at the $10.00 per share purchase price. See “Pro Forma Data” for additional information concerning assumptions
included in the independent valuation and used in preparing pro forma data. The use of different assumptions may yield different
results.
The independent valuation states that as of
February 13, 2015, the estimated pro forma market value of Provident Bancorp, Inc. was $81.6 million. Based on applicable regulations,
this market value forms the midpoint of a range with a minimum of $69.4 million and a maximum of $93.8 million. The aggregate offering
price of the shares will be equal to the valuation range multiplied by the percentage of Provident Bancorp, Inc. common stock to
be sold in the offering. The number of shares offered will be equal to the aggregate offering price of the shares divided by the
price per share. Based on the valuation range, the percentage of Provident Bancorp, Inc. common stock to be sold in the offering
and the $10.00 price per share, the minimum of the offering range is 3,121,200 shares, the midpoint of the offering range is 3,672,000
shares and the maximum of the offering range is 4,222,800 shares.
Following commencement of the subscription offering,
the maximum of the valuation range may be increased by up to 15%, or up to $107.9 million, without resoliciting subscribers, which
will result in a corresponding increase of up to 15% in the maximum of the offering range to up to 4,856,220 shares, to reflect
changes in the market and financial conditions or demand for the shares. We will not decrease the minimum of the valuation range
and the minimum of the offering range without a resolicitation of subscribers. The subscription
price of $10.00 per share will remain fixed. See “—Additional
Limitations on Common Stock Purchases” as to the method of distribution of additional shares to be issued in the event of
an increase in the offering range of up to 4,856,220 shares.
The Board of Directors of Provident Bancorp,
Inc. reviewed the independent valuation and, in particular, considered the following:
|
|
·
|
Provident Bancorp, Inc.’s financial condition and results of operations;
|
|
|
·
|
a comparison of financial performance ratios of Provident Bancorp, Inc. to those of other financial institutions of similar
size; and
|
|
|
·
|
market conditions generally and in particular for financial institutions.
|
All of these factors are set forth in the independent
valuation. The Board of Directors also reviewed the methodology and the assumptions used by RP Financial, LC. in preparing the
independent valuation and believes that such assumptions were reasonable. The offering range may be amended with the approval of
the Federal Reserve Board and the Massachusetts Commissioner of Banks, if required, as a result of subsequent developments in the
financial condition of Provident Bancorp, Inc. or The Provident Bank or market conditions generally. In the event the independent
valuation is updated to amend the pro forma market value of Provident Bancorp, Inc. to less than $69.4 million or more than $107.9
million, the appraisal will be filed with the Securities and Exchange Commission by a post-effective amendment to Provident Bancorp,
Inc.’s registration statement.
The following table presents a summary of selected
pricing ratios for Provident Bancorp, Inc. (on a pro forma basis) as of and for the twelve months ended December 31, 2014, and
for the peer group companies based on earnings and other information as of and for the twelve months ended December 31, 2014, with
stock prices as of February 13, 2015, as reflected in the appraisal report. Compared to the average pricing of the peer group,
our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 33.26% on a price-to-book value basis,
a discount of 37.83% on a price-to-tangible book value basis and a discount of 7.92% on a price-to-earnings basis. Our Board of
Directors, in reviewing and approving the appraisal, considered the range of price-to-earnings multiples and the range of price-to-book
value and price-to-tangible book value ratios at the different amounts of shares to be sold in the offering. The appraisal did
not consider one valuation approach to be more important than the other. The estimated appraised value and the resulting premium/discount
took into consideration the potential financial effect of the stock offering.
|
|
|
Price-to-earnings
multiple (1)
|
|
|
Price-to-book
value ratio
|
|
|
Price-to-tangible
book value ratio
|
|
|
Provident Bancorp, Inc. (on a pro forma basis, assuming completion of the stock offering)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Maximum
|
|
|
27.63
|
x
|
|
|
72.41
|
%
|
|
|
72.41
|
%
|
|
Maximum
|
|
|
23.71
|
x
|
|
|
68.40
|
%
|
|
|
68.40
|
%
|
|
Midpoint
|
|
|
20.39
|
x
|
|
|
67.27
|
%
|
|
|
64.27
|
%
|
|
Minimum
|
|
|
17.14
|
x
|
|
|
59.45
|
%
|
|
|
59.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation of peer group companies, all of which are fully converted (on an historical basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
22.09
|
x
|
|
|
96.30
|
%
|
|
|
103.37
|
%
|
|
Medians
|
|
|
22.56
|
x
|
|
|
94.89
|
%
|
|
|
100.47
|
%
|
|
|
(1)
|
Price-to-earnings multiples calculated by RP Financial, LC. in the independent appraisal are based on an estimate of “core,”
or recurring, earnings. These ratios are different than those presented in “Pro Forma Data.”
|
The independent valuation is not intended,
and must not be construed, as a recommendation of any kind as to the advisability of purchasing our shares of common stock. RP
Financial, LC. did not independently verify our consolidated financial statements and other information that we provided to them,
nor did RP Financial, LC. independently value our assets or liabilities. The independent valuation considers The Provident Bank
as a going concern and should not be considered as an indication of the liquidation value
of The Provident Bank. Moreover, because the valuation is necessarily
based upon estimates and projections
of a number of matters, all of which may change from time to time, no assurance can
be given that persons purchasing our common stock in the offering will thereafter be able to sell their shares at prices at or
above the $10.00 price per share.
If the update to the independent valuation at
the conclusion of the offering results in an increase in the maximum of the valuation range to more than $107.9 million and a corresponding
increase in the offering range to more than 4,856,220 shares, or a decrease in the minimum of the valuation range to less than
$69.4 million and a corresponding decrease in the offering range to fewer than 3,121,200 shares, then we will promptly return with
interest at [interest rate]% per annum all funds previously delivered to us to purchase shares of common stock in the subscription
and community offerings and cancel deposit account withdrawal authorizations and, after consulting with the Massachusetts Commissioner
of Banks and the Federal Reserve Board, we may terminate the plan of stock issuance. Alternatively, we may establish a new offering
range, extend the offering period and commence a resolicitation of purchasers or take other actions as permitted by the Massachusetts
Commissioner of Banks and the Federal Reserve Board in order to complete the offering. In the event that we extend the offering
and conduct a resolicitation due to a change in the independent valuation, we will notify subscribers of the extension of time
and of the rights of subscribers to place a new stock order for a specified period of time. Any single offering extension will
not exceed 90 days; aggregate extensions may not conclude beyond ______________, 2017, which is two years after the special meeting
of directors to approve the plan of stock issuance.
An increase in the number of shares to be issued
in the offering would decrease both a subscriber’s ownership interest and Provident Bancorp, Inc.’s pro forma earnings
and shareholders’ equity on a per share basis while increasing shareholders’ equity on an aggregate basis. A decrease
in the number of shares to be issued in the offering would increase both a subscriber’s ownership interest and Provident
Bancorp, Inc.’s pro forma earnings and shareholders’ equity on a per share basis, while decreasing shareholders’
equity on an aggregate basis.
Copies of the independent valuation appraisal
report of RP Financial, LC. and the detailed memorandum setting forth the method and assumptions used in the appraisal report are
filed as exhibits to the documents specified under “Where You Can Find Additional Information.”
Subscription Offering and Subscription Rights
In accordance with the plan of stock issuance,
rights to subscribe for shares of common stock in the subscription offering have been granted in the following descending order
of priority. The filling of all subscriptions that we receive will depend on the availability of common stock after satisfaction
of all subscriptions of all persons having prior rights in the subscription offering and on the purchase and ownership limitations
set forth in the plan of stock issuance and as described below under “—Additional Limitations on Common Stock Purchases.”
Priority 1: Eligible Account Holders
.
Each depositor of The Provident Bank with aggregate deposit account balances of $50.00 or more (a “Qualifying Deposit”)
at the close of business on February 28, 2014 (an “Eligible Account Holder”) will receive, without payment therefor,
nontransferable subscription rights to purchase, subject to the overall purchase limitations, up to the greater of $150,000 (15,000
shares) of our common stock, 0.10% of the total number of shares of common stock issued in the offering, or 15 times the product
of the number of subscription shares offered multiplied by a fraction of which the numerator is the aggregate Qualifying Deposit
account balances of the Eligible Account Holder and the denominator is the aggregate Qualifying Deposit account balances of all
Eligible Account Holders. See “—Additional Limitations on Common Stock Purchases.” If there are not sufficient
shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Eligible Account Holder to purchase
a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for
which he or she subscribed. Thereafter, any remaining unallocated shares will be allocated to each remaining Eligible Account Holder
whose subscription remains unfilled in same the proportion that the amount of his or her Qualifying Deposit bears to the total
amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. If an amount so
allocated exceeds the
amount subscribed for by any one or more Eligible
Account Holders, the excess shall be reallocated among those Eligible Account Holders whose subscriptions are not fully satisfied
until all available shares have been allocated.
To ensure proper allocation of our shares of common stock, each
Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she has an ownership interest
on February 28, 2014. In the event of an oversubscription, failure to list an account could result in fewer shares being allocated
than if all accounts had been disclosed. In the event of an oversubscription, the subscription rights of Eligible Account Holders
who are also directors or executive officers of Provident Bancorp, Inc. or who are associates of such persons will be subordinated
to the subscription rights of other Eligible Account Holders to the extent attributable to their increased deposits in the 12 months
preceding February 28, 2014.
Priority 2: Tax-Qualified Plans
.
Our tax-qualified employee plans, including The Provident Bank’s employee stock ownership plan and 401(k) plan, will receive,
without payment therefor, nontransferable subscription rights to purchase in the aggregate up to 10% of the shares of common stock
sold in the offering and issued to the charitable foundation, although our employee stock ownership plan intends to purchase 8%
of the shares of common stock sold in the offering and issued to the foundation. If market conditions warrant, in the judgment
of its trustees, the employee stock ownership plan may instead elect to purchase shares in the open market following the completion
of the stock offering, subject to the approval of the Federal Reserve Board and the Massachusetts Commissioner of Banks. The amount
of the subscription requests by the 401(k) plan will be determined by its participants, who will have the right to invest all or
a portion of their 401(k) plan accounts in our common stock, subject to the maximum purchase limitations.
Priority
3: Employees, Officers, Directors, Trustees and Corporators
.
To the extent
that there are sufficient shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders and
tax-qualified plans, each employee, officer, director, trustee and corporator of The Provident Bank or Provident Bancorp at the
time of the offering who is not eligible in the first priority category will receive, without payment therefor, subject to the
overall purchase limitations, non-transferable subscription rights to purchase up to $150,000 (15,000 shares) of common stock;
provided, however, that the aggregate number of shares of common stock that may be purchased by employees, officers, directors,
trustees and corporators in the stock offering shall be limited to 25% of the total number of shares of common stock sold in the
offering (including shares purchased by employees, officers, directors, trustees and corporators under this priority and under
the preceding priority categories, but not including shares purchased by the employee stock ownership plan). In the event that
persons in this category subscribe for more shares of stock than are available for purchase by them, shares will be allocated among
such subscribing persons on an equitable basis, such as by giving weight to the period of service, compensation, position of the
individual subscriber and the amount of the order.
Expiration Date
. The subscription
offering will expire at 5:00 p.m., Eastern Time, on [expiration date], unless extended by us for up to 45 days or such additional
periods with the approval of the Massachusetts Commissioner of Banks and the Federal Reserve Board, if necessary. Subscription
rights will expire whether or not each eligible depositor can be located. We may decide to extend the expiration date of the subscription
offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint, maximum or adjusted
maximum of the offering range. Subscription rights which have not been exercised prior to the expiration date will become void.
We will not execute orders until at least the
minimum number of shares of common stock has been sold in the offering. If at least 3,121,200 shares have not been sold in the
offering by [extension date] and the Massachusetts Commissioner of Banks and the Federal Reserve Board, if necessary, have not
consented to an extension, all funds delivered to us to purchase shares of common stock in the offering will be returned promptly,
with interest at [interest rate]% per annum for funds received in the subscription and community offerings, and all deposit account
withdrawal authorizations will be canceled. If an extension beyond [extension date] is granted by the Massachusetts Commissioner
of Banks and the Federal Reserve Board, if necessary, we will resolicit purchasers in the offering as described under “—Procedure
for Purchasing Shares in Subscription and Community Offerings—Expiration Date.”
Community Offering
To the extent that shares of common stock remain
available for purchase after satisfaction of all subscriptions of Eligible Account Holders, our tax-qualified employee stock benefit
plans and employees, officers, directors, trustees and corporators, we will offer shares pursuant to the plan of stock issuance
to members of the general public in a community offering. Shares will be offered in the community offering with the following preferences:
|
|
(i)
|
Natural persons residing in the Massachusetts cities and towns of Amesbury, Merrimac, Newbury, Newburyport, Salisbury and West
Newbury, and the New Hampshire cities and towns of Brentwood, Exeter, Greenland, Hampton, Hampton Falls, Kensington, New Castle,
Newfields, Newington, Newmarket, North Hampton, Portsmouth, Rye, Seabrook, South Hampton and Stratham; and
|
|
|
(ii)
|
Other members of the general public.
|
Subscribers in the community offering may purchase
up to $150,000 (15,000 shares) of common stock, subject to the overall purchase limitations. See “—Additional Limitations
on Common Stock Purchases.”
The opportunity to purchase shares of common stock in the community offering category is subject
to our right, in our sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of
an order or as soon as practicable following the expiration date of the offering.
If we do not have sufficient shares of common
stock available to fill the orders of natural persons residing in the Massachusetts cities and towns of Amesbury, Merrimac, Newbury,
Newburyport, Salisbury and West Newbury, and the New Hampshire cities and towns of Brentwood, Exeter, Greenland, Hampton, Hampton
Falls, Kensington, New Castle, Newfields, Newington, Newmarket, North Hampton, Portsmouth, Rye, Seabrook, South Hampton and Stratham,
we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase
the lesser of 100 shares or the number of shares subscribed for by such person. Thereafter, unallocated shares will be allocated
among natural persons residing in those counties whose orders remain unsatisfied on an equal number of shares basis per order.
In connection with the allocation process, orders received for shares of common stock in the community offering will first be filled
up to a maximum of 2% of the shares sold in the offering, and thereafter any remaining shares will be allocated on an equal number
of shares basis per order until all shares have been allocated.
The term “residing” or “resident”
as used in this prospectus with respect to the community means any Person who occupies a dwelling within the local community, has
a present intent to remain within the local community for a period of time, and manifests the genuineness of that intent by establishing
an ongoing physical presence within the local community together with an indication that such presence within the local community
is something other than merely transitory in nature. We may utilize deposit or loan records or other evidence provided to us to
determine whether a person is a resident. In all cases, however, the determination shall be in our sole discretion.
Expiration Date.
The community
offering may begin concurrently with, during or promptly after the subscription offering, and is currently expected to terminate
at the same time as the subscription offering, and must terminate no more than 45 days following the subscription offering, unless
extended. Provident Bancorp, Inc. may decide to extend the community offering for any reason and is not required to give purchasers
notice of any such extension unless such period extends beyond [extension date], in which event we will resolicit purchasers.
Syndicated Offering
If feasible, our Board of Directors may decide
to offer for sale shares of common stock not subscribed for or purchased in the subscription and community offerings in a syndicated
offering, subject to such terms, conditions and procedures as we may determine, in a manner that will achieve a wide distribution
of our shares of common stock.
If a syndicated offering is held, Sandler O’Neill
& Partners, L.P. will serve as sole book-running manager. In the event that shares of common stock are sold in
a syndicated offering, we will pay fees of 5.5% of the aggregate amount of common stock sold in the syndicated offering to Sandler
O’Neill & Partners, L.P. and any other broker-dealers included in the syndicated offering. The shares of common stock
will be sold at the same price per share ($10.00 per share) that the shares are sold in the subscription offering and the community
offering.
In the event of a syndicated offering, it is
currently expected that investors would follow the same general procedures applicable to purchasing shares in the subscription
and community offerings (the use of order forms and the submission of funds directly to Provident Bancorp, Inc. for the payment
of the purchase price of the shares ordered) except that payment must be in immediately available funds (bank checks, money orders,
deposit account withdrawals from accounts at The Provident Bank or wire transfers). See “—Procedure for Purchasing
Shares in Subscription and Community Offerings.” “Sweep” arrangements and delivery versus payment settlement
will only be used in a syndicated offering to the extent consistent with Rules 10b-9 and 15c2-4 and then-existing guidance and
interpretations thereof of the Securities and Exchange Commission regarding the conduct of “min/max” offerings.
If for any reason we cannot effect a syndicated
offering of shares of common stock not purchased in the subscription and community offerings, or in the event that there are an
insignificant number of shares remaining unsold after such offerings, we will try to make other arrangements for the sale of unsubscribed
shares. The Federal Reserve Board, the Massachusetts Commissioner of Banks and the Financial Industry Regulatory Authority
must approve any such arrangements.
Additional Limitations on Common Stock Purchases
The plan of stock issuance includes the following
additional limitations on the number of shares of common stock that may be purchased in the offering:
|
|
·
|
No individual, or individuals exercising subscription rights through a single qualifying account held jointly, may purchase
more than $150,000 (15,000 shares) in the offering;
|
|
|
·
|
Except for the employee stock ownership plan and the 401(k) plan, as described above, no person or entity, together with associates
or persons acting in concert with such person or entity, may purchase more than $250,000 (25,000 shares) of common stock in all
categories of the offering combined;
|
|
|
·
|
Tax qualified employee benefit plans, including our employee stock ownership plan and 401(k) plan, may purchase in the aggregate
up to 10% of the shares of common stock sold in the stock offering and issued to the charitable foundation, including shares issued
in the event of an increase in the offering range of up to 15%;
|
|
|
·
|
No person may purchase fewer than 25 shares of common stock, to the extent those shares are available for purchase;
|
|
|
·
|
The aggregate number of shares of common stock that may be purchased in all categories of the offering by officers, directors,
trustees and corporators of Provident Bancorp, Provident Bancorp, Inc. and The Provident Bank and their associates may not exceed
25% of the total shares sold in the offering;
|
|
|
·
|
The aggregate amount of outstanding common stock owned or controlled by persons other than Provident Bancorp at the close of
the offering must be less than 50% of Provident Bancorp, Inc.’s total outstanding common stock;
|
|
|
·
|
The aggregate amount of common stock acquired in the offering by any nontax-qualified employee
plan or any insider and his or her associates, exclusive of any stock acquired by such
|
|
|
|
plan or insider and his or her associates in the secondary market, must not exceed 10% of the outstanding
shares of common stock, or 10% of the shareholders’ equity of Provident Bancorp, Inc., held by persons other than Provident
Bancorp at the close of the offering. In calculating the number of shares held by any insider or associate, shares held by any
tax-qualified employee plan or nontax-qualified employee plan that are attributable to such person shall not be counted;
|
|
|
·
|
The aggregate amount of common stock acquired in the offering by any one or more tax-qualified
employee plans, exclusive of any stock acquired by such plans in the secondary market, must not exceed 10% of the outstanding shares
of common stock held by persons other than Provident Bancorp at the closing of the offering and must not exceed 4.9% of the outstanding
shares of common stock at the closing of the offering;
|
|
|
·
|
The aggregate amount of stock, whether common or preferred, acquired in the offering by any one
or more tax-qualified employee plans, exclusive of any stock acquired by such plans in the secondary market, must not exceed 10%
of the shareholders’ equity of Provident Bancorp, Inc. held by persons other than Provident Bancorp at the closing of the
offering and must not exceed 4.9% of the shareholders’ equity of Provident Bancorp, Inc. at the closing of the offering;
|
|
|
·
|
The aggregate amount of common stock acquired in the offering by all nontax-qualified employee
plans, insiders and associates of insiders, exclusive of any stock acquired by such plans, insiders, and associates in the secondary
market, must not exceed 25% of the outstanding shares of common stock held by persons other than Provident Bancorp at the close
of the offering. In calculating the number of shares held by insiders and their associates, shares held by any tax-qualified employee
plan or nontax-qualified employee plan that are attributable to such persons shall not be counted;
|
|
|
·
|
The aggregate amount of stock, whether common or preferred, acquired in the offering by all nontax-qualified
employee plans, insiders and associates of insiders, exclusive of any stock acquired by such plans, insiders and associates in
the secondary market, shall not exceed 25% of the shareholders’ equity of Provident Bancorp, Inc. held by persons other than
Provident Bancorp at the close of the offering. In calculating the number of shares held by insiders and their associates, shares
held by any tax-qualified employee plan or nontax-qualified employee plan that are attributable to such persons shall not be counted;
and
|
|
|
·
|
the aggregate amount of common stock acquired by all stock benefit plans of Provident Bancorp,
Inc. and The Provident Bank, other than employee stock ownership plans, shall not exceed 25% of the outstanding common stock held
by persons other than Provident Bancorp at the closing of the offering.
|
Depending upon market or financial conditions,
our Board of Directors, with regulatory approval and without further approval of corporators of Provident Bancorp, may decrease
or increase the purchase limitations. If a purchase limitation is increased, subscribers in the subscription offering who ordered
the maximum amount will be given the opportunity to increase their orders up to the then applicable limit. The effect of this type
of resolicitation will be an increase in the number of shares of common stock owned by persons who choose to increase their orders.
In the event that the maximum purchase limitation is increased to 5% of the shares sold in the offering, such limitation may be
further increased to 9.99%, provided that orders for shares of common stock exceeding 5% of the shares sold in the offering shall
not exceed in the aggregate 10% of the total shares sold in the offering.
In the event of an increase in the offering range of up to 4,856,220
shares of common stock, shares will be allocated in the following order of priority in accordance with the plan of stock issuance:
|
|
(i)
|
to fill the subscriptions of our tax-qualified employee benefit plans, specifically our employee stock ownership plan and our
401(k) plan, for up to 10% of the total number of shares of common stock sold in the offering and issued to the charitable foundation;
|
|
|
(ii)
|
in the event that there is an oversubscription at the Eligible Account Holder or employee, officer, director, trustee and corporator
levels, to fill unfilled subscriptions of these subscribers according to their respective priorities; and
|
|
|
(iii)
|
to fill unfilled subscriptions in the community offering, with preference given first to natural persons residing in the Massachusetts
cities and towns of Amesbury, Merrimac, Newbury, Newburyport, Salisbury and West Newbury, and the New Hampshire cities and towns
of Brentwood, Exeter, Greenland, Hampton, Hampton Falls, Kensington, New Castle, Newfields, Newington, Newmarket, North Hampton,
Portsmouth, Rye, Seabrook, South Hampton and Stratham, and then to members of the general public.
|
The term “associate” of a person
means:
|
|
(i)
|
any corporation or organization (other than The Provident Bank, Provident Bancorp, Inc., Provident Bancorp, Inc. or Provident
Bancorp or a majority-owned subsidiary of any of those entities) of which the person is a senior officer, partner or, directly
or indirectly, 10% beneficial shareholder;
|
|
|
(ii)
|
any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity; and
|
|
|
(iii)
|
any relative or spouse of such person, or any relative of such spouse, who either
has the same home as the person or who is a director, trustee or officer of The Provident Bank, Provident Bancorp, Inc., Provident
Bancorp, Inc. or Provident Bancorp.
|
The following relatives
of directors, trustees, officers and corporators will be considered “associates” of these individuals regardless of
whether they share a household with the director, trustee or officer: any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. This also includes
adoptive relationships.
The term “acting in concert” means
persons seeking to combine or pool their voting or other interests in the securities of an issuer for a common purpose, pursuant
to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. When persons act together
for such purpose, their group is deemed to have acquired their stock. The determination of whether a group is acting in concert
shall be made solely by us and may be based on any evidence upon which we choose to rely, including, without limitation, joint
account relationships or the fact that such persons have filed joint Schedules 13D with the Securities and Exchange Commission
with respect to other companies; provided, however, that the determination of whether a group is acting in concert remains subject
to review by the Massachusetts Commissioner of Banks. Persons who have the same address, whether or not related, will be deemed
to be acting in concert unless we determine otherwise. Our directors and trustees are not treated as associates of each other solely
because of their membership on the boards of directors or trustees.
Common stock purchased
in the offering will be freely transferable except for shares purchased by directors and certain officers of Provident Bancorp,
Inc. or The Provident Bank and except as described below. Any purchases made by any associate of Provident Bancorp, Inc. or The
Provident Bank for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to
complete the offering shall be made for investment purposes only and not with a view toward redistribution. In addition, under
Financial
Industry Regulatory Authority guidelines, members of the Financial Industry Regulatory Authority and their associates
are subject to certain restrictions on transfer of securities purchased in accordance with subscription rights and to certain reporting
requirements upon purchase of these securities. For a further discussion of limitations on purchases of our shares of common stock
at the time of stock offering and thereafter, see “—Certain Restrictions on Purchase or Transfer of Our Shares after
the Stock Offering” and “Restrictions on Acquisition of Provident Bancorp, Inc.”
Plan of Distribution; Selling Agent and Underwriter Compensation
Subscription and Community Offerings.
To assist in the marketing of our shares of common stock in the subscription and community offerings, we have retained Sandler
O’Neill & Partners, L.P., which is a broker-dealer registered with the Financial Industry Regulatory Authority. Sandler
O’Neill & Partners, L.P. will assist us on a best efforts basis in the subscription and community offerings by:
|
|
·
|
consulting as to the marketing implications
of the plan of stock issuance, including the percentage of common stock to be offered in the offering;
|
|
|
·
|
reviewing with the boards the financial
impact of the offering on us, based upon the independent appraiser’s appraisal of the common stock;
|
|
|
·
|
reviewing all offering documents, including
the prospectus, stock order forms and related marketing materials;
|
|
|
·
|
assisting us in the design and implementation
of a marketing strategy for the structuring and marketing the offering;
|
|
|
·
|
assisting our management in scheduling
and preparing for meetings with potential investors and/or other broker-dealers in connection with the offering; and
|
|
|
·
|
providing such other general advice and
assistance as may be requested to promote the successful completion of the offering.
|
For these services, Sandler O’Neill &
Partners, L.P. will receive a fee of 1.0% of the aggregate dollar amount of all shares of common stock sold in the subscription
and community offerings, of which $25,000 has been paid to date. No fee will be payable to Sandler O’Neill & Partners,
L.P. with respect to shares purchased by directors, trustees, corporators, officers, employees or their immediate families and
their personal trusts, shares purchased by our employee benefit plans or trusts established for the benefit of our directors, officers
and employees, and shares issued to the charitable foundation.
Syndicated Offering.
In the event
that shares of common stock are sold in a syndicated offering, we will pay fees of 5.5% of the aggregate dollar amount of
common stock sold in the syndicated offering to Sandler O’Neill & Partners, L.P. and any other broker-dealers included
in the syndicated offering.
Expenses.
Sandler O’Neill
& Partners, L.P. also will be reimbursed for reasonable expenses, including legal fees, in an amount not to exceed $110,000.
If the plan of stock issuance is terminated or if Sandler O’Neill & Partners, L.P.’s engagement is terminated in
accordance with the provisions of the agency agreement, Sandler O’Neill & Partners, L.P. will only receive reimbursement
of its reasonable out-of-pocket expenses and will return any amounts paid or advanced by us in excess of these amounts. We have
separately agreed to pay Sandler O’Neill & Partners, L.P. up to $55,000 in fees and expenses for serving as records agent,
as described below.
Records Management
We have also engaged Sandler O’Neill &
Partners, L.P. as records agent in connection with the subscription and community offerings. In its role as records agent, Sandler
O’Neill & Partners, L.P., will assist us in the offering by:
|
|
·
|
consolidating deposit accounts;
|
|
|
·
|
designing and preparing stock order forms;
|
|
|
·
|
organizing and supervising our Stock Information Center; and
|
Sandler O’Neill & Partners, L.P. will
receive fees of $25,000 for these services. Of the fees for serving as records agent, $10,000 has been paid as of the date of this
prospectus. Sandler O’Neill & Partners, L.P. also will be reimbursed for reasonable expenses in an amount not to exceed
$30,000.
Indemnity
We will indemnify Sandler O’Neill &
Partners, L.P. against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation
arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including
liabilities under the Securities Act of 1933, as amended, as well as certain other claims and litigation arising out of Sandler
O’Neill & Partners, L.P.’s engagement with respect to the stock offering.
Solicitation of Offers by Officers and Directors
Some of our directors and executive officers
may participate in the solicitation of offers to purchase common stock in the subscription and community offerings. These persons
will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with the solicitation. Other regular employees
of The Provident Bank may assist in the offering, but only in ministerial capacities, and may provide clerical work in effecting
a sales transaction. No offers or sales may be made by tellers or at the teller counters. Investment-related questions of prospective
purchasers will be directed to executive officers or registered representatives of Sandler O’Neill & Partners, L.P. Our
other employees have been instructed not to solicit offers to purchase shares of common stock or provide advice regarding the purchase
of common stock. We will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended, and sales of common stock will
be conducted within the requirements of Rule 3a4-1, so as to permit officers, directors and employees to participate in the sale
of common stock. None of our officers, directors or employees will be compensated in connection with their participation in the
offering.
Procedure for Purchasing Shares in Subscription and Community
Offerings
Expiration
Date
.
The subscription and community offerings will expire at 5:00 p.m., Eastern Time, on [expiration date], unless
we extend one or both for up to 45 days, with the approval of the Massachusetts Commissioner of Banks and the Federal Reserve Board,
if required. This extension may be approved by us, in our sole discretion, without notice to purchasers in the offering. Any extension
of the subscription and/or community offering beyond [extension date] would require the Massachusetts Commissioner of Banks’
and the Federal Reserve Board’s approval. If the offering is so extended, all subscribers will be notified and given an opportunity
to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest
at [interest rate]% per annum or cancel your deposit account withdrawal authorization. If the offering range is decreased below
the minimum of the offering range or is increased above the adjusted maximum of the offering range, all subscribers’ stock
orders will be cancelled, their deposit account withdrawal authorizations will be
cancelled, and funds submitted to us will
be returned promptly, with interest at [interest rate]% per annum for funds received in the subscription and community offerings.
We will then resolicit the subscribers, giving them an opportunity to place a new stock order for a period of time.
We reserve the right in our sole discretion
to terminate the offering at any time and for any reason (subject to any required regulatory approvals), in which case we will
cancel any deposit account withdrawal authorizations and promptly return all funds submitted, with interest at [interest rate]%
per annum from the date of receipt as described above.
Use of Order Forms in the Subscription
and Community Offerings
.
In order to purchase shares of common stock in the subscription and community offerings,
you must properly complete an original stock order form and remit full payment. We are not required to accept orders submitted
on photocopied or facsimiled order
forms. All order forms must be received (not postmarked)
prior to 5:00 p.m., Eastern Time, on [expiration date]. We are not required to accept order forms that are not received by that
time, are not signed or are otherwise executed defectively or are received without full payment or without appropriate deposit
account withdrawal instructions. We are not required to notify subscribers of incomplete or improperly executed order forms, and
we have the right to waive or permit the correction of incomplete or improperly executed order forms. We do not represent, however,
that we will do so and we have no affirmative duty to notify any prospective subscriber of any such defects. You may submit your
order form and payment by mail using the stock order return envelope provided, or by overnight delivery to our Stock Information
Center, which will be located [stock center address]. You may also hand-deliver stock order forms to the Stock Information Center.
Hand-delivered stock order forms will only be accepted at this location. We will not accept stock order forms at our banking offices.
Please do not mail stock order forms to The Provident Bank’s offices.
Once tendered, an order form cannot be modified
or revoked without our consent. We reserve the absolute right, in our sole discretion, to reject orders received in the community
offering, in whole or in part, at the time of receipt or at any time prior to completion of the offering. If you are ordering shares
in the subscription offering, you must represent that you are purchasing shares for your own account and that you have no agreement
or understanding with any person for the sale or transfer of the shares. We have the right to reject any order submitted in the
offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert
with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan
of stock issuance. Our interpretation of the terms and conditions of the plan of stock issuance and of the acceptability of the
order forms will be final.
By signing the order form, you will be acknowledging
that the common stock is not a deposit or savings account and is not federally insured or otherwise guaranteed by The Provident
Bank, the Federal Deposit Insurance Corporation, the federal government or the Depositors Insurance Fund, and that you received
a copy of this prospectus. However, signing the order form will not result in you waiving your rights under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
Payment for Shares
.
Payment
for all shares of common stock will be required to accompany all completed order forms for the purchase to be valid. Payment for
shares in the subscription and community offerings may be made by:
|
|
(i)
|
personal check, bank check or money order, made payable to Provident Bancorp, Inc.; or
|
|
|
(ii)
|
authorization of withdrawal of available funds from your The Provident Bank deposit accounts.
|
Appropriate means
for designating withdrawals from deposit accounts at The Provident Bank are provided on the order form. The funds designated must
be available in the account(s) at the time the order form is received. A hold will be placed on these funds, making them unavailable
to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contractual rate until
the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable
to certificate accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal
results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate will be
canceled
at the time of withdrawal without penalty and the remaining balance will earn interest at the current passbook rate subsequent
to the withdrawal. In the case of payments made by personal check, these funds must be available in the account(s). Checks and
money orders received in the subscription and community offerings will be immediately cashed and placed in a segregated account
at The Provident Bank and will earn interest at [interest rate]% per annum from the date payment is processed until the offering
is completed or terminated.
You may not remit cash, The Provident Bank line
of credit checks or any type of third-party checks (including those payable to you and endorsed over to Provident Bancorp, Inc.).
You may not designate on your stock order form direct withdrawal from a retirement account held at The Provident Bank. See “—Using
Individual Retirement Account Funds.” If permitted by the Massachusetts Commissioner of Banks and the Federal Reserve Board,
in the event we resolicit large purchasers, as described above in “—Additional Limitations on Common
Stock Purchases,” such purchasers who wish
to increase their purchases will not be able to use personal checks to pay for the additional shares, but instead must pay for
the additional shares using immediately available funds. We may accept wire transfers at our sole discretion.
Once we receive your executed stock order form,
it may not be modified, amended or rescinded without our consent, unless the offering is not completed by [extension date]. If
the subscription and community offerings are extended past [extension date], all subscribers will be notified and given an opportunity
to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest
at [interest rate]% per annum or cancel your deposit account withdrawal authorization. We may resolicit purchasers for a specified
period of time.
Regulations prohibit The Provident Bank from
lending funds or extending credit to any persons to purchase shares of common stock in the offering.
We shall have the right, in our sole discretion,
to permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to
thereafter pay for the shares of common stock for which they subscribe in the community offering at any time prior to 48 hours
before the completion of the stock offering. This payment may be made by wire transfer.
If our employee stock ownership plan purchases
shares in the offering, it will not be required to pay for such shares until completion of the offering, provided that there is
a loan commitment from an unrelated financial institution, Provident Bancorp, Inc. to lend to the employee stock ownership plan
the necessary amount to fund the purchase. In addition, if our 401(k) plan purchases shares in the offering, it will not be required
to pay for such shares until completion of the offering.
Using Individual Retirement Account Funds.
If you are interested in using funds in your individual retirement account or other retirement account to purchase shares of common
stock, you must do so through a self-directed retirement account. By regulation, The Provident Bank’s retirement accounts
are not self-directed, so they cannot be invested in our shares of common stock. Therefore, if you wish to use funds that are currently
in a retirement account held at The Provident Bank, you may not designate on the order form that you wish funds to be withdrawn
from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will instead have
to be transferred to an independent trustee or custodian, such as a brokerage firm, offering self-directed retirement accounts.
The purchase must be made through that account. If you do not have such an account, you will need to establish one before placing
a stock order. A one-time and/or annual administrative fee may be payable to the independent trustee or custodian. There will be
no early withdrawal or Internal Revenue Service interest penalties for these transfers. Individuals interested in using funds in
an individual retirement account or any other retirement account, whether held at The Provident Bank
or elsewhere
, to purchase
shares of common stock should contact our Stock Information Center for guidance as soon as possible, preferably at least two weeks
prior to the [expiration date] offering deadline. Processing such transactions takes additional time, and whether such funds can
be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you
will be able to use such funds.
Delivery of Shares of Common Stock
.
All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting
ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to
the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following
consummation of the stock offering. We expect trading in the stock to begin on the day of completion of the stock offering or the
next business day.
Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers,
purchasers might not be able to sell the shares of common stock that they ordered, even though the shares of common stock will
have begun trading.
Your ability to sell the shares of common stock before receiving your statement will depend on arrangements
you may make with a brokerage firm.
Other Restrictions
.
Notwithstanding
any other provision of the plan of stock issuance, no person is entitled to purchase any shares of common stock to the extent the
purchase would be illegal under any federal or state law or
regulation, including state “blue sky” regulations, or
would violate regulations or policies of the Financial Industry Regulatory Authority, particularly those regarding free riding
and withholding. We may ask for an acceptable legal opinion from any purchaser as to the legality of his or her purchase and we
may refuse to honor any purchase order if an opinion is not timely furnished. In addition, we are not required to offer shares
of common stock to any person who resides in a foreign country, or in a State of the United States with respect to which any of
the following apply:
|
|
(i)
|
a small number of persons otherwise eligible to subscribe for shares under the plan of stock issuance reside in such state;
|
|
|
(ii)
|
the offer or sale of shares of common stock to such persons would require us or our employees to register, under the securities
laws of such state, to register as a broker or dealer or to register or otherwise qualify our securities for sale in such state;
or
|
|
|
(iii)
|
such registration or qualification would be impracticable for reasons of cost or otherwise.
|
Restrictions on Transfer of Subscription Rights and Shares
Applicable banking regulations prohibit any
person with subscription rights, including the Eligible Account Holders and employees, officers, directors, trustees and corporators,
from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the plan of stock issuance or the shares of common stock to be issued upon their exercise. These rights may
be exercised only by the person to whom they are granted and only for his or her account. When registering your stock purchase
on the order form, you cannot add the name(s) of others for joint stock registration unless they are also named on the qualifying
deposit account. Doing so may jeopardize your subscription rights. Each person exercising subscription rights will be required
to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement
of an offer or intent to make an offer to purchase subscription rights or shares of common stock to be issued upon their exercise
prior to completion of the offering.
We will pursue any and all legal and equitable
remedies in the event we become aware of the transfer of subscription rights, and we will not honor orders that we believe involve
the transfer of subscription rights.
Stock Information Center
Our banking office personnel may not, by law,
assist with investment-related questions about the offering. If you have any questions regarding the stock offering, please call
our Stock Information Center. The telephone number is [stock center #]. The Stock Information Center is open Monday through Friday
between 10:00 a.m. and 4:00 p.m., Eastern Time. The Stock Information Center will be closed on weekends and bank holidays. Please
note that the Stock Information Center will be closed from 12:00 noon Friday, May 22, through 12:00 noon Tuesday, May 26, in observance
of the Memorial Day holiday.
Material Income Tax Consequences
Completion of the stock offering is subject
to the prior receipt of an opinion of counsel or tax advisor with respect to the federal and state income tax consequences of the
stock offering to Provident Bancorp, Provident Bancorp, Inc., The Provident Bank, Eligible Account Holders and employees, officers,
directors, trustees and corporators. Unlike private letter rulings, an opinion of counsel or tax advisor is not binding on the
Internal Revenue Service or any state taxing authority, and such authorities may disagree with such opinions. In the event of such
disagreement, there can be no assurance that Provident Bancorp, Inc. or The Provident Bank would prevail in a judicial proceeding.
Provident Bancorp, Provident Bancorp, Inc. and
The Provident Bank have received an opinion of counsel, Luse Gorman, PC, regarding all of the material federal income tax consequences
of the stock offering, which includes the following:
|
|
1.
|
Provident Bancorp and Provident Bancorp, Inc. will not recognize gain or loss upon the exchange by Provident Bancorp of the
shares of Provident Bancorp, Inc. common stock that Provident Bancorp presently holds for the shares of our common stock that will
be issued to it in connection with the stock offering.
|
|
|
2.
|
It is more likely than not that the fair market value of the nontransferable subscription rights to purchase Provident Bancorp,
Inc. common stock is zero. Accordingly, no gain or loss will be recognized by Eligible Account Holders, officers, directors, trustees
or corporators upon distribution to them of nontransferable subscription rights to purchase shares of Provident Bancorp, Inc. common
stock. Eligible Account Holders and officers, directors, trustees or corporators will not realize any taxable income as the result
of the exercise by them of the nontransferable subscriptions rights.
|
|
|
3.
|
It is more likely than not that the fair market value of the interest in the liquidation account will be zero.
|
|
|
4.
|
It is more likely than not that the basis of the shares of Provident Bancorp, Inc. common stock purchased in the offering by
the exercise of nontransferable subscription rights will be the purchase price. The holding period of the Provident Bancorp, Inc.
common stock purchased pursuant to the exercise of nontransferable subscription rights will commence on the date the right to acquire
such stock was exercised.
|
|
|
5.
|
No gain or loss will be recognized by Provident Bancorp, Inc. on the receipt of money in exchange for Provident Bancorp, Inc.
common stock sold in the offering.
|
We believe that
the tax opinions summarized above address all material federal income tax consequences that are generally applicable to Provident
Bancorp, Provident Bancorp, Inc., The Provident Bank and persons receiving subscription rights. With respect to items 2 and 4 above,
Luse Gorman, PC noted that the subscription rights will be granted at no cost to the recipients, are legally non-transferable and
of short duration, and will provide the recipient with the right only to purchase shares of common stock at the same price to be
paid by members of the general public in any community offering. The firm further noted that RP Financial, LC. has issued a letter
that the subscription rights have no ascertainable fair market value. The firm also noted that the Internal Revenue Service has
not in the past concluded that subscription rights have value. Based on the foregoing, Luse Gorman, PC believes that it is more
likely than not that the nontransferable subscription rights to purchase shares of common stock have no value. However, the issue
of whether or not the nontransferable subscription rights have value is based on all the facts and circumstances. If the subscription
rights granted to Eligible Account Holders, officers, directors, trustees and corporators are deemed to have an ascertainable value,
receipt of these rights could result in taxable gain to those Eligible Account Holders, officers, directors, trustees and corporators
who exercise the subscription rights in an amount equal to the ascertainable value, and we could recognize gain on a distribution.
Eligible Account Holders,
officers, directors, trustees and corporators are encouraged to consult with their own tax advisors
as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value.
The opinion as to item 3 above is based on the
position that: (i) no holder of an interest in a liquidation account has ever received any payment attributable to a liquidation
account; (ii) the interests in the liquidation accounts are not transferable; and (iii) the amounts due under the liquidation account
with respect to each Eligible Account Holder will be reduced as their deposits in The Provident Bank are reduced.
In addition, we have received a letter from
RP Financial, LC. stating its belief that the benefit provided by the liquidation account does not have any economic value at the
time of the stock offering. Based on the foregoing, Luse Gorman, PC believes it is more likely than not that such rights in the
liquidation account have no value. If such rights
are subsequently found to have an economic value, income may be
recognized by each Eligible Account Holder in the amount of such fair market value as of the date of the stock offering.
The opinion of Luse Gorman, PC, unlike a letter
ruling issued by the Internal Revenue Service, is not binding on the Internal Revenue Service and the conclusions expressed therein
may be challenged at a future date. The Internal Revenue Service has issued favorable rulings for transactions substantially similar
to the proposed reorganization and stock offering, but any such ruling may not be cited as precedent by any taxpayer other than
the taxpayer to whom the ruling is addressed. We do not plan to apply for a letter ruling concerning the transactions described
herein.
We have also received an opinion from [tax accountant]
that the Massachusetts [and New Hampshire] state income tax consequences are consistent with the federal income tax consequences.
The federal and state tax opinions have been
filed with the Securities and Exchange Commission as exhibits to Provident Bancorp, Inc.’s registration statement.
Certain Restrictions on Purchase or Transfer of Our Shares
After the Stock Offering
All shares of common stock purchased in the
offering by a director, trustee, corporator or certain officers of Provident Bancorp, Provident Bancorp, Inc. or The Provident
Bank, as well as their associates, generally may not be sold for a period of one year following the closing of the stock offering,
except in the event of the death or substantial disability of the individual. Each certificate for restricted shares will bear
a legend giving notice of this restriction on transfer, and instructions will be issued to the effect that any transfer within
this time period of any certificate or record ownership of the shares other than as provided above is a violation of the restriction.
Any shares of common stock issued at a later date as a stock dividend, stock split, or otherwise, with respect to the restricted
stock will be similarly restricted. The directors and executive officers of Provident Bancorp, Inc. also will be restricted by
the insider trading rules under the Securities Exchange Act of 1934.
Purchases of shares of our common stock by any
of our directors, trustees, corporators. certain officers and their associates, during the three-year period following the closing
of the stock offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except
with the prior written approval of the Federal Reserve Board and the Massachusetts Commissioner of Banks. This restriction does
not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to purchases of our common
stock by our stock option plan or any of our tax-qualified employee stock benefit plans or non-tax-qualified employee stock benefit
plans, including any restricted stock plans.
Federal regulations
prohibit Provident Bancorp, Inc. from repurchasing its shares of common stock during the first year following stock offering unless
compelling business reasons exist for such repurchases, or to fund management recognition plans that have been ratified by shareholders
(with regulatory approval) or tax-qualified employee stock benefit plans. In addition, the repurchase of shares of common stock
is subject to Federal Reserve Board policy related to repurchases of shares by financial institution holding companies. Massachusetts
regulations prohibit Provident Bancorp, Inc. from repurchasing its shares of our common stock during the first three years following
the completion of the stock offering except to fund tax-qualified or nontax-qualified employee stock
benefit plans, or except
in amounts not greater than 5% of our outstanding shares of common stock where compelling and valid business reasons are established
to the satisfaction of the Massachusetts Commissioner of Banks.
SBLF Preferred Stock
We have registered
17,145 shares of SBLF Preferred Stock for the benefit of the U.S. Treasury. We will not receive proceeds from the sale of shares
of SBLF Preferred Stock by the U.S. Treasury.
The SBLF preferred
stock is entitled to receive non-cumulative dividends, payable quarterly, on each January 1, April 1, July 1 and October 1. The
dividend rate was subject to fluctuation on a quarterly basis during the
first ten quarters during which the SBLF
Preferred Stock was outstanding, based upon changes in the level of Qualified Small Business Lending, or QSBL, of The Provident
Bank. As of December 31, 2014, the dividend rate was 1.00%. For additional information, see “Description of Capital
Stock— Senior Non-Cumulative Perpetual Preferred Stock, Series A, —Dividends.”
Our SBLF preferred
stock is subordinate to any debt we may issue in the future.
The U.S. Treasury is
not a party to the agency agreement we have entered into with Sandler O’Neill & Partners, L.P., and Sandler O’Neill
& Partners, L.P. has not been engaged to underwrite any offering of SBLF preferred stock. If the U.S. Treasury engages an agent
to facilitate the sale of shares of SBLF preferred stock under the registration statement of which this prospectus is a part, we
will file a post-effective amendment to this registration statement to provide required information with respect to any such agent
prior to any such sales of shares of the SBLF preferred stock.
You should read the “Risk Factors” section
of this prospectus for a discussion of factors to consider regarding the registration of the SBLF preferred stock.
SELLING SHAREHOLDERS
The table below sets
forth information concerning the resale of the SBLF preferred stock by the U.S. Treasury. We will not receive any proceeds from
the sale of any shares of SBLF preferred stock sold by the U.S. Treasury. Our operations are regulated by various U.S. governmental
authorities, including in certain respects by the U.S. Treasury. Other than through its role as a regulator and the acquisition
of the SBLF preferred stock, U.S. Treasury has not held any position or office or had any other material relationship with us or
any of our predecessors or affiliates within the past three years. The U.S. Treasury acquired the SBLF preferred stock because
the SBLF program encourages banks to increase lending to small businesses by offering low cost capital to qualified issuers.
The table below sets
forth information with respect to the number of shares of SBLF preferred stock beneficially owned by the U.S. Treasury as of December 31,
2014, the number of the shares of SBLF preferred stock that may be offered by the U.S. Treasury, and the number of shares of SBLF
preferred stock owned by the U.S. Treasury after such sale, assuming all of the shares of SBLF preferred stock offered by the U.S.
Treasury are sold. The U.S. Treasury is not offering any shares of SBLF preferred stock in connection with the offering of our
common stock. The percentages below are calculated based on 15,000 shares of SBLF preferred stock issued and outstanding as of
December 31, 2014. The address of the U.S. Treasury is 1500 Pennsylvania Avenue, N.W., Washington, D.C. 20220.
|
|
|
Beneficial Ownership of SBLF
Preferred Stock Prior to the
Completion of this Offering
|
|
|
Number of Shares
of SBLF Preferred
Stock to be Sold in
|
|
|
Beneficial Ownership of SBLF
Preferred Stock After the
Completion of this Offering
|
|
|
|
|
Number
|
|
|
Percentage
|
|
|
this
Offering
|
|
|
Number
|
|
|
Percentage
|
|
|
United States
Department of Treasury
|
|
|
17,145
|
|
|
|
100
|
%
|
|
|
17,145
|
|
|
|
—
|
|
|
|
—
|
%
|
THE PROVIDENT COMMUNITY CHARITABLE ORGANIZATION,
INC.
General
In furtherance of our commitment to the communities
in our market area, the plan of stock issuance provides that we will establish a new charitable foundation, The Provident Community
Charitable Organization, Inc., as a non-stock, nonprofit Delaware corporation in connection with the stock offering. The charitable
foundation will be funded with cash and shares of our common stock, as further described below.
By further enhancing our visibility and reputation
in the communities within our market area, we believe that the charitable foundation will enhance the long-term value of The Provident
Bank’s community banking
franchise. The stock offering presents us with
a unique opportunity to provide a substantial and continuing benefit to our community through The Provident Community Charitable
Organization, Inc.
Purpose of the Charitable Foundation
In connection with the closing of the stock
offering, The Provident Bank intends to contribute $250,000 in cash and we intend to issue a number of shares up to 2% of our outstanding
shares of common stock (including shares issued to Provident Bancorp) to The Provident Community Charitable Organization, Inc.
The purpose of the charitable foundation is
to provide financial support to charitable organizations in our market area and to enable the communities that we serve to share
in our long-term growth. The Provident Community Charitable Organization, Inc. will be dedicated completely to community activities
and the promotion of charitable causes, and may be able to support such activities in ways that are not presently available to
us. The Provident Community Charitable Organization, Inc. will also support our ongoing obligations to the community under the
Community Reinvestment Act. The Provident Bank received a “Satisfactory” rating in its most recent Community Reinvestment
Act examination by the Massachusetts Commissioner of Banks.
Funding The Provident Community Charitable Organization,
Inc. with shares of our common stock is also intended to allow our communities to share in our potential growth and success after
the stock offering is completed because The Provident Community Charitable Organization, Inc. will benefit directly from any increases
in the value of our shares of common stock. In addition, The Provident Community Charitable Organization, Inc. will maintain close
ties with The Provident Bank, thereby forming a partnership within the communities in which The Provident Bank operates.
Structure of the Charitable Foundation
The Provident Community Charitable Organization,
Inc. will be incorporated under Delaware law as a non-stock, nonprofit corporation. The certificate of incorporation of The Provident
Community Charitable Organization, Inc. will provide that the corporation is organized exclusively for charitable purposes as set
forth in Section 501(c)(3) of the Internal Revenue Code. The Provident Community Charitable Organization, Inc.’s certificate
of incorporation will further provide that no part of the net earnings of the charitable foundation will inure to the benefit of,
or be distributable to, its members, directors or officers or to private individuals.
The Provident Community Charitable Organization,
Inc. will be governed by a board of directors, initially consisting of our President and Chief Executive Officer David P. Mansfield,
our Chief Financial Officer Carol L. Houle and one individual who is not affiliated with us. We are required to select one person
to serve on the initial board of directors who is not one of our officers or directors and who has experience with local charitable
organizations and grant making, and we have selected _____________ as a director to satisfy these requirements. For five years
after the stock offering, one seat on the charitable foundation’s board of directors will be reserved for a person from our
local community who has experience with local community charitable organizations and grant making and who is not one of our officers,
directors or employees, and at least one seat on the charitable foundation’s board of directors will be reserved for one
of The Provident Bank’s directors.
The board of directors of The Provident Community Charitable Organization,
Inc. will be responsible for establishing its grant and donation policies, consistent with the purposes for which it was established.
As directors of a nonprofit corporation, directors of The Provident Community Charitable Organization, Inc. will at all times be
bound by their fiduciary duty to advance the charitable foundation’s charitable goals, to protect its assets and to act in
a manner consistent with the charitable purposes for which the charitable foundation is established. The directors also will be
responsible for directing the activities of the charitable foundation, including the management and voting of the shares of our
common stock held by the charitable foundation. However, as required by Federal Reserve Board regulations, all shares of our common
stock held by The Provident Community Charitable Organization, Inc. must be voted in the same ratio as all other shares of our
common stock on all proposals considered by our shareholders.
The Provident Community Charitable Organization,
Inc.’s place of business will be located at our administrative offices. The board of directors of The Provident Community
Charitable Organization, Inc. will appoint such officers and employees as may be necessary to manage its operations. To the extent
applicable, we will comply with the affiliates restrictions set forth in Sections 23A and 23B of the Federal Reserve Act and Massachusetts
banking regulations governing transactions between The Provident Bank and the charitable foundation.
The Provident Community Charitable Organization,
Inc. will receive working capital from the initial cash contribution of $250,000 and:
|
|
(1)
|
any dividends that may be paid on our shares of common stock in the future;
|
|
|
(2)
|
within the limits of applicable federal and state laws, loans collateralized by the shares of common stock; or
|
|
|
(3)
|
the proceeds of the sale of any of the shares of common stock in the open market from time to time.
|
As a private foundation under Section 501(c)(3)
of the Internal Revenue Code, The Provident Community Charitable Organization, Inc. will be required to distribute annually in
grants or donations a minimum of 5% of the average fair market value of its net investment assets.
Tax Considerations
We believe that an organization created for
the above purposes should qualify as a Section 501(c)(3) exempt organization under the Internal Revenue Code and should be classified
as a private foundation. As long as The Provident Community Charitable Organization, Inc. files an application for tax-exempt status
within 27 months of the last day of the month in which it was organized, and provided the Internal Revenue Service approves the
application, its effective date as a Section 501(c)(3) organization will be the date of its organization. We have not received
a tax opinion as to whether The Provident Community Charitable Organization, Inc.’s tax exempt status will be affected by
the regulatory requirement that all shares of our common stock held by The Provident Community Charitable Organization, Inc. must
be voted in the same ratio as all other outstanding shares of our common stock on all proposals considered by our shareholders.
Under the Internal Revenue Code, The Provident
Community Charitable Organization, Inc. is limited to owning no more than 2% of our voting stock and no more than 2% in value of
all outstanding shares of all classes of our stock. Our contribution to The Provident Community Charitable Organization, Inc. will
not exceed this limitation.
We believe that
our contribution of shares of our common stock to The Provident Community Charitable Organization, Inc. should not constitute an
act of self-dealing and that we should be entitled to a deduction in the amount of the fair market value of the stock at the time
of the contribution less the nominal amount that The Provident Community Charitable Organization, Inc. is required to pay us for
such stock. We are permitted to deduct
for charitable purposes only an amount equal to 10% of our annual taxable income
in any one year. We are permitted under the Internal Revenue Code to carry the excess contribution over the five-year period following
the contribution to The Provident Community Charitable Organization, Inc. We estimate that all of the contribution should be deductible
over the six-year period (
i.e.
, the year in which the contribution is made and the succeeding five-year period). However,
we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the charitable foundation. In such
event, our contribution to The Provident Community Charitable Organization, Inc. would be expensed without a tax benefit, resulting
in a reduction in earnings in the year in which the Internal Revenue Service makes such a determination. Furthermore, even if the
contribution is deductible, we may not have sufficient earnings to be able to use the deduction in full. Any such decision to continue
to make additional contributions to The Provident Community Charitable Organization, Inc. in the future would be based on
an assessment of, among other factors, our financial
condition at that time, the interests of our shareholders and depositors, and the financial condition and operations of the foundation.
As a private foundation, earnings and gains,
if any, from the sale of common stock or other assets are exempt from federal and state income taxation. However, investment income,
such as interest, dividends and capital gains, is generally taxed at a rate of 1%. The Provident Community Charitable Organization,
Inc. will be required to file an annual return with the Internal Revenue Service within four and one-half months after the close
of its fiscal year. The Provident Community Charitable Organization, Inc. will be required to make its annual return available
for public inspection. The annual return for a private foundation includes, among other things, an itemized list of all grants
made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the foundation’s
managers and a concise statement of the purpose of each grant.
Regulatory Requirements Imposed on the Charitable Foundation
Federal Reserve Board regulations require that,
before our board of directors adopted the plan of stock issuance, the board of directors had to identify its members that will
serve on the charitable foundation’s board, and these directors could not participate in our board’s discussions concerning
contributions to the charitable foundation, and could not vote on the matter. Our board of directors complied with this regulation
in adopting the plan of stock issuance.
Federal Reserve Board regulations provide that
the Federal Reserve Board will generally not object if a well-capitalized savings association contributes to a charitable foundation
an aggregate amount of 8% or less of the shares or proceeds issued in a stock offering. The Provident Bank qualifies as a well-capitalized
savings association for purposes of this limitation, and the contribution to The Provident Community Charitable Organization, Inc.
will not exceed this limitation.
Federal Reserve Board regulations impose the
following additional requirements on the establishment of the charitable foundation:
|
|
·
|
The charitable foundation’s primary purpose must be to serve and make grants in our local community
|
|
|
·
|
the Federal Reserve Board may examine the charitable foundation at the foundation’s expense;
|
|
|
·
|
the charitable foundation must comply with all supervisory directives imposed by the Federal Reserve Board;
|
|
|
·
|
the charitable foundation must provide annually to the Federal Reserve Board a copy of the annual report that the charitable
foundation submits to the Internal Revenue Service;
|
|
|
·
|
the charitable foundation must operate according to written policies adopted by its board of directors, including a conflict
of interest policy;
|
|
|
·
|
the charitable foundation may not engage in self-dealing and must comply with all laws necessary to maintain its tax-exempt
status under the Internal Revenue Code; and
|
|
|
·
|
the charitable foundation must vote its shares of our common stock in the same ratio as all of the other shares voted on each
proposal considered by our shareholders.
|
RESTRICTIONS ON ACQUISITION OF PROVIDENT
BANCORP, INC.
The following discussion is
a general summary of the material provisions of Massachusetts law, Provident Bancorp, Inc.’s articles of organization and
bylaws and certain other regulatory provisions that may be deemed to have an “anti-takeover” effect. The following
description is necessarily general and is not intended to be a complete description of the document or regulatory provision in
question. Provident Bancorp, Inc.’s articles of organization and bylaws are included as part of Provident Bancorp’s
application for stock offering filed with the Federal Reserve Board and Provident Bancorp, Inc.’s registration statement
filed with the Securities and Exchange Commission. See “Where You Can Find Additional Information.”
Mutual Holding Company Structure
Provident
Bancorp will own a majority of the outstanding common stock of Provident Bancorp, Inc. after the offering and, through its board
of trustees, will be able to exercise voting control over virtually all matters put to a vote of shareholders. For example, Provident
Bancorp may exercise its voting control to prevent a sale or merger transaction or to defeat a shareholder nominee for election
to the board of directors of Provident Bancorp, Inc. It will not be possible for another entity to acquire Provident Bancorp, Inc.
without the consent of Provident Bancorp.
Provident Bancorp, as
long as it remains in the mutual form of organization, will control a majority of the voting stock of Provident Bancorp, Inc.
Massachusetts Law and Articles of Organization and Bylaws of
Provident Bancorp, Inc.
Although the Board of Directors
of Provident Bancorp, Inc. is not aware of any effort that might be made to obtain control of Provident Bancorp, Inc. after the
stock offering, the Board of Directors believes that it is appropriate to include certain provisions as part of Provident Bancorp,
Inc.’s articles of organization to protect the interests of Provident Bancorp, Inc. and its shareholders from takeovers which
the Board of Directors might conclude are not in the best interests of The Provident Bank, Provident Bancorp, Inc. or Provident
Bancorp, Inc.’s shareholders. In addition, Massachusetts law contains a number of provisions relating to corporate governance
and rights of shareholders that may discourage future takeover attempts.
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 will be 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 shareholders of candidates for election to the Board of Directors or the proposal
by shareholders of business to be acted upon at an annual meeting of shareholders. Such notice and information requirements are
applicable to all shareholder 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 organization and bylaws provide that special meetings of shareholders can be
called by the chairman, the chief executive officer, by a majority of the Board of Directors then in office or upon the written
request of shareholders entitled to cast at least a majority of all votes entitled to vote at the meeting.
Restrictions on Removing
Directors from Office
.
The articles of organization provide that 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,
Inc.’s then-outstanding common stock entitled to vote.
Authorized but Unissued
Shares
. Provident Bancorp, Inc. has authorized but unissued shares of common and preferred stock. See “Description
of Capital Stock of Provident Bancorp, Inc.” The articles of organization authorize 32,655 shares of preferred stock, no
par value per share, and 17,145 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series A. Provident Bancorp, Inc. 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, Inc. 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, Inc. The Board of Directors has no present plan or understanding
to issue any preferred stock.
Restrictions on Acquisitions of Securities
.
The articles of organization provide that no person may directly or indirectly offer to acquire or acquire the beneficial ownership
of more than 10% of the issued and outstanding voting stock of Provident Bancorp, Inc. Shares acquired in excess of this limitation
will not be entitled to vote or to take other shareholder action or to be counted in determining the total number of outstanding
shares for purposes of any matter involving shareholder action, and such shares may be required to be sold through an independent
trustee. The foregoing provision of the articles of organization does not apply to:
|
|
·
|
Provident Bancorp, Inc. or any subsidiary or any pension, profit-sharing, stock bonus or other
compensation plan maintained by Provident Bancorp, Inc. or by a member of a controlled group of corporations or trades or businesses
of which Provident Bancorp, Inc. is a member for the benefit of the employees of Provident Bancorp, Inc. or any subsidiary, or
any trust or custodial arrangement established in connection with any such plan;
|
|
|
·
|
any offer with a view toward public resale made exclusively to Provident Bancorp, Inc. by underwriters
or a selling group acting on its behalf;
|
|
|
·
|
a corporate reorganization without a change in the respective beneficial ownership interests of
Provident Bancorp, Inc.’s shareholders other than pursuant to the exercise of any dissenters’ appraisal rights; or
|
|
|
·
|
any offer or acquisition of shares of voting stock that has been approved in advance by an affirmative
vote of not less than two-thirds of the directors then in office (plus an affirmative vote of two-thirds of the independent directors
then in office if there is an interested shareholder at the time of the offer or acquisition).
|
Amendments
to Articles of Incorporation and Bylaws.
Provident Bancorp, Inc.’s articles of organization may be amended
by the Board of Directors without shareholder action to the fullest extent permitted by the Massachusetts Business Corporation
Act. Provident Bancorp, Inc.’s articles of organization may also be amended by the affirmative vote of at least 80% of the
total votes eligible to be cast by shareholders on such amendment; provided, however, that if the Board of Directors recommends,
by the affirmative vote of at least two-thirds of the “Independent Directors” (as defined in the articles of organization)
then in office at a duly constituted meeting of the Board of Directors, that shareholders approve such amendment at such meeting
of shareholders, such amendment shall only require the affirmative vote of a majority of the total votes eligible to be cast by
shareholders on such amendment. However, to the extent that any provision of Provident Bancorp, Inc.’s articles of organization
provides for shareholder approval by a vote of more than a majority of the total votes eligible to be cast, such provision may
only be amended, altered, changed or repealed after approval by the same percentage vote as is provided for in such provision.
Provident Bancorp, Inc.’s bylaws may be amended by the affirmative vote of a majority of Provident
Bancorp, Inc.’s
directors or by the shareholders by the affirmative vote of at least 80% of the total votes eligible to be voted at a duly constituted
meeting of shareholders; provided, however, that if the Board of Directors recommends, by the affirmative vote of two-thirds of
the Independent Directors, as defined, then in office at a duly constituted meeting of the Board of Directors, that shareholders
approve such amendment at such meeting of shareholders, such amendment shall only require the affirmative vote of a majority of
the total votes eligible to be cast by shareholders on such amendment.
Business Combinations
with Interested Shareholders
.
Provident Bancorp, Inc.’s articles of organization provide that certain “Business
Combinations” require the affirmative vote of the holders of at least 80% of the voting power of the outstanding shares of
Provident Bancorp, Inc. A Business Combination means: (1) any merger or consolidation of Provident Bancorp, Inc. or any of its
subsidiaries with or into any Interested Shareholder (as defined in the articles of organization) or its affiliate; (2) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any Interested Shareholder or its affiliate having
an aggregate fair market value equal to or greater than 10% of the combined assets of Provident Bancorp, Inc. and its subsidiaries;
(3) the issuance or transfer by Provident Bancorp, Inc. or any subsidiary of any securities of Provident Bancorp, Inc. or any subsidiary
to any Interested Shareholder or its affiliate in exchange for cash, securities or other property having an aggregate fair market
value equal to or greater than 10% of the combined assets of Provident Bancorp, Inc. and its subsidiaries; (4) the adoption of
any plan or proposal for the liquidation or dissolution of Provident Bancorp, Inc. proposed by or on behalf of any Interested Shareholder
or its affiliate; and (5) any reclassification of securities (including any reverse share split) or recapitalization of Provident
Bancorp, Inc. or any merger or consolidation of Provident Bancorp, Inc. with any of its subsidiaries or any other transaction (whether
or not with or into or otherwise involving any Interested Shareholder) which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class or series of equity or convertible securities of Provident Bancorp,
Inc. or any subsidiary which is directly or indirectly owned by any Interested Shareholder or its affiliate. However, if certain
conditions are met, including the Business Combination being approved by two-thirds of the independent directors then in office
and/or certain price and procedure conditions, then only the affirmative vote, if any, as may be required by law would be required
to approve the Business Combination.
Vote Required for Certain Transactions.
The articles of organization further provide that, unless a higher percentage vote is required by law or the fair price provision
of the articles, any sale, lease or exchange of all or substantially all of Provident Bancorp, Inc.’s property or assets,
including goodwill; or the merger, share exchange or consolidation of Provident Bancorp, Inc. with or into any other entity must
be approved by an affirmative vote of at least two-thirds of the total votes that may be cast by Provident Bancorp, Inc.’s
shareholders on such a transaction. However, only a majority vote of Provident Bancorp, Inc.’s shareholders is necessary
if the transaction has been recommended to the shareholders for approval by two-thirds of the directors then in office (unless
there is an interested shareholder, in which case the recommendation to shareholders must also be approved by the vote of a majority
of the independent directors then in office).
Purpose and Anti-Takeover
Effects of Provident Bancorp, Inc.’s Articles of Organization and Bylaws
.
Our Board of Directors believes that the
provisions described above are prudent and will reduce our vulnerability to takeover attempts and certain other transactions that
have not been negotiated with and approved by our Board of Directors. These provisions also will assist us in the orderly deployment
of the offering proceeds into productive assets during the initial period after the stock offering. We believe these provisions
are in the best interests of Provident Bancorp, Inc. and its shareholders. Our Board of Directors believes that it will be in the
best position to determine the true value of Provident Bancorp, Inc. and to negotiate more effectively for what may be in the best
interests of all our shareholders. Accordingly, our Board of Directors believes that it is in the best interests of Provident Bancorp,
Inc. and all of our shareholders 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, Inc. and that is in the best interests of all our shareholders.
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 shareholders,
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, shareholders 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 shareholders.
Despite our belief as to the
benefits to shareholders of these provisions of Provident Bancorp, Inc.’s articles of organization 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 shareholders may receive a substantial premium for their shares over then current market prices. As a result, shareholders
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 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 stock offering. 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 The Provident Bank or Provident Bancorp, Inc. for a period
of three years from the date of the completion of the stock offering 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 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 any class of our equity securities
for a period of three years from the date of the completion of the stock offering. Where a person, directly or indirectly, acquires
beneficial ownership of more than 10% of any class of our equity securities, without prior written notice to us 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 shareholders for a vote, and shall not be counted as outstanding for purposes of determining the affirmative vote
necessary to approve any matter submitted to shareholders 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,
Inc. 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.
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 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, Inc. would become a Massachusetts bank holding company if it acquires a second banking institution
and holds and operates it separately from The Provident Bank.
DESCRIPTION OF CAPITAL STOCK OF PROVIDENT
BANCORP, INC.
General
Provident Bancorp, Inc. is
authorized to issue 30,000,000 shares of common stock, no par value per share, 32,655 shares of preferred stock, no par value per
share, and 17,145 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series A. Provident Bancorp, Inc. currently expects
to issue in the offering up to 10,791,600 shares of common stock at the adjusted maximum of the offering range. Provident Bancorp,
Inc. will not issue shares of preferred stock in the stock offering. Each share of common stock will have the same relative rights
as, and will be identical in all respects to, each other share of common stock. Upon payment of the subscription price for the
common stock, in accordance with the plan of stock issuance, all of the shares of common stock will be duly authorized, fully paid
and nonassessable.
The shares of common stock
will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the Federal Deposit
Insurance Corporation or any other government agency.
Common Stock
Dividends
.
Holders of Provident Bancorp, Inc.’s common stock will be entitled to receive and share equally in such dividends as its
board of directors may declare out of funds legally available for such payments. If Provident Bancorp, Inc. issues preferred stock,
holders of such stock may have a priority over holders of common stock with respect to the payment of dividends. State and federal
laws and regulations place limitations on the payment of dividends. See “Our Dividend Policy.”
Voting
Rights
.
Upon completion of the stock offering, the holders of common stock of Provident Bancorp, Inc. will have
exclusive voting rights in Provident Bancorp, Inc. They will elect Provident Bancorp, Inc.’s Board of Directors and act on
other matters as are required to be presented to them under Massachusetts law or as are
otherwise presented to them by the
Board of Directors. Generally, each holder of common stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. Any person who beneficially owns more than 10% of the then-outstanding shares of Provident
Bancorp, Inc.’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, Inc. 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.
As a Massachusetts-chartered
stock savings bank, corporate powers and control of The Provident Bank are vested in its Board of Directors, who elect the officers
of The Provident Bank and who fill any vacancies on the
Board of Directors. Voting rights of The Provident
Bank are vested exclusively in the owners of the shares of capital stock of The Provident Bank, which will be Provident Bancorp,
Inc., and voted at the direction of Provident Bancorp, Inc.’s Board of Directors. Consequently, the holders of the common
stock of Provident Bancorp, Inc. will not have direct control of The Provident Bank.
Liquidation
.
In the event of any liquidation, dissolution or winding up of The Provident Bank, Provident Bancorp, Inc., 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. In the event of
liquidation, dissolution or winding up of Provident Bancorp, Inc., 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, Inc. 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, Inc. will not be entitled to preemptive rights with respect to any shares that
may be issued. The common stock is not subject to redemption.
Senior Non-Cumulative Perpetual Preferred
Stock, Series A
We have 17,145 shares
of Senior Non-Cumulative Perpetual Preferred Stock, Series A, also referred to as the SBLF preferred stock, authorized and outstanding.
The SBLF preferred stock was issued to the U.S. Treasury on September 13, 2011 as part of the federal government’s SBLF program.
Voting Rights
.
The
holders of the SBLF preferred stock do not have voting rights other than with respect to certain matters relating to the rights
of holders of SBLF preferred stock, on certain corporate transactions and, if applicable, the election of additional directors
described below.
In addition to any
other vote or consent required by law or by our articles of incorporation, the written consent of the U.S. Treasury, if the U.S.
Treasury holds any shares of SBLF preferred stock, or the holders of a majority of the outstanding shares of SBLF preferred stock,
voting as a single class, if the U.S. Treasury does not hold any shares of SBLF preferred stock, is required to:
|
|
·
|
amend our articles of incorporation for the SBLF preferred stock to
authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into
or exchangeable or exercisable for shares of, any class or series of stock ranking senior to the SBLF preferred stock with respect
to the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up by or of us;
|
|
|
·
|
amend our articles of incorporation so as to adversely affect the
rights, preferences, privileges or voting powers of the SBLF preferred stock;
|
|
|
·
|
consummate a binding share exchange or reclassification involving
the SBLF preferred stock or a merger or consolidation with another entity, unless (1) the shares of SBLF preferred stock remain
outstanding or, in the case of a merger or consolidation in which we are not the surviving or resulting entity, are converted into
or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (2) the shares of SBLF
preferred stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges
and voting powers, and limitations and restrictions, that are the same as the rights, preferences, privileges and voting powers,
and limitations and restrictions of the SBLF preferred stock immediately prior to consummation of the transaction, taken as a whole;
provided, that in all cases, our obligations are assumed by the resulting entity or its ultimate parent;
|
|
|
·
|
sell all, substantially all or any material portion of, our assets,
if the SBLF preferred stock will not be redeemed in full contemporaneously with the consummation of such sale; or
|
|
|
·
|
consummate a Holding Company Transaction (as defined below), unless
as a result of the Holding Company Transaction each share of SBLF preferred stock will be converted into or exchanged for one share
with an equal liquidation preference of preference securities of us or the acquirer. Any such preferred stock must entitle its
holders to dividends from the date of issuance of such stock on terms that are equivalent to the terms of the SBLF preferred stock,
and must have such other rights, preferences, privileges and voting powers, and limitations and restrictions that are the same
as the rights, preferences, privileges and voting powers, and limitations and restrictions of the SBLF preferred stock immediately
prior to such conversion or exchange, taken as a whole;
|
provided,
however,
that (1) any increase in the amount of our authorized shares of preferred stock, and (2) the creation and
issuance, or an increase in the authorized or issued amount, of any other series of preferred stock, or any securities convertible
into or exchangeable or exercisable for any other series of preferred stock, ranking equally with and/or junior to the SBLF preferred
stock with respect to the payment of dividends, whether such dividends are cumulative or non-cumulative, and the distribution of
assets upon our liquidation, dissolution or winding up, will not be deemed to adversely affect the rights, preferences, privileges
or voting powers of the SBLF preferred stock and will not require the vote or consent of the holders of the SBLF preferred stock.
A “Holding
Company Transaction” means the occurrence of (a) any transaction that results in a person or group (1) becoming the direct
or indirect ultimate beneficial owner of our common equity representing more than 50% of the voting power of the outstanding shares
of our common stock or (2) being otherwise required to consolidate for GAAP purposes, or (b) any consolidation or merger of
us or similar transaction or any sale, lease or other transfer in one transaction or a series of related transactions of all or
substantially all of our consolidated assets to any person other than one of our subsidiaries; provided that, in the case of either
clause (a) or (b), we or the acquiror is or becomes a bank holding company or savings and loan holding company.
To the extent holders
of the SBLF preferred stock are entitled to vote, holders of shares of the SBLF preferred stock will be entitled to one vote for
each share then held.
The voting provisions
described above will not apply if, at or prior to the time when the vote or consent of the holders of the SBLF preferred stock
would otherwise be required, all outstanding shares of the SBLF preferred stock have been redeemed by us or called for redemption
upon proper notice and sufficient funds have been deposited by us in trust for the redemption.
Dividends
.
The
SBLF preferred stock is entitled to receive non-cumulative dividends, payable quarterly, on each January 1, April 1,
July 1 and October 1. The SBLF preferred stock pays a contractual dividend rate of between 1.00% and 9.00% per annum
depending on the amount of qualified small business lending The Provident Bank engages in and the amount of time the SBLF preferred
stock remains outstanding. As of December 31, 2014, the
SBLF preferred stock is paying a dividend rate of 1.00%. In the
first quarter of 2016, regardless of the levels of small business lending at The Provident Bank, the dividend rate will increase
to 9.00% until such time as the SBLF preferred stock is redeemed.
Dividends on the SBLF
preferred stock are non-cumulative. If for any reason our board of directors does not declare a dividend on the SBLF preferred
stock for a particular dividend period, then the holders of the SBLF preferred stock will have no right to receive any dividend
for that dividend period, and we will have no obligation to pay a dividend for that dividend period. We must, however, within five
calendar days, deliver to the holders of the SBLF preferred stock a written notice executed by our chief executive officer and
chief financial officer stating our board of directors’ rationale for not declaring dividends. Our failure to pay a dividend
on the SBLF preferred stock also will restrict our ability to pay dividends on and repurchase other classes and series of our capital
stock, including our common stock.
When dividends have
not been declared and paid in full on the SBLF preferred stock for an aggregate of four or more dividend periods, and during that
time we were not subject to a regulatory determination that prohibits the declaration and payment of dividends, we must, within
five calendar days of each missed payment, deliver to the holders of the SBLF preferred stock a certificate executed by at least
a majority of the members of our board of directors stating that it used its best efforts to declare and pay such dividends in
a manner consistent with safe and sound banking practices and the directors’ fiduciary obligations. In addition, (i) our
failure to pay dividends on the SBLF preferred stock for five or more dividend periods, whether consecutive or not, will give the
holders of the SBLF preferred stock the right to appoint a non-voting observer on our board of directors, and (ii) our failure
to pay dividends on the SBLF preferred stock for six or more dividend periods, whether consecutive or not, and if the aggregate
liquidation preference of the SBLF preferred stock then outstanding is of $25,000,000 or more, will give the holders of the SBLF
preferred stock the right to elect two directors. However, given that the liquidation preference for the SBLF preferred stock is
less than $25,000,000, it is unlikely that the foregoing provisions described in the last sentence would be applicable.
No Sinking Fund
.
The
SBLF preferred stock is not subject to any sinking fund.
Priority of Dividends
.
So
long as any share of the SBLF preferred stock remains outstanding, we may declare and pay dividends on our common stock only if
full dividends on all outstanding shares of SBLF preferred stock for the most recently completed dividend period have been or are
contemporaneously declared and paid. If a dividend is not declared and paid in full on the SBLF preferred stock for any dividend
period, then from the last day of that dividend period until the last day of the third dividend period immediately following it,
no dividend or distribution may be declared or paid on our common stock.
Restrictions
on Repurchases
.
So long as any share of the SBLF preferred stock remains outstanding, we may repurchase or
redeem shares of our common stock, only if dividends on all outstanding shares of SBLF preferred stock for the most recently completed
dividend period have been or are contemporaneously declared and paid (or have been declared and a sum sufficient for payment has
been set aside for the benefit of the holders of the SBLF preferred stock as of the applicable record date). If a dividend is not
declared and paid in full on the SBLF preferred stock for any dividend period, then from the last day of that dividend period until
the last day of the third dividend period immediately following it, no redemptions or repurchases of our common stock may be carried
out, except in certain limited cases.
Liquidation
.
In
the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, holders of the SBLF preferred
stock will be entitled to receive for each share of SBLF preferred stock, out of our assets or proceeds available for distribution
to our shareholders, subject to any rights of our creditors, before any distribution of assets or proceeds is made to or set aside
for the holders of our common stock, payment of an amount equal to the sum of (1) the $1,000 liquidation preference amount per
share and (2) the amount of any accrued and unpaid dividends on the SBLF preferred stock.
For purposes of the
liquidation rights of the SBLF preferred stock, neither a merger nor consolidation of us with another entity nor a sale, lease
or exchange of all or substantially all of our assets will constitute a liquidation, dissolution or winding up of our affairs.
Redemption and
Repurchases
.
The SBLF preferred stock may be redeemed at any time at our option, at a redemption price of 100%
of the liquidation amount plus accrued but unpaid dividends to the date of redemption for the current period, regardless of whether
such dividends have been declared for that period, all subject to the approval of the federal banking regulator.
To exercise the optional
redemption right, we must give notice of the redemption to the holders of record of the SBLF preferred stock, not less than 30
days and not more than 60 days before the date of redemption. In the case of a partial redemption of the SBLF preferred stock,
the shares to be redeemed will be selected either pro rata or in such other manner as our board of directors or a committee of
the board of directors determines to be fair and equitable but in any event the shares to be redeemed shall not be less than the
lesser of (1) the amount equal to 25%
of the aggregate liquidation amount of
the SBLF preferred stock as of the date first issued and (2) all of the outstanding SBLF preferred stock.
Shares of SBLF preferred
stock that we redeem, repurchase or otherwise acquire will revert to authorized but unissued shares of preferred stock, which may
then be reissued by us as any series of preferred stock other than the SBLF preferred stock.
Conversion
.
Holders
of the SBLF preferred stock have no right to exchange or convert their shares into any other securities.
Fully Paid and
Nonassessable
. The outstanding shares of SBLF preferred stock are fully paid and non-assessable.
Registration
Rights
.
As part of the terms of our participation in the U.S. Treasury’s SBLF program, we agreed to provide
the holders of our SBLF preferred stock with the right to demand that we file a registration statement or request that their shares
be covered by a registration statement that we are otherwise filing. For the reasons set forth below, the demand registration rights
will not apply at the time of this offering. However, the “piggyback” registration rights granted to the U.S. Treasury
do apply to this offering. The U.S. Treasury has exercised its piggyback registration rights and, as a result, we have included
the U.S. Treasury’s SBLF preferred stock in the registration statement of which this prospectus is a part. Under the securities
purchase agreement, we must file a registration statement covering all of the SBLF preferred stock of such holders as promptly
as practicable after the date we become subject to the reporting requirements of the Securities Exchange Act of 1934, and no later
than 30 days after such date. Notwithstanding the foregoing, if we are not eligible to file a registration statement on Form S-3
(which we currently are not eligible for), then we will not be obligated to file such a registration statement unless requested
to do so by the U.S. Treasury. In the event that we propose to register any of our securities under the Securities Act of 1933
(including in this offering), either for our own account or for the account of other security holders, these holders are entitled
to notice of such registration and are entitled to certain “piggyback” registration rights allowing the holder to include
their preferred stock in such registration, subject to certain limitations. We may, in certain circumstances, defer such registrations,
and any underwriters will have the right, subject to certain limitations, to limit the number of shares included in such registrations.
Preferred Stock – Not Classified
None of the shares of Provident
Bancorp, Inc.’s authorized preferred stock will be issued as part of the stock offering. 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 shareholder
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.
TRANSFER AGENT
The transfer agent and registrar for Provident
Bancorp, Inc.’s common stock is _____________________, [city], [state].
EXPERTS
The consolidated financial statements of Provident
Bancorp, Inc. and subsidiaries as of December 31, 2014 and 2013, and for the years then ended, that have been included in this
prospectus and the registration statement of which this prospectus is a part, have been so included in the registration statement
in reliance on the reports of Whittlesey & Hadley, P.C., independent registered public accounting firm, appearing elsewhere
herein, given the authority of said firm as experts in accounting and auditing.
RP Financial, LC. has consented to the publication
herein of the summary of its report setting forth its opinion as to the estimated pro forma market value of the shares of common
stock upon completion of the stock offering and its letters with respect to subscription rights and the liquidation account.
LEGAL MATTERS
Luse Gorman, PC, Washington, D.C., counsel to
Provident Bancorp, Provident Bancorp, Inc. and The Provident Bank, has issued to Provident Bancorp, Inc. its opinion regarding
the legality of the common stock and the federal income tax consequences of the stock offering. Baker Newman Noyes, Portland, Maine
has provided an opinion to us regarding the Massachusetts and New Hampshire income tax consequences of the stock offering. Certain
legal matters will be passed upon for Sandler O’Neill & Partners, L.P. by Nutter McClennen & Fish LLP, Boston, Massachusetts.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Provident Bancorp, Inc. has filed with the Securities
and Exchange Commission a registration statement under the Securities Act of 1933 with respect to the shares of common stock offered
hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all
the information set forth in the registration statement. Such information, including the appraisal report which is an exhibit to
the registration statement, can be examined without charge at the public reference facilities of the Securities and Exchange Commission
located at 100 F Street, N.E., Washington, D.C. 20549, and copies of such material can be obtained from the Securities and Exchange
Commission at prescribed rates. The Securities and Exchange Commission’s telephone number is 1-800-SEC-0330. In addition,
the Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the Securities and Exchange Commission, including Provident
Bancorp, Inc. The statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit
to the registration statement are, of necessity, brief descriptions of the material terms of, and should be read in conjunction
with, such contract or document.
Provident Bancorp, Inc. has filed applications
for approval of the stock offering with the Massachusetts Commissioner of Banks and the Federal Reserve Board. The application
for stock offering filed with the Massachusetts Commissioner of Banks may be inspected, without charge, at the offices of the Massachusetts
Division of Banks, 1000 Washington Street, 10th Floor, Boston, Massachusetts. To obtain a copy of the application filed with the
Federal Reserve Board, you may contact Scott Chu, Supervisory Analyst, of the Federal Reserve Bank of Boston, at (617) 973-3088.
The plan of stock issuance is available, upon request, at each of The Provident Bank’s offices.
In connection with the offering, Provident
Bancorp, Inc. will register its common stock under Section 12(b) of the Securities Exchange Act of 1934 and, upon such registration,
Provident Bancorp, Inc. and the holders of its common stock will become subject to the proxy solicitation rules, reporting requirements
and restrictions on common stock purchases and sales by directors, officers and greater than 10% shareholders, the annual and periodic
reporting and certain other requirements of the Securities Exchange Act of 1934. Under the plan of stock issuance, Provident Bancorp,
Inc. has undertaken that it will not terminate such registration for a period of at least three years following the offering.
Provident
Bancorp, Inc. and Subsidiary
Table of Contents
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated Balance Sheets
|
F-3
|
|
Consolidated Statements of Income
|
F-4
|
|
Consolidated Statements of Comprehensive Income
|
F-5
|
|
Consolidated Statements of Changes in Equity
|
F-6
|
|
Consolidated Statements of Cash Flows
|
F-7
|
|
Notes to Consolidated Financial Statements:
|
|
|
Note 1 - Nature of Operations
|
F-9
|
|
Note 2 - Accounting Policies
|
F-9
|
|
Note 3 - Investments in Securities
|
F-17
|
|
Note 4 - Loans
|
F-20
|
|
Note 5 - Premises and Equipment
|
F-26
|
|
Note 6 - Deposits
|
F-26
|
|
Note 7 - Federal Home Loan Bank Advances
|
F-27
|
|
Note 8 - Income Taxes
|
F-27
|
|
Note 9 - Employee Benefits
|
F-29
|
|
Note 10 - Long-Term Incentive Plan
|
F-29
|
|
Note 11 - Employment Agreements
|
F-29
|
|
Note 12 - Regulatory Matters
|
F-30
|
|
Note 13 - Commitments and Contingent Liabilities
|
F-31
|
|
Note 14 - Financial Instruments
|
F-31
|
|
Note 15 - Significant Group Concentrations of Credit Risk
|
F-32
|
|
Note 16 - Fair Value Measurements
|
F-32
|
|
Note 17 - Disclosures About Fair Values of Financial Instruments
|
F-35
|
|
Note 18 - Small Business Lending Fund
|
F-36
|
|
Note 19 - Subsequent Events
|
F-36
|
|
Note 20 - Reclassification
|
F-36
|
Report of Independent Registered
Public Accounting Firm
To The Board of Directors and Stockholder
Provident Bancorp, Inc. and Subsidiary
Amesbury, Massachusetts
We have audited the accompanying consolidated
balance sheets of Provident Bancorp, Inc. and Subsidiary (the “Company”) as of December 31, 2014 and 2013, and the
related consolidated statements of income, comprehensive income, changes in stockholder’s equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, 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. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Provident Bancorp,
Inc. and Subsidiary as of December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for
the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Hartford, Connecticut
March 10, 2015
Offices in Hartford, Connecticut
& Holyoke, Massachusetts
Provident
Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 2014 and 2013
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,533
|
|
|
$
|
9,809
|
|
|
Interest-bearing demand deposits with other banks
|
|
|
1,311
|
|
|
|
2,577
|
|
|
Money market mutual funds
|
|
|
714
|
|
|
|
2,970
|
|
|
Cash and cash equivalents
|
|
|
9,558
|
|
|
|
15,356
|
|
|
Investments in available-for-sale securities (at fair value)
|
|
|
76,032
|
|
|
|
87,647
|
|
|
Investments in held-to-maturity securities (fair values of $47,435 as of December 31, 2014 and $45,524 as of December 31, 2013)
|
|
|
45,559
|
|
|
|
46,729
|
|
|
Federal Home Loan Bank stock, at cost
|
|
|
3,642
|
|
|
|
5,318
|
|
|
Loans, net
|
|
|
494,183
|
|
|
|
439,712
|
|
|
Bank owned life insurance
|
|
|
12,144
|
|
|
|
11,764
|
|
|
Premises and equipment, net
|
|
|
10,503
|
|
|
|
10,694
|
|
|
Accrued interest receivable
|
|
|
2,056
|
|
|
|
1,958
|
|
|
Deferred tax asset, net
|
|
|
3,632
|
|
|
|
3,754
|
|
|
Other assets
|
|
|
1,297
|
|
|
|
1,727
|
|
|
Total assets
|
|
$
|
658,606
|
|
|
$
|
624,659
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholder's Equity
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
128,407
|
|
|
$
|
109,257
|
|
|
Interest-bearing
|
|
|
408,527
|
|
|
|
399,297
|
|
|
Total deposits
|
|
|
536,934
|
|
|
|
508,554
|
|
|
Federal Home Loan Bank advances
|
|
|
39,237
|
|
|
|
40,988
|
|
|
Other liabilities
|
|
|
6,644
|
|
|
|
5,290
|
|
|
Total liabilities
|
|
|
582,815
|
|
|
|
554,832
|
|
|
Stockholder's equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock; authorized 50,000 shares: senior non-cumulative perpetual, Series A, no par, 17,145 shares issued and outstanding at December 31, 2014 and 2013; liquidation value $1,000 per share
|
|
|
17,145
|
|
|
|
17,145
|
|
|
Common stock, no par value: 275,000 shares
authorized; 1,000 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Additional paid-in capital
|
|
|
275
|
|
|
|
275
|
|
|
Retained earnings
|
|
|
55,959
|
|
|
|
51,569
|
|
|
Accumulated other comprehensive income
|
|
|
2,412
|
|
|
|
838
|
|
|
Total stockholder's equity
|
|
|
75,791
|
|
|
|
69,827
|
|
|
Total liabilities and stockholder's equity
|
|
$
|
658,606
|
|
|
$
|
624,659
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
Provident
Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
For the Years Ended December 31, 2014 and 2013
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
20,030
|
|
|
$
|
18,368
|
|
|
Interest and dividends on securities
|
|
|
3,274
|
|
|
|
3,247
|
|
|
Interest on interest-bearing deposits
|
|
|
5
|
|
|
|
23
|
|
|
Other interest
|
|
|
2
|
|
|
|
-
|
|
|
Total interest and dividend income
|
|
|
23,311
|
|
|
|
21,638
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
1,724
|
|
|
|
1,717
|
|
|
Interest on Federal Home Loan Bank advances
|
|
|
567
|
|
|
|
908
|
|
|
Total interest expense
|
|
|
2,291
|
|
|
|
2,625
|
|
|
Net interest and dividend income
|
|
|
21,020
|
|
|
|
19,013
|
|
|
Provision for loan losses
|
|
|
1,452
|
|
|
|
1,175
|
|
|
Net interest and dividend income after provision for loan losses
|
|
|
19,568
|
|
|
|
17,838
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
149
|
|
|
|
156
|
|
|
Service charges and fees - other
|
|
|
1,821
|
|
|
|
1,783
|
|
|
Gain on sales, calls and donated securities, net
|
|
|
428
|
|
|
|
2,253
|
|
|
Writedown of securities
|
|
|
-
|
|
|
|
(141
|
)
|
|
Loss on sales and writedowns of foreclosed real estate, net
|
|
|
-
|
|
|
|
(33
|
)
|
|
Other income
|
|
|
1,470
|
|
|
|
1,125
|
|
|
Total noninterest income
|
|
|
3,868
|
|
|
|
5,143
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
10,687
|
|
|
|
11,007
|
|
|
Occupancy expense
|
|
|
1,308
|
|
|
|
1,267
|
|
|
Equipment expense
|
|
|
617
|
|
|
|
429
|
|
|
FDIC assessment
|
|
|
361
|
|
|
|
356
|
|
|
Data processing
|
|
|
507
|
|
|
|
490
|
|
|
Marketing expense
|
|
|
79
|
|
|
|
234
|
|
|
Professional fees
|
|
|
519
|
|
|
|
518
|
|
|
Other
|
|
|
3,343
|
|
|
|
3,061
|
|
|
Total noninterest expense
|
|
|
17,421
|
|
|
|
17,362
|
|
|
Income before income tax expense
|
|
|
6,015
|
|
|
|
5,619
|
|
|
Income tax expense
|
|
|
1,453
|
|
|
|
1,607
|
|
|
Net income
|
|
$
|
4,562
|
|
|
$
|
4,012
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
4,390
|
|
|
$
|
3,840
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
Provident
Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive
Income
For the Years Ended December 31, 2014 and 2013
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,562
|
|
|
$
|
4,012
|
|
|
Other comprehensive income (loss) before tax:
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities:
|
|
|
|
|
|
|
|
|
|
Change in net unrealized holding gains arising during the period
|
|
|
3,102
|
|
|
|
614
|
|
|
Less: Reclassification adjustment for realized gains in net income
|
|
|
(512
|
)
|
|
|
(2,112
|
)
|
|
Other comprehensive income (loss) before tax
|
|
|
2,590
|
|
|
|
(1,498
|
)
|
|
Income tax (expense) benefit
|
|
|
(1,016
|
)
|
|
|
609
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
1,574
|
|
|
|
(889
|
)
|
|
Total comprehensive income
|
|
$
|
6,136
|
|
|
$
|
3,123
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
Provident
Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes
in Equity
For the Years Ended December 31, 2014 and 2013
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Preferred
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
(In thousands)
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
17,145
|
|
|
$
|
275
|
|
|
$
|
47,729
|
|
|
$
|
1,727
|
|
|
$
|
66,876
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
4,012
|
|
|
|
-
|
|
|
|
4,012
|
|
|
Net change in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(889
|
)
|
|
|
(889
|
)
|
|
Preferred stock dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(172
|
)
|
|
|
-
|
|
|
|
(172
|
)
|
|
Balance, December 31, 2013
|
|
|
17,145
|
|
|
|
275
|
|
|
|
51,569
|
|
|
|
838
|
|
|
|
69,827
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
4,562
|
|
|
|
-
|
|
|
|
4,562
|
|
|
Net change in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,574
|
|
|
|
1,574
|
|
|
Preferred stock dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(172
|
)
|
|
|
-
|
|
|
|
(172
|
)
|
|
Balance, December 31, 2014
|
|
$
|
17,145
|
|
|
$
|
275
|
|
|
$
|
55,959
|
|
|
$
|
2,412
|
|
|
$
|
75,791
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
Provident
Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash
Flows
For the Years Ended December 31, 2014 and 2013
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,562
|
|
|
$
|
4,012
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of securities premiums, net of accretion
|
|
|
919
|
|
|
|
1,229
|
|
|
Gain on sales, calls and donations of securities, net
|
|
|
(428
|
)
|
|
|
(2,253
|
)
|
|
Writedown of securities
|
|
|
-
|
|
|
|
141
|
|
|
Change in deferred loan fees, net
|
|
|
(36
|
)
|
|
|
80
|
|
|
Provision for loan losses
|
|
|
1,452
|
|
|
|
1,175
|
|
|
Depreciation and amortization
|
|
|
767
|
|
|
|
646
|
|
|
Loss on disposals of premises and equipment
|
|
|
-
|
|
|
|
1
|
|
|
Loss on sales and writedowns of foreclosed real estate, net
|
|
|
-
|
|
|
|
33
|
|
|
Increase in accrued interest receivable
|
|
|
(99
|
)
|
|
|
(189
|
)
|
|
Decrease (increase) in taxes receivable
|
|
|
791
|
|
|
|
(333
|
)
|
|
Deferred tax (benefit) expense
|
|
|
(893
|
)
|
|
|
664
|
|
|
Increase in cash surrender value of life insurance
|
|
|
(380
|
)
|
|
|
(251
|
)
|
|
(Increase) decrease in other assets
|
|
|
(361
|
)
|
|
|
1,040
|
|
|
Increase (decrease) in other liabilities
|
|
|
1,354
|
|
|
|
(3,490
|
)
|
|
Net cash provided by operating activities
|
|
|
7,648
|
|
|
|
2,505
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale securities
|
|
|
(12,028
|
)
|
|
|
(12,149
|
)
|
|
Proceeds from sales of available-for-sale securities
|
|
|
12,353
|
|
|
|
8,120
|
|
|
Proceeds from paydowns, maturities and calls of available-for-sale securities
|
|
|
13,948
|
|
|
|
29,584
|
|
|
Purchases of held-to-maturity securities
|
|
|
(1,434
|
)
|
|
|
(13,081
|
)
|
|
Proceeds from paydowns, maturities and calls of held-to-maturity securities
|
|
|
2,045
|
|
|
|
430
|
|
|
Purchase of Federal Home Loan Bank Stock
|
|
|
-
|
|
|
|
(1,519
|
)
|
|
Redemption of Federal Home Loan Bank Stock
|
|
|
1,676
|
|
|
|
-
|
|
|
Loan originations and principal collections, net
|
|
|
(55,946
|
)
|
|
|
(46,535
|
)
|
|
Recoveries of loans previously charged off
|
|
|
59
|
|
|
|
43
|
|
|
Loans purchased
|
|
|
-
|
|
|
|
(17,417
|
)
|
|
Proceeds from sales of foreclosed real estate
|
|
|
-
|
|
|
|
27
|
|
|
Additions to premises and equipment
|
|
|
(576
|
)
|
|
|
(536
|
)
|
|
Purchase of bank owned life insurance
|
|
|
-
|
|
|
|
(6,051
|
)
|
|
Proceeds from sale of customer lists and other intangibles
|
|
|
-
|
|
|
|
105
|
|
|
Net cash used in investing activities
|
|
|
(39,903
|
)
|
|
|
(58,979
|
)
|
The accompanying notes
are an integral part of these consolidated financial statements.
Provident
Bancorp, Inc. and Subsidiary
Consolidated
Statements of Cash Flows
–
(Continued)
For the Years Ended December 31, 2014 and 2013
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net increase in demand deposits, NOW and savings accounts
|
|
|
27,542
|
|
|
|
8,931
|
|
|
Net increase in time deposits
|
|
|
838
|
|
|
|
48,195
|
|
|
Proceeds from advances from Federal Home Loan Bank
|
|
|
-
|
|
|
|
3,351
|
|
|
Payments made on Federal Home Loan Bank long-term advances
|
|
|
(3,351
|
)
|
|
|
(11,824
|
)
|
|
Net change in short-term advances
|
|
|
1,600
|
|
|
|
-
|
|
|
Preferred stock dividends
|
|
|
(172
|
)
|
|
|
(172
|
)
|
|
Net cash provided by financing activities
|
|
|
26,457
|
|
|
|
48,481
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(5,798
|
)
|
|
|
(7,993
|
)
|
|
Cash and cash equivalents at beginning of year
|
|
|
15,356
|
|
|
|
23,349
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
9,558
|
|
|
$
|
15,356
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,339
|
|
|
$
|
2,591
|
|
|
Income taxes paid
|
|
|
1,555
|
|
|
|
1,276
|
|
|
Loan transferred to foreclosed real estate
|
|
|
-
|
|
|
|
60
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
Notes to
Consolidated Financial Statements
Note 1 - Nature of Operations
Provident Bancorp, Inc. (the “Company”)
is a wholly-owned subsidiary of Provident Bancorp, MHC (the “Holding Company”). These consolidated financial statements
include the Company and its wholly-owned subsidiary, Provident Bank (the “Bank”).
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
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 mortgage loans,
commercial loans, residential mortgage loans and consumer loans.
Note 2 - Accounting Policies
The accounting and reporting policies of the
Company and its subsidiary 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. The significant accounting policies are summarized below to assist the reader in better understanding the financial
statements and other data contained herein.
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 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 was established to buy,
sell, and hold investments for its own account, and 5 Market Street Security Corporation, an inactive corporation, was established
to buy, sell, and hold investments for its own account. All material intercompany balances and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash
and cash equivalents include cash, amounts due from banks, interest-bearing demand deposits with other banks, money market mutual
funds 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.
|
|
F-
9
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
The Company classifies debt and equity securities
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 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 stockholder’s equity. They
are merely disclosed in the notes to the consolidated financial statements.
|
|
|
·
|
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 stockholder’s equity until realized.
|
|
|
·
|
Trading securities are carried at fair value on the consolidated balance sheets. Unrealized holding
gains and losses for trading securities are included in earnings.
|
A
decline in fair value of a debt security below amortized cost that is deemed other than temporary is charged to earnings for the
credit-related component of the impairment write-down. The non-credit related OTTI is recognized in other comprehensive income
if there is no intent to sell or the Company will not be required to sell the security.
Declines in marketable equity securities below
their cost that are deemed other than temporary are reflected in earnings as realized losses.
Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank of
Boston (“FHLB”), the Company is required to invest in $100 par value stock of the FHLB. The FHLB capital structure
mandates that members must 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. The Membership Stock Investment Requirement
is calculated as 0.35% of a member’s Stock Investment Base, subject to a minimum investment of $10,000 and a maximum investment
of $25,000,000. The Stock Investment Base is an amount calculated based on certain assets held by a member that are reflected on
call reports submitted to applicable regulatory authorities. The Activity-Based Stock Investment Requirement is calculated as 3.0%
for overnight advances, 4.0% for FHLB advances with original terms to maturity of two days to three months and 4.5% for other advances
plus a percentage of advance commitments, 0.5% of standby letters of credit issued by the FHLB and 4.5% of the value of intermediated
derivative contracts. 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.
|
|
F-
10
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
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 nonaccrual 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 nonaccrual 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 nonaccrual status,
unless secured by sufficient cash or other assets immediately convertible to cash. When a loan has been placed on nonaccrual status,
previously accrued and uncollected interest is reversed against interest on loans. A loan can be returned to accrual status when
collectibility 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. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current
and future payments are reasonably assured.
Cash receipts of interest income on impaired
loans are credited to principal to the extent necessary to eliminate doubt as to the collectibility 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 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 collectibility of the loans in light
of historical experience, the nature and volume 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).
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
|
|
F-
11
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
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. 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.
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.
|
|
F-
12
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
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 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 modification is considered a troubled debt restructuring (“TDR”). All TDRs are initially classified as impaired.
An unallocated component is 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.
Foreclosed 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.
Advertising
The Company directly expenses costs associated
with advertising as they are incurred.
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.
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.
|
|
F-
13
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
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 (including government mortgage-backed
securities)
: 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.
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 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.
Federal Home Loan Bank advances
: Fair
values of 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.
Securities sold under agreements to repurchase
:
Security sold under agreements to repurchase are estimated using discounted cash flow analysis 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.
|
|
F-
14
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Recent Accounting Pronouncements
ASU No. 2014-01 - Investments - Equity Method
and Joint Ventures (Topic 323) - "Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the
FASB Emerging Issues Task Force)."
The ASU permits an entity to make an accounting policy election to account for its
investment in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under
the proportionate amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits
and other tax benefits received and recognizes the net investment performance in the income statement as a component of income
tax expense (benefit). The decision to apply the proportionate amortization method of accounting should be applied consistently
to all qualifying affordable housing project investments. A reporting entity that uses the effective yield or other method to account
for its investments in qualified affordable housing projects before the date of adoption may continue to apply such method to those
preexisting investments. The amendments are effective for the Company on January 1, 2015. The Company does not expect the application
of this guidance to have a material impact on the Company's financial statements.
ASU No. 2014-04, Receivables - Troubled
Debt Restructurings by Creditors (Subtopic 310-40) - "Reclassification of Residential Real Estate Collateralized Consumer
Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)."
The ASU clarifies that an in substance
repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan, upon either (i) the creditor obtaining legal title to the residential real estate
property upon completion of a foreclosure or (ii) the borrower conveying all interest in the residential real estate property to
the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar agreement. In addition,
the amendments require disclosure of both the amount of foreclosed residential real estate property held by the creditor and the
recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure
in accordance with local requirements of the applicable jurisdiction. An entity can elect to adopt the amendments using either
a modified retrospective method or a prospective transition method. The amendments are effective for the Company on January 1,
2015. The Company does not expect the application of this guidance to have a material impact on the Company's financial statements.
ASU No. 2014-09 - Revenue from Contracts
with Customers (Topic 606).
The ASU establishes a single comprehensive model for an entity to recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled,
and will supersede nearly all existing revenue recognition guidance, to clarify and converge revenue recognition principles under
US GAAP and IFRS. The update outlines five steps to recognizing revenue: (i) identify the contracts with the customer; (ii) identify
the separate performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price
to the separate performance obligations; (v) recognize revenue when each performance obligation is satisfied. The update requires
more comprehensive disclosures, relating to quantitative and qualitative information for amounts, timing, the nature and uncertainty
of revenue, and cash flows arising from contracts with customers, which will mainly impact construction and high-tech industries.
The most significant potential impact to banking entities relates to less prescriptive derecognition requirements on the sale of
OREO property. The amendments are effective for the Company on January 1, 2018. An entity may elect either a full retrospective
or a modified retrospective application. The Company does not expect the application of this guidance to have a material impact
on the Company's financial statements.
|
|
F-
15
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
ASU No. 2014-14, Receivables-Troubled Debt
Restructurings by Creditors (Subtopic 310-40) - "Classification of Certain Government-Guaranteed Residential Mortgage Loans
upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)."
The ASU has been issued to reduce diversity in
practice in the classification of foreclosed residential mortgage loans held by creditors that are fully guaranteed under certain
government programs, including the Federal Housing Administration guarantees. A residential mortgage loan would be derecognized
and a separate other receivable would be recognized upon foreclosure if the loan has both of the following characteristics: (i)
the loan has a government guarantee that is not separable from the loan before foreclosure entitling the creditor to the full unpaid
principal balance of the loan; and (ii) at the time of foreclosure, the creditor has the intent to make a claim on the guarantee
and the ability to recover the full unpaid principal balance of the loan through the guarantee. Notably, upon foreclosure, the
separate other receivable would be measured based on the current amount of the loan balance expected to be recovered under the
guarantee. The amendments are effective for the Company beginning on January 1, 2016. The Company does not expect the application
of this guidance to have a material impact on the Company's financial statements.
ASU No. 2014-17,
Business
Combinations (Topic 805) – “Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force).”
Current generally accepted accounting principles (GAAP) offer limited guidance for determining whether and at what threshold
an acquiree (acquired entity) can reflect the acquirer’s accounting and reporting basis (pushdown accounting) in its separate
financial statements. The objective of this ASU is to provide guidance on whether and at what threshold an acquired entity that
is a business or nonprofit activity can apply pushdown accounting in its separate financial statements. The amendments in this
Update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence
of an event in which an acquirer obtains control of the acquired entity. The amendments in this ASU were effective on November
18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events
or to its most recent change-in-control event. This ASU did not impact the Company’s financial statements and the Company
does not expect the application of this guidance will have a material impact on the Company's financial statements in the future.
ASU No. 2015-01, Income Statement—Extraordinary
and Unusual Items (Subtopic 225-20) – “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary
Items”.
Under the existing guidance, an entity is required to separately disclose extraordinary items, net of tax, in
the income statement after income from continuing operations if an event or transaction is of an unusual nature and occurs infrequently.
Under this ASU, separate, net-of-tax presentation (and corresponding earnings per share impact) will no longer be allowed. The
existing requirement to separately present items that are of an unusual nature or occur infrequently on a pre-tax basis within
income from continuing operations has been retained. The new guidance also requires similar separate presentation of items that
are both unusual and infrequent. The standard is effective for the Company on January 1, 2016. Early adoption is permitted, but
only as of the beginning of the fiscal year of adoption. Upon adoption, a reporting entity may elect prospective or retrospective
application. If adopted prospectively, both the nature and amount of any subsequent adjustments to previously reported extraordinary
items must be disclosed. The Company does not expect the application of this guidance will have a material impact on the Company's
financial statements.
|
|
F-
16
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Note 3 - Investments in Securities
The following summarizes the amortized cost
of investment securities classified as available-for-sale and their approximate fair values at December 31, 2014 and 2013:
|
|
|
Amortized
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
(In thousands)
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
1,991
|
|
|
$
|
92
|
|
|
$
|
-
|
|
|
$
|
2,084
|
|
|
State and municipal
|
|
|
3,479
|
|
|
|
422
|
|
|
|
-
|
|
|
|
3,901
|
|
|
Corporate debt
|
|
|
1,000
|
|
|
|
114
|
|
|
|
-
|
|
|
|
1,114
|
|
|
Asset-backed securities
|
|
|
2,733
|
|
|
|
-
|
|
|
|
87
|
|
|
|
2,645
|
|
|
Government mortgage-backed securities
|
|
|
54,063
|
|
|
|
989
|
|
|
|
199
|
|
|
|
54,853
|
|
|
Trust preferred securities
|
|
|
1,502
|
|
|
|
-
|
|
|
|
380
|
|
|
|
1,122
|
|
|
Marketable equity securities
|
|
|
8,063
|
|
|
|
3,048
|
|
|
|
84
|
|
|
|
11,027
|
|
|
|
|
|
72,831
|
|
|
|
4,665
|
|
|
|
750
|
|
|
|
76,746
|
|
|
Money market mutual funds included in cash and cash equivalents
|
|
|
(714
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(714
|
)
|
|
Total available-for-sale securities
|
|
$
|
72,117
|
|
|
$
|
4,665
|
|
|
$
|
750
|
|
|
$
|
76,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
4,391
|
|
|
$
|
139
|
|
|
$
|
127
|
|
|
$
|
4,403
|
|
|
State and municipal
|
|
|
3,485
|
|
|
|
148
|
|
|
|
4
|
|
|
|
3,629
|
|
|
Corporate debt
|
|
|
1,000
|
|
|
|
153
|
|
|
|
-
|
|
|
|
1,153
|
|
|
Asset-backed securities
|
|
|
738
|
|
|
|
-
|
|
|
|
14
|
|
|
|
723
|
|
|
Government mortgage-backed securities
|
|
|
67,515
|
|
|
|
733
|
|
|
|
771
|
|
|
|
67,478
|
|
|
Trust preferred securities
|
|
|
2,706
|
|
|
|
-
|
|
|
|
1,314
|
|
|
|
1,392
|
|
|
Marketable equity securities
|
|
|
9,457
|
|
|
|
2,410
|
|
|
|
28
|
|
|
|
11,839
|
|
|
|
|
|
89,292
|
|
|
|
3,583
|
|
|
|
2,258
|
|
|
|
90,617
|
|
|
Money market mutual funds included in cash and cash equivalents
|
|
|
(2,970
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,970
|
)
|
|
Total available-for-sale securities
|
|
$
|
86,322
|
|
|
$
|
3,583
|
|
|
$
|
2,258
|
|
|
$
|
87,647
|
|
|
|
F-
17
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
The following summarizes the amortized cost
of investment securities classified as held-to-maturity and their approximate fair values at December 31, 2014 and 2013:
|
|
|
Amortized
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
(In thousands)
|
|
Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
45,559
|
|
|
$
|
1,940
|
|
|
$
|
64
|
|
|
$
|
47,435
|
|
|
|
|
$
|
45,559
|
|
|
$
|
1,940
|
|
|
$
|
64
|
|
|
$
|
47,435
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
46,729
|
|
|
$
|
545
|
|
|
$
|
1,750
|
|
|
$
|
45,524
|
|
|
|
|
$
|
46,729
|
|
|
$
|
545
|
|
|
$
|
1,750
|
|
|
$
|
45,524
|
|
The scheduled maturities of debt securities were as follows at December
31, 2014:
|
|
|
Available- for-
Sale
|
|
|
Held-to-Maturity
|
|
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
(In thousands)
|
|
Value
|
|
|
Cost Basis
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
101
|
|
|
$
|
90
|
|
|
$
|
90
|
|
|
Due after one year through five years
|
|
|
3,452
|
|
|
|
2,305
|
|
|
|
2,380
|
|
|
Due after five years through ten years
|
|
|
539
|
|
|
|
4,649
|
|
|
|
4,823
|
|
|
Due after ten years
|
|
|
4,129
|
|
|
|
38,515
|
|
|
|
40,142
|
|
|
Government mortgage-backed securities
|
|
|
54,853
|
|
|
|
-
|
|
|
|
-
|
|
|
Asset-backed securities
|
|
|
2,645
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
65,719
|
|
|
$
|
45,559
|
|
|
$
|
47,435
|
|
During the years ended December 31, 2014 and
2013, gross realized gains on sales, calls and donated securities were $513,000 and $2,253,000, respectively, and gross losses
realized were $85,000 and $-0-, respectively.
There were no securities of issuers whose aggregate
carrying amount exceeded 10% of equity at December 31, 2014.
Securities with carrying amounts of $86,883,000
and $109,662,000 were pledged to secure available borrowings with the Federal Reserve Bank and Federal Home Loan Bank at December
31, 2014 and 2013, respectively.
|
|
F-
18
|
Provident Bancorp, Inc. and Subsidiary
|
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, 2014 and 2013:
|
|
|
Less
than 12 Months
|
|
|
12
Months or Longer
|
|
|
Total
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
(In thousands)
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporarily impaired securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,847
|
|
|
$
|
64
|
|
|
$
|
5,847
|
|
|
$
|
64
|
|
|
Asset-backed securities
|
|
|
-
|
|
|
|
-
|
|
|
|
2,645
|
|
|
|
87
|
|
|
|
-
|
|
|
|
87
|
|
|
Government
mortgage-backed securities
|
|
|
2,472
|
|
|
|
4
|
|
|
|
12,518
|
|
|
|
195
|
|
|
|
14,990
|
|
|
|
199
|
|
|
Trust
preferred securities
|
|
|
26
|
|
|
|
36
|
|
|
|
1,096
|
|
|
|
344
|
|
|
|
1,122
|
|
|
|
380
|
|
|
Marketable
equity securities
|
|
|
683
|
|
|
|
80
|
|
|
|
115
|
|
|
|
4
|
|
|
|
798
|
|
|
|
84
|
|
|
Total
temporarily impaired securities
|
|
$
|
3,181
|
|
|
$
|
120
|
|
|
$
|
22,221
|
|
|
$
|
694
|
|
|
$
|
22,757
|
|
|
$
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporarily impaired securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal
|
|
$
|
22,675
|
|
|
$
|
1,348
|
|
|
$
|
3,831
|
|
|
$
|
406
|
|
|
$
|
26,506
|
|
|
$
|
1,754
|
|
|
U.S.
Government and federal agency
|
|
|
1,429
|
|
|
|
79
|
|
|
|
848
|
|
|
|
48
|
|
|
|
2,277
|
|
|
|
127
|
|
|
Asset-backed securities
|
|
|
724
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
Government
mortgage-backed securities
|
|
|
28,675
|
|
|
|
639
|
|
|
|
5,341
|
|
|
|
132
|
|
|
|
34,016
|
|
|
|
771
|
|
|
Trust
preferred securities
|
|
|
20
|
|
|
|
42
|
|
|
|
542
|
|
|
|
1,272
|
|
|
|
562
|
|
|
|
1,314
|
|
|
Marketable
equity securities
|
|
|
461
|
|
|
|
25
|
|
|
|
24
|
|
|
|
3
|
|
|
|
485
|
|
|
|
28
|
|
|
Total
temporarily impaired securities
|
|
$
|
53,984
|
|
|
$
|
2,147
|
|
|
$
|
10,586
|
|
|
$
|
1,861
|
|
|
$
|
63,846
|
|
|
$
|
4,008
|
|
Government mortgage-backed securities, state
and municipal securities and asset-backed securities
: Because the decline in fair value of the government mortgage-backed securities,
asset backed securities and state and municipal securities is primarily attributable to changes in 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.
Marketable equity securities
: Management
continuously monitors equity securities for impairment by reviewing the financial condition of the issuer, company-specific events,
industry developments, and general economic conditions. Management reviews corporate financial reports, credit agency reports and
other publicly available information. Based on these reviews, these securities are not considered to be other-than-temporarily
impaired.
Trust preferred securities
: Management
monitors its pooled-trust preferred securities for possible other-than-temporary-impairment on a quarterly basis. This review
included an analysis of collateral reports, cash flows, stress default levels and financial ratios of the underlying issuers. Management
utilizes a third party to compile this data and perform other-than-temporary-impairment cash flow testing. Critical assumptions
that go into the other-than-temporary-impairment cash flow testing are prepayment speeds, default rates of the underlying issuers
and discount margins. The result of the third-party other-than-temporary-impairment cash flow testing noted no other-than-temporary-impairment
in 2014.
|
|
F-
19
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Activity related to the credit component recognized
in earnings on debt securities held by the Company for which a portion of other-than-temporary impairment was recognized in other
comprehensive income for the years ended December 31, 2014 and 2013 is as follows:
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Trust preferred securities:
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
688
|
|
|
Additions for the credit component on debt securities in which an other-than-temporary impairment was previously recognized
|
|
|
-
|
|
|
Balance, December 31, 2013
|
|
|
688
|
|
|
Additions for the credit component on debt securities in which an other-than-temporary impairment was previously recognized
|
|
|
-
|
|
|
Balance, December 31, 2014
|
|
$
|
688
|
|
As of December 31, 2013, the Company was required
to divest of a trust preferred security by 2015. As such, on December 31, 2013 the Company began accounting for this security at
market value until such divestiture took place. The Company recorded a $141,000 loss on this security in 2013. During 2014 the
Company sold the security with no additional losses recorded.
Note 4 - Loans
Loans consisted of the following at December
31, 2014 and 2013:
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
249,691
|
|
|
$
|
223,642
|
|
|
Commercial
|
|
|
97,589
|
|
|
|
87,405
|
|
|
Residential real estate
|
|
|
104,568
|
|
|
|
111,244
|
|
|
Construction and land development
|
|
|
47,079
|
|
|
|
20,588
|
|
|
Consumer
|
|
|
2,863
|
|
|
|
3,329
|
|
|
|
|
|
501,790
|
|
|
|
446,208
|
|
|
Allowance for loan losses
|
|
|
(7,224
|
)
|
|
|
(6,077
|
)
|
|
Deferred loan fees, net
|
|
|
(383
|
)
|
|
|
(419
|
)
|
|
Net loans
|
|
$
|
494,183
|
|
|
$
|
439,712
|
|
|
|
F-
20
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
The following tables set forth information
regarding the allowance for loan losses by portfolio segment at December 31, 2014 and 2013:
|
(In thousands)
|
|
Commercial
Real Estate
|
|
|
Commercial
|
|
|
Residential
Real Estate
|
|
|
Construction
and Land Development
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
3,207
|
|
|
$
|
1,331
|
|
|
$
|
725
|
|
|
$
|
363
|
|
|
$
|
206
|
|
|
$
|
245
|
|
|
$
|
6,077
|
|
|
Charge-offs
|
|
|
(243
|
)
|
|
|
-
|
|
|
|
(30
|
)
|
|
|
-
|
|
|
|
(91
|
)
|
|
|
-
|
|
|
|
(364
|
)
|
|
Recoveries
|
|
|
24
|
|
|
|
5
|
|
|
|
24
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
59
|
|
|
Provision
(benefit)
|
|
|
512
|
|
|
|
415
|
|
|
|
(159
|
)
|
|
|
509
|
|
|
|
63
|
|
|
|
112
|
|
|
|
1,452
|
|
|
Ending balance
|
|
$
|
3,500
|
|
|
$
|
1,751
|
|
|
$
|
560
|
|
|
$
|
872
|
|
|
$
|
184
|
|
|
$
|
357
|
|
|
$
|
7,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated
for impairment
|
|
$
|
-
|
|
|
$
|
62
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
|
3,500
|
|
|
|
1,689
|
|
|
|
560
|
|
|
|
872
|
|
|
|
184
|
|
|
|
357
|
|
|
|
7,162
|
|
|
Total
allowance for loan losses ending balance
|
|
$
|
3,500
|
|
|
$
|
1,751
|
|
|
$
|
560
|
|
|
$
|
872
|
|
|
$
|
184
|
|
|
$
|
357
|
|
|
$
|
7,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated
for impairment
|
|
$
|
4,276
|
|
|
$
|
821
|
|
|
$
|
221
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,318
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
|
245,415
|
|
|
|
96,768
|
|
|
|
104,347
|
|
|
|
47,079
|
|
|
|
2,863
|
|
|
|
-
|
|
|
|
496,472
|
|
|
Total
loans ending balance
|
|
$
|
249,691
|
|
|
$
|
97,589
|
|
|
$
|
104,568
|
|
|
$
|
47,079
|
|
|
$
|
2,863
|
|
|
$
|
-
|
|
|
$
|
501,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
2,499
|
|
|
$
|
795
|
|
|
$
|
1,038
|
|
|
$
|
192
|
|
|
$
|
155
|
|
|
$
|
334
|
|
|
$
|
5,013
|
|
|
Charge-offs
|
|
|
-
|
|
|
|
(19
|
)
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
(85
|
)
|
|
|
-
|
|
|
|
(154
|
)
|
|
Recoveries
|
|
|
-
|
|
|
|
5
|
|
|
|
37
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
43
|
|
|
Provision
(benefit)
|
|
|
708
|
|
|
|
550
|
|
|
|
(300
|
)
|
|
|
171
|
|
|
|
135
|
|
|
|
(89
|
)
|
|
|
1,175
|
|
|
Ending balance
|
|
$
|
3,207
|
|
|
$
|
1,331
|
|
|
$
|
725
|
|
|
$
|
363
|
|
|
$
|
206
|
|
|
$
|
245
|
|
|
$
|
6,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
358
|
|
|
$
|
68
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
426
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
|
2,849
|
|
|
|
1,263
|
|
|
|
725
|
|
|
|
363
|
|
|
|
206
|
|
|
|
245
|
|
|
|
5,651
|
|
|
Total
allowance for loan losses ending balance
|
|
$
|
3,207
|
|
|
$
|
1,331
|
|
|
$
|
725
|
|
|
$
|
363
|
|
|
$
|
206
|
|
|
$
|
245
|
|
|
$
|
6,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
2,488
|
|
|
$
|
668
|
|
|
$
|
412
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,568
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
|
221,154
|
|
|
|
86,737
|
|
|
|
110,832
|
|
|
|
20,588
|
|
|
|
3,329
|
|
|
|
-
|
|
|
|
442,640
|
|
|
Total
loans ending balance
|
|
$
|
222,642
|
|
|
$
|
87,405
|
|
|
$
|
111,244
|
|
|
$
|
20,588
|
|
|
$
|
3,329
|
|
|
$
|
-
|
|
|
$
|
446,208
|
|
|
|
F-
21
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
At December 31, 2014 and 2013, loans with an
aggregate principal balance of $207,255,000 and $136,405,000, respectively, were pledged to secure possible borrowings from the
Federal Reserve Bank.
Certain trustees and executive officers of
the Company and companies in which they have significant ownership interests were customers of the Bank during 2014. Total loans
to such persons and their companies amounted to $8,008,000 and $8,963,000 at December 31, 2014 and 2013, respectively. During
the years ended December 31, 2014 and 2013, $513,000 and $3,110,000 of advances and principal payments of $1,468,000 and $897,000
were made, respectively.
The following tables set forth information
regarding nonaccrual loans and past-due loans by portfolio segment at December 31, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or More
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
Total
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
|
30 - 59
|
|
|
60 - 89
|
|
|
or More
|
|
|
Past
|
|
|
Total
|
|
|
Total
|
|
|
and
|
|
|
Nonaccrual
|
|
|
(In thousands)
|
|
Days
|
|
|
Days
|
|
|
Past Due
|
|
|
Due
|
|
|
Current
|
|
|
Loans
|
|
|
Accruing
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
110
|
|
|
$
|
132
|
|
|
$
|
363
|
|
|
$
|
605
|
|
|
$
|
249,086
|
|
|
$
|
249,691
|
|
|
$
|
-
|
|
|
$
|
1,773
|
|
|
Commercial
|
|
|
149
|
|
|
|
108
|
|
|
|
350
|
|
|
|
607
|
|
|
|
96,982
|
|
|
|
97,589
|
|
|
|
-
|
|
|
|
516
|
|
|
Residential real estate
|
|
|
-
|
|
|
|
404
|
|
|
|
423
|
|
|
|
827
|
|
|
|
103,741
|
|
|
|
104,568
|
|
|
|
-
|
|
|
|
1,564
|
|
|
Construction
and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,079
|
|
|
|
47,079
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
2,854
|
|
|
|
2,863
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
268
|
|
|
$
|
644
|
|
|
$
|
1,136
|
|
|
$
|
2,048
|
|
|
$
|
499,742
|
|
|
$
|
501,790
|
|
|
$
|
-
|
|
|
$
|
3,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
366
|
|
|
$
|
141
|
|
|
$
|
464
|
|
|
$
|
971
|
|
|
$
|
222,671
|
|
|
$
|
223,642
|
|
|
$
|
-
|
|
|
$
|
1,049
|
|
|
Commercial
|
|
|
238
|
|
|
|
24
|
|
|
|
31
|
|
|
|
293
|
|
|
|
87,112
|
|
|
|
87,405
|
|
|
|
-
|
|
|
|
474
|
|
|
Residential real estate
|
|
|
427
|
|
|
|
345
|
|
|
|
937
|
|
|
|
1,709
|
|
|
|
109,535
|
|
|
|
111,244
|
|
|
|
-
|
|
|
|
1,608
|
|
|
Construction
and land development
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
|
|
20,538
|
|
|
|
20,588
|
|
|
|
-
|
|
|
|
185
|
|
|
Consumer
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
3,325
|
|
|
|
3,329
|
|
|
|
-
|
|
|
|
2
|
|
|
Total
|
|
$
|
1,085
|
|
|
$
|
510
|
|
|
$
|
1,432
|
|
|
$
|
3,027
|
|
|
$
|
443,181
|
|
|
$
|
446,208
|
|
|
$
|
-
|
|
|
$
|
3,318
|
|
|
|
F-
22
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Information about the Company’s impaired
loans by portfolio segment was as follows at December 31, 2014 and 2013:
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
(In
thousands)
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance
recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
4,276
|
|
|
$
|
4,276
|
|
|
$
|
-
|
|
|
$
|
3,070
|
|
|
$
|
161
|
|
|
Commercial
|
|
|
506
|
|
|
|
506
|
|
|
|
-
|
|
|
|
370
|
|
|
|
20
|
|
|
Residential real estate
|
|
|
221
|
|
|
|
221
|
|
|
|
-
|
|
|
|
368
|
|
|
|
24
|
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
impaired with no related allowance
|
|
$
|
5,003
|
|
|
$
|
5,003
|
|
|
$
|
-
|
|
|
$
|
3,808
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
279
|
|
|
$
|
-
|
|
|
Commercial
|
|
|
315
|
|
|
|
318
|
|
|
|
62
|
|
|
|
328
|
|
|
|
12
|
|
|
Residential real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
impaired with an allowance recorded
|
|
$
|
315
|
|
|
$
|
318
|
|
|
$
|
62
|
|
|
$
|
607
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
4,276
|
|
|
$
|
4,276
|
|
|
$
|
-
|
|
|
$
|
3,349
|
|
|
$
|
161
|
|
|
Commercial
|
|
|
821
|
|
|
|
824
|
|
|
|
62
|
|
|
|
698
|
|
|
|
32
|
|
|
Residential real estate
|
|
|
221
|
|
|
|
221
|
|
|
|
-
|
|
|
|
368
|
|
|
|
24
|
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
impaired loans
|
|
$
|
5,318
|
|
|
$
|
5,321
|
|
|
$
|
62
|
|
|
$
|
4,415
|
|
|
$
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance
recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2,024
|
|
|
$
|
2,024
|
|
|
$
|
-
|
|
|
$
|
1,923
|
|
|
$
|
74
|
|
|
Commercial
|
|
|
329
|
|
|
|
329
|
|
|
|
-
|
|
|
|
322
|
|
|
|
16
|
|
|
Residential real estate
|
|
|
412
|
|
|
|
412
|
|
|
|
-
|
|
|
|
424
|
|
|
|
11
|
|
|
Construction and land
development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
impaired with no related allowance
|
|
$
|
2,765
|
|
|
$
|
2,765
|
|
|
$
|
-
|
|
|
$
|
2,669
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
464
|
|
|
$
|
547
|
|
|
$
|
358
|
|
|
$
|
475
|
|
|
$
|
-
|
|
|
Commercial
|
|
|
339
|
|
|
|
342
|
|
|
|
68
|
|
|
|
265
|
|
|
|
26
|
|
|
Residential real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Construction and land
development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
impaired with an allowance recorded
|
|
$
|
803
|
|
|
$
|
889
|
|
|
$
|
426
|
|
|
$
|
740
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,488
|
|
|
$
|
2,571
|
|
|
$
|
358
|
|
|
$
|
2,398
|
|
|
$
|
74
|
|
|
Commercial
|
|
|
668
|
|
|
|
671
|
|
|
|
68
|
|
|
|
587
|
|
|
|
42
|
|
|
Residential real estate
|
|
|
412
|
|
|
|
412
|
|
|
|
-
|
|
|
|
424
|
|
|
|
11
|
|
|
Construction and land
development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
impaired loans
|
|
$
|
3,568
|
|
|
$
|
3,654
|
|
|
$
|
426
|
|
|
$
|
3,409
|
|
|
$
|
127
|
|
|
|
F-
23
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
The following summarizes troubled debt restructurings
entered into during the years ended December 31, 2014 and 2013:
|
(Dollars in thousands)
|
|
Number of
Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
1
|
|
$
|
31
|
|
|
$
|
31
|
|
|
Commercial real estate
|
|
1
|
|
|
1,229
|
|
|
|
1,229
|
|
|
|
|
2
|
|
$
|
1,260
|
|
|
$
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-Ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
4
|
|
$
|
231
|
|
|
$
|
229
|
|
|
|
|
4
|
|
$
|
231
|
|
|
$
|
229
|
|
None of the loans modified as troubled debt
restructuring during 2014 and 2013 defaulted during the period after modification.
There were two loans modified as troubled debt
restructures during 2014. The Commercial loan was modified to reduce the interest and extend the term of the loan. The Commercial
real estate loan was modified into two loans. The TDR is a loan that is secured by properties that are on the market to sell. The
Company has evaluated the collateral and has deemed that there is sufficient collateral and no specific reserves are necessary.
The loans are on non-accrual and reported as impaired loans as of December 31, 2014.
There were four loans modified as troubled
debt restructures during 2013. Two of the loans were modified for interest only payments for a period of time followed by a reduced
principal and interest payment by rate reduction. The other two were modified to extend the maturity date and modify the interest
rate. The Company has established a specific allowance totaling $51,000. Three of the loans totaling $152,000 are on non-accrual
and all four loans are reported as impaired loans as of December 31, 2013.
At December 31, 2014 and 2013, there were no
commitments to lend additional funds to borrowers whose loans were modified in troubled debt restructurings.
|
|
F-
24
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
The following tables present the Company’s
loans by risk rating and portfolio segment at December 31, 2014 and 2013:
|
(In thousands)
|
|
Commercial
Real Estate
|
|
|
Commercial
|
|
|
Residential
Real Estate
|
|
|
Construction
and Land
Development
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
236,689
|
|
|
$
|
89,269
|
|
|
$
|
-
|
|
|
$
|
37,867
|
|
|
$
|
-
|
|
|
$
|
363,825
|
|
|
Special mention
|
|
|
5,336
|
|
|
|
6,498
|
|
|
|
-
|
|
|
|
9,212
|
|
|
|
-
|
|
|
|
21,046
|
|
|
Substandard
|
|
|
7,666
|
|
|
|
1,822
|
|
|
|
1,374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,862
|
|
|
Not formally rated
|
|
|
-
|
|
|
|
-
|
|
|
|
103,194
|
|
|
|
-
|
|
|
|
2,863
|
|
|
|
106,057
|
|
|
Total
|
|
$
|
249,691
|
|
|
$
|
97,589
|
|
|
$
|
104,568
|
|
|
$
|
47,079
|
|
|
$
|
2,863
|
|
|
$
|
501,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
215,572
|
|
|
$
|
84,021
|
|
|
$
|
-
|
|
|
$
|
18,203
|
|
|
$
|
-
|
|
|
$
|
317,796
|
|
|
Special mention
|
|
|
2,674
|
|
|
|
2,745
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,419
|
|
|
Substandard
|
|
|
5,396
|
|
|
|
639
|
|
|
|
1,740
|
|
|
|
2,385
|
|
|
|
-
|
|
|
|
10,160
|
|
|
Not formally rated
|
|
|
-
|
|
|
|
-
|
|
|
|
109,504
|
|
|
|
-
|
|
|
|
3,329
|
|
|
|
112,833
|
|
|
Total
|
|
$
|
223,642
|
|
|
$
|
87,405
|
|
|
$
|
111,244
|
|
|
$
|
20,588
|
|
|
$
|
3,329
|
|
|
$
|
446,208
|
|
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.
|
|
F-
25
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
The Bank has sold mortgage loans with servicing
rights retained. The fair value of those servicing rights under GAAP is not material and has not been recognized in the 2014 and
2013 consolidated financial statements.
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 $12,588,000 and $9,798,000 at December 31, 2014 and 2013, respectively.
Note 5 - Premises and Equipment
The following is a summary of premises and
equipment at December 31, 2014 and 2013:
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
Land
|
|
$
|
2,424
|
|
|
$
|
2,424
|
|
|
Buildings and leasehold improvements
|
|
|
9,102
|
|
|
|
8,861
|
|
|
Furniture and equipment
|
|
|
3,733
|
|
|
|
3,359
|
|
|
Leasehold improvements
|
|
|
2,890
|
|
|
|
2,928
|
|
|
|
|
|
18,149
|
|
|
|
17,572
|
|
|
Accumulated depreciation and amortization
|
|
|
(7,646
|
)
|
|
|
(6,878
|
)
|
|
Premises and equipment, net
|
|
$
|
10,503
|
|
|
$
|
10,694
|
|
Note 6 - Deposits
The aggregate amount of time deposit accounts
in denominations of $100,000 or more at December 31, 2014 and 2013 was $96,781,000 and $92,184,000, respectively.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act (the "Dodd-Frank Act"), signed into law on July 21, 2010, permanently raised the maximum deposit insurance
amount to $250,000, retroactive to January 1, 2008.
The aggregate amounts of time deposits in denominations
over $250,000 were $73,120,000 and $75,411,000 at December 31, 2014 and 2013, respectively.
At December 31, 2014 and 2013, the aggregate
amount of brokered time deposits was $66,956,000 and $66,294,000, respectively. At December 31, 2014 and 2013, $66,871,000 and
$66,209,000, respectively, of brokered time deposits were included in time deposit accounts in denominations of $100,000 or more
above.
At December 31, 2014, the scheduled maturities
for time deposits for each of the following five years are as follows:
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
$
|
-
|
|
|
$
|
63,036
|
|
|
2015
|
|
|
53,180
|
|
|
|
29,170
|
|
|
2016
|
|
|
56,184
|
|
|
|
29,251
|
|
|
2017
|
|
|
11,113
|
|
|
|
1,169
|
|
|
2018
|
|
|
3,077
|
|
|
|
685
|
|
|
2019
|
|
|
595
|
|
|
|
-
|
|
|
Total
|
|
$
|
124,149
|
|
|
$
|
123,311
|
|
Deposits from related parties held by the Company
at December 31, 2014 and 2013 amounted to $3,282,000 and $2,772,000, respectively.
|
|
F-
26
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Note 7 - Federal Home Loan Bank
Advances
Advances consist of funds borrowed from the
FHLB. Maturities of advances from the FHLB for years ending after December 31, 2014 and 2013 are summarized as follows:
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
-
|
|
|
$
|
23,351
|
|
|
2015
|
|
|
21,600
|
|
|
|
-
|
|
|
2016
|
|
|
9,112
|
|
|
|
9,112
|
|
|
2017
|
|
|
8,525
|
|
|
|
8,525
|
|
|
Total
|
|
$
|
39,237
|
|
|
$
|
40,988
|
|
At December 31, 2014, the following advances
from the FHLB were redeemable at par at the option of the FHLB:
|
Maturity Date
|
|
Optional Redemption Date
|
|
Amount
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
July 27, 2017
|
|
January 27, 2015 and quarterly thereafter
|
|
$
|
2,000
|
|
|
March 16, 2017
|
|
March 16, 2015 and quarterly thereafter
|
|
|
1,525
|
|
Borrowings from the FHLB 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 other qualified assets.
At December 31, 2014, the interest rates on
FHLB advances ranged from 0.23% to 4.25%. At December 31, 2014, the weighted average interest rate on FHLB advances was 1.43%.
Note 8 - Income Taxes
The components of income tax expense are as
follows for the years ended December 31, 2014 and 2013:
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,163
|
|
|
$
|
659
|
|
|
State
|
|
|
197
|
|
|
|
298
|
|
|
Net operating loss carryforward
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
|
|
2,346
|
|
|
|
943
|
|
|
Deferred tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(689
|
)
|
|
|
518
|
|
|
State
|
|
|
(204
|
)
|
|
|
146
|
|
|
|
|
|
(893
|
)
|
|
|
664
|
|
|
Net income tax expense
|
|
$
|
1,453
|
|
|
$
|
1,607
|
|
|
|
F-
27
|
Provident Bancorp, Inc. and Subsidiary
|
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, 2014 and 2013:
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax at statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
Increase (decrease) in tax resulting from:
|
|
|
|
|
|
|
|
|
|
State tax, net of federal tax benefit
|
|
|
2.2
|
|
|
|
3.5
|
|
|
Tax exempt income and dividends received deduction
|
|
|
(10.6)
|
|
|
|
(9.7)
|
|
|
Gain on donated securities
|
|
|
(1.3)
|
|
|
|
-
|
|
|
Other
|
|
|
(0.1)
|
|
|
|
0.3
|
|
|
Effective tax rate
|
|
|
24.2
|
%
|
|
|
28.1
|
%
|
The following is a summary of the Company’s
gross deferred tax assets and gross deferred tax liabilities at December 31, 2014 and 2013:
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
2,885
|
|
|
$
|
2,298
|
|
|
Depreciation
|
|
|
129
|
|
|
|
-
|
|
|
Net operating loss carryforward
|
|
|
83
|
|
|
|
97
|
|
|
Deferred compensation
|
|
|
1,582
|
|
|
|
1,360
|
|
|
Deferred loan fees, net
|
|
|
161
|
|
|
|
154
|
|
|
Writedown of securities
|
|
|
235
|
|
|
|
291
|
|
|
Reserve for unfunded commitments
|
|
|
43
|
|
|
|
61
|
|
|
Other
|
|
|
17
|
|
|
|
21
|
|
|
Gross deferred tax assets
|
|
|
5,135
|
|
|
|
4,282
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-
|
|
|
|
(41
|
)
|
|
Net unrealized holding gain on securities
|
|
|
(1,503
|
)
|
|
|
(487
|
)
|
|
Gross deferred tax liabilities
|
|
|
(1,503
|
)
|
|
|
(528
|
)
|
|
Net deferred tax asset
|
|
$
|
3,632
|
|
|
$
|
3,754
|
|
At December 31, 2014, the Company had federal
net operating loss carryovers of $244,000. 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.
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, 2014 and 2013, there were 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, 2011 through December
31, 2013.
|
|
F-
28
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Note 9 - Employee Benefits
The Company sponsors a 401(k) plan. All employees
are eligible to join the 401(k) plan. However, participants in the 401(k) plan must complete one year of service to be eligible
for safe harbor contributions and employer discretionary contributions. 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 $308,000
and $334,000 for the years ended December 31, 2014 and 2013, respectively.
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 $2,579,000 and $2,028,000 at December 31, 2014 and 2013,
respectively, and is included in other liabilities. The expense recognized for these benefits was $551,000 and $991,000 for the
years ended December 31, 2014 and 2013, respectively.
Note 10 - Long-Term Incentive Plan
The Bank awards phantom shares through a plan
called The Provident Bank Long-Term Incentive Plan. The purpose of the plan is to provide deferred compensation to officers and
directors of the Bank and to provide performance incentives for such persons. Such deferred compensation is based upon the award
of phantom stock, the value of which is based on the Bank’s ability to grow earnings and capital. The Plan was funded with
500,000 shares for employees and 121,000 shares for Directors. In 2010, the Bank amended the plan to no longer award shares to
Directors.
Each phantom stock grant has a five year cliff
vesting provision that requires the participant to wait five years before the value of the grant is awarded. All grants are considered
fully vested upon retirement at age 62 or later, death, or termination as a result of full disability of the participant. All Directors’
shares are fully vested upon issue; however, shares may not be redeemed prior to five years following the date of the grant unless
the Director no longer serves as a member of the Board. If the participant leaves the Bank prior to satisfying the vesting requirement,
his/her grant will be forfeited. Plan participants terminated for cause will forfeit all rights to their unvested grants. Compensation
under the Plan is accrued over the vesting period.
In 2014 and 2013, the Bank awarded 41,000 and
48,000 shares, respectively. At December 31, 2014 and 2013, respectively, there were 166,000 and 260,000 phantom shares outstanding.
The liability for the plan amounted to $1,246,000 and $1,231,000 at December 31, 2014 and 2013, respectively, and is included in
other liabilities. Expenses relating to the plan amounted to $448,000 and $455,000 for the years ending December 31, 2014 and 2013,
respectively. The Bank has 334,000 shares remaining to issue to employees.
Note 11 - Employment Agreements
The Bank is party to employment agreements
with four senior executive officers. One agreement is for three years and the other three agreements are for two years each. All
three of the two-year agreements contain automatic extension provisions.
In the case of a change-in-control, as defined
within the agreements, one executive will receive three years’ base salary and the other three executives will each receive
two years’ base salary, as defined within the agreements.
|
|
F-
29
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Note 12 - 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 Company’s
and 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 their 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.
Quantitative
measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier
1 capital (as defined) to average assets (as defined). As of December 31, 2014, management believes that the Bank met all capital
adequacy requirements to which they are subject.
At December 31, 2014, the most recent notification
from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and
Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes
have changed the Bank's category.
The Bank’s actual capital amounts and
ratios at December 31, 2014 and 2013 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
|
|
|
For
Capital
|
|
|
Prompt
Corrective
|
|
|
|
|
Actual
|
|
|
Adequacy
Purposes
|
|
|
Action
Provisions
|
|
|
(Dollars
in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk Weighted Assets)
|
|
$
|
81,229
|
|
|
|
15.37
|
%
|
|
$
|
42,273
|
|
|
>
|
8.0
|
%
|
|
$
|
52,841
|
|
|
>
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital (to Risk Weighted Assets)
|
|
|
73,282
|
|
|
|
13.87
|
|
|
|
21,136
|
|
|
>
|
4.0
|
|
|
|
31,705
|
|
|
>
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital (to Average Assets)
|
|
|
73,282
|
|
|
|
11.31
|
|
|
|
25,915
|
|
|
>
|
4.0
|
|
|
|
32,393
|
|
|
>
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk Weighted Assets)
|
|
$
|
75,450
|
|
|
|
16.61
|
%
|
|
$
|
36,339
|
|
|
>
|
8.0
|
%
|
|
$
|
45,424
|
|
|
>
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital (to Risk Weighted Assets)
|
|
|
68,849
|
|
|
|
15.16
|
|
|
|
18,169
|
|
|
>
|
4.0
|
|
|
|
27,254
|
|
|
>
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital (to Average Assets)
|
|
|
68,849
|
|
|
|
11.08
|
|
|
|
24,853
|
|
|
>
|
4.0
|
|
|
|
31,067
|
|
|
>
|
5.0
|
|
In July 2013, the Federal Reserve Board, Office
of the Comptroller of the Currency and Federal Deposit Insurance Corporation approved final rules to implement the Basel III capital
framework. The rules are effective on January 1, 2015 and phased-in over a multiple year period becoming fully effective on January
1, 2019. The new capital rules call for higher quality capital with higher minimum capital level requirements. Consistent with
the international Basel framework, the rules include a new minimum ratio of common equity tier I capital to risk-weighted assets
of 4.5 percent, and a common equity tier I capital conservation buffer of 2.5 percent of risk-weighted assets. The rules also raise
the minimum ratio of tier I capital to risk-weighted assets from 4.0 percent to 6.0 percent and includes a minimum leverage ratio
of 4.0 percent. Management expects to meet all minimum regulatory capital requirements under the final rule when it becomes effective.
|
|
F-
30
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Note 13 - Commitments and Contingent
Liabilities
At December 31, 2014, the Company was obligated
under non-cancelable operating leases for bank premises and equipment.
The total minimum rental due in future periods
under these existing agreements is as follows at December 31, 2014:
|
(In thousands)
|
|
|
|
|
|
2015
|
|
$
|
234
|
|
|
2016
|
|
|
209
|
|
|
2017
|
|
|
209
|
|
|
2018
|
|
|
207
|
|
|
2019
|
|
|
198
|
|
|
Years thereafter
|
|
|
1,047
|
|
|
Total minimum lease payments
|
|
$
|
2,104
|
|
The total rental expense amounted to $237,000
and $222,000 for the years ended December 31, 2014 and 2013, respectively.
Note 14 - Financial Instruments
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 the same as that involved in extending loan facilities to customers. At December 31, 2014 and 2013, the
maximum potential amount of the Company’s obligation was $3,631,000 and $3,145,000, respectively, 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.
|
|
F-
31
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Notional amounts of financial instrument liabilities
with off-balance sheet credit risk are as follows at December 31, 2014 and 2013:
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Commitments to originate loans
|
|
$
|
9,061
|
|
|
$
|
3,551
|
|
|
Letters of credit
|
|
|
3,631
|
|
|
|
3,145
|
|
|
Unadvanced portions of loans
|
|
|
115,382
|
|
|
|
97,597
|
|
|
|
|
$
|
128,074
|
|
|
$
|
104,293
|
|
There is no material difference between the
notional amounts and the estimated fair values of the off-balance sheet liabilities.
Note 15 - Significant Group Concentrations
of Credit Risk
Most of the Company's business activity is
with customers located within the states of Massachusetts and New Hampshire. There are no concentrations of credit to borrowers
that have similar economic characteristics. The majority of the Company's loan portfolio is comprised of loans collateralized by
real estate located in the states of Massachusetts and New Hampshire.
Note 16 - Fair Value Measurements
The Company reports certain assets at fair
value in accordance with GAAP, which defines fair value and establishes a framework for measuring fair value in accordance with
generally accepted accounting principles. Fair value is defined as the exchange price that would be received for an asset or paid
to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. The guidance establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair values:
Basis of Fair Value Measurements
|
|
·
|
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities;
|
|
|
·
|
Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly
or indirectly, for substantially the full term of the asset or liability;
|
|
|
·
|
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair
value measurement and unobservable (i.e., supported by little or no market activity).
|
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 Financial Instruments
Measured on a Recurring Basis
The Company’s investments in U.S. Government
and federal agency, state and municipal, corporate debt, asset-backed and government mortgage-backed securities available-for-sale
is generally classified within Level 2 of the fair value hierarchy. For these investments, we obtain fair value measurements from
|
|
F-
32
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
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.
Level 3 is for positions that are not traded
in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability,
and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best
estimate is used. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence
such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable
entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the
equity or debt markets, and changes in financial ratios or cash flows. The Company classifies its investments in trust preferred
securities as Level 3 securities. The Company classified its investments in marketable equity securities as Level 1 securities.
The following summarizes financial instruments
measured at fair value on a recurring basis at December 31, 2014 and 2013:
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
(In thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
2,084
|
|
|
$
|
-
|
|
|
$
|
2,084
|
|
|
$
|
-
|
|
|
State and municipal
|
|
|
3,901
|
|
|
|
-
|
|
|
|
3,901
|
|
|
|
-
|
|
|
Corporate debt
|
|
|
1,114
|
|
|
|
-
|
|
|
|
1,114
|
|
|
|
-
|
|
|
Asset-backed securities
|
|
|
2,645
|
|
|
|
-
|
|
|
|
2,645
|
|
|
|
-
|
|
|
Government mortgage-backed securities
|
|
|
54,853
|
|
|
|
-
|
|
|
|
54,853
|
|
|
|
-
|
|
|
Trust preferred securities
|
|
|
1,122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,122
|
|
|
Marketable equity securities
|
|
|
10,313
|
|
|
|
10,313
|
|
|
|
-
|
|
|
|
-
|
|
|
Totals
|
|
$
|
76,032
|
|
|
$
|
10,313
|
|
|
$
|
64,597
|
|
|
$
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
4,403
|
|
|
$
|
-
|
|
|
$
|
4,403
|
|
|
$
|
-
|
|
|
State and municipal
|
|
|
3,629
|
|
|
|
-
|
|
|
|
3,629
|
|
|
|
-
|
|
|
Corporate debt
|
|
|
1,153
|
|
|
|
-
|
|
|
|
1,153
|
|
|
|
-
|
|
|
Asset-backed securities
|
|
|
723
|
|
|
|
-
|
|
|
|
723
|
|
|
|
-
|
|
|
Government mortgage-backed securities
|
|
|
67,478
|
|
|
|
-
|
|
|
|
67,478
|
|
|
|
-
|
|
|
Trust preferred securities
|
|
|
1,392
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,392
|
|
|
Marketable equity securities
|
|
|
8,869
|
|
|
|
8,869
|
|
|
|
-
|
|
|
|
-
|
|
|
Totals
|
|
$
|
87,647
|
|
|
$
|
8,869
|
|
|
$
|
77,386
|
|
|
$
|
1,392
|
|
The Company did not have any significant transfers
of financial instruments measured at fair value on a recurring basis between Levels 1 and 2 of the fair value hierarchy during
the years ended December 31, 2014 and 2013.
|
|
F-
33
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
The following is a summary of activity for
Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2014 and 2013:
|
(In thousands)
|
|
Available-for-
Sale Securities
|
|
|
|
|
|
|
|
Balance beginning January 1, 2013
|
|
$
|
621
|
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
Included in earnings
|
|
|
(141
|
)
|
|
Included in other comprehensive income
|
|
|
912
|
|
|
Transfers out, net
|
|
|
-
|
|
|
Ending balance, December 31, 2013
|
|
$
|
1,392
|
|
|
|
|
|
|
|
|
Balance beginning January 1, 2014
|
|
$
|
1,392
|
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
Included in earnings
|
|
|
-
|
|
|
Included in other comprehensive income
|
|
|
934
|
|
|
Transfers out, net
|
|
|
(1,204
|
)
|
|
Ending balance, December 31, 2014
|
|
$
|
1,122
|
|
Fair Values of Financial Instruments
Measured on a Nonrecurring Basis
The Company’s impaired loans are reported
at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated
using Level 2 inputs based upon appraisals of similar properties obtained from a third party. For Level 3 inputs, fair value is
based upon management estimates of the value of the underlying collateral or the present value of the expected cash flows.
The following summarizes financial instruments
measured at fair value on a nonrecurring basis at December 31, 2014 and 2013:
|
|
|
Fair
Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
|
Quoted
Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
|
Active
Markets for
|
|
|
Other
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
(In thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
253
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
377
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
377
|
|
|
|
F-
34
|
Provident Bancorp, Inc. and Subsidiary
|
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, 2014 and 2013:
|
(In thousands)
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted
Average)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
253
|
|
|
Real estate appraisals
|
|
Discount for dated appraisals
|
|
6-10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
377
|
|
|
Real estate appraisals
|
|
Discount for dated appraisals
|
|
6-10%
|
Note 17 - 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, 2014 and 2013:
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
(In thousands)
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,558
|
|
|
$
|
9,558
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,558
|
|
|
Available-for-sale securities
|
|
|
76,032
|
|
|
|
10,313
|
|
|
|
64,597
|
|
|
|
1,122
|
|
|
|
76,032
|
|
|
Held-to-maturity securities
|
|
|
45,559
|
|
|
|
-
|
|
|
|
47,435
|
|
|
|
-
|
|
|
|
47,435
|
|
|
Federal Home Loan Bank of Boston stock
|
|
|
3,642
|
|
|
|
3,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,642
|
|
|
Loans, net
|
|
|
494,183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
501,049
|
|
|
|
501,049
|
|
|
Accrued interest receivable
|
|
|
2,056
|
|
|
|
-
|
|
|
|
2,056
|
|
|
|
-
|
|
|
|
2,056
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
536,934
|
|
|
|
|
|
|
|
|
|
|
|
537,281
|
|
|
|
537,281
|
|
|
Federal Home Loan Bank advances
|
|
|
39,237
|
|
|
|
|
|
|
|
40,020
|
|
|
|
|
|
|
|
40,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,356
|
|
|
$
|
15,356
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,356
|
|
|
Available-for-sale securities
|
|
|
87,647
|
|
|
|
8,869
|
|
|
|
77,386
|
|
|
|
1,392
|
|
|
|
87,647
|
|
|
Held-to-maturity securities
|
|
|
46,729
|
|
|
|
-
|
|
|
|
45,524
|
|
|
|
-
|
|
|
|
45,524
|
|
|
Federal Home Loan Bank of Boston stock
|
|
|
5,318
|
|
|
|
5,318
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,318
|
|
|
Loans, net
|
|
|
439,712
|
|
|
|
-
|
|
|
|
-
|
|
|
|
442,525
|
|
|
|
442,525
|
|
|
Accrued interest receivable
|
|
|
1,958
|
|
|
|
-
|
|
|
|
1,958
|
|
|
|
-
|
|
|
|
1,958
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
508,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
508,798
|
|
|
|
508,798
|
|
|
Federal Home Loan Bank advances
|
|
|
40,988
|
|
|
|
-
|
|
|
|
42,042
|
|
|
|
-
|
|
|
|
42,042
|
|
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.
|
|
F-
35
|
Provident Bancorp, Inc. and Subsidiary
|
Notes to
Consolidated Financial Statements
Note 18 - Small Business Lending
Fund
On September 13, 2011, as part of the Small
Business Lending Fund Program (“SBLF”) of the U. S. Treasury (“Treasury”), the Company entered into a Letter
Agreement pursuant to which the Company issued and sold to the Treasury 17,145 shares of the Company’s Non-Cumulative Perpetual
Preferred Stock, Series A, no par value, having liquidation preference of $1,000 per preferred share (the “Series A Preferred
Stock”).
The initial rate payable on SBLF capital is,
at most, five percent, and the rate falls to one percent if a bank’s small business lending increases by ten percent or more.
Banks that increase their lending by less than ten percent pay rates between two percent and four percent. If a bank’s lending
does not increase in the first two years, however, the rate increases to seven percent, and after 4.5 years total, the rate for
all banks increases to nine percent (if the bank has not already repaid the SBLF funding). The dividend will be paid only when
declared by the Company’s Board of Directors. The Series A Preferred Stock has no maturity date and ranks senior to Common
Stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding
up of the Company. The Company’s dividend rate on SBLF capital at December 31, 2014 and 2013 was 1.0%. SBLF dividends paid
for the years ended December 31, 2014 and 2013 amounted to $172,000, respectively.
Note 19 - Subsequent Events
Management has evaluated subsequent events
through March 10, 2015, which is the date the consolidated financial statements were available to be issued. There were no subsequent
events that require adjustment in the consolidated financial statements. There were no subsequent events that required disclosure
in the consolidated financial statements except as discussed below.
On March 10, 2015, the Board of Directors of
the Company adopted a plan of stock issuance (“the Plan”) pursuant to which the Company will sell shares of common
stock, representing a minority ownership of the estimated pro forma market value of the Company that will be determined by an independent
appraisal. Shares will be sold to eligible depositors, the tax qualified employee benefit plans of the Company and possibly others,
in a subscription offering and, if necessary, to the general public in a community and/or syndicated community offering. The majority
of the shares of common stock will be owned by the Holding Company. In connection with the Plan, the Company will establish a charitable
foundation, which will be funded with $250,000 in cash and 2% of the Company’s outstanding shares of common stock.
The Plan provides for the establishment, upon
the completion of the stock offering, of a special “liquidation account” for the benefit of certain depositors of the
Bank in an amount equal to the percentage ownership interest in the equity of the Company to be held by persons other than the
Holding Company as of the date of the latest balance sheet contained in the prospectus. Following the completion of the conversion,
the Company will not be permitted to pay dividends on its capital stock if the Company’s shareholders’ equity would
be reduced below the amount of the liquidation account, as applicable. The liquidation account 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.
Costs associated with the stock offering have
been deferred and will be deducted from the proceeds of the shares sold in the stock issuance. If the stock offering is not completed,
all costs will be charged to expense. At December 31, 2014, approximately $86,000 of stock offering costs had been incurred and
deferred.
Note 20 - Reclassification
Certain amounts in the prior year have been
reclassified to be consistent with the current year's consolidated financial statement presentation, and had no effect on the net
income reported in the consolidated income statement.
|
|
F-
36
|
Provident Bancorp, Inc. and Subsidiary
|
No person has been authorized to give any information
or to make any representation other than as contained in this prospectus and, if given or made, such other information or representation
must not be relied upon as having been authorized by Provident Bancorp, Inc. or The Provident Bank. This prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to
do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of
this prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the
affairs of Provident Bancorp, Inc. or The Provident Bank since any of the dates as of which information is furnished herein or
since the date hereof.
Up to 4,222,800 Shares
(Subject to Increase to up to 4,856,220 Shares)
Provident
Bancorp, Inc.
(Holding Company
for
The Provident
Bank)
COMMON STOCK
no par value
per share
__________________
PROSPECTUS
__________________
Sandler
O’Neill + Partners, L.P.
[prospectus date]
________________
These securities are not deposits or accounts
and are not federally insured or guaranteed.
________________
Until _____________, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
|
|
PART II:
|
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
|
Item 13.
|
Other Expenses of Issuance and Distribution
|
|
|
|
|
|
Amount (1)
|
|
|
|
|
|
|
|
|
|
*
|
|
Registrant’s Legal Fees and Expenses
|
|
$
|
550,000
|
|
|
*
|
|
Registrant’s Accounting Fees and Expenses
|
|
|
125,000
|
|
|
*
|
|
Registrant’s State Tax Advisory Fees
|
|
|
20,000
|
|
|
*
|
|
Marketing Agent Fees (1)
|
|
|
525,046
|
|
|
*
|
|
Records Management Fees and Expenses (1)
|
|
|
55,000
|
|
|
*
|
|
Appraisal Fees and Expenses
|
|
|
92,500
|
|
|
*
|
|
Printing, Postage, Mailing and EDGAR Fees
|
|
|
250,000
|
|
|
*
|
|
Filing Fees (Nasdaq, FINRA, SEC and Commonwealth of Massachusetts)
|
|
|
71,100
|
|
|
*
|
|
Transfer Agent Fees and Expenses
|
|
|
20,000
|
|
|
*
|
|
Business Plan Fees and Expenses
|
|
|
53,000
|
|
|
*
|
|
Other
|
|
|
113,150
|
|
|
*
|
|
Total
|
|
$
|
1,874,796
|
|
|
|
(1)
|
Provident Bancorp, Inc. has retained Sandler, O’Neill
& Partners, L.P. to assist in the sale of common stock on a best efforts basis in the subscription, community and syndicated
offerings. Fees are estimated at the adjusted maximum of the offering range, assuming all of the shares are sold in the subscription
and community offerings.
|
|
|
Item 14.
|
Indemnification of Directors and Officers
|
Article VI of the Bylaws of
Provident Bancorp, Inc. (the “Corporation”) sets forth circumstances under which directors, officers, employees and
agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such:
Article VI.
Indemnification
6.1 Officers.
To the extent permitted by law and except as provided in Sections 6.3 and 6.4, each Officer of the Corporation (and his heirs
and personal representatives) shall be indemnified by the Corporation against all Expenses incurred by him in connection with
any Proceeding in which he is involved as a result of (a) his serving or having served as an Officer or employee of the Corporation,
(b) his serving or having served as a director, officer or employee of any of its wholly-owned subsidiaries, or (c) his
serving or having served any other corporation, organization, partnership, joint venture, trust or other entity at the request
or direction of the Corporation.
6.2 Non-Officer
Employees.
To the extent permitted by law and except as provided in Sections 6.3
and 6.4, each non-Officer Employee of the Corporation (and his heirs and personal representatives) may, in the discretion of the
Board of Directors, be indemnified against any or all Expenses incurred by him in connection with any Proceeding in which he is
involved as a result of (a) his serving or having served as a non-Officer Employee of the Corporation, (b) his serving
or having served as a director, officer, or employee of any of its wholly-owned subsidiaries, or (c) his serving or having
served any other corporation, organization, partnership, joint venture, trust or other entity at the request or direction of the
Corporation.
6.3 Service
at Direction of Board of Directors.
No indemnification shall be provided to an Officer
or non-Officer Employee with respect to his serving or having served in any of the capacities described in Sections 6.1(c)
and 6.2(c), respectively, unless such service was required or directed by vote of the Board of Directors prior to the occurrence
of the event to which the indemnification relates; provided that the Board of Directors may provide an Officer or non-Officer
Employee with indemnification, as to a specific Proceeding, even though such Board of Directors vote was not obtained, if in its
discretion, the Board of Directors determines it to be appropriate for the Corporation to do so.
6.4 Good
Faith.
No indemnification shall be provided to an Officer or to a non-Officer Employee
with respect to a matter as to which he shall have been adjudicated in any Proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Corporation. In the event that a Proceeding is compromised or settled
so as to impose any liability or obligation upon an Officer or upon a non-Officer Employee, no indemnification shall be provided
to said Officer or to said non-Officer Employee with respect to a matter if there is a determination that with respect to said
matter said Officer or said non-Officer Employee did not act in good faith in the reasonable belief that his action was in the
best interests of the Corporation. The determination shall be made by a majority vote of those Directors who are not involved
in such Proceeding. However, if more than half of the Directors are involved in such Proceeding, the determination shall be made
by a majority vote of a committee of three disinterested Directors chosen at a regular or special meeting of the Board of Directors
to make such determination; provided, however, that if there are fewer than three disinterested Directors, the determination shall
be made by a committee consisting of three disinterested stockholders, chosen at a regular or special meeting of the Board of
Directors to make such a determination.
6.5 Prior
to Final Disposition.
Any indemnification provided under this Article VI shall include
(in the case of officers elected by the stockholders) and may, in the discretion of the Board of Directors, include (in the case
of any other Officer or any non-Officer Employee) payment by the Corporation of Expenses incurred in defending a civil or criminal
Proceeding in advance of the final disposition of such Proceeding, upon the Corporation’s receipt of an undertaking by the
Officer or non-Officer Employee indemnified to repay such payment if he shall be adjudicated or determined to be not entitled
to indemnification under Section 6.4.
6.6 Insurance.
The Corporation may purchase and maintain insurance to protect itself and any Officer or non-Officer
Employee against any liability of any character asserted against and incurred by the Corporation or any such Officer or non-Officer
Employee, or arising out of any such status, whether or not the Corporation would have the power to indemnify such person against
such liability by law or under the provisions of this Article VI.
6.7 Definitions.
For the purposes of this Article VI:
(a) “Officer”
means any person who serves or has served as a Director or an operating officer of the Corporation;
(b) “non-Officer
Employee” means any person who serves or has served as an employee of the Corporation but who is not an Officer;
(c) “Proceeding”
means any action, suit or proceeding, civil or criminal, brought or threatened in or before any court, tribunal, administrative
or legislative body or agency; and
(d) “Expenses”
means any liability fixed by a judgment, order, decree or award in a Proceeding, any amount actually and reasonably paid in settlement
of a Proceeding and any professional fees and other disbursements reasonably incurred in a Proceeding.
The
provisions of this Article VI shall not be construed to be exclusive. The Corporation shall have the power and authority to indemnify
any person entitled or eligible to be indemnified under this Article VI and to enter into specific agreements, commitments or arrangements
for indemnification on any terms not prohibited by law which the Board of Directors deems to be appropriate. Nothing in this Article
VI shall limit any lawful rights to indemnification existing independently of this Article VI. Nothing herein shall be deemed to
limit the Corporation’s authority to indemnify any person pursuant to any contract or otherwise.
The
provisions of this Article VI shall be applicable to persons who shall have ceased to be Directors, Officers or non-Officer Employees
of the Corporation, and shall inure to the benefit of the heirs, executors and administrators of persons entitled to be indemnified
hereunder.
6.8 Limitations
Imposed by State or Federal Law.
Notwithstanding any other provision
set forth in this Article VI, in no event shall any payments made by the Corporation pursuant to this Article VI exceed the amount
permissible under applicable state or federal law, including without limitation section 18(k) of the Federal Deposit Insurance
Act and the regulations promulgated thereunder.
Section 6.4.3 of the Amended
and Restated Articles of Organization of Provident Bancorp, Inc. sets forth circumstances under which directors, officers, employees
and agents may have limited liability which they incur in their capacities as such:
6.4.3 LIMITATION OF LIABILITY
OF DIRECTORS
. No Director of the Corporation shall have personal liability to the Corporation or its stockholders for monetary
damages for breach of his or her fiduciary duty as a Director notwithstanding any provision of law imposing such liability, provided
that this provision shall not eliminate or limit the liability of a director (a) for any breach of the director’s duty of
loyalty to the corporation or its shareholders, (b) for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (c) for improper distributions under Section 6.40 of Chapter 156D of the General Laws of Massachusetts,
or (d) for any transaction from which the director derived an improper personal benefit; and provided, further, however, that the
Corporation shall not make any indemnification payment prohibited by Section 18(k) of the Federal Deposit Insurance Act or the
regulations promulgated thereunder by the Federal Deposit Insurance Corporation. No amendment to or repeal of the provisions of
this paragraph shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or
with respect to any act or failure to act of such director occurring prior to such amendment or repeal. If the General Laws of
Massachusetts are hereafter amended to further eliminate or limit the personal liability of Directors or to authorize corporate
action to further eliminate or limit such liability, then the liability of the Directors of this Corporation shall be eliminated
or limited to the fullest extent permitted by the General Laws of Massachusetts as so amended.
|
|
Item 15.
|
Recent Sales of Unregistered Securities
|
Not Applicable.
|
|
Item 16.
|
Exhibits and Financial Statement Schedules:
|
The exhibits and financial
statement schedules filed as part of this registration statement are as follows:
|
1.1
|
Engagement Letters between Provident Bancorp, Provident Bancorp, Inc., The Provident Bank and Sandler, O’Neill & Partners, L.P.
|
|
1.2
|
Form of Agency Agreement between Provident Bancorp, Provident Bancorp, Inc., The Provident Bank and Sandler, O’Neill & Partners, L.P.*
|
|
2
|
Plan of Stock Issuance
|
|
3.1
|
Amended and Restated Articles of Organization of Provident Bancorp, Inc.
|
|
3.2
|
By-Laws of Provident Bancorp, Inc.
|
|
4.1
|
Form of Common Stock Certificate of Provident Bancorp, Inc.
|
|
4.2
|
Small Business Lending Fund—Securities Purchase Agreement dated September 13, 2011 between the Secretary of the Treasury and Provident Bancorp, Inc.
|
|
5
|
Opinion of Luse Gorman, PC regarding legality of securities being registered
|
|
8.1
|
Federal Tax Opinion of Luse Gorman, PC*
|
|
8.2
|
State Tax Opinion*
|
|
10.1
|
Form of The Provident Bank Employee Stock Ownership Plan †
|
|
10.2
|
Employment Agreement with David P. Mansfield †
|
|
10.3
|
Employment Agreement with Charles F. Withee †
|
|
10.4
|
Employment Agreement with Carol L. Houle †
|
|
10.5
|
Amended and Restated Supplemental Executive Retirement Agreement with David P. Mansfield †
|
|
10.6
|
Amended and Restated Supplemental Executive Retirement Agreement with Charles F. Withee †
|
|
10.7
|
Supplemental Executive Retirement Agreement with Carol L. Houle †
|
|
10.8
|
The Provident Bank Executive Annual Incentive Plan †
|
|
10.9
|
The Provident Bank 2005 Amended and Restated Long-Term Incentive Plan †
|
|
21
|
Subsidiaries of the Registrant
|
|
23.1
|
Consent of Luse Gorman, PC (contained in Opinions included as Exhibits 5 and 8.1)
|
|
23.2
|
Consent of RP Financial, LC.
|
|
23.3
|
Consent of Whittlesey & Hadley, P.C.
|
|
23.4
|
Consent of Baker Newman Noyes (contained in Opinion included as Exhibit 8.2)
|
|
24
|
Power of Attorney (set forth on signature page)
|
|
99.1
|
Appraisal Agreement between The Provident Bank and RP Financial, LC.
|
|
99.2
|
Letter of RP Financial, LC. with respect to Subscription Rights
|
|
99.3
|
Appraisal Report of RP Financial, LC.
|
|
99.4
|
Marketing Materials
|
|
99.5
|
Stock Order and Certification Form
|
|
99.6
|
Letter of RP Financial, LC. with respect to Liquidation Account
|
_______________________________
|
|
†
|
Management contract or compensation plan or arrangement.
|
|
|
*
|
To be filed by amendment.
|
|
|
(b)
|
Financial Statement Schedules
|
No financial statement
schedules are filed because the required information is not applicable or is included in the consolidated financial statements
or related notes.
The undersigned Registrant hereby undertakes:
(1) To
file, during any period in which it offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution
of the securities:
The undersigned registrant
undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser
by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered
to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(5) That, for purposes
of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
(6) That, for the
purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(7) The
undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each
purchaser.
(8) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Amesbury, Commonwealth of Massachusetts on March 13, 2015.
|
|
Provident
Bancorp, Inc.
|
|
|
|
|
|
|
By:
|
/s/ David P. Mansfield
|
|
|
|
David P. Mansfield
|
|
|
|
President and Chief Executive Officer
|
|
|
|
(Duly Authorized Representative)
|
POWER OF ATTORNEY
We, the undersigned directors
and officers of Provident Bancorp, Inc. (the “Company”) hereby severally constitute and appoint David P. Mansfield
as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said David
P. Mansfield may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating
to the offering of the Company’s common stock, including specifically, but not limited to, power and authority to sign for
us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby approve, ratify and confirm all that said David P. Mansfield shall do or cause to be done by
virtue thereof.
Pursuant to the requirements
of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the
dates indicated.
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ David P. Mansfield
|
|
President and Chief Executive Officer (Principal Executive Officer)
|
|
March 13, 2015
|
|
David P. Mansfield
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Carol L. Houle
|
|
Executive
Vice President and Chief
Financial Officer (Principal Financial
|
|
March 13, 2015
|
|
Carol L. Houle
|
|
and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Charles R. Cullen
|
|
Chairman of the Board
|
|
March 13, 2015
|
|
Charles R. Cullen
|
|
|
|
|
|
|
|
|
|
|
|
/s/ John K. Bosen
|
|
Director
|
|
March 13, 2015
|
|
John K. Bosen
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Frank G. Cousins, Jr.
|
|
Director
|
|
March 13, 2015
|
|
Frank G. Cousins, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert A. Gonthier, Jr.
|
|
Director
|
|
March 13, 2015
|
|
Robert A. Gonthier, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Laurie H. Knapp
|
|
Director
|
|
March 13, 2015
|
|
Laurie H. Knapp
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Richard L. Peeke
|
|
Director
|
|
March 13, 2015
|
|
Richard L. Peeke
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Wayne S. Tatro
|
|
Director
|
|
March 13, 2015
|
|
Wayne S. Tatro
|
|
|
|
|
As filed with the Securities and Exchange
Commission on March 13, 2015
Registration No. 333-____________
_______________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
EXHIBITS
TO THE
REGISTRATION STATEMENT
ON
FORM S-1
Provident Bancorp, Inc.
SBERA 401(K) Plan as Adopted by The Provident
Bank
Amesbury, Massachusetts
EXHIBIT INDEX
|
1.1
|
Engagement Letters between Provident Bancorp, Provident Bancorp, Inc., The Provident Bank and Sandler, O’Neill & Partners, L.P.
|
|
1.2
|
Form of Agency Agreement between Provident Bancorp, Provident Bancorp, Inc., The Provident Bank and Sandler, O’Neill & Partners, L.P.*
|
|
2
|
Plan of Stock Issuance
|
|
3.1
|
Amended and Restated Articles of Organization of Provident Bancorp, Inc.
|
|
3.2
|
By-Laws of Provident Bancorp, Inc.
|
|
4.1
|
Form of Common Stock Certificate of Provident Bancorp, Inc.
|
|
4.2
|
Small Business Lending Fund—Securities Purchase Agreement dated September 13, 2011 between the Secretary of the Treasury and Provident Bancorp, Inc.
|
|
5
|
Opinion of Luse Gorman, PC regarding legality of securities being registered
|
|
8.1
|
Federal Tax Opinion of Luse Gorman, PC*
|
|
8.2
|
State Tax Opinion*
|
|
10.1
|
Form of The Provident Bank Employee Stock Ownership Plan †
|
|
10.2
|
Employment Agreement with David P. Mansfield †
|
|
10.3
|
Employment Agreement with Charles F. Withee †
|
|
10.4
|
Employment Agreement with Carol L. Houle †
|
|
10.5
|
Amended and Restated Supplemental Executive Retirement Agreement with David P. Mansfield †
|
|
10.6
|
Amended and Restated Supplemental Executive Retirement Agreement with Charles F. Withee †
|
|
10.7
|
Supplemental Executive Retirement Agreement with Carol L. Houle †
|
|
10.8
|
The Provident Bank Executive Annual Incentive Plan †
|
|
10.9
|
The Provident Bank 2005 Amended and Restated Long-Term Incentive Plan †
|
|
21
|
Subsidiaries of the Registrant
|
|
23.1
|
Consent of Luse Gorman, PC (contained in Opinions included as Exhibits 5 and 8.1)
|
|
23.2
|
Consent of RP Financial, LC.
|
|
23.3
|
Consent of Whittlesey & Hadley, P.C.
|
|
23.4
|
Consent of Baker Newman Noyes (contained in Opinion included as Exhibit 8.2)
|
|
24
|
Power of Attorney (set forth on signature page)
|
|
99.1
|
Appraisal Agreement between The Provident Bank and RP Financial, LC.
|
|
99.2
|
Letter of RP Financial, LC. with respect to Subscription Rights
|
|
99.3
|
Appraisal Report of RP Financial, LC.
|
|
99.4
|
Marketing Materials
|
|
99.5
|
Stock Order and Certification Form
|
|
99.6
|
Letter of RP Financial, LC. with respect to Liquidation Account
|
_______________________________
|
|
†
|
Management contract or compensation plan or arrangement.
|
|
|
*
|
To be filed by amendment.
|
Exhibit 1.1
November 3, 2014
Board of Trustees
Provident Bancorp
Boards of Directors
Provident Bancorp Inc.
The Provident Bank
Five Market Street
Amesbury, MA 01913
|
|
Attention:
|
Mr. David P. Mansfield
|
Ladies and Gentlemen:
Sandler O’Neill &
Partners, L.P. (“Sandler O’Neill”) is pleased to assist Provident Bancorp (the “MHC”), Provident
Bancorp Inc. (the “Bancorp”) and The Provident Bank (the “Bank”) with the offer and sale of certain shares
of the common stock of the Bancorp (the “Common Stock”) to the Bank’s eligible account holders in a Subscription
Offering and, under certain circumstances, to members of the Bank’s community in a direct Community Offering and to the general
public in a Syndicated Community Offering (collectively, the “Offering”), all pursuant to the terms of a Plan of Stock
Issuance to be adopted by the Board of Trustees of the MHC and the Boards of Directors of Bancorp and the Bank (the “Plan”).
For purposes of this letter, the MHC, the Bancorp and the Bank are sometimes collectively referred to as the “Company”
and their respective boards of trustees/directors are sometimes collectively referred to as the “Boards.” This letter
is to confirm the terms and conditions of our engagement.
SERVICES
Sandler O’Neill will
act as exclusive marketing agent for the Company in the Offering. We will work with the Company and its management, counsel, accountants
and other advisors on the Offering and anticipate that our services will include the following, each as may be necessary and as
the Company may reasonably request:
|
|
1.
|
Consulting as to the marketing implications of any aspect of the Plan, including the percentage
of Common Stock to be offered in the Offering;
|
|
|
2.
|
Reviewing with the Boards the financial impact of the Offering on the Company, based upon the independent
appraiser’s appraisal of the common stock;
|
Boards of Trustees/Directors
Provident Bancorp
Provident Bancorp Inc.
The Provident Bank
November 3, 2014
2
|
|
3.
|
Reviewing all offering documents, including the Prospectus, stock order forms and related offering
materials (it being understood that preparation and filing of such documents will be the responsibility of the Company and its
counsel);
|
|
|
4.
|
Assisting in the design and implementation of a marketing strategy for the Offering;
|
|
|
5.
|
Assisting Company management in scheduling and preparing for meetings with potential investors
and/or other broker-dealers in connection with the Offering; and
|
|
|
6.
|
Providing such other general advice and assistance as may be requested to promote the successful
completion of the Offering.
|
SUBSCRIPTION AND COMMUNITY OFFERING FEES
If the Offering is consummated,
the Company agrees to pay Sandler O’Neill for its services a fee of one percent (1.0%) of the aggregate Actual Purchase Price
of the shares of Common Stock sold in the Subscription Offering and Community Offering, excluding Common Stock purchased by or
on behalf of (i) any employee benefit plan or trust of the Company established for the benefit of its directors, officers and employees,
(ii) any charitable foundation established by the Company (or any shares contributed to such a charitable foundation), and (iii)
any director, trustee, corporator, officer or employee of the Company or members of their immediate families (whether directly
or through a personal trust). For purposes of this letter, the term “Actual Purchase Price” shall mean the price at
which the shares of the Common Stock are sold in the Offering.
If (a) Sandler O’Neill’s
engagement hereunder is terminated for any of the reasons provided for under the second paragraph of the section of this letter
captioned “Definitive Agreement,” or (b) the Offering is terminated by the Company, no fees shall be payable by the
Company to Sandler O’Neill hereunder; however, the Company shall reimburse Sandler O’Neill for its reasonable out-of-pocket
expenses (including legal fees) incurred in connection with its engagement hereunder and for any fees and expenses incurred by
Sandler O’Neill on behalf of the Company pursuant to the second paragraph under the section captioned “Costs and Expenses”
below.
All fees and expense reimbursements
payable to Sandler O’Neill hereunder shall be payable in cash at the time of the closing of the Offering, or upon the termination
of Sandler O’Neill’s engagement hereunder or termination of the Offering, as the case may be. In recognition of the
long lead times involved in the stock offering process, the Company agrees to make an advance payment to Sandler O’Neill
in the amount of $25,000, payable upon execution of this letter, which shall be credited against any fees or reimbursement of expenses
payable hereunder. In the event that the
Boards of Trustees/Directors
Provident Bancorp
Provident Bancorp Inc.
The Provident Bank
November 3, 2014
3
advance payment exceeds the amount due in payment
of fees and reimbursement of expenses hereunder, the excess shall be refunded to the Company.
SYNDICATED COMMUNITY OFFERING
If any shares of the Common
Stock remain available after the expiration of the Subscription Offering and the Community Offering, at the request of the Company
and subject to the continued satisfaction of the conditions set forth in the second paragraph under the caption “Definitive
Agreement” below, Sandler O’Neill will seek to sell such Common Stock in a Syndicated Community Offering on a best
efforts basis, subject to the terms and conditions to be set forth in a selected dealers agreement, and may, in consultation with
the Company, form a syndicate of registered dealers to assist in such efforts. With respect to any shares of the Common Stock sold
by Sandler O’Neill or any other FINRA member firm under any selected dealers agreements in a Syndicated Community Offering,
the Company agrees to pay a commission not to exceed 5.5% of the aggregate Actual Purchase Price of the shares of Common Stock
sold in such Syndicated Community Offering. Sandler O’Neill will endeavor to distribute the Common Stock among dealers in
a fashion that best meets the distribution objectives of the Company and the requirements of the Plan, which may result in limiting
the allocation of stock to certain selected dealers. It is understood that in no event shall Sandler O’Neill be obligated
to take or purchase any shares of the Common Stock in the Offering.
COSTS AND EXPENSES
In addition to any fees
that may be payable to Sandler O’Neill hereunder and the expenses to be borne by the Company pursuant to the following paragraph,
the Company agrees to reimburse Sandler O’Neill, upon request made from time to time, for its reasonable out-of-pocket expenses
incurred in connection with its engagement hereunder, regardless of whether the Offering is consummated, including, without limitation,
legal fees and expenses, communications, syndication and travel expenses, up to a maximum of $100,000 for legal fees and expenses
and $10,000 for all other out-of-pocket expenses;
provided, however
, that Sandler O’Neill shall document such expenses
to the reasonable satisfaction of the Company. The provisions of this paragraph are not intended to apply to or in any way impair
the indemnification provisions of this letter.
As is customary, the Company
will bear all other expenses incurred in connection with the Offering, including, without limitation, (i) the cost of obtaining
all securities and bank regulatory approvals, including any required FINRA filing fees; (ii) the cost of printing and distributing
the offering materials; (iii) the costs of blue sky qualification (including fees and expenses of blue sky counsel) of the shares
in the various states; (iv) listing fees; (v) all fees and disbursements of the
Boards of Trustees/Directors
Provident Bancorp
Provident Bancorp Inc.
The Provident Bank
November 3, 2014
4
Company’s counsel, accountants, records
management agent, transfer agent and other advisors; and (vi) the establishment and operational expenses for the Stock Information
Center (e.g., postage, telephones, supplies, temporary employees, etc.). In the event Sandler O’Neill incurs any such fees
and expenses on behalf of the Company, the Company will reimburse Sandler O’Neill for such fees and expenses whether or not
the Offering are consummated.
DUE DILIGENCE REVIEW
Sandler O’Neill’s
obligation to perform the services contemplated by this letter shall be subject to the satisfactory completion of such investigation
and inquiries relating to the Company and its trustees, directors, officers, agents and employees, as Sandler O’Neill and
its counsel in their sole discretion may deem appropriate under the circumstances. In this regard, the Company agrees that, at
its expense, it will make available to Sandler O’Neill all information that Sandler O’Neill requests, and will allow
Sandler O’Neill the opportunity to discuss with the management of the Company the financial condition, business and operations
of the Company. The Company acknowledges that Sandler O’Neill will rely upon the accuracy and completeness of all information
received from the Company and its directors, trustees, officers, employees, agents, independent accountants and counsel.
BLUE SKY MATTERS
Sandler O’Neill and
the Company agree that the Company’s counsel shall serve as counsel with respect to blue sky matters in connection with the
Offering. The Company will cause such counsel to prepare a Blue Sky Memorandum related to the Offering, including Sandler O’Neill’s
participation therein, and shall furnish Sandler O’Neill a copy thereof addressed to Sandler O’Neill or upon which
such counsel shall state Sandler O’Neill may rely.
CONFIDENTIALITY
Except as contemplated
in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation
or legal process, Sandler O’Neill agrees that it will treat as confidential all material, non-public information relating
to the Company obtained in connection with its engagement hereunder (the “Confidential Information”);
provided,
however
, that Sandler O’Neill may disclose such information to its agents and advisors who are assisting or advising
Sandler O’Neill in performing its services hereunder and who have agreed to comply with the terms and conditions of this
paragraph. As used in this paragraph, the term “Confidential Information” shall not include information which (a) is
or becomes generally available to the public other than as a result of a disclosure by Sandler O’Neill in breach of the
Boards of Trustees/Directors
Provident Bancorp
Provident Bancorp Inc.
The Provident Bank
November 3, 2014
5
confidentiality obligations contained herein,
(b) was available to Sandler O’Neill on a non-confidential basis prior to its disclosure to Sandler O’Neill by the
Company, (c) becomes available to Sandler O’Neill on a non-confidential basis from a person other than the Company who is
not otherwise known to Sandler O’Neill to be bound not to disclose such information pursuant to a contractual, legal or fiduciary
obligation, or (d) is independently developed by Sandler O’Neill without use of or reference to the Confidential Information
disclosed hereunder.
The Company hereby acknowledges
and agrees that the financial models and presentations used by Sandler O’Neill in performing its services hereunder have
been developed by and are proprietary to Sandler O’Neill and are protected under applicable copyright laws. The Company agrees
that it will not reproduce or distribute all or any portion of such models or presentations without the prior written consent of
Sandler O’Neill.
INDEMNIFICATION
Since Sandler O’Neill
will be acting on behalf of the Company in connection with the Offering, each of the MHC, the Bank and the Bancorp agrees to indemnify
and hold Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934 (Sandler
O'Neill and each such person being an “Indemnified Party”) harmless from and against any and all losses, claims, damages
and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or
otherwise, related to or arising out of the Offering or the engagement of Sandler O'Neill pursuant to, or the performance by Sandler
O'Neill of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses (including reasonable
legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation
for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified
Party is a party;
provided, however
, that the Company shall only be obligated to pay for one separate counsel (in addition
to any required local counsel) in any one action or proceeding or group of related actions or proceedings for all Indemnified Parties
collectively;
and provided further
, that the Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense (i) arises out of or is based upon any untrue statement of a material fact or the omission
of a material fact required to be stated therein or necessary to make not misleading any statements contained in any final prospectus,
or any amendment or supplement thereto, made in reliance on and in conformity with written information furnished to the Company
by Sandler O’Neill expressly for use therein, or (ii) is primarily attributable to the gross negligence, willful misconduct
or bad faith of Sandler O’Neill. If the foregoing indemnification is unavailable for any reason, the Company agrees to contribute
to such losses, claims, damages, liabilities and
Boards of Trustees/Directors
Provident Bancorp
Provident Bancorp Inc.
The Provident Bank
November 3, 2014
6
expenses in the proportion that its financial
interest in the Offering bears to that of Sandler O’Neill.
The Company agrees to notify
Sandler O'Neill promptly of the assertion against it or any other person of any claim or the commencement of any action or proceeding
relating to any transaction contemplated by this agreement.
Notwithstanding any other
provision set forth in this Agreement, in no event shall any payments made by the Company pursuant to this section exceed the amount
permissible under applicable federal law, including, without limitation, Section 18(k) of the Federal Deposit Insurance Act and
the regulations promulgated thereunder.
DEFINITIVE AGREEMENT
Sandler O’Neill and
the Company agree that (a) except as set forth in clause (b), the foregoing represents the general intention of the Company and
Sandler O’Neill with respect to the services to be provided by Sandler O’Neill in connection with the Offering, which
will serve as a basis for Sandler O’Neill commencing activities, and (b) the only legal and binding obligations of the Company
and Sandler O’Neill with respect to the Offering shall be (1) the Company’s obligation to reimburse costs and expenses
pursuant to the section captioned “Costs and Expenses,” (2) those set forth under the captions “Confidentiality”
and “Indemnification,” and (3) as set forth in a duly negotiated and executed definitive Agency Agreement to be entered
into prior to the commencement of the Offering relating to the services of Sandler O’Neill in connection with the Offering.
Such Agency Agreement shall be in form and content satisfactory to Sandler O’Neill and the Company and their respective counsel
and shall contain standard indemnification and contribution provisions consistent herewith.
Sandler O’Neill’s
execution of such Agency Agreement shall also be subject to (i) Sandler O’Neill’s satisfaction with its investigation
of the Company’s business, financial condition and results of operations, (ii) preparation of offering materials that are
satisfactory to Sandler O’Neill and its counsel, (iii) compliance with all relevant legal and regulatory requirements to
the reasonable satisfaction of Sandler O’Neill, (iv) agreement that the price established by the independent appraiser is
reasonable, and (v) market conditions at the time of the proposed offering. Sandler O'Neill may terminate this agreement if such
Agency Agreement is not entered into prior December 31, 2015.
Boards of Trustees/Directors
Provident Bancorp
Provident Bancorp Inc.
The Provident Bank
November 3, 2014
7
This Agreement constitutes
the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed
by the parties. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard
to the conflicts of laws principles thereof.
Please confirm that the
foregoing correctly sets forth our agreement by signing and returning to Sandler O’Neill the duplicate copy of this letter
enclosed herewith.
|
|
Very truly yours,
|
|
|
|
|
|
SANDLER O’NEILL & PARTNERS, L.P.
|
|
|
By: Sandler O’Neill & Partners Corp.,
|
|
|
the sole general partner
|
|
|
|
|
|
|
By:
|
/s/ Mary Anne Callahan
|
|
|
|
Mary Anne Callahan
|
|
|
|
An Officer of the Corporation
|
Accepted and agreed to as of
the date first above written:
PROVIDENT BANCORP
PROVIDENT BANCORP INC.
THE PROVIDENT BANK
|
By:
|
/s/ David P. Mansfield
|
|
|
|
David P. Mansfield
|
|
|
|
Chief Executive Officer
|
|
November 3, 2014
Mr. David P. Mansfield
Chief Executive Officer
Provident Bancorp
Provident Bancorp Inc.
The Provident Bank
Five Market Street
Amesbury, MA 01913
Dear Mr. Mansfield:
Sandler O’Neill &
Partners, L.P. (“Sandler O’Neill”) is pleased to act as records management agent for Provident Bancorp (“Provident”),
Provident Bancorp Inc. (the “Bancorp”) and The Provident Bank (the “Bank”) in connection with the offer
and sale of certain shares of the common stock of the Bancorp to the Bank's eligible account holders in a Subscription Offering
and, under certain circumstances, to members of the Bank’s community in a direct Community Offering and to the general public
in a Syndicated Community Offering (collectively, the “Offering”) pursuant to the terms of a Plan of Stock Issuance
to be adopted by the Company (the “Plan”). Provident, the Bancorp and the Bank are sometimes collectively referred
to herein as the “Company.” This letter is to confirm the terms and conditions of our engagement.
SERVICES AND FEES
In our role as Records
Management Agent, we anticipate that our services will include the services outlined below, each as may be necessary and as the
Company may reasonably request:
|
I.
|
|
Consolidation of Accounts
|
|
II.
|
|
Design and Preparation of Stock Order Forms
|
|
III.
|
|
Organization and Supervision of the Stock Information Center
|
|
IV.
|
|
Subscription Services
|
Each of these services
is further described in Appendix A to this agreement.
Mr. David P. Mansfield
November 3, 2014
2
For its services hereunder,
the Company agrees to pay Sandler O’Neill a fee of $25,000. This fee is based upon the requirements of current regulations
and the Plan as currently contemplated. Any unusual or additional items or duplication of service required as a result of a material
change in the regulations or the Plan or a material delay or other similar events may result in extra charges that will be covered
in a separate agreement if and when they occur. The Company will inform Sandler O’Neill within a reasonable period of time
of any changes in the Plan that require changes in Sandler O’Neill’s services.
All fees under this agreement
shall be payable in cash, as follows: (a) $10,000 payable upon execution of this agreement, which shall be non-refundable; and
(b) the balance upon the mailing of the offering materials.
COSTS AND EXPENSES
It is understood that all
expenses associated with the operation of the Stock Offering Center will be borne by the Company. The Company also agrees to reimburse
Sandler O’Neill, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with
its engagement hereunder, regardless of whether the Offering is consummated, including, without limitation, travel, lodging, food,
telephone, postage, communications and other similar expenses, up to a maximum of $30,000;
provided, however
, that Sandler
O’Neill shall document such expenses to the reasonable satisfaction of the Company. The provisions of this paragraph are
not intended to apply to or in any way impair the indemnification provisions of this agreement.
RELIANCE ON INFORMATION PROVIDED
The Company will provide
Sandler O’Neill with such information as Sandler O’Neill may reasonably require to carry out its duties hereunder.
The Company recognizes and confirms that Sandler O’Neill (a) will use and rely on such information in performing the services
contemplated by this agreement without having independently verified the same, and (b) does not assume responsibility for the accuracy
or completeness of the information.
LIMITATIONS
Sandler O’Neill,
as records management agent hereunder, (a) shall have no duties or obligations other than those specifically set forth herein;
(b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness
of any order form or any stock certificates or statements of ownership or the shares represented thereby, and will not be required
to and will make no representations as to the validity, value or genuineness of the offer; (c) shall not be liable to any person
or entity, including the Company, by reason of any error of judgment or for any act done by it in good faith, or for any mistake
of law or fact in
Mr. David P. Mansfield
November 3, 2014
3
connection with this agreement and the performance hereof unless caused by or arising out of its own willful
misconduct, bad faith or gross negligence; (d) will not be obliged to take any legal action hereunder which might in its judgment
involve any expense or liability, unless it shall have been furnished with reasonable indemnity satisfactory to it; and (e) may
rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telex, telegram,
or other document or security delivered to it and in good faith believed by it to be genuine and to have been signed by the proper
party or parties.
Anything in this agreement
to the contrary notwithstanding, in no event shall Sandler O’Neill be liable for special, indirect or consequential loss
or damage of any kind whatsoever (including but not limited to lost profits), even if Sandler O’Neill has been advised of
the likelihood of such loss or damage and regardless of the form of action.
INDEMNIFICATION
The Company agrees to indemnify
and hold Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents and controlling
persons (Sandler O’Neill and each such person being an “Indemnified Party”) harmless from and against any and
all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable
federal or state law, or otherwise, related to or arising out of the engagement of Sandler O’Neill pursuant to, and the performance
by Sandler O’Neill of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable counsel fees and expenses) as they are incurred, including expenses incurred in connection with the investigation
of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not
such Indemnified Party is a party. The Company will not be liable under the foregoing indemnification provision to the extent that
any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted
primarily from Sandler O’Neill’s willful misconduct, bad faith or gross negligence.
Notwithstanding any other
provision set forth in this Agreement, in no event shall any payments made by the Company pursuant to this section exceed the amount
permissible under applicable federal law, including, without limitation, Section 18(k) of the Federal Deposit Insurance Act and
the regulations promulgated thereunder.
MISCELLANEOUS
The following addresses
shall be sufficient for written notices to each other:
Mr. David P. Mansfield
November 3, 2014
4
|
If to you:
|
|
Provident Bancorp Inc.
|
|
|
|
The Provident Bank
|
|
|
|
Five Market Street
|
|
|
|
Amesbury, MA 01913
|
|
|
|
Attention: Mr. David P. Mansfield
|
|
|
|
|
|
If to us:
|
|
Sandler O’Neill &
Partners, L.P.
|
|
|
|
1251 Avenue of the Americas
|
|
|
|
New York, New York 10020
|
|
|
|
Attention: General Counsel
|
The Agreement and appendix
hereto constitute the entire Agreement between the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws of the
State of New York.
Please confirm that the
foregoing correctly sets forth our agreement by signing and returning to Sandler O’Neill the duplicate copy of this letter
enclosed herewith.
|
|
Very truly yours,
|
|
|
|
|
|
SANDLER O’NEILL &
PARTNERS, L.P.
|
|
|
By:
|
Sandler O’Neill
& Partners Corp.,
the sole general partner
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Mary Anne Callahan
|
|
|
|
Mary Anne
Callahan
An Officer of the Corporation
|
Accepted
and agreed to as of
the date first above written:
Provident Bancorp
Provident Bancorp Inc.
The Provident Bank
By:
/s/ David P.
Mansfield
David P. Mansfield
Chief Executive Officer
APPENDIX A
OUTLINE OF RECORDS MANAGEMENT AGENT
SERVICES
|
|
I.
|
Consolidation of Deposit Accounts
|
1. Consolidate files
in accordance with regulatory guidelines and create central file.
2. Our EDP
format will be provided to your IT representatives.
|
|
II.
|
Design and Preparation of Stock Order Forms
|
|
|
1.
|
Assist in designing stock order forms for ordering stock.
|
|
|
2.
|
Prepare deposit account holder data for stock order forms.
|
|
III.
|
Organization and Supervision of Stock
Information Center
|
|
|
1.
|
Advising on physical organization of the Stock Information Center, including materials requirements.
|
|
|
2.
|
Assist in training of all Company/temporary personnel who will staff the Stock Information Center.
|
|
|
3.
|
Establish processing/reporting
procedures for order forms.
|
|
|
4.
|
On-site supervision of the Stock Information Center during the offering period.
|
|
IV.
|
Subscription Services
|
|
|
1.
|
Produce list of depositors
by state (Blue Sky report).
|
|
|
2.
|
Production of subscription
rights and research books.
|
|
|
3.
|
Stock order form processing.
|
|
|
4.
|
Acknowledgment letter
to confirm receipt of stock order.
|
|
|
5.
|
Daily reports and
analysis.
|
|
|
6.
|
Proration calculation and share allocation in the event of an oversubscription.
|
|
|
7.
|
Produce charter shareholder
list.
|
|
|
8.
|
Interface with transfer
agent for stock certificate or beneficial ownership statement issuance.
|
|
|
9.
|
Refund and interest calculations.
|
|
|
10.
|
Confirmation letter
to confirm purchase of stock.
|
|
|
11.
|
Notification
of full/partial rejection of orders.
|
|
|
12.
|
Production of 1099/Debit
tape.
|
Exhibit 2
PROVIDENT BANCORP, INC.
PLAN OF STOCK ISSUANCE
DATED MARCH 10, 2015
PROVIDENT BANCORP, INC.
PLAN OF STOCK ISSUANCE
ARTICLE I.
INTRODUCTION - BUSINESS PURPOSE
This Plan of Stock Issuance (the “Plan”)
provides for the minority stock issuance by Provident Bancorp, Inc. (the “Mid-Tier Holding Company”), a wholly-owned
subsidiary of Provident Bancorp (the “MHC”), whereby the Mid-Tier Holding Company will offer for sale up to 49.9% of
its Common Stock upon the terms and conditions set forth herein to Eligible Account Holders, Supplemental Eligible Account Holders,
the Employee Plans established by The Provident Bank (the “Bank”) or the Mid-Tier Holding Company, and Employees, Officers,
directors, trustees and Corporators of the Bank, the Mid-Tier Holding Company and the MHC, according to the respective priorities
set forth in the Plan. Any shares not subscribed for by the foregoing classes of Persons may be offered for sale to certain members
of the public directly by the Mid-Tier Holding Company through a Direct Community Offering and/or a Syndicated Community Offering
or through a Firm Commitment Underwritten Offering. Upon completion of the Offering, the MHC will continue to own at
least a majority of the outstanding common stock of the Mid-Tier Holding Company. Upon completion of the Offering, Eligible
Account Holders and Supplemental Eligible Account Holders will be granted interests in the liquidation account to be established
by the Bank or the Mid-Tier Holding Company pursuant to Section 9.7 hereof. Capitalized terms used but not defined in
this Article I shall have the respective meanings set forth in Article II hereof.
In furtherance of the Bank’s commitment
to its community, the Bank intends to cause to be formed a charitable foundation (the “Foundation”) as part of the
Offering. The Foundation is intended to complement the Bank’s community reinvestment activities in a manner that will allow
the Bank’s local communities to share in the growth and profitability of the Mid-Tier Holding Company and the Bank over the
long term. Consistent with the Bank’s goal, the Plan provides for the Mid-Tier Holding Company to donate to the Foundation
a number of shares of authorized but unissued Common Stock in an amount up to 2.0% of the number of shares of Common Stock issued
in the Stock Issuance, as well as cash or marketable securities.
The Plan is subject to the approval of various
regulatory agencies. The Plan must also be approved by a majority of the total votes of the Corporators and a majority
of the Independent Corporators (who shall constitute not less than 60% of all Corporators) eligible to be cast at the annual meeting
or at a special meeting called for such purpose. By approving the Plan, the Corporators will also be approving all steps
necessary or incidental to effect the Stock Issuance and Offering. In addition, the contribution to the Foundation must
be approved by a majority of the total votes of the Corporators and a majority of the Independent Corporators (who shall constitute
not less than 60% of all Corporators) eligible to be cast at the annual meeting or at a special meeting called for such purpose.
ARTICLE II.
DEFINITIONS
As used in the Plan, the terms set forth below
have the following meanings:
2.1. ACTING IN CONCERT.
The
term “ACTING IN CONCERT” means Persons seeking to combine or pool their voting or other interests (such as subscription
rights) in the securities of an issuer for a common purpose, pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. When Persons act together for such purpose, their group is deemed to have acquired
their stock. The determination of whether a group is Acting in Concert shall be made solely by the Board of Directors of the Mid-Tier
Holding Company or the Officers as delegated by Board of Directors of the Mid-Tier Holding Company and may be based on any evidence
upon which such Board or such delegatee chooses to rely, including, without limitation, joint account relationships or the fact
that such Persons have filed joint Schedules 13D with the SEC with respect to other companies;
provided
, however, that the
determination of whether a group is Acting in Concert remains subject to review by the Division. Persons having the
same address, whether or not related, will be deemed to be Acting in Concert unless otherwise determined by the Board or such delegatee. Trustees
of the MHC,
directors of the Mid-Tier Holding Company or directors of the Bank
shall not be deemed to be Acting in Concert solely as a result of their membership on any such board or boards.
2.2. AFFILIATE.
An “AFFILIATE”
of, or a Person “AFFILIATED” with, a specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with the Person specified.
2.3. APPLICATION.
The application,
including a copy of the Plan, submitted by the Mid-Tier Holding Company to the Commissioner for approval of the Offering.
2.4. ASSOCIATE.
The term
“ASSOCIATE,” when used to indicate a relationship with any Person, means: (i) any corporation or organization (other
than the Bank, the Mid-Tier Holding Company, the MHC or a majority-owned subsidiary of any thereof) of which such Person is an
Officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any
trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity; and (iii) any relative or spouse of such Person or any relative of such spouse, who has the same
home as such Person or who is a director or trustee or Officer of the Bank, the Mid-Tier Holding Company or the MHC; provided,
however, that (i) any Tax-Qualified Employee Plan shall not be deemed to be an Associate of any trustee, Officer or Corporator
of the Bank for the purposes of Section 8.4 hereof, and (ii) any Tax-Qualified or Nontax-Qualified Employee Plan shall not be deemed
to be an Associate of any director, trustee or Officer of the MHC, the Mid-Tier Holding Company or the Bank for any other purpose
to the extent provided in the Plan. When used to refer to a Person other than a director or trustee or Officer of the Bank, the
Mid-Tier Holding Company or the MHC, the Mid-Tier Holding Company or the Bank, as applicable, may determine in its sole discretion
the Persons that are Associates of other Persons. Trustees of the MHC and directors of the Mid-Tier Holding Company
and the Bank shall not be deemed to be Associates solely as a result of their membership on such board or boards.
2.5. BANK.
The Provident
Bank, a Massachusetts-chartered savings bank.
2.6. BANK REGULATORS.
The
Commissioner, the FRB and other bank regulatory agencies, if any, responsible for reviewing and approving the Plan and the Stock
Issuance.
2.7. COMMISSIONER.
The
Commissioner of Banks of the Commonwealth of Massachusetts.
2.8. COMMON STOCK.
The
common stock authorized to be issued from time to time by the Mid-Tier Holding Company.
2.9. COMMUNITY OFFERING.
A
Direct Community Offering and/or a Syndicated Community Offering.
2.10. CONTROL (INCLUDING THE TERMS “CONTROLLING”,
“CONTROLLED BY”, AND “UNDER COMMON CONTROL WITH”).
The possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.
2.11. CORPORATOR.
A Corporator
of the MHC.
2.12. DEPOSIT ACCOUNT.
Any
withdrawable deposit account offered by the Bank, including, without limitation, savings accounts, NOW account deposits, certificates
of deposit, demand deposits, Keogh Plans, SEPs and IRA accounts for which the Bank acts as custodian or trustee, and such other
types of deposit accounts as may then have been authorized by Massachusetts or federal law and regulations, but not including repurchase
agreements, savings bank life insurance policies, certain escrow accounts, or trust department accounts held separately from deposit
accounts in accordance with Section 4 of Chapter 167G of the Massachusetts General Laws.
2.13. DIRECT COMMUNITY OFFERING.
The
offering for sale directly by the Mid-Tier Holding Company of Common Stock (i) to the Local Community, as provided in Section 7.6
of the Plan, with preference
given to natural persons residing in the Local Community, including
trusts of natural persons, and then (ii) to the public at large. The Direct Community Offering may be conducted simultaneously
with the Subscription Offering.
2.14. DIVISION.
The Division
of Banks of the Commonwealth of Massachusetts.
2.15. ELIGIBLE ACCOUNT HOLDER.
Any
Person holding a Qualifying Deposit on the Eligibility Record Date.
2.16. ELIGIBILITY RECORD DATE.
February
28, 2014, the date for determining who qualifies as an Eligible Account Holder.
2.17. EMPLOYEE.
All Persons
who are employed by the Bank, the Mid-Tier Holding Company or the MHC. The term “EMPLOYEE” does not include
a trustee, director or Officer.
2.18. EMPLOYEE PLAN.
Any
Tax-Qualified Employee Plan or Nontax-Qualified Employee Plan.
2.19. ESOP.
The employee
stock ownership plan to be established by the Bank or the Mid-Tier Holding Company.
2.20. ESTIMATED VALUATION RANGE.
The
dollar range of the proposed Offering, as determined by the Independent Appraiser before the Offering and as it may be amended
from time to time thereafter. The Estimated Valuation Range may vary within 15% above or 15% below the midpoint of such range,
with a possible adjustment by up to 15% above the Range Maximum.
2.21. EXCHANGE ACT.
The
Securities Exchange Act of 1934, as amended.
2.22. FDIC.
The Federal
Deposit Insurance Corporation.
2.23. FIRM COMMITMENT UNDERWRITTEN OFFERING.
The
offering, at the sole discretion of the Mid-Tier Holding Company, of Common Stock not subscribed for in the Subscription Offering
and any Direct Community Offering, to members of the general public through one or more underwriters. A Firm Commitment
Underwritten Offering may commence during or following the Subscription Offering and the Direct Community Offering, if any.
2.24. FOUNDATION.
A charitable
foundation established and funded by the Mid-Tier Holding Company immediately following the Offering as contemplated by Article
IV hereof. The Foundation will qualify as an exempt organization under Section 501(c)(3) of the Internal Revenue Code of 1986,
as amended.
2.25. FRB.
The Board of
Governors of the Federal Reserve System.
2.26. FRB APPLICATION.
The
application, including a copy of the Plan, submitted by the Mid-Tier Holding Company to the FRB for approval of the Offering.
2.27. GROUP MAXIMUM PURCHASE LIMIT.
The
limitation on the purchase of shares of Common Stock established by Section 8.3, as such limit may be increased pursuant to said
Section 8.3.
2.28. INDEPENDENT APPRAISER.
The
appraiser retained by the Mid-Tier Holding Company to prepare an appraisal of the pro forma market value of the Common Stock.
2.29. INDEPENDENT CORPORATOR
. A
Corporator who is not an Employee, Officer or trustee of the MHC or an Employee, Officer, director, or “significant borrower”
of the Bank, as determined by the Commissioner.
2.30. INDEPENDENT VALUATION.
The
estimated pro forma market value of the Common Stock as determined by the Independent Appraiser.
2.31. INDIVIDUAL MAXIMUM PURCHASE LIMIT.
The
limitation on the purchase of shares of Common Stock established by Section 8.2, as such limit may be increased pursuant to said
Section 8.2.
2.32. INFORMATION STATEMENT.
The
information statement required to be sent to the Corporators in connection with the Special Meeting.
2.33. INSIDER.
An
Officer, director, trustee or Corporator of the Bank, the Mid-Tier Holding Company or the MHC.
2.34. LIQUIDATION ACCOUNT.
The
liquidation account established pursuant to Section 9.7 of the Plan.
2.35. LOCAL COMMUNITY.
The
Massachusetts cities and towns of Amesbury, Merrimac, Newbury, Newburyport, Salisbury and West Newbury, and the New Hampshire cities
and towns of Brentwood, Exeter, Greenland, Hampton, Hampton Falls, Kensington, New Castle, Newfields, Newington, Newmarket, North
Hampton, Portsmouth, Rye, Seabrook, South Hampton and Stratham.
2.36. MARKETING AGENT.
The
broker-dealer responsible for organizing and managing the Offering and sale of the Common Stock.
2.37. MARKET MAKER.
A broker-dealer
who, with respect to a particular security, (i) regularly publishes bona fide competitive bid and offer quotations on request,
and (ii) is ready, willing and able to effect transactions in reasonable quantities at the dealer’s quoted prices with other
brokers or dealers.
2.38. MHC.
Provident Bancorp,
the Massachusetts-chartered mutual holding company for the Bank.
2.39. MID-TIER HOLDING COMPANY.
Provident Bancorp, Inc., a Massachusetts corporation.
2.40. NONTAX-QUALIFIED EMPLOYEE PLAN.
Any
defined benefit plan or defined contribution plan of the Bank, the Mid-Tier Holding Company, the MHC or any of their respective
Affiliates which is not qualified under Section 401 of the Internal Revenue Code of 1986, as amended.
2.41. OFFERING.
The Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering.
2.42. OFFICER.
The Chairman
of the Board, the Chief Executive Officer, the President, any officer of the level of vice president or above, the Clerk and the
Treasurer of the Bank or the Mid-Tier Holding Company, as the case may be.
2.43. PERSON.
An individual,
corporation, partnership, association, joint-stock company, trust (including Individual Retirement Accounts, SEPs and Keogh Accounts),
unincorporated organization, government entity or political subdivision thereof or any other entity.
2.44. PLAN.
This Plan of
Stock Issuance, as it exists on the date hereof and as it may hereafter be amended in accordance with its terms.
2.45. QUALIFYING DEPOSIT.
The
aggregate balances of all Deposit Accounts of an Eligible Account Holder as of the close of business on the Eligibility Record
Date or of a Supplemental Eligible Account Holder as of the close of business on the Supplemental Eligibility Record Date, as the
case may be, provided that, in either case, such aggregate balance is not less than $50.
2.46. RANGE MAXIMUM.
The
valuation which is 15% above the midpoint of the Estimated Valuation Range.
2.47. RANGE MINIMUM.
The
valuation which is 15% below the midpoint of the Estimated Valuation Range.
2.48. REGULATIONS.
The
regulations of the Division regarding issuances of stock by subsidiaries of mutual holding companies and the regulations of the
FRB regarding issuances of stock by subsidiaries of mutual holding companies.
2.49. SEC.
The Securities
and Exchange Commission.
2.50. SPECIAL MEETING.
The
Special Meeting of Corporators called for the purpose of voting on the Plan.
2.51. STOCK ISSUANCE.
The
shares of Common Stock sold in the Offering, issued to the MHC and contributed to the Foundation.
2.52. SUBSCRIPTION OFFERING.
The
offering of Common Stock for subscription by Persons holding subscription rights pursuant to the Plan.
2.53. SUBSCRIPTION PRICE.
The
price per share, determined as provided in Section 5.2 of the Plan, at which the Common Stock will be sold in the Offering.
2.54. SUBSIDIARY.
A company
that is controlled by another company, either directly or indirectly through one or more subsidiaries.
2.55. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER.
Any
Person (other than Insiders, or their respective Associates) holding a Qualifying Deposit on the Supplemental Eligibility Record
Date.
2.56. SUPPLEMENTAL ELIGIBILITY RECORD
DATE.
If the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application
filed prior to approval of the Application by the Commissioner, a Supplemental Eligibility Record Date shall be established for
determining who qualifies as a Supplemental Eligible Account Holder. If required, the Supplemental Eligibility Record Date shall
be October 15, 2014.
2.57. SYNDICATED COMMUNITY OFFERING.
At
the discretion of the Mid-Tier Holding Company, the offering of Common Stock following or contemporaneously with the Direct Community
Offering through a syndicate of broker-dealers.
2.58. TAX-QUALIFIED EMPLOYEE PLAN.
Any
defined benefit plan or defined contribution plan (including the ESOP, any stock bonus plan, profit-sharing plan, 401(k) plan or
other plan) of the Bank, the Mid-Tier Holding Company, the MHC or any of their respective Affiliates, which, with its related trusts,
meets the requirements to be qualified under Section 401 of the Internal Revenue Code of 1986, as amended. A Tax-Qualified
Employee Plan does not include a Recognition Plan (as defined in Section 9.5) or a plan that provides for the grating of stock
options.
ARTICLE III.
GENERAL PROCEDURE FOR STOCK ISSUANCE
3.1. PRECONDITIONS TO STOCK ISSUANCE.
The
Stock Issuance is expressly conditioned upon prior occurrence of the following:
3.1.1
Approval of the Plan by
the affirmative vote of a majority of the total votes of the Corporators and a majority of the Independent Corporators (who shall
constitute not less than 60% of all Corporators) eligible to be cast at a regular or special meeting of such Corporators in accordance
with the Regulations.
3.1.2
Approval by the Commissioner
of the Application.
3.1.3
Approval by the FRB of the
FRB Application.
3.1.4
Approval by such other state
and federal regulatory authorities as may be required to effect consummation of the Stock Issuance.
3.1.5
The receipt of private letter
rulings from the Internal Revenue Service and the Massachusetts Department of Revenue or opinions of its counsel as to the federal
income tax consequences of the Stock Issuance and of its tax accountants as to the Massachusetts income tax consequences of the
Stock Issuance, in either case substantially to the effect that the Stock Issuance will not result in a taxable reorganization
of the MHC, the Mid-Tier Holding Company or the Bank under the Internal Revenue Code of 1986, as amended.
3.2. SUBMISSION OF PLAN TO COMMISSIONER AND
FRB.
The Plan will be submitted to the Commissioner as part of the Application, and to the FRB as part of the FRB
Application, together with a copy of the proposed Information Statement and all other material required by the Regulations, for
approval by the Commissioner and the FRB. Upon a determination by the Commissioner that the Application is complete,
the Bank will publish and post public announcements and notices of the Application as required by the Commissioner and the Regulations.
3.3. SPECIAL MEETING OF CORPORATORS TO APPROVE
THE PLAN.
Following approval of the Plan by the Commissioner, the Special Meeting shall be scheduled in accordance
with the MHC’s Bylaws, and the Plan (as revised in response to comments received from the Commissioner and the FRB) and any
additional information required pursuant to the Regulations, will be submitted to the Corporators for their consideration and approval
at the Special Meeting. The MHC will mail to each Corporator a copy of the Information Statement not less than seven
days before the Special Meeting. Following approval of the Plan by the Corporators, the Mid-Tier Holding Company intends to take
such steps as may be appropriate pursuant to applicable laws and regulations to conduct and complete the Offering.
3.4. THE MID-TIER HOLDING COMPANY.
The
Board of Directors of the Mid-Tier Holding Company will take all necessary steps to complete the Stock Issuance, including the
timely filing of all necessary applications to appropriate regulatory authorities and the filing of a registration statement to
register the sale of the Common Stock with the SEC.
3.5. OFFER AND SALE OF COMMON STOCK.
3.5.1
If the Corporators approve
the Plan, and upon receipt of all required regulatory approvals, the Common Stock will be offered for sale in a Subscription Offering
simultaneously to Eligible Account Holders, Supplemental Eligible Account Holders, any Tax-Qualified Employee Plan, and directors,
trustees, Officers and Employees in the manner set forth in Article VII hereof. The Subscription Offering period will run for no
less than twenty (20) but no more than forty-five (45) days from the date of distribution of the Subscription Offering materials,
unless extended by the Mid-Tier Holding Company with the approval of the Commissioner and the FRB, if required. If feasible, any
Common Stock remaining may then be sold to the general public through a Direct Community Offering as provided in Article VII hereof,
which may be held either subsequent to or concurrently with the Subscription Offering.
3.5.2
If feasible, shares of Common
Stock remaining unsold after completion of the Subscription Offering and any Direct Community Offering may, in the sole discretion
of the Mid-Tier Holding Company, be sold in a Syndicated Community Offering (which may commence following or contemporaneously
with the Direct Community Offering) or a Firm Commitment Underwritten Offering, or in any manner receiving the required approval
of the Bank Regulators and other applicable regulatory agencies that will achieve a widespread distribution of the Common Stock. The
issuance of Common Stock in the Subscription Offering and any Direct Community Offering will be consummated simultaneously on the
date the sale of Common Stock is consummated in any Syndicated Community Offering or Firm Commitment Underwritten Offering, and
only if the required minimum number of shares of Common Stock has been issued. The sale of all shares of Common Stock
to be sold pursuant to this Plan must be completed within forty-five (45) days after termination of the Subscription Offering,
subject to the extension of such forty-five (45) day period by the Mid-Tier Holding Company with the approval of the Commissioner
and the FRB, if required. The Mid-Tier Holding Company may seek one or more extensions of such forty-five (45) day period if necessary
to complete the sale of shares of Common Stock. If sufficient shares of
Common Stock are sold in the Subscription Offering and any Direct
Community Offering, there will be no Syndicated Community Offering or Firm Commitment Underwritten Offering and the Sock Issuance
will be consummated upon completion of the Subscription Offering or the Direct Community Offering, as the case may be.
ARTICLE IV.
ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
4.1. ESTABLISHMENT OF THE FOUNDATION.
As
part of the Offering, the Mid-Tier Holding Company intends to establish the Foundation, which will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and to donate to the Foundation a number of shares of
its authorized but unissued Common Stock in an amount up to 2.0% of the number of shares of Common Stock issued in the Stock Issuance. The
Mid-Tier Holding Company also may make a contribution of cash or marketable securities to the Foundation.
4.2. PURPOSES OF THE FOUNDATION; CHARITABLE
CONTRIBUTIONS.
The Foundation is being formed in connection with the Offering in order to complement the Bank’s
existing community reinvestment activities and to share with the Bank’s community a part of the Bank’s financial success
as a locally headquartered, community minded, financial services institution. The funding of the Foundation with Common Stock accomplishes
this goal as it enables the community to share in the growth and profitability of the Mid-Tier Holding Company and the Bank over
the long term. The Foundation will be dedicated to the promotion of charitable purposes within the Bank’s community.
The Foundation will operate in accordance with
the following conditions, as well as any additional conditions imposed by the Bank Regulators:
|
|
•
|
The Foundation must vote its shares of Common Stock in the same ratio as other holders of such shares;
|
|
|
•
|
The Foundation shall be subject to examination by the Division and the FRB at the Foundation’s expense;
|
|
|
•
|
The Foundation shall comply with all supervisory directives or regulatory bulletins imposed by the Division or the FRB;
|
|
|
•
|
The Foundation shall operate in compliance with written policies adopted by its board of directors, including adopting a business
plan and conflict of interest policy;
|
|
|
•
|
The Foundation shall provide annual reports to the Division and the FRB describing the grants made and the grant recipients;
|
|
|
•
|
The Foundation shall not engage in self-dealing and shall comply with all laws necessary to maintain its tax-exempt status
under the Internal Revenue Code; and
|
|
|
•
|
Such other conditions, if any, as may be imposed by the
Commissioner.
|
4.3. BOARD OF DIRECTORS OF THE FOUNDATION.
The
board of directors of the Foundation will, for at least five years after its organization, consist of at least one member that
is also a Director of the Bank. The board of directors of the Foundation will be responsible for establishing the policies
of the Foundation with respect to grants or donations, consistent with the stated purposes of the Foundation. For at least five
years after the Offering, and except for temporary periods resulting from death, resignation, removal or disqualification, at least
one director on the board of directors of the Foundation will be an independent director who is not an employee, officer, trustee
or Corporator of the MHC, the Mid-Tier Holding Company or the Bank nor a significant borrower of the Bank.
ARTICLE V.
SHARES TO BE OFFERED
5.1. COMMON STOCK.
The Common
Stock to be issued in the Stock Issuance shall be fully paid and nonassessable. The total number of shares of Common
Stock authorized under the Mid-Tier Holding Company’s Charter will exceed the number of shares of Common Stock to be issued
in the Stock Issuance. COMMON STOCK WILL NOT BE COVERED BY DEPOSIT INSURANCE.
5.2. INDEPENDENT VALUATION, PURCHASE PRICE
AND NUMBER OF SHARES.
5.2.1 INDEPENDENT VALUATION.
An
Independent Appraiser shall be employed by the Mid-Tier Holding Company to provide it with an Independent Valuation as required
by the Regulations, which value shall be included in the prospectus (as described in Section 6.1 of this Plan) filed with the Commissioner,
the FRB and the SEC. The directors of the Mid-Tier Holding Company shall thoroughly review and analyze the methodology
and fairness of the Independent Valuation. The Independent Valuation will be made by a written report to the Mid-Tier Holding Company,
contain the factors upon which the Independent Valuation was made and conform to procedures adopted by the Commissioner and the
FRB. The Independent Valuation provided by the Independent Appraiser to the Mid-Tier Holding Company before the commencement of
the Subscription Offering will contain an Estimated Valuation Range of aggregate prices for the Common Stock to be sold in the
Offering, which range shall be based on the anticipated pro forma market value of the Common Stock. Such Estimated Valuation Range
will establish a midpoint and will vary within 15% above (the “RANGE MAXIMUM”) to 15% below (the “RANGE MINIMUM”)
such midpoint. The Independent Appraiser shall also present to the Mid-Tier Holding Company at the close of the Subscription Offering
an updated valuation of the pro forma market value of the Common Stock.
5.2.2 SUBSCRIPTION PRICE.
All
shares sold in the Offering will be sold at a uniform price per share (the “SUBSCRIPTION PRICE”), which is expected
to be determined before the commencement of the Offering. If there is a Syndicated Community Offering or Firm Commitment Underwritten
Offering, the price per share at which the Common Stock is sold in such Syndicated Community Offering or Firm Commitment Underwritten
Offering shall be equal to the per share purchase price of the shares sold in the Subscription Offering and the Direct Community
Offering. The aggregate value for all shares of Common Stock issued in the Stock Issuance valued for such purpose at the Subscription
Price will be equal to the estimated consolidated pro forma market value of the Common Stock, as determined for such purpose by
the Independent Appraiser.
5.2.3 NUMBER OF SHARES.
The total
number of shares (and a range thereof) of Common Stock to be issued and offered for sale will be determined by the Mid-Tier Holding
Company immediately before the commencement of the Subscription Offering based on the Independent Valuation, the Estimated Valuation
Range and the Subscription Price. The Independent Valuation, and such number of shares, shall be subject to adjustment thereafter
if necessitated by market or financial conditions, with the approval of the Commissioner and the FRB, if necessary. In particular,
the total number of shares may be increased by up to 15% above the Range Maximum if the Independent Valuation is increased subsequent
to the commencement of the Subscription Offering to reflect changes in market and financial conditions and the resulting aggregate
purchase price is not more than 15% above the Range Maximum.
5.2.4 INCREASE OR DECREASE IN NUMBER OF
SHARES.
The number of shares of Common Stock to be sold in the Offering may be increased or decreased by the Mid-Tier Holding
Company, subject to the following provisions. In the event that the aggregate purchase price of the number of shares of Common
Stock ordered is below the minimum of the Estimated Valuation Range, or materially above the Range Maximum, resolicitation of purchasers
may be required, provided, however, that a resolicitation will not be required if the number of shares increases by up to 15% above
the Range Maximum. Any such resolicitation shall be effected in such manner and within such time as the Mid-Tier Holding Company
shall establish, with the approval of the Commissioner and the FRB, if required.
5.2.5 CONFIRMATION OF VALUATION.
Notwithstanding the foregoing, no sale of Common Stock may be consummated unless, before such consummation, the Independent Appraiser
confirms to the Bank and to the Commissioner and to the FRB, if required, that, to the best knowledge of the Independent Appraiser,
nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser
to conclude that the aggregate value of all shares of Common Stock
ordered, at the Subscription Price, is incompatible with its estimate of the aggregate consolidated pro forma market value of the
Common Stock. An increase in the aggregate value of the Common Stock by up to 15% above the Range Maximum would not be deemed to
be material. If such confirmation is not received, the Mid-Tier Holding Company may cancel the Offering, resolicit and
extend the Offering and establish a new Subscription Price and/or Estimated Valuation Range, or hold a new Offering or take such
other action as the Commissioner and the FRB may permit.
ARTICLE VI.
SUBSCRIPTION RIGHTS AND ORDERS FOR COMMON
STOCK
6.1. DISTRIBUTION OF PROSPECTUS.
The
Offering shall be conducted in compliance with the Regulations and applicable SEC regulations. As soon as practicable after the
prospectus prepared by the Mid-Tier Holding Company has been declared effective and/or approved for use by the Commissioner, the
FRB, if required, and the SEC, copies of the prospectus and order forms will be distributed to all Eligible Account Holders, Supplemental
Eligible Account Holders, any Tax-Qualified Employee Plan and Employees, Officers, directors, trustees and Corporators at their
last known addresses appearing on the records of the MHC, the Mid-Tier Holding Company and the Bank for the purpose of subscribing
for shares of Common Stock in the Subscription Offering and will be made available (if and when a Community Offering is held) for
use by Persons in the Community Offering.
6.2. ORDER FORMS.
Each order
form will be preceded or accompanied by the prospectus describing the Mid-Tier Holding Company, the Bank, the Common Stock and
the Offerings. Each order form will contain, among other things, the following:
6.2.1
A specified date by which
all order forms must be received by the Mid-Tier Holding Company, which date shall be not less than 20 nor more than 45 days following
the date on which the order forms are mailed by the Mid-Tier Holding Company, and which date will constitute the expiration of
the Subscription Offering, unless extended;
6.2.2
The Subscription Price per
share for shares of Common Stock to be sold in the Offering;
6.2.3
A description of the minimum
and maximum number of shares of Common Stock that may be subscribed for pursuant to the exercise of subscription rights or otherwise
purchased in the offering;
6.2.4
Instructions as to how the
recipient of the order form is to indicate thereon the number of shares of Common Stock for which such Person elects to subscribe
and the available alternative methods of payment therefor;
6.2.5
An acknowledgment that the
recipient of the order form has received a copy of the prospectus before execution of the order form;
6.2.6
A statement indicating the
consequences of failing to properly complete and return the order form, including a statement to the effect that all subscription
rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering to the
Mid-Tier Holding Company within the Subscription Offering period such properly completed and executed order form, together with
a check or money order in the full amount of the purchase price as specified in the order form for the shares of Common Stock for
which the recipient elects to subscribe in the Subscription Offering (or by authorizing on the order form that the Bank withdraw
said amount from a Deposit Account at the Bank maintained by such Person, but only if the Bank elects to permit such withdrawals
from the type of such Deposit Account); and
6.2.7
A statement to the effect
that the executed order form, once received by the Mid-Tier Holding Company, may not be modified or amended by the subscriber without
the consent of the Mid-Tier Holding Company.
6.3. UNDELIVERED, DEFECTIVE OR LATE ORDER
FORM; INSUFFICIENT PAYMENT.
In the event order forms (a) are not delivered for any reason or are returned undelivered
to the Mid-Tier Holding Company by the United States Postal Service, (b) are not received back by the Mid-Tier Holding Company
or are
received by the Mid-Tier Holding Company after the expiration date
specified thereon, (c) are defectively filled out or executed, (d) are not accompanied by the full required payment for the shares
of Common Stock subscribed for (including cases in which Deposit Accounts from which withdrawals are authorized are insufficient
to cover the amount of the required payment), or (e) are not mailed pursuant to a “no mail” order placed in effect
by the account holder, the subscription rights of the Person to whom such rights have been granted will lapse as though such Person
failed to return the contemplated order form within the time period specified thereon; provided, however, that the Mid-Tier Holding
Company may, but will not be required to, waive any immaterial irregularity on any order form or require the submission of corrected
order forms or the remittance of full payment for subscribed shares by such date as the Mid-Tier Holding Company may specify, and
all interpretations by the Bank and the Mid-Tier Holding Company, as applicable, of terms and conditions of this Plan and of the
order forms will be final. The Mid-Tier Holding Company reserves the right in its sole discretion to accept or reject
orders received on photocopied or faxed order forms.
6.4. PAYMENT FOR STOCK.
6.4.1
All payments for Common
Stock subscribed for or ordered in the Offering must be delivered in full to the Mid-Tier Holding Company, together with a properly
completed and executed order form, except in the case of the Syndicated Community Offering or Firm Commitment Underwritten Offering,
on or before the expiration date specified on the order form, unless such date is extended by the Bank and the Mid-Tier Holding
Company; provided, however, that if any Employee Plan subscribes for shares during the Subscription Offering, such plans will not
be required to pay for the shares at the time they subscribe but rather may pay for such shares of Common Stock subscribed for
by such plans at the Subscription Price upon consummation of the Offering. The Mid-Tier Holding Company or the Bank
may make scheduled discretionary contributions to an Employee Plan provided such contributions from the Bank, if any, do not cause
the Bank to fail to meet its regulatory capital requirement. Payment for Common Stock may also be made by a participant in an Employee
Plan (including the Bank’s 401(k) plan) causing funds held for such participant’s benefit by an Employee Plan to be
paid over for such purchase to the extent that such plan allows participants or any related trust established for the benefit of
such participants to direct that some or all of their individual accounts or sub-accounts be invested in Common Stock.
6.4.2
Payment for Common Stock
shall be made either by check, bank draft or money order, or if a purchaser has a Deposit Account in the Bank (and if the Bank
has elected to permit such withdrawals from the type of Deposit Account maintained by such Person), such purchaser may pay for
the shares subscribed for by authorizing the Bank to make a withdrawal from the purchaser’s Deposit Account at the Bank in
an amount equal to the aggregate purchase price of such shares. Wire transfers may be accepted at the sole discretion of the Mid-Tier
Holding Company. Any authorized withdrawal, whether from a savings, passbook or certificate account, shall be without penalty as
to premature withdrawal. If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the
applicable minimum balance requirements, the certificate shall be canceled at the time of withdrawal, without penalty, and the
remaining balance will earn interest at the passbook savings rate. Funds for which a withdrawal is authorized will remain in the
purchaser’s Deposit Account but may not be used by the purchaser pending consummation of the Offering or expiration of the
45-day period (or such longer period as may be approved by the Commissioner and the FRB, if required) following termination of
the Subscription Offering, whichever occurs first. After consummation of the Offering, the withdrawal will be given effect only
to the extent necessary to satisfy the subscription (to the extent it can be filled) at the Subscription Price. Interest will continue
to be earned on any amounts authorized for withdrawal until such withdrawal is given effect. Interest on checks and money orders
will be paid by the Bank at the Bank’s passbook savings rate. Such interest will be paid from the date payment is received
by the Bank until consummation or termination of the Offering. If for any reason the Offering is not consummated, all payments
made by subscribers in the Offering will be refunded to them with interest. In case of amounts authorized for withdrawal from Deposit
Accounts, refunds will be made by canceling the authorization for withdrawal.
ARTICLE VII.
STOCK PURCHASE PRIORITIES
7.1. PRIORITIES FOR OFFERING.
All
purchase priorities established by this Article VII shall be subject to the purchase limitations set forth in, and shall be subject
to adjustment as provided in, Article VIII of this
Plan. In addition to the priorities set forth in this Article VII,
the Bank may establish other priorities for the purchase of Common Stock, subject to the approval of the Commissioner and the FRB,
if required. The priorities for the purchase of shares in the Offering are set forth in the following Sections.
7.2. CERTAIN DETERMINATIONS.
All
interpretations or determinations of whether prospective purchasers are “RESIDENTS,” “ASSOCIATES,” or “ACTING
IN CONCERT” and any other interpretations of any and all other provisions of the Plan shall be made by and at the sole discretion
of the Mid-Tier Holding Company and may be based on whatever evidence the Mid-Tier Holding Company may choose to use in making
any such determination. Such determination shall be conclusive, final and binding on all Persons and the Mid-Tier Holding
Company may take any remedial action, including without limitation rejecting the purchase or referring the matter to the Commissioner
for action, as in its sole discretion the Mid-Tier Holding Company may deem appropriate.
7.3. MINIMUM PURCHASE; NO FRACTIONAL SHARES.
The minimum purchase by any Person shall be 25 shares (to the extent that shares of Common Stock are available for purchase), provided,
however, that the aggregate purchase price for any minimum share purchase shall not exceed $500. No fractional shares will be allocated
or issued.
7.4. OVERVIEW OF PRIORITIES.
In descending
order of priority, the opportunity to purchase Common Stock shall be given in the Subscription Offering to: (1) Eligible Account
Holders; (2) Supplemental Eligible Account Holders; (3) Tax-Qualified Employee Plans; and (4) Employees, Officers, directors, trustees
and Corporators of the Bank, the Mid-Tier Holding Company and the MHC. Any shares of Common Stock that are not subscribed for in
the Subscription Offering at the discretion of the Mid-Tier Holding Company may be offered for sale in a Direct Community Offering
and/or a Syndicated Community Offering or a Firm Commitment Underwritten Offering on terms and conditions and procedures satisfactory
to the Mid-Tier Holding Company.
7.5. PRIORITIES FOR SUBSCRIPTION OFFERING.
7.5.1 FIRST PRIORITY: ELIGIBLE ACCOUNT
HOLDERS.
Upon approval of the Plan by the Corporators and the receipt of permission from the Commissioner, the FRB, if
required, and the SEC to offer the Common Stock for sale, each Eligible Account Holder shall receive, without payment therefor,
nontransferable subscription rights on a first priority basis to subscribe for a number of shares of Common Stock equal to the
greatest of (x) a number determined by dividing the Individual Maximum Purchase Limit (as such term is defined in Section 8.2)
by the per share Subscription Price, (y) one-tenth of one percent (0.10%) of the shares offered in the Offering, or (z) 15 times
the product (rounded down to the nearest whole number) obtained by multiplying (1) the total number of shares of Common Stock to
be offered in the Offering by (2) a fraction, of which the numerator is the Qualifying Deposit of the Eligible Account Holder and
the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders. If there are insufficient shares available
to satisfy all subscriptions of Eligible Account Holders, shares will be allocated to Eligible Account Holders so as to permit
each such subscribing Eligible Account Holder to purchase a number of shares of Common Stock sufficient to make his or her total
allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares of Common Stock
will be allocated pro rata to remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the same proportion
that each such subscriber’s Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible
Account Holders whose subscriptions remain unfilled. Subscription rights to purchase Common Stock received by Insiders (and their
Associates) based on their increased deposits in the Bank in the one year preceding the Eligibility Record Date shall be subordinated
to the subscription rights of other Eligible Account Holders. To ensure proper allocation of stock, each Eligible Account Holder
must list on his or her subscription order form all Deposit Accounts in which he or she had an ownership interest as of the Eligibility
Record Date.
7.5.2 SECOND PRIORITY: SUPPLEMENTAL ELIGIBLE
ACCOUNT HOLDERS.
To the extent there are shares remaining after satisfaction of subscriptions by Eligible Account
Holders, each Supplemental Eligible Account Holder shall receive non-transferable subscription rights to subscribe for a number
of shares of Common Stock equal to the greatest of (x) a number determined by dividing the Individual Maximum Purchase Limit by
the per share Subscription Price, (y) one-tenth of one percent (0.10%) of the shares offered in the Offering, or (z) 15 times the
product (rounded down to the nearest whole number) obtained by multiplying (1) the total number of shares of Common Stock to be
offered in the Offering by (2) a fraction, of which the numerator is the Qualifying
Deposit of the Supplemental Eligible Account Holder and the denominator
is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders. In the event Supplemental Eligible Account
Holders subscribe for a number of shares of Common Stock which, when added to the shares subscribed for by Eligible Account Holders,
exceeds available shares, the available shares of Common Stock will be allocated among subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares of Common Stock sufficient
to make his or her total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated
shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the same
proportion that such subscriber’s Qualifying Deposit on the Supplemental Eligibility Record Date bears to the total amount
of Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unfilled.
7.5.3 THIRD PRIORITY: TAX-QUALIFIED EMPLOYEE
PLANS.
To the extent there are shares remaining after satisfaction of subscriptions by Eligible Account Holders and Supplemental
Eligible Account Holders, the Tax-Qualified Employee Plans shall be given the opportunity to purchase in the aggregate up to 10%
of the Common Stock issued in the Stock Issuance to Persons other than the MHC. In the event that the total number of
shares of Common Stock offered in the Offering is increased due to an increase in the Estimated Valuation Range above the Range
Maximum, the Tax-Qualified Employee Plans shall have a priority right to purchase any such additional shares offered (up to an
aggregate of 10% of the Common Stock to be issued in the Stock Issuance to Persons other than the MHC). The Employee Plans shall
not be deemed to be Associates or Affiliates of or Persons Acting in Concert with any Director, Trustee, Officer or Corporator
of the MHC, the Mid-Tier Holding Company or the Bank. If the Tax-Qualified Employee Plans are not able to fill their
orders in the Offering, then the Tax-Qualified Employee Plans may purchase shares in the open market or utilize authorized but
unissued shares only with prior Commissioner approval.
7.5.4 FOURTH PRIORITY: EMPLOYEES, OFFICERS,
DIRECTORS, TRUSTEES AND CORPORATORS.
To the extent there are shares remaining after satisfaction of subscriptions
by Eligible Account Holders, Supplemental Eligible Account Holders, and any Tax-Qualified Employee Plans, each Employee, Officer,
director, trustee and Corporator of the Bank, the Mid-Tier Holding Company and the MHC who is not an Eligible Account Holder or
a Supplemental Eligible Account Holder shall receive non-transferable subscription rights to subscribe for shares of Common Stock
offered in the Offering in an amount equal to the Individual Maximum Purchase Limit; provided, however, that the aggregate number
of shares of Common Stock that may be purchased by Employees, Officers, trustees and Corporators and their Associates in the Offering
shall be limited to 25% of the total number of shares of Common Stock issued in the Offering (including shares purchased by Employees,
Officers, directors, trustees and Corporators under this Section 7.5.4 and under the preceding priority categories, but not including
shares purchased by the ESOP). In the event that Employees, Officers, directors, trustees and Corporators subscribe under this
Section 7.5.4 for more shares of Common Stock than are available for purchase by them, the shares of Common Stock available for
purchase will be allocated by the Mid-Tier Holding Company among such subscribing Persons on an equitable basis, such as by giving
weight to the order size, period of service, compensation and position of the individual subscriber.
7.6. PRIORITIES FOR DIRECT COMMUNITY OFFERING.
7.6.1
Any shares of Common Stock
not subscribed for in the Subscription Offering may be offered for sale in a Direct Community Offering. This will involve an offering
of all unsubscribed shares of Common Stock directly to the general public. The Direct Community Offering, if any, shall commence
concurrently with, during or promptly after the Subscription Offering. The Mid-Tier Holding Company may use a broker, dealer or
investment banking firm or firms on a best efforts basis to sell the unsubscribed shares in the Subscription and Direct Community
Offering. The Mid-Tier Holding Company may pay a commission or other fee to such entity or entities as to the shares sold by such
entity or entities in the Subscription and Direct Community Offering and may also reimburse such entity or entities for reasonable
expenses incurred in connection with the sale. The Common Stock will be offered and sold in the Direct Community Offering, in accordance
with the Regulations, so as to achieve the widest distribution of the Common Stock. In making the Direct Community Offering, the
Mid-Tier Holding Company will give preference to natural persons residing in the Local Community. Orders accepted in the Direct
Community Offering shall be filled up to a maximum not to exceed 2% of the Common Stock offered in the Offering, and thereafter
remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled. No Person may
subscribe for or purchase more than the Individual Maximum Purchase
Limit of Common Stock in the Direct Community Offering. The Mid-Tier
Holding Company, in its sole discretion, may reject subscriptions, in whole or in part, received from any Person under this Section
7.6.
7.6.2
In the event of an oversubscription
for shares in the Direct Community Offering, available shares will be allocated (to the extent shares remain available) first to
cover orders of natural Persons residing in the Local Community (including trusts of natural Persons), so that each such Person
may receive 100 shares, and thereafter, on a pro rata basis to such Persons based on the amount of their respective subscriptions
or on such other reasonable basis as may be determined by the Mid-Tier Holding Company. If oversubscription does not occur among
natural Persons residing in the Local Community, the allocation process to cover orders of other Persons subscribing for shares
in the Direct Community Offering shall be as described above for natural Persons.
7.6.3
The terms “RESIDENT,”
“RESIDENCE,” “RESIDE,” or “RESIDING” as used herein with respect to any Person shall mean any
Person who occupies a dwelling within the Local Community, has a present intent to remain with the Local Community for a period
of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Local Community together
with an indication that such presence within the Local Community is not merely transitory in nature. To the extent the Person is
a corporation or other business entity, the principal place of business or headquarters must be in the Local Community. To the
extent a Person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In
the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. The
Bank may use deposit or loan records or such other evidence provided to it to determine whether a Person is a resident. In all
cases, however, such a determination shall be in the sole discretion of the Mid-Tier Holding Company.
7.7. SYNDICATED COMMUNITY OFFERING OR FIRM
COMMITMENT UNDERWRITTEN OFFERING.
7.7.1
Any shares of Common Stock
not sold in the Subscription Offering or in the Direct Community Offering, if any, may be offered for sale to the general public
by a selling group of broker-dealers in a Syndicated Community Offering, subject to terms, conditions and procedures as may be
determined by the Mid-Tier Holding Company in a manner that is intended to achieve the widest distribution of the Common Stock
subject to the rights of the Mid-Tier Holding Company to accept or reject in whole or in part all orders in the Syndicated Community
Offering. No Person may purchase in the Syndicated Community Offering more than the Individual Maximum Purchase Limit of Common
Stock. It is expected that the Syndicated Community Offering will commence as soon as practicable after termination of the Direct
Community Offering, if any. The Syndicated Community Offering shall be completed within 45 days after the termination of the Subscription
Offering, unless such period is extended as provided herein. The commission in the Syndicated Community Offering shall be determined
by a marketing agreement between the Mid-Tier Holding Company and the Marketing Agent. Such agreement shall be filed with the Division
and the SEC.
7.7.2
Alternatively, if feasible,
shares of Common Stock not sold in the Subscription Offering or the Community Offering, if any, may be offered for sale in a Firm
Commitment Underwritten Offering subject to such terms, conditions and procedures as may be determined by the Mid-Tier Holding
Company, subject to the right of the Mid-Tier Holding Company to accept or reject in whole or in part any orders in the Firm Commitment
Underwritten Offering. Provided the Subscription Offering has begun, the Mid-Tier Holding Company may begin the Firm
Commitment Underwritten Offering at any time. The Mid-Tier Holding Company may seek to make other arrangements for the
sale of the remaining shares in order to meet the Range Minimum. Such other arrangements will be subject to any applicable approvals
of the Bank Regulators and to compliance with applicable state and federal securities laws.
ARTICLE VIII.
ADDITIONAL LIMITATIONS ON PURCHASES
8.1. GENERAL.
Purchases of
Common Stock in the Offering will be subject to the purchase limitations set forth in this Article VIII.
8.2. INDIVIDUAL MAXIMUM PURCHASE LIMIT.
This
Section 8.2 sets forth the “INDIVIDUAL MAXIMUM PURCHASE LIMIT.” No Person (or Persons exercising subscription rights
through a single qualifying deposit account held jointly) may purchase in the Subscription Offering and the Direct Community Offering
more than $150,000 of Common Stock sold in the Offering and no Person (or Persons exercising subscription rights through a single
qualifying deposit account held jointly) may purchase in the Offering (including the Subscription Offering, Direct Community Offering
and Syndicated Community Offering or Firm Commitment Underwritten Offering) more than $150,000 of Common Stock sold in the Offering,
except that: (a) the Mid-Tier Holding Company may, in its sole discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, (i) increase such Individual Maximum Purchase Limit to up to 5% of the number
of shares of Common Stock offered in the Offering or (ii) decrease such Individual Maximum Purchase Limit to no less than
one-tenth of one percent (0.10%) of the number of shares of Common Stock offered in the Offering; and (b) Tax-Qualified Employee
Plans may purchase up to 10% of the Common Stock sold in the Offering (including shares issued in the event of an increase in the
Range Maximum of 15%). If the Mid-Tier Holding Company increases the Individual Maximum Purchase Limit (as permitted by this Section 8.2),
subscribers in the Subscription Offering who ordered the previously-effective maximum amount will be given the opportunity to increase
their subscriptions up to the then applicable limit. Requests to purchase additional shares of Common Stock under this provision
will be determined by the Mid-Tier Holding Company, in its sole discretion. In the event that the Individual Maximum
Purchase Limit is increased to 5% of the number of shares of Common Stock sold in the Offering, such limitation may be further
increased to 9.99% of the number of shares of Common Stock sold in the Offering;
provided
that orders for Common Stock exceeding
5% of the Offering shall not exceed in the aggregate 10% of the Common Stock sold in the Offering. Requests to purchase
additional shares of the Holding Company Common Stock in the event that the purchase limitation is so increased will be determined
by the Board of Directors of the Mid-Tier Holding Company in its sole discretion.
8.3. GROUP MAXIMUM PURCHASE LIMIT.
This
Section 8.3 sets forth the “GROUP MAXIMUM PURCHASE LIMIT.” No Person and his or her Associates or group of Persons
Acting in Concert, may purchase in the Subscription Offering and the Direct Community Offering more than $250,000 of Common Stock,
except that: (a) the Mid-Tier Holding Company may, in its sole discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, (i) increase such Group Maximum Purchase Limit to up to 5% of the number of shares
of Common Stock offered in the Offering or (ii) decrease such Group Maximum Purchase Limit to no less than one-tenth of one
percent (0.10%) of the number of shares of Common Stock offered in the Offering; and (b) Tax-Qualified Employee Plans may
purchase up to 10% of the shares of Common Stock sold in the Offering. Notwithstanding the foregoing, in the event that the Mid-Tier
Holding Company increases the Individual Maximum Purchase Limit (as permitted by Section 8.2) to a number that is in excess
of the Group Maximum Purchase Limit established by this Section 8.3, the Group Maximum Purchase Limit shall automatically
be increased so as to be equal to the Individual Maximum Purchase Limit, as adjusted.
8.4. PURCHASES BY INSIDERS.
The
aggregate number of shares of Common Stock that may be purchased in the Offering by Insiders and their Associates (but excluding
shares held by any Employee Plan that are attributable to such persons and shares purchased in the open market after the Offering)
shall not exceed 25% of the outstanding shares of Common Stock of the Mid-Tier Holding Company held by persons other than the MHC
at the close of the Stock Issuance.
8.5. SPECIAL RULE FOR TAX-QUALIFIED EMPLOYEE
PLANS.
Shares of Common Stock purchased by any individual participant (“PLAN PARTICIPANT”) in a Tax-Qualified
Employee Plan using funds therein pursuant to the exercise of subscription rights granted to such Plan Participant in his individual
capacity as an Eligible Account Holder or Supplemental Eligible Account Holder shall not be deemed to be purchases by a Tax-Qualified
Employee Plan for purposes of calculating the maximum amount of Common Stock that Tax-Qualified Employee Plans may purchase pursuant
to this Plan, if the individual Plan Participant controls or directs the investment authority with respect to such account or subaccount.
8.6. INCREASE IN THE TOTAL NUMBER OF SHARES
OFFERED.
In the event that the total number of shares of Common Stock offered in the Offering is increased to an
amount greater than the Range Maximum, any additional shares will be issued to fill unfulfilled subscriptions of other subscribers
according to their respective priorities set forth in the Plan, including the preference given to Tax-Qualified Employee Plans
under Section 7.5.3.
8.7. ILLEGAL PURCHASES.
Notwithstanding
any other provision of the Plan, no Person shall be entitled to purchase any Common Stock to the extent such purchase would be
illegal under any federal law or state law or regulation or would violate regulations or policies of the Financial Industry Regulation
Authority, particularly those regarding free riding and withholding. The Mid-Tier Holding Company and/or its agents may ask for
an acceptable legal opinion from any purchaser as to the legality of such purchase and may refuse to honor any purchase order if
such opinion is not timely furnished.
8.8. REJECTION OF ORDERS.
The
Mid-Tier Holding Company has the right in its sole discretion to reject any order submitted by a Person whose representations the
Mid-Tier Holding Company believes to be false or who it otherwise believes, either alone or Acting in Concert with others, is violating,
circumventing, or intends to violate, evade or circumvent the terms and conditions of the Plan.
8.9. SUBSCRIBERS IN NON-QUALIFIED STATES
OR IN FOREIGN COUNTRIES.
The Mid-Tier Holding Company, in its sole discretion, may make reasonable efforts to comply
with the securities laws of any state in the United States in which its depositors reside, and will only offer and sell the Common
Stock in states in which the offers and sales comply with such states’ securities laws. However, no Person will be offered
or allowed to purchase any Common Stock under the Plan if he or she resides in a foreign country or in a state of the United States
with respect to which any of the following apply: (i) a small number of Persons otherwise eligible to purchase shares under
the Plan reside in such state; (ii) the offer or sale of shares of Common Stock to such Persons would require the Mid-Tier Holding
Company or its Employees to register, under the securities laws of such state, as a broker or dealer or to register or otherwise
qualify its securities for sale in such state; or (iii) such registration or qualification would be impracticable for reasons of
cost or otherwise.
8.10. NO OFFER TO TRANSFER SHARES.
Before
the consummation of the Offering, no Person shall offer to transfer, or enter into any agreement or understanding to transfer the
legal or beneficial ownership of any subscription rights or shares of Common Stock, except pursuant to the Plan. In addition, before
the consummation of the Offering, no person shall make any offer, or any announcement of any offer, to purchase the Common Stock
to be issued, or knowingly acquire any Common Stock in the Offering in excess of the maximum purchase limitations established in
this Plan. The following shall not constitute impermissible transfers under this Plan. Any Person having subscription
rights in his or her individual capacity as an Eligible Account Holder or Supplemental Eligible Account Holder may exercise such
subscription rights by causing a tax-qualified plan to make such purchase using funds allocated to such Person in such tax-qualified
plan if such individual plan participant controls or directs the investment authority with respect to such account or subaccount.
A tax-qualified plan that maintains an Eligible Deposit Account in the Bank as trustee for or for the benefit of a Person who controls
or directs the investment authority with respect to such account or subaccount (“BENEFICIARY”) may, in exercising its
subscription rights, direct that the Common Stock be issued in the name of such individual Beneficiary in his or her individual
capacity.
8.11. CONFIRMATION BY PURCHASERS.
Each
Person ordering Common Stock in the Offering will be deemed to confirm that such purchase does not conflict with the purchase limitations
in the Plan. All questions concerning whether any Persons are Associates or a Group Acting in Concert or whether any purchase conflicts
with the purchase limitations in the Plan or otherwise violates any provision of the Plan shall be determined by the Mid-Tier Holding
Company in its sole discretion. Such determination shall be conclusive, final and binding on all Persons and the Mid-Tier Holding
Company may take any remedial action, including without limitation rejecting the purchase or referring the matter to the Commissioner
for action, as in its sole discretion the Mid-Tier Holding Company may deem appropriate.
8.12. MINORITY STOCK ISSUANCE
LIMITATIONS.
8.12.1
The aggregate amount of outstanding
Common Stock owned or controlled by persons other than the MHC at the close of the Offering shall be less than 50% of the Mid-Tier
Holding Company’s total outstanding Common Stock.
8.12.2
The aggregate amount of Common
Stock acquired in the Offering by any Nontax-Qualified Employee Plan or any Insider and his or her Associates, exclusive of any
stock acquired by such plan or Insider and his or her Associates in the secondary market, shall not exceed 10% of the outstanding
shares of
Common Stock held by persons other than the MHC at the close of
the Offering. In calculating the number of shares held by any Insider or Associate under this provision, shares held by any Tax-Qualified
Employee Plan or Nontax-Qualified Employee Plan that are attributable to such person shall not be counted.
8.12.3
The aggregate amount of stock
of the Mid-Tier Holding Company, whether common or preferred, acquired in the Offering by any Nontax-Qualified Employee Plan or
any Insider and his or her Associates, exclusive of any stock acquired by such plan in the secondary market, shall not exceed 10%
of the stockholders’ equity of the Mid-Tier Holding Company held by persons other than the MHC at the close of the Offering. In
calculating the number of shares held by any Insider or Associate under this provision, shares held by any Tax-Qualified Employee
Plan or Nontax-Qualified Employee Plan that are attributable to such person shall not be counted.
8.12.4
The aggregate amount of Common
Stock acquired in the Offering by any one or more Tax-Qualified Employee Plans, exclusive of any stock acquired by such plans in
the secondary market, shall not exceed 10% of the outstanding shares of Common Stock held by persons other than the MHC at the
close of the Offering, and shall not exceed 4.9% of the outstanding shares of Common Stock at the conclusion of the Offering.
8.12.5
The aggregate amount of stock,
whether common or preferred, acquired in the Offering by any one or more Tax-Qualified Employee Plans, exclusive of any stock acquired
by such plans in the secondary market, shall not exceed 10% of the stockholders’ equity of the Mid-Tier Holding Company held
by persons other than the MHC at the close of the Offering, and shall not exceed 4.9% of the stockholders’ equity of the
Mid-Tier Holding Company at the conclusion of the Offering;
8.12.6
The aggregate amount of common
stock acquired in the Offering by all Nontax-Qualified Employee Plans, Insiders and Associates of Insiders, exclusive of any stock
acquired by such plans, Insiders, and Associates in the secondary market, shall not exceed 25% of the outstanding shares of Common
Stock held by persons other than the MHC at the close of the Offering. In calculating the number of shares held by Insiders
and their Associates under this provision, shares held by any Tax-Qualified Employee Plan or Nontax-Qualified Employee Plan that
are attributable to such persons shall not be counted.
8.12.7
The aggregate amount of stock,
whether common or preferred, acquired in the Offering by all Nontax-Qualified Employee Plans, Insiders and Associates of Insiders,
exclusive of any stock acquired by such plans, Insiders and Associates in the secondary market, shall not exceed 25% of the stockholders’
equity of the Mid-Tier Holding Company held by persons other than the MHC at the close of the Offering. In calculating the number
of shares held by Insiders and their Associates under this provision, shares held by any Tax-Qualified Employee Plan or Nontax-Qualified
Employee Plan that are attributable to such persons shall not be counted.
8.12.8
The aggregate amount of Common Stock
acquired by all stock benefit plans of the Mid-Tier Holding Company or the Bank, other than employee stock ownership plans, shall
not exceed 25% of the outstanding Common Stock held by persons other than the MHC at the closing of the Offering.
ARTICLE IX.
POST OFFERING MATTERS
9.1. STOCK PURCHASES AFTER THE STOCK ISSUANCE.
For
a period of three years after the Offering, no Insider, or his or her Associates, may purchase, without the prior written approval
of the Commissioner and the FRB, any stock of the Mid-Tier Holding Company except from a broker-dealer registered with the SEC,
provided that the foregoing shall not apply to (i) negotiated transactions involving more than 1% of the outstanding stock in the
class of stock, or (ii) purchases of stock made by and held by any Tax-Qualified or Nontax-Qualified Employee Plan even if such
stock is attributable to Insiders or their Associates.
9.2. RESALES OF STOCK BY INSIDERS.
Common
Stock purchased in the Offering by Insiders and their Associates may not be resold for a period of at least one year following
the date of purchase, except in the case of death or substantial disability, as determined by the Commissioner, of such Insider
or Associate.
9.3. STOCK CERTIFICATES.
Each
stock certificate shall bear a legend giving appropriate notice of the restrictions set forth in Section 9.2. Appropriate instructions
shall be issued to the Mid-Tier Holding Company’s transfer agent with respect to applicable restrictions on transfers of
such stock. Any shares of stock issued as a stock dividend, stock split or otherwise with respect to such restricted stock, shall
be subject to the same restrictions as apply to the restricted stock.
9.4. RESTRICTION ON FINANCING STOCK PURCHASES.
The
Mid-Tier Holding Company and the Bank are prohibited from knowingly making any loans or extending credit for the purpose of purchasing
Common Stock in the Offering;
provided, however,
that the Mid-Tier Holding Company, or a subsidiary thereof, may loan funds
to the ESOP for the purchase of Common Stock.
9.5. STOCK BENEFIT PLANS.
The
Board of Directors of the Bank and/or the Board of Directors of the Mid-Tier Holding Company are permitted under the Regulations,
and may decide, to adopt one or more stock benefit plans for the benefit of the Employees, Officers, trustees and directors of
the Bank and Mid-Tier Holding Company, including an ESOP, an Employer Stock Fund option in a 401(k) plan, stock award plans and
stock option plans, which will be authorized to purchase Common Stock and grant options for Common Stock. However, only the Tax-Qualified
Employee Plans will be permitted to purchase Common Stock in the Offering subject to the purchase priorities set forth in the Plan.
Pursuant to the Regulations, the Mid-Tier Holding Company may authorize the ESOP and any other Tax-Qualified Employee Plans to
purchase in the aggregate up to 10% of the Common Stock to be issued in the Stock Issuance to Persons other than the MHC. No
Recognition Plans (as defined below) or stock option plans have yet been adopted by the Board of Directors of the Mid-Tier Holding
Company, no such plans will be adopted prior to the closing of the Offering, and no such plans will be submitted for the approval
of the Mid-Tier Holding Company’s stockholders at a meeting held earlier than six months after completion of the Offering. The
Bank or the Mid-Tier Holding Company may make scheduled discretionary contributions to one or more Tax-Qualified Employee Plans
to purchase Common Stock or to purchase issued and outstanding shares of Common Stock or authorized but unissued shares of Common
Stock subsequent to the completion of the Offering, provided, however, that such contributions do not cause the Bank to fail to
meet any of its regulatory capital requirements. This Plan specifically authorizes the grant and issuance by the Mid-Tier
Holding Company of (i) awards of Common Stock after the Offering pursuant to one or more stock recognition and award plans
(the “Recognition Plans”) in an amount equal to up to 4% of the number of shares of Common Stock sold in the Offering
and issued to the Foundation, (ii) options to purchase a number of shares of Common Stock in an amount equal to up to 10%
of the number of shares of Common Stock sold in the Offering and issued to the Foundation, and shares of Common Stock issuable
upon exercise of such options, (iii) to the ESOP, at the closing of the Offering or at any time thereafter, Common Stock in
an amount equal to 8% of the number of shares of Common Stock sold in the Offering and issued to the Foundation; and (iv) to the
Bank’s 401(k) plan, at the closing of the Offering, an amount equal to up to 2% of the number of shares of Common Stock sold
in the Offering and issued to the Foundation. Shares awarded under the Tax-Qualified Employee Plans or pursuant to the Recognition
Plans, and shares issued upon exercise of options may be authorized but unissued shares of the Common Stock, or shares of Common
Stock purchased by the Mid-Tier Holding Company or such plans in the open market. Such limitations shall not apply if (x) the Recognition
Plans or stock option plans are adopted no earlier than one year following the completion of the Offering, (y) all Common Stock
awarded in excess of such limitations must be acquired in the secondary market and (z) such secondary market acquisitions must
be no earlier than when such limitations can be exceeded.
9.6. MARKET FOR COMMON STOCK.
9.6.1
If at the close of the Offering
the Mid-Tier Holding Company has more than 35 stockholders of any class of stock, the Mid-Tier Holding Company shall use its best
efforts to: (i) encourage and assist a Market Maker to establish and maintain a market for that class of stock; and (ii) list that
class of stock on a national or regional securities exchange, or on the Nasdaq system.
9.6.2
If at the close of the Offering
the Mid-Tier Holding Company has more than 100 stockholders of any class of stock, the Mid-Tier Holding Company shall promptly
register the Common Stock with the SEC pursuant to the Exchange Act, and undertake not to deregister such Common Stock for a period
of three years thereafter.
9.7. LIQUIDATION ACCOUNT.
9.7.1
The Mid-Tier Holding Company
shall, at the time of the close of the Offering, establish a Liquidation Account in an amount equal to the product of (i) the percentage
of the Common Stock issued in the Stock Issuance to Persons other than the MHC and (ii) the net worth of the Mid-Tier Holding Company
as of the date of the latest consolidated statement of financial condition contained in the final Prospectus distributed in connection
with the Offering. The function of the Liquidation Account is to establish a priority on liquidation for Eligible Account Holders
and Supplemental Eligible Account Holders (if any) and, except as otherwise provided in this Section 9.7, the existence of the
Liquidation Account shall not operate to restrict the use or application of any of the net worth accounts of the Mid-Tier Holding
Company. The Liquidation Account will be maintained by the Mid-Tier Holding Company for the benefit of the Eligible
Account Holders and Supplemental Eligible Account Holders who continue to maintain Deposit Accounts with the Bank following the
Offering. Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to each Deposit
Account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to each Deposit Account
balance at the Eligibility Record Date or Supplemental Eligibility Record Date, as the case may be, or to such balance as it may
be subsequently reduced, as hereinafter provided. The initial Liquidation Account balance shall not be increased, and shall be
subject to downward adjustment to the extent of any downward adjustment of any subaccount balance of any Eligible Account Holder
or Supplemental Eligible Account Holder in accordance with 209 CMR 33.05(12).
9.7.2
In the unlikely event of
a complete liquidation of (i) the Bank or (ii) the Bank and the Mid-Tier Holding Company (and only in such event), following all
liquidation payments to creditors (including those to depositors to the extent of their Deposit Accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder (if any) shall be entitled to receive a liquidating distribution from the Liquidation
Account, in the amount of the then-adjusted subaccount balances for his or her deposit accounts then held, before any liquidating
distribution may be made to any holder of the Mid-Tier Holding Company’s capital stock. No merger, consolidation,
reorganization, or purchase of bulk assets with assumption of deposit accounts and other liabilities, or similar transactions with
an FDIC-insured institution, in which the Mid-Tier Holding Company and/or the Bank is not the surviving entity, shall be deemed
to be a complete liquidation for this purpose. In such transactions, the Liquidation Account shall be assumed by the surviving
institution.
9.7.3
The initial subaccount balance
for a Deposit Account held by an Eligible Account Holder and/or Supplemental Eligible Account Holder (if any) shall be determined
by multiplying the opening balance in the Liquidation Account by a fraction, the numerator of which is the amount of such Eligible
Account Holder’s or Supplemental Eligible Account Holder’s Qualifying Deposit and the denominator of which is the total
amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders in the Bank. For Deposit
Accounts in existence on both dates, separate subaccounts shall be determined on the basis of the Qualifying Deposits in such Deposit
Accounts on such record dates. Such initial subaccount balance shall not be increased by additional Deposits, but shall be subject
to downward adjustment as described below.
9.7.4
If, at the close of business
on the last day of any period for which the Mid-Tier Holding Company has prepared audited financial statements subsequent to the
effective date of the Offering, the deposit balance in the Deposit Account of an Eligible Account Holder or Supplemental Eligible
Account Holder (if any) is less than the lesser of: (i) the balance in the Deposit Account at the close of business on the last
day of any period for which the Mid-Tier Holding Company has prepared audited financial statements subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date (if established); or (ii) the amount in such Deposit Account as of the Eligibility
Record Date or Supplemental Eligibility Record Date (if established), then the subaccount balance for such Deposit Account shall
be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in the balance of such Deposit Account.
In the event of such downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent
increase in the deposit balance of the related Deposit Account. If any such Deposit Account is closed, the related subaccount shall
be reduced to zero. For purposes of this Section 9.7, a time account shall be deemed to be closed upon its maturity date regardless
of any renewal thereof. A distribution of each subaccount balance may be made only in the event of a complete liquidation of the
Mid-Tier Holding Company subsequent to the Offering and only out of funds available for such purpose after payment of all creditors.
9.7.5
The creation and maintenance
of the Liquidation Account shall not operate to restrict the use or application of any of the equity accounts of the Mid-Tier Holding
Company or the Bank, except that the Mid-Tier Holding Company shall not (i) declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect thereof would cause its net worth to be reduced below the amount required for the Liquidation
Account, or (ii) the regulatory capital requirements of the Mid-Tier Holding Company (to the extent applicable). Neither
the Mid-Tier Holding Company nor the Bank shall be required to set aside funds in connection with its obligations hereunder relating
to the Liquidation Account. Eligible Account Holders and Supplemental Eligible Account Holders (if any) do not retain
any voting rights in either the Mid-Tier Holding Company or the Bank based on their liquidation subaccounts.
9.7.6
For the three-year period
following the completion of the Offering, the Mid-Tier Holding Company will not without prior approval of the Commissioner and
the FRB: (i) sell or liquidate the Mid-Tier Holding Company, or (ii) cause the Bank to be sold or liquidated. Upon the
written request of the FRB and, if necessary, the Commissioner, the Mid-Tier Holding Company shall, or upon the prior written approval
of the FRB and, if necessary, the Commissioner, the Mid-Tier Holding Company may, at any time after two years from the completion
of the Offering, transfer the Liquidation Account to the Bank, at which time the Liquidation Account shall be assumed by the Bank
and the interests of Eligible Account Holders and Supplemental Eligible Account Holders (if any) will be solely and exclusively
established in a liquidation account established by the Bank. In the event such transfer occurs, the Mid-Tier Holding
Company shall be deemed to have transferred the Liquidation Account to the Bank and such Liquidation Account shall be subsumed
into the liquidation account established by the Bank and shall not be subject in any manner or amount to the claims of the Mid-Tier
Holding Company’s creditors. Approval of the Plan by the Corporators shall constitute approval of the transactions
described herein.
9.9. OFFERING EXPENSES.
The
Mid-Tier Holding Company may retain and pay for the services of financial and other advisors and investment bankers to assist in
connection with any or all aspects of the Stock Issuance, including the payment of fees to brokers for assisting Persons in completing
and/or submitting Order Forms. The Regulations require that the expenses of the Offering must be reasonable. The Mid-Tier
Holding Company will use its best efforts to assure that the expenses incurred by the Mid-Tier Holding Company in effecting the
Offering will be reasonable.
9.10. PUBLIC INSPECTION OF OFFERING APPLICATION.
The
Mid-Tier Holding Company will maintain a copy of the Application in the main banking office of the Bank and such copy will be available
for public inspection.
9.11. ENFORCEMENT OF TERMS AND CONDITIONS.
The
Mid-Tier Holding Company shall have the right to take all such action as it, in its sole discretion, may deem necessary, appropriate
or advisable in order to monitor and enforce the terms, conditions, limitations and restrictions contained in the Plan and the
terms, conditions and representations contained in the Order Forms, including, but not limited to, the right to require any subscriber
or purchaser to provide evidence, in a form satisfactory to the Mid-Tier Holding Company, of such Person’s eligibility to
subscribe for or purchase shares of the Common Stock under the terms of the Plan and the absolute right (subject only to any necessary
regulatory approvals or concurrence) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate
or refuse to consummate any sale of Common Stock that it believes might violate, or is designed to, or is any part of a plan to,
evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive
and binding on all Persons, and the Mid-Tier Holding Company, and its Board of Directors, Officers, Employees and agents shall
be free from any liability to any Person on account of any such action.
9.12. VOTING RIGHTS FOLLOWING OFFERING.
Following
the Offering, the holders of the capital stock of the Mid-Tier Holding Company shall have exclusive voting rights in the Mid-Tier
Holding Company.
9.13. PROCEEDS OF FUTURE
STOCK ISSUANCES.
The proceeds of any Mid-Tier Holding Company stock issuance plan which entails an offer to the
general public shall be payable in cash to the Mid-Tier Holding Company.
ARTICLE X.
MISCELLANEOUS
10.1. INTERPRETATION OF PLAN.
All
interpretations of the Plan and application of its provisions to particular circumstances by the Mid-Tier Holding Company shall
be final, subject to the authority of the Commissioner and the FRB. When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section of or Exhibit to the Plan unless otherwise indicated. The recitals hereto constitute an integral
part of the Plan. References to Sections include subsections, which are part of the related Section (e.g., a section numbered “Section
5.5.1” would be part of “Section 5.5” and references to “Section 5.5” would also refer to material
contained in the subsection described as “Section 5.5.1”). The table of contents and headings contained in the Plan
are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Whenever the words “include,”
“includes” or “including” are used in the Plan, they shall be deemed to be followed by the words “without
limitation.”
10.2. AMENDMENT OR TERMINATION OF THE PLAN.
If
deemed necessary or desirable, the terms of the Plan may be substantively amended by the Board of Directors of the Mid-Tier Holding
Company as a result of comments from regulatory authorities or otherwise at any time prior to approval of the Plan by the Commissioner
and the FRB and at any time thereafter with the concurrence of the Commissioner and the FRB. If amendments to the Plan are made
after the Special Meeting, no further approval of the Corporators will be necessary unless otherwise required by the Commissioner
or the FRB. The Plan may be terminated by the Board of Directors in its sole discretion, at any time prior to the Special Meeting
and at any time thereafter with the concurrence of the Commissioner and the FRB. The Plan will terminate if the sale of all shares
of Common Stock is not completed within twenty four months from the date of approval of the Plan by the Board of Directors.
Exhibit 3.1
|
D
PC
|
The Commonwealth of Massachusetts
William
Francis Galvin
Secretary
of the Commonwealth
One
Ashburton Place, Boston, Massachusetts 02108-1512
|
|
|
FORM MUST BE TYPED
|
Restated
Articles of Organization
|
FORM MUST BE TYPED
|
|
(General
Laws Chapter 156D, Section 10.07; 950 CMR 113.35)
|
|
(1)
|
Exact
name of corporation:
|
Provident Bancorp, Inc.
|
|
(2)
|
Registered office address:
|
5 Market Street, Amesbury, Massachusetts 01913
|
|
|
|
(number, street, city or town, state, zip code)
|
|
(3)
|
Date adopted:
|
March 10, 2015
|
|
|
|
(month, day, year)
|
(check appropriate box)
¨
the
directors without shareholder approval and shareholder approval was not required;
OR
þ
the board of directors and the shareholders in the manner required by G.L. Chapter 156D and the corporation’s articles of
organization.
|
(5)
|
The following information is required to be included in the articles of organization pursuant to G.L. Chapter 156D, Section 2.02 except that the supplemental information provided for in Article VIII is not required:*
|
ARTICLE I
The exact name of the corporation is:
Provident Bancorp, Inc.
ARTICLE II
Unless the articles of organization otherwise provide, all corporations
formed pursuant to G.L. Chapter 156D have the purpose of engaging in any lawful business. Please specify if you want a more limited
purpose:**
The purpose of the corporation is to engage in any lawful
business, subject to Chapter 167A of the Massachusetts General Laws.
* Changes to Article VIII must be made by filing a statement of change
of supplemental information form.
**
Professional
corporations governed by G.L. Chapter 156A and must specify the professional activities of the corporation.
ARTICLE III
State the total number of shares and par value, * if any, of each class
of stock that the corporation is authorized to issue. All corporations must authorize stock. If only one class or series is authorized,
it is not necessary to specify any particular designation.
|
WITHOUT PAR VALUE
|
WITH PAR VALUE
|
|
TYPE
|
NUMBER OF SHARES
|
TYPE
|
NUMBER OF SHARES
|
PAR VALUE
|
|
Common
|
30,000,000
|
|
|
|
|
Preferred
|
32,855
|
|
|
|
|
Senior Non-Cumulative Perpetual Preferred Stock, Series A
|
17,145
|
|
|
|
ARTICLE IV
Prior to the issuance of shares of any class or series, the
articles of organization must set forth the preferences, limitations and relative rights of that class or series. The articles
may also limit the type or specify the minimum amount of consideration for which shares of any class or series may be issued. Please
set forth the preferences, limitations and relative rights of each class or series and, if desired, the required type and minimum
amount of consideration to be received.
See Appendix A and Appendix B attached hereto.
ARTICLE V
The restrictions, if any, imposed by the articles
or organization upon the transfer of shares of any class or series of stock are:
None.
ARTICLE VI
Other lawful provisions, and if there are no such provisions,
this article may be left blank.
See Appendix C attached hereto.
Note: The preceding six (6) articles are considered to be
permanent and may be changed only by filing appropriate articles of amendment.
*G.L. Chapter 156D eliminates the concept of par value, however a corporation
may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.
ARTICLE VII
The effective date of organization of the corporation
is the date and time the articles were received for filing if the articles are not rejected within the time prescribed by law.
If a later effective date is desired, specify such date, which may not be later than the 90th day after the articles are received
for filing:
It is hereby certified that these restated articles of organization consolidate
all amendments into a single document. If a new amendment authorizes an exchange, or effects a reclassification or cancellation,
of issued shares, provisions for implementing that action are set forth in these restated articles unless contained in the text
of the amendment.
|
Specify the number(s) of the article(s) being amended:
|
Articles III, IV and VI
|
|
Signed by:
|
/s/ David P. Mansfield
|
|
|
(signature of authorized individual)
|
¨
Chairman of the board of directors,
þ
President,
|
|
¨
|
Court-appointed fiduciary,
|
|
on this
|
10th
|
day of
|
March
|
,
|
2015
|
.
|
APPENDIX A
TO THE
ARTICLES OF ORGANIZATION OF
PROVIDENT BANCORP, INC.
ARTICLE IV. Capital Stock.
Shares may be issued by Provident Bancorp, Inc.
(the “Corporation”) from time to time by a vote of its Board of Directors without the approval of its stockholders.
Upon payment of lawful consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend,
that part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
Stockholders shall have no preemptive rights
except as may be provided expressly in any series of preferred stock.
A description of the different classes and series
of the Corporation’s capital stock and a statement of the designations and the relative rights, preferences and limitations
of the shares of each class and series of capital stock are as follows:
A. Common Stock. Except
as provided by law or in this Article IV (or in any supplemental sections hereto or in any certificate of designation of any series
of preferred stock) the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such holder. There shall be no cumulative voting rights in the election
of Directors or other matter submitted to stockholders for vote.
Except as otherwise expressly provided in the
resolutions or votes creating a series of preferred stock, or where (notwithstanding the provisions of these Articles of Organization)
a separate class vote is conferred by law on any class or series of stock, the holders of common stock shall vote together with
the holders of the preferred stock, if any, outstanding and entitled to vote, as one class.
If there shall have been paid, or declared and
set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as
to the payment of dividends, the full amount of dividends and of a sinking fund or a retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common
stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available
for the payment of dividends, but only when and as declared by the Board of Directors.
In the event of any liquidation, dissolution
or winding up of the Corporation, after there shall have been paid to or set aside for the holders of any class having preference
over the common stock in the event of liquidation, dissolution or winding up of the
Corporation the full preferential amounts to which they are respectively
entitled and distributions or provision for distributions in settlement of the Liquidation Account established by the Corporation
as described in Section 6.9 of Appendix C, the holders of the common stock, and of any class or series of stock entitled to participate
in whole or in part therewith as to the distribution of assets, shall be entitled, after payment or provision for payment of all
debts and liabilities of the Corporation, to receive the remaining assets of the Corporation available for distribution, in cash
or in kind, in proportion to their holdings.
B. Preferred Stock. The
Board of Directors of the Corporation is authorized, by vote or votes from time to time adopted, to provide for the issuance of
preferred stock in one or more series and to fix and state the voting powers, designations, preferences and relative participating,
optional or other special rights of the shares of each series and the qualifications, limitations, and restrictions thereof, including,
but not limited to, determination of one or more of the following:
|
|
1.
|
The distinctive serial designation and the number of shares constituting such series;
|
|
|
2.
|
The dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative
and, if so, from which date or dates, the payment date or dates for dividends and the participating or other special rights, if
any, with respect to dividends;
|
|
|
3.
|
The voting powers, if any, of shares of such series;
|
|
|
4.
|
Whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions
on which, such shares may be redeemed;
|
|
|
5.
|
The amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution
or winding up of the Corporation;
|
|
|
6.
|
Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase
or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price
or prices at which such shares may be redeemable or purchased through the application of such fund;
|
|
|
7.
|
Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of
any other series of the same or any other class or classes of stock of the Corporation, and if so convertible or exchangeable,
the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion or exchange;
|
|
|
8.
|
The price or other consideration for which the shares of such series shall be issued; and
|
|
|
9.
|
Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of
preferred stock and whether such shares may be reissued as shares of the same or any other series of stock.
|
Unless otherwise provided by law, any such vote
shall become effective when the Corporation files with the Secretary of the Commonwealth of Massachusetts a certificate of designation
of any one or more series of preferred stock signed by the President or any Vice President and by the Clerk, Assistant Clerk, Secretary
or Assistant Secretary of the Corporation, setting forth a copy of the vote of the Board of Directors establishing and designating
the series and fixing and determining the relative rights and preferences thereof, the date of adoption of such vote and a certification
that such vote was duly adopted by the Board of Directors.
APPENDIX B
CERTIFICATE OF DESIGNATION
OF
SENIOR NON-CUMULATIVE PERPETUAL PREFERRED
STOCK, SERIES A
OF
PROVIDENT BANCORP, INC.
Provident Bancorp, Inc.,
a corporation organized and existing under the laws of the Commonwealth of Massachusetts
(the “
Issuer
”),
in accordance with the provisions of Section 6.02 of the Business Corporation Act thereof, does hereby certify:
The board of directors of
the Issuer (the “
Board of Directors
”) or an applicable committee of the Board of Directors, in accordance with
the Articles of Organization and bylaws of the Issuer and applicable law, adopted the following resolution on September 2, 2011
creating a series of 17,145 shares of Preferred Stock of the Issuer designated as “
Senior Non-Cumulative Perpetual Preferred
Stock, Series A
”.
RESOLVED
, that pursuant
to the provisions of the Articles of Organization and bylaws of the Issuer and applicable law, a series of Preferred Stock, no
par value per share, of the Issuer be and hereby is created, and that the designation and number of shares of such series, and
the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations
and restrictions thereof, of the shares of such series, are as follows:
Part 1.
Designation
and Number of Shares
. There is hereby created out of the authorized and unissued shares of preferred stock of the
Issuer a series of preferred stock designated as the “
Senior Non-Cumulative Perpetual Preferred Stock, Series A
”
(the “
Designated Preferred Stock
”). The authorized number of shares of Designated Preferred Stock
shall be 17,145.
Part 2.
Standard
Provisions
. The Standard Provisions contained in
Schedule A
attached hereto are incorporated herein by reference
in their entirety and shall be deemed to be a part of this Certificate of Designation to the same extent as if such provisions
had been set forth in full herein.
Part 3.
Definitions
. The
following terms are used in this Certificate of Designation (including the Standard Provisions in
Schedule A
hereto) as
defined below:
(a) “
Common Stock
”
means the common stock, no par value per share, of the Issuer.
(b) “
Definitive
Agreement
” means that certain Securities Purchase Agreement by and between Issuer
and
Treasury, dated as of the Signing Date.
(c) “
Junior
Stock
” means the Common Stock and any other class or series of stock of the Issuer the terms of which expressly provide
that it ranks junior to Designated Preferred Stock as to dividend and redemption rights and/or as to rights on liquidation, dissolution
or winding up of the Issuer.
|
SBLF Participant No. 0762
|
|
|
(d) “
Liquidation
Amount
” means $1,000 per share of Designated Preferred Stock.
(e) “
Minimum
Amount
” means (i) the amount equal to twenty-five percent (25%) of the aggregate Liquidation Amount of Designated Preferred
Stock issued on the Original Issue Date or (ii) all of the outstanding Designated Preferred Stock, if the aggregate liquidation
preference of the outstanding Designated Preferred Stock is less than the amount set forth in the preceding clause (i).
(f) “
Parity Stock
”
means any class or series of stock of the Issuer (other than Designated Preferred Stock) the terms of which do not expressly provide
that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on
liquidation, dissolution or winding up of the Issuer (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).
(g) “
Signing
Date
” means September 13, 2011
.
(h) “
Treasury
”
means the United States Department of the Treasury and any successor in interest thereto.
Part 4.
Certain
Voting Matters
. Holders of shares of Designated Preferred Stock will be entitled to one vote for each such share
on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.
[Remainder of Page Intentionally Left Blank]
|
SBLF Participant No. 0762
|
-
2
-
|
|
IN WITNESS WHEREOF, Provident
Bancorp, Inc. has caused this Certificate of Designation to be signed by David Mansfield, its President & Chief Executive Officer,
this
8
th
day of September, 2011.
|
|
PROVIDENT BANCORP, INC.
|
|
|
|
|
|
By:
|
/s/ David P. Mansfield
|
|
|
|
Name: David Mansfield
|
|
|
|
Title: Executive Vice President & Chief
|
|
|
|
Financial Officer
|
|
SBLF Participant No. 0762
|
|
|
Schedule A
STANDARD PROVISIONS
Section 1.
General
Matters
. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated
Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these
Standard Provisions that form a part of the Certificate of Designation. The Designated Preferred Stock shall rank equally
with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets
in the event of any dissolution, liquidation or winding up of the Issuer, as set forth below.
Section 2.
Standard
Definitions
. As used herein with respect to Designated Preferred Stock:
(a) “
Acquiror
,”
in any Holding Company Transaction, means the surviving or resulting entity or its ultimate parent in the case of a merger or consolidation
or the transferee in the case of a sale, lease or other transfer in one transaction or a series of related transactions of all
or substantially all of the consolidated assets of the Issuer and its subsidiaries, taken as a whole.
(b)
“Affiliate
”
means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such
other person. For purposes of this definition, “
control
” (including, with correlative meanings, the terms “
controlled
by
” and “
under common control with
”) when used with respect to any person, means the possession, directly
or indirectly through one or more intermediaries, of the power to cause the direction of management and/or policies of such person,
whether through the ownership of voting securities by contract or otherwise.
(c) “
Applicable
Dividend Rate
” has the meaning set forth in Section 3(a).
(d) “
Appropriate
Federal Banking Agency
” means the “appropriate Federal banking agency” with respect to the Issuer as defined
in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.
(e) “
Bank Holding
Company
” means a company registered as such with the Board of Governors of the Federal Reserve System pursuant to 12
U.S.C. §1842 and the regulations of the Board of Governors of the Federal Reserve System thereunder.
(f) “
Baseline
”
means the “Initial Small Business Lending Baseline” set forth on the Initial Supplemental Report (as defined in the
Definitive Agreement), subject to adjustment pursuant to Section 3(a).
(g) “
Business
Combination
” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval
of the Issuer’s stockholders.
|
SBLF Participant No. 0762
|
A-
1
|
|
(h) “
Business
Day
” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York or the
District of Columbia generally are authorized or required by law or other governmental actions to close.
(i) “
Bylaws
”
means the bylaws of the Issuer, as they may be amended from time to time.
(j) “
Call Report
”
has the meaning set forth in the Definitive Agreement.
(k) “
Certificate
of Designation
” means the Certificate of Designation or comparable instrument relating to the Designated Preferred Stock,
of which these Standard Provisions form a part, as it may be amended from time to time.
(l) “
Charge-Offs
”
means the net amount of loans charged off by the Issuer or, if the Issuer is a Bank Holding Company or a Savings and Loan Holding
Company, by the IDI Subsidiary(ies) during quarters that begin on or after the Signing Date, determined as follows:
(i) if the Issuer
or the applicable IDI Subsidiary is a bank, by subtracting (A) the aggregate dollar amount of recoveries reflected on line RIAD4605
of its Call Reports for such quarters from (B) the aggregate dollar amount of charge-offs reflected on line RIAD4635 of its
Call Reports for such quarters (without duplication as a result of such dollar amounts being reported on a year-to-date basis);
or
(ii) if the
Issuer or the applicable IDI Subsidiary is a thrift, by subtracting (A) the sum of the aggregate dollar amount of recoveries reflected
on line VA140 of its Call Reports for such quarters and the aggregate dollar amount of adjustments reflected on line VA150 of its
Call Reports for such quarters from (B) the aggregate dollar amount of charge-offs reflected on line
VA160 of its Call Reports
for such quarters.
(m) “
Charter
”
means the Issuer’s certificate or articles of incorporation, articles of association, or similar organizational document.
(n) “
CPP Lending
Incentive Fee
” has the meaning set forth in Section 3(e).
(o) “
Current
Period
” has the meaning set forth in Section 3(a)(i)(2).
(p) “
Dividend
Payment Date
” means January 1, April 1, July 1, and October 1 of each year.
(q) “
Dividend
Period
” means the period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date;
provided, however
, the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding,
the next Dividend Payment Date (the “
Initial Dividend Period
”).
(r) “
Dividend
Record Date
” has the meaning set forth in Section 3(b).
|
SBLF Participant No. 0762
|
A-
2
|
|
(s) “
Dividend
Reference Period
” has the meaning set forth in Section 3(a)(i)(2).
(t) “
GAAP
”
means generally accepted accounting principles in the United States.
(u) “
Holding
Company Preferred Stock
” has the meaning set forth in Section 7(c)(v).
(v) “
Holding
Company Transaction
” means the occurrence of (a) any transaction (including, without limitation, any acquisition,
merger or consolidation) the result of which is that a “person” or “group” within the meaning of Section
13(d) of the Securities Exchange Act of 1934, as amended, (i) becomes the direct or indirect ultimate “beneficial owner,”
as defined in Rule 13d-3 under that Act, of common equity of the Issuer representing more than 50% of the voting power of the outstanding
Common Stock or (ii) is otherwise required to consolidate the Issuer for purposes of generally accepted accounting principles
in the United States, or (b) any consolidation or merger of the Issuer or similar transaction or any sale, lease or other
transfer in one transaction or a series of related transactions of all or substantially all of the consolidated assets of the Issuer
and its subsidiaries, taken as a whole, to any Person other than one of the Issuer’s subsidiaries;
provided
that,
in the case of either clause (a) or (b), the Issuer or the Acquiror is or becomes a Bank Holding Company or Savings and Loan Holding
Company.
(w) “
IDI Subsidiary
”
means any Issuer Subsidiary that is an insured depository institution.
(x) “
Increase
in QSBL
” means:
(i) with respect
to the first (1st) Dividend Period, the difference obtained by subtracting (A) the Baseline from (B) QSBL set forth in the Initial
Supplemental Report (as defined in the Definitive Agreement); and
(ii) with respect
to each subsequent Dividend Period, the difference obtained by subtracting (A) the Baseline from (B) QSBL for the Dividend Reference
Period for the Current Period.
(y) “
Initial
Dividend Period
” has the meaning set forth in the definition of “Dividend Period”.
(z) “
Issuer Subsidiary
”
means any subsidiary of the Issuer.
(aa) “
Liquidation
Preference
” has the meaning set forth in Section 4(a).
(bb) “
Non-Qualifying
Portion Percentage
” means, with respect to any particular Dividend Period, the percentage obtained by subtracting the
Qualifying Portion Percentage from one (1).
|
SBLF Participant No. 0762
|
A-
3
|
|
(cc) “
Original
Issue Date
” means the date on which shares of Designated Preferred Stock are first issued.
(dd) “
Percentage
Change in QSBL
” has the meaning set forth in Section 3(a)(ii).
(ee) “
Person
”
means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company,
limited liability company or trust.
(ff) “
Preferred
Director
” has the meaning set forth in Section 7(c).
(gg) “
Preferred
Stock
” means any and all series of preferred stock of the Issuer, including the Designated Preferred Stock.
(hh) “
Previously
Acquired Preferred Shares
” has the meaning set forth in the Definitive Agreement.
(ii) “
Private
Capital
” means, if the Issuer is Matching Private Investment Supported (as defined in the Definitive Agreement), the
equity capital received by the Issuer or the applicable Affiliate of the Issuer from one or more non-governmental investors in
accordance with Section 1.3(m) of the Definitive Agreement.
(jj) “
Publicly-traded
”
means a company that (i) has a class of securities that is traded on a national securities exchange and (ii) is required to file
periodic reports with either the Securities and Exchange Commission or its primary federal bank regulator.
(kk) “
Qualified
Small Business Lending
” or “
QSBL
” means, with respect to any particular Dividend Period, the “Quarter-End
Adjusted Qualified Small Business Lending” for such Dividend Period set forth in the applicable Supplemental Report.
(ll) “
Qualifying
Portion Percentage
” means, with respect to any particular Dividend Period, the percentage obtained by dividing (i) the
Increase in QSBL for such Dividend Period by (ii) the aggregate Liquidation Amount of then-outstanding Designated Preferred Stock.
(mm) “
Savings
and Loan Holding Company
” means a company registered as such with the Office of Thrift Supervision pursuant to 12 U.S.C.
§1467a(b) and the regulations of the Office of Thrift Supervision promulgated thereunder.
(nn) “
Share Dilution
Amount
” means the increase in the number of diluted shares outstanding (determined in accordance with GAAP applied on
a consistent basis, and as measured from the date of the Issuer’s most recent consolidated financial statements prior to
the Signing Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted
for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.
(oo) “
Signing
Date Tier 1 Capital Amount
” means $44,032,000.
|
SBLF Participant No. 0762
|
A-
4
|
|
(pp) “
Standard
Provisions
” mean these Standard Provisions that form a part of the Certificate of Designation relating to the Designated
Preferred Stock.
(qq) “
Supplemental
Report
” means a Supplemental Report delivered by the Issuer to Treasury pursuant to the Definitive Agreement.
(rr) “
Tier 1
Dividend Threshold
” means, as of any particular date, the result of the following formula:
( ( A + B – C ) *
0.9 ) – D
where:
|
|
A =
|
Signing Date Tier 1 Capital Amount;
|
|
|
B =
|
the aggregate Liquidation Amount of the Designated Preferred
Stock issued to Treasury;
|
|
|
C =
|
the aggregate amount of Charge-Offs since the Signing Date;
and
|
|
|
D =
|
(i) beginning on the first day of the eleventh (11th) Dividend
Period, the amount equal to ten percent (10%) of the aggregate Liquidation Amount of the Designated Preferred Stock issued to
Treasury as of the Effective Date (without regard to any redemptions of Designated Preferred Stock that may have occurred thereafter)
for every one percent (1%) of positive Percentage Change in Qualified Small Business Lending between the ninth (9th) Dividend
Period and the Baseline; and
|
|
|
|
(ii) zero (0) at all other times.
|
(ss) “
Voting
Parity Stock
” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to
vote as specified in Section 7(d) of these Standard Provisions that form a part of the Certificate of Designation, any and all
series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.
Section 3.
Dividends
.
(a)
Rate
.
(i) The “
Applicable
Dividend Rate
” shall be determined as follows:
|
|
(1)
|
With respect to the Initial Dividend Period, the Applicable Dividend Rate shall be one and nine
million ninety-eight thousand eight hundred sixty-three ten-millionths percent (1.9098863%).
|
|
SBLF Participant No. 0762
|
A-
5
|
|
|
|
(2)
|
With respect to each of the second (2nd) through the tenth (10th) Dividend Periods, inclusive (in
each case, the “
Current Period
”), the Applicable Dividend Rate shall be:
|
(A) (x) the
applicable rate set forth in column “A” of the table in Section 3(a)(iii), based on the Percentage Change in QSBL between
the Dividend Period that was two Dividend Periods prior to the Current Period (the “
Dividend Reference Period
”)
and the Baseline, multiplied by (y) the Qualifying Portion Percentage; plus
(B) (x) five
percent (5%) multiplied by (y) the Non-Qualifying Portion Percentage.
In each such case,
the Applicable Dividend Rate shall be determined at the time the Issuer delivers a complete and accurate Supplemental Report to
Treasury with respect to the Dividend Reference Period.
|
|
(3)
|
With respect to the eleventh (11th) through the eighteenth (18th) Dividend Periods, inclusive,
and that portion of the nineteenth (19th) Dividend Period prior to, but not including, the four and one half (4½) year anniversary
of the Original Issue Date, the Applicable Dividend Rate shall be:
|
(A) (x) the
applicable rate set forth in column “B” of the table in Section 3(a)(iii), based on the Percentage Change in QSBL between
the ninth (9th) Dividend Period and the Baseline, multiplied by (y) the Qualifying Portion Percentage, calculated as of the last
day of the ninth (9th) Dividend Period; plus
(B) (x) five
percent (5%) multiplied by (y) the Non-Qualifying Portion Percentage, calculated as of the last day of the ninth (9th) Dividend
Period.
In such case, the
Applicable Dividend Rate shall be determined at the time the Issuer delivers a complete and accurate Supplemental Report to Treasury
with respect to the ninth (9th) Dividend Period.
|
|
(4)
|
With respect to (A) that portion of the nineteenth (19th) Dividend Period beginning on the four
and one half (4½) year anniversary of the Original Issue Date and (B) all Dividend Periods thereafter, the Applicable Dividend
Rate shall be nine percent (9%).
|
|
|
(5)
|
Notwithstanding anything herein to the contrary, if the Issuer fails to submit a Supplemental Report
that is due during any of the second (2nd) through tenth (10th)
|
|
SBLF Participant No. 0762
|
A-
6
|
|
|
|
|
Dividend Periods on or before the sixtieth (60th) day of such Dividend Period, the Issuer’s
QSBL for the Dividend Period that would have been covered by such Supplemental Report shall be zero (0) for purposes hereof.
|
|
|
(6)
|
Notwithstanding anything herein to the contrary, but subject to Section 3(a)(i)(5) above, if the
Issuer fails to submit the Supplemental Report that is due during the tenth (10th) Dividend Period, the Issuer’s QSBL for
the shall be zero (0) for purposes of calculating the Applicable Dividend Rate pursuant to Section 3(a)(i)(3) and (4). The
Applicable Dividend Rate shall be re-determined effective as of the first day of the calendar quarter following the date such failure
is remedied, provided it is remedied prior to the four and one half (4½) anniversary of the Original Issue Date.
|
|
|
(7)
|
Notwithstanding anything herein to the contrary, if the Issuer fails to submit any of the certificates
required by Sections 3.1(d)(ii) or 3.1(d)(iii) of the Definitive Agreement when and as required thereby, the Issuer’s QSBL
for the shall be zero (0) for purposes of calculating the Applicable Dividend Rate pursuant to Section 3(a)(i)(2) or (3) above
until such failure is remedied.
|
(ii) The “
Percentage
Change in Qualified Lending
” between any given Dividend Period and the Baseline shall be the result of the following
formula, expressed as a percentage:
|
(
|
( QSBL for the Dividend Period – Baseline )
|
)
|
x 100
|
|
Baseline
|
(iii) The following
table shall be used for determining the Applicable Dividend Rate:
|
|
The Applicable Dividend Rate shall be:
|
If the Percentage Change in
Qualified Lending is:
|
Column “A”
(each of the
2nd – 10th
Dividend Periods)
|
Column “B”
(11th – 18th, and
the first part of the
19th, Dividend
Periods)
|
|
0% or less
|
5%
|
7%
|
|
More than 0%, but less than 2.5%
|
5%
|
5%
|
|
2.5% or more, but less than 5%
|
4%
|
4%
|
|
5% or more, but less than 7.5%
|
3%
|
3%
|
|
SBLF Participant No. 0762
|
A-
7
|
|
|
7.5% or more, but less than 10%
|
2%
|
2%
|
|
10% or more
|
1%
|
1%
|
(iv) If the
Issuer consummates a Business Combination, a purchase of loans or a purchase of participations in loans and the Designated Preferred
Stock remains outstanding thereafter, then the Baseline shall thereafter be the “Quarter-End Adjusted Small Business Lending
Baseline” set forth on the Quarterly Supplemental Report (as defined in the Definitive Agreement).
(b)
Payment
. Holders
of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared
by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available
therefor, non-cumulative cash dividends with respect to:
(i) each Dividend
Period (other than the Initial Dividend Period) at a rate equal to one-fourth (¼) of the Applicable Dividend Rate with respect
to each Dividend Period on the Liquidation Amount per share of Designated Preferred Stock, and no more, payable quarterly in arrears
on each Dividend Payment Date; and
(ii) the Initial
Dividend Period, on the first such Dividend Payment Date to occur at least twenty (20) calendar days after the Original Issue Date,
an amount equal to (A) the Applicable Dividend Rate with respect to the Initial Dividend Period multiplied by (B) the number of
days from the Original Issue Date to the last day of the Initial Dividend Period (inclusive) divided by 360.
In the event that any Dividend
Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed
to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. For
avoidance of doubt, “payable quarterly in arrears” means that, with respect to any particular Dividend Period, dividends
begin accruing on the first day of such Dividend Period and are payable on the first day of the next Dividend Period.
The amount of dividends payable
on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be
computed on the basis of a 360-day year consisting of four 90-day quarters, and actual days elapsed over a 90-day quarter.
Dividends that are payable
on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as
they appear on the stock register of the Issuer on the applicable record date, which shall be the 15th calendar day immediately
preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee
of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “
Dividend
Record Date
”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not
such day is a Business Day.
|
SBLF Participant No. 0762
|
A-
8
|
|
Holders of Designated Preferred
Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any)
declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate
of Designation).
(c)
Non-Cumulative
. Dividends
on shares of Designated Preferred Stock shall be non-cumulative. If the Board of Directors or any duly authorized committee
of the Board of Directors does not declare a dividend on the Designated Preferred Stock in respect of any Dividend Period:
(i) the holders
of Designated Preferred Stock shall have no right to receive any dividend for such Dividend Period, and the Issuer shall have no
obligation to pay a dividend for such Dividend Period, whether or not dividends are declared for any subsequent Dividend Period
with respect to the Designated Preferred Stock; and
(ii) the Issuer
shall, within five (5) calendar days, deliver to the holders of the Designated Preferred Stock a written notice executed by the
Chief Executive Officer and the Chief Financial Officer of the Issuer stating the Board of Directors’ rationale for not declaring
dividends.
(d)
Priority of Dividends;
Restrictions on Dividends
.
(i) Subject
to Sections 3(d)(ii), (iii) and (v) and any restrictions imposed by the Appropriate Federal Banking Agency or, if applicable, the
Issuer’s state bank supervisor (as defined in Section 3(r) of the Federal Deposit Insurance Act (12 U.S.C. § 1813(q)),
so long as any share of Designated Preferred Stock remains outstanding, the Issuer may declare and pay dividends on the Common
Stock, any other shares of Junior Stock, or Parity Stock, in each case only if (A) after giving effect to such dividend the Issuer’s
Tier 1 capital would be at least equal to the Tier 1 Dividend Threshold
,
and (B) full dividends on all outstanding shares
of Designated Preferred Stock for the most recently completed Dividend Period have been or are contemporaneously declared and paid.
(ii) If a dividend
is not declared and paid in full on the Designated Preferred Stock in respect of any Dividend Period, then from the last day of
such Dividend Period until the last day of the third (3rd) Dividend Period immediately following it, no dividend or distribution
shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares
of Common Stock) or Parity Stock;
provided, however
, that in any such Dividend Period in which a dividend is declared and
paid on the Designated Preferred Stock, dividends may be paid on Parity Stock to the extent necessary to avoid any material breach
of a covenant by which the Issuer is bound.
(iii) When dividends
have not been declared and paid in full for an aggregate of four (4) Dividend Periods or more, and during such time the Issuer
was not subject to a regulatory determination that prohibits the declaration and payment of dividends, the Issuer shall, within
five (5) calendar days of each missed payment, deliver
|
SBLF Participant No. 0762
|
A-
9
|
|
to the holders
of the Designated Preferred Stock a certificate executed by at least a majority of the Board of Directors stating that the Board
of Directors used its best efforts to declare and pay such dividends in a manner consistent with (A) safe and sound banking practices
and (B) the directors’ fiduciary obligations.
(iv) Subject
to the foregoing and Section 3(e) below and not otherwise, such dividends (payable in cash, securities or other property) as may
be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on
any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment,
and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.
(v) If the Issuer
is not Publicly-Traded, then after the tenth (10th) anniversary of the Signing Date, so long as any share of Designated Preferred
Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior
Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock.
(e)
Special Lending
Incentive Fee Related to CPP
. If Treasury held Previously Acquired Preferred Shares immediately prior to the Original
Issue Date and the Issuer did not apply to Treasury to redeem such Previously Acquired Preferred Shares prior to December 16, 2010,
and if the Issuer’s Supplemental Report with respect to the ninth (9th) Dividend Period reflects an amount of Qualified Small
Business Lending that is less than or equal to the Baseline (or if the Issuer fails to timely file a Supplemental Report with respect
to the ninth (9th) Dividend Period), then beginning on [NONE] and on all Dividend Payment Dates thereafter ending on [NONE], the
Issuer shall pay to the Holders of Designated Preferred Stock, on each share of Designated Preferred Stock, but only out of assets
legally available therefor, a fee equal to 0.5% of the Liquidation Amount per share of Designated Preferred Stock (“
CPP
Lending Incentive Fee
”). All references in Section 3(d) to “dividends” on the Designated Preferred
Stock shall be deemed to include the CPP Lending Incentive Fee.
Section 4.
Liquidation
Rights
.
(a)
Voluntary or Involuntary
Liquidation
. In the event of any liquidation, dissolution or winding up of the affairs of the Issuer, whether voluntary
or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock,
out of the assets of the Issuer or proceeds thereof (whether capital or surplus) available for distribution to stockholders of
the Issuer, subject to the rights of any creditors of the Issuer, before any distribution of such assets or proceeds is made to
or set aside for the holders of Common Stock and any other stock of the Issuer ranking junior to Designated Preferred Stock as
to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the
amount of any accrued and unpaid dividends on each such share (such amounts collectively, the “
Liquidation Preference
”).
(b)
Partial Payment
. If
in any distribution described in Section 4(a) above the assets of the Issuer or proceeds thereof are not sufficient to pay in full
the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts
|
SBLF Participant No. 0762
|
A-
10
|
|
payable with respect of any
other stock of the Issuer ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred
Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions
to which they are entitled.
(c)
Residual Distributions
. If
the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable
with respect of any other stock of the Issuer ranking equally with Designated Preferred Stock as to such distribution has been
paid in full, the holders of other stock of the Issuer shall be entitled to receive all remaining assets of the Issuer (or proceeds
thereof) according to their respective rights and preferences.
(d)
Merger, Consolidation
and Sale of Assets Is Not Liquidation
. For purposes of this Section 4, the merger or consolidation of the Issuer
with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock
receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property)
of all or substantially all of the assets of the Issuer, shall not constitute a liquidation, dissolution or winding up of the Issuer.
Section 5.
Redemption
.
(a)
Optional Redemption
.
(i) Subject
to the other provisions of this Section 5:
|
|
(1)
|
The Issuer, at its option, subject to the approval of the Appropriate Federal Banking Agency, may
redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated
Preferred Stock at the time outstanding; and
|
|
|
(2)
|
If, after the Signing Date, there is a change in law that modifies the terms of Treasury’s
investment in the Designated Preferred Stock or the terms of Treasury’s Small Business Lending Fund program in a materially
adverse respect for the Issuer, the Issuer may, after consultation with the Appropriate Federal Banking Agency, redeem all of the
shares of Designated Preferred Stock at the time outstanding.
|
(ii) The per-share
redemption price for shares of Designated Preferred Stock shall be equal to the sum of:
|
|
(1)
|
the Liquidation Amount per share,
|
|
|
(2)
|
the per-share amount of any unpaid dividends for the then current Dividend Period at the Applicable
Dividend Rate to, but excluding, the date fixed for redemption (regardless
|
|
SBLF Participant No. 0762
|
A-
11
|
|
|
|
|
of whether any dividends are actually declared for that Dividend Period; and
|
|
|
(3)
|
the pro rata amount of CPP Lending Incentive Fees for the current Dividend Period.
|
The redemption price for
any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender
of the certificate(s) evidencing such shares to the Issuer or its agent. Any declared but unpaid dividends for the then
current Dividend Period payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall
not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder
of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.
(b)
No Sinking Fund
. The
Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of
Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.
(c)
Notice of Redemption
. Notice
of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the
holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Issuer. Such
mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed
as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such
notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of
shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption
of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred
Stock are issued in book-entry form through The Depository Trust Company or any other similar facility, notice of redemption may
be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each
notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred
Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price.
(d)
Partial Redemption
. In
case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall
be selected either
pro rata
or in such other manner as the Board of Directors or a duly authorized committee thereof may
determine to be fair and equitable, but in any event the shares to be redeemed shall not be less than the Minimum Amount. Subject
to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to
prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time, subject
to the approval of the Appropriate Federal Banking Agency. If fewer than all the
|
SBLF Participant No. 0762
|
A-
12
|
|
shares represented by any
certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.
(e)
Effectiveness of
Redemption
. If notice of redemption has been duly given and if on or before the redemption date specified in the
notice all funds necessary for the redemption have been deposited by the Issuer, in trust for the
pro rata
benefit of the
holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City
of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and
continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has
not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called
for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares
shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount
payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three
years from the redemption date shall, to the extent permitted by law, be released to the Issuer, after which time the holders of
the shares so called for redemption shall look only to the Issuer for payment of the redemption price of such shares.
(f)
Status of Redeemed
Shares
. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Issuer
shall revert to authorized but unissued shares of Preferred Stock (
provided
that any such cancelled shares of Designated
Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).
Section 6.
Conversion
. Holders
of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.
Section 7.
Voting
Rights
.
(a)
General
. The
holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time
required by law.
(b)
Board Observation
Rights
. Whenever, at any time or times, dividends on the shares of Designated Preferred Stock have not been declared
and paid in full within five (5) Business Days after each Dividend Payment Date for an aggregate of five (5) Dividend Periods or
more, whether or not consecutive, the Issuer shall invite a representative selected by the holders of a majority of the outstanding
shares of Designated Preferred Stock, voting as a single class, to attend all meetings of its Board of Directors in a nonvoting
observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials
that it provides to its directors in connection with such meetings;
provided
, that the holders of the Designated Preferred
Stock shall not be obligated to select such a representative, nor shall such representative, if selected, be obligated to attend
any meeting to which he/she is invited. The rights of the holders of the Designated Preferred Stock set forth in this
Section 7(b) shall terminate when full dividends have been timely paid on the Designated Preferred Stock for at least four consecutive
Dividend Periods, subject to revesting in the event of each and every subsequent default of the character above mentioned.
|
SBLF Participant No. 0762
|
A-
13
|
|
(c)
Preferred Stock
Directors
. Whenever, at any time or times, (i) dividends on the shares of Designated Preferred Stock have not been
declared and paid in full within five (5) Business Days after each Dividend Payment Date for an aggregate of six (6) Dividend Periods
or more, whether or not consecutive, and (ii) the aggregate liquidation preference of the then-outstanding shares of Designated
Preferred Stock is greater than or equal to $25,000,000, the authorized number of directors of the Issuer shall automatically be
increased by two and the holders of the Designated Preferred Stock, voting as a single class, shall have the right, but not the
obligation, to elect two directors (hereinafter the “
Preferred Directors
” and each a “
Preferred Director
”)
to fill such newly created directorships at the Issuer’s next annual meeting of stockholders (or, if the next annual meeting
is not yet scheduled or is scheduled to occur more than thirty days later, the President of the Company shall promptly call a special
meeting for that purpose) and at each subsequent annual meeting of stockholders until full dividends have been timely paid on the
Designated Preferred Stock for at least four consecutive Dividend Periods, at which time such right shall terminate with respect
to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and
every subsequent default of the character above mentioned;
provided
that it shall be a qualification for election for any
Preferred Director that the election of such Preferred Director shall not cause the Issuer to violate any corporate governance
requirements of any securities exchange or other trading facility on which securities of the Issuer may then be listed or traded
that listed or traded companies must have a majority of independent directors. Upon any termination of the right of
the holders of shares of Designated Preferred Stock to vote for directors as provided above, the Preferred Directors shall cease
to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the
authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred
Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative
vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class. If
the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the holders of
a majority of the outstanding shares of Designated Preferred Stock, voting as a single class, may choose a successor who shall
hold office for the unexpired term in respect of which such vacancy occurred.
(d)
Class Voting Rights
as to Particular Matters
. So long as any shares of Designated Preferred Stock are outstanding, in addition to any
other vote or consent of stockholders required by law or by the Charter, the written consent of (x) Treasury if Treasury holds
any shares of Designated Preferred Stock, or (y) the holders of a majority of the outstanding shares of Designated Preferred Stock,
voting as a single class, if Treasury does not hold any shares of Designated Preferred Stock, shall be necessary for effecting
or validating:
(i)
Authorization
of Senior Stock
. Any amendment or alteration of the Certificate of Designation for the Designated Preferred Stock
or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities
convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Issuer ranking senior
to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any
liquidation, dissolution or winding up of the Issuer;
|
SBLF Participant No. 0762
|
A-
14
|
|
(ii)
Amendment
of Designated Preferred Stock
. Any amendment, alteration or repeal of any provision of the Certificate of Designation
for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section
7(d)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect
the rights, preferences, privileges or voting powers of the Designated Preferred Stock;
(iii)
Share
Exchanges, Reclassifications, Mergers and Consolidations
. Subject to Section 7(d)(v) below, any consummation of
a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Issuer
with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding
or, in the case of any such merger or consolidation with respect to which the Issuer is not the surviving or resulting entity,
are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such
shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting
powers, and limitations and restrictions thereof that are the same as the rights, preferences, privileges and voting powers, and
limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;
provided
,
that in all cases, the obligations of the Issuer are assumed (by operation of law or by express written assumption) by the resulting
entity or its ultimate parent;
(iv)
Certain
Asset Sales
. Any sale of all, substantially all, or any material portion of, the assets of the Company, if the Designated
Preferred Stock will not be redeemed in full contemporaneously with the consummation of such sale; and
(v)
Holding
Company Transactions
. Any consummation of a Holding Company Transaction, unless as a result of the Holding Company
Transaction each share of Designated Preferred Stock shall be converted into or exchanged for one share with an equal liquidation
preference of preference securities of the Issuer or the Acquiror (the “
Holding Company Preferred Stock
”). Any
such Holding Company Preferred Stock shall entitle holders thereof to dividends from the date of issuance of such Holding Company
Preferred Stock on terms that are equivalent to the terms set forth herein, and shall have such other rights, preferences, privileges
and voting powers, and limitations and restrictions thereof that are the same as the rights, preferences, privileges and voting
powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such conversion or exchange,
taken as a whole;
provided
,
however
, that for all
purposes of this Section 7(d), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized
amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Issuer to other persons prior
to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive
or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable
for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment
of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution
or winding up of the Issuer will not be
|
SBLF Participant No. 0762
|
A-
15
|
|
deemed to adversely affect the rights, preferences,
privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the
Designated Preferred Stock.
(e)
Changes after Provision
for Redemption
. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section
7(d) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all
outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper
notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.
(f)
Procedures for
Voting and Consents
. The rules and procedures for calling and conducting any meeting of the holders of Designated
Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use
of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or
such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors,
in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the
Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred
Stock is listed or traded at the time.
Section 8.
Restriction
on Redemptions and Repurchases
.
(a) Subject to Sections
8(b) and (c), so long as any share of Designated Preferred Stock remains outstanding, the Issuer may repurchase or redeem any shares
of Capital Stock (as defined below), in each case only if (i) after giving effect to such dividend, repurchase or redemption, the
Issuer’s Tier 1 capital would be at least equal to the Tier 1 Dividend Threshold and (ii) dividends on all outstanding shares
of Designated Preferred Stock for the most recently completed Dividend Period have been or are contemporaneously declared and paid
(or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares
of Designated Preferred Stock on the applicable record date).
(b) If a dividend is not
declared and paid on the Designated Preferred Stock in respect of any Dividend Period, then from the last day of such Dividend
Period until the last day of the third (3rd) Dividend Period immediately following it,
neither the Issuer nor any Issuer
Subsidiary shall, redeem, purchase or acquire any shares of Common Stock, Junior Stock, Parity Stock or other capital stock or
other equity securities of any kind of the Issuer or any Issuer Subsidiary, or any trust preferred securities issued by the Issuer
or any Affiliate of the Issuer (“Capital Stock”), (other than (i) redemptions, purchases, repurchases or other acquisitions
of the Designated Preferred Stock and (ii) repurchases of Junior Stock or Common Stock in connection with the administration of
any employee benefit plan in the ordinary course of business (including purchases to offset any Share Dilution Amount pursuant
to a publicly announced repurchase plan) and consistent with past practice;
provided
that any purchases to offset the Share
Dilution Amount shall in no event exceed the Share Dilution Amount, (iii) the acquisition by the Issuer or any of the Issuer Subsidiaries
of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Issuer or
any other Issuer Subsidiary), including as trustees or custodians, (iv) the exchange or conversion of Junior Stock
|
SBLF Participant No. 0762
|
A-
16
|
|
for or into other Junior
Stock or of Parity Stock or trust preferred securities for or into other Parity Stock (with the same or lesser aggregate liquidation
amount) or Junior Stock, in each case set forth in this clause (iv), solely to the extent required pursuant to binding contractual
agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange
thereof for Common Stock, (v) redemptions of securities held by the Issuer or any wholly-owned Issuer Subsidiary or (vi) redemptions,
purchases or other acquisitions of capital stock or other equity securities of any kind of any Issuer Subsidiary required pursuant
to binding contractual agreements entered into prior to (x) if Treasury held Previously Acquired Preferred Shares immediately prior
to the Original Issue Date, the original issue date of such Previously Acquired Preferred Shares, or (y) otherwise, the Signing
Date).
(c) If the Issuer is not
Publicly-Traded, then after the tenth (10th) anniversary of the Signing Date, so long as any share of Designated Preferred Stock
remains outstanding, no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise
acquired for consideration by the Issuer or any of its subsidiaries.
Section 9.
No
Preemptive Rights
. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any
securities of the Issuer, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities,
or such warrants, rights or options, may be designated, issued or granted.
Section 10.
References
to Line Items of Supplemental Reports
. If Treasury modifies the form of Supplemental Report, pursuant to its rights
under the Definitive Agreement, and any such modification includes a change to the caption or number of any line item on the Supplemental
Report, then any reference herein to such line item shall thereafter be a reference to such re-captioned or re-numbered line item.
Section 11.
Record
Holders
. To the fullest extent permitted by applicable law, the Issuer and the transfer agent for Designated Preferred
Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for
all purposes, and neither the Issuer nor such transfer agent shall be affected by any notice to the contrary.
Section 12.
Notices
. All
notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered
in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of
Designation, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock
are issued in book-entry form through The Depository Trust Company or any similar facility, such notices may be given to the holders
of Designated Preferred Stock in any manner permitted by such facility.
Section 13.
Replacement
Certificates
. The Issuer shall replace any mutilated certificate at the holder’s expense upon surrender of
that certificate to the Issuer. The Issuer shall replace certificates that become destroyed, stolen or lost at the holder’s
expense upon delivery to the Issuer of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost,
together with any indemnity that may be reasonably required by the Issuer.
|
SBLF Participant No. 0762
|
A-
17
|
|
Section 14.
Other
Rights
. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers
or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than
as set forth herein or in the Charter or as provided by applicable law.
|
SBLF Participant No. 0762
|
A-
18
|
|
APPENDIX C
TO THE
ARTICLES OF ORGANIZATION OF
PROVIDENT BANCORP, INC.
6.1. CERTAIN BUSINESS COMBINATIONS.
6.1.1 VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
In addition to any affirmative vote required by the Act or these Articles, and except as otherwise expressly provided in Section
6.1.3 of these Articles or expressly provided in these Articles with respect to the Corporation’s Senior Non-Cumulative
Perpetual Preferred Stock, Series A” (the “Series A Preferred Stock”) for so long as any of the Series A Preferred
Stock remains outstanding, any Business Combination (as defined in Section 6.1.2) shall require the affirmative vote of the holders
of at least eighty percent (80%) of the voting power of all of the then-outstanding shares of capital shares of the Corporation
entitled to vote generally in the election of directors (the “VOTING SHARES”), voting together as a single voting
group. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage
may be specified, by law or by any other provisions of these Articles (other than Section 6.1.3) or any amendment of designation
or in any agreement with any national securities exchange or otherwise.
6.1.2 BUSINESS COMBINATION DEFINED. The term
“BUSINESS COMBINATION” as used in this Article VI shall mean:
(a) any merger or consolidation of
the Corporation or any Subsidiary (as defined in Section 6.1.4(j)) with (a) any Interested Shareholder (as defined in Section 6.1.4(h))
or (b) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation
would be, an Interested Shareholder or an Affiliate (as defined in Section 6.1.4(a)) of an Interested Shareholder; or
(b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or
any Affiliate of any Interested Shareholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value (as defined in Section 6.1.4(f)) equal to or greater than ten percent (10%) of the combined assets of the Corporation and
its Subsidiaries; or
(c) the issuance or transfer by the
Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary
to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value equal to or greater than ten percent (10%) of the combined assets
of the Corporation and its Subsidiaries, except for any issuance or transfer pursuant to an employee benefit plan of the
Corporation or any Subsidiary thereof (established with
the approval of a majority of the Independent Directors (as defined in Section 6.1.4(e)); or
(d) the adoption of any plan or proposal
for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Shareholder or any Affiliate of
any Interested Shareholder; or
(e) any reclassification of securities
(including any reverse share split) or recapitalization of the Corporation or any merger or consolidation of the Corporation with
any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving any Interested Shareholder)
which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series
of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested
Shareholder or any Affiliate of any Interested Shareholder.
6.1.3 WHEN HIGHER VOTE IS NOT REQUIRED. The
provisions of Section 6.1.1 shall not be applicable to any particular Business Combination, and such Business Combination shall
require only such affirmative vote, if any, as may be required by law or by any other provision of these Articles, if either (a)
the condition specified in Section 6.1.3(a) is met or (b) all of the conditions specified in Section 6.1.3(b) are met:
(a) APPROVAL BY INDEPENDENT DIRECTORS.
The Business Combination shall have been approved by two-thirds (2/3) of the Independent Directors then in office, it being understood
that this condition shall not be capable of satisfaction unless there is at least one Independent Director.
(b) PRICE AND PROCEDURE REQUIREMENTS.
All of the following conditions shall have been met:
(1) The aggregate amount of the cash
and the Fair Market Value of consideration other than cash, determined as of the date of the consummation of the Business Combination,
to be received per share by holders of Common Shares in such Business Combination shall be at least equal to the higher of the
following:
(A) (if applicable) the highest per
share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Shareholder
or any of its Affiliates for any Common Shares acquired by it (1) within the two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the “ANNOUNCEMENT DATE,” determined in accordance with Section
6.1.4(b)) or (2) in the transaction in which it became an Interested Shareholder, whichever is higher;
(B) the Fair Market Value per
share of Common Shares of the Corporation on the Announcement Date or on the date on which the Interested Shareholder became an
Interested Shareholder (the “DETERMINATION DATE”), whichever is higher.
(2) The aggregate amount of the cash
and the Fair Market Value of consideration other than cash, determined as of the date of the consummation of the Business Combination,
to be received per share by holders of shares of any class of outstanding Voting Shares other than the Common Shares shall be at
least equal to the highest of the following (it being intended that the requirements of this Section 6.1.3(b)(2) shall be required
to be met with respect to each such other class of outstanding Voting Shares, whether or not the Interested Shareholder has previously
acquired any shares of a particular class of Voting Shares):
(A) (if applicable) the highest per
share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Shareholder
or any of its Affiliates for any shares of such class of Voting Shares acquired by it (1) within the two-year period immediately
prior to the Announcement Date or (2) in the transaction in which it became an Interested Shareholder, whichever is higher; or
(B) (if applicable) the highest preferential
amount per share to which the holders of shares of such class of Voting Shares are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; or
(C) the Fair Market Value per share
of such class of Voting Shares on the Announcement Date or on the Determination Date, whichever is higher.
(3) The holders of all outstanding Voting
Shares not beneficially owned by the Interested Shareholder immediately prior to the consummation of any Business Combination shall
be entitled to receive in such Business Combination cash or other consideration for their shares meeting all of the terms and conditions
of this Section 6.1.3(b); provided, however, that the failure of any shareholders who are exercising their statutory rights to
dissent from such Business Combination and receive payment of the fair value of their shares to exchange their shares in such Business
Combination shall not be deemed to have prevented the condition set forth in this Section 6.1.3(b)(3) from being satisfied.
(4) The consideration to be received
by holders of any particular class or, if outstanding, any particular series of outstanding Voting Shares (including Common Shares)
shall be in cash or in the same form as the
Interested Shareholder or any of its Affiliates has previously
paid for shares of such class or series of Voting Shares. If the Interested Shareholder or any of its Affiliates has paid for shares
of any class or any series of Voting Shares with varying forms of consideration, the form of consideration to be received per share
by holders of such class or series of Voting Shares shall be either cash or the form used to acquire the largest number of shares
of such class or series of Voting Shares previously acquired by the Interested Shareholder or any of its Affiliates.
(5) The prices determined in accordance
with Section 6.1.3(b) shall be subject to appropriate adjustment in the event any share dividend, shares split, combination of
shares or similar event.
(6) After such Interested Shareholder
has become an Interested Shareholder and prior to the consummation of any such Business Combination: (a) except as shall have been
approved by two-thirds (2/3) of the Independent Directors, there shall have been no failure to declare and pay at the regular date
therefore any full quarterly dividends (whether or not cumulative) on any outstanding shares having preference over the Common
Shares as to dividends or liquidation; (b) there shall have been (1) no reduction in the annual rate of dividends paid on the Common
Shares (except as necessary to reflect any subdivision of the Common Shares), except as approved by two-thirds (2/3) of the Independent
Directors, and (2) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse
shares split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding
shares of the Common Shares, unless the failure so to increase such annual rate is approved by two-thirds (2/3) of the Independent
Directors; and (c) neither such Interested Shareholder nor any of its Affiliates shall have become the beneficial owner (as such
term is defined in Section 6.1.4(c)) of any additional Voting Shares except as part of the transaction which results in such Interested
Shareholder becoming an Interested Shareholder.
(7) After such Interested Shareholder
has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided, directly or indirectly, by the Corporation, whether in anticipation of or in connection with
such Business Combination or otherwise.
(8) A proxy or information statement
describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as
amended (the “EXCHANGE ACT”), and the rules and regulations thereunder (or any subsequent provisions
replacing the Exchange Act, rules or regulations) shall
be mailed to shareholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or
not such proxy or information statement is required to be mailed pursuant to the Exchange Act or subsequent provisions). Such proxy
or information statement shall contain, if a majority of the Independent Directors so requests, an opinion of a reputable investment
banking firm which shall be selected by a majority of the Independent Directors, furnished with all information such investment
banking firm reasonably requests and paid a reasonable fee for its services by the Corporation upon the Corporation’s receipt
of such opinion, as to the fairness (or lack of fairness) of the terms of the proposed Business Combination from the point of view
of the holders of Voting Shares (other than the Interested Shareholder).
6.1.4 CERTAIN DEFINITIONS. For the purpose of
these Articles:
(a) “AFFILIATE” or “ASSOCIATE”
shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act as in effect on the date of filing of these Articles.
(b) ANNOUNCEMENT DATE. For the purposes
of determining the “ANNOUNCEMENT DATE,” in the event that the first public announcement of the proposal of the Business
Combination is made after the close on such date of any securities exchange registered under the Exchange Act on which any shares
of the Voting Shares of the Corporation are traded, or of any automated quotation system maintained by the Nasdaq Stock Market
or any other system on which any shares of the Voting Shares of the Corporation are listed, then the Announcement Date shall be
deemed to be the next day on which such exchange or quotation system is open.
(c) “BENEFICIAL OWNERSHIP”
shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act (or any successor rule or
statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto,
pursuant to said Rule 13d-3 as in effect on the date of filing of these Articles; provided, however, that a person shall, in any
event, also be deemed to be a “BENEFICIAL OWNER” of any Voting Shares:
(1) which such person or any of its
Affiliates or Associates (as herein defined) beneficially owns, directly or indirectly, within the meaning of Rule 13d-3 of the
Exchange Act, as in effect on the date of filing of these Articles; or
(2) which such person or any of its
Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the beneficial
owner of any voting shares solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any
transaction which is described in Section 6.1.2) or upon the exercise of conversion rights, exchange rights, warrants, or options,
or otherwise, (b) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable
proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, with respect
to shares of which neither such person nor any such Affiliate is otherwise deemed the beneficial owner), or (c) the right to dispose
of or transfer; or
(3) which are beneficially owned, directly
or indirectly, by any other person with which such first-mentioned person or any of its Affiliates or Associates has any agreements,
arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital shares of the
Corporation;
and provided further, however, that (1) no Director or
Officer of this Corporation (and no Affiliate of any such Director or Officer) shall, solely by reason of any or all of such Director’s
or Officer’s acting in his or her capacities as such, be deemed, for any purposes hereof, to beneficially own any Voting
Shares beneficially owned by another such Director or Officer (or any Affiliate thereof), and (2) neither any employee shares ownership
plan or similar plan of the Corporation or any Subsidiary, nor any trustee with respect thereto or any Affiliate of such trustee
(solely by reason of its capacity as such trustee), shall be deemed, for any purposes hereof, to beneficially own any Voting Shares
held under any such plan.
For purposes of computing the percentage beneficial ownership
of Voting Shares of a person, the outstanding Voting Shares shall include shares deemed owned by such person through application
of Section 6.1.4(c), but shall not include any other Voting Shares which may be issuable by this Corporation pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(d) CONSIDERATION OTHER THAN CASH.
In the event of any Business Combination in which the Corporation survives, the phrase “CONSIDERATION OTHER THAN CASH”
as used in Section 6.1.3(b)(1) and Section 6.1.3(b)(2) hereof shall include the Common Shares and/or the shares of any other class
of outstanding Voting Shares retained by the holders of such shares.
(e) “INDEPENDENT DIRECTOR”
means:
(1) at any time when there is no Interested
Shareholder, any member of the Board of Directors, and
(2) at any time when there is an Interested
Shareholder, any member of the Board of Directors who (i) is not, and was not at any time during the two-year period immediately
prior to the date in question, an Affiliate or Associate of the Interested Shareholder, and (ii) either (a) was a member of the
Board prior to the time that the Interested Stockholder became an Interested Stockholder or (b) thereafter received favorable votes
for his or her nomination or election as a Director by a majority of the Independent Directors then serving on the Board.
(f) “FAIR MARKET VALUE”
means:
(1) in the case of shares, the highest
closing sales price of the shares during the 30-day period immediately preceding the date in question of such a share on the Nasdaq
Stock Market or any system then in use, or, if such shares are admitted to trading on a principal United States securities exchange
registered under the Exchange Act, Fair Market Value shall be the highest sale price reported during the 30-day period preceding
the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of such a share as
determined by the Board of Directors in good faith; and
(2) in the case of property other than
cash or shares, the fair market value of such property on the date in question as determined in good faith by a majority of the
Independent Directors.
All references to prices and values,
including references to “FAIR MARKET VALUE” and “HIGHEST PER SHARE PRICE” shall in each case be adjusted
to the extent necessary to reflect an appropriate adjustment for any dividend or distribution in such shares or any share split
or reclassification of outstanding shares into a greater number of shares or any combination or reclassification of outstanding
shares into a smaller number of shares.
(g) “GROUP ACTING IN CONCERT”
shall mean persons seeking to combine or pool their voting or other interests in the securities of the Corporation for a common
purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written, oral or otherwise,
or persons acting with conscious parallel behavior, or any “GROUP OF PERSONS” as defined under Section 13(d) of the
Exchange Act. When persons act together for such purpose, their group is deemed to have acquired their shares.
(h) “INTERESTED SHAREHOLDER”
shall mean any person (other than the Corporation, any Subsidiary or any employee shares ownership plan formed by the Corporation)
who or which:
(1) is the beneficial owner, directly
or indirectly, of ten percent (10%) or more of the voting power of the outstanding Voting Shares; or
(2) is an Affiliate of the Corporation
and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly,
of ten percent (10%) or more of the voting power of the then outstanding Voting Shares; or
(3) is an assignee of or has otherwise
succeeded to any Voting Shares which were at any time within the two-year period immediately prior to the date in question beneficially
owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended, and such assignment
or succession was not approved by two-thirds (2/3) of the Independent Directors.
(i) A “PERSON” shall include
any individual, group acting in concert, corporation, partnership, limited liability company, limited liability partnership, association,
joint venture, partnership, pool, joint shares company, trust, unincorporated organization or similar company, syndicate, or any
group formed for the purpose of acquiring, holding or disposing of securities.
(j) “SUBSIDIARY” means
any corporation of which at least a majority of any class of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the exclusion from the definition of Interested Shareholder set forth in Section 6.1.4(h),
the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
6.1.5 POWERS OF THE BOARD OF DIRECTORS. A majority
of the Independent Directors of the Corporation then in office shall have the power and duty to determine for the purposes of this
Section 6.1, on the basis of information known to them after reasonable inquiry (a) whether a person is an Interested Shareholder;
(b) the number or percentage of Voting Shares beneficially owned by any person; (c) whether a person is an Affiliate or Associate
of another; (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair
Market Value equal to or greater than ten percent (10%) of the combined assets of the Corporation and its Subsidiaries; (e) whether
the requirements of Section 6.1.3 have been met with respect to any Business Combination; and (f) any other matters of interpretation
arising under this Section 6.1. The good faith
determination of a majority of the Independent Directors on such
matters shall be conclusive and binding for all purposes of this Section 6.1.
6.1.6 NO EFFECT ON FIDUCIARY OBLIGATIONS OF
INTERESTED SHAREHOLDERS. Nothing contained in this Section 6.1 shall be construed to relieve any Interested Shareholder from any
fiduciary obligation imposed by law.
6.1.7 AMENDMENT, REPEAL, ETC. Notwithstanding
any other provisions of these Articles or the Bylaws of the Corporation (and notwithstanding the fact that a lesser percentage
or no vote may be specified by law, these Articles or the Bylaws of the Corporation), and in addition to any affirmative vote of
the holders of or any other class or series of capital shares of the Corporation or any series of the foregoing then outstanding
which is required by law or by or pursuant to these Articles, the affirmative vote of the holders of eighty percent (80%) or more
of the outstanding Voting Shares, voting together as a single voting group, shall be required to amend, repeal, or adopt any provisions
inconsistent with, this Section 6.1.
6.2. STANDARDS FOR BOARD OF DIRECTORS’
ACTIONS. Members of the Board of Directors of the Corporation, in considering what they reasonably believe to be in the best interests
of the Corporation, may consider the interests of the Corporation’s employees, suppliers, creditors and customers, the economy
of the state, the region and the nation, community and societal considerations, and the long-term and short-term interests of the
Corporation and its shareholders, including the possibility that these interests may be best served by the continued independence
of the Corporation.
6.3. SHAREHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS.
Subject to the provisions of Section 6.1 and in addition to any affirmative vote required by the Act or these Articles, any (i)
sale, lease or exchange of all or substantially all of the property or assets, including goodwill, of the Corporation, or (ii)
merger, share exchange or consolidation of the Corporation with or into any other entity, shall, to the extent approval by the
Corporation’s shareholders is required by applicable law or by these Articles, require the affirmative vote of at least two-thirds
of the total number of votes eligible to be cast by shareholders on such sale, lease or exchange, or merger, share exchange or
consolidation, voting together as a single voting group, at a duly constituted meeting of shareholders called expressly for such
purpose. The two-thirds vote requirement set forth in the previous sentence shall not apply, and only the affirmative vote of a
majority of the total number of votes eligible to be cast by shareholders on such matter, voting together as a single voting group,
shall be required if the Board of Directors recommends, by the affirmative vote of two-thirds (2/3) of the Directors then in office
at a duly constituted meeting of the Board of Directors (unless at the time of such action there shall be an Interested Shareholder,
in which case such action shall also require the affirmative vote of a majority of the Independent Directors then in office at
such meeting), that the shareholders approve such transaction by the affirmative vote of a majority of the total votes eligible
to be cast by shareholders on such transaction, voting together as a single voting group. The provisions of this Section 6.3 shall
not apply to the
extent that a higher percentage vote shall be required by law or
the provisions of Section 6.1 of these Articles.
6.4. DIRECTORS.
6.4.1 CLASSIFICATION OF DIRECTORS. The number
of Directors and their respective classifications shall be fixed from time to time by the Board of Directors; provided, however,
that if at the time of such action there is an Interested Shareholder, such action shall in addition require the affirmative vote
of a majority of the Independent Directors then in office. The Directors, other than those who may be elected by the holders of
any other class or series of shares of the Corporation with a separate right to elect Directors, shall be classified, with respect
to the term for which they severally hold office, into three classes, as nearly equal in number as possible, with one class to
be elected annually. At each Annual Meeting of shareholders, the successors of the class of Directors whose term expires at that
meeting shall be elected by a plurality vote of all votes cast at such meeting to hold office for a term expiring at the Annual
Meeting of shareholders held in the third year following the year of their election, provided, however, that during the time necessary
to accomplish the classification of directors, one class of Directors may be elected for a term of one year and one class of Directors
may be elected for a term of two years. Members of each class shall hold office until the Annual Meeting occurring at the end of
their respective terms, or until such Director sooner dies, resigns, is removed or becomes disqualified. Despite the expiration
of a Director’s term, such Director shall continue to serve until his or her successor is duly elected and qualified or until
the number of Directors has been reduced. A decrease in the number of Directors shall not shorten any incumbent Director’s
term.
6.4.2 REMOVAL OF DIRECTORS. Subject to the rights
of any voting group with a separate right to elect Directors, any Director (including persons elected by Directors to fill vacancies
in the Board of Directors) may be removed from office, only for cause and only by an affirmative vote of not less than two-thirds
(2/3) of the total votes eligible to be cast by shareholders, voting together as a single class, at a duly constituted meeting
of shareholders called expressly for the purpose of removing such Director, and the meeting notice must state that the purpose,
or one of the purposes, of the meeting is removal of the Director.
6.4.3 LIMITATION OF LIABILITY OF DIRECTORS.
No Director of the Corporation shall have personal liability to the Corporation or its stockholders for monetary damages for breach
of his or her fiduciary duty as a Director notwithstanding any provision of law imposing such liability, provided that this provision
shall not eliminate or limit the liability of a director (a) for any breach of the director’s duty of loyalty to the corporation
or its shareholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law, (c) for improper distributions under Section 6.40 of Chapter 156D of the General Laws of Massachusetts, or (d) for any
transaction from which the director derived an improper personal benefit; and provided, further, however, that the Corporation
shall not make any indemnification payment prohibited by Section 18(k) of the Federal Deposit Insurance Act or the
regulations promulgated thereunder by the Federal Deposit Insurance
Corporation. No amendment to or repeal of the provisions of this paragraph shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any act or failure to act of such director occurring
prior to such amendment or repeal. If the General Laws of Massachusetts are hereafter amended to further eliminate or limit the
personal liability of Directors or to authorize corporate action to further eliminate or limit such liability, then the liability
of the Directors of this Corporation shall be eliminated or limited to the fullest extent permitted by the General Laws of Massachusetts
as so amended.
6.5. AMENDMENT OF BYLAWS.
6.5.1 AMENDMENT BY DIRECTORS. Except as otherwise
required by law, the Board of Directors may adopt, amend or repeal the Bylaws of this Corporation in whole or in part, acting by
the affirmative vote of a majority of the Directors then in office at a duly constituted meeting of the Board of Directors (unless
at the time of such action there shall be an Interested Shareholder, in which case such action shall also require the affirmative
vote of two-thirds (2/3) of the Independent Directors then in office at such meeting). Not later than the time of giving notice
of the annual meeting of shareholders next following the adoption, amendment or repeal by the Directors of any Bylaw, notice thereof
stating the substance of such action shall be given to all shareholders entitled to vote on amending the Bylaws.
6.5.2 AMENDMENT BY SHAREHOLDERS. The Bylaws
of the Corporation may be amended at a duly constituted meeting of shareholders, called expressly for such purpose, by the affirmative
vote of at least eighty percent (80%) of the total votes eligible to be cast by shareholders on such amendment, voting together
as a single voting group; provided, however, that if the Board of Directors recommends, by the affirmative vote of two-thirds (2/3)
of the Independent Directors then in office at a duly constituted meeting of the Board of Directors, that shareholders approve
such amendment at such meeting of shareholders, such amendment shall only require the affirmative vote of a majority of the total
votes eligible to be cast by shareholders on such amendment, voting together as a single voting group.
6.6. AMENDMENT OF ARTICLES OF ORGANIZATION.
These Articles may be amended by the Board of Directors without shareholder action to the fullest extent permitted by the Act.
Except as otherwise expressly required by law with respect to the right of any voting group to vote separately on an amendment
to these Articles, these Articles may also be amended, at a duly constituted meeting of shareholders called expressly for such
purpose, by the affirmative vote of at least eighty percent (80%) of the total votes eligible to be cast by shareholders on such
amendment, voting together as a single voting group; provided, however, that if the Board of Directors recommends, by the affirmative
vote of at least two-thirds (2/3) of the Independent Directors then in office at a duly constituted meeting of the Board of Directors,
that shareholders approve such amendment at such meeting of shareholders, such amendment shall only require the affirmative vote
of a majority of the total votes eligible to be cast by shareholders on such
amendment, voting together as a single voting group. Notwithstanding
the foregoing, to the extent that any provision of these Articles provides for shareholder approval by a vote of more than a majority
of the total votes eligible to be cast, such provision may only be amended, altered, changed or repealed after approval by the
same percentage vote as is provided for in such provision.
6.7. BENEFICIAL OWNERSHIP LIMITATION.
6.7.1 No person shall directly or indirectly
offer to acquire or acquire the beneficial ownership of more than ten percent (10%) of the issued and outstanding Voting Shares
(including any securities convertible into, or exercisable for, Voting Shares) if, after conversion or exercise by such person
of all such convertible or exercisable securities of which such person is the beneficial owner, such person would be the beneficial
owner of more than ten percent (10%) of the then-outstanding Voting Shares (the “10% LIMIT”).
6.7.2 This limitation shall not apply to (i)
the mutual holding company of the Corporation, (ii) the Corporation, any Subsidiary or any pension, profit-sharing, stock bonus
or other compensation plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses
of which the Corporation is a member for the benefit of the employees of the Corporation or any Subsidiary, or any trust or custodial
arrangement established in connection with any such plan; (iii) any offer with a view toward public resale made exclusively to
the Corporation by underwriters or a selling group acting on its behalf, (iv) a corporate reorganization which does not result
in any change in the respective beneficial ownership interests of the Corporation’s shareholders other than pursuant to
the exercise of any dissenters’ appraisal rights, (v) to any offer or acquisition of Voting Shares which has been expressly
approved in advance by an affirmative vote of not less than two-thirds (2/3) of the Directors then in office (unless at the time
of such action there shall be an Interested Shareholder, in which case such action shall also require the affirmative vote of
two-thirds (2/3) of the Independent Directors then in office at such meeting), or (vi) any holder of the Corporation’s Series
A Preferred Stock, but only with respect to such holder’s ownership of the Series A Preferred Stock. For purposes of clarity,
the limitation shall apply to holders of the Series A Preferred Stock with respect to Voting Shares other than the Series A Preferred
Stock.
6.7.3 Notwithstanding any other provision of
these Articles, in no event shall any record owner of any outstanding Voting Shares which is beneficially owned, directly or indirectly,
by a person who, as of any record date for the determination of shareholders entitled to vote on any matter, beneficially owns
in excess of the 10% Limit in contravention of the provisions of this Section 6.8, be entitled to any vote or be permitted to vote
in respect of the shares held in excess of the 10% Limit. This restriction shall not apply to record owners of the Series A Preferred
Stock with respect to their ownership of Series A Preferred Stock, but shall apply to such record owners with respect to other
Voting Shares. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Voting
Shares beneficially owned by such person
beneficially owning shares in excess of the 10% Limit shall be a
number equal to the total number of votes that a single record owner of all Voting Shares beneficially owned by such person would
be entitled to cast (as determined in accordance with this Section 6.8) multiplied by a fraction, the numerator of which is the
number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner
and the denominator of which is the total number of shares of Voting Shares beneficially owned by such person. In the event that
shares are acquired in violation of this Section 6.7, the Corporation is authorized to refuse to recognize a transfer or attempted
transfer of any shares of Voting Shares to any person who is the beneficial owner, or as the result of such transfer would become
the beneficial owner, of shares in excess of the 10% Limit, and (ii) the Board of Directors may cause such shares in excess of
the 10% Limit to be transferred to an independent trustee for sale on the open market or otherwise, with the expenses of such trustee
to be paid out of the proceeds of the sale.
6.7.4 The following definitions shall apply
to this Section 6.7:
(a) “ACQUIRE” shall include
every type of acquisition, whether effected by purchase, exchange, operation of law, or otherwise.
(b) The “10% LIMIT” shall
have the meaning set forth in Section 6.7.1.
6.7.5 The Board of Directors shall have the
power to construe and apply the provisions of this Section 6.7 and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to: (i) the number of Voting Shares beneficially owned by any
person; (ii) whether a person is an Affiliate of another; (iii) whether a person has an agreement, arrangement, or understanding
with another as to the matters referred to in the definition of beneficial ownership; (iv) the application of any other definition
or operative provision of this Section 6.7 to the given facts; or (v) any other matter relating to the applicability or effect
of this Section 6.7.
6.7.6 The Board of Directors shall have the
right to demand that any person who is reasonably believed to beneficially own Voting Shares in excess of the 10% Limit (or holds
of record Voting Shares beneficially owned by any person in excess of the 10% Limit) supply the Corporation with complete information
as to: (i) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess
of the 10% Limit; and (ii) any other factual matter relating to the applicability or effect of this Section 6.7 as may reasonably
be requested of such person.
6.7.7 Any constructions, applications, or determinations
made by the Board of Directors pursuant to this Section 6.7 in good faith and on the basis of such information and assistance as
was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its shareholders.
6.7.8 In the event any provision (or portion
thereof) of this Section 6.7 shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions
(or portions thereof) of this Section 6.7 shall remain in full force and effect, and shall be construed as if such invalid, prohibited
or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation
and its shareholders that each such remaining provision (or portion thereof) of this Section 6.7 remain, to the fullest extent
permitted by law, applicable and enforceable as to all shareholders, including shareholders owning an amount of Voting Shares in
excess of the 10% Limit, notwithstanding any such finding.
6.8. CORPORATOR VOTE REQUIRED TO APPROVE STOCK
ISSUANCE PLAN. Any plan providing for the issuance of securities by the corporation to a person other than mutual holding company
of the Corporation (the “MHC”) shall be approved by the affirmative vote of (i) a majority of the total votes of the
corporators of the MHC (the “Corporators”) and (ii) a majority of the independent Corporators (who must constitute
not less than 60% of all Corporators), eligible to be cast. An “independent Corporator” is a Corporator who is not
an employee, officer or trustee or a person with a significant business or financial relationship with the MHC, the corporation,
or The Provident Bank, a wholly owned subsidiary of the corporation.
6.9 LIQUIDATION ACCOUNT. Under the Code of
Massachusetts Regulations, the Corporation must establish and maintain a liquidation account (the “Liquidation Account”)
for the benefit of certain Eligible Account Holders and Supplemental Eligible Account Holders as defined in the Corporation’s
Plan of Stock Issuance, as may be amended from time to time (the “Plan of Conversion”). In the event of a complete
liquidation involving (i) the Corporation or (ii) The Provident Bank, a Massachusetts-chartered savings bank that is a wholly-owned
subsidiary of the Corporation, the Corporation must comply with the Code of Massachusetts Regulations and the provisions of the
Plan of Stock Issuance with respect to the amount and priorities of each Eligible Account Holder’s and Supplemental Eligible
Account Holder’s interests in the Liquidation Account. The interest of an Eligible Account Holder or Supplemental Eligible
Account Holder in the Liquidation Account does not entitle such account holders to voting rights.
6.10. INTERPRETATION. When a reference is made
in these Articles to a Section, such reference shall include subsections, which are part of the related Section (e.g., a section
numbered “Section 5.5.1” would be part of “Section 5.5” and references to “Section 5.5” would
also refer to material contained in the subsection described as “Section 5.5.1”). The headings contained in these Articles
are for reference purposes only and shall not affect in any way the meaning or interpretation of these Articles.
Exhibit 3.2
AMENDED
AND RESTATED
By-Laws
of
Provident
Bancorp, Inc.
Effective: March 10, 2015
Table
of Contents
|
Article I. Organization
|
1
|
|
|
|
|
1.1.
Organization
|
1
|
|
|
|
|
Article II. Shareholders
|
1
|
|
|
|
|
2.1.
Annual Meeting
|
1
|
|
2.2.
Special Meetings
|
1
|
|
2.3.
Matters to be Considered at Meetings
|
1
|
|
2.4.
Notice of Meetings
|
2
|
|
2.5.
Quorum
|
2
|
|
2.6.
Voting and Proxies
|
2
|
|
2.7.
Action at Meeting
|
3
|
|
2.8.
Presiding Officer
|
3
|
|
2.9.
Action Without Meeting
|
3
|
|
|
|
|
Article III. Directors
|
3
|
|
|
|
|
3.1.
Powers
|
3
|
|
3.2.
Composition and Term
|
3
|
|
3.3.
Director Nominations and Election
|
4
|
|
3.4.
Qualification
|
5
|
|
3.5.
Resignation
|
6
|
|
3.6.
Vacancies
|
6
|
|
3.7.
Compensation
|
6
|
|
3.8.
Regular Meetings
|
6
|
|
3.9.
Special Meetings
|
6
|
|
3.10.
Notice of Special Meetings
|
7
|
|
3.11.
Quorum
|
7
|
|
3.12.
Action at Meeting
|
7
|
|
3.13.
Manner of Participation
|
7
|
|
3.14.
Action by Consent
|
7
|
|
3.15.
Presumption of Assent
|
7
|
|
3.16.
Committees
|
8
|
|
3.17.
Powers of Executive Committee
|
8
|
|
|
|
|
Article IV. Officers
|
8
|
|
|
|
|
4.1.
Enumeration
|
8
|
|
4.2.
Election
|
8
|
|
4.3.
Qualification
|
9
|
|
4.4.
Tenure
|
9
|
|
4.5.
Resignation
|
9
|
|
4.6.
Chairman of the Board
|
9
|
|
4.7.
Chief Executive Officer
|
9
|
|
4.8.
President, Vice Presidents and Assistant Vice Presidents
|
9
|
|
4.9.
Treasurer and Assistant Treasurers
|
10
|
|
4.10.
Secretary and Assistant Secretaries
|
10
|
|
4.11.
Other Powers and Duties
|
10
|
|
4.12.
Absence, Disability and Vacancies
|
10
|
|
|
|
|
Article V. Capital Stock
|
10
|
|
|
|
|
5.1.
Certificates of Stock
|
10
|
|
5.2.
Transfers
|
11
|
|
5.3.
Record Holders
|
11
|
|
5.4.
Record Date
|
11
|
|
5.5.
Replacement of Certificates
|
11
|
|
5.6.
Issuance of Capital Stock
|
12
|
|
5.7.
Dividends
|
12
|
|
|
|
|
Article VI. Indemnification
|
12
|
|
|
|
|
6.1.
Officers
|
12
|
|
6.2.
Non-Officer Employees
|
12
|
|
6.3.
Service at Direction of Board of Directors
|
12
|
|
6.4.
Good Faith
|
12
|
|
6.5.
Prior to Final Disposition
|
13
|
|
6.6.
Insurance
|
13
|
|
6.7.
Definitions
|
13
|
|
6.8.
Limitations Imposed by State or Federal Law
|
14
|
|
|
|
|
Article VII. Conflicts of Interest
|
14
|
|
|
|
|
7.1.
Conflicts of Interest
|
14
|
|
|
|
|
Article VIII. Miscellaneous Provisions
|
14
|
|
|
|
|
8.1.
Fiscal Year
|
14
|
|
8.2.
Seal
|
14
|
|
8.3.
Execution of Instruments
|
14
|
|
8.4.
Voting of Securities
|
15
|
|
8.5.
Resident Agent
|
15
|
|
8.6.
Corporation Records
|
15
|
|
8.7
Articles
|
15
|
|
8.8.
Forum Selection
|
15
|
|
8.9.
Amendments
|
15
|
Provident
Bancorp, Inc.
By-Laws
Article
I.
Organization
1.1.
Organization.
The name
of this corporation (hereinafter in these By-Laws called the “Corporation”) is Provident Bancorp, Inc., or such other
name as hereafter may be adopted in accordance with law. The main office of the Corporation is and shall be located
in Amesbury, Massachusetts, subject to change as authorized by law. The Corporation shall have and may exercise all
of the powers, privileges and authority, express and implied, now or hereafter conferred by the Massachusetts General Laws, as
amended, and by any and all other statutes and laws of Massachusetts and of the United States and regulations thereunder.
Article
II.
Shareholders
2.1.
Annual Meeting.
The annual
meeting of the shareholders for elections and other purposes shall be held on such date and at such time and place as may be fixed
by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.
2.2.
Special Meetings.
Special
meetings of the shareholders for any purpose or purposes may be called at any time only by the Chairman of the Board, by the Chief
Executive Officer, by a majority of the Directors then in office or by the holder or holders of not less than a majority of all
the outstanding capital stock of the Corporation entitled to vote at the meeting. Only those matters as are set forth
in the call of the special meeting and as meet the requirements set forth in Section 2.3 may be considered or acted upon at
such special meeting, unless otherwise provided by law.
2.3.
Matters to be Considered at Meetings.
At
an annual or special meeting of shareholders, only such new business shall be conducted, and only such proposals shall be acted
upon, as shall be proper subjects for shareholder action pursuant to these By-Laws or applicable law and shall have been brought
before the meeting (a) by, or at the direction of, the Board of Directors, the Chairman of the Board, or the Chief Executive
Officer or (b) by the holder or holders of not less than a majority of all the outstanding capital stock of the Corporation entitled
to vote at the meeting who complies or comply with the notice procedures set forth in this Section 2.3.
For a proposal to be properly brought before
an annual or special meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a shareholder’s notice must be received at the principal executive offices of
the Corporation not less than eighty (80) days nor more than ninety (90) days prior to the scheduled annual or special meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a later date;
provided, however
, that if the
date of the annual meeting is advanced more than thirty (30) days prior to the anniversary of the preceding year’s annual
meeting, the shareholder’s notice must be so delivered or received not later than the close of business on the tenth day
following the earlier of the day on which such meeting notice was
(X) mailed or (Y) publicly disclosed. A
shareholder’s notice shall set forth as to each matter the shareholder proposes to bring before the meeting (a) a brief description
of the proposal desired to be brought before such meeting and the reasons for conducting such business at the meeting, (b) the
name and address of the shareholder proposing such business and any other shareholders known by such shareholder to be supporting
such proposal, and (c) any financial interest of the shareholder proposing such business or of any other shareholder in such proposal.
Nothing contained in this Section 2.3 shall
require notices or other materials distributed by the management of the Corporation to include any information with respect to
shareholder proposals. The Board of Directors may reject any shareholder proposal not timely made in accordance with
the terms of this Section 2.3. This provision shall not prevent the consideration and approval or disapproval at
an annual or special meeting of reports of officers, Directors, and committees, but in connection with such reports, no matter
shall be acted upon at such annual or special meeting unless stated and filed as herein provided.
2.4.
Notice of Meetings.
A
written notice of all annual and special meetings of shareholders shall state the place, date and hour of such meetings. Such
notice shall be given by the Secretary (or any other person authorized by these By-Laws or by law to give notice or call a meeting)
at least seven (7) days before the meeting to each shareholder by mailing it, postage prepaid, and addressed to such shareholder
at his address as it appears on the record books of the Corporation. When any shareholders’ meeting, either annual or special,
is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It
shall not be necessary to give any notice of the time and place of any meeting adjourned for less than thirty (30) days or of the
business to be transacted thereat, other than an announcement at the meeting at which such adjournment is taken. A
written waiver of notice, executed before or after a meeting by such shareholder or his attorney thereunto authorized and filed
with the records of the meeting, shall be deemed equivalent to notice of the meeting.
2.5.
Quorum.
The holders of
a majority in interest of all stock issued, outstanding, and entitled to vote, represented in person or by proxy, shall constitute
a quorum at a meeting of shareholders. If less than a quorum is present at a meeting, a majority of the shareholders
present may adjourn the meeting from time to time and the meeting may be held as adjourned without further notice, except as provided
in Section 2.4. At such adjourned meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally noticed. The shareholders present at a duly
constituted meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
2.6.
Voting and Proxies.
Shareholders
shall have one vote for each share of stock entitled to vote owned by them of record according to the books of the Corporation,
unless otherwise provided by law or by the Articles of Organization of the Corporation (the “Articles”). Shareholders
of record may vote either in person or by written proxy dated not more than six (6) months before the meeting named therein. Proxies
shall be filed with the Secretary at the meeting, or any adjournment thereof, before being voted. Proxies solicited
on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by
a majority of the Board of Directors. Except as otherwise limited therein, proxies shall entitle the persons authorized
thereby to vote at any adjournment of such meeting, but they
shall not be valid after final adjournment of
such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one
of them unless at or prior to exercise of the proxy the Secretary of the Corporation receives a specific written notice to the
contrary from any one of them. Whenever stock is held in the name of two or more persons, in the absence of specific
written notice to the Corporation to the contrary, at any meeting of the shareholders of the Corporation any one or more of such
shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt
is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote
or votes to which those persons are entitled shall be cast as directed by a majority of those holding such stock and present in
person or by proxy at such meeting, but no votes shall be cast for such stock if a majority does not agree. A proxy
purporting to be executed by or on behalf of a shareholder shall be deemed valid unless successfully challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
2.7.
Action at Meeting.
When
a quorum is present, any matter before a meeting of the shareholders shall be decided by vote of a majority of the shares of stock
voting on such matter, except where a larger vote is required by law or by these By-Laws. Any election by shareholders
shall be determined by a plurality of the votes cast, except where a larger vote is required by law or by these By-Laws. No
ballot shall be required for any election unless required by a shareholder entitled to vote in the election.
2.8.
Presiding Officer.
The
Chairman of the Board shall preside at all meetings of the shareholders. In the absence of the Chairman of the Board,
the Chief Executive Officer shall preside.
2.9.
Action Without Meeting.
Any
action to be taken at any annual or special meeting of shareholders may be taken without a meeting if all shareholders entitled
to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of shareholders. Such
consents shall be treated for all purposes as a vote at a meeting.
Article
III.
Directors
3.1.
Powers.
The business
and affairs of the Corporation shall be managed by a Board of Directors who may exercise all the powers of the Corporation except
as otherwise provided by law or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining
Directors, except as otherwise provided by law, may exercise the powers of the full Board.
3.2.
Composition and Term.
The
number of Directors shall be established from time to time by the Directors, provided that the number so fixed shall be not less
than seven (7) nor more than twenty-five (25), except as otherwise required by applicable law. The Board of Directors
shall initially consist of fifteen (15) individuals, and shall remain fixed at such number until another number is fixed by the
Board of Directors. The Directors shall be divided into three groups as nearly equal in number as possible and the members
of one of such groups shall be elected annually to serve for a term of three years and until their successors are elected and qualified. When
the number of Directors is changed, the Board of Directors shall determine the class or classes to which the increased or decreased
number of Directors shall be apportioned.
The Board of Directors shall be composed of (a) those
persons designated in the Articles of the Corporation (the “Initial Directors”), such persons to serve as Directors
until the expiration of their terms and until their successors are elected and qualified; and (b) as such terms expire, those
persons who are elected as Directors from time to time as provided herein.
3.3.
Director Nominations and Election.
Nominations
of candidates for election as Directors at any annual meeting of shareholders may be made (a) by, or at the direction of, a majority
of the Board of Directors or a designated committee thereof or (b) by any holder of record (both as of the time notice of such
nomination is given by the shareholder as set forth below and as of the record date for the annual meeting in question) of any
capital shares of the Corporation entitled to vote at such annual meeting who complies with the requirements set forth in this
Section 3.3. Only persons nominated in accordance with the procedures set forth in this Section 3.3 shall be eligible for
election as Directors at an annual meeting.
Nominations, other than those made by, or at
the direction of, the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation
as set forth in this Section 3.3. To be timely, a shareholder’s notice shall be delivered to, or mailed and received
at, the principal executive offices of the Corporation not less than eighty (80) days nor more than ninety (90) days prior to the
scheduled annual meeting date, regardless of any postponements, deferrals or adjournments of that meeting to a later date;
provided
,
however,
that if the date of the annual meeting is advanced more than thirty (30) days prior to the anniversary of the preceding
year’s annual meeting, the shareholder’s notice must be so delivered or received not later than the close of business
on the tenth day following the earlier of the day on which such meeting notice was (X) mailed or (Y) publicly disclosed. Such shareholder’s
notice shall set forth: (a) as to each person whom the shareholder proposes to nominate for election or re-election as a Director
and as to the shareholder giving the notice (i) the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of the Corporation’s capital shares which are
beneficially owned by such person on the date of such shareholder notice, and (iv) any other information relating to such person
that is required to be disclosed in solicitations of proxies with respect to nominees for election as Directors, pursuant to the
Securities Exchange Act of 1934, as amended, and the Rules and regulations thereunder, including, but not limited to, the written
consent of such person to serve as a Director if elected; and (b) as to the shareholder giving the notice (i) the name and address
as they appear on the Corporation’s books, of such shareholder and any other shareholders known by such shareholder to be
supporting such nominees and (ii) the class and number of the Corporation’s capital shares which are beneficially owned by
such shareholder on the date of such shareholder notice and by any other shareholders known by such shareholder to be supporting
such nominees on the date of such shareholder notice. At the request of the Board of Directors, any person nominated by,
or at the direction of, the Board of Directors for election as a Director at an annual meeting shall furnish to the Secretary of
the Corporation that information required to be set forth in the shareholder’s notice of nomination which pertains to the
nominee.
Nothing contained in this Section 3.3 shall
require proxy materials distributed by the management of the Corporation to include any information with respect to nominations
by shareholders.
No person shall be elected as a Director of
the Corporation unless nominated in accordance with the procedures set forth in this Section 3.3. Ballots bearing the names
of all the persons who have been nominated for election as Directors at an Annual Meeting or special meeting in accordance with
the procedures set forth in this Section 3.3 shall be provided for use at such Annual Meeting or special meeting.
The Board of Directors, a designated committee
thereof, or the presiding officer may reject any nomination by a shareholder that is not timely made in accordance with this Section
3.3 or does not satisfy the requirements of this Section 3.3 in any material respect.shareholder
3.4.
Qualification.
Each Director
shall have such qualifications as are required by law. If required by applicable law, not less than a majority of the
Directors of the Corporation shall be citizens of Massachusetts and residents therein at any one time. No person shall
serve as a Director if such person is a 10% or more shareholder, corporator, trustee, director or officer of any holding company
for any bank, credit union, thrift institution, mortgage banking company, consumer loan company or similar organization that is
not the mutual holding company that owns the majority of the outstanding capital stock of the Corporation, or a 10% or more shareholder,
trustee, director or officer of any other bank, credit union, thrift institution, mortgage banking company, consumer loan company
or similar organization that is not a director or indirect subsidiary of the mutual holding company that owns the majority of the
outstanding capital stock of the Corporation. No person shall be qualified to continue to serve as a Director after
the annual meeting immediately following his or her seventieth birthday, provided that any Director who has already reached the
age of seventy (70) as of January 1, 2015 shall not be qualified to serve as a Director after the annual meeting immediately following
his or her seventy-fifth birthday.
No person
shall be eligible for election
or appointment to the Board of Directors: (i) if a financial or securities regulatory agency has issued a cease and desist, consent
or other formal order, other than a civil money penalty, against such person, which order is subject to public disclosure by such
agency; (ii) if such person has been convicted of a crime involving dishonesty or breach of trust which is punishable by imprisonment
for a term exceeding one year under state or federal law; (iii) if such person is currently charged in any information, indictment,
or other complaint with the commission of or participation in such a crime; or (iv) if such person did not, at the time of his
or her first election or appointment to the Board of Directors of the Corporation or The Provident Bank, maintain his or her principal
residence (as determined by reference to such person’s most recent tax returns, copies of which shall be provided to the
Corporation for the sole purpose of determining compliance with this clause (iv)) within a county in which the Corporation or any
subsidiary thereof maintains an office, or in any county contiguous to a county in which the Corporation or any subsidiary thereof
maintains an office for a period of at least one year prior to the date of his or her purported nomination, election or appointment
to the Board of Directors. No person may serve on the Board of Directors if such person: (x) does not agree in writing
to comply with all of the Corporation’s policies applicable to directors including but not limited to its confidentiality
policy and confirm in writing his or her qualifications hereunder; (y) is a party to any agreement or arrangement with a party
other than the Corporation or a subsidiary that (1) materially limits his or her voting discretion as a member of the Board of
Directors of the Corporation, or (2) materially impairs his or her ability to discharge his or her fiduciary duties with respect
to the fundamental strategic direction of the Corporation; or (z) is
the nominee or representative, as those terms are defined in the
regulations of the Board of Governors of the Federal Reserve System, 12 C.F.R §212.2(n) (or any successor provision), of a
company or other entity of which any of the directors, partners, trustees or 10% shareholders would not be eligible for election
or appointment to the Board of Directors under this Section 3.4.
3.5.
Resignation.
Any Director
may resign at any time by delivering his written resignation to the main office of the Corporation addressed to the Chairman of
the Board, the Chief Executive Officer or the Secretary. Such resignation shall be effective upon receipt thereof by
the Chairman of the Board, the Chief Executive Officer or the Secretary, unless it is specified to be effective at some other time
or upon the happening of some other event.
3.6.
Vacancies.
Any vacancy
occurring on the Board of Directors, whether as a result of resignation, removal, death or increase in the number of Directors,
may be filled by the Board of Directors, or, if the Directors remaining in office constitute fewer than a quorum of the board,
they may fill the vacancy by the affirmative vote of a majority of all of the Directors remaining in office. A Director
elected to fill such a vacancy shall be elected to serve for the remainder of the full term of the class of Directors in which
the vacancy occurred or the new directorship was created and until such Director’s successor has been duly elected and qualified,
or until such Director sooner dies, resigns, is removed or becomes disqualified.
3.7.
Compensation.
The members
of the Board of Directors and the members of either standing or special committees may be allowed such compensation for attendance
at meetings as the Board of Directors may determine.
3.8.
Regular Meetings.
A regular
meeting of the Board of Directors shall be held without other notice than this By-Law on the same date and at the same place as
the annual meeting of shareholders, or the special meeting held in lieu thereof, following such meeting of shareholders. The
Board of Directors may provide by resolution the time, date and place for the holding of regular meetings without other notice
than such resolution. Unless otherwise provided by the Board of Directors, the regular meetings of the Board of Directors shall
be held at a place or places fixed from time to time by the Chief Executive Officer in accordance with applicable law.
3.9.
Special Meetings.
Special
meetings may be called and held as provided by law. Special meetings of the Board of Directors may be called by or at
the request of the Chief Executive Officer and shall be called by the Secretary if requested in writing by at least three Directors. The
persons authorized to call special meetings of the Board of Directors may fix the time, date and place for holding any special
meeting of the Board of Directors called by such persons.
The Chairman of the Board shall preside at all
meetings of the Directors. In the absence of the Chairman of the Board, the Chief Executive Officer shall preside, and
if the Chief Executive Officer is not present, a Director of the Corporation may be chosen by the Directors present to preside
at such meeting.
3.10.
Notice of Special Meetings.
Notice
of the time, date and place of all special meetings of the Board of Directors shall be given to each Director by the Secretary
or any other officer. Notice of any special meeting of the Board of Directors shall be given to each Director in person
or by telephone or sent to his business or home address by telecommunication at least twenty-four (24) hours in advance of the
meeting, or by written notice mailed to his business or home address at least forty-eight (48) hours in advance of such meeting. Such
telecommunication notice shall be deemed to be delivered when transmitted, and such written notice shall be deemed to be delivered
when deposited in the mail so addressed, with postage thereon prepaid. When any Board of Directors’ meeting, either
regular or special, is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for
less than thirty (30) days or of the business to be transacted thereat, other than an announcement at the meeting at which such
adjournment is taken. Any Director may waive notice of any meeting by a writing executed by him either before or after
the meeting and filed with the records of the meeting. The attendance of a Director at a meeting shall constitute a
waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction
of any business because such meeting is not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
3.11.
Quorum.
A majority of
the number of Directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of
Directors, but if less than a quorum is present at a meeting, a majority of the Directors present may adjourn the meeting from
time to time and the meeting may be held as adjourned without further notice, except as provided in Section 3.10. At
such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the
meeting as originally noticed.
3.12.
Action at Meeting.
The
act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors,
unless a greater number is prescribed by applicable law or by these By-Laws.
3.13.
Manner of Participation.
Members
of the Board of Directors may participate in meetings of the Board or any committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can hear each other. Such participation shall
constitute presence in person. Members may transmit any written authorizations that may be required during the meeting
by electronic facsimile or other commercially acceptable transmission.
3.14.
Action by Consent.
Any
action required or permitted to be taken by the Board of Directors at any meeting may be taken without a meeting if one or more
consents in writing, setting forth the action so taken, shall be signed or delivered to the Corporation by electronic transmission,
by all of the Directors then in office. Such written consents shall be filed with the records of the meetings of the
Board of Directors and shall be treated for all purposes as a vote at a meeting of the Board of Directors.
3.15.
Presumption of Assent.
A
Director of the Corporation who is present at a meeting of the Board of Directors at which action on any Bank matter is taken shall
be presumed to have
assented to the action taken unless his dissent
or abstention has been entered in the minutes of the meeting or unless he has filed a written dissent to such action with the person
acting as the Secretary of the meeting before the adjournment thereof or has forwarded such dissent by registered mail to the Secretary
of the Corporation within five (5) days after the date such dissenting Director receives a copy of the minutes of the meeting. Such
right to dissent shall not apply to a Director who voted in favor of such action.
3.16.
Committees.
The Board
of Directors, by vote of a majority of all of the Directors then in office, shall elect an Audit Committee, an Executive Committee
and a Nominating Committee, and may elect such other committees as it deems appropriate. The Board of Directors may delegate to
such committees some or all of its powers except those which by law or by these By-Laws may not be delegated. Any such
committee shall consist of not less than three (3) members of the Board of Directors. No member of the Audit Committee
shall be an operating officer of the Corporation or a member of the Executive Committee. The Nominating Committee shall
prepare a list of nominees recommended by it (a) as nominees for Director for consideration at the annual meeting and (b) as nominees
for certain officer positions for consideration at the first meeting of Directors following the annual meeting. Except
as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless
otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner
as is provided by these By-Laws for the Board of Directors. All members of such committees shall hold such offices at
the pleasure of the Board of Directors. The Board of Directors may abolish any committee (other than the Audit Committee
and the Executive Committee) at any time, subject to applicable law. Any committee to which the Board of Directors delegates
any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors. The
Board of Directors shall have power to rescind any action of any committee, but no such rescission shall have retroactive effect.
3.17.
Powers of Executive Committee.
In
addition to the powers and duties provided by law, the Executive Committee, when the Board of Directors is not in session, may
act as an executive committee and exercise general supervision and control in all matters pertaining to the interests of the Corporation
not otherwise provided by law or in these By-Laws, subject at all times to the direction and control of the Board of Directors.
The Chief Executive Officer shall be a member of the Executive Committee.
Article
IV.
Officers
4.1.
Enumeration.
The officers
of the Corporation shall consist of a President, one or more Vice Presidents, a Treasurer, and a Secretary, and shall include such
other officers, including without limitation a Chairman of the Board, a Chief Executive Officer, a Secretary, and one or more Assistant
Vice Presidents, Assistant Treasurers, Assistant Secretaries or Assistant Secretaries, as the Board of Directors may determine.
4.2.
Election.
The Chief Executive
Officer, the President, the Treasurer, the Secretary and all officers at the level of Vice President or above shall be elected
by the Board of Directors
annually at their first meeting following the
annual meeting of shareholders. All other officers may be elected by the Board of Directors or appointed by the Chief
Executive Officer.
4.3.
Qualification.
Each officer
shall have such qualifications as are required by law. No officer shall serve as a corporator, trustee, director or
officer of any holding company for any bank, credit union or thrift institution which is not the mutual holding company which owns
the majority of the outstanding capital stock of the Corporation, or as a trustee, director or officer of any other bank, credit
union or thrift institution which is not a subsidiary of the mutual holding company which owns the majority of the outstanding
capital stock of the Corporation.
4.4.
Tenure.
Except as otherwise
provided by law, by the Articles or by these By-Laws, the President and Treasurer shall hold office until the first meeting of
the Board of Directors following the next annual meeting of shareholders and until their respective successors are chosen and qualified. All
other officers shall hold office until the first meeting of the Board of Directors following the next annual meeting of shareholders
and until their successors are chosen and qualified, or for such shorter term as the Board of Directors may fix at the time such
officers are chosen. Election or appointment of an officer, employee or agent shall not of itself create contract rights
to continued employment or otherwise. The Board of Directors may authorize the Corporation to enter into an employment
contract with any officer in accordance with governing law or regulation, but no such contract right shall preclude the Board of
Directors from exercising its right to remove any officer at any time in accordance with Section 4.5.
4.5.
Resignation and Removal.
Any
officer may resign by delivering his written resignation to the Corporation at its main office addressed to the Chief Executive
Officer, President or Secretary. Such resignation shall be effective upon receipt thereof by the Chief Executive Officer,
President or Secretary, unless it is specified to be effective at some other time or upon the happening of some other event. Any
officer or agent elected or appointed by the shareholders or the Board of Directors may, in addition to other provisions for removal
contained in applicable laws, be removed at any time by the affirmative vote of a majority of the whole Board of Directors. Any
officer appointed by the Chief Executive Officer, and any employee or agent of the Corporation, may be removed at any time with
or without cause by the Chief Executive Officer or by the Board of Directors.
4.6.
Chairman of the Board.
The
Board of Directors may annually elect a Chairman of the Board. The Chairman of the Board shall preside, when present,
at all meetings of the shareholders and of the Board of Directors.
4.7.
Chief Executive Officer.
The
Chief Executive Officer shall have, subject to the direction of the Board of Directors, general supervision and control of the
Corporation’s business. The Chief Executive Officer shall be a Director of the Corporation. Unless otherwise provided by
the Board of Directors, he shall preside, when present, at all meetings of shareholders and of the Board of Directors if there
is no Chairman of the Board or if the Chairman of the Board does not attend such meetings.
4.8.
President, Vice Presidents and Assistant
Vice Presidents.
The President shall have such powers and shall perform such duties as the Board of Directors may
from time to time
designate and shall serve as the Chief Executive
Officer of the Corporation unless the Board of Directors otherwise provides.
Any Vice President or Assistant Vice President
shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
4.9.
Treasurer and Assistant Treasurers.
The
Treasurer shall have, subject to the direction of the Board of Directors, general charge of the financial affairs of the Corporation
and shall cause to be kept accurate books of account. He shall have custody of all funds, securities, and valuable documents
of the Corporation, except as the Board of Directors may otherwise provide. The Treasurer shall also perform such other
duties as the Board of Directors may from time to time designate.
Any Assistant Treasurer shall have such powers
and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
4.10.
Secretary and Assistant Secretaries.
The
Secretary shall keep a record of the meetings of shareholders. In case a Secretary is not designated or is absent, the
Secretary or an Assistant Secretary shall keep a record of the meetings of the Board of Directors. In the absence of
the Secretary from any meeting of the shareholders, an Assistant Secretary if one be elected, otherwise a Temporary Secretary designated
by the person presiding at the meeting, shall perform the duties of the Secretary.
4.11.
Other Powers and Duties.
Subject
to these By-Laws, each officer of the Corporation shall have in addition to the duties and powers specifically set forth in these
By-Laws, such duties and powers as are customarily incident to his office, and such duties and powers as may be designated from
time to time by the Board of Directors or the Chief Executive Officer.
4.12.
Absence, Disability and Vacancies.
In
the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily
in such office, or the Executive Committee may make such designation until the Board of Directors shall take other action. In
the case of a vacancy in any office, the vacancy may be filled by the Board of Directors to the extent provided by law, and the
Executive Committee may designate a person to fill such office until the next meeting of the Board of Directors.
Article
V.
Capital Stock
5.1.
Certificates of Stock.
The
Board of Directors may determine to issue certificated or uncertificated shares of capital stock and other securities of the Corporation. For
certificated stock, each shareholder shall be entitled to a certificate of the capital stock of the Corporation in such form as
may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the President or
a Vice President and by the Treasurer or an Assistant Treasurer, and sealed with the corporate seal or a facsimile thereof. Such
signatures may be facsimile if the certificate is signed by a transfer agent, or by a registrar, other than a Director, officer
or employee of the Corporation. In case any officer who has signed or whose signature
has been placed on such certificate shall have
ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he
were such officer at the time of its issue. Each certificate for shares of capital stock shall be consecutively numbered
or otherwise identified. Every certificate for shares of stock which are subject to any restriction on transfer and
every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law. Upon the issuance of uncertificated shares of capital stock, the
Corporation shall send the shareholder a written statement of the same information required with respect to stock certificates.
5.2.
Transfers.
Subject to
any restrictions on transfer, shares of stock may be transferred on the books of the Corporation, kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the Corporation, by the surrender to the Corporation or its
transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation
or its transfer agent may reasonably require.
5.3.
Record Holders.
Except
as may be otherwise required by law, by the Articles or by these By-Laws, the Corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been
transferred on the books of the Corporation in accordance with the requirements of these By-Laws.
It shall be the duty of each shareholder to
notify the Corporation of his current post office address.
5.4.
Record Date.
The Board
of Directors may fix in advance a time of not more than sixty (60) days preceding the date of any meeting of shareholders, or the
date for the payment of any dividend or the making of any distribution to shareholders, or the last day on which the consent or
dissent of shareholders may be effectively expressed for any purpose, as the record date for determining the shareholders having
the right to notice of and to vote at such meeting, and any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only shareholders of record on such record date shall have
such right, notwithstanding any transfer of stock on the books of the Corporation after the record date. Without fixing
such record date the Board of Directors may for any of such purposes close the transfer books for all or any part of such period.
If no record date is fixed and the transfer
books are not closed, (a) the record date for determining shareholders having the right to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day on which notice is given, and (b) the record date
for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors
acts with respect thereto.
5.5.
Replacement of Certificates.
In
case of the alleged loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof,
upon such terms as the Board of Directors may prescribe.
5.6.
Issuance of Capital Stock.
Subject
to (i) regulatory approvals if they are required by law, and (ii) shareholder approval if required by the Articles, the Board of
Directors shall have the authority to issue or reserve for issue from time to time the whole or any part of the capital stock of
the Corporation which may be authorized from time to time, to such persons or organizations, for such consideration, whether cash,
property, services or expenses, and on such terms as the Board of Directors may determine, including without limitation the granting
of options, warrants, or conversion or other rights to subscribe to said capital stock.
5.7.
Dividends.
Subject to
applicable law, the Articles and these By-Laws, the Board of Directors may from time to time declare, and the Corporation may pay,
dividends on outstanding shares of its capital stock.
Article
VI.
Indemnification
6.1.
Officers.
To the extent
permitted by law and except as provided in Sections 6.3 and 6.4, each Officer of the Corporation (and his heirs and personal
representatives) shall be indemnified by the Corporation against all Expenses incurred by him in connection with any Proceeding
in which he is involved as a result of (a) his serving or having served as an Officer or employee of the Corporation, (b) his
serving or having served as a director, officer or employee of any of its wholly-owned subsidiaries, or (c) his serving or
having served any other corporation, organization, partnership, joint venture, trust or other entity at the request or direction
of the Corporation.
6.2.
Non-Officer Employees.
To
the extent permitted by law and except as provided in Sections 6.3 and 6.4, each non-Officer Employee of the Corporation (and
his heirs and personal representatives) may, in the discretion of the Board of Directors, be indemnified against any or all Expenses
incurred by him in connection with any Proceeding in which he is involved as a result of (a) his serving or having served
as a non-Officer Employee of the Corporation, (b) his serving or having served as a director, officer, or employee of any
of its wholly-owned subsidiaries, or (c) his serving or having served any other corporation, organization, partnership, joint
venture, trust or other entity at the request or direction of the Corporation.
6.3.
Service at Direction of Board of Directors.
No
indemnification shall be provided to an Officer or non-Officer Employee with respect to his serving or having served in any of
the capacities described in Sections 6.1(c) and 6.2(c), respectively, unless such service was required or directed by vote
of the Board of Directors prior to the occurrence of the event to which the indemnification relates; provided that the Board of
Directors may provide an Officer or non-Officer Employee with indemnification, as to a specific Proceeding, even though such Board
of Directors vote was not obtained, if in its discretion, the Board of Directors determines it to be appropriate for the Corporation
to do so.
6.4.
Good Faith.
No indemnification
shall be provided to an Officer or to a non-Officer Employee with respect to a matter as to which he shall have been adjudicated
in any Proceeding not to have acted in good faith in the reasonable belief that his action was in the best interests of the Corporation. In
the event that a Proceeding is compromised or settled so as to impose any liability or obligation upon an Officer or upon a non-Officer
Employee, no indemnification shall
be provided to said Officer or to said non-Officer
Employee with respect to a matter if there is a determination that with respect to said matter said Officer or said non-Officer
Employee did not act in good faith in the reasonable belief that his action was in the best interests of the Corporation. The
determination shall be made by a majority vote of those Directors who are not involved in such Proceeding. However,
if more than half of the Directors are involved in such Proceeding, the determination shall be made by a majority vote of a committee
of three disinterested Directors chosen at a regular or special meeting of the Board of Directors to make such determination; provided,
however, that if there are fewer than three disinterested Directors, the determination shall be made by a committee consisting
of three disinterested shareholders, chosen at a regular or special meeting of the Board of Directors to make such a determination.
6.5.
Prior to Final Disposition.
Any
indemnification provided under this Article VI shall include (in the case of officers elected by the shareholders) and may, in
the discretion of the Board of Directors, include (in the case of any other Officer or any non-Officer Employee) payment by the
Corporation of Expenses incurred in defending a civil or criminal Proceeding in advance of the final disposition of such Proceeding,
upon the Corporation’s receipt of an undertaking by the Officer or non-Officer Employee indemnified to repay such payment
if he shall be adjudicated or determined to be not entitled to indemnification under Section 6.4.
6.6.
Insurance.
The Corporation
may purchase and maintain insurance to protect itself and any Officer or non-Officer Employee against any liability of any character
asserted against and incurred by the Corporation or any such Officer or non-Officer Employee, or arising out of any such status,
whether or not the Corporation would have the power to indemnify such person against such liability by law or under the provisions
of this Article VI.
6.7.
Definitions.
For the
purposes of this Article VI:
(a) “Officer” means any person who
serves or has served as a Director or an operating officer of the Corporation;
(b) “non-Officer Employee” means any
person who serves or has served as an employee of the Corporation but who is not an Officer;
(c) “Proceeding” means any action,
suit or proceeding, civil or criminal, brought or threatened in or before any court, tribunal, administrative or legislative body
or agency; and
(d) “Expenses” means any liability
fixed by a judgment, order, decree or award in a Proceeding, any amount actually and reasonably paid in settlement of a Proceeding
and any professional fees and other disbursements reasonably incurred in a Proceeding.
The provisions of this Article VI shall not
be construed to be exclusive. The Corporation shall have the power and authority to indemnify any person entitled or
eligible to be indemnified under this Article VI and to enter into specific agreements, commitments or arrangements for indemnification
on any terms not prohibited by law which the Board of Directors deems to be appropriate. Nothing in this Article VI
shall limit any lawful rights to indemnification existing independently of this Article VI. Nothing herein shall be
deemed to limit the Corporation’s authority to indemnify any person pursuant to any contract or otherwise.
The provisions of this Article VI shall be applicable
to persons who shall have ceased to be Directors, Officers or non-Officer Employees of the Corporation, and shall inure to the
benefit of the heirs, executors and administrators of persons entitled to be indemnified hereunder.
6.8.
Limitations Imposed by State or Federal
Law.
Notwithstanding any other provision set forth in this Article VI, in no event shall any payments made by the
Corporation pursuant to this Article VI exceed the amount permissible under applicable state or federal law, including without
limitation section 18(k) of the Federal Deposit Insurance Act and the regulations promulgated thereunder.
Article
VII.
Conflicts of Interest
7.1.
Conflicts of Interest.
No
contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any
other corporation, partnership, association, or other organization of which one or more of its Directors, officers, partners, or
members are members of the Board of Directors or officers of the Corporation, or in which one or more of the Corporation’s
Directors or officers have a financial or other interest, shall be void or voidable solely by reason thereof, or solely because
the Director or officer is present at or participates in the meeting of the Board of Directors of the Corporation or a committee
thereof which authorized the contract or transaction, if:
(1) Any duality of interest or possible
conflict of interest on the part of any Director or officer of the Corporation is disclosed to the other members of the Board or
committee at a meeting at which a matter involving such duality or conflict of interest is considered or acted upon; and
(2) Any Director having a duality of
interest or possible conflict of interest on any matter refrains from voting on the matter. The minutes shall reflect
that a disclosure was made and the abstention from voting.
Each Director and officer shall be advised of
the foregoing upon the acceptance of his or her office and shall answer an annual questionnaire that requests the disclosure of
such duality of interest or possible conflict of interest.
Article
VIII.
Miscellaneous Provisions
8.1.
Fiscal Year.
Except as
otherwise determined by the Board of Directors, the fiscal year of the Corporation shall be the twelve months ending December 31st.
8.2.
Seal.
The Board of Directors
shall have power to adopt and alter the seal of the Corporation.
8.3.
Execution of Instruments.
All
deeds, leases, transfers, contracts, bonds, notes and other instruments and obligations to be entered into by the Corporation in
the ordinary course of its business without Board of Directors action may be executed on behalf of the Corporation by the Chairman
of the Board, the Chief Executive Officer, the President, any Vice President,
Treasurer or, as the Board of Directors may authorize,
any other officer, employee or agent of the Corporation.
8.4.
Voting of Securities.
Unless
otherwise provided by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or any other
officer or agent designated by the Board of Directors may waive notice of and act on behalf of the Corporation, or appoint another
person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution,
at any meeting of shareholders or shareholders of any other organization, any of whose securities are held by the Corporation.
8.5.
Resident Agent.
The Board
of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation. Said
resident agent shall be either an individual who is a resident of and has a business address in Massachusetts, a corporation organized
under the laws of The Commonwealth of Massachusetts, or a corporation organized under the laws of any other state of the United
States, which has qualified to do business in, and has an office in, Massachusetts.
8.6.
Corporation Records.
The
original, or attested copies, of the Articles, By-Laws and record of all meetings of the Directors shall be kept in Massachusetts
at the main office of the Corporation, or at an office of its Secretary or resident agent.
8.7.
Articles.
All
references in these By-Laws to the Articles shall be deemed to refer to the Articles of the Corporation, as amended and in effect
from time to time.
8.8.
Forum Selection.
Unless
the Corporation 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 the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty
owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s shareholders,
(iii) any action asserting a claim arising pursuant to any provision of the Massachusetts Business Corporation Act, or (iv) any
action asserting a claim governed by the internal affairs doctrine shall be the Business Litigation Session of the Superior Court
of the Commonwealth of Massachusetts, or if that court does not have jurisdiction, a court located within the Commonwealth of Massachusetts,
in all cases subject to the court’s having personal jurisdiction over the indispensible parties named as defendants. Any
person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to
have notice of and consented to the provisions of this Section 8.8.
8.9.
Amendments.
These
By-laws may be amended in the manner provided in the Articles.
Exhibit 4.1
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS
|
No.
|
PROVIDENT
BANCORP, INC.
|
Shares
|
FULLY
PAID AND NON-ASSESSABLE
NO PAR VALUE PER SHARE
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO
RESTRICTIONS, SEE REVERSE SIDE
|
THIS CERTIFIES that
|
is the owner of
|
SHARES OF COMMON STOCK
of
Provident Bancorp, Inc.
a Massachusetts corporation
The shares evidenced by
this certificate are transferable only on the books of Provident Bancorp, Inc. by the holder hereof, in person or by attorney,
upon surrender of this certificate properly endorsed.
The
capital stock evidenced hereby is not an account of an insurable type and is not insured by the Federal Deposit Insurance Corporation
or any other Federal or state governmental agency.
IN WITNESS WHEREOF, Provident
Bancorp, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused
a facsimile of its seal to be hereunto affixed.
|
By:
|
|
[SEAL]
|
By:
|
|
|
|
CAROL L. HOULE
|
|
|
DAVID P. MANSFIELD
|
|
|
TREASURER
|
|
|
PRESIDENT AND CHIEF EXECUTIVE
|
|
|
|
|
|
OFFICER
|
The Board of Directors
of Provident Bancorp, Inc. (the “Company”) is authorized by resolution or resolutions, from time to time adopted, to
provide for the issuance of more than one class of stock, including preferred stock in series, and to fix and state the rights,
preferences and limitations applicable to each class and series. The Company will furnish to any shareholder upon request in writing
and without charge a full description of the rights, preferences and limitations applicable to each class and series.
The following abbreviations
when used in the inscription on the face of this certificate shall be construed as though they were written out in full according
to applicable laws or regulations.
|
TEN COM
|
- as tenants in common
|
UNIF GIFT MIN ACT
|
-
|
|
Custodian
|
|
|
|
|
|
|
(Cust)
|
|
(Minor)
|
|
|
|
|
|
|
|
|
|
|
TEN ENT
|
- as tenants by the entireties
|
|
|
|
|
|
|
Under Uniform Gifts to Minors Act
|
|
JT TEN
|
- as joint tenants with right
|
|
|
|
|
of survivorship and not as
|
|
|
|
|
tenants in common
|
|
(State)
|
Additional abbreviations may also be used though
not in the above list
For value received,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER
IDENTIFYING NUMBER
(please print or typewrite name and address
including postal zip code of assignee)
Shares
of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney
to transfer the said shares on the books of the within named corporation with full power of substitution in the premises.
Dated,
|
In the presence of
|
|
Signature:
|
|
|
|
|
|
|
|
|
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME OF THE SHAREHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
Exhibit 4.2
[Execution Copy]
SMALL BUSINESS LENDING FUND – SECURITIES
PURCHASE AGREEMENT
|
Provident Bancorp, Inc.
|
|
762
|
|
Name of Company
|
|
SBLF No.
|
|
5 Market Street
|
|
Corporation
|
|
Street Address for Notices
|
|
Organizational Form (e.g., corporation, national bank)
|
|
Amesbury
|
MA
|
01913
|
|
Massachusetts
|
|
City
|
State
|
Zip Code
|
|
Jurisdiction of Organization
|
|
David Mansfield
|
|
Federal Reserve
|
|
Name of Contact Person to Receive Notices
|
|
Appropriate Federal Banking Agency
|
|
978-378-1254
|
|
978-834-8554
|
|
September 13, 2011
|
|
Fax Number for Notices
|
|
Phone Number for Notices
|
|
Effective Date
|
THIS SECURITIES PURCHASE AGREEMENT
(the
“
Agreement
”) is made as of the Effective Date set forth above (the “
Signing Date
”) between
the Secretary of the Treasury (“
Treasury
”) and the Company named above (the “
Company
”), an
entity existing under the laws of the Jurisdiction of Organization stated above in the Organizational Form stated above. The
Company has elected to participate in Treasury’s Small Business Lending Fund program (“
SBLF
”). This
Agreement contains the terms and conditions on which the Company intends to issue preferred stock to Treasury, which Treasury will
purchase using SBLF funds.
This Agreement consists of the following attached
parts, all of which together constitute the entire agreement of Treasury and the Company (the “
Parties
”) with
respect to the subject matter hereof, superseding all prior written and oral agreements and understandings between the Parties
with respect to such subject matter:
|
Annex A:
|
Information Specific to
|
|
Annex G:
|
Form of Officer’s Certificate
|
|
|
the Company and the Investment
|
|
Annex H:
|
Form of Supplemental Reports
|
|
Annex B:
|
Definitions
|
|
Annex I:
|
Form of Annual Certification
|
|
Annex C:
|
General Terms and Conditions
|
|
Annex J:
|
Form of Opinion
|
|
Annex D:
|
Disclosure Schedule
|
|
Annex K:
|
Form of Repayment Document
|
|
Annex E:
|
Registration Rights
|
|
|
|
|
Annex F:
|
Form of Certificate of Designation
|
|
|
|
This Agreement may be executed in any number
of counterparts, each being deemed to be an original instrument, and all of which will together constitute the same agreement. Executed
signature pages to this Agreement may be delivered by facsimile or electronic mail attachment.
IN WITNESS WHEREOF
, this Agreement has been duly executed and delivered by the duly authorized representatives of the parties hereto
as of the Effective Date.
|
THE SECRETARY OF THE TREASURY
|
|
PROVIDENT BANCORP, INC.
|
|
|
|
|
|
By:
|
/s/ Don Graves
|
|
By:
|
/s/ David Mansfield
|
|
Name:
|
Don Graves
|
|
Name:
|
David Mansfield
|
|
Title:
|
Deputy Assistant Secretary
|
|
Title:
|
Executive Vice President & CFO
|
[Signature Page-
SBLF Securities Purchase Agreement – Provident Bancorp, Inc.]
|
ANNEX A
|
|
INFORMATION SPECIFIC TO THE COMPANY AND THE INVESTMENT
|
Purchase Information
|
Terms of the Purchase:
|
|
|
|
|
|
Series of Preferred Stock Purchased:
|
Senior
Non-Cumulative Perpetual Preferred Stock, Series A
|
|
Per Share Liquidation Preference of Preferred Stock:
|
$1,000 per share
|
|
|
|
|
Number of Shares of Preferred Stock Purchased:
|
17,145
|
|
|
|
|
Dividend Payment Dates on the Preferred Stock:
|
Payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year.
|
|
Purchase Price:
|
$17,145,000
|
|
|
|
|
Closing:
|
|
|
|
|
|
Location of Closing:
|
Virtual
|
|
|
|
|
Time of Closing:
|
10:00 a.m. (EST)
|
|
|
|
|
Date of Closing:
|
September 13, 2011
|
Redemption Information
(
Only complete if the Company was a CPP
or CDCI participant; leave blank otherwise.
)
|
Prior Program:
|
¨
CPP
¨
CDCI
|
|
|
|
|
Series of Previously Acquired Preferred Stock:
|
|
|
|
|
|
Number of Shares of Previously Acquired Preferred Stock:
|
|
|
|
|
|
Repayment Amount:
|
|
|
|
|
|
Residual Amount:
|
|
|
Annex A (Information Specific to the Company and the Investment)
|
Page
1
|
Matching Private Investment Information
|
Treasury investment is contingent on the Company raising Matching Private Investment (check one):
|
¨
Yes
x
No
|
|
|
|
|
If Yes, complete the following (leave blank otherwise)
:
|
|
|
|
|
|
Aggregate Dollar Amount of Matching Private Investment Required:
|
|
|
|
|
|
Aggregate Dollar Amount of Matching Private Investment Received:
|
|
|
|
|
|
Class of securities representing Matching Private Investment:
|
|
|
|
|
|
Date of issuance of Matching Private Investment:
|
|
|
Annex A (Information Specific to the Company and the Investment)
|
Page
2
|
1.
Definitions
.
Except
as otherwise specified herein or as the context may otherwise require, the following terms have the respective meanings set forth
below for all purposes of this Agreement.
“
Affiliate
”
means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such
other person. For purposes of this definition, “
control
”
(including, with correlative meanings, the terms “
controlled
by
” and “
under common control with
”)
when used with respect to any person, means the possession, directly or indirectly through one or more intermediaries, of the power
to cause the direction of management and/or policies of such person, whether through the ownership of voting securities by contract
or otherwise.
“
Application Date
”
means the date of the Company’s completed application to participate in SBLF.
“
Appropriate
Federal Banking Agency
” means the “appropriate Federal banking agency” with respect to the Company
or such Company Subsidiaries, as applicable, as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section
1813(q)). The Appropriate Federal Banking Agency is identified on the cover page of this Agreement.
“
Appropriate State
Banking Agency
” means, if the Company is a State-chartered bank, the Company’s State bank supervisor (as defined
in Section 3(r) of the Federal Deposit Insurance Act, 12 U.S.C. § 1813(q).
“
Bank
Holding Company
” means a company registered as such with the Federal Reserve pursuant to 12 U.S.C. §1842
and the regulations of the Federal Reserve promulgated thereunder.
“
Call Report
”
has the meaning assigned thereto in Section 4102(4) of the SBJA. If the Company is a Bank Holding Company or a Savings
and Loan Holding Company, unless the context clearly indicates otherwise: (a) the term “Call Report” shall mean the
Call Report(s) (as defined in Section 4102(4) of the SBJA) of the IDI Subsidiary(ies); and (b) if there are multiple IDI Subsidiaries,
all references herein or in any document executed or delivered in connection herewith (including the Certificate of Designation,
the Initial Supplemental Report and all Quarterly Supplemental Reports) to any data reported in a Call Report shall refer to the
aggregate of such data across the Call Reports for all such IDI Subsidiaries.
“
CDCI
”
means the Community Development Capital Initiative, as authorized under the Emergency Economic Stabilization Act of 2008.
“
Company
Material Adverse Effect
” means a material adverse effect on (i) the business, results of operation or condition
(financial or otherwise) of the Company and its consolidated subsidiaries taken as a whole;
provided
,
however
, that Company Material Adverse Effect shall not
be deemed to include the effects of (A) changes after the Signing Date in general
|
Annex B (Definitions)
|
Page
1
|
business, economic or market
conditions (including changes generally in prevailing interest rates, credit availability and liquidity, currency exchange rates
and price levels or trading volumes in the United States or foreign securities or credit markets), or any outbreak or escalation
of hostilities, declared or undeclared acts of war or terrorism, in each case generally affecting the industries in which the Company
and its subsidiaries operate, (B) changes or proposed changes after the Signing Date in GAAP, or authoritative interpretations
thereof, or (C) changes or proposed changes after the Signing Date in securities, banking and other laws of general applicability
or related policies or interpretations of Governmental Entities (in the case of each of these clauses (A), (B) and (C), other than
changes or occurrences to the extent that such changes or occurrences have or would reasonably be expected to have a materially
disproportionate adverse effect on the Company and its consolidated subsidiaries taken as a whole relative to comparable U.S. banking
or financial services organizations); or (ii) the ability of the Company to consummate the Purchase and other transactions contemplated
by this Agreement and perform its obligations hereunder and under the Certificate of Designation on a timely basis and declare
and pay dividends on the Dividend Payment Dates set forth in the Certificate of Designations.
“
CPP
”
means the Capital Purchase Program, as authorized under the Emergency Economic Stabilization Act of 2008.
“
Disclosure
Schedule
”
means that certain schedule to this Agreement delivered to Treasury on or prior to the Signing
Date, setting forth, among other things, items the disclosure of which is necessary or appropriate in response to an express disclosure
requirement contained in a provision hereof. The Disclosure Schedule is contained in
Annex D
of this Agreement.
“
Executive Officers
”
means the Company's “executive officers” as defined in 12 C.F.R. § 215.2(e)(1) (regardless of whether or not such
regulation is applicable to the Company).
“
Federal Reserve
”
means the Board of Governors of the Federal Reserve System.
“
GAAP
”
means generally accepted accounting principles in the United States.
“
General
Terms and Conditions
” and “
General T&C
” each mean
Annex C
of this Agreement.
“
IDI Subsidiary
”
means any Company Subsidiary that is an insured depository institution.
“
Junior
Stock
” means Common Stock and any other class or series of stock of the Company the terms of which expressly provide
that it ranks junior to the Preferred Shares as to dividend and redemption rights and/or as to rights on liquidation, dissolution
or winding up of the Company.
“
knowledge
of the Company
” or “
Company’s knowledge
”
means the actual knowledge after reasonable and due inquiry of the “
officers
”
(as such term is defined in Rule 3b-2 under the Exchange Act) of the Company.
|
Annex B (Definitions)
|
Page
2
|
“
Matching Private
Investment-Supported,
” when used to describe the Company (if applicable), means the Company’s eligibility for participation
in the SBLF program is conditioned upon the Company or an Affiliate of the Company acceptable to Treasury receiving Matching Private
Investment, as contemplated by Section 4103(d)(3)(B) of the SBJA.
“
Original Letter
Agreement
” means, if applicable, the Letter Agreement (and all terms incorporated therein) pursuant to which Treasury
purchased from the Company, and the Company issued to Treasury, the Previously Acquired Preferred Shares (or warrants exercised
to acquire the Previously Acquired Preferred Shares or the securities exchanged for the Previously Acquired Preferred Stock).
“
Oversight Officials
”
means, interchangeably and collectively as context requires, the Special Deputy Inspector General for SBLF Program Oversight, the
Inspector General of the Department of the Treasury, and the Comptroller General of the United States.
“
Parity
Stock
” means any class or series of stock of the Company the terms of which do not expressly provide that such
class or series will rank senior or junior to the Preferred Shares as to dividend rights and/or as to rights on liquidation, dissolution
or winding up of the Company (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).
“
Preferred Shares
”
means the number of shares of Preferred Stock identified in the “Purchase Information” section of
Annex A
opposite
“Number of Shares of Preferred Stock Purchased.”
“
Preferred Stock
”
means the series of the Company’s preferred stock identified in the “Purchase Information” section of
Annex
A
opposite “Series of Preferred Stock Purchased.”
“Previously Acquired
Preferred Shares
” means, if the Company participated in CPP or CDCI, the number of shares of Previously Acquired Preferred
Stock identified in the “Redemption Information” section of
Annex A
opposite “Number of Shares of Previously
Acquired Preferred Stock.”
“
Previously Acquired
Preferred Stock
” means, if the Company participated in CPP or CDCI, the series of the Company’s preferred stock
identified in the “Redemption Information” section of
Annex A
opposite “Series of Previously Acquired
Preferred Stock.”
“
Previously
Disclosed
” means information set forth on the Disclosure Schedule or the Disclosure Update, as applicable;
provided
,
however
, that disclosure in any section of such Disclosure Schedule or Disclosure Update, as applicable, shall apply only to
the indicated section of this Agreement;
provided
,
further
,
that the existence of Previously Disclosed information, pursuant to a Disclosure Update, shall neither obligate Treasury to consummate
the Purchase nor limit or affect any rights of or remedies available to Treasury.
“
Prior Program
”
means (a) CPP, if the Company is a participant in CPP immediately prior to the Closing, or (b) CDCI, if the Company is a participant
in CDCI immediately prior to the Closing.
|
Annex B (Definitions)
|
Page
3
|
“
Publicly-traded
”
means a company that (i) has a class of securities that is traded on a national securities exchange and (ii) is required to file
periodic reports with either the Securities and Exchange Commission or its primary federal bank regulator.
“
Purchase
”
means the purchase of the Preferred Shares by Treasury from the Company pursuant to this Agreement.
“Repayment
”
has the meaning set forth in the Repayment Document.
“
Repayment Amount
”
means, if the Company participated in CPP or CDCI, the aggregate amount payable by the Company as of the Closing Date to redeem
the Previously Acquired Preferred Stock in accordance with its terms, which amount is set forth in the “Redemption Information”
section of
Annex A
.
“
Savings
and Loan Holding Company
” means a company registered as such with the Office of Thrift Supervision or any successor
thereto pursuant to 12 U.S.C. §1467(a) and the regulations of the Office of Thrift Supervision promulgated thereunder.
“
SBJA
”
means the Small Business Jobs Act of 2010, as it may be amended from time to time.
“
Subsidiary
”
means any corporation, partnership, joint venture, limited liability company or other entity (A) of which such person or a subsidiary
of such person is a general partner or (B) of which a majority of the voting securities or other voting interests, or a majority
of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors
or persons performing similar functions with respect to such entity, is directly or indirectly owned by such person and/or one
or more subsidiaries thereof.
“
Tax
”
or “
Taxes
” means any federal, state, local or
foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum,
ad valorem
, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest, penalty or addition imposed by any Governmental Entity.
“
Total Assets
”
means, with respect to an insured depository institution, the total assets of such insured depository institution.
“
Total Risk-Weighted
Assets
” means, with respect to an insured depository institution, the risk-weighted assets of such insured depository
institution.
“
Warrant
”
has the meaning set forth in the Repayment Document.
2.
Index of Definitions
. The
following table, which is provided solely for convenience of reference and shall not affect the interpretation of this Agreement,
identifies the location where capitalized terms are defined in this Agreement:
|
Annex B (Definitions)
|
Page
4
|
|
|
Location of
|
|
Term
|
Definition
|
|
Affiliate
|
Annex B, §1
|
|
Agreement
|
Cover Page
|
|
Appropriate Federal Banking Agency
|
Annex B, §1
|
|
Appropriate State Banking Agency
|
Annex B, §1
|
|
Bank Holding Company
|
Annex B, §1
|
|
Bankruptcy Exceptions
|
General T&C, §2.5(a)
|
|
Board of Directors
|
General T&C, §2.6
|
|
Business Combination
|
General T&C, §5.8
|
|
business day
|
General T&C, §5.12
|
|
Call Report
|
Annex B, §1
|
|
Capitalization Date
|
General T&C, §2.2
|
|
CDCI
|
Annex B, §1
|
|
Certificate of Designation
|
General T&C, §1.3(d)
|
|
Charter
|
General T&C, §1.3(d)
|
|
Closing
|
General T&C, §1.2(a)
|
|
Closing Date
|
General T&C, §1.2(a)
|
|
Closing Deadline
|
General T&C, §5.1(a)(i)
|
|
Code
|
General T&C, §2.14
|
|
Common Stock
|
General T&C, §2.2
|
|
Company
|
Cover Page
|
|
Company Financial Statements
|
General T&C, §1.3(i)
|
|
Company Material Adverse Effect
|
Annex B, §1
|
|
Company Reports
|
General T&C, §2.9
|
|
Company Subsidiary; Company Subsidiaries
|
General T&C, §2.5(b)
|
|
control; controlled by; under common control with
|
Annex B, §1
|
|
CPP
|
Annex B, §1
|
|
Disclosure Schedule
|
Annex B, §1
|
|
Disclosure Update
|
General T&C, §1.3(h)
|
|
ERISA
|
General T&C, §2.14
|
|
Exchange Act
|
General T&C, §4.3
|
|
Federal Reserve
|
Annex B, §1
|
|
GAAP
|
Annex B, §1
|
|
Governmental Entities
|
General T&C, §1.3(a)
|
|
Holders
|
General T&C, §4.4(a)
|
|
Indemnitee
|
General T&C, §4.4(b)
|
|
Information
|
General T&C, §3.1(c)(iii)
|
|
Initial Supplemental Report
|
General T&C, §1.3(j)
|
|
Treasury
|
Cover Page
|
|
Junior Stock
|
Annex B, §1
|
|
knowledge of the Company; Company’s knowledge
|
Annex B, §1
|
|
Matching Private Investment
|
General T&C, §1.3(l)
|
|
Matching Private Investment-Supported
|
Annex B, § 1
|
|
Matching Private Investors
|
General T&C, §1.3(l)
|
|
officers
|
Annex B, §1
|
|
Annex B (Definitions)
|
Page
5
|
|
Parity Stock
|
Annex B, §1
|
|
Parties
|
Cover Page
|
|
Plan
|
General T&C, §2.14
|
|
Preferred Shares
|
Annex B, §1
|
|
Preferred Stock
|
Annex B, §1
|
|
Previously Acquired Preferred Shares
|
Annex B, §1
|
|
Previously Acquired Preferred Stock
|
Annex B, §1
|
|
Previously Disclosed
|
Annex B, §1
|
|
Prior Program
|
General T&C, §1.2(c)
|
|
Proprietary Rights
|
General T&C, §2.21
|
|
Purchase
|
Annex B, §1
|
|
Purchase Price
|
General T&C, §1.1(a)
|
|
Regulatory Agreement
|
General T&C, §2.19
|
|
Related Party
|
General T&C, §2.25
|
|
Repayment Document
|
General T&C, §1.2(b)(ii)(E)
|
|
Residual Amount
|
General T&C, §1.2(b)(ii)(B)
|
|
Savings and Loan Holding Company
|
Annex B, §1
|
|
SBJA
|
Annex B, §1
|
|
SBLF
|
Cover Page
|
|
SEC
|
General T&C, §2.11
|
|
Securities Act
|
General T&C, §2.1
|
|
Signing Date
|
Cover Page
|
|
subsidiary
|
Annex B, §1
|
|
Quarterly Supplemental Report
|
General T&C, §3.1(d)(i)
|
|
Tax; Taxes
|
Annex B, §1
|
|
Transfer
|
General T&C, §4.3
|
3.
Defined Terms in Annex K
. Except
for defined terms in
Annex K
that are expressly cross-referenced in another part of this Agreement, terms defined in
Annex
K
are defined therein solely for purposes of
Annex K
and are not applicable to other parts of this Agreement.
|
Annex B (Definitions)
|
Page
6
|
|
ANNEX C
|
|
GENERAL TERMS AND CONDITIONS
|
CONTENTS OF GENERAL TERMS AND CONDITIONS
|
|
|
|
Page
|
|
|
|
|
|
|
Article I
|
Purchase; Closing
|
3
|
|
|
|
|
|
|
|
1.1
|
Purchase
|
3
|
|
|
1.2
|
Closing
|
3
|
|
|
1.3
|
Closing Conditions
|
4
|
|
|
|
|
|
|
ARTICLE II
|
REPRESENTATIONS AND WARRANTIES
|
6
|
|
|
|
|
|
|
|
2.1
|
Organization, Authority and Significant Subsidiaries
|
6
|
|
|
2.2
|
Capitalization
|
6
|
|
|
2.3
|
Preferred Shares
|
7
|
|
|
2.4
|
Compliance With Identity Verification Requirements
|
7
|
|
|
2.5
|
Authorization; Enforceability
|
7
|
|
|
2.6
|
Anti-takeover Provisions and Rights Plan
|
8
|
|
|
2.7
|
No Company Material Adverse Effect
|
8
|
|
|
2.8
|
Company Financial Statements
|
9
|
|
|
2.9
|
Reports
|
9
|
|
|
2.10
|
No Undisclosed Liabilities
|
9
|
|
|
2.11
|
Offering of Securities
|
10
|
|
|
2.12
|
Litigation and Other Proceedings
|
10
|
|
|
2.13
|
Compliance with Laws
|
10
|
|
|
2.14
|
Employee Benefit Matters
|
11
|
|
|
2.15
|
Taxes
|
11
|
|
|
2.16
|
Properties and Leases
|
11
|
|
|
2.17
|
Environmental Liability
|
12
|
|
|
2.18
|
Risk Management Instruments
|
12
|
|
|
2.19
|
Agreements with Regulatory Agencies
|
12
|
|
|
2.20
|
Insurance
|
13
|
|
|
2.21
|
Intellectual Property
|
13
|
|
|
2.22
|
Brokers and Finders
|
13
|
|
|
2.23
|
Disclosure Schedule
|
13
|
|
|
2.24
|
Previously Acquired Preferred Shares
|
14
|
|
|
2.25
|
Related Party Transactions
|
14
|
|
|
2.26
|
Ability to Pay Dividends
|
14
|
|
|
|
|
|
|
Article III
|
Covenants
|
14
|
|
|
|
|
|
|
|
3.1
|
Affirmative Covenants
|
14
|
|
|
3.2
|
Negative Covenants
|
20
|
|
Annex C (General Terms and Conditions)
|
Page
1
|
|
Article IV
|
Additional Agreements
|
20
|
|
|
|
|
|
|
|
4.1
|
Purchase for Investment
|
21
|
|
|
4.2
|
Legends
|
21
|
|
|
4.3
|
Transfer of Preferred Shares
|
22
|
|
|
4.4
|
Rule 144; Rule 144A; 4(1½) Transactions
|
22
|
|
|
4.5
|
Depositary Shares
|
24
|
|
|
4.6
|
Expenses and Further Assurances
|
24
|
|
|
|
|
|
|
Article V
|
Miscellaneous
|
24
|
|
|
|
|
|
|
|
5.1
|
Termination
|
24
|
|
|
5.2
|
Survival
|
25
|
|
|
5.3
|
Amendment
|
25
|
|
|
5.4
|
Waiver of Conditions
|
25
|
|
|
5.5
|
Governing Law; Submission to Jurisdiction; etc.
|
26
|
|
|
5.6
|
No Relationship to TARP
|
26
|
|
|
5.7
|
Notices
|
26
|
|
|
5.8
|
Assignment
|
27
|
|
|
5.9
|
Severability
|
27
|
|
|
5.10
|
No Third Party Beneficiaries
|
27
|
|
|
5.11
|
Specific Performance
|
27
|
|
|
5.12
|
Interpretation
|
27
|
|
Annex C (General Terms and Conditions)
|
Page
2
|
ARTICLE I
PURCHASE; CLOSING
1.1
Purchase
. On
the terms and subject to the conditions set forth in this Agreement, the Company agrees to sell to Treasury, and Treasury agrees
to purchase from the Company, at the Closing, the Preferred Shares for the aggregate price set forth on
Annex A
(the “
Purchase
Price
”).
1.2
Closing
. (a)
On the terms and subject to the conditions set forth in this Agreement, the closing of the Purchase (the “
Closing
”)
will take place at the location specified in
Annex A
, at the time and on the date set forth in
Annex A
or as soon
as practicable thereafter, or at such other place, time and date as shall be agreed between the Company and Treasury. The
time and date on which the Closing occurs is referred to in this Agreement as the “
Closing
Date
”.
(b) Subject to the fulfillment
or waiver of the conditions to the Closing in Section 1.3, at the Closing:
(i) if Treasury holds
Previously Acquired Preferred Shares:
(A) the Purchase
Price shall first be applied to pay the Repayment Amount;
(B) if the Purchase
Price is less than the Repayment Amount, the Company shall pay the positive difference (if any) between the Repayment Amount and
the Purchase Price (a “
Residual Amount
”) to Treasury’s Office of Financial Stability by wire transfer
of immediately available United States funds to an account designated in writing by Treasury; and
(C) upon receipt
of the full Repayment Amount (by application of the Purchase Price and, if applicable, the Company’s payment of the Residual
Amount), Treasury and the Company will consummate the Repayment;
(D) the Company
will deliver to Treasury a statement of adjustment as contemplated by Section 13(J) of the Warrant; and
(E) the Company
and Treasury will execute and deliver a properly completed repurchase document in the form attached hereto as
Annex K
, (the
“
Repayment Document
”).
(ii) the Company will
deliver the Preferred Shares as evidenced by one or more certificates dated the Closing Date and bearing appropriate legends as
hereinafter provided for, in exchange for payment in full of the Purchase Price by application of the Purchase Price to the Repayment
and by wire transfer of immediately available United States funds to a bank account designated by the Company in the Initial Supplemental
Report, as applicable.
|
Annex C (General Terms and Conditions)
|
Page
3
|
1.3
Closing Conditions
.
The obligation of Treasury to consummate the Purchase is subject to the fulfillment (or waiver by Treasury) at or prior to the
Closing of each of the following conditions:
(a) (i) any approvals
or authorizations of all United States federal, state, local, foreign and other governmental, regulatory or judicial authorities
(collectively, “
Governmental Entities
”) required
for the consummation of the Purchase shall have been obtained or made in form and substance reasonably satisfactory to each party
and shall be in full force and effect and all waiting periods required by United States and other applicable law, if any, shall
have expired and (ii) no provision of any applicable United States or other law and no judgment, injunction, order or decree of
any Governmental Entity shall prohibit the purchase and sale of the Preferred Shares as contemplated by this Agreement;
(b) (i) the representations
and warranties of the Company set forth in (A) Sections 2.7 and 2.26 shall be true and correct in all respects as though made on
and as of the Closing Date; (B) Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.19, 2.22, 2.23, 2.24 and 2.25 shall be true and correct
in all material respects as though made on and as of the Closing Date (other than representations and warranties that by their
terms speak as of another date, which representations and warranties shall be true and correct in all respects as of such other
date); and (C) Sections 2.8 through 2.18 and Sections 2.20 through 2.21 (disregarding all qualifications or limitations set forth
in such representations and warranties as to “materiality”, “Company Material Adverse Effect” and words
of similar import) shall be true and correct as though made on and as of the Closing Date (other than representations and warranties
that by their terms speak as of another date, which representations and warranties shall be true and correct as of such other date),
except to the extent that the failure of such representations and warranties referred to in this Section 1.3(b)(i)(C) to be so
true and correct, individually or in the aggregate, does not have and would not reasonably be expected to have a Company Material
Adverse Effect; and (ii) the Company shall have performed in all respects all obligations required to be performed by it under
this Agreement at or prior to the Closing;
(c) the Company shall
have delivered to Treasury a certificate signed on behalf of the Company by an Executive Officer certifying to the effect that
the conditions set forth in Section 1.3(b) have been satisfied, in substantially the form of
Annex G
;
(d) the Company shall
have duly adopted and filed with the Secretary of State of its jurisdiction of organization or other applicable Governmental Entity
an amendment to its certificate or articles of incorporation, articles of association, or similar organizational document (“
Charter
”)
in substantially the form of
Annex F
(the “
Certificate
of Designation
”) and the Company shall have delivered to Treasury a copy of the filed Certificate of Designation
with appropriate evidence from the Secretary of State or other applicable Governmental Entity that the filing has been accepted,
or if a filed copy is unavailable, a certificate signed on behalf of the Company by an Executive Officer certifying to the effect
that the filing of the Certificate of Designation has been accepted, in substantially the form attached hereto as
Annex F
;
(e) the Company shall
have delivered to Treasury true, complete and correct certified copies of the Charter and bylaws of the Company;
|
Annex C (General Terms and Conditions)
|
Page
4
|
(f) the Company shall
have delivered to Treasury a written opinion from counsel to the Company (which may be internal counsel), addressed to Treasury
and dated as of the Closing Date, in substantially the form of
Annex J
;
(g) the Company shall
have delivered certificates in proper form or, with the prior consent of Treasury, evidence of shares in book-entry form, evidencing
the Preferred Shares to Treasury or its designee(s);
(h) the Company shall
have delivered to Treasury a copy of the Disclosure Schedule on or prior to the Signing Date and, to the extent that any information
set forth on the Disclosure Schedule needs to be updated or supplemented to make it true, complete and correct as of the Closing
Date, (i) the Company shall have delivered to Treasury an update to the Disclosure Schedule (the “
Disclosure
Update
”), setting forth any information necessary to make the Disclosure Schedule true, correct and complete as
of the Closing Date and (ii) Treasury, in its sole discretion, shall have approved the Disclosure Update,
provided
,
however
,
that the delivery and acceptance of the Disclosure Update shall not limit or affect any rights of or remedies available to Treasury;
(i) the Company shall
have delivered to Treasury on or prior to the Signing Date each of the consolidated financial statements of the Company and its
consolidated subsidiaries for each of the last three completed fiscal years of the Company (which shall be audited to the extent
audited financial statements are available prior to the Signing Date) (together with the Call Reports filed by the Company or the
IDI Subsidiary(ies) for each completed quarterly period since the last completed fiscal year, the “
Company
Financial Statements
”);
(j) the Company shall
have delivered to Treasury, not later than five (5) business days prior to the Closing Date, a certificate (the “
Initial
Supplemental Report
”) in substantially the form attached hereto as
Annex H
setting forth a complete and accurate
statement of loans held by the Company (or if the Company is a Bank Holding Company or a Savings and Loan Holding Company, by the
IDI Subsidiary(ies)) in each of the categories described therein, for the time periods specified therein, (A) including a signed
certification of the Chief Executive Officer, the Chief Financial Officer and all directors or trustees of the Company or the IDI
Subsidiary(ies) who attested to the Call Reports for the quarters covered by such certificate, that such certificate (x) has been
prepared in conformance with the instructions issued by Treasury and (y) is true and correct to the best of their knowledge and
belief; and (B) completed for the last full calendar quarter prior to the Closing Date and the four (4) quarters ended September
30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010;
(k) prior to the Signing
Date, the Company shall have delivered to Treasury, the Appropriate Federal Banking Agency and, if the Company is a State-chartered
bank, the Appropriate State Banking Agency, a small business lending plan describing how the Company’s business strategy
and operating goals will allow it to address the needs of small businesses in the area it serves, as well as a plan to provide
linguistically and culturally appropriate outreach, where appropriate; and
|
Annex C (General Terms and Conditions)
|
Page
5
|
(l) if the Company is
Matching Private Investment-Supported, on or after September 27, 2010 the Company or an Affiliate of the Company acceptable to
Treasury shall (i) have received equity capital (“
Matching Private
Investment
”) from one or more non-governmental investors (“
Matching Private Investors
”) (A)
in an amount equal to or greater than the Aggregate Dollar Amount of Matching Private Investment Required set forth on Annex A
(net of all dividends paid with respect to, and all repurchases and redemptions of, the Company’s equity securities), (B)
that is subordinate in right of payment of dividends, liquidation preference and redemption rights to the Preferred Shares and
(C) that is acceptable in form and substance to Treasury, in its sole discretion and (ii) have satisfied the following requirements
reasonably in advance of the Closing Date: (A) delivery of copies of the definitive documentation for the Matching Private Investment
to Treasury, (B) delivery of the organizational charts of such non-governmental investors to Treasury, each certified by the applicable
non-governmental investor and demonstrating that such non-governmental investor is not an Affiliate of the Company, (C) delivery
of any other documents or information as Treasury may reasonably request, in its sole discretion and (D) any other terms and conditions
imposed by Treasury or the Appropriate Federal Banking Agency, in their sole discretion.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Company represents
and warrants to Treasury that as of the Signing Date and as of the Closing Date (or such other date specified herein):
2.1
Organization,
Authority and Significant Subsidiaries
. The Company has been duly incorporated and is validly existing and in good
standing under the laws of its jurisdiction of organization, with the necessary power and authority to own, operate and lease its
properties and conduct its business as it is being currently conducted, and except as has not, individually or in the aggregate,
had and would not reasonably be expected to have a Company Material Adverse Effect, has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification; each subsidiary of the Company that would be considered a “significant
subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X under the Securities Act of 1933 (the “
Securities
Act
”), has been duly organized and is validly existing in good standing under the laws of its jurisdiction of
organization. The Charter and bylaws of the Company, copies of which have been provided to Treasury prior to the Signing
Date, are true, complete and correct copies of such documents as in full force and effect as of the Signing Date and as of the
Closing Date.
2.2
Capitalization
. The
outstanding shares of capital stock of the Company have been duly authorized and are validly issued and outstanding, fully paid
and nonassessable, and subject to no preemptive or similar rights (and were not issued in violation of any preemptive rights).
As of the Signing Date, the Company does not have outstanding any securities or other obligations providing the holder the right
to acquire its common stock (“
Common Stock
”)
or other capital stock that is not reserved for issuance as specified in Part 2.2 of the Disclosure Schedule, and the Company has
not made any other commitment to authorize, issue or sell any Common Stock or other capital stock. Since the last day
of the fiscal period covered by the last Call Report filed by
|
Annex C (General Terms and Conditions)
|
Page
6
|
the Company or the IDI Subsidiary(ies)
prior to the Application Date (the “
Capitalization Date
”),
the Company has not (a) declared, and has no present intention of declaring, any dividends on its Common Stock in a per-share amount
greater than the per-share amount of declared dividends that are reflected in such Call Report; (b) declared, and has no present
intention of declaring (except as contemplated by the Certificate of Designation) any dividends on any of its preferred stock in
a per-share amount greater than the per-share amount of declared dividends that are reflected in such Call Report; or (c) issued
any shares of Common Stock or other capital stock, other than (i) shares issued upon the exercise of stock options or delivered
under other equity-based awards or other convertible securities or warrants which were issued and outstanding on the Capitalization
Date and disclosed in Part 2.2 of the Disclosure Schedule, (ii) shares disclosed in Part 2.2 of the Disclosure Schedule, and (iii)
if the Company is Matching Private Investment-Supported, shares or other capital stock representing Matching Private Investment
disclosed in the “Matching Private Investment” section of
Annex A
. Except as disclosed in Part 2.2
of the Disclosure Schedule, the Company has no agreements providing for the accelerated exercise, settlement or exchange of any
capital stock of the Company for Common Stock. Each holder of 5% or more of any class of capital stock of the Company
and such holder’s primary address are set forth in Part 2.2 of the Disclosure Schedule. The Company has received
a representation from each Matching Private Investor that such Matching Private Investor has not received or applied for any investment
from the SBLF, and the Company has no reason to believe that any such representation is inaccurate. If the Company is
a Bank Holding Company or a Savings and Loan Holding Company, (x) the percentage of each IDI Subsidiary’s issued and outstanding
capital stock that is owned by the Company is set forth on Part 2.2 of the Disclosure Schedule; and (y) all shares of issued and
outstanding capital stock of the IDI Subsidiary(ies) owned by the Company are free and clear of all liens, security interests,
charges or encumbrances. Since the Application Date, there has been no change in the organizational hierarchy information
regarding the Company that was available on the Application Date from the National Information Center of the Federal Reserve System.
2.3
Preferred Shares
. The
Preferred Shares have been duly and validly authorized, and, when issued and delivered pursuant to this Agreement, such Preferred
Shares will be duly and validly issued and fully paid and non-assessable, will not be issued in violation of any preemptive rights,
and will rank
pari passu
with or senior to all other series
or classes of preferred stock, whether or not designated, issued or outstanding, with respect to the payment of dividends and the
distribution of assets in the event of any dissolution, liquidation or winding up of the Company.
2.4
Compliance with
Identity Verification Requirements
. The Company and the Company Subsidiaries (to the extent such regulations are applicable
to the Company Subsidiaries) are in compliance with the requirements of Section 103.121 of title 31, Code of Federal Regulations.
2.5
Authorization,
Enforceability
.
(a) The Company has the
corporate power and authority to execute and deliver this Agreement and
to carry out its obligations hereunder (which includes
the issuance of the Preferred Shares). The execution, delivery and performance by the Company of this Agreement and
the consummation of the transactions contemplated hereby have been duly
|
Annex C (General Terms and Conditions)
|
Page
7
|
authorized by all necessary
corporate action on the part of the Company and its stockholders, and no further approval or authorization is required on the part
of the Company. This Agreement is a valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, subject to any limitations of applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability
is considered in a proceeding at law or in equity (“
Bankruptcy
Exceptions
”).
(b) The execution, delivery
and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby and compliance by
the Company with the provisions hereof, will not (i) violate, conflict with, or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation
of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any subsidiary of
the Company (each subsidiary, a “
Company Subsidiary
”
and, collectively, the “
Company Subsidiaries
”)
under any of the terms, conditions or provisions of (A) its organizational documents or (B) any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any Company Subsidiary is a
party or by which it or any Company Subsidiary may be bound, or to which the Company or any Company Subsidiary or any of the properties
or assets of the Company or any Company Subsidiary may be subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, violate any statute, rule or regulation or any judgment, ruling, order, writ, injunction or
decree applicable to the Company or any Company Subsidiary or any of their respective properties or assets except, in the case
of clauses (i)(B) and (ii), for those occurrences that, individually or in the aggregate, have not had and would not reasonably
be expected to have a Company Material Adverse Effect.
(c) Other than the filing
of the Certificate of Designation with the Secretary of State of its jurisdiction of organization or other applicable Governmental
Entity, such filings and approvals as are required to be made or obtained under any state “blue sky” laws and such
as have been made or obtained, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any
Governmental Entity is required to be made or obtained by the Company in connection with the consummation by the Company of the
Purchase except for any such notices, filings, exemptions, reviews, authorizations, consents and approvals the failure of which
to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
2.6
Anti-takeover
Provisions and Rights Plan
. The Board of Directors of the Company (the “
Board
of Directors
”) has taken all necessary action to ensure that the transactions contemplated by this Agreement and
the consummation of the transactions contemplated hereby will be exempt from any anti-takeover or similar provisions of the Company’s
Charter and bylaws, and any other provisions of any applicable “moratorium”, “control share”, “fair
price”, “interested stockholder” or other anti-takeover laws and regulations of any jurisdiction.
2.7
No Company Material
Adverse Effect
. Since the last day of the fiscal period covered by the last Call Report filed by the Company or
the IDI Subsidiary(ies) prior to the
|
Annex C (General Terms and Conditions)
|
Page
8
|
Application Date, no fact,
circumstance, event, change, occurrence, condition or development has occurred that, individually or in the aggregate, has had
or would reasonably be expected to have a Company Material Adverse Effect.
2.8
Company Financial
Statements
. The Company Financial Statements present fairly in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates indicated therein and the consolidated results of their
operations for the periods specified therein; and except as stated therein, such financial statements (a) were prepared in conformity
with GAAP applied on a consistent basis (except as may be noted therein) and (b) have been prepared from, and are in accordance
with, the books and records of the Company and the Company Subsidiaries.
2.9
Reports
.
(a) Since December 31,
2007, the Company and each Company Subsidiary has filed all reports, registrations, documents, filings, statements and submissions,
together with any amendments thereto, that it was required to file with any Governmental Entity (the foregoing, collectively, the
“
Company Reports
”) and has paid all fees and
assessments due and payable in connection therewith, except, in each case, as would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. As of their respective dates of filing, the Company Reports complied
in all material respects with all statutes and applicable rules and regulations of the applicable Governmental Entities.
(b) The records, systems,
controls, data and information of the Company and the Company Subsidiaries are recorded, stored, maintained and operated under
means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive
ownership and direct control of the Company or the Company Subsidiaries or their accountants (including all means of access thereto
and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have a material
adverse effect on the system of internal accounting controls described below in this Section 2.9(b). The Company
(i) has implemented and maintains adequate disclosure controls and procedures to ensure that material information relating to the
Company, including the consolidated Company Subsidiaries, is made known to the chief executive officer and the chief financial
officer of the Company by others within those entities, and (ii) has disclosed, based on its most recent evaluation prior to the
Signing Date, to the Company’s outside auditors and the audit committee of the Board of Directors (A) any significant deficiencies
and material weaknesses in the design or operation of internal controls that are reasonably likely to adversely affect the Company’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 Company’s internal controls over financial reporting.
2.10
No Undisclosed
Liabilities
. Neither the Company nor any of the Company Subsidiaries has any liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) which are not properly reflected in the Company Financial Statements to the extent
required to be so reflected and, if applicable, reserved against in accordance with GAAP applied on a consistent basis, except
for (a) liabilities that have arisen since the last fiscal year end in the ordinary and usual course of business and consistent
with past practice and (b) liabilities that,
|
Annex C (General Terms and Conditions)
|
Page
9
|
individually or in the aggregate,
have not had and would not reasonably be expected to have a Company Material Adverse Effect.
2.11
Offering of
Securities
. Neither the Company nor any person acting on its behalf has taken any action (including any offering
of any securities of the Company under circumstances which would require the integration of such offering with the offering of
any of the Preferred Shares under the Securities Act, and the rules and regulations of the Securities and Exchange Commission (the
“
SEC
”) promulgated thereunder), which might
subject the offering, issuance or sale of any of the Preferred Shares to Treasury pursuant to this Agreement to the registration
requirements of the Securities Act.
2.12
Litigation and
Other Proceedings
. Except as would not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect, there is no (a) pending or, to the knowledge of the Company, threatened, claim, action, suit, investigation
or proceeding, against the Company or any Company Subsidiary or to which any of their assets are subject nor is the Company or
any Company Subsidiary subject to any order, judgment or decree or (b) unresolved violation, criticism or exception by any Governmental
Entity with respect to any report or relating to any examinations or inspections of the Company or any Company Subsidiaries. There
is no claim, action, suit, investigation or proceeding pending or, to the Company’s knowledge, threatened against any institution-affiliated
party (as defined in 12 U.S.C. §1813(u)) of the Company or any of the IDI Subsidiaries that, if determined or resolved in
a manner adverse to such institution-affiliated party, could result in such institution-affiliated party being prohibited from
participation in the conduct of the affairs of any financial institution or holding company of any financial institution and, to
the Company’s knowledge, there are no facts or circumstances could reasonably be expected to provide a basis for any such
claim, action, suit, investigation or proceeding.
2.13
Compliance with
Laws
. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect, the Company and the Company Subsidiaries have all permits, licenses, franchises, authorizations, orders and approvals of,
and have made all filings, applications and registrations with, Governmental Entities that are required in order to permit them
to own or lease their properties and assets and to carry on their business as presently conducted and that are material to the
business of the Company or such Company Subsidiary. Except as set forth in Part 2.13 of the Disclosure Schedule, the
Company and the Company Subsidiaries have complied in all respects and are not in default or violation of, and none of them is,
to the knowledge of the Company, under investigation with respect to or, to the knowledge of the Company, have been threatened
to be charged with or given notice of any violation of, any applicable domestic (federal, state or local) or foreign law, statute,
ordinance, license, rule, regulation, policy or guideline, order, demand, writ, injunction, decree or judgment of any Governmental
Entity, other than such noncompliance, defaults or violations that would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. Except for statutory or regulatory restrictions of general application, no
Governmental Entity has placed any restriction on the business or properties of the Company or any Company Subsidiary that would,
individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
|
Annex C (General Terms and Conditions)
|
Page
10
|
2.14
Employee Benefit
Matters
. Except as would not reasonably be expected to have, either individually or in the aggregate, a Company
Material Adverse Effect: (a) each “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“
ERISA
”))
providing benefits to any current or former employee, officer or director of the Company or any member of its “
Controlled
Group
” (defined as any organization which is a member of a controlled group of corporations within the meaning
of Section 414 of the Internal Revenue Code of 1986, as amended (the “
Code
”))
that is sponsored, maintained or contributed to by the Company or any member of its Controlled Group and for which the Company
or any member of its Controlled Group would have any liability, whether actual or contingent (each, a “
Plan
”)
has been maintained in compliance with its terms and with the requirements of all applicable statutes, rules and regulations, including
ERISA and the Code; (b) with respect to each Plan subject to Title IV of ERISA (including, for purposes of this clause (b), any
plan subject to Title IV of ERISA that the Company or any member of its Controlled Group previously maintained or contributed to
in the six years prior to the Signing Date), (1) no “reportable event” (within the meaning of Section 4043(c) of ERISA),
other than a reportable event for which the notice period referred to in Section 4043(c) of ERISA has been waived, has occurred
in the three years prior to the Signing Date or is reasonably expected to occur, (2) no “accumulated funding deficiency”
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, has occurred in the three years
prior to the Signing Date or is reasonably expected to occur, (3) the fair market value of the assets under each Plan exceeds the
present value of all benefits accrued under such Plan (determined based on the assumptions used to fund such Plan) and (4) neither
the Company nor any member of its Controlled Group has incurred in the six years prior to the Signing Date, or reasonably expects
to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the Pension Benefit Guaranty
Corporation in the ordinary course and without default) in respect of a Plan (including any Plan that is a “multiemployer
plan”, within the meaning of Section 4001(c)(3) of ERISA); and (c) each Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to its qualified
status that has not been revoked, or such a determination letter has been timely applied for but not received by the Signing Date,
and nothing has occurred, whether by action or by failure to act, which could reasonably be expected to cause the loss, revocation
or denial of such qualified status or favorable determination letter.
2.15
Taxes
. Except
as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (a) the
Company and the Company Subsidiaries have filed all federal, state, local and foreign income and franchise Tax returns (together
with any schedules and attached thereto) required to be filed through the Signing Date, subject to permitted extensions, and have
paid all Taxes due thereon, (b) all such Tax returns (together with any schedules and attached thereto) are true, complete and
correct in all material respects and were prepared in compliance with all applicable laws and (c) no Tax deficiency has been
determined adversely to the Company or any of the Company Subsidiaries, nor does the Company have any knowledge of any Tax deficiencies.
2.16
Properties and
Leases
. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect, the Company and the Company Subsidiaries have good and marketable title to all real properties and all other properties
and assets owned by them, in each case free from liens (including, without limitation,
|
Annex C (General Terms and Conditions)
|
Page
11
|
liens for Taxes), encumbrances,
claims and defects that would affect the value thereof or interfere with the use made or to be made thereof by them. Except
as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, the Company and
the Company Subsidiaries hold all leased real or personal property under valid and enforceable leases with no exceptions that would
interfere with the use made or to be made thereof by them.
2.17
Environmental
Liability
. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect:
(a) there is no legal,
administrative, or other proceeding, claim or action of any nature seeking to impose, or that would reasonably be expected to result
in the imposition of, on the Company or any Company Subsidiary, any liability relating to the release of hazardous substances as
defined under any local, state or federal environmental statute, regulation or ordinance, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, pending or, to the Company’s knowledge, threatened against the Company
or any Company Subsidiary;
(b) to the Company’s
knowledge, there is no reasonable basis for any such proceeding, claim or action; and
(c) neither the Company
nor any Company Subsidiary is subject to any agreement, order, judgment or decree by or with any court, Governmental Entity or
third party imposing any such environmental liability.
2.18
Risk Management
Instruments
. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect, all derivative instruments, including, swaps, caps, floors and option agreements, whether entered into for the
Company’s own account, or for the account of one or more of the Company Subsidiaries or its or their customers, were entered
into (i) only in the ordinary course of business, (ii) in accordance with prudent practices and in all material respects with all
applicable laws, rules, regulations and regulatory policies and (iii) with counterparties believed to be financially responsible
at the time; and each of such instruments constitutes the valid and legally binding obligation of the Company or one of the Company
Subsidiaries, enforceable in accordance with its terms, except as may be limited by the Bankruptcy Exceptions. Neither
the Company or the Company Subsidiaries, nor, to the knowledge of the Company, any other party thereto, is in breach of any of
its obligations under any such agreement or arrangement other than such breaches that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
2.19
Agreements with
Regulatory Agencies
. Except as set forth in Part 2.19 of the Disclosure Schedule, neither the Company nor any Company
Subsidiary is subject to any cease-and-desist or other similar order or enforcement action issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking
to, or is subject to any capital directive by, or since December 31, 2007, has adopted any board resolutions at the request of,
any Governmental Entity that currently restricts the conduct of its business or that in any material manner relates to its capital
adequacy, its liquidity and funding policies and practices, its ability to pay dividends,
|
Annex C (General Terms and Conditions)
|
Page
12
|
its credit, risk management
or compliance policies or procedures, its internal controls, its management or its operations or business (each item in this sentence,
a “
Regulatory Agreement
”), nor has the Company
or any Company Subsidiary been advised since December 31, 2007, by any such Governmental Entity that it is considering issuing,
initiating, ordering, or requesting any such Regulatory Agreement. The Company and each Company Subsidiary is in compliance
with each Regulatory Agreement to which it is party or subject, and neither the Company nor any Company Subsidiary has received
any notice from any Governmental Entity indicating that either the Company or any Company Subsidiary is not in compliance with
any such Regulatory Agreement.
2.20
Insurance
. The
Company and the Company Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management
of the Company reasonably has determined to be prudent and consistent with industry practice. The Company and the Company
Subsidiaries are in material compliance with their insurance policies and are not in default under any of the material terms thereof,
each such policy is outstanding and in full force and effect, all premiums and other payments due under any material policy have
been paid, and all claims thereunder have been filed in due and timely fashion, except, in each case, as would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
2.21
Intellectual
Property
. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect, (i) the Company and each Company Subsidiary owns or otherwise has the right to use, all intellectual property rights,
including all trademarks, trade dress, trade names, service marks, domain names, patents, inventions, trade secrets, know-how,
works of authorship and copyrights therein, that are used in the conduct of their existing businesses and all rights relating to
the plans, design and specifications of any of its branch facilities (“
Proprietary
Rights
”) free and clear of all liens and any claims of ownership by current or former employees, contractors,
designers or others and (ii) neither the Company nor any of the Company Subsidiaries is materially infringing, diluting, misappropriating
or violating, nor has the Company or any of the Company Subsidiaries received any written (or, to the knowledge of the Company,
oral) communications alleging that any of them has materially infringed, diluted, misappropriated or violated, any of the Proprietary
Rights owned by any other person. Except as would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect, to the Company’s knowledge, no other person is infringing, diluting, misappropriating
or violating, nor has the Company or any or the Company Subsidiaries sent any written communications since December 31, 2007, alleging
that any person has infringed, diluted, misappropriated or violated, any of the Proprietary Rights owned by the Company and the
Company Subsidiaries.
2.22
Brokers and
Finders
. Treasury has no liability for any amounts that any broker, finder or investment banker is entitled to for
any financial advisory, brokerage, finder’s or other fee or commission in connection with this Agreement or the transactions
contemplated hereby based upon arrangements made by or on behalf of the Company or any Company Subsidiary.
2.23
Disclosure Schedule
. The
Company has delivered the Disclosure Schedule and, if applicable, the Disclosure Update to Treasury and the information contained
in the Disclosure
|
Annex C (General Terms and Conditions)
|
Page
13
|
Schedule, as modified by
the information contained in the Disclosure Update, if applicable, is true, complete and correct.
2.24
Previously Acquired
Preferred Shares
. If Treasury holds Previously Acquired Preferred Shares:
(a) The Company
has not breached any representation, warranty or covenant set forth in the Original Letter Agreement or any of the other documents
governing the Previously Acquired Preferred Stock.
(b) The Company
has paid to Treasury: (i) if the Previously Acquired Preferred Stock is cumulative, all accrued and unpaid dividends and/or
interest then due on the Previously Acquired Preferred Stock; or (ii) if the Previously Acquired Preferred Stock is non-cumulative,
all unpaid dividends and/or interest due on the Previously Acquired Preferred Shares for the fiscal quarter prior to the Closing
Date
plus
the accrued and unpaid dividends and/or interest due on the Previously Acquired Preferred Shares as of the Closing
Date for the fiscal quarter in which the Closing shall occur.
2.25
Related Party
Transactions
. Neither the Company nor any Company Subsidiary has made any extension of credit to any director or
Executive Officer of the Company or any Company Subsidiary, any holder of 5% or more of the Company’s issued and outstanding
capital stock, or any of their respective spouses or children or to any Affiliate of any of the foregoing (each, a “
Related
Party
”), other than in compliance with 12 C.F.R Part 215 (Regulation O). Except as set forth in Part 2.25
of the Disclosure Schedule, to the Company’s knowledge, no Related Party has any (i) material commercial, industrial, banking,
consulting, legal, accounting, charitable or familial relationship with any vendor or material customer of the Company or any Company
Subsidiary that is not on arms-length terms, or (ii) direct or indirect ownership interest in any person or entity with which the
Company or any Company Subsidiary has a material business relationship that is not on arms-length terms (not including Publicly-traded
entities in which such person owns less than two percent (2%) of the outstanding capital stock).
2.26
Ability to Pay
Dividends
. The Company has all permits, licenses, franchises, authorizations, orders and approvals of, and has made
all filings, applications and registrations with, Governmental Entities and third parties that are required in order to permit
the Company to declare and pay dividends on the Preferred Shares on the Dividend Payment Dates set forth in the Certificate of
Designation.
ARTICLE III
COVENANTS
3.1
Affirmative Covenants
. The
Company hereby covenants and agrees with Treasury that:
(a)
Commercially Reasonable
Efforts
. Subject to the terms and conditions of this Agreement, each of the parties will use its commercially reasonable
efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper
|
Annex C (General Terms and Conditions)
|
Page
14
|
or desirable, or advisable
under applicable laws, so as to permit consummation of the Purchase as promptly as practicable and otherwise to enable consummation
of the transactions contemplated hereby and shall use commercially reasonable efforts to cooperate with the other party to that
end.
(b)
Certain Notifications
until Closing
. From the Signing Date until the Closing, the Company shall promptly notify Treasury of (i) any fact,
event or circumstance of which it is aware and which would reasonably be expected to cause any representation or warranty of the
Company contained in this Agreement to be untrue or inaccurate in any material respect or to cause any covenant or agreement of
the Company contained in this Agreement not to be complied with or satisfied in any material respect and (ii) except as Previously
Disclosed, any fact, circumstance, event, change, occurrence, condition or development of which the Company is aware and which,
individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect;
provided
,
however
, that delivery of any notice pursuant to this Section
3.1(b) shall not limit or affect any rights of or remedies available to Treasury.
(c)
Access, Information
and Confidentiality
.
(i) From the Signing
Date until the date on which all of the Preferred Shares have been redeemed in whole, the Company will permit, and shall cause
each of the Company’s Subsidiaries to permit, Treasury, the Oversight Officials and their respective agents, consultants,
contractors and advisors to (x) examine any books, papers, records, Tax returns (including all schedules attached thereto), data
and other information; (y) make copies thereof; and (z) discuss the affairs, finances and accounts of the Company and the Company
Subsidiaries with the personnel of the Company and the Company Subsidiaries, all upon reasonable notice;
provided
, that:
|
|
(A)
|
any examinations and discussions pursuant to this Section 3.1(c)(i) shall be conducted during normal
business hours and in such manner as not to interfere unreasonably with the conduct of the business of the Company;
|
|
|
(B)
|
neither the Company nor any Company Subsidiary shall be required by this Section 3.1(c)(i) to disclose
any information to the extent (x) prohibited by applicable law or regulation, or (y) that such disclosure would reasonably be expected
to cause a violation of any agreement to which the Company or any Company Subsidiary is a party or would cause a risk of a loss
of privilege to the Company or any Company Subsidiary (
provided
that
the Company shall use commercially reasonable efforts to make appropriate substitute disclosure arrangements under circumstances
where the restrictions in this clause (B) apply);
|
|
|
(C)
|
the obligations of the Company and the Company Subsidiaries to disclose information pursuant to
this Section 3.1(c)(i) to any Oversight Official or any agent, consultant, contractor and
|
|
Annex C (General Terms and Conditions)
|
Page
15
|
|
|
|
advisor thereof, such Oversight Official shall have agreed, with respect to documents obtained
under this Section 3.1(c)(i), to follow applicable law and regulation (and the applicable customary policies and procedures) regarding
the dissemination of confidential materials, including redacting confidential information from the public version of its reports
and soliciting input from the Company as to information that should be afforded confidentiality, as appropriate; and
|
|
|
(D)
|
for avoidance of doubt, such examinations and discussions may, at Treasury’s option, be conducted
on site at any office of the Company or any Company Subsidiary.
|
(ii) From the Signing
Date until the date on which all of the Preferred Shares have been redeemed in whole, the Company will deliver, or will cause to
be delivered, to Treasury:
|
|
(A)
|
as soon as available after the end of each fiscal year of the Company, and in any event within
90 days thereafter, a consolidated balance sheet of the Company as of the end of such fiscal year, and consolidated statements
of income, retained earnings and cash flows of the Company for such year, in each case prepared in accordance with GAAP applied
on a consistent basis and setting forth in each case in comparative form the figures for the previous fiscal year of the Company
and which shall be audited to the extent audited financial statements are available;
|
|
|
(B)
|
as soon as available after the end of the first, second and third quarterly periods in each fiscal
year of the Company, a copy of any quarterly reports provided to other stockholders of the Company or Company management by the
Company;
|
|
|
(C)
|
as soon as available after the Company receives any assessment of the Company’s internal
controls, a copy of such assessment (other than assessments provided by the Appropriate Federal Banking Agency or the Appropriate
State Banking Agency that the Company is prohibited by applicable law or regulation from disclosing to Treasury);
|
|
|
(D)
|
annually on a date specified by Treasury, a completed survey, in a form specified by Treasury,
providing, among other things, a description of how the Company has utilized the funds the Company received hereunder in connection
with the sale of the Preferred Shares and the effects of such funds on the operations and status of the Company;
|
|
Annex C (General Terms and Conditions)
|
Page
16
|
|
|
(E)
|
as soon as such items become effective, any amendments to the Charter, bylaws or other organizational
documents of the Company; and
|
|
|
(F)
|
at the same time as such items are sent to any stockholders of the Company, copies of any information
or documents sent by the Company to its stockholders.
|
(iii) Treasury will
use reasonable best efforts to hold, and will use reasonable best efforts to cause its agents, consultants, contractors and advisors
and United States executive branch officials and employees, to hold, in confidence all non-public records, books, contracts, instruments,
computer data and other data and information (collectively, “
Information
”)
concerning the Company furnished or made available to it by the Company or its representatives pursuant to this Agreement (except
to the extent that such information can be shown to have been (A) previously known by such party on a non-confidential basis, (B)
in the public domain through no fault of such party or (C) later lawfully acquired from other sources by the party to which it
was furnished (and without violation of any other confidentiality obligation));
provided
that nothing herein shall prevent Treasury from disclosing any Information to the extent required by applicable laws
or regulations or by any subpoena or similar legal process. Treasury understands that the Information may contain commercially
sensitive confidential information entitled to an exception from a Freedom of Information Act request.
(iv) Treasury’s
information rights pursuant to Section 3.1(c)(ii)(A), (B), (C), (E) and (F) and Treasury’s right to receive certifications
from the Company pursuant to Section 3.1(d)(i) may be assigned by Treasury to a transferee or assignee of the Preferred Shares
with a liquidation preference of no less than an amount equal to 2% of the initial aggregate liquidation preference of the Preferred
Shares.
(v) Nothing in this
Section shall be construed to limit the authority that any Oversight Official or any other applicable regulatory authority
has under law.
(vi) The Company shall
provide to Treasury all such information as Treasury may request from time to time for the purpose of carrying out the study required
by Section 4112 of the SBJA.
(d)
Quarterly Supplemental
Reports and Annual Certifications
.
(i) Concurrently with
the submission of Call Reports by the Company or the IDI Subsidiary(ies) (as the case may be) for each quarter ending after the
Closing Date, the Company shall deliver to Treasury a certificate in substantially the form attached hereto as
Annex H
setting forth a complete and accurate statement of loans held by the Company in each of the categories described therein, for the
time periods specified therein, (A) including a signed certification of the Chief Executive Officer, the Chief Financial Officer
and all directors or trustees of the Company or the IDI Subsidiary(ies) who attested to the Call Report for the quarter covered
by such certificate, that such certificate (x) has been prepared in conformance with the
|
Annex C (General Terms and Conditions)
|
Page
17
|
instructions issued by Treasury
and (y) is true and correct to the best of their knowledge and belief; (B) completed for such quarter (each, a “
Quarterly
Supplemental Report
”).
(ii) Within ninety (90)
days after the end of each fiscal year of the Company during which the Initial Supplemental Report is submitted pursuant to Section
1.3(j) or the first ten (10) Quarterly Supplemental Reports are submitted pursuant to Section 3.1(d)(i), the Company shall deliver
to Treasury a certification from the Company’s independent auditors that the Initial Supplemental Report and/or Quarterly
Supplemental Reports during such fiscal year are complete and accurate with respect to accounting matters, including policies and
procedures and controls over such.
(iii) Until the date
on which the Preferred Shares are redeemed pursuant to Section 5 of the Certificate of Designation, within ninety (90) days after
the end of each fiscal year of the Company, the Company shall deliver to Treasury a certificate in substantially the form attached
hereto as
Annex I
, signed on behalf of the Company by an Executive Officer.
(iv) If any Initial
Supplemental Report or Quarterly Supplemental Report is inaccurate, Treasury shall be entitled to recover from the Company, upon
demand, the amount of any difference between (x) the amount of the dividend payment(s) actually made to Treasury based on such
inaccurate report and (y) the correct amount of the dividend payment(s) that should have been made, but for such inaccuracy. The
Company shall provide Treasury with a written description of any such inaccuracy within three (3) business days after the Company’s
discovery thereof.
(v) Treasury shall have
the right from time to time to modify
Annex H
, by posting an amended and restated version of Annex H on Treasury’s
web site, to conform
Annex H
to (A) reflect changes in GAAP, (B) reflect changes in the form or content of, or definitions
used in, Call Reports, or (C) to make clarifications and/or technical corrections as Treasury determines to be reasonably necessary. Notwithstanding
anything herein to the contrary, upon posting by Treasury on its web site,
Annex H
shall be deemed to be amended and restated
as so posted, without the need for any further act on the part of any person or entity. If any such modification includes
a change to the caption or number of any line item of
Annex H
, any reference herein to such line item shall thereafter be
a reference to such re-captioned or re-numbered line item.
(e)
Bank and Thrift
Holding Company Status
. If the Company is a Bank Holding Company or a Savings and Loan Holding Company on the Signing
Date, then the Company shall maintain its status as a Bank Holding Company or Savings and Loan Holding Company, as the case may
be, for as long as Treasury owns any Preferred Shares. The Company shall redeem all Preferred Shares held by Treasury
prior to terminating its status as a Bank Holding Company or Savings and Loan Holding Company, as applicable.
(f)
Predominantly Financial
. For
as long as Treasury owns any Preferred Shares, the Company, to the extent it is not itself an insured depository institution, agrees
to remain predominantly engaged in financial activities. A company is predominantly engaged in financial activities
if the annual gross revenues derived by the company and all subsidiaries of
|
Annex C (General Terms and Conditions)
|
Page
18
|
the company (excluding revenues
derived from subsidiary depository institutions), on a consolidated basis, from engaging in activities that are financial in nature
or are incidental to a financial activity under subsection (k) of Section 4 of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(k)) represent at least 85 percent of the consolidated annual gross revenues of the company.
(g)
Capital Covenant
. From
the Signing Date until the date on which all of the Preferred Shares have been redeemed in whole, the Company and the Company Subsidiaries
shall maintain such capital as may be necessary to meet the minimum capital requirements of the Appropriate Federal Banking Agency,
as in effect from time to time.
(h)
Reporting Requirements
. Prior
to the date on which all of the Preferred Shares have been redeemed in whole, the Company covenants and agrees that, at all times
on or after the Closing Date, (i) to the extent it is subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, it shall comply with the terms and conditions set forth in
Annex E
or (ii) as soon as practicable after the date that
the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, it shall comply with the
terms and conditions set forth in
Annex E
.
(i)
Transfer of Proceeds
to Depository Institutions
. If the Company is a Bank Holding Company or a Savings and Loan Holding Company, the
Company shall immediately transfer to the IDI Subsidiaries, as equity capital contributions (in a manner that will cause such equity
capital contributions to qualify for inclusion in the Tier 1 capital of the IDI Subsidiaries), not less than ninety percent (90%)
of the proceeds it receives in connection with the sale of Preferred Shares;
provided, however
, that:
(A) no IDI Subsidiary
shall receive any amount pursuant to this Section 3.1(i) in excess of (A) three percent (3%) of the insured depository institution’s
Total Risk-Weighted Assets as reported in its Call Report filed immediately prior to the Application Date, if the insured depository
institution has Total Assets of more than $1,000,000,000 and less than $10,000,000,000 as of December 31, 2009or (B) five percent
(5%) of the IDI Subsidiary’s Total Risk-Weighted Assets as reported in its Call Report filed immediately prior to the Application
Date, if the IDI Subsidiary has Total Assets of $1,000,000,000 or less as of December 31, 2009; and
(B) if Treasury
held Previously Acquired Preferred Shares immediately prior to the Closing Date, the amount required to be transferred pursuant
this Section 3.1(i) shall be the difference obtained by subtracting the Repayment Amount from the Purchase Price (unless the Purchase
Price is less than the Repayment Amount, in which case no amount shall be required to be transferred pursuant to this Section 3.1(i)).
(j)
Outreach to Minorities,
Women and Veterans
. The Company shall comply with Section 4103(d)(8) of the SBJA.
(k)
Certification Related
to Sex Offender Registration and Notification Act
. The Company shall obtain from any business to which it makes
a loan that is funded in whole or
|
Annex C (General Terms and Conditions)
|
Page
19
|
in part using funds from
the Purchase Price a written certification that no principal of such business has been convicted of a sex offense against a minor
(as such terms are defined in section 111 of the Sex Offender Registration and Notification Act, 42 U.S.C. §16911). The
Company shall retain all such certifications in accordance with standard recordkeeping practices established by the Appropriate
Federal Banking Agency.
3.2
Negative Covenants
. The
Company hereby covenants and agrees with Treasury that:
(a)
Certain Transactions
.
(i) The Company shall
not merge or consolidate with, or sell, transfer or lease all or substantially all of its property or assets to, any other party
unless the successor, transferee or lessee party (or its ultimate parent entity), as the case may be (if not the Company), expressly
assumes the due and punctual performance and observance of each and every covenant, agreement and condition of this Agreement to
be performed and observed by the Company.
(ii) Without the prior
written consent of Treasury, until such time as Treasury shall cease to own any Preferred Shares, the Company shall not permit
any of its “significant subsidiaries” (as such term is defined in Rule 12b-2 promulgated under the Exchange Act) to
(A) engage in any merger, consolidation, statutory share exchange or similar transaction following the consummation of which such
significant subsidiary is not wholly-owned by the Company, (B) dissolve or sell all or substantially all of its assets or property
other than in connection with an internal reorganization or consolidation involving wholly-owned subsidiaries of the Company or
(C) issue or sell any shares of its capital stock or any securities convertible or exercisable for any such shares, other than
issuances or sales in connection with an internal reorganization or consolidation involving wholly-owned subsidiaries of the Company.
(b)
Restriction on
Dividends and Repurchases
. The Company covenants and agrees that it shall not violate any of the restrictions on
dividends, distributions, redemptions, repurchases, acquisitions and related actions set forth in the Certificate of Designation,
which are incorporated by reference herein as if set forth in full.
(c)
Related Party Transactions
. Until
such time as Treasury ceases to own any debt or equity securities of the Company, including the Preferred Shares, the Company and
the Company Subsidiaries shall not enter into transactions with Affiliates or related persons (within the meaning of Item 404 under
the SEC’s Regulation S-K) unless (A) such transactions are on terms no less favorable to the Company and the Company Subsidiaries
than could be obtained from an unaffiliated third party, and (B) have been approved by the audit committee of the Board of Directors
or comparable body of independent directors of the Company, or if there are no independent directors, the Board of Directors,
provided
that the Board of Directors shall maintain written documentation which supports its determination that the transaction
meets the requirements of clause (A) of this Section 3.2(c).
ARTICLE IV
ADDITIONAL AGREEMENTS
|
Annex C (General Terms and Conditions)
|
Page
20
|
4.1
Purchase for
Investment
. Treasury acknowledges that the Preferred Shares have not been registered under the Securities Act or
under any state securities laws. Treasury (a) is acquiring the Preferred Shares pursuant to an exemption from registration under
the Securities Act solely for investment with no present intention to distribute them to any person in violation of the Securities
Act or any applicable U.S. state securities laws, (b) will not sell or otherwise dispose of any of the Preferred Shares, except
in compliance with the registration requirements or exemption provisions of the Securities Act and any applicable U.S. state securities
laws, and (c) has such knowledge and experience in financial and business matters and in investments of this type that it is capable
of evaluating the merits and risks of the Purchase and of making an informed investment decision.
4.2
Legends
. (a)
Treasury agrees that all certificates or other instruments representing the Preferred Shares will bear a legend substantially to
the following effect:
“THE SECURITIES REPRESENTED
BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE SECURITIES REPRESENTED BY THIS
INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO
IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS. EACH PURCHASER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER (THE “144A EXEMPTION”). IF ANY TRANSFEREE
OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS ADVISED BY THE TRANSFEROR THAT SUCH TRANSFEROR IS RELYING ON THE 144A EXEMPTION,
SUCH TRANSFEREE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED BY
THIS INSTRUMENT EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG
AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES
IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE
|
Annex C (General Terms and Conditions)
|
Page
21
|
ON RULE 144A, (C) TO THE ISSUER OR
(D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND.
THIS INSTRUMENT IS ISSUED SUBJECT
TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE SECURITIES
AND TREASURY, A COPY OF WHICH IS ON FILE WITH THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH
SAID AGREEMENT WILL BE VOID.”
(b) In the event that
any Preferred Shares (i) become registered under the Securities Act or (ii) are eligible to be transferred without restriction
in accordance with Rule 144 or another exemption from registration under the Securities Act (other than Rule 144A), the Company
shall issue new certificates or other instruments representing such Preferred Shares, which shall not contain the applicable legends
in Section 4.2(a) above;
provided
that Treasury surrenders
to the Company the previously issued certificates or other instruments.
4.3
Transfer of Preferred
Shares
. Subject to compliance with applicable securities laws, Treasury shall be permitted to transfer, sell, assign
or otherwise dispose of (“
Transfer
”) all or
a portion of the Preferred Shares at any time, and the Company shall take all steps as may be reasonably requested by Treasury
to facilitate the Transfer of the Preferred Shares, including without limitation, as set forth in Section 4.4,
provided
that Treasury shall not Transfer any Preferred Shares if such transfer would require the Company to be subject to the
periodic reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “
Exchange
Act
”) and the Company was not already subject to such requirements. In furtherance of the foregoing,
the Company shall provide reasonable cooperation to facilitate any Transfers of the Preferred Shares, including, as is reasonable
under the circumstances, by furnishing such information concerning the Company and its business as a proposed transferee may reasonably
request and making management of the Company reasonably available to respond to questions of a proposed transferee in accordance
with customary practice, subject in all cases to the proposed transferee agreeing to a customary confidentiality agreement.
4.4
Rule 144; Rule
144A; 4(1½) Transactions
. (a) At all times after the Signing Date, the Company covenants that (1) it will, upon the
request of Treasury or any subsequent holders of the Preferred Shares (“
Holders
”), use its reasonable best efforts
to (x), to the extent any Holder is relying on Rule 144 under the Securities Act to sell any of the Preferred Shares, make
“current public information” available, as provided in Section (c)(1) of Rule 144 (if the Company is a “Reporting
Issuer” within the meaning of Rule 144) or in Section (c)(2) of Rule 144 (if the Company is a “Non-Reporting Issuer”
within the meaning of Rule 144), in either case for such time period as necessary to permit sales pursuant to Rule 144, (y), to
the extent any Holder is relying on the so-called “Section 4(1½)” exemption to sell any of its Preferred
|
Annex C (General Terms and Conditions)
|
Page
22
|
Shares, prepare and provide
to such Holder such information, including the preparation of private offering memoranda or circulars or financial information,
as the Holder may reasonably request to enable the sale of the Preferred Shares pursuant to such exemption, or (z) to the extent
any Holder is relying on Rule 144A under the Securities Act to sell any of its Preferred Shares, prepare and provide to such Holder
the information required pursuant to Rule 144A(d)(4), and (2) it will take such further action as any Holder may reasonably request
from time to time to enable such Holder to sell Preferred Shares without registration under the Securities Act within the limitations
of the exemptions provided by (i) the provisions of the Securities Act or any interpretations thereof or related thereto by the
SEC, including transactions based on the so-called “Section 4(1½)” and other similar transactions, (ii) Rule
144 or 144A under the Securities Act, as such rules may be amended from time to time, or (iii) any similar rule or regulation hereafter
adopted by the SEC;
provided
that the Company shall not be required to take any action described in this Section 4.4(a)
that would cause the Company to become subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act if the
Company was not subject to such requirements prior to taking such action. Upon the request of any Holder, the Company
will deliver to such Holder a written statement as to whether it has complied with such requirements and, if not, the specifics
thereof.
(b) The Company agrees
to indemnify Treasury, Treasury’s officials, officers, employees, agents, representatives and Affiliates, and each person,
if any, that controls Treasury within the meaning of the Securities Act (each, an “
Indemnitee
”),
against any and all losses, claims, damages, actions, liabilities, costs and expenses (including reasonable fees, expenses and
disbursements of attorneys and other professionals incurred in connection with investigating, defending, settling, compromising
or paying any such losses, claims, damages, actions, liabilities, costs and expenses), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of material fact contained in any document or report provided by the Company
pursuant to this Section 4.4 or any omission to state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were made, not misleading.
(c) If the indemnification
provided for in Section 4.4(b) is unavailable to an Indemnitee with respect to any losses, claims, damages, actions, liabilities,
costs or expenses referred to therein or is insufficient to hold the Indemnitee harmless as contemplated therein, then the Company,
in lieu of indemnifying such Indemnitee, shall contribute to the amount paid or payable by such Indemnitee as a result of such
losses, claims, damages, actions, liabilities, costs or expenses in such proportion as is appropriate to reflect the relative fault
of the Indemnitee, on the one hand, and the Company, on the other hand, in connection with the statements or omissions which resulted
in such losses, claims, damages, actions, liabilities, costs or expenses as well as any other relevant equitable considerations. The
relative fault of the Company, on the one hand, and of the Indemnitee, on the other hand, shall be determined by reference to,
among other factors, whether the untrue statement of a material fact or omission to state a material fact relates to information
supplied by the Company or by the Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; the Company and Treasury agree that it would not be just and equitable if contribution
pursuant to this Section 4.4(c) were determined by
pro rata
allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section
4.4(b). No Indemnitee guilty of fraudulent misrepresentation (within the
|
Annex C (General Terms and Conditions)
|
Page
23
|
meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from the Company if the Company was not guilty of such fraudulent misrepresentation.
4.5
Depositary Shares
. Upon
request by Treasury at any time following the Closing Date, the Company shall promptly enter into a depositary arrangement, pursuant
to customary agreements reasonably satisfactory to Treasury and with a depositary reasonably acceptable to Treasury, pursuant to
which the Preferred Shares may be deposited and depositary shares, each representing a fraction of a Preferred Share, as specified
by Treasury, may be issued. From and after the execution of any such depositary arrangement, and the deposit of any Preferred Shares,
as applicable, pursuant thereto, the depositary shares issued pursuant thereto shall be deemed “Preferred Shares” and,
as applicable, “Registrable Securities” for purposes of this Agreement.
4.6
Expenses and
Further Assurances
. (a) Unless otherwise provided in this Agreement, each of the parties hereto will bear and pay
all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated under this Agreement, including
fees and expenses of its own financial or other consultants, investment bankers, accountants and counsel.
(b) The Company shall,
at the Company’s sole cost and expense, (i) furnish to Treasury all instruments, documents and other agreements required
to be furnished by the Company pursuant to the terms of this Agreement, including, without limitation, any documents required to
be delivered pursuant to Section 4.4 above, or which are reasonably requested by Treasury in connection therewith; (ii) execute
and deliver to Treasury such documents, instruments, certificates, assignments and other writings, and do such other acts necessary
or desirable, to evidence, preserve and/or protect the Preferred Shares purchased by Treasury, as Treasury may reasonably require;
and (iii) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective
carrying out of the intents and purposes of this Agreement, as Treasury shall reasonably require from time to time.
ARTICLE V
MISCELLANEOUS
5.1
Termination
. This
Agreement shall terminate upon the earliest to occur of:
(a) termination at any
time prior to the Closing:
(i) by either Treasury
or the Company if the Closing shall not have occurred on or before the 30th
calendar day following the date on which
Treasury issued its preliminary approval of the Company’s application to participate in SBLF (the “
Closing Deadline
”);
provided
,
however
,
that in the event the Closing has not occurred by the Closing Deadline, the parties will consult in good faith to determine whether
to extend the term of this Agreement, it being understood that the parties shall be required to consult only until the fifth calendar
day after the Closing Deadline and not be under any obligation to extend the term of this Agreement thereafter;
provided
,
further
, that the right to terminate this Agreement under
this Section 5.1(a)(i) shall not be available to any party whose breach of any representation or
|
Annex C (General Terms and Conditions)
|
Page
24
|
warranty or failure to perform
any obligation under this Agreement shall have caused or resulted in the failure of the Closing to occur on or prior to such date;
or
(ii) by either Treasury
or the Company in the event that any Governmental Entity shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling
or other action shall have become final and nonappealable; or
(iii) by the mutual
written consent of Treasury and the Company; or
(b) the date on which
all of the Preferred Shares have been redeemed in whole; or
(c) the date on which
Treasury has transferred all of the Preferred Shares to third parties which are not Affiliates of Treasury.
In the event of termination
of this Agreement as provided in this Section 5.1, this Agreement shall forthwith become void and there shall be no liability on
the part of either party hereto except that nothing herein shall relieve either party from liability for any breach of this Agreement.
5.2
Survival
.
(a) This Agreement and
all representations, warranties, covenants and agreements made herein shall survive the Closing without limitation.
(b) The covenants set
forth in Article III and
Annex E
and the agreements set forth in Article IV shall, to the extent such covenants do not explicitly
terminate at such time as Treasury no longer owns any Preferred Shares, survive the termination of this Agreement pursuant to Section
5.1(c) without limitation until the date on which all of the Preferred Shares have been redeemed in whole.
(c) The rights and remedies
of Treasury with respect to the representations, warranties, covenants and obligations of the Company herein shall not be affected
by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time by Treasury
or any of its personnel or agents with respect to the accuracy or inaccuracy of, or compliance with, any such representation, warranty,
covenant or obligation.
5.3
Amendment
. No
amendment of any provision of this Agreement will be effective unless made in writing and signed by an officer or a duly authorized
representative of each party, except as set forth in Section 3.1(d)(v). No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise of any other right, power or privilege. The rights and remedies herein provided shall
be cumulative of any rights or remedies provided by law.
5.4
Waiver of Conditions
. The
conditions to each party’s obligation to consummate the Purchase are for the sole benefit of such party and may be waived
by such party in whole or
|
Annex C (General Terms and Conditions)
|
Page
25
|
in part to the extent permitted
by applicable law. No waiver will be effective unless it is in a writing signed by a duly authorized officer of the waiving party
that makes express reference to the provision or provisions subject to such waiver.
5.5
Governing Law;
Submission to Jurisdiction, etc.
This Agreement and any claim, controversy or dispute arising under or related to
this Agreement, the relationship of the parties, and/or the interpretation and enforcement of the rights and duties of the parties
shall be enforced, governed, and construed in all respects (whether in contract or in tort) in accordance with the federal law
of the United States if and to the extent such law is applicable, and otherwise in accordance with the laws of the State of New
York applicable to contracts made and to be performed entirely within such State. Each of the parties hereto agrees (a) to submit
to the exclusive jurisdiction and venue of the United States District Court for the District of Columbia and the United States
Court of Federal Claims for any and all civil actions, suits or proceedings arising out of or relating to this Agreement or the
Purchase contemplated hereby and (b) that notice may be served upon (i) the Company at the address and in the manner set forth
for notices to the Company in Section 5.7 and (ii) Treasury at the address and in the manner set forth for notices to the Company
in Section 5.7, but otherwise in accordance with federal law.
To the extent permitted by
applicable law, each of the parties hereto hereby unconditionally waives trial by jury in any civil legal action or proceeding
relating to this Agreement or the Purchase contemplated hereby.
5.6
No Relationship
to TARP
. The parties acknowledge and agree that (i) the SBLF program is separate and distinct from the Troubled
Asset Relief Program established by the Emergency Economic Stabilization Act of 2008; and (ii) the Company shall not, by virtue
of the investment contemplated hereby, be considered a recipient under the Troubled Asset Relief Program.
5.7
Notices
. Any
notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed
to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or
(b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All
notices to the Company shall be delivered as set forth on the cover page of this Agreement, or pursuant to such other instruction
as may be designated in writing by the Company to Treasury. All notices to Treasury shall be delivered as set forth
below, or pursuant to such other instructions as may be designated in writing by Treasury to the Company.
If to Treasury:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Attention: Small Business Lending Fund,
Office of Domestic Finance
E-mail: SBLFComplSubmissions@treasury.gov
|
Annex C (General Terms and Conditions)
|
Page
26
|
5.8
Assignment
. Neither
this Agreement nor any right, remedy, obligation nor liability arising hereunder or by reason hereof shall be assignable by any
party hereto without the prior written consent of the other party, and any attempt to assign any right, remedy, obligation or liability
hereunder without such consent shall be void, except (a) an assignment, in the case of a merger, consolidation, statutory share
exchange or similar transaction that requires the approval of the Company’s stockholders (a “
Business
Combination
”) where such party is not the surviving entity, or a sale of substantially all of its assets, to the
entity which is the survivor of such Business Combination or the purchaser in such sale, (b) an assignment of certain rights as
provided in Sections 3.1(c) or 3.1(h) or
Annex E
or (c) an assignment by Treasury of this Agreement to an Affiliate of Treasury;
provided
that if Treasury assigns this Agreement to an Affiliate,
Treasury shall be relieved of its obligations under this Agreement but (i) all rights, remedies and obligations of Treasury hereunder
shall continue and be enforceable by such Affiliate, (ii) the Company’s obligations and liabilities hereunder shall continue
to be outstanding and (iii) all references to Treasury herein shall be deemed to be references to such Affiliate.
5.9
Severability
. If
any provision of this Agreement, or the application thereof to any person or circumstance, is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons
or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and
shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such determination, the parties shall negotiate in good
faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
5.10
No Third Party
Beneficiaries
. Other than as expressly provided herein, nothing contained in this Agreement, expressed or implied,
is intended to confer upon any person or entity other than the Company and Treasury (and any Indemnitee) any benefit, right or
remedies.
5.
11
Specific
Performance
. The parties agree that irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms. It is accordingly agreed that the parties shall
be entitled (without the necessity of posting a bond) to specific performance of the terms hereof, this being in addition to any
other remedies to which they are entitled at law or equity.
5.12
Interpretation
. When
a reference is made in this Agreement to “Articles” or “Sections” such reference shall be to an Article
or Section of the Annex of this Agreement in which such reference is contained, unless otherwise indicated. When a reference
is made in this Agreement to an “Annex”, such reference shall be to an Annex to this Agreement, unless otherwise indicated. The
terms defined in the singular have a comparable meaning when used in the plural, and vice versa. References to “herein”,
“hereof”, “hereunder” and the like refer to this Agreement as a whole and not to any particular section
or provision, unless the context requires otherwise. The table of contents and headings contained in this Agreement are for reference
purposes only and are not part of this Agreement. Whenever the words “include”, “includes” or “including”
are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. No rule
of construction against the draftsperson shall be applied in
|
Annex C (General Terms and Conditions)
|
Page
27
|
connection with the interpretation
or enforcement of this Agreement, as this Agreement is entered into between sophisticated parties advised by counsel. All
references to “
$
” or “
dollars
”
mean the lawful currency of the United States of America. Except as expressly stated in this Agreement, all references
to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time
to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any
statute, rule or regulation include any successor to the section. References to a “
business
day
” shall mean any day except Saturday, Sunday and any day on which banking institutions in the State of New
York or the District of Columbia generally are authorized or required by law or other governmental actions to close.
|
Annex C (General Terms and Conditions)
|
Page
28
|
|
ANNEX D
|
|
DISCLOSURE SCHEDULE
|
Part 2.2
Capitalization
|
Capital stock reserved for issuance in connection with securities or obligations giving the holder thereof the right to acquire such capital:
|
None
|
|
|
|
|
Shares issued since the Capitalization Date upon exercise of options or pursuant to equity-based awards, warrants, or convertible securities:
|
None
|
|
|
|
|
All other shares issued since the Capitalization Date:
|
1,000 shares issued to Provident Bancorp
|
|
|
|
|
Holders of 5% or more of any class of capital stock
|
Primary Address
|
|
|
|
|
Provident Bancorp
|
5 Market Street
Amesbury, MA 01913
|
|
|
|
If the Company is a Bank Holding Company or Savings and Loan Holding Company, complete the following (leave blank otherwise):
|
|
|
|
|
Name of IDI Subsidiary
|
Percentage of IDI Subsidiary’s capital stock owned by the Company
|
|
|
|
|
The Provident Bank
|
100%
|
|
Annex D (Disclosure Schedule)
|
Page
1
|
Part 2.13
Compliance With Laws
List any exceptions to the representation
and warranty in the second sentence of Section 2.13 of the General Terms and Conditions. If none, please so indicate
by checking the box:
x
.
List any exceptions to the representation
and warranty in the last sentence of Section 2.13 of the General Terms and Conditions. If none, please so indicate by
checking the box:
x
.
|
Annex D (Disclosure Schedule)
|
Page
2
|
Part 2.19
Regulatory Agreements
List any exceptions to the representation
and warranty in Section 2.19 of the General Terms and Conditions. If none, please so indicate by checking the box:
x
.
|
Annex D (Disclosure Schedule)
|
Page
3
|
Part 2.25
Related Party Transactions
List any exceptions to the representation
and warranty in Section 2.25 of the General Terms and Conditions. If none, please so indicate by checking the box:
x
.
|
Annex D (Disclosure Schedule)
|
Page
4
|
|
ANNEX E
|
|
REGISTRATION RIGHTS
|
1.
Definitions
. Terms
not defined in this Annex shall have the meaning ascribed to such terms in the Agreement. As used in this
Annex E
, the following
terms shall have the following respective meanings:
(a) “
Holder
”
means Treasury and any other holder of Registrable Securities to whom the registration rights conferred by this Agreement have
been transferred in compliance with Section 9 of this
Annex E
.
(b) “
Holders’
Counsel
” means one counsel for the selling Holders chosen by Holders holding a majority interest in the Registrable
Securities being registered.
(c) “
Pending
Underwritten Offering
” means, with respect to any Holder forfeiting its rights pursuant to Section 11 of this
Annex E
, any underwritten offering of Registrable Securities in which such Holder has advised the Company of its intent
to register its Registrable Securities either pursuant to Section 2(b) or 2(d) of this
Annex E
prior to the date of such
Holder’s forfeiture.
(d) “
Register
”,
“
registered
”, and “
registration
”
shall refer to a registration effected by preparing and (A) filing a registration statement or amendment thereto in compliance
with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of effectiveness of such
registration statement or amendment thereto or (B) filing a prospectus and/or prospectus supplement in respect of an appropriate
effective registration statement on Form S-3.
(e) “
Registrable
Securities
”
means (A) all Preferred Shares and (B) any equity securities issued or issuable directly or
indirectly with respect to the securities referred to in the foregoing clause (A) by way of conversion, exercise or exchange thereof,
or share dividend or share split or in connection with a combination of shares, recapitalization, reclassification, merger, amalgamation,
arrangement, consolidation or other reorganization,
provided
that, once issued, such securities will not be Registrable Securities when (1) they are sold pursuant to an effective
registration statement under the Securities Act, (2) they shall have ceased to be outstanding or (3) they have been sold in any
transaction in which the transferor’s rights under this Agreement are not assigned to the transferee of the securities. No
Registrable Securities may be registered under more than one registration statement at any one time.
(f) “
Registration
Expenses
” mean all expenses incurred by the Company in effecting any registration pursuant to this Agreement (whether
or not any registration or prospectus becomes effective or final) or otherwise complying with its obligations under this
Annex
E
, including all registration, filing and listing fees, printing expenses, fees and disbursements of counsel for the Company,
blue sky fees and expenses, expenses incurred in connection with any “road show”, the reasonable fees and disbursements
of
Holders’ Counsel,
and expenses of the Company’s independent accountants in connection with any
regular or
|
Annex E (Registration Rights)
|
Page
1
|
special reviews or audits
incident to or required by any such registration, but shall not include Selling Expenses.
(g) “
Rule
144
”, “
Rule 144A
”, “
Rule
159A
”, “
Rule 405
” and “
Rule
415
” mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same
shall be amended from time to time.
(h) “
Selling
Expenses
” mean all discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of Holders’ Counsel
included in Registration Expenses).
(i) “
Special
Registration
” means the registration of (A) equity securities and/or options or other rights in respect thereof
solely registered on Form S-4 or Form S-8 (or successor form) or (B) shares of equity securities and/or options or other rights
in respect thereof to be offered to directors, members of management, employees, consultants, customers, lenders or vendors of
the Company or Company Subsidiaries or in connection with dividend reinvestment plans.
2.
Registration
.
(a) The Company covenants
and agrees that as promptly as practicable after the date that the Company becomes subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act (and in any event no later than 30 days thereafter), the Company shall prepare and file with the
SEC a Shelf Registration Statement covering all Registrable Securities (or otherwise designate an existing shelf registration on
an appropriate form under Rule 415 under the Securities Act (a “
Shelf
Registration Statement
”) filed with the SEC to cover the Registrable Securities), and, to the extent the Shelf
Registration Statement has not theretofore been declared effective or is not automatically effective upon such filing, the Company
shall use reasonable best efforts to cause such Shelf Registration Statement to be declared or become effective and to keep such
Shelf Registration Statement continuously effective and in compliance with the Securities Act and usable for resale of such Registrable
Securities for a period from the date of its initial effectiveness until such time as there are no Registrable Securities remaining
(including by refiling such Shelf Registration Statement (or a new Shelf Registration Statement) if the initial Shelf Registration
Statement expires). Notwithstanding the foregoing, if the Company is not eligible to file a registration statement on
Form S-3, then the Company shall not be obligated to file a Shelf Registration Statement unless and until requested to do so in
writing by Treasury.
(b) Any registration
pursuant to Section 2(a) of this
Annex E
shall be effected by means of a Shelf Registration Statement on an appropriate
form under Rule 415 under the Securities Act (a “
Shelf Registration
Statement
”). If any Holder intends to distribute any Registrable Securities by means of an underwritten
offering it shall promptly so advise the Company and the Company shall take all reasonable steps to facilitate such distribution,
including the actions required pursuant to Section 2(d) of this
Annex E
;
provided
that the Company shall not be required to facilitate an underwritten offering of Registrable Securities unless (i) the
expected gross proceeds from such offering exceed $200,000 or (ii) such underwritten offering includes all of the outstanding Registrable
Securities held by such Holder.
|
Annex E (Registration Rights)
|
Page
2
|
The lead underwriters in
any such distribution shall be selected by the Holders of a majority of the Registrable Securities to be distributed.
(c) The Company shall
not be required to effect a registration (including a resale of Registrable Securities from an effective Shelf Registration Statement)
or an underwritten offering pursuant to Section 2 of this
Annex E
: (A) with respect to securities that are not Registrable
Securities; or (B) if the Company has notified all Holders that in the good faith judgment of the Board of Directors, it would
be materially detrimental to the Company or its security holders for such registration or underwritten offering to be effected
at such time, in which event the Company shall have the right to defer such registration for a period of not more than 45 days
after receipt of the request of any Holder;
provided
that
such right to delay a registration or underwritten offering shall be exercised by the Company (1) only if the Company has generally
exercised (or is concurrently exercising) similar black-out rights against holders of similar securities that have registration
rights and (2) not more than three times in any 12-month period and not more than 90 days in the aggregate in any 12-month period.
(d) If during any period
when an effective Shelf Registration Statement is not available, the Company proposes to register any of its equity securities,
other than a registration pursuant to Section 2(a) of this
Annex E
or a Special Registration, and the registration form
to be filed may be used for the registration or qualification for distribution of Registrable Securities, the Company will give
prompt written notice to all Holders of its intention to effect such a registration (but in no event less than ten days prior to
the anticipated filing date) and will include in such registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within ten business days after the date of the Company’s notice (a “
Piggyback
Registration
”). Any such person that has made such a written request may withdraw its Registrable Securities
from such Piggyback Registration by giving written notice to the Company and the managing underwriter, if any, on or before the
fifth business day prior to the planned effective date of such Piggyback Registration. The Company may terminate or
withdraw any registration under this Section 2(d) of this
Annex E
prior to the effectiveness of such registration, whether
or not any Holders have elected to include Registrable Securities in such registration.
(e) If the registration
referred to in Section 2(d) of this
Annex E
is proposed to be underwritten, the Company will so advise all Holders as a
part of the written notice given pursuant to Section 2(d) of this
Annex E
. In such event, the right of all Holders
to registration pursuant to Section 2 of this
Annex E
will be conditioned upon such persons’ participation in such
underwriting and the inclusion of such person’s Registrable Securities in the underwriting if such securities are of the
same class of securities as the securities to be offered in the underwritten offering, and each such person will (together with
the Company and the other persons distributing their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such underwriting by the Company;
provided
that Treasury (as opposed to other Holders) shall not be required to indemnify any person in connection with any registration.
If any participating person disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the managing underwriters and Treasury (if Treasury is participating in the underwriting).
|
Annex E (Registration Rights)
|
Page
3
|
(f) If either (x) the
Company grants “piggyback” registration rights to one or more third parties to include their securities in an underwritten
offering under the Shelf Registration Statement pursuant to Section 2(b) of this
Annex E
or (y) a Piggyback Registration
under Section 2(d) of this
Annex E
relates to an underwritten offering on behalf of the Company, and in either case the
managing underwriters advise the Company that in their reasonable opinion the number of securities requested to be included in
such offering exceeds the number which can be sold without adversely affecting the marketability of such offering (including an
adverse effect on the per share offering price), the Company will include in such offering only such number of securities that
in the reasonable opinion of such managing underwriters can be sold without adversely affecting the marketability of the offering
(including an adverse effect on the per share offering price), which securities will be so included in the following order of priority:
(A) first, in the case of a Piggyback Registration under Section 2(d) of this
Annex E
, the securities the Company proposes
to sell, (B) then the Registrable Securities of all Holders who have requested inclusion of Registrable Securities pursuant to
Section 2(b) or Section 2(d) of this
Annex E
, as applicable,
pro
rata
on the basis of the aggregate number of such securities or shares owned by each such Holder and (C) lastly, any
other securities of the Company that have been requested to be so included, subject to the terms of this Agreement;
provided
,
however
, that if the Company has, prior to the Signing Date,
entered into an agreement with respect to its securities that is inconsistent with the order of priority contemplated hereby then
it shall apply the order of priority in such conflicting agreement to the extent that it would otherwise result in a breach under
such agreement.
3.
Expenses of Registration
. All
Registration Expenses incurred in connection with any registration, qualification or compliance hereunder shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations hereunder shall be borne by the holders
of the securities so registered
pro rata
on the basis of
the aggregate offering or sale price of the securities so registered.
4.
Obligations of
the Company
. Whenever required to effect the registration of any Registrable Securities or facilitate the distribution
of Registrable Securities pursuant to an effective Shelf Registration Statement, the Company shall, as expeditiously as reasonably
practicable:
(a) Prepare and file
with the SEC a prospectus supplement or post-effective amendment with respect to a proposed offering of Registrable Securities
pursuant to an effective registration statement, subject to Section 4 of this
Annex E
, keep such registration statement
effective and keep such prospectus supplement current until the securities described therein are no longer Registrable Securities.
(b) Prepare and file
with the SEC such amendments and supplements to the applicable registration statement and the prospectus or prospectus supplement
used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration statement.
(c) Furnish to the Holders
and any underwriters such number of copies of the applicable registration statement and each such amendment and supplement thereto
(including in
|
Annex E (Registration Rights)
|
Page
4
|
each case all exhibits) and
of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned or to be distributed
by them.
(d) Use its reasonable
best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the Holders or any managing underwriter(s), to keep such registration
or qualification in effect for so long as such registration statement remains in effect, and to take any other action which may
be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such
Holder;
provided
that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process
in any such states or jurisdictions.
(e) Notify each Holder
of Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act of
the happening of any event as a result of which the applicable prospectus, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing.
(f) Give written notice
to the Holders:
(i) when any registration
statement or any amendment thereto has been filed with the SEC (except for any amendment effected by the filing of a document with
the SEC pursuant to the Exchange Act) and when such registration statement or any post-effective amendment thereto has become effective;
(ii) of any request
by the SEC for amendments or supplements to any registration statement or the prospectus included therein or for additional information;
(iii) of the issuance
by the SEC of any stop order suspending the effectiveness of any registration statement or the initiation of any proceedings for
that purpose;
(iv) of the receipt
by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the applicable Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;
(v) of the happening
of any event that requires the Company to make changes in any effective registration statement or the prospectus related to the
registration statement in order to make the statements therein not misleading (which notice shall be accompanied by an instruction
to suspend the use of the prospectus until the requisite changes have been made); and
(vi) if at any time
the representations and warranties of the Company contained in any underwriting agreement contemplated by Section 4(j) of this
Annex E
cease to be true and correct.
|
Annex E (Registration Rights)
|
Page
5
|
(g) Use its reasonable
best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of any registration statement
referred to in Section 4(f)(iii) of this
Annex E
at the earliest practicable time.
(h) Upon the occurrence
of any event contemplated by Section 4(e) or 4(f)(v) of this
Annex E
, promptly prepare a post-effective amendment to such
registration statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered
to the Holders and any underwriters, the prospectus will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If
the Company notifies the Holders in accordance with Section 4(f)(v) to suspend the use of the prospectus until the requisite changes
to the prospectus have been made, then the Holders and any underwriters shall suspend use of such prospectus and use their reasonable
best efforts to return to the Company all copies of such prospectus (at the Company’s expense) other than permanent file
copies then in such Holders’ or underwriters’ possession. The total number of days that any such suspension
may be in effect in any 12-month period shall not exceed 90 days.
(i) Use reasonable best
efforts to procure the cooperation of the Company’s transfer agent in settling any offering or sale of Registrable Securities,
including with respect to the transfer of physical stock certificates into book-entry form in accordance with any procedures reasonably
requested by the Holders or any managing underwriter(s).
(j) If an underwritten
offering is requested pursuant to Section 2(b) of this
Annex E
, enter into an underwriting agreement in customary form,
scope and substance and take all such other actions reasonably requested by the Holders of a majority of the Registrable Securities
being sold in connection therewith or by the managing underwriter(s), if any, to expedite or facilitate the underwritten disposition
of such Registrable Securities, and in connection therewith in any underwritten offering (including making members of management
and executives of the Company available to participate in “road shows”, similar sales events and other marketing activities),
(A) make such representations and warranties to the Holders that are selling stockholders and the managing underwriter(s), if any,
with respect to the business of the Company and its subsidiaries, and the Shelf Registration Statement, prospectus and documents,
if any, incorporated or deemed to be incorporated by reference therein, in each case, in customary form, substance and scope, and,
if true, confirm the same if and when requested, (B) use its reasonable best efforts to furnish the underwriters with opinions
of counsel to the Company, addressed to the managing underwriter(s), if any, covering the matters customarily covered in such opinions
requested in underwritten offerings, (C) use its reasonable best efforts to obtain “cold comfort” letters from the
independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants
of any business acquired by the Company for which financial statements and financial data are included in the Shelf Registration
Statement) who have certified the financial statements included in such Shelf Registration Statement, addressed to each of the
managing underwriter(s), if any, such letters to be in customary form and covering matters of the type customarily covered in “cold
comfort” letters, (D) if an underwriting agreement is entered into, the same shall contain indemnification provisions and
procedures customary in underwritten offerings (
provided
that
Treasury shall not be obligated to provide any indemnity), and (E) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being sold in
|
Annex E (Registration Rights)
|
Page
6
|
connection therewith, their
counsel and the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made
pursuant to clause (A) above and to evidence compliance with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company.
(k) Make available for
inspection by a representative of Holders that are selling stockholders, the managing underwriter(s), if any, and any attorneys
or accountants retained by such Holders or managing underwriter(s), at the offices where normally kept, during reasonable business
hours, financial and other records, pertinent corporate documents and properties of the Company, and cause the officers, directors
and employees of the Company to supply all information in each case reasonably requested (and of the type customarily provided
in connection with due diligence conducted in connection with a registered public offering of securities) by any such representative,
managing underwriter(s), attorney or accountant in connection with such Shelf Registration Statement.
(l) Use reasonable best
efforts to cause all such Registrable Securities to be listed on each national securities exchange on which similar securities
issued by the Company are then listed or, if no similar securities issued by the Company are then listed on any national securities
exchange, use its reasonable best efforts to cause all such Registrable Securities to be listed on such securities exchange as
Treasury may designate.
(m) If requested by Holders
of a majority of the Registrable Securities being registered and/or sold in connection therewith, or the managing underwriter(s),
if any, promptly include in a prospectus supplement or amendment such information as the Holders of a majority of the Registrable
Securities being registered and/or sold in connection therewith or managing underwriter(s), if any, may reasonably request in order
to permit the intended method of distribution of such securities and make all required filings of such prospectus supplement or
such amendment as soon as practicable after the Company has received such request.
(n) Timely provide to
its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
|
Annex E (Registration Rights)
|
Page
7
|
5.
Suspension of
Sales
. Upon receipt of written notice from the Company that a registration statement, prospectus or prospectus supplement
contains or may contain an untrue statement of a material fact or omits or may omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that circumstances exist that make inadvisable use of such
registration statement, prospectus or prospectus supplement, each Holder of Registrable Securities shall forthwith discontinue
disposition of Registrable Securities until such Holder has received copies of a supplemented or amended prospectus or prospectus
supplement, or until such Holder is advised in writing by the Company that the use of the prospectus and, if applicable, prospectus
supplement may be resumed, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company’s
expense) all copies, other than permanent file copies then in such Holder’s possession, of the prospectus and, if applicable,
prospectus supplement covering such Registrable Securities current at the time of receipt of such notice. The total
number of days that any such suspension may be in effect in any 12-month period shall not exceed 90 days.
6.
Termination of
Registration Rights
. A Holder’s registration rights as to any securities held by such Holder (and its Affiliates,
partners, members and former members) shall not be available unless such securities are Registrable Securities.
7.
Furnishing Information
.
(a) No Holder shall use
any free writing prospectus (as defined in Rule 405) in connection with the sale of Registrable Securities without the prior written
consent of the Company.
(b) It shall be a condition
precedent to the obligations of the Company to take any action pursuant to Section 4 of this
Annex E
that the selling Holders
and the underwriters, if any, shall furnish to the Company such information regarding themselves, the Registrable Securities held
by them and the intended method of disposition of such securities as shall be required to effect the registered offering of their
Registrable Securities.
8.
Indemnification
.
(a) The Company agrees
to indemnify each Holder and, if a Holder is a person other than an individual, such Holder’s officers, directors, employees,
agents, representatives and Affiliates, and in the case of Treasury, Treasury’s officials, and each person, if any, that
controls a Holder within the meaning of the Securities Act (each, an “
Indemnitee
”),
against any and all losses, claims, damages, actions, liabilities, costs and expenses (including reasonable fees, expenses and
disbursements of attorneys and other professionals incurred in connection with investigating, defending, settling, compromising
or paying any such losses, claims, damages, actions, liabilities, costs and expenses), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of material fact contained in any registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or supplements thereto or any documents incorporated therein
by reference or contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized
by it in writing for use by such Holder (or any amendment or supplement thereto); or any omission to state therein a material fact
required to be stated therein or necessary to make the
|
Annex E (Registration Rights)
|
Page
8
|
statements therein, in light
of the circumstances under which they were made, not misleading;
provided
,
that the Company shall not be liable to such Indemnitee in any such case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense arises out of or is based upon (A) an untrue statement or omission made
in such registration statement, including any such preliminary prospectus or final prospectus contained therein or any such amendments
or supplements thereto or contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company
or authorized by it in writing for use by such Holder (or any amendment or supplement thereto), in reliance upon and in conformity
with information regarding such Indemnitee or its plan of distribution or ownership interests which was furnished in writing to
the Company by such Indemnitee for use in connection with such registration statement, including any such preliminary prospectus
or final prospectus contained therein or any such amendments or supplements thereto, or (B) offers or sales effected by or on behalf
of such Indemnitee “by means of” (as defined in Rule 159A) a “free writing prospectus” (as defined in Rule
405) that was not authorized in writing by the Company.
(b) If the indemnification
provided for in Section 8(a) of this
Annex E
is unavailable to an Indemnitee with respect to any losses, claims, damages,
actions, liabilities, costs or expenses referred to therein or is insufficient to hold the Indemnitee harmless as contemplated
therein, then the Company, in lieu of indemnifying such Indemnitee, shall contribute to the amount paid or payable by such Indemnitee
as a result of such losses, claims, damages, actions, liabilities, costs or expenses in such proportion as is appropriate to reflect
the relative fault of the Indemnitee, on the one hand, and the Company, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, actions, liabilities, costs or expenses as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand, and of the Indemnitee, on the other hand,
shall be determined by reference to, among other factors, whether the untrue statement of a material fact or omission to state
a material fact relates to information supplied by the Company or by the Indemnitee and the parties’ relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or omission; the Company and each Holder agree that
it would not be just and equitable if contribution pursuant to this Section 8(b) of this
Annex E
were determined by
pro
rata
allocation or by any other method of allocation that does not take account of the equitable considerations referred
to in Section 8(a) of this
Annex E
. No Indemnitee guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from the Company if the Company was not guilty of such
fraudulent misrepresentation.
9.
Assignment of
Registration Rights
. The rights of Treasury to registration of Registrable Securities pursuant to Section 2 of this
Annex E
may be assigned by Treasury to a transferee or assignee of Registrable Securities;
provided
,
however
, the transferor shall, within ten days after such
transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the number and type
of Registrable Securities that are being assigned.
10.
Clear Market
. With
respect to any underwritten offering of Registrable Securities by Holders pursuant to this
Annex E
, the Company agrees not
to effect (other than pursuant to such registration or pursuant to a Special Registration) any public sale or distribution, or
to file any Shelf Registration Statement (other than such registration or a Special Registration) covering
|
Annex E (Registration Rights)
|
Page
9
|
any preferred stock of the
Company or any securities convertible into or exchangeable or exercisable for preferred stock of the Company, during the period
not to exceed ten days prior and 60 days following the effective date of such offering or such longer period up to 90 days as may
be requested by the managing underwriter for such underwritten offering. The Company also agrees to cause such of its
directors and senior executive officers to execute and deliver customary lock-up agreements in such form and for such time period
up to 90 days as may be requested by the managing underwriter.
11.
Forfeiture of
Rights
. At any time, any holder of Registrable Securities (including any Holder) may elect to forfeit its rights
set forth in this
Annex E
from that date forward;
provided
,
that a Holder forfeiting such rights shall nonetheless be entitled to participate under Section 2(d) – (f) of this
Annex
E
in any Pending Underwritten Offering to the same extent that such Holder would have been entitled to if the Holder had not
withdrawn; and
provided
,
further
,
that no such forfeiture shall terminate a Holder’s rights or obligations under Section 7 of this
Annex E
with respect
to any prior registration or Pending Underwritten Offering.
12.
Specific Performance
. The
parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of its obligations
under this
Annex E
and that Holders from time to time may be irreparably harmed by any such failure, and accordingly agree
that such Holders, in addition to any other remedy to which they may be entitled at law or in equity, to the fullest extent permitted
and enforceable under applicable law shall be entitled to compel specific performance of the obligations of the Company under this
Annex E
in accordance with the terms and conditions of this
Annex E
.
13.
No Inconsistent
Agreements
. The Company shall not, on or after the Signing Date, enter into any agreement with respect to its securities
that may impair the rights granted to Holders under this
Annex E
or that otherwise conflicts with the provisions hereof
in any manner that may impair the rights granted to Holders under this
Annex E
. In the event the Company has,
prior to the Signing Date, entered into any agreement with respect to its securities that is inconsistent with the rights granted
to Holders under this
Annex E
(including agreements that are inconsistent with the order of priority contemplated by Section
2(f) of
Annex E
) or that may otherwise conflict with the provisions hereof, the Company shall use its reasonable best efforts
to amend such agreements to ensure they are consistent with the provisions of this
Annex E
.
14.
Certain Offerings
by Treasury
. An “underwritten” offering or other disposition shall include any distribution of such
securities on behalf of Treasury by one or more broker-dealers, an “underwriting agreement” shall include any purchase
agreement entered into by such broker-dealers, and any “registration statement” or “prospectus” shall include
any offering document approved by the Company and used in connection with such distribution.
|
Annex E (Registration Rights)
|
Page
10
|
|
ANNEX F
|
|
FORM OF CERTIFICATE OF DESIGNATION
|
[SEE ATTACHED]
|
Annex F (Form of Certificate of Designations)
|
Page
1
|
|
ANNEX G
|
|
FORM OF OFFICER’S CERTIFICATE
|
OFFICER’S CERTIFICATE
OF
[COMPANY]
In connection with that certain
Securities Purchase Agreement, dated
[
____________
]
, 2011 (the “
Agreement
”)
by and between
[
COMPANY
]
(the “
Company
”)
and the Secretary of the Treasury, the undersigned does hereby certify as follows:
1. I am a duly elected/appointed
[
____________
]
of the Company.
2. Attached as
Exhibit
A
hereto is a true, complete and correct copy of the articles of incorporation, articles of association, or similar organizational
document of the Company and any amendments thereto as presently on file with the [Secretary of State] of the State of [State].
3. Attached as
Exhibit
B
hereto is a true, complete and correct copy of the by-laws of the Company as presently in effect.
4. Attached as
Exhibit
C
hereto is a true, complete and correct copy of resolutions adopted [at a duly convened meeting at which a quorum was present
and acting /by unanimous written consent] of the Board of Directors of the Company (the “
Board
”). Such
resolutions are now in full force and effect and have not been modified, amended or revoked and are the only resolutions of the
Board relating to the Agreement.
5. Attached as
Exhibit
D
hereto is a true, complete and correct copy of the resolutions adopted [at a duly convened meeting at which a quorum was
present and acting /by unanimous written consent] of the [shareholders] of the Company (the “
[Shareholders]
”). Such
resolutions are now in full force and effect and have not been modified, amended or revoked and are the only resolutions of the
[Shareholders] relating to the Agreement. –OR- Shareholder consent is not required in connection with the execution, delivery
and performance of the Agreement by the Company.
6. Attached as
Exhibit
E
is a true, complete and correct copy of the Certificate of Designation, which has been filed with, and accepted by, the Secretary
of State of the State of
[
___________
]
.
7. The representations
and warranties of the Company set forth in Article II of Annex C of the Agreement are true and correct in all respects as though
as of the date hereof (other than representations and warranties that by their terms speak as of another date, which representations
and warranties shall be true and correct in all respects as of such other date) and the Company has performed in all material respects
all obligations required to be performed by it under the Agreement.
|
Annex G (Form of Officer's Certificate)
|
Page
1
|
The foregoing certifications
are made and delivered as of
[
________
_]
pursuant to Section 1.3 of Annex C of the Agreement.
Capitalized terms used and not
otherwise defined herein shall have the meanings assigned to them in the Agreement.
[SIGNATURE PAGE FOLLOWS]
|
Annex G (Form of Officer's Certificate)
|
Page
2
|
IN WITNESS WHEREOF, this
Officer’s Certificate has been duly executed and delivered as of the
[
__
]
day of
[
__________
]
,
2011.
|
|
[COMPANY]
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
|
Annex G (Form of Officer's Certificate)
|
Page
3
|
EXHIBIT A
|
Annex G (Form of Officer's Certificate)
|
Page
4
|
EXHIBIT B
|
Annex G (Form of Officer's Certificate)
|
Page
5
|
EXHIBIT C
|
Annex G (Form of Officer's Certificate)
|
Page
6
|
EXHIBIT D
|
Annex G (Form of Officer's Certificate)
|
Page
7
|
EXHIBIT E
|
Annex G (Form of Officer's Certificate)
|
Page
8
|
|
ANNEX H
|
|
FORM OF SUPPLEMENTAL REPORTS
|
[SEE ATTACHED
FORM OF INITIAL SUPPLEMENTAL REPORT]
|
Annex H (Form of Supplemental Reports)
|
Page
1
|
[SEE ATTACHED FORM OF QUARTERLY SUPPLEMENTAL
REPORT]
|
Annex H (Form of Supplemental Reports)
|
Page
2
|
|
ANNEX I
|
|
FORM OF ANNUAL CERTIFICATION
|
ANNUAL CERTIFICATION
OF
[
COMPANY
]
In connection with
that certain Securities Purchase Agreement, dated
[
___________
_]
, 2011 (the “
Agreement
”)
by and between
[
COMPANY
]
(the “
Company
”)
and the Secretary of the Treasury (“
Treasury
”),
the undersigned does hereby certify as follows:
1. I am a duly elected/appointed
[
____________
]
of the Company.
2. For each loan originated
by the Company or any of its Affiliates that was funded in whole or in part using funds from the Purchase Price, the Company has
obtained from the business to which it made such loan a written certification that no principal of such business has been convicted
of a sex offense against a minor (as such terms are defined in section 111 of the Sex Offender Registration and Notification Act,
42 U.S.C. §16911). The Company shall retain all such certifications in accordance with standard recordkeeping practices
established by the Appropriate Federal Banking Agency.
3. The Company is
in compliance with the requirements of Section 103.121 of title 31, Code of Federal Regulations.
The foregoing certifications
are made and delivered as of
[
_________
]
pursuant to Section 3.1(d)(iii) of Annex C of the Agreement.
Capitalized terms used and
not otherwise defined herein shall have the meanings assigned to them in the Agreement.
[SIGNATURE PAGE FOLLOWS]
|
Annex I (Form of Annual Certification)
|
Page
1
|
IN WITNESS WHEREOF, this
Certificate has been duly executed and delivered as of the
[
__
]
day of
[
__________
]
, 20
[
__
]
.
|
|
[COMPANY]
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
|
Annex I (Form of Annual Certification)
|
Page
2
|
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Attention: Small Business Lending Fund, Office of Domestic Finance
[SBLF Identification No.]
Ladies and/or Gentlemen:
We have acted as counsel
for [insert Institution Name] (the “Company”) in connection with the sale and issuance of [insert number] shares of
[Senior] Non-Cumulative Perpetual Preferred Stock, Series [___] (the “Preferred Shares”) to the Secretary of the Treasury
(the “Treasury”) pursuant to and in accordance with the terms of that certain Small Business Lending Fund - Securities
Purchase Agreement, dated [____________, 2011] (the “Agreement”). This letter is rendered to you pursuant
to Section 1.3(f) of the Agreement and Annex J attached thereto. Unless otherwise defined herein, capitalized terms
used herein shall have the meaning set forth in the Agreement.
(a) The Company has been
duly formed and is validly existing as a
[TYPE OF ORGANIZATION]
and is in good standing under the laws of the jurisdiction
of its organization. The Company has all necessary power and authority to own, operate and lease its properties and
to carry on its business as it is being conducted.
(b) The Company has been
duly qualified as a foreign entity for the transaction of business and is in good standing under the laws of
[_
____________
]
,
[
____________
_]
and
[
____________
_]
.
(c) The Preferred Shares
have been duly and validly authorized, and, when issued and delivered pursuant to the Agreement, the Preferred Shares will be duly
and validly issued and fully paid and non-assessable, will not be issued in violation of any preemptive rights, and will rank
pari
passu
with or senior to all other series or classes of designated preferred stock authorized on the Closing Date with
respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of
the Company.
(d) The Company has the
corporate power and authority to execute and deliver the Agreement and to carry out its obligations thereunder (which includes
the issuance of the Preferred Shares).
(e) The execution, delivery
and performance by the Company of the Agreement and the consummation of the transactions contemplated thereby have been duly authorized
by all necessary corporate action on the part of the Company and its stockholders, and no further approval or authorization is
required on the part of the Company, including, without limitation, by any rule or requirement of any national stock exchange.
|
Annex J (Form of Opinion)
|
Page
1
|
(f) The Agreement is a
valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as the same may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’
rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law
or in equity.
(g) The execution and
delivery by the Company of this Agreement and the performance by the Company of its obligations thereunder (i) do not require any
approval by any Governmental Entity to be obtained on the part of the Company, except those that have been obtained, (ii) do not
violate or conflict with any provision of the Charter, (iii) do not violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result
in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any
Company Subsidiary under any of the terms, conditions or provisions of its organizational documents or under any agreement, contract,
indenture, lease, mortgage, power of attorney, evidence of indebtedness, letter of credit, license, instrument, obligation, purchase
or sales order, or other commitment, whether oral or written, to which it is a party or by which it or any of its properties is
bound or (iv) do not conflict with, breach or result in a violation of, or default under any judgment, decree or order known
to us that is applicable to the Company and, pursuant to any applicable laws, is issued by any Governmental Entity having jurisdiction
over the Company.
(h) Other than the filing
of the Certificate of Designation with the [Secretary of State] of its jurisdiction of organization or other applicable Governmental
Entity, such filings and approvals as are required to be made or obtained under any state “blue sky” laws and such
consents and approvals that have been made or obtained, no notice to, filing with, exemption or review by, or authorization, consent
or approval of, any Governmental Entity is required to be made or obtained by the Company in connection with the consummation by
the Company of the Purchase.
|
Annex J (Form of Opinion)
|
Page
2
|
|
ANNEX K
|
|
FORM OF REPAYMENT DOCUMENT
|
UNITED STATES DEPARTMENT OF THE TREASURY
1500 PENNSYLVANIA AVENUE, NW
WASHINGTON, D.C. 20220
Dear Ladies and Gentlemen:
Reference is made to that certain Letter Agreement
incorporating the Securities Purchase Agreement – Standard Terms (the “
Securities Purchase Agreement
”),
dated as of the date set forth on Schedule A hereto, between the United States Department of the Treasury (the “
Investor
”)
and the company set forth on Schedule A hereto (the “
Company
”). Capitalized terms used but not defined
herein shall have the meanings assigned to them in the Securities Purchase Agreement. Pursuant to the Securities Purchase
Agreement, at the Closing, the Company issued to the Investor the number of shares of the series of its preferred stock set forth
on Schedule A hereto (the “
Preferred Shares
”) and a warrant (the “
Warrant
”) to purchase the
number of shares of
[
To be included for private issuers:
the series of its preferred stock set forth on Schedule
A hereto (such shares, the “
Warrant Shares
”), which was exercised by the Investor at Closing.
]
[
To
be included for public issuers:
its common stock set forth on Schedule A hereto.
]
In connection with the consummation of the repurchase
(the “
Repurchase
”) by the Company from the Investor, on the date hereof, of the number of Preferred Shares listed
on Schedule A hereto (the “
Repurchased Preferred Shares
”)
[
To be included for private issuers who are
repurchasing some or all of the Warrant Shares:
and the number of Warrant Shares listed on Schedule A hereto (the “
Repurchased
Warrant Shares
”)
]
, as permitted by the Emergency Economic Stabilization Act of 2008, as amended by the American
Recovery and Reinvestment Act of 2009:
(a) The Company hereby acknowledges
receipt from the Investor of the share certificate(s) set forth on Schedule A hereto representing the Preferred Shares; [and]
(b) The Investor hereby acknowledges
receipt from the Company of a wire transfer for the account of the Investor in immediately available funds of the aggregate purchase
price set forth on Schedule A hereto, representing payment in full for the Repurchased Preferred Shares at a price per share equal
to the Liquidation Amount per share, together with any accrued and unpaid dividends to, but excluding, the date hereof;
[
Paragraphs (c) and (d) to be
included for private issuers who are repurchasing some or all of the Warrant Shares:
(c) The Company hereby acknowledges
receipt from the Investor of the share certificate(s) set forth on Schedule A hereto representing the Warrant Shares; [and]
(d) The Investor hereby acknowledges
receipt from the Company of a wire transfer for the account of the Investor in immediately available funds of the aggregate purchase
price set forth on Schedule A hereto, representing payment in full for the Repurchased Warrant Shares at a price per share equal
to the Liquidation Amount per
|
Annex K (Form of Repurchase Document)
|
Page
1
|
share, together with any accrued and unpaid dividends
to, but excluding, the date hereof [; and]
]
[
Paragraph (e) to be included
for private issuers who are repurchasing less than all of the Warrant Shares:
(e) The Investor hereby acknowledges receipt
from the Company of a share certificate for the number of Warrant Shares set forth on Schedule A hereto, equal to the difference
between the Warrant Shares represented by the certificate referenced in clause (c) above and the Repurchased Warrant Shares.]
[
To be included for public issuers:
The Investor and the Company hereby agree that, notwithstanding Section 4.4 of the Securities Purchase Agreement, immediately
following consummation of the Repurchase, but subject to compliance with applicable securities laws, the Investor shall be permitted
to Transfer all or a portion of the Warrant with respect to, and/or exercise the Warrant for, all or a portion of the number of
shares of Common Stock issuable thereunder, at any time and without limitation, and Section 4.4 of the Securities Purchase Agreement
shall be deemed to be amended in order to permit the foregoing. The Company shall take all steps as may be reasonably
requested by the Investor to facilitate any such Transfer.
In addition, the Company agrees that in the
event it elects to repurchase the Warrant, it shall deliver to the Investor within 15 calendar days of the date hereof a notice
of intent to repurchase the Warrant, which notice shall be in accordance with Section 4.9(b) of the Securities Purchase Agreement
(the “
Warrant Repurchase Notice
”). In the event the Company does not deliver the Warrant Repurchase
Notice to the Investor within 15 calendar days of the date hereof, the Investor hereby provides notice, pursuant to Section 4.5(p)
of the Securities Purchase Agreement, of its intention to sell the Warrant, such notice to be effective as of the first day following
the end of such 15-day period.
In the event that the Company delivers a Warrant
Repurchase Notice and the Company and the Investor fail to agree on the Fair Market Value of the Warrant pursuant to the procedures
(including the Appraisal Procedure), and in accordance with the time periods, set forth in Section 4.9(c) of the Securities Purchase
Agreement or the Company revokes the delivery of such Warrant Repurchase Notice, then the Investor hereby provides notice of its
intention to sell the Warrant.
]
This letter agreement will be governed by and
construed in accordance with the federal law of the United States if and to the extent such law is applicable, and otherwise in
accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State.
This letter agreement may be executed in any
number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will
together constitute the same agreement. Executed signature pages to this letter agreement may be delivered by facsimile
and such facsimiles will be deemed sufficient as if actual signature pages had been delivered
[
Remainder of this page intentionally left
blank
]
|
Annex K (Form of Repurchase Document)
|
Page
2
|
In witness whereof, the parties
have duly executed this letter agreement as of the date first written above.
|
|
UNITED STATES DEPARTMENT OF THE
|
|
|
TREASURY
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
|
Annex K (Form of Repurchase Document)
|
Page
3
|
SCHEDULE A
[
Version to be used by
public issuers
]
General Information:
Date of Letter Agreement
incorporating the Securities Purchase Agreement:
Name of the Company:
Corporate or other
organizational form of the Company:
Jurisdiction of
organization of the Company:
Number and series
of preferred stock issued to the Investor at the Closing:
Number of Initial
Warrant Shares:
Terms of the Repurchase:
Number of Preferred
Shares repurchased by the Company:
Share certificate number
(representing the Preferred Shares previously issued to the Investor at the Closing):
Per share Liquidation
Amount of Preferred Shares:
Accrued and unpaid
dividends on Preferred Shares:
Aggregate purchase
price for Repurchased Preferred Shares:
|
Investor wire information for payment of purchase price
:
|
ABA Number:
|
|
|
Bank:
|
|
|
Account Name:
|
|
|
Account Number:
|
|
Annex K (Form of Repurchase Document)
|
Page
4
|
SCHEDULE A
[
Version to be used by
private issuers
]
General Information:
Date of Letter Agreement
incorporating the Securities Purchase Agreement:
Name of the Company:
Corporate or other
organizational form of the Company:
Jurisdiction of
organization of the Company:
Number and series
of preferred stock issued to the Investor at the Closing (Preferred Shares):
Number and series
of preferred stock underlying the Warrant issued to the Investor at the Closing (Warrant Shares):
Terms of the Repurchase
of Preferred Shares:
Number of Preferred
Shares purchased by the Company:
Share certificate number
(representing the Preferred Shares previously issued to the Investor at the Closing):
Per share Liquidation
Amount of Preferred Shares:
Accrued and unpaid
dividends on Preferred Shares:
Aggregate purchase
price for Repurchased Preferred Shares:
[
To be included for
private issuers who are repurchasing some or all of the Warrant Shares:
Terms of the Repurchase of the Warrant Shares:
Number of Warrant Shares
purchased by the Company:
|
Annex K (Form of Repurchase Document)
|
Page
5
|
Share certificate (representing
the Warrant Shares previously issued to the Investor at the Closing):
Per share Liquidation
Amount of Warrant Shares:
Accrued and unpaid
dividends on Warrant Shares;
Aggregate purchase
price for Repurchased Warrant Shares:
[
To be included
for issuers who are repurchasing less than all of the Warrant Shares:
Difference between the Warrant Shares and the Repurchased
Warrant Shares:
] ]
|
Investor wire information for payment of purchase price
:
|
ABA Number:
|
|
|
Bank:
|
|
|
Account Name:
|
|
|
Account Number:
|
|
|
Beneficiary:
|
|
Annex K (Form of Repurchase Document)
|
Page
6
|
Exhibit 5
LUSE GORMAN, PC
ATTORNEYS AT LAW
5335 Wisconsin Avenue, NW, Suite 780
Washington, D.C. 20015
—————
Telephone (202) 274-2000
Facsimile (202) 362-2902
www.luselaw.com
WRITER’S
DIRECT DIAL NUMBER
(202) 274-2000
March 13, 2015
The Board of Directors
Provident Bancorp, Inc.
5 Market Street
Amesbury, Massachusetts 01913
|
|
Re:
|
Provident Bancorp, Inc.
|
Common Stock, No
Par Value Per Share
Ladies and Gentlemen:
You have requested the
opinion of this firm as to certain matters in connection with the offer and sale (the “Offering”) of the shares of
common stock, no par value per share (“Common Stock”), of Provident Bancorp, Inc. (the “Company”). We have
reviewed the Company’s Amended and Restated Articles of Organization, Stock Issuance Plan (the “Plan”) and Registration
Statement on Form S-1 (the “Form S-1”), as well as applicable statutes and regulations governing the Company and the
offer and sale of the Common Stock. The opinion expressed below is limited to the laws of the Commonwealth of Massachusetts (which
includes applicable provisions of the Massachusetts Business Corporations Law, the Massachusetts Constitution and reported judicial
decisions interpreting the Massachusetts Business Corporations Law and the Massachusetts Constitution).
We are of the opinion that
upon the declaration of effectiveness of the Form S-1, the Common Stock, when issued and sold in accordance with the Plan, will
be legally issued, fully paid and non-assessable.
We hereby consent to our
firm being referenced under the caption “Legal Matters” and to the filing of this opinion as an exhibit to the Form
S-1.
Very truly yours,
/s/ Luse Gorman, PC
Luse
Gorman, PC
Exhibit 10.1
FORM OF
THE PROVIDENT BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 2015)\
THE PROVIDENT BANK
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership
Plan (the “Plan”) has been executed on
[date]
, by The Provident Bank (the “Bank”), effective as
of the 1
st
day of January, 2015.
WITNESSETH THAT
WHEREAS, the board of directors
of the Bank has resolved to adopt an employee stock ownership plan for eligible employees of the Bank and subsidiaries of the Bank,
if any, in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, the Bank
hereby adopts the following Plan setting forth the terms and conditions pertaining to contributions by the Employer and the payment
of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the
Bank has adopted this Plan and caused this instrument to be executed by its duly authorized officers as of the above date.
|
ATTEST:
|
|
THE PROVIDENT BANK
|
|
|
|
|
|
|
|
|
By:
|
|
|
Secretary
|
|
|
Chief Executive Officer
|
CONTENTS
|
|
|
|
|
Page No.
|
|
|
|
|
|
|
|
Section 1.
|
|
Plan Identity.
|
|
1
|
|
|
|
|
|
|
|
1.1
|
|
Name
|
|
1
|
|
1.2
|
|
Purpose
|
|
1
|
|
1.3
|
|
Effective Date
|
|
1
|
|
1.4
|
|
Fiscal Period
|
|
1
|
|
1.5
|
|
Single Plan for All Employers
|
|
1
|
|
1.6
|
|
Interpretation of Provisions
|
|
1
|
|
|
|
|
|
|
|
Section 2.
|
|
Definitions.
|
|
1
|
|
|
|
|
|
|
|
Section 3.
|
|
Eligibility for Participation.
|
|
11
|
|
|
|
|
|
|
|
3.1
|
|
Initial Eligibility
|
|
11
|
|
3.2
|
|
Terminated Employees
|
|
11
|
|
3.3
|
|
Certain Employees Ineligible
|
|
11
|
|
3.4
|
|
Participation after Reemployment
|
|
12
|
|
3.5
|
|
Omission of Eligible Employee
|
|
12
|
|
3.6
|
|
Inclusion of Ineligible Employee
|
|
12
|
|
|
|
|
|
|
|
Section 4.
|
|
Contributions and Credits.
|
|
12
|
|
|
|
|
|
|
|
4.1
|
|
Discretionary Contributions
|
|
12
|
|
4.2
|
|
Contributions for Exempt Loans
|
|
13
|
|
4.3
|
|
Conditions as to Contributions
|
|
13
|
|
4.4
|
|
Rollover Contributions
|
|
13
|
|
|
|
|
|
|
|
Section 5.
|
|
Limitations on Contributions and Allocations.
|
|
13
|
|
|
|
|
|
|
|
5.1
|
|
Limitation on Annual Additions
|
|
14
|
|
5.2
|
|
Effect of Limitations
|
|
15
|
|
5.3
|
|
Limitations as to Certain Participants
|
|
16
|
|
5.4
|
|
Erroneous Allocations
|
|
16
|
|
|
|
|
|
|
|
Section 6.
|
|
Trust Fund and Its Investment.
|
|
17
|
|
|
|
|
|
|
|
6.1
|
|
Creation of Trust Fund
|
|
17
|
|
6.2
|
|
Stock Fund and Investment Fund
|
|
17
|
|
6.3
|
|
Acquisition of Stock
|
|
17
|
|
6.4
|
|
Participants’ Option to Diversify
|
|
18
|
|
|
|
|
|
|
|
Section 7.
|
|
Voting Rights and Dividends on Stock.
|
|
19
|
|
|
|
|
|
|
|
7.1
|
|
Voting and Tendering of Stock
|
|
19
|
|
7.2
|
|
Application of Dividends
|
|
20
|
|
|
|
|
|
|
|
Section 8.
|
|
Adjustments to Accounts.
|
|
21
|
|
|
|
|
|
|
|
8.1
|
|
ESOP Allocations
|
|
21
|
|
8.2
|
|
Charges to Accounts
|
|
22
|
|
8.3
|
|
Stock Fund Account
|
|
22
|
|
8.4
|
|
Investment Fund Account
|
|
22
|
|
8.5
|
|
Adjustment to Value of Trust Fund
|
|
23
|
|
8.6
|
|
Participant Statements
|
|
23
|
|
|
|
|
|
|
|
Section 9.
|
|
Vesting of Participants’ Interests.
|
|
23
|
|
|
|
|
|
|
|
9.1
|
|
Vesting in Accounts
|
|
23
|
|
9.2
|
|
Computation of Vesting Years
|
|
23
|
|
9.3
|
|
Full Vesting Upon Certain Events
|
|
24
|
|
9.4
|
|
Full Vesting Upon Plan Termination
|
|
25
|
|
9.5
|
|
Forfeiture, Repayment, and Restoral
|
|
25
|
|
9.6
|
|
Accounting for Forfeitures
|
|
26
|
|
9.7
|
|
Vesting and Nonforfeitability
|
|
26
|
|
|
|
|
|
|
|
Section 10.
|
|
Payment of Benefits.
|
|
26
|
|
|
|
|
|
|
|
10.1
|
|
Benefits for Participants
|
|
26
|
|
10.2
|
|
Time for Distribution
|
|
27
|
|
10.3
|
|
Marital Status
|
|
29
|
|
10.4
|
|
Delay in Benefit Determination
|
|
29
|
|
10.5
|
|
Accounting for Benefit Payments
|
|
29
|
|
10.6
|
|
Options to Receive Stock
|
|
29
|
|
10.7
|
|
Restrictions on Disposition of Stock
|
|
30
|
|
10.8
|
|
Continuing Loan Provisions; Creations of Protections and Rights
|
|
30
|
|
10.9
|
|
Direct Rollover of Eligible Distribution
|
|
31
|
|
10.10
|
|
Waiver of 30-Day Period After Notice of Distribution
|
|
31
|
|
|
|
|
|
|
|
Section 11.
|
|
Rules Governing Benefit Claims and Review of Appeals
|
|
32
|
|
11.1
|
|
Claim for Benefits
|
|
32
|
|
11.2
|
|
Notification by Committee
|
|
32
|
|
11.3
|
|
Claims Review Procedure
|
|
32
|
|
|
|
|
|
|
|
Section 12.
|
|
The Committee and its Functions.
|
|
33
|
|
|
|
|
|
|
|
12.1
|
|
Authority of Committee
|
|
33
|
|
12.2
|
|
Identity of Committee
|
|
33
|
|
12.3
|
|
Duties of Committee
|
|
33
|
|
12.4
|
|
Valuation of Stock
|
|
33
|
|
12.5
|
|
Compliance with ERISA
|
|
34
|
|
12.6
|
|
Action by Committee
|
|
34
|
|
12.7
|
|
Execution of Documents
|
|
34
|
|
12.8
|
|
Adoption of Rules
|
|
34
|
|
12.9
|
|
Responsibilities to Participants
|
|
34
|
|
12.10
|
|
Alternative Payees in Event of Incapacity
|
|
34
|
|
12.11
|
|
Indemnification by Employers
|
|
34
|
|
12.12
|
|
Nonparticipation by Interested Member
|
|
35
|
|
|
|
|
|
|
|
Section 13.
|
|
Adoption, Amendment, or Termination of the Plan.
|
|
35
|
|
|
|
|
|
|
|
13.1
|
|
Adoption of Plan by Other Employers
|
|
35
|
|
13.2
|
|
Plan Adoption Subject to Qualification
|
|
35
|
|
13.3
|
|
Right to Amend or Terminate
|
|
35
|
|
|
|
|
|
|
|
Section 14.
|
|
Miscellaneous Provisions.
|
|
36
|
|
|
|
|
|
|
|
14.1
|
|
Plan Creates No Employment Rights
|
|
36
|
|
14.2
|
|
Nonassignability of Benefits
|
|
36
|
|
14.3
|
|
Limit of Employer Liability
|
|
36
|
|
14.4
|
|
Treatment of Expenses
|
|
36
|
|
14.5
|
|
Number and Gender
|
|
36
|
|
14.6
|
|
Nondiversion of Assets
|
|
37
|
|
14.7
|
|
Separability of Provisions
|
|
37
|
|
14.8
|
|
Service of Process
|
|
37
|
|
14.9
|
|
Governing State Law
|
|
37
|
|
14.10
|
|
Employer Contributions Conditioned on Deductibility
|
|
37
|
|
14.11
|
|
Unclaimed Accounts
|
|
37
|
|
14.12
|
|
Qualified Domestic Relations Order
|
|
38
|
|
14.13
|
|
Use of Electronic Media to Provide Notices and Make Participant Elections
|
|
38
|
|
14.14
|
|
Acquisition of Securities
|
|
39
|
|
|
|
|
|
|
|
Section 15.
|
|
Top-Heavy Provisions.
|
|
39
|
|
|
|
|
|
|
|
15.1
|
|
Top-Heavy Plan
|
|
39
|
|
15.2
|
|
Definitions
|
|
39
|
|
15.3
|
|
Top-Heavy Rules of Application
|
|
40
|
|
15.4
|
|
Minimum Contributions
|
|
41
|
|
15.5
|
|
Top-Heavy Provisions Control in Top-Heavy Plan
|
|
41
|
THE PROVIDENT BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1.
Plan
Identity
.
1.1
Name
.
The name of this Plan is “The Provident Bank Employee Stock Ownership Plan.”
1.2
Purpose
.
The purpose of this Plan is to describe the terms and conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3
Effective
Date
. The Effective Date of this Plan is January 1, 2015.
1.4
Fiscal
Period
. This Plan shall be operated on the basis of a January 1 to December 31 fiscal year for the purpose of keeping
the Plan’s books and records and distributing or filing any reports or returns required by law.
1.5
Single
Plan for All Employers
. This Plan shall be treated as a single plan with respect to all participating Employers for the
purpose of crediting contributions and forfeitures and distributing benefits, determining whether there has been any termination
of Service, and applying the limitations set forth in Section 5 of the Plan.
1.6
Interpretation
of Provisions
. The Employers intend this Plan and the Trust Agreement to be a qualified stock bonus plan under Section
401(a) of the Code and an employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA and Section 4975(e)(7)
of the Code. The Plan is intended to have its assets invested primarily in qualifying employer securities of one or more Employers
within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement under ERISA or the Code applicable to such a plan.
Accordingly, the Plan is not subject to the diversification requirements of Code Section 401(a)(35).
Accordingly, the Plan and
Trust Agreement shall be interpreted and applied in a manner consistent with this intent and shall be administered at all times
and in all respects in a nondiscriminatory manner.
Section 2.
Definitions
.
The following capitalized
words and phrases shall have the meanings specified when used in this Plan and in the Trust Agreement, unless the context clearly
indicates otherwise:
“Account”
means a Participant’s interest in the assets accumulated under this Plan as expressed in terms of a separate account balance
which is periodically adjusted to reflect his Employer’s contributions, the Plan’s investment experience, and distributions
and forfeitures.
“Active Participant”
means a Participant who has satisfied the eligibility requirements under Section 3 of the Plan and (i) is in active Service
with an Employer as of the last day of the
Plan Year, or (ii) is on a Recognized Absence
as of that date, or (iii) his Service terminated during the Plan Year by reason of Disability, death, or Normal Retirement.
“Bank”
means The Provident Bank and any entity which succeeds to the business of The Provident Bank and adopts this Plan as its own pursuant
to Section 13.1 of the Plan.
“Beneficiary”
means the person or persons who are designated by a Participant to receive benefits payable under the Plan on the Participant’s
death. In the absence of any designation or if all the designated Beneficiaries shall die before the Participant dies or shall
die before all benefits have been paid, the Participant’s Beneficiary shall be his surviving Spouse, if any, or his estate
if he is not survived by a Spouse. The Committee may rely upon the advice of the Participant’s executor or administrator
as to the identity of the Participant’s Spouse.
“
Closing Date
”
means the closing date of the stock offering of the Company.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Committee”
means the committee responsible for the administration of this Plan in accordance with Section 12 of the Plan.
“Company”
means The Provident Bancorp, Inc., the holding company of the Bank, and any successor entity which succeeds to the business of
the Company.
“Compensation”
shall mean:
(a) 415
Compensation.
(b) If
a determination period consists of fewer than 12 months, the annual compensation limit is an amount equal to the otherwise applicable
compensation limit set forth under Section 5.1-2 of the Plan multiplied by a fraction. The numerator of the fraction is the number
of months in the short determination period, and the denominator of the fraction is 12.
(c) A
Participant’s Compensation shall exclude any portion of the Plan Year in which the Participant had not yet entered the Plan
(e.g., the period before the Participant’s Entry Date).
“Disability”
means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than
12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence
thereof in such form and manner, and at such times, as the Committee may require.
“Eligible Employee
”
means an Employee, other than an Employee identified in Section 3.3 of the Plan.
“Employee”
means any individual who is or has been employed or self-employed by an Employer. “Employee” also means an individual
employed by a leasing organization who, pursuant to an agreement between an Employer and the leasing organization, has performed
services for the Employer and any related persons (within the meaning of Section 414(n)(6) of the Code) on a substantially full-time
basis for more than one year, if such services are performed under the primary direction or control of the Employer. However, such
a “leased employee” shall not be considered an Employee if (i) he participates in a money purchase pension plan sponsored
by the leasing organization which provides for immediate participation, immediate full vesting, and an annual contribution of at
least 10 percent of the Employee’s 415 Compensation, and (ii) leased employees do not constitute more than 20 percent of
the Employer’s total work force (including leased employees, but excluding Highly Compensated Employees and any other Employees
who have not performed services for the Employer on a substantially full-time basis for at least one year).
“Employer”
means the Bank, any subsidiary of the Bank and any other corporation, partnership, or proprietorship which adopts this Plan
with the Bank’s consent pursuant to Section 13.1 of the Plan, and also any entity which succeeds to the business of any Employer
and adopts the Plan pursuant to Section 13 of the Plan.
“Entry Date”
means the Effective Date and the first day of each calendar month.
“ERISA”
means the Employee Retirement Income Security Act of 1974 (P.L. 93-406, as amended).
“Exempt Loan”
means an indebtedness arising from any extension of credit to the Plan or the Trust which satisfies the requirements set forth
in Section 6.3 of the Plan and which was obtained for any or all of the following purposes:
(i) to
acquire qualifying Employer securities as defined in Treasury Regulations Section 54.4975-12;
(ii) to
repay such Exempt Loan; or
(iii) to
repay a prior exempt loan.
“415 Compensation”
shall mean:
(a) Wages
(including overtime pay, bonuses and commissions), as defined in Code Section 3401(a) for purposes of income tax withholding at
the source.
(b) Any
elective deferral as defined in Code Section 402(g)(3) (any Employer contributions made on behalf of a Participant to the extent
not includible in gross income and any Employer contributions to purchase an annuity contract under Code Section 403(b) under a
salary reduction agreement), and any amount which is contributed or deferred by the Employer at the election of the Participant
and which is not includible in gross income of the Participant by reason of Code Section 125 (including any “deemed”
Code Section 125 compensation) (Cafeteria Plan), Code Section 457, 132(f)(4) or
because such
amount was deferred in accordance with an Employer-provided deferred compensation plan, shall also be included in the definition
of 415 Compensation.
(c) 415
Compensation shall also include the following types of compensation paid after a Participant’s severance from employment
with the Employer, provided that amounts described in paragraphs (i) or (ii) below shall only be included in 415 Compensation to
the extent such amounts are paid by the later of 2½ months after severance from employment, or by the end of the limitation
year that includes the date of such severance from employment.
(i) Regular
Pay. 415 Compensation shall include regular pay after severance from employment if (a) the payment is for regular compensation
for services during the Participant’s regular working hours, or compensation for services outside of the Participant’s
regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and (b) the payment
would have been paid to the Participant prior to severance from employment if the Participant had continued in employment with
the Employer.
(ii) Leave
Cashouts. Leave cashouts shall be included in 415 Compensation if those amounts would have been included in the definition of 415
Compensation if they were paid prior to the Participant’s severance from employment, and the amounts are payment for unused
accrued bona fide sick, vacation or other leave, but only if the Participant would have been able to use the leave if his employment
had continued.
(d) 415
Compensation includes differential wage payments (as defined in Code Section 3401(h)) paid by the Employer to a former Employee
who is performing qualified military services (as defined in Code Section 414(u)(1)) but only to the extent that those differential
wage payments do not exceed the amounts the individual would have received if the individual had continued to perform services
for the Employer rather than entering qualified military service.
(e) 415
Compensation in excess of $250,000 (as indexed) shall be disregarded for all Participants. For purposes of this sub-section, the
$265,000 limit shall be referred to as the “applicable limit” for the Plan Year in question. The $265,000 limit shall
be adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code, effective for the Plan Year
which begins within the applicable calendar year. For purposes of the applicable limit, 415 Compensation shall be prorated
over short Plan Years and only compensation for the portion of the Plan Year during which the individual was a Participant shall
be taken into account.
“Highly Compensated
Employee”
for any Plan Year means an Employee who, during either that or the immediately preceding Plan Year was at any
time a five percent owner of the Employer (as defined in Code Section 416(i)(1)) or, during the immediately preceding Plan Year,
had 415 Compensation exceeding $120,000 (as adjusted). The applicable year for which a determination is being made is called a
“determination year” and the preceding 12-month period is called a look-back year.
“Hours of Service”
means hours to be credited to an Employee under the following rules:
(a) Each
hour for which an Employee is paid or is entitled to be paid for services to an Employer is an Hour of Service.
(b) Each
hour for which an Employee is directly or indirectly paid or is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service shall be credited for any single continuous period which an Employee performs
no duties. No more than 501 Hours of Service will be credited under this paragraph for any single continuous period (whether or
not such period occurs in a single computation period). Further, no Hours of Service shall be credited on account of payments made
solely under a plan maintained to comply with worker’s compensation, unemployment compensation, or disability insurance laws,
or to reimburse an Employee for medical expenses.
(c) Each
hour for which back pay (ignoring any mitigation of damages) is either awarded or agreed to by an Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any single continuous period during which an Employee would not
have performed any duties. The same Hours of Service will not be credited both under paragraph (a) or (b) as the case may be, and
under this paragraph (c). These hours will be credited to the employee for the computation period or periods to which the award
or agreement pertains rather than the computation period in which the award agreement or payment is made.
(d) Hours
of Service shall be credited in any one period only under one of the foregoing paragraphs (a), (b) and (c); an Employee may not
get double credit for the same period.
(e) If
an Employer finds it impractical to count the actual Hours of Service for any class or group of non-hourly Employees, each Employee
in that class or group shall be credited with 90 Hours of Service for each bi-weekly pay period in which he has at least one Hour
of Service. However, an Employee shall be credited only for his normal working hours during a paid absence.
(f) Hours
of Service to be credited on account of a payment to an Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan Years, the Hours of Service credit shall be allocated in
proportion to the respective portions of the period included in the several Plan Years. However, in the case of periods of 31 days
or less, the Committee may apply a uniform policy of crediting the Hours of Service to either the first Plan Year or the second.
(g) In
all respects an Employee’s Hours of Service shall be counted as required by Section 2530.200b-2(b) and (c) of the Department
of Labor’s regulations under Title I of ERISA.
“Investment Fund”
means that portion of the Trust Fund consisting of assets other than Stock. Notwithstanding the above, assets from the Investment
Fund may be used to purchase Stock in the open market or otherwise, or used to pay on the Exempt Loan, and shares so purchased
will be allocated to a Participant’s Stock Fund.
“Normal Retirement”
means retirement on or after the Participant’s Normal Retirement Date.
“Normal Retirement
Date”
means the Participant’s 65
th
birthday.
“One Year Period
of Severance”
means a twelve (12) consecutive month period following an Employee’s Severance from Employment with
the Employer during which the Employee did not perform an Hour of Service. Notwithstanding the foregoing, if an Employee is absent
for maternity or paternity reasons, such absence during the twenty-four (24) month period commencing on the first date of such
absence shall not constitute a One Year Period of Severance. An absence from employment for maternity or paternity reasons means
an absence:
(a) by
reason of the pregnancy of the Employee;
(b) by
reason of the birth of a child of the Employee;
(c) by
reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee; or
(d) for
purposes of caring for such child for a period beginning immediately following such birth or placement.
“Participant”
means any Eligible Employee who is an Active Participant participating in the Plan, or Eligible Employee or former Employee who
was previously an Active Participant and still has a balance credited to his Account.
“Period of Service”
means a period commencing on the date an Employee first performs an Hour of Service for the Employer upon initial employment
or, if applicable, upon reemployment, and ending on the date such Employee first incurs a Severance from Employment. Notwithstanding
the foregoing, the period between the first and second anniversary of the first date of a maternity or paternity absence described
under “One Year Period of Severance” shall not be included in determining a Period of Service. A period during which
an individual was not employed by the Employer shall nevertheless be deemed a Period of Service if such individual incurred a Severance
from Employment and:
(a) such
Severance from Employment was the result of resignation, discharge or retirement and such individual is reemployed by the Employer
within one (1) year of such Severance from Employment; or
(b) such
Severance from Employment occurred when the individual was otherwise absent for less than one (1) year and was reemployed by the
Employer within one (1) year of the date such absence began.
“Period of Uniformed
Service”
means the length of time that an Employee serves in the Uniformed Services.
“Plan Year”
means the twelve-month period commencing January 1 and ending December 31 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
“Recognized Absence”
means a period for which --
(a) an
Employer grants an Employee a leave of absence for a limited period, but only if an Employer grants such leave on a nondiscriminatory
basis; or
(b) an
Employee is temporarily laid off by an Employer because of a change in business conditions; or
(c) an
Employee is on active military duty, but only to the extent that his employment rights are protected by the Military Selective
Service Act of 1967 (38 U.S.C. Sec. 2021).
“Reemployment
After a Period of Uniformed Service”
(a) “Reemployment
(or Reemployed) After a Period of Uniformed Service” means that an Employee returned to employment with a Participating
Employer, within the time frame set forth in subparagraph (b) below, after a Period of Uniformed Service in the Uniformed
Services and the following rules corresponding to provisions of the Uniformed Services Employment and Reemployment Rights Act of
1994 (“USERRA”) apply: (i) he or she gives sufficient notice of leave to the Participating Employer prior
to commencing a Period of Uniformed Service, or is excused from providing such notice; (ii) his or her employment with the
Participating Employer prior to a Period of Uniformed Service was not of a brief, nonrecurrent nature that would preclude a reasonable
expectation that such employment would continue indefinitely or for a significant period; (iii) the Participating Employer’s
circumstances have not changed so that reemployment is unreasonable or an undue hardship to the Participating Employer; and (iv) the
applicable cumulative Periods of Uniformed Service under USERRA equals five years or less, unless service in the Uniformed Services:
(1) in
excess of five years is required to complete an initial Period of Uniformed Service;
(2) prevents
the Participant from obtaining orders releasing him or her from such Period of Uniformed Service prior to the expiration of a five-year
period (through no fault of the Participant);
(3) is
required in the National Guard for drill and instruction, field exercises or active duty training, or to fulfill necessary additional
training, or to fulfill necessary additional training requirements certified in writing by the Secretary of the branch of Uniformed
Services concerned; or
(4) for
a Participant is
(A) required
other than for training under any provisions of law during a war or national agency declared by the President or Congress;
(B) required
(other than for training) in support of an operational mission for which personnel have been ordered to active duty other
than during war or national emergency;
(C) required
in support of a critical mission or requirement of the Uniformed Services; or
(D) the
result of being called into service as a member of the National Guard by the President in the case of rebellion or danger of rebellion
against the authority of the United States Government or if the President is unable to execute the laws of the United States with
the regular forces.
(b) The
applicable statutory time frames within which an Employee must report to a Participating Employer after a Period of Uniformed Service
are as follows:
(1) If
the Period of Uniformed Service was less than 31 days,
(A) not
later than the beginning of the first full regularly scheduled work period on the first full calendar day following the completion
of the Period of Uniformed Service and the expiration of eight hours after a period of time allowing for the safe transportation
of the Employee from the place of service in the Uniformed Services to the Employee’s residence; or
(B) as
soon as possible after the expiration of the eight-hour period of time referred to in Clause (A), if reporting within the period
referred to in such clause is impossible or unreasonable through no fault of the Employee.
(2) In
the case of an Employee whose Period of Uniformed Service was for more than 30 days but less than 181 days, by submitting an application
for reemployment with a Participating Employer not later than 14 days after the completion of the Period of Uniformed Service or,
if submitting such application within such period is impossible or unreasonable through no fault of the Employee, the next first
full calendar day when submission of such application becomes reasonable.
(3) In
the case of an Employee whose Period of Uniformed Service was for more than 180 days, by submitting an application for reemployment
with a Participating Employer not later than 90 days after the completion of the Period of Uniformed Service.
(4) In
the case of an Employee who is hospitalized for, or convalescing from, an illness or injury related to the Period of Uniformed
Service the Employee shall apply for reemployment with a Participating Employer at the end of the period that is necessary for
the Employee to recover. Such period of recovery shall not exceed two years, unless circumstances beyond the Employee’s control
make reporting as above unreasonable or impossible.
(c) Notwithstanding
subparagraph (a), Reemployment After a Period of Uniformed Service terminates upon the occurrence of any of the following:
(1) a
dishonorable or bad conduct discharge from the Uniformed Services;
(2) any
other discharge from the Uniformed Services under circumstances other than an honorable condition;
(3) a
discharge of a commissioned officer from the Uniformed Services by court martial, by commutation of sentence by court martial,
or, in time of war, by the President; or
(4) a
demotion of a commissioned officer in the Uniformed Services for absence without authorized leave of at least 3 months confinement
under a sentence by court martial, or confinement in a federal or state penitentiary after being found guilty of a crime under
a final sentence.
“Service”
means an Employee’s period(s) of employment or self-employment with an Employer, excluding for initial eligibility purposes
any period in which the individual was a nonresident alien and did not receive from an Employer any earned income which constituted
income from sources within the United States. An Employee’s Service shall include any Service which constitutes Service with
a predecessor Employer within the meaning of Section 414(a) of the Code, provided, however, that Service with an acquired entity
shall not be considered Service under the Plan unless required by applicable law or agreed to by the parties to such transaction.
An Employee’s Service shall also include any Service with an entity which is not an Employer, but only either (i) in which
the other entity is a member of a controlled group of corporations or is under common control with other trades and businesses
within the meaning of Section 414(b) or 414(c) of the Code, and a member of the controlled group or one of the trades and businesses
is an Employer, (ii) in which the other entity is a member of an affiliated service group within the meaning of Section 414(m)
of the Code, and a member of the affiliated service group is an Employer, or (iii) all Employers aggregated with the Employer under
Section 414(o) of the Code (but not until the Proposed Regulations under Section 414(o) become effective). Notwithstanding any
provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will
be provided in accordance with Section 414(u) of the Code.
“Spouse”
means the individual, if any, to whom a Participant is lawfully married on the date benefit payments to the Participant are to
begin, or on the date of the Participant’s death, if earlier. A former Spouse shall be treated as the Spouse or surviving
Spouse to the extent
provided under a qualified domestic relations
order as described in section 414(p) of the Code. Pursuant to Revenue Ruling 2013-17, for federal tax purposes, the terms “Spouse”
includes an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term
“marriage” includes such a marriage between individuals of the same sex. A marriage of the same-sex individuals that
was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex shall be recognized by
the Plan, even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.
“Stock”
means common stock issued by the Employer (or by a corporation which is a member of the same controlled group) which is readily
tradable on an established securities market. “Readily tradable on an established securities market,” as referenced
in this Plan, shall be defined in accordance with Treasury Regulation Section 1.401(a)(25)-1(f)(5) for purposes of Code Sections
401(a)(22), 401(a)(28)(C) and 409(h)(1)(B) and 409(l). In the event there is no common stock which meets the requirements of the
preceding sentence, then “Stock” means common stock issued by the Employer (or by a corporation which is a member of
the same controlled group) having a combined voting power and dividend rights equal to or in excess of (A) that class of common
stock of the Employer (or of any other such corporation) having the greatest voting power; and (B) that class of common stock of
the Employer (or of any other such corporation) having the greatest dividend rights.
“Stock Fund”
means that portion of the Trust Fund consisting of Stock. The Stock Fund is merely a recordkeeping mechanism used by the Trustee
to track the Stock held by the Plan. The Stock Fund is neither a mutual fund nor a diversified or managed investment option.
“Trust”
or “Trust Fund”
means the trust fund created under this Plan.
“Trust Agreement”
means the agreement between the Bank and the Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in a co-mingled
trust fund with assets of other qualified retirement plans, “Trust Agreement” shall be deemed to include the trust
agreement governing that co-mingled trust fund. With respect to the allocation of investment responsibility for the assets of the
Trust Fund, the provisions of Article II of the Trust Agreement are incorporated herein by reference.
“Trustee”
means one or more corporate persons or individuals selected from time to time by the Bank to serve as trustee or co-trustees of
the Trust Fund.
“Unallocated Stock
Fund”
means that portion of the Stock Fund consisting of the Plan’s holding of Stock which have been acquired in
exchange for one or more Exempt Loans and which have not yet been allocated to the Participant’s Accounts in accordance with
Section 4.2 of the Plan.
“Uniformed Service”
means the performance of duty on a voluntary or involuntary basis in the uniformed service of the United States, including
the U.S. Public Health Services, under competent authority and includes active duty, active duty for training, initial activity
duty for training, inactive duty training, full-time National Guard duty, and the period for which a person
is absent from a position of employment for
purposes of an examination to determine the fitness of the person to perform any such duty.
“Valuation Date”
means for so long as there is a generally recognized market for the Stock each business day. If at any time there shall be no generally
recognized market for the Stock, then “Valuation Date” shall mean the last day of the Plan Year and each other date
as of which the Committee shall determine the investment experience of the Investment Fund and adjust the Participants’ Accounts
accordingly.
“Valuation Period”
means the period following a Valuation Date and ending with the next Valuation Date.
“Vesting Year”
means a unit of Service credited to a Participant pursuant to Section 9.2 of the Plan for purposes of determining his vested interest
in his Account.
Section 3.
Eligibility
for Participation
.
3.1
Initial
Eligibility
. An Eligible Employee shall enter the Plan as of the Entry Date coincident with or next following the date
the Eligible Employee completes one year of Service and has attained age 21. Notwithstanding the foregoing, an Employee who is
an Eligible Employee on or prior to the Closing Date shall enter the Plan, retroactively, on the Effective Date.
3.2
Terminated
Employees
. No Employee shall have any interest or rights under this Plan if he is never in active Service with an Employer
on or after the Effective Date.
3.3
Certain
Employees Ineligible
.
3.3-1. No
Employee shall participate in the Plan while his Service is covered by a collective bargaining agreement between an Employer and
the Employee’s collective bargaining representative if (i) retirement benefits have been the subject of good faith bargaining
between the Employer and the representative and (ii) the collective bargaining agreement does not provide for the Employee’s
participation in the Plan.
3.3-2. Leased
Employees are not eligible to participate in the Plan.
3.3-3. Employees
who are nonresident aliens with no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes
income from sources within the United States (within the meaning of Code Section 861(a)(3)).
3.3-4. An
Eligible Employee may elect not to participate in the Plan, provided, however, such election is made solely to meet the requirements
of Code Section 409(n). For an election to be effective for a particular Plan Year, the Eligible Employee or Participant must file
the election in writing with the Committee no later than the last day of the Plan Year for which the election is to be effective.
The Employer may not make a contribution under the Plan for the Eligible Employee or for the Participant for the Plan Year for
which the election is effective, nor for any succeeding Plan Year, unless the Eligible Employee or Participant re-elects to participate
in the Plan. The Eligible
Employee or Participant
may elect again not to participate, but not earlier than the first Plan Year following the Plan Year in which the re-election was
first effective.
3.4
Participation
after Reemployment
. If an Employee incurs a One Year Period of Severance prior to satisfying the eligibility requirements
of Section 3.1 of the Plan, Service prior to such One Year Period of Severance shall be disregarded and the Employee must satisfy
the eligibility requirements of Section 3.1 of the Plan as a new Employee. If an Employee incurs a One Year Period of Severance
after satisfying the eligibility requirements of Section 3.1 of the Plan and again performs an Hour of Service, the Employee shall
receive credit for the Period of Service prior to his One Year Period of Severance and shall be eligible to participate in the
Plan immediately upon reemployment, provided the Employee is not excluded from participation under the provisions of Section 3.3
of the Plan.
3.5
Omission
of Eligible Employee
. If, in any Plan Year, any Eligible Employee who should be included as a Participant in the Plan is
erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been
made, the Employer shall make a subsequent contribution with respect to the omitted Eligible Employee in the amount which the said
Employer would have contributed regardless of whether or not it is deductible in whole or in part in any taxable year under applicable
provisions of the Code.
3.6
Inclusion
of Ineligible Employee
. If, in any Plan Year, any person who should not have been included as a Participant in the Plan
is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been
made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether
or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible
person shall constitute a forfeiture for the fiscal year in which the discovery is made. Any person who, after the close of a Plan
Year, is retroactively treated by the Company, an affiliated company or any other party as an Employee for such prior Plan Year
shall not, for purposes of the Plan, be considered an Employee for such prior Plan Year unless expressly so treated as such by
the Company.
Section 4.
Contributions
and Credits
.
4.1
Discretionary
Contributions
.
4.1-1. The
Employer shall from time to time contribute, with respect to a Plan Year, such amounts as it may determine from time to time. The
Employer shall have no obligation to contribute any amount under this Plan except as so determined in its sole discretion. The
Employer’s contributions and available forfeitures for a Plan Year shall be credited as of the last day of the year to the
Accounts of the Active Participants in the manner set forth in Section 8.1-2 of the Plan.
4.1-2. Upon
a Participant’s Reemployment After a Period of Uniformed Service, the Employer shall make an additional contribution on behalf
of the Participant that would have been made on his or her behalf during the Plan Year or Years corresponding to the Participant’s
Period of Uniformed Service.
4.2
Contributions
for Exempt Loans
. If the Trustee, upon instructions from the Committee, incurs any Exempt Loan upon the purchase of Stock,
the Employer may contribute for each Plan Year an amount sufficient to cover all payments of principal and interest as they come
due under the terms of the Exempt Loan. If there is more than one Exempt Loan, the Employer shall designate the one to which any
contribution is to be applied. Investment earnings realized on Employer contributions and any dividends paid by the Employer on
Stock held in the Unallocated Stock Fund, shall be applied to the Exempt Loan related to that Stock, subject to Section 7.2 of
the Plan.
In each Plan Year in which
Employer contributions, earnings on contributions, or dividends on Stock in the Unallocated Stock Fund are used as payments under
an Exempt Loan, a certain number of shares of the Stock acquired with that Exempt Loan which is then held in the Unallocated Stock
Fund shall be released for allocation among the Participants. The number of shares released shall bear the same ratio to the total
number of those shares then held in the Unallocated Stock Fund (prior to the release) as (i) the principal and interest payments
made on the Exempt Loan in the current Plan Year bears to (ii) the sum of (i) above, and the remaining principal and interest payments
required (or projected to be required on the basis of the interest rate in effect at the end of the Plan Year) to satisfy the Exempt
Loan.
At the direction of the
Committee, the current and projected payments of interest under an Exempt Loan may be ignored in calculating the number of shares
to be released in each year if (i) the Exempt Loan provides for annual payments of principal and interest at a cumulative rate
that is not less rapid at any time than level annual payments of such amounts for 10 years, (ii) the interest included in any payment
is ignored only to the extent that it would be determined to be interest under standard loan amortization tables, and (iii) the
term of the Exempt Loan, by reason of renewal, extension, or refinancing, has not exceeded 10 years from the original acquisition
of the Stock.
4.3
Conditions
as to Contributions
. Employers’ contributions shall in all events be subject to the limitations set forth in Section
5 of the Plan. Contributions may be made in the form of cash, or securities and other property to the extent permissible under
ERISA, including Stock, and shall be held by the Trustee in accordance with the Trust Agreement. In addition to the provisions
of Section 13.2 of the Plan for the return of an Employer’s contributions in connection with a failure of the Plan to qualify
initially under the Code, any amount contributed by an Employer due to a good faith mistake of fact, or based upon a good faith
but erroneous determination of its deductibility under Section 404 of the Code, shall be returned to the Employer within one year
after the date on which the contribution was originally made, or within one year after its nondeductibility has been finally determined.
However, the amount to be returned shall be reduced to take account of any adverse investment experience within the Trust Fund
in order that the balance credited to each Participant’s Account is not less that it would have been if the contribution
had never been made.
4.4
Rollover
Contributions
. This Plan shall not accept a direct rollover or rollover contribution of an “eligible rollover distribution”
as such term is defined in Section 10.9-1 of the Plan.
Section 5.
Limitations
on Contributions and Allocations
.
5.1
Limitation
on Annual Additions
. Notwithstanding anything herein to the contrary, allocation of Employer contributions for any Plan
Year shall be subject to the following:
5.1-1 If allocation
of Employer contributions in accordance with Section 4.1 of the Plan will result in an allocation of more than one-third the total
contributions for a Plan Year to the accounts of Highly Compensated Employees, and such allocation would cause any Highly Compensated
Employee to exceed the limitations under Code Section 415(c) or the Employer to exceed the deduction limits under Code Section
404, then no more than one-third of the Employer contributions used for repayment of any Exempt Loan in accordance with Section
4.2 of the Plan shall be allocated to the accounts of Highly Compensated Employees (within the meaning of Code Section 414(q)),
with the remaining Employer contributions to be made to non-Highly Compensated Employees in the manner specified under Section
8.1 of the Plan. Such adjustments shall be made before any allocations occur.
5.1-2 After adjustment,
if any, required by the preceding paragraph, the annual additions during any Plan Year to any Participant’s Account under
this and any other defined contribution plans maintained by the Employer or an affiliate (within the purview of Section 414(b),
(c) and (m) and Section 415(h) of the Code, which affiliate shall be deemed the Employer for this purpose) shall not exceed the
lesser of $53,000 (for 2015, or such other dollar amount which results from cost-of-living adjustments under Section 415(d) of
the Code) (the “dollar limitation”) or 100 percent of the Participant’s 415 Compensation for such limitation
year (the “percentage limitation”). In the event Stock is released from the Unallocated Stock Fund and allocated to
a Participant’s Account for a particular Plan Year, the Employer may determine for such year that an annual addition shall
be calculated on the basis of the fair market value of the Stock so released and allocated (such fair market value to be based
on the valuation as of the Valuation Date immediately preceding the Plan Year in respect of which the release and allocation are
made) if the annual addition, as so calculated, is lower than the annual addition calculated on the basis of Employer contributions.
The percentage limitation shall not apply to any contribution for medical benefits after severance from employment (within the
meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition. If, as a result
of the allocation of forfeitures, a reasonable error in estimating a Participant’s annual compensation, a reasonable error
in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to
any individual under the limits of Code Section 415, or under other limited facts and circumstances that the Commissioner of the
Internal Revenue Service finds justify the availability of the rules set forth in this paragraph, the annual additions under the
terms of the Plan for a particular Participant would cause the limitations of Code Section 415 applicable to that Participant for
the limitation year to be exceeded, the Plan may only correct such excess in accordance with the Employee Plans Compliance Resolution
System (EPCRS) as set forth in Revenue Procedure 2013-12 or any subsequent guidance.
5.1-3 For
purposes of this Section 5.1, the “annual addition” to a Participant’s Accounts means the sum of (i) Employer
contributions, (ii) Employee contributions, if
any, and (iii) forfeitures. For these
purposes, annual additions to a defined contribution plan shall not include the allocation of the excess amounts remaining in the
Unallocated Stock Fund subsequent to a sale of stock from such fund in accordance with a transaction described in Section 8.1 of
the Plan. Notwithstanding the foregoing, “annual additions” shall not include a restorative payment in accordance with
Treasury Regulation Section 1.415(c)-1(b)(2)(C) that is made to restore losses to the Plan resulting from actions by a fiduciary
for which there is a reasonable risk of liability for breach of fiduciary duty under ERISA or other applicable federal and state
law.
In the event
Stock is released from the Unallocated Stock Fund and allocated to a Participant’s Account for a particular Plan Year, the
Employer may determine for such year that an annual addition shall be calculated on the basis of the fair market value of the Stock
so released and allocated (such fair market value to be based on the valuation as of the Valuation Date immediately preceding the
Plan Year in respect of which the release and allocation are made) if the annual addition, as so calculated, is lower than the
annual addition calculated on the basis of Employer contributions.
5.1-4 Notwithstanding
the foregoing, if no more than one-third of the Employer contributions to the Plan for a year which are deductible under Section
404(a)(9) of the Code are allocated to Highly Compensated Employees (within the meaning of Section 414(q) of the Internal Revenue
Code), the limitations imposed herein shall not apply to:
(i) forfeitures
of Employer securities (within the meaning of Section 409 of the Code) under the Plan if such securities were acquired with the
proceeds of a loan described in Section 404(a)(9)(A) of the Code), or
(ii) Employer
contributions to the Plan which are deductible under Section 404(a)(9)(B) and charged against a Participant’s Account.
5.1-5 If the
Employer contributes amounts, on behalf of Eligible Employees covered by this Plan, to other “defined contribution plans”
as defined in Section 3(34) of ERISA, the limitation on annual additions provided in this Section shall be applied to annual additions
in the aggregate to this Plan and to such other plans. Reduction of annual additions, where required, shall be accomplished first
by reductions under such other plan pursuant to the directions of the named fiduciary for administration of such other plans or
under priorities, if any, established under the terms of such other plans and then by allocating any remaining excess for this
Plan in the manner and priority set out above with respect to this Plan.
5.1-6 A limitation
year shall mean each 12 consecutive month period ending on December 31.
5.2
Effect
of Limitations
. The Committee shall take whatever action may be necessary from time to time to assure compliance with the
limitations set forth in Section 5.1 of the Plan. Specifically, the Committee shall see that each Employer restrict its contributions
for any Plan Year to an amount which, taking into account the amount of available forfeitures, may be completely allocated to the
Participants consistent with those limitations. Where the
limitations would otherwise be exceeded by
any Participant, further allocations to the Participant shall be curtailed to the extent necessary to satisfy the limitations.
Where an excessive amount is contributed on account of a mistake as to one or more Participants’ compensation, or there is
an amount of forfeitures which may not be credited in the Plan Year in which it becomes available, the amount shall be corrected
in accordance with Section 5.1-2 of the Plan. If it is determined at any time that the Committee and/or Trustee has erred in accepting
and allocating any contributions or forfeitures under this Plan, or in allocating net gain or loss pursuant to Sections 8.2 and
8.3 of the Plan, then the Committee, in a uniform and nondiscriminatory manner, shall determine the manner in which such error
shall be corrected and shall promptly advise the Trustee in writing of such error and of the method for correcting such error.
The Accounts of any or all Participants may be revised, if necessary, in order to correct such error.
5.3
Limitations
as to Certain Participants
. Aside from the limitations set forth in Section 5.1 of the Plan, if the Plan acquires any Stock
in a transaction as to which a selling shareholder or the estate of a deceased shareholder is claiming the benefit of Section 1042
of the Code, the Committee shall see that none of such Stock, and no other assets in lieu of such Stock, are allocated to the Accounts
of certain Participants in order to comply with Section 409(n) of the Code.
This restriction shall
apply at all times to a Participant who owns (taking into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more than 25 percent of any class of stock of
a corporation which issued the Stock acquired by the Plan, or another corporation within the same controlled group, as defined
in Section 409(l)(4) of the Code (any such class of stock hereafter called a “Related Class”). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time within the one year preceding the Plan’s purchase
of the Stock shall be subject to the restriction as to all allocations of the Stock, but any other Participant shall be subject
to the restriction only as to allocations which occur at a time when he owns more than 25 percent of any Related Class.
Further, this restriction
shall apply to the selling shareholder claiming the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period beginning on the date of sale and ending on the
later of (1) the date that is ten years after the date of sale, or (2) the date of the Plan allocation attributable to the final
payment of acquisition indebtedness incurred in connection with the sale.
This restriction shall
not apply to any Participant who is a lineal descendant of a selling shareholder if the aggregate amounts allocated under the Plan
for the benefit of all such descendants do not exceed five percent of the Stock acquired from the shareholder.
5.4
Erroneous
Allocations
. No Participant shall be entitled to any annual additions or other allocations to his Account in excess of
those permitted under Section 5 of the Plan. If it is determined at any time that the administrator and/or Trustee have erred in
accepting and allocating any contributions or forfeitures under this Plan, or in allocating investment adjustments, or in excluding
or including any person as a Participant, then the administrator, in a uniform and nondiscriminatory manner, shall determine the
manner in which such error shall be corrected, after taking into consideration Sections 3.5 and 3.6 of the Plan and any revenue
procedure or other notice published by the
Internal Revenue Service regarding permissible correction methods, if applicable, and shall promptly advise the Trustee in writing
of such error and of the method for correcting such error. The Accounts of any or all Participants may be revised, if necessary,
in order to correct such error.
Section 6.
Trust
Fund and Its Investment
.
6.1
Creation
of Trust Fund
. All amounts received under the Plan from Employers and investments shall be held as the Trust Fund pursuant
to the terms of this Plan and of the Trust Agreement between the Bank and the Trustee. The benefits described in this Plan shall
be payable only from the assets of the Trust Fund, and none of the Bank, any other Employer, its board of directors or trustees,
its stockholders, its officers, its employees, the Committee, and the Trustee shall be liable for payment of any benefit under
this Plan except from the Trust Fund.
6.2
Stock
Fund and Investment Fund
. The Trust Fund held by the Trustee shall be divided into the Stock Fund, consisting entirely
of Stock, and the Investment Fund, consisting of all assets of the Trust other than Stock. The Trustee shall have no investment
responsibility for the Stock Fund, but shall accept any Employer contributions made in the form of Stock, and shall acquire, sell,
exchange, distribute, and otherwise deal with and dispose of Stock in accordance with the instructions of the Committee. As a directed
Trustee, the Trustee shall have such responsibility for the investment of the Investment Fund as set forth in the Trust Agreement.
6.3
Acquisition
of Stock
. From time to time the Committee may, in its sole discretion, direct the Trustee to acquire Stock from the issuing
Employer or from shareholders, including shareholders who are or have been Employees, Participants, or fiduciaries with respect
to the Plan. The Trustee shall pay for such Stock no more than its fair market value, which shall be determined conclusively by
the Committee pursuant to Section 12.4 of the Plan. The Committee may direct the Trustee to finance the acquisition of Stock by
incurring or assuming indebtedness to the seller or another party which indebtedness shall be called an “Exempt Loan.”
The term “Exempt Loan” shall refer to a loan made to the Plan by a disqualified person within the meaning of Section
4975(e)(2) of the Code, or a loan to the Plan which is guaranteed by a disqualified person. An Exempt Loan includes a direct loan
of cash, a purchase-money transaction, and an assumption of an obligation of a tax-qualified employee stock ownership plan under
Section 4975(e)(7) of the Code (“ESOP”). For these purposes, the term “guarantee” shall include an unsecured
guarantee and the use of assets of a disqualified person as collateral for a loan, even though the use of assets may not be a guarantee
under applicable state law. An amendment of an Exempt Loan in order to qualify as an “exempt loan” is not a refinancing
of the Exempt Loan or the making of another Exempt Loan. The term “exempt loan” refers to a loan that is primarily
for the benefit of the Plan participants and their beneficiaries and that satisfies the provisions of this paragraph. A “non-exempt
loan” fails to satisfy this paragraph. Any Exempt Loan shall be subject to the following conditions and limitations:
6.3-1 All
Exempt Loans incurred by the Plan must be primarily for the benefit of Plan Participants and Beneficiaries, and an Exempt Loan
shall be for a specific term, shall not be payable on demand except in the event of default, and shall bear a reasonable rate of
interest, such that the interest rate and the price of the securities to be acquired
with the Exempt Loan will not cause
the Plan’s assets to be inappropriately impaired in violation of Treasury Regulation Section 54.4975-7(b)(3).
6.3-2 An Exempt
Loan may, but need not, be secured by a collateral pledge of either the Stock acquired in exchange for the Exempt Loan, or the
Stock previously pledged in connection with a prior Exempt Loan which is being repaid with the proceeds of the current Exempt Loan.
No other assets of the Plan and Trust may be used as collateral for an Exempt Loan, and no creditor under an Exempt Loan shall
have any right or recourse to any Plan and Trust assets other than Stock remaining subject to a collateral pledge.
6.3-3 Any
pledge of Stock to secure an Exempt Loan must provide for the release of pledged Stock in connection with payments on the Exempt
Loans in the ratio prescribed in Section 4.2 of the Plan.
6.3-4 Repayments
of principal and interest on any Exempt Loan shall be made by the Trustee only from Employer cash contributions designated for
such payments, from earnings on such contributions, and from cash dividends received on Stock, in the last case, however, subject
to the further requirements of Section 7.2 of the Plan. The payment on the Exempt Loan during the Plan Year must not exceed an
amount equal to the sum of contributions and earnings received during such year or prior to such year, less such payments in prior
years. The contributions and earnings must be accounted for separately in the books and accounts of the Plan until the Exempt Loan
is fully repaid.
6.3-5 In the
event of default of an Exempt Loan, the value of Plan assets transferred in satisfaction of the Exempt Loan must not exceed the
amount of the default. If the lender is a disqualified person within the meaning of Section 4975 of the Code, an Exempt Loan must
provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the payment schedule
of said Exempt Loan. For purposes of this paragraph, the making of a guarantee does not make a person a lender.
6.4
Participants’
Option to Diversify
. The Committee shall provide for a procedure under which each Participant may, during the qualified
election period, elect to “diversify” a portion of the Employer Stock allocated to his Account, as provided in Section
401(a)(28)(B) of the Code. An election to diversify must be made on the prescribed form and filed with the Committee within the
period specified herein. For each of the first five (5) Plan years in the qualified election period, the Participant may elect
to diversify an amount which does not exceed 25 percent of the number of shares allocated to his Account since the inception of
the Plan, less all shares with respect to which an election under this Section has already been made. For the last year of the
qualified election period, the Participant may elect to have up to 50 percent of the value of his Account committed to other investments,
less all shares with respect to which an election under this Section has already been made. The term “qualified election
period” shall mean the six (6) Plan Year period beginning with the first Plan Year in which a Participant has both attained
age 55 and completed 10 years of participation in the Plan. A Participant’s election to diversify his Account may be made
within each year of the qualified election period and shall continue for the 90-day period immediately following the last day of
each year in the qualified election period. Once a Participant makes such election, the Plan must complete diversification
in accordance with such election within 90
days after the end of the period during which the election could be made for the Plan Year. In the discretion of the Committee,
the Plan may satisfy the diversification requirement by any of the following methods:
6.4-1 The
Plan may distribute all or part of the amount subject to the diversification election.
6.4-2 The
Plan may offer the Participant at least three other distinct investment options, if available under the Plan. The other investment
options shall satisfy the requirements of Regulations under Section 404(c) of ERISA.
6.4-3 The
Plan may transfer the portion of the Participant’s Account subject to the diversification election to another qualified defined
contribution plan of the Employer that offers at least three investment options satisfying the requirements of the Regulations
under Section 404(c) of ERISA.
Section 7.
Voting
Rights and Dividends on Stock
.
7.1
Voting
and Tendering of Stock
.
7.1-1 The
Trustee generally shall vote all shares of Stock held under the Plan in accordance with the written instructions of the Committee.
However, if any Employer has a registration-type class of securities within the meaning of Section 409(e)(4) of the Code, or if
a matter submitted to the holders of the Stock involves a merger, consolidation, recapitalization, reclassification, liquidation,
dissolution, or sale of substantially all assets of an entity, then (i) the shares of Stock which have been allocated to Participants’
Accounts shall be voted by the Trustee in accordance with the Participants’ written instructions, and (ii) the Trustee shall
vote any unallocated Stock, allocated Stock for which it has received no voting instructions, and Stock for which Participants
vote to “abstain,” in the same proportions as it votes the allocated Stock for which it has received instructions from
Participants. In the event no shares of Stock have been allocated to Participants’ Accounts at the time Stock is to be voted
and any exempt loan which may be outstanding is not in default, each Participant shall be deemed to have one share of Stock allocated
to his or her Account for the sole purpose of providing the Trustee with voting instructions.
Notwithstanding
any provision hereunder to the contrary, all unallocated shares of Stock must be voted by the Trustee in a manner determined by
the Trustee to be for the exclusive benefit of the Participants and Beneficiaries. Whenever such voting rights are to be exercised,
the Employers shall provide the Trustee, in a timely manner, with the same notices and other materials as are provided to other
holders of the Stock, which the Trustee shall distribute to the Participants. The Participants shall be provided with adequate
opportunity to deliver their instructions to the Trustee regarding the voting of Stock allocated to their Accounts. The instructions
of the Participants’ with respect to the voting of allocated shares hereunder shall be confidential.
7.1-2 In the
event of a tender offer, Stock shall be tendered by the Trustee in the same manner as set forth above with respect to the voting
of Stock. Notwithstanding any
provision hereunder to the contrary,
Stock must be tendered by the Trustee in a manner determined by the Trustee to be for the exclusive benefit of the Participants
and Beneficiaries.
7.2
Application
of Dividends
.
7.2-1
Stock
Dividends
. Dividends on Stock which are received by the Trustee in the form of additional Stock shall be retained in the Stock
Fund, and shall be allocated among the Participants’ Accounts and the Unallocated Stock Fund in accordance with their holdings
of the Stock on which the dividends are paid.
7.2-2
Cash
Dividends
. The treatment of dividends paid in cash shall be determined after consideration to whether the cash dividends are
paid on Stock held in Participants’ Accounts or the Unallocated Stock Fund.
(i)
On
Stock in Participants’ Accounts
.
(A)
Employer
Exercises Discretion
. Dividends on Stock credited to Participants’ Accounts which are received by the Trustee in the
form of cash shall, at the direction of the Employer paying the dividends, either (I) be credited to the Accounts in accordance
with Section 8.4(iii) of the Plan and invested as part of the Investment Fund, (II) be distributed immediately to the Participants
in proportion with the Participants’ Stock Fund Account balance (III) be distributed to the Participants within 90 days of
the close of the Plan Year in which paid in proportion with the Participants’ Stock Fund Account balance or (IV) be used
to make payments on the Exempt Loan. If dividends on Stock allocated to a Participant’s Account are used to repay the Exempt
Loan, Stock with a fair market value equal to the dividends so used must be allocated to such Participant’s Account in lieu
of the dividends.
(B)
Participant
Exercises Discretion over Dividend
. In addition, in the sole discretion of the Employer, the Employer may grant Participants
the right to elect: (I) to have cash dividends paid on shares of Stock credited to such Participants’ Stock Fund Accounts
distributed to the Participant, or (II) to leave the cash dividends allocated to the Participant’s Account in the Plan, to
be credited to the Stock Fund Account and invested in shares of Stock. Dividends on which such election may be made will be fully
vested in the Participant (even if not otherwise vested, absent the ability to make such election). Accordingly, the Employer may
choose to offer this election only to Participants who are fully vested in their Account. In the event the Employer elects to give
Participants the right to determine the treatment of such dividends, the Participant’s election shall be made by filing with
the Committee the appropriate written direction as provided by the Committee at such time and in accordance with such procedures
and limitations which the Committee may from time to time establish; provided, however, that the
procedures established by the Committee
shall provide a reasonable opportunity to change the election at least annually, may establish a default election if a Participant
fails to make an affirmative election within the time established for making elections, may provide that the election is applicable
for the Plan Year and cannot be revoked with respect to such Plan Year, shall otherwise be implemented in a manner such that the
dividends paid or reinvested will constitute “applicable dividends” which may be deducted under Code Section 404(k),
and are in accordance with applicable guidance issued or to be issued by the Secretary of the Treasury. If the Employer elects
to give Participants the right to exercise the discretion in this Paragraph 7.2-2(i)(B), the ability to make such election shall
be available to the Participant with respect to dividends paid for the entire Plan Year.
(ii)
On
Stock in the Unallocated Stock Fund
. Dividends received on shares of Stock held in the Unallocated Stock Fund shall be applied
to the repayment of principal and interest then due on the Exempt Loan used to acquire such shares. If the amount of dividends
exceeds the amount needed to repay such principal and interest (including any prepayments of principal and interest deemed advisable
by the Employer), then in the sole discretion of the Committee, the excess shall: (A) be allocated to Active Participants, pro
rata, in proportion to the Compensation of each such person that was earned during that portion of the Plan Year that such person
participated in the Plan compared to total Compensation of each Active Participant for such year, or (B) be deemed to be general
earnings of the Trust Fund and used for paying appropriate Plan or Trust related expenditures for the Plan Year. Notwithstanding
the foregoing, dividends paid on a share of Stock may not be used to make payments on a particular Exempt Loan unless the share
was acquired with the proceeds of such loan or a refinancing of such loan.
Section 8.
Adjustments
to Accounts
.
8.1
ESOP
Allocations
. Amounts available for allocation for a particular Plan Year will be divided into two categories. The first
category relates to shares of Stock released from the Unallocated Stock Fund attributable to using cash dividends to make Exempt
Loan payments. The second category relates to contributions made by the Employer, shares of Stock released from the Unallocated
Stock Fund on the basis of Employer contributions (or on the basis of the complete repayment of the Exempt Loan through the sale
or other disposition of Stock in the Unallocated Stock Fund) and amounts forfeited from Stock Fund Accounts pursuant to Section
9.5 of the Plan.
8.1-1 Shares
of Stock attributable to the first category will be allocated to the Stock Fund Accounts of eligible Participants as follows:
(i) first,
if dividends paid on shares of Stock held in Participants’ Stock Fund Accounts are used to make payments on an Exempt Loan,
there shall be allocated to each such account a number of shares of Stock released from the Unallocated Stock Fund with a fair
market value (determined as of the Valuation
Date coincident with or immediately
preceding the loan payment date) that at least equals the amount of dividends so used,
(ii) second,
if necessary, any remaining shares of Stock shall be applied to reinstate amounts forfeited from Stock Fund Accounts of former
employees who are entitled to a reinstatement under Section 9.5 of the Plan, and
(iii) finally,
any remaining shares of Stock shall be allocated as of the last Valuation Date of the Plan Year for which they are allocated in
the same manner as described in Section 8.1-2 of the Plan.
8.1-2 Shares
of Stock or cash attributable to the second category (i.e., Employer contributions, Stock released from the Unallocated Stock Fund
on the basis of Employer contributions, amounts forfeited, and, to the extent applicable, shares of Stock released in accordance
with Section 8.1-1(iii) of the Plan) will be allocated to the Stock Fund Accounts or Investment Fund Accounts, as the case may
be, pro rata, in proportion to the Compensation of each Active Participant that was earned by such Participant during the period
of the Plan Year in which such person participated in the Plan compared to total Compensation for all Active Participants.
8.1-3 Shares
of Stock or cash attributable to contributions made under Section 4.1-2 of the Plan shall be allocated specifically to the
Participants on whose behalf such contributions were made.
8.2
Charges
to Accounts
. When a Valuation Date occurs, any distributions made to or on behalf of any Participant or Beneficiary since
the last preceding Valuation Date shall be charged to the proper Accounts maintained for that Participant or Beneficiary.
8.3
Stock
Fund Account
. Subject to the provisions of Sections 5 and 8.1 of the Plan, as of the last day of each Plan Year, the
Trustee shall credit to each Participant’s Stock Fund Account: (a) the Participant’s allocable share of Stock purchased
by the Trustee or contributed by the Employer to the Trust Fund for that year; (b) the Participant’s allocable share of the
Stock that is released from the Unallocated Stock Fund for that year; (c) the Participant’s allocable share of any forfeitures
of Stock arising under the Plan during that year; and (d) any stock dividends declared and paid during that year on Stock credited
to the Participant’s Stock Fund Account.
If, in any Plan Year during
which an outstanding Exempt Loan exists, the Employer directs the Trustee to sell or otherwise dispose of a number of shares of
Stock in the Unallocated Stock Fund sufficient to repay, in its entirety, the Exempt Loans, and following such repayment, there
remains Stock or other assets in the Unallocated Stock Fund, such Stock or other assets shall be allocated as of the last day of
the Plan Year in which the repayment occurred as earnings of the Plan to Active Participants, in proportion to the number of shares
held in Active Participants’ Stock Fund Accounts.
8.4
Investment
Fund Account
. Subject to the provisions of Sections 5 and 8.1 of the Plan as of the last day of each Plan Year, the Trustee
shall credit to each Participant’s Investment Fund Account: (i) the Participant’s allocable share of any contribution
for that year made by the
Employer in cash or in property other than
Stock that is not used by the Trustee to purchase Employer Stock or to make payments due under an Exempt Loan; (ii) the Participant’s
allocable share of any forfeitures from the Investment Fund Accounts of other Participants arising under the Plan during that year;
(iii) any cash dividends paid during that year on Stock credited to the Participant’s Stock Fund Account, other than dividends
which are paid directly to the Participant and other than dividends which are used to repay Exempt Loan; and (iv) the share of
the net income or loss of the Trust Fund properly allocable to that Participant’s Investment Fund Account, as provided in
Section 8.5 of the Plan.
8.5
Adjustment
to Value of Trust Fund
. As of the last day of each Plan Year, the Trustee shall determine: (i) the net worth of that portion
of the Trust Fund which consists of properties other than Stock (the “Investment Fund”); and (ii) the increase or decrease
in the net worth of the Investment Fund since the last day of the preceding Plan Year. The net worth of the Investment Fund shall
be the fair market value of all properties held by the Trustee under the Trust Agreement other than Stock, net of liabilities other
than liabilities to Participants and their beneficiaries. The Trustee shall allocate to the Investment Fund Account of each Participant
that percentage of the increase or decrease in the net worth of the Investment Fund equal to the ratio which the balances credited
to the Participant’s Investment Fund Account bear to the total amount credited to all Participants’ Investments Fund
Accounts. This allocation shall be made after application of Section 7.2 of the Plan, but before application of Sections 8.1, 8.4
and 5.1 of the Plan.
8.6
Participant
Statements
. Each Plan Year, the Committee shall provide or shall cause to be provided to each Participant a statement of
his or her Account balances, and the vested percentage thereof, as of the last day of the Plan Year.
Section 9.
Vesting
of Participants’ Interests
.
9.1
Vesting
in Accounts
. A Participant’s vested interest in his Account shall be based on his Vesting Years in accordance with
the following table, subject to the balance of this Section 9:
|
Year
of
|
|
Percentage of
|
|
Service
|
|
Interest
Vested
|
|
Fewer than 3
|
|
0%
|
|
3 or more
|
|
100%
|
9.2
Computation
of Vesting Years
. For purposes of this Plan, a Vesting Year means generally one year of Service, and including Service
with other Employers as provided in the definition of “Service.” Notwithstanding the above, an Eligible Employee who
was employed with the Bank shall receive credit for vesting purposes beginning with the with the Employee’s initial Service
with the Employer. However, a Participant’s Vesting Years shall be computed subject to the following conditions and qualifications:
9.2-1 A Participant’s
Vesting Years shall not include any Service prior to the date on which an Employee attains age 18.
9.2-2 To the
extent applicable, a Participant’s vested interest in his Account accumulated before five (5) consecutive One Year Periods
of Severance shall be determined without regard to any Service after such five consecutive Periods of Severance. Further, if a
Participant has five (5) consecutive One Year Periods of Severance before his interest in his Account has become vested to some
extent, pre-One Year Period of Severance years of Service shall not be required to be taken into account for purposes of determining
his post-One Year Period of Severance vested percentage.
9.2-3 To the
extent applicable, in the case of a Participant who has five (5) or more consecutive One Year Periods of Severance, the Participant’s
pre-One Year Period of Severance Service will count in vesting of the Employer-derived post-One Year Period of Severance Service
accrued benefit only if either:
(i) such
Participant has any nonforfeitable interest in the accrued benefit attributable to Employer contributions at the time of severance
from employment, or
(ii) upon
returning to Service the number of consecutive One Year Periods of Severance Service is less than the number of years of Service.
9.2-4 Notwithstanding
any provision of the Plan to the contrary, calculation of service for determining Vesting Years with respect to qualified military
service will be provided in accordance with Section 414(u) of the Code.
9.2-5 To the
extent applicable, if any amendment changes the vesting schedule, including an automatic change to or from a top-heavy vesting
schedule, any Participant with three (3) or more Vesting Years may, by filing a written request with the Employer, elect to have
his vested percentage computed under the vesting schedule in effect prior to the amendment. The election period must begin not
later than the later of sixty (60) days after the amendment is adopted, the amendment becomes effective, or the Participant is
issued written notice of the amendment by the Employer or the Committee.
9.3
Full
Vesting Upon Certain Events
.
9.3-1 Notwithstanding
Section 9.1 of the Plan, a Participant’s interest in his Account shall fully vest on the Participant’s Normal Retirement
Date. The Participant’s interest shall also fully vest in the event that his Service is terminated by Disability or by death.
For purposes of this Section 9.3-1, benefits payable in the event of a Participant’s death or Disability while performing
qualified military service shall fully vest in accordance with Section 414(u)(9) of the Code.
9.3-2 The
Participant’s interest in his Account shall also fully vest in the event of a “Change in Control” of the Bank,
or the Company. For these purposes “Change in Control” means a change in control of a nature that: (i) would be required
to be reported in response to Item 5.01 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii) results in a Change in Control of
the Bank or the Company within the meaning of the Bank Holding Company Act of 1956, as amended (“BHCA”); or (iii)
without limitation such a Change
in Control shall be deemed to have occurred at such time as (a) any “person” (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s
outstanding securities, except for any securities purchased by the Bank’s employee stock ownership plan or trust; or (b)
individuals who constitute the Board of the Directors on the date hereof (the “Incumbent Board”) cease for any reason
to constitute at least a majority thereof,
provided
that any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination
for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction
in which the Bank or Company is not the surviving institution occurs or is effected; or (d) a proxy statement soliciting proxies
from stockholders of the Company is distributed, by someone other than the current management of the Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more business organizations
as a result of which the outstanding shares of the class of securities then subject to the plan are to be exchanged for or converted
into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting
securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the
Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror.
9.4
Full
Vesting Upon Plan Termination
. Notwithstanding Section 9.1 of the Plan, a Participant’s interest in his Account shall
fully vest upon termination of this Plan or upon the permanent and complete discontinuance of contributions by his Employer. In
the event of a partial termination, the interest of each affected Participant shall fully vest with respect to that part of the
Plan which is terminated. A partial termination of the Plan shall be determined by the Internal Revenue Service Commissioner based
on the facts and circumstances of the particular case in accordance with Code Section 411(d)(3) and the corresponding Treasury
Regulations issued thereunder.
9.5
Forfeiture,
Repayment, and Restoral
. If a Participant’s Service terminates before his interest in his Account is fully vested,
that portion which has not vested shall be forfeited after a One Year Period of Severance. If a Participant’s Service terminates
prior to having any portion of his Account become vested, such Participant shall be deemed to have received a distribution of his
vested interest immediately upon his termination of Service.
If a Participant who has
suffered a forfeiture of the nonvested portion of his Account returns to Service before he has five (5) consecutive One Year Periods
of Severance, the nonvested portion shall be restored, provided that, if the Participant had received a distribution of his vested
Account balance, the amount distributed shall be repaid prior to such restoral. The Participant may repay such amount at any time
within five years after he has returned to Service.
The amount repaid shall be credited to his
Account at the time it is repaid; an additional amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees’ forfeitures and, if such forfeitures are insufficient,
then from amounts allocated in accordance with Section 8.1-1(ii) of the Plan, and if insufficient, then from a special contribution
by his Employer for that year. A Participant who was deemed to have received a distribution of his vested interest in the Plan
shall have his Account restored as of the first day on which he performs an Hour of Service after his return.
In addition, if a Participant
did not receive a distribution of his vested Account balance but his non-vested Account balance was forfeited after a One Year
Period of Severance, such nonvested Account balance shall be restored if the Plan terminates before the Participant has a five-year
One Year Period of Service. If the Participant did not receive a distribution of his vested Account balance, any forfeiture restored
shall include earnings that would have been credited to the Account but for the forfeiture.
For purposes of this Section
and Section 5.1 of the Plan, if a portion of a Participant’s Account is forfeited, Stock allocated from an Exempt Loan will
be forfeited only after other assets. If interests in more than one class of Stock have been allocated to a Participant’s
Account, the Participant must be treated as forfeiting the same proportion of each such class.
9.6
Accounting
for Forfeitures
. If a portion of a Participant’s Account is forfeited, Stock allocated to said Participant’s
Account shall be forfeited only after other assets are forfeited. If interests in more than one class of Stock have been allocated
to a Participant’s Account, the Participant must be treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant’s Account as of the first day of the first Valuation Period in which the forfeiture becomes
certain pursuant to Section 9.5 of the Plan. Except as otherwise provided in that Section, a forfeiture shall be added to the contributions
of the terminated Participant’s Employer which are to be credited to other Participants pursuant to Section 4.1 of the Plan
as of the last day of the Plan Year in which the forfeiture becomes certain.
9.7
Vesting
and Nonforfeitability
. A Participant’s interest in his Account which has become vested shall be nonforfeitable for
any reason.
Section 10.
Payment
of Benefits
.
10.1
Benefits
for Participants
. For a Participant whose Service ends for any reason, distribution will be made to or for the benefit
of the Participant or, in the case of the Participant’s death, his Beneficiary, by payment in a lump sum, in accordance with
Section 10.2 of the Plan. Prior to any such distribution, any Participant entitled to a distribution will receive a form upon
which the Participant can elect the manner of such distribution (e.g., whether to receive the distribution directly or transfer
such distribution to an individual retirement account or other tax-qualified plan), a special tax notice regarding the consequences
of such distribution, and, if applicable, that the Participant has the right not to consent to a distribution at such time.
If a Participant so desires,
he may direct how his benefits are to be paid to his Beneficiary. Notice to the Participant with regard to having the right to
elect the manner in
which his vested Account balance will be distributed
to him may be given up to 180 days before the first day of the first period for which an amount is payable. If a deceased Participant
did not file a direction with the Committee, the Participant’s benefits shall be distributed to his Beneficiary in a lump
sum. Notwithstanding any provision to the contrary, if the value of a Participant’s vested Account balance at the time of
any distribution does not exceed $1,000, then such Participant’s vested Account shall be distributed, without regard to whether
the Participant consents, in a lump sum within 60 days after the end of the Plan Year in which employment terminates. If the value
of a Participant’s vested Account balance is in excess of $5,000, then his benefits shall not be paid prior to his Normal
Retirement Date unless he elects an early payment date in a written election filed with the Committee. A Participant may modify
such an election at any time, provided any new benefit payment date is at least 30 days after a modified election is delivered
to the Committee. The Committee shall provide the Participant with written notice designed to comply with the requirements of Code
Section 411(a)(11), and shall provide the Participant with a general description of the material features of the optional forms
of benefits under the Plan and the right to defer receipt of any distribution under the Plan. Such notice shall be provided no
less than 30 days and no more than 180 days before the date a distribution under the Plan commences. Notwithstanding the foregoing,
failure of a Participant to consent to a distribution prior his Normal Retirement Date shall be deemed to be an election to defer
commencement of payment of any benefit under this section. Notwithstanding the foregoing, unless a Participant elects to receive
a distribution, the Committee shall transfer accounts of $1,000 or more, but not exceeding $5,000, in a direct rollover to an individual
retirement plan designated by the Committee in accordance with Code Section 401(a)(31)(B) and the regulations promulgated thereunder.
All distributions of $5,000 or less that are made pursuant to this Section without the Participant’s consent shall be made
in cash.
Notwithstanding anything
to the contrary, in the event the Participant dies while performing qualified military service (as defined Section 414(u) of the
Code), the Participant’s Beneficiary shall be entitled to any additional benefit provided under the Plan had the Participant
resumed and then severed from employment on account of death.
10.2
Time
for Distribution
.
10.2-1 If
the Participant and, if applicable, with the consent of the Participant’s spouse, elects the distribution of the Participant’s
Account balance in the Plan, distribution shall commence as soon as practicable following his termination of Service, but no later
than one year after the close of the Plan Year in which the Participant severs employment by reason of attainment of Normal Retirement
Age under the Plan, Disability, or death, or which is the fifth Plan Year following the Plan Year in which the Participant otherwise
severs employment, except that this clause shall not apply if the Participant is reemployed by the Employer before distribution
is required to begin.
10.2-2 Unless
the Participant elects otherwise, the distribution of the balance of a Participant’s Account shall commence not later than
the 60th day after the latest of the close of the Plan Year in which -
(i) the
Participant attains the age of 65;
(ii)
occurs the tenth anniversary of the year in which the Participant commenced participation in the Plan; or
(iii) the
Participant terminates his Service with the Employer.
10.2-3 Notwithstanding
anything to the contrary, (1) with respect to a 5-percent owner (as defined in Code Section 416), distribution of a Participant’s
Account shall commence (whether or not he remains in the employ of the Employer) not later than the April 1 of the calendar year
next following the calendar year in which the Participant attains age 70½, and (2) with respect to all other Participants,
payment of a Participant’s benefit will commence not later than April 1 of the calendar year following the calendar year
in which the Participant attains age 70½, or, if later, the year in which the Participant retires. A Participant’s
benefit from that portion of his Account committed to the Investment Fund shall be calculated on the basis of the most recent Valuation
Date before the date of payment.
10.2-4 Distribution
of a Participant’s Account balance after his death shall comply with the following requirements:
(i) If
a Participant dies before his distributions have commenced, distribution of his Account to his Beneficiary shall commence not later
than one year after the end of the Plan Year in which the Participant died; however, if the Participant’s Beneficiary is
his surviving Spouse, distributions may commence on the date on which the Participant would have attained age 70½.
In either case, distributions shall be completed within five years after they commence.
(ii) If
the Participant dies after distribution has commenced pursuant to Section 10.1 of the Plan but before his entire interest in the
Plan has been distributed to him, then the remaining portion of that interest shall, in accordance with Section 401(a)(9) of the
Code, be distributed at least as rapidly as under the method of distribution being used under Section 10.1 of the Plan at the date
of his death.
(iii) If
a married Participant dies before his benefit payments begin, then the Committee shall cause the balance in his Account to be paid
to his Beneficiary, provided, however, that no election by a married Participant of a different Beneficiary than his surviving
Spouse shall be valid unless the election is accompanied by the Spouse’s written consent, which (A) must acknowledge the
effect of the election, (B) must explicitly provide either that the designated Beneficiary may not subsequently be changed by the
Participant without the Spouse’s further consent, or that it may be changed without such consent, and (C) must be witnessed
by the Committee, its representative, or a notary public. This requirement shall not apply if the Participant establishes to the
Committee’s satisfaction that the Spouse may not be located.
10.2-5 If
a Participant or any other distributee’s distribution is rolled over to another eligible retirement plan following the Participant’s
required beginning date (as
determined in accordance with Section
10.2-3 of the Plan), only the amount that exceeds the required minimum distribution amount for the Plan Year (as determined in
accordance with Code Section 401(a)(9)) in which the rollover is completed is treated as an eligible rollover distribution for
purposes of Section 10.9 of the Plan.
10.2-6 All
distributions under this section shall be determined and made in accordance with Code Section 401(a)(9) and final Treasury Regulations
Sections 1.401(a)(9)-1 through 1.401(a)(9)-9, including the minimum distribution incidental benefit requirements of Code Section
401(a)(9)(G). These provisions override any distribution options in the Plan inconsistent with Code Section 401(a)(9).
10.3
Marital
Status
. The Committee, the Plan, the Trustee, and the Employers shall be fully protected and discharged from any liability
to the extent of any benefit payments made as a result of the Committee’s good faith and reasonable reliance upon information
obtained from a Participant and his Employer as to his marital status.
10.4
Delay
in Benefit Determination
. If the Committee is unable to determine the benefits payable to a Participant or Beneficiary
on or before the latest date prescribed for payment pursuant to Section 10.1 or 10.2 of the Plan, the benefits shall in any event
be paid within 60 days after they can first be determined, with whatever makeup payments may be appropriate in view of the delay.
10.5
Accounting
for Benefit Payments
. Any benefit payment shall be charged to the Participant’s Account as of the first day of the
Valuation Period in which the payment is made.
10.6
Options
to Receive Stock
. Unless ownership of virtually all Stock is restricted to active Employees and qualified retirement plans
for the benefit of Employees pursuant to the certificates of incorporation or by-laws of the Employers issuing Stock, a terminated
Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant’s entire
vested interest in his Account in the form of Stock. In that event, the Committee shall apply the Participant’s vested interest
in the Investment Fund to purchase sufficient Stock from the Stock Fund or from any owner of Stock to make the required distribution.
In all other cases, other than as specifically set forth in Section 10.1 of the Plan, the Participant’s vested interest in
the Stock Fund shall be distributed in shares of Stock, and his vested interest in the Investment Fund shall be distributed in
cash. If Stock acquired with the proceeds of an Exempt Loan available for distribution consist of more than one class of Stock,
the Participant (or Beneficiary, if applicable) must receive substantially the same proportion of each such class.
Any Participant who receives
Stock pursuant to Section 10.1 of the Plan, and any person who has received Stock from the Plan or from such a Participant by reason
of the Participant’s death or incompetence, by reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall have the right to require the Employer which issued the Stock to
purchase the Stock for its current fair market value (hereinafter referred to as the “put right”). The put right shall
be exercisable by written notice to the Committee during the first 60 days after the Stock is distributed by the Plan, and, if
not exercised in that period, during the first 60 days in the following Plan Year after the Committee
has communicated to the Participant its determination
as to the Stock’s current fair market value. However, the put right shall not apply to the extent that the Stock, at the
time the put right would otherwise be exercisable, may be sold on an established market in accordance with federal and state securities
laws and regulations. Similarly, the put option shall not apply with respect to the portion of a Participant’s Account which
the Employee elected to have reinvested under Code Section 401(a)(28)(B). If the put right is exercised, the Trustee may, if so
directed by the Committee in its sole discretion, assume the Employer’s rights and obligations with respect to purchasing
the Stock. Notwithstanding anything herein to the contrary, in the case of a plan established by a bank (as defined in Code Section
581), the put option shall not apply if prohibited by a federal or state law and Participants are entitled to elect their benefits
be distributed in cash.
The Employer or the Trustee,
as the case may be, may elect to pay for the Stock in equal periodic installments, not less frequently than annually, over a period
beginning not later than 30 days after the exercise of the put right and not exceeding five years, with adequate security and interest
at a reasonable rate on the unpaid balance, all such terms to be set forth in a promissory note delivered to the seller with normal
terms as to acceleration upon any uncured default.
Nothing contained herein
shall be deemed to obligate any Employer to register any Stock under any federal or state securities law or to create or maintain
a public market to facilitate the transfer or disposition of any Stock. The put right described herein may only be exercised by
a person described in the second preceding paragraph, and may not be transferred with any Stock to any other person. As to all
Stock purchased by the Plan in exchange for any Exempt Loan, the put right shall be nonterminable. The put right for Stock acquired
through an Exempt Loan shall continue with respect to such Stock after the Exempt Loan is repaid or the Plan ceases to be an employee
stock ownership plan. Notwithstanding anything in the Plan to the contrary, if securities acquired with the proceeds of an Exempt
Loan available for distribution consist of more than one class, a distributee must receive substantially the same proportion of
each such class, in accordance with Treasury Regulations Section 54.4975-11(f)(2).
10.7
Restrictions
on Disposition of Stock
. Except in the case of Stock which is traded on an established market, a Participant who receives
Stock pursuant to Section 10.1 of the Plan, and any person who has received Stock from the Plan or from such a Participant by reason
of the Participant’s death or incompetence, by reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any sale or other transfer of the Stock to any other person,
first offer the Stock to the issuing Employer and to the Plan at the greater of (i) its current fair market value, or (ii) the
purchase price offered in good faith by an independent third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or gratuitous. Either the Employer or the Trustee
may accept the offer within 14 days after it is delivered. Any Stock distributed by the Plan shall bear a conspicuous legend describing
the right of first refusal under this Section 10.7, as well as any other restrictions upon the transfer of the Stock imposed by
federal and state securities laws and regulations.
10.8
Continuing
Loan Provisions; Creations of Protections and Rights
.
Except as otherwise provided in Sections 10.6 and 10.7 of the Plan
and this Section, no shares of Employer Stock held or distributed by the Trustee may be subject to a put, call or other option,
or buy-sell
arrangement. The provisions of this Section
shall continue to be applicable to such Stock even if the Plan ceases to be an employee stock ownership plan under Section 4975(e)(7)
of the Code.
10.9
Direct
Rollover of Eligible Distribution
. A Participant or distributee may elect, at the time and in the manner prescribed by
the Trustee or the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement
plan specified by the Participant or distributee in a direct rollover.
10.9-1 An
“eligible rollover” is any distribution that does not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the Participant and the Participant’s Beneficiary, or for a specified period of ten
years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); any hardship distribution
described in Section 401(k)(2)(B)(i)(IV) of the Code; and the portion of any distribution that is not included in gross income
(determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). Notwithstanding
the foregoing, an “eligible rollover” shall include a distribution that is made to a “distributee” as defined
under Section 10.9-4 of the Plan.
10.9-2 An
“eligible retirement plan” is an individual retirement account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), a deemed individual retirement account described in Code Section 408(q), an annuity plan
described in Code Section 403(a), a Roth individual retirement account in accordance with Code Section 408A(e), or a qualified
trust described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution. An eligible retirement
plan shall also include an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of
the Code which is maintained by a state, or any agency or instrumentality of a state or political subdivision of a state and which
agrees to separately account for amounts transferred into such plan from this Plan.
10.9-3 A “direct
rollover” is a payment by the Plan to the eligible retirement plan specified by the distributee.
10.9-4 The
term “distributee” shall refer to a deceased Participant’s Spouse or a Participant’s former Spouse who
is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), and shall include non-Spouse
Beneficiaries pursuant to Code Section 402(c)(11).
10.9-5 The Committee
shall provide Participants or other distributes of eligible rollover distributions with a written notice designed to comply with
the requirements of Code Section 402(f). Such notice shall be provided within a reasonable period of time before making an eligible
rollover distribution. Such notice may be provided up to 180 days before the first day of the first period for which an amount
is payable.
10.10
Waiver
of 30-Day Period After Notice of Distribution
.
If a distribution is one to which Sections 402(f) and 411(a)(11) of the
Code apply, such distribution may commence less
than 30 days after the notice required under
Section 1.402(f)-1 or 1.411(a)-11(c) of the Treasury Regulations is given, provided that:
(i) the
Trustee or Committee, as applicable, clearly informs the Participant that the Participant has a right to a period of at least 30
days after receiving the notice to consider the decision of whether or not to elect to make a tax-free rollover or receive a taxable
distribution (and, if applicable, a particular form of distribution), and
(ii) the
Participant, after receiving the notice, affirmatively elects to make a tax-free rollover or receive a taxable distribution.
Section 11.
Rules
Governing Benefit Claims and Review of Appeals
.
11.1
Claim
for Benefits
. Any Participant or Beneficiary who qualifies for the payment of benefits shall file a claim for his benefits
with the Committee on a form provided by the Committee. The claim, including any election of an alternative benefit form, shall
be filed at least 30 days before the date on which the benefits are to begin. If a Participant or Beneficiary fails to file a claim
by the day before the date on which benefits become payable, he shall be presumed to have filed a claim for payment for the Participant’s
benefits in the standard form prescribed by Sections 10.1 or 10.2 of the Plan.
11.2
Notification
by Committee
. Within 90 days after receiving a claim for benefits (or within 180 days, if special circumstances require
an extension of time and written notice of the extension is given to the Participant or Beneficiary within 90 days after receiving
the claim for benefits), the Committee shall notify the Participant or Beneficiary whether the claim has been approved or denied.
If the Committee denies a claim in any respect, the Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each
specific reason for the denial;
(ii) specific
references to the pertinent Plan provisions on which the denial is based;
(iii) a
description of any additional material or information which could be submitted by the Participant or Beneficiary to support his
claim, with an explanation of the relevance of such information; and
(iv) an
explanation of the claims review procedures set forth in Section 11.3 of the Plan.
11.3
Claims
Review Procedure
. Within 60 days after a Participant or Beneficiary receives notice from the Committee that his claim for
benefits has been denied in any respect, he may file with the Committee a written notice of appeal setting forth his reasons for
disputing the Committee’s determination. In connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent not inconsistent with other Participants’
and Beneficiaries’ rights of privacy. Within 60 days after receiving a notice of appeal from a prior determination (or within
120 days, if special circumstances require an extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative
within 60 days after receiving the notice of appeal), the Committee shall furnish to the Participant or Beneficiary and his representative,
if any, a written statement of the Committee’s final decision with respect to his claim, including the reasons for such decision
and the particular Plan provisions upon which it is based.
Section 12.
The
Committee and its Functions
.
12.1
Authority
of Committee
. The Committee shall be the “plan administrator” within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and
application of its provisions, except to the extent such responsibility and authority are otherwise specifically (i) allocated
to the Bank, the Employers, or the Trustee under the Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other parties by operation of law. The Committee shall
have exclusive responsibility regarding decisions concerning the payment of benefits under the Plan. The Committee shall have no
investment responsibility with respect to the Investment Fund except to the extent, if any, specifically provided in the Trust
Agreement. In the discharge of its duties, the Committee may employ accountants, actuaries, legal counsel, and other agents (who
also may be employed by an Employer or the Trustee in the same or some other capacity) and may pay their reasonable expenses and
compensation.
12.2
Identity
of Committee
. The Committee shall consist of two or more individuals selected by the Bank. Any individual, including a
director, trustee, shareholder, officer, or Employee of an Employer, shall be eligible to serve as a member of the Committee. The
Bank shall have the power to remove any individual serving on the Committee at any time without cause upon 10 days written notice,
and any individual may resign from the Committee at any time upon 10 days written notice to the Bank. The Bank shall notify the
Trustee of any change in membership of the Committee.
12.3
Duties
of Committee
. The Committee shall keep whatever records may be necessary to implement the Plan and shall furnish whatever
reports may be required from time to time by the Bank. The Committee shall furnish to the Trustee whatever information may be necessary
to properly administer the Trust. The Committee shall see to the filing with the appropriate government agencies of all reports
and returns required of the Plan under ERISA and other laws.
Further, the Committee
shall have exclusive responsibility and authority with respect to the Plan’s holdings of Stock and shall direct the Trustee
in all respects regarding the purchase, retention, sale, exchange, and pledge of Stock and the creation and satisfaction of Exempt
Loans. The Committee shall at all times act consistently with the Bank’s long-term intention that the Plan, as an employee
stock ownership plan, be invested primarily in Stock. In determining the proper extent of the Trust’s investment in Stock,
the Committee shall be authorized to employ investment counsel, legal counsel, appraisers, and other agents and to pay their reasonable
expenses and compensation.
12.4
Valuation
of Stock
. If the valuation of any Stock is not readily tradable on an established securities market, the valuation of such
Stock shall be determined by an independent
appraiser. For purposes of the preceding sentence,
the term “independent appraiser” means any appraiser meeting requirements similar to the requirements of the regulations
prescribed under Section 170(a)(1) of the Code. The Valuation Date for all Plan transactions, including transactions between the
Plan and a disqualified person, shall be the date of the transaction, in accordance with Treasury Regulations Section 54.4975-11(d)(5).
12.5
Compliance
with ERISA
. The Committee shall perform all acts necessary to comply with ERISA. Each individual member or employee of
the Committee shall discharge his duties in good faith and in accordance with the applicable requirements of ERISA.
12.6
Action
by Committee
. All actions of the Committee shall be governed by the affirmative vote of a number of members which is a
majority of the total number of members currently appointed, including vacancies.
12.7
Execution
of Documents
. Any instrument executed by the Committee shall be signed by any member or employee of the Committee.
12.8
Adoption
of Rules
. The Committee shall adopt such rules and regulations of uniform applicability as it deems necessary or appropriate
for the proper administration and interpretation of the Plan.
12.9
Responsibilities
to Participants
. The Committee shall determine which Employees qualify to enter the Plan. The Committee shall furnish to
each Eligible Employee whatever summary plan descriptions, summary annual reports, and other notices and information may be required
under ERISA. The Committee also shall determine when a Participant or his Beneficiary qualifies for the payment of benefits under
the Plan. The Committee shall furnish to each such Participant or Beneficiary whatever information is required under ERISA (or
is otherwise appropriate) to enable the Participant or Beneficiary to make whatever elections may be available pursuant to Sections
6 and 10 of the Plan, and the Committee shall provide for the payment of benefits in the proper form and amount from the assets
of the Trust Fund. The Committee may decide in its sole discretion to permit modifications of elections and to defer or accelerate
benefits to the extent such decision is consistent with applicable law and made in a non-discriminatory manner and in the best
interests of all Participants and Beneficiaries.
12.10
Alternative
Payees in Event of Incapacity
. If the Committee finds at any time that an individual qualifying for benefits under this
Plan is a minor or is incompetent, the Committee may direct the benefits to be paid, in the case of a minor, to his parents, his
legal guardian, or a custodian for him under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his spouse,
or his legal guardian, the payments to be used for the individual’s benefit. The Committee and the Trustee shall not be obligated
to inquire as to the actual use of the funds by the person receiving them under this Section 12.10, and any such payment shall
completely discharge the obligations of the Plan, the Trustee, the Committee, and the Employers to the extent of the payment.
12.11
Indemnification
by Employers
. Except as separately agreed in writing, the Committee, and any member or employee of the Committee, shall
be indemnified and held harmless by the Employer, jointly and severally, to the fullest extent permitted by ERISA, and
subject to and conditioned upon compliance
with 12 C.F.R. Section 545.121, to the extent applicable, against any and all costs, damages, expenses, and liabilities reasonably
incurred by or imposed upon it or him in connection with any claim made against it or him or in which it or he may be involved
by reason of its or his being, or having been, the Committee, or a member or employee of the Committee, to the extent such amounts
are not paid by insurance.
12.12
Nonparticipation
by Interested Member
. Any member of the Committee who also is a Participant in the Plan shall take no part in any determination
specifically relating to his own participation or benefits, unless his abstention would leave the Committee incapable of acting
on the matter.
Section 13.
Adoption,
Amendment, or Termination of the Plan
.
13.1
Adoption
of Plan by Other Employers
. With the consent of the Bank, any entity may become a participating Employer under the Plan
by (i) taking such action as shall be necessary to adopt the Plan, (ii) becoming a party to the Trust Agreement establishing the
Trust Fund, and (iii) executing and delivering such instruments and taking such other action as may be necessary or desirable to
put the Plan into effect with respect to the entity’s Employees.
13.2
Plan
Adoption Subject to Qualification
. Notwithstanding any other provision of the Plan, the adoption of the Plan and the execution
of the Trust Agreement are conditioned upon their being determined initially by the Internal Revenue Service to meet the qualification
requirements of Section 401(a) of the Code, so that the Employers may deduct currently for federal income tax purposes their contributions
to the Trust and so that the Participants may exclude the contributions from their gross income and recognize income only when
they receive benefits. In the event that this Plan is held by the Internal Revenue Service not to qualify initially under Section
401(a), the Plan may be amended retroactively to the earliest date permitted by U.S. Treasury Regulations in order to secure qualification
under Section 401(a). If this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) either
as originally adopted or as amended, each Employer’s contributions to the Trust under this Plan (including any earnings thereon)
shall be returned to it and this Plan shall be terminated. In the event that this Plan is amended after its initial qualification
and the Plan as amended is held by the Internal Revenue Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the earliest date permitted by U.S. Treasury Regulations in order to secure approval of the amendment under Section
401(a). In addition, reversions of Employer contributions (including earnings or losses attributable thereto) are permitted within
one year after the applicable determination date, if the reversion is due to a good faith mistake of fact.
13.3
Right
to Amend or Terminate
. The Bank intends to continue this Plan as a permanent program. However, each participating Employer
separately reserves the right to suspend, supersede, or terminate the Plan at any time and for any reason, as it applies to that
Employer’s Employees, and the Bank reserves the right to amend, suspend, supersede, merge, consolidate, or terminate the
Plan at any time and for any reason, as it applies to the Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant’s or Beneficiary’s proportionate interest
in the Trust Fund, (ii) reduce or restrict, either directly or indirectly, the benefit provided any Participant prior to the amendment,
or (iii) divert any portion of the Trust Fund to purposes other
than the exclusive benefit of the Participants
and their Beneficiaries prior to the satisfaction of all liabilities under the Plan. Moreover, there shall not be any transfer
of assets to a successor plan or merger or consolidation with another plan unless, in the event of the termination of the successor
plan or the surviving plan immediately following such transfer, merger, or consolidation, each participant or beneficiary would
be entitled to a benefit equal to or greater than the benefit he would have been entitled to if the plan in which he was previously
a participant or beneficiary had terminated immediately prior to such transfer, merger, or consolidation. Following a termination
of this Plan by the Bank, the Trustee shall continue to administer the Trust and pay benefits in accordance with the Plan as amended
from time to time and the Committee’s instructions.
Section 14.
Miscellaneous
Provisions
.
14.1
Plan
Creates No Employment Rights
. Nothing in this Plan shall be interpreted as giving any Employee the right to be retained
as an Employee by an Employer, or as limiting or affecting the rights of an Employer to control its Employees or to terminate the
Service of any Employee at any time and for any reason, subject to any applicable employment or collective bargaining agreements.
14.2
Nonassignability
of Benefits
. No assignment, pledge, or other anticipation of benefits from the Plan will be permitted or recognized by
the Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall not be subject to attachment, garnishment,
or other legal process for debts or liabilities of any Participant or Beneficiary, to the extent permitted by law. This prohibition
on assignment or alienation shall apply to any judgment, decree, or order (including approval of a property settlement agreement)
which relates to the provision of child support, alimony, or property rights to a present or former spouse, child or other dependent
of a Participant pursuant to a state domestic relations or community property law, unless the judgment, decree, or order is determined
by the Committee to be a qualified domestic relations order within the meaning of Section 414(p) of the Code, as more fully set
forth in Section 14.12 hereof.
14.3
Limit
of Employer Liability
. The liability of the Employer with respect to Participants under this Plan shall be limited to making
contributions to the Trust from time to time, in accordance with Section 4 of the Plan.
14.4
Treatment
of Expenses
. All expenses incurred by the Committee and the Trustee in connection with administering this Plan and Trust
Fund shall be paid by the Trustee from the Trust Fund to the extent the expenses have not been paid or assumed by the Employer
or by the Trustee. The Committee may determine that, and shall inform the Trustee when, reasonable expenses may be charged directly
to the Account or Accounts of a Participant or group of Participants to whom or for whose benefit such expenses are allocable,
subject to the guidelines set forth in Field Assistance Bulletin 2003-03, to the extent not superseded, or any successor directive
issued by the Department of Labor.
14.5
Number
and Gender
. Any use of the singular shall be interpreted to include the plural, and the plural the singular. Any use of
the masculine, feminine, or neuter shall be interpreted to include the masculine, feminine, or neuter, as the context shall require.
14.6
Nondiversion
of Assets
. Except as provided in Sections 5.2 and 14.12 of the Plan, under no circumstances shall any portion of the
Trust Fund be diverted to or used for any purpose other than the exclusive benefit of the Participants and their Beneficiaries
prior to the satisfaction of all liabilities under the Plan.
14.7
Separability
of Provisions
. If any provision of this Plan is held to be invalid or unenforceable, the other provisions of the Plan shall
not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.
14.8
Service
of Process
. The agent for the service of process upon the Plan shall be the president of the Bank, or such other person
as may be designated from time to time by the Bank.
14.9
Governing
State Law
. This Plan shall be interpreted in accordance with the laws of the Commonwealth of Massachusetts to the extent
those laws are applicable under the provisions of ERISA.
14.10
Employer
Contributions Conditioned on Deductibility
.
Employer Contributions to the Plan are conditioned on deductibility under
Code Section 404. In the event that the Internal Revenue Service shall determine that all or any portion of an Employer Contribution
is not deductible under that Section, the nondeductible portion shall be returned to the Employer within one year of the disallowance
of the deduction. In addition, reversions of Employer contributions (including earnings or losses attributable thereto) are permitted
within one year after the applicable determination date, if the reversion is due to a good faith mistake of fact. The maximum amount
that may be returned to the Employer in the case of a mistake of fact or the disallowance of a deduction is the excess of (1) the
amount contributed, over, as relevant, (2) (A) the amount that would have been contributed had no mistake of fact occurred, or
(B) the amount that would have been contributed had the contribution been limited to the amount that is deductible after any disallowance
by the Internal Revenue Service.
14.11
Unclaimed
Accounts
.
Neither the Employer nor the Trustees shall be under any obligation to search for, or ascertain the whereabouts
of, any Participant or Beneficiary. The Employer or the Trustees, by certified or registered mail addressed to his last known address
of record with the Employer, shall notify any Participant or Beneficiary that he is entitled to a distribution under this Plan,
and the notice shall quote the provisions of this Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven (7) calendar years after the date of notification,
the benefits of the Participant or Beneficiary under the Plan will be disposed of as follows:
(i) If
the whereabouts of the Participant is unknown but the whereabouts of the Participant’s Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(ii) If
the whereabouts of the Participant and his Beneficiary are unknown to the Trustees, the Plan will forfeit the benefit, provided
that the benefit is subject to a claim for reinstatement if the Participant or Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant
to the power herein conferred upon the Trustees shall operate as a complete discharge of all obligations of the Trustees, to the
extent of the distributions so made.
14.12
Qualified
Domestic Relations Order
.
Section 14.2 of the Plan shall not apply to a “qualified domestic relations order”
defined in Code Section 414(p), and such other domestic relations orders permitted to be so treated under the provisions of the
Retirement Equity Act of 1984. Further, to the extent provided under a “qualified domestic relations order,” a former
Spouse of a Participant shall be treated as the Spouse or surviving Spouse for all purposes under the Plan.
In the case of any domestic
relations order received by the Plan:
(i) The
Employer or the Committee shall promptly notify the Participant and any other alternate payee of the receipt of such order and
the Plan’s procedures for determining the qualified status of domestic relations orders, and
(ii) Within
a reasonable period after receipt of such order, the Employer or the Committee shall determine whether such order is a qualified
domestic relations order and notify the Participant and each alternate payee of such determination. The Employer or the Committee
shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions
under such qualified orders.
During any period in which
the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the Employer or
Committee, by a court of competent jurisdiction, or otherwise), the Employer or the Committee shall segregate in a separate account
in the Plan or in an escrow account the amounts which would have been payable to the alternate payee during such period if the
order had been determined to be a qualified domestic relations order. If within eighteen (18) months the order (or modification
thereof) is determined to be a qualified domestic relations order, the Employer or the Committee shall pay the segregated amounts
(plus any interest thereon) to the person or persons entitled thereto. If within eighteen (18) months it is determined that the
order is not a qualified domestic relations order, or the issue as to whether such order is a qualified domestic relations order
is not resolved, then the Employer or the Committee shall pay the segregated amounts (plus any interest thereon) to the person
or persons who would have been entitled to such amounts if there had been no order. Any determination that an order is a qualified
domestic relations order which is made after the close of the eighteen (18) month period shall be applied prospectively only. The
term “alternate payee” means any Spouse, former Spouse, child or other dependent of a Participant who is recognized
by a domestic relations order as having a right to receive all, or a portion of, the benefit payable under a Plan with respect
to such Participant.
14.13
Use
of Electronic Media to Provide Notices and Make Participant Elections
.
Pursuant to Treasury Regulations Section 1.401(a)-21,
the Plan may elect to use electronic media to provide notices required to be provided to Participants under the Plan and will accept
elections from Participants communicated to the Plan using such electronic media.
14.14
Acquisition
of Securities
.
Notwithstanding any other provision of the Plan to the contrary,
at no time shall the Plan be obligated to acquire securities from a particular security holder at an indefinite time determined
upon the happening of an event such as the death of the security holder, pursuant to Treasury Regulations Section 54.4975-11(a)(7)(i).
Section 15.
Top-Heavy
Provisions
.
15.1
Top-Heavy
Plan
. This Plan is top-heavy if any of the following conditions exist:
(i) If
the top-heavy ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any required aggregation group or permissive
aggregation group;
(ii) If
this Plan is a part of a required aggregation group (but is not part of a permissive aggregation group) and the aggregate top-heavy
ratio for the group of Plans exceeds sixty percent (60%); or
(iii) If
this Plan is a part of a required aggregation group and part of a permissive aggregation group and the aggregate top-heavy ratio
for the permissive aggregation group exceeds sixty percent (60%).
15.2
Definitions
.
In making this determination, the Committee shall use the following definitions and principles:
15.2-1 The
“Determination Date,” with respect to the first Plan Year of any plan, means the last day of that Plan Year, and with
respect to each subsequent Plan Year, means the last day of the preceding Plan Year. If any other plan has a Determination Date
which differs from this Plan’s Determination Date, the top-heaviness of this Plan shall be determined on the basis of the
other plan’s Determination Date falling within the same calendar years as this Plan’s Determination Date.
15.2-2 A “Key
Employee” means any employee or former employee (including any deceased employee) who at any time during the plan year that
includes the determination date was an officer of the employer having annual compensation greater than $160,000 (as adjusted under
section 416(i)(1) of the Code), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation
of more than $150,000. For this purpose, annual compensation means compensation within the meaning of section 415(c)(3) of the
Code. The determination of who is a key employee will be made in accordance with section 416(i)(1) of the Code and the applicable
regulations and other guidance of general applicability issued thereunder.
15.2-3 A “Non-key
Employee” means an Employee who at any time during the five years ending on the top-heavy Determination Date for the Plan
Year has received compensation from an Employer and who has never been a Key Employee, and the Beneficiary of any such Employee.
15.2-4 A “required
aggregation group” includes (a) each qualified Plan of the Employer in which at least one Key Employee participates in the
Plan Year containing the Determination Date and (b) any other qualified Plan of the Employer which enables a
Plan described in (a) to meet the
requirements of Code Sections 401(a)(4) or 410. For purposes of the preceding sentence, a qualified Plan of the Employer includes
a terminated Plan maintained by the Employer within the period ending on the Determination Date. In the case of a required aggregation
group, each Plan in the group will be considered a top-heavy Plan if the required aggregation group is a top-heavy group. No Plan
in the required aggregation group will be considered a top-heavy Plan if the required aggregation group is not a top-heavy group.
All Employers aggregated under Code Sections 414(b), (c) or (m) or (o) (but only after the Code Section 414(o) regulations become
effective) are considered a single Employer.
15.2-5 A “permissive
aggregation group” includes the required aggregation group of Plans plus any other qualified Plan(s) of the Employer that
are not required to be aggregated but which, when considered as a group with the required aggregation group, satisfy the requirements
of Code Sections 401(a)(4) and 410 and are comparable to the Plans in the required aggregation group. No Plan in the permissive
aggregation group will be considered a top-heavy Plan if the permissive aggregation group is not a top-heavy group. Only a Plan
that is part of the required aggregation group will be considered a top-heavy Plan if the permissive aggregation group is top-heavy.
15.3
Top-Heavy
Rules of Application
. For purposes of determining the value of Account balances and the present value of accrued benefits
the following provisions shall apply:
15.3-1 The
value of Account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that
falls within or ends with the twelve (12) month period ending on the Determination Date.
15.3-2 For
purposes of testing whether this Plan is top-heavy, the present value of an individual’s accrued benefits and an individual’s
Account balances is counted only once each year.
15.3-3 The
Account balances and accrued benefits of a Participant who is not presently a Key Employee but who was a Key Employee in a Plan
Year beginning on or after January 1, 1984 will be disregarded.
15.3-4 Employer
contributions attributable to a salary reduction or similar arrangement will be taken into account. Employer matching contributions
also shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code
and the Plan.
15.3-5 When
aggregating Plans, the value of Account balances and accrued benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year.
15.3-6 The
present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased
by the distributions made with respect to the employee under the plan and any plan aggregated with the plan under Section 416(g)(2)
of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions
under a
terminated plan which, had it not
been terminated, would have been aggregated with the plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution
made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting “five
(5) year period” for “one (1) year period.”
15.3-7 Accrued
benefits and Account balances of an individual shall not be taken into account for purposes of determining the top-heavy ratios
if the individual has performed no services for the Employer during the one (1) year period ending on the applicable Determination
Date. Compensation for purposes of this subparagraph shall not include any payments made to an individual by the Employer pursuant
to a qualified or non-qualified deferred compensation plan.
15.3-8 The
present value of the accrued benefits or the amount of the Account balances of any Employee participating in this Plan shall not
include any rollover contributions or other transfers voluntarily initiated by the Employee except as described below. If this
Plan transfers or rolls over funds to another Plan in a transaction voluntarily initiated by the Employee, then this Plan shall
count the distribution for purposes of determining Account balances or the present value of accrued benefits. A transfer incident
to a merger or consolidation of two or more Plans of the Employer (including Plans of related Employers treated as a single Employer
under Code Section 414), or a transfer or rollover between Plans of the Employer, shall not be considered as voluntarily initiated
by the Employee.
15.4
Minimum
Contributions
. For any Top-Heavy Year, each Employer shall make a special contribution on behalf of each Participant to
the extent that the total allocations to his Account pursuant to Section 4 of the Plan is less than the lesser of:
(i) three
percent of his 415 Compensation for that year, or
(ii) the
highest ratio of such allocation to 415 Compensation received by any Key Employee for that year. For purposes of the special
contribution of this Section 15.2, a Key Employee’s 415 Compensation shall include amounts the Key Employee elected to defer
under a qualified 401(k) arrangement. Such a special contribution shall be made on behalf of each Participant who is employed by
an Employer on the last day of the Plan Year, regardless of the number of his Hours of Service, and shall be allocated to his Account.
If the Employer maintains
a qualified plan in addition to this Plan and more than one such plan is determined to be Top-Heavy, a minimum contribution or
a minimum benefit shall be provided in this Plan rather than in such other plan or plans.
15.5
Top-Heavy
Provisions Control in Top-Heavy Plan
. In the event this Plan becomes top-heavy and a conflict arises between the top-heavy
provisions herein set forth and the remaining provisions set forth in this Plan, the top-heavy provisions shall control.
Exhibit 10.2
EMPLOYMENT AGREEMENT
This
Employment Agreement (the “Agreement”) is made as of the 1st day of January, 2015 (the “Effective Date”),
by and between The Provident Bank, a
state-chartered savings bank organized and existing under the laws of the Commonwealth
of Massachusetts (the “Bank”), and David P. Mansfield of West Newbury, Massachusetts (the “Executive”).
References in this Agreement to the “Company” are to Provident Bancorp, Inc., the holding company of the Bank.
WITNESSETH
WHEREAS, the Bank wishes to assure itself of
the continued services of the Executive for the period provided in this Agreement; and
WHEREAS, in order to induce the Executive to
remain in the employ of the Bank and to provide further incentive for the Executive to achieve the financial performance objectives
of the Bank, the parties desire to enter into this Agreement; and
WHEREAS, the Bank desires to set forth the rights
and responsibilities of the Executive and the compensation payable to the Executive, as modified from time to time.
NOW THEREFORE, in consideration of the mutual
covenants contained in this Agreement, and upon the other terms and conditions provided in this Agreement, the parties hereby agree
as follows:
1.
Employment
.
The Executive shall serve the Bank as its Chief Executive Officer. In his capacity as Chief Executive Officer, the Executive shall
have the duties, responsibilities and authorities determined and designated from time to time by the Board of Directors of the
Bank (the “Board of Directors”), including without limitation, complete management authority with respect to, and responsibility
for, the overall day-to-day business affairs of the Bank. Notwithstanding the foregoing, the Executive shall not be required to
perform any duties and responsibilities that would result in a noncompliance with or a violation of any applicable law or regulation.
2.
Effective
Date and Term
.
(a) The
term of this Agreement shall begin as of the Effective Date and shall continue for thirty-six (36) full calendar months thereafter.
Commencing as of January 1, 2016, and continuing on each January 1 thereafter (the “Anniversary Date”), this Agreement
shall renew for an additional year such that the remaining term shall again become thirty-six (36) months, provided, however, that
in order for this Agreement to renew, the disinterested members of the Board of Directors must take the following actions: (i)
conduct a comprehensive performance evaluation and review of the Executive for purposes of determining whether to extend this Agreement;
and (ii) affirmatively approve the renewal or non-renewal of this Agreement. If the decision of the disinterested members of the
Board of Directors is not to renew this Agreement, then the Board of Directors shall provide the Executive with a written notice
of non-renewal (“Non-Renewal Notice”) prior to the applicable Anniversary Date, and the term of this Agreement shall
terminate at the end of thirty-six (36) months following the Effective Date or the previous Anniversary Date, as applicable. Notwithstanding
the foregoing, the term of this Agreement shall terminate on an earlier date as may be specifically provided in this Agreement
in the event of the Executive’s death, Retirement, Voluntary Termination or Termination for Cause. The last day of the term
of this Agreement, as so extended from time to time, is herein sometimes referred to as the “Expiration Date.” Reference
in this Agreement to the term of this Agreement shall refer to both the initial term and the extended terms.
(b) Nothing
in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the
term of this Agreement.
3.
Compensation
and Benefits
. The compensation and benefits payable to the Executive under this Agreement shall be as follows:
3.1
Salary
.
For all services rendered by the Executive to the Bank and its affiliates, the Executive shall be entitled to receive a base salary
at an annual rate not less than $400,000, subject to increase from time to time in accordance with the usual practices of the Bank
with respect to review of compensation of its senior executives. The Executive’s salary shall be payable in periodic installments
in accordance with the Bank’s usual practice for its senior executives.
3.2
Regular
Benefits
. The Executive shall also be entitled to participate in any and all employee benefit
plans, medical insurance plans, disability income plans, retirement plans, bonus incentive plans, and other benefit plans from
time to time in effect for senior executives of the Bank. Participation in these arrangements shall be subject to (a) the terms
of the applicable plan documents, (b) generally applicable policies of the Bank and (c) the discretion of the Board of Directors
or any administrative or other committee provided for in or contemplated by the plans.
3.3
Business
Expenses
. The Bank shall reimburse the Executive for all reasonable travel and other business
expenses incurred by him in the performance of his duties and responsibilities, subject to the reasonable requirements with respect
to substantiation and documentation as may be specified by the Bank. Reimbursements of expenses and in-kind benefits subject to
this Section 3.3 or otherwise provided to the Executive shall be subject to the following rules: (i) the amount of the expenses
eligible for reimbursement or in-kind benefits provided in any taxable year shall not affect the expenses eligible for reimbursement
or in-kind benefits provided in any other taxable year, except as otherwise allowed by Section 409A of the Internal Revenue Code
of 1986, as amended (the Code); (ii) any reimbursement shall be made as soon as practicable and no later than the last day of the
calendar year following the calendar year in which the expenses to be reimbursed were incurred; and (iii) no right to reimbursement
or in-kind benefits may be liquidated or exchanged for another benefit.
3.4
Vacation
.
The Executive shall be entitled to not less than four (4) weeks of vacation per calendar year, and any unused vacation of up to
two (2) weeks for any year may be carried over to, but not beyond, the next following calendar year. All vacations shall be taken
at the times and intervals determined by the Executive with the approval of the Bank, which approval shall not be unreasonably
withheld.
3.5
General
.
Nothing paid to the Executive under any plan, policy or arrangement currently in effect or made available in the future shall be
deemed to be in lieu of other compensation to the Executive as described in this Agreement.
3.6
Timing
of Certain Payments
. Except as provided for in Section 3.3 of this Agreement, to the extent that
this Section 3 provides for the deferral of compensation subject to Section 409A of the Code, the compensation shall be paid
or provided not later than two and one-half months after the calendar year in which the compensation is no longer subject to a
substantial risk of forfeiture, within the meaning of Treasury Regulations Section 1.409A-1(d).
4.
Extent
of Service
. During the term of this Agreement, except for periods of absence occasioned by illness, reasonable vacation periods,
and reasonable leaves of absence, the Executive will devote all of his business time, attention, skill and efforts to the faithful
performance of his duties under this Agreement. The Executive shall not engage in any other business activity, except as may be
approved by
the Board of Directors;
provided, however,
that so long as his activities do not materially interfere with the faithful performance of his duties hereunder, adversely
affect the reputation of the Bank or any affiliate of the Bank, or present any conflict of interest, nothing herein shall be construed
as preventing the Executive from:
(a) investing
his assets in the form or manner as shall not require any material services on his part in the operations or affairs of the companies
or the other entities in which the investments are made; or
(b) serving
on the board of trustees or directors of any company not in competition with the Bank or any affiliate and not having any business
relationship with the Bank or any affiliate of the Bank (other than as a customer of the Bank),
provided
that the Executive
shall not render any material services with respect to the operations or affairs of any such company; or
(c) engaging
in religious, charitable or other community or non-profit activities which do not impair his ability to fulfill his duties and
responsibilities under this Agreement.
5.
Termination
Upon Death
. In the event of the Executive’s death during the term of this Agreement, the Executive’s employment
(and the term of this Agreement) shall terminate on the date of his death. The Bank shall pay to the Executive’s beneficiary,
designated in writing to the Bank prior to his death (or to his estate, if he fails to make a designation), (i) any base salary
or other compensation earned through the date of death, plus (ii) the base salary that the Executive would have earned for a period
of six months following his death, plus (iii) any other compensation and benefits as may be provided in accordance with the terms
and provisions of any applicable plans and programs of the Bank. In addition, the Bank shall continue in effect the medical benefits
of the Executive’s dependents at the level in effect on, and at the same out-of-pocket cost to the Executive as of, the date
of death for a twelve-month period commencing on the date of death (or, if the continuation is not permitted by applicable law
or if the Board of Directors so determines in its sole discretion, the Bank shall provide the economic equivalent in lieu thereof
to the Executive’s dependents).
6. Termination
for Cause
6.1
Cause
.
The Bank may terminate the Executive’s employment for Cause (a “Termination for Cause”) at any time after notice
to the Executive setting forth in reasonable detail the nature of the Cause and after an opportunity for the Executive, together
with his counsel, to be heard before the Board of Directors. The following, as determined by the Board of Directors in its reasonable
judgment, shall constitute Cause for termination of employment: (i) the Executive’s deliberate dishonesty with respect to
the Bank or any subsidiary or affiliate thereof; or (ii) conviction of a crime related to banking activity or moral turpitude;
or (iii) gross and willful failure to perform (other than on account of a medically determinable disability which renders the Executive
incapable of performing such services) a substantial portion of the Executive’s duties and responsibilities as an officer
of the Bank, which failure continues for more than thirty (30) days after written notice given to the Executive pursuant to a two-thirds
(2/3) vote of all of the members of the Board of Directors then in office, such vote to set forth in reasonable detail the nature
of such failure; or (iv) the willful engaging by the Executive in illegal or gross misconduct which is materially and demonstrably
injurious to the Bank or the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall
be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable
belief that the Executive’s action or omission was in the best interests of the Bank. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board of Directors or a senior officer of the Bank, or based upon
the advice of counsel for the Bank, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good
faith and in the best interests of the Bank. Notwithstanding the foregoing, the Executive shall not be deemed to have been discharged
for “Cause” unless and until there shall have been delivered to him a
copy of a certification
by the Clerk of the Bank that two-thirds (2/3) of the entire Board of Directors found in good faith that the Executive was guilty
of conduct which is deemed to be Cause. In the event of a Termination for Cause, the Bank shall have no further obligation to the
Executive, except as provided for in Section 6.2 of this Agreement.
6.2
Termination
of Obligations
. In the event of a Termination for Cause pursuant to this Section 6, the term
of this Agreement shall terminate and the Bank shall pay to the Executive an amount equal to the sum of (a) the base salary or
other compensation earned through the date of termination, plus (b) any other compensation and benefits as may be provided in accordance
with the terms and provisions of any applicable plans and programs of the Bank. All other obligations of the Bank under this Agreement
shall terminate as of the date of termination.
7.
Termination
by the Executive
.
7.1
Termination
by the Executive for Good Reason
. The Executive shall be entitled to terminate his employment
hereunder for Good Reason (as defined in Section 7.3 of this Agreement) effective immediately by giving written notice to the Board
of Directors of the Bank. Upon a termination for Good Reason, the Executive shall be entitled to receive the benefits set forth
in Section 9 of this Agreement.
7.2
Other
Voluntary Termination by the Executive
. During the term of this Agreement, the Executive may
effect, upon sixty (60) days prior written notice to the Bank, a Voluntary Termination of his employment hereunder. A “Voluntary
Termination” shall mean a termination of employment by the Executive on his own initiative
other than
(a) a termination
due to death or Disability (as defined in Section 11 of this Agreement), or (b) a termination for Good Reason. If, during the term
of this Agreement, the Executive terminates employment due to a Voluntary Termination, the term of this Agreement shall end and
the Bank shall pay to the Executive an amount equal to the sum of (x) the base salary or other compensation earned through the
date of termination, plus (y) any other compensation and benefits as may be provided in accordance with the terms and provisions
of any applicable plans and programs of the Bank.
7.3
Termination
Due to Retirement
. “Retirement” means the termination of the Executive’s employment
with the Bank for any reason by the Executive at any time after the Executive attains age 62. The Executive may terminate the Executive’s
employment hereunder due to Retirement upon sixty (60) days prior written notice to the Bank. If, during the term of this Agreement,
the Executive terminates employment due to Retirement
,
the term of this Agreement shall thereupon
end and the Executive shall be entitled to (a) continuation of the Executive’s medical benefits at the level in effect on,
and at the same out-of-pocket cost to the Executive as of, the date of termination for the one-year period following the termination
of the Executive’s employment due to Retirement (or, if such continuation is not permitted by applicable law or if the Board
of Directors so determines in its sole discretion, the Bank shall provide the economic equivalent in lieu thereof to the Executive),
and (b) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans
and programs of the Bank.
7.4
Good
Reason
. For purposes of this Agreement, the term “Good Reason” shall mean any of
the following:
(a) the
failure of the Board of Directors to elect the Executive as Chief Executive Officer of the Bank, or to continue employ the Executive
as Chief Executive Officer of the Bank or a material reduction in the Executive’s authority, duties or responsibilities from
the position and attributes associated with his position as Chief Executive Officer;
(b) a
breach of Section 3.1 of this Agreement;
(c) a
material breach by the Bank of any other provision of this Agreement which failure or breach shall have continued for thirty (30)
days after written notice from the Executive to the Bank specifying the nature of the failure or breach.
In addition, “Good Reason” shall include each of the
following events but only if the event and the Executive’s termination of employment under Section 7.1 shall occur within
two years following a Change in Control (as defined in Section 7.5):
(d) a
change in the Executive’s principal place of employment to a place that is not the principal executive office of the Bank,
or a relocation of the Bank’s principal executive office to a location that increases the Executive’s commute from
the Executive’s principal residence to the Bank’s principal executive office by more than ten (10) miles;
(e) the
failure by the Bank to continue to provide the Executive with benefits substantially similar to those available to the Executive
under any of the life insurance, medical, health and accident, or disability plans or any other material benefit plans in which
the Executive was participating at the time of the Change in Control, or the taking of any action by either the Bank or any successor
which would directly or indirectly materially reduce any of such benefits, or the failure by the Bank to provide the Executive
with the number of paid vacation days to which the Executive is entitled in accordance with the terms of this Agreement; or
(f) the
failure of the Bank to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement.
7.5
Change
in Control
. For purposes of this Agreement, Change in Control shall mean a change in control
of the Bank or the Company, as defined in Section 409A of the Code, and the regulations promulgated thereunder, including the following:
(a) Change
in ownership: A change in ownership of the Bank of the Company occurs on the date any one person or group of persons accumulates
ownership of more than 50% of the total fair market value or total voting power of the Bank or the Company; or
(b) Change
in effective control: A change in effective control occurs when either (i) any one person or more than one person acting as a group
acquires within a twelve (12)-month period ownership of stock of the Bank or the Company possessing 30% or more of the total voting
power of the Bank or the Company; or (ii) a majority of the Bank’s or the Company’s Board of Directors is replaced
during any twelve (12)-month period by individuals whose appointment or election is not endorsed in advance by a majority of the
Bank’s or the Company’s Board of Directors, or
(c) Change
in ownership of a substantial portion of assets: A change in the ownership of a substantial portion of the Bank’s or the
Company’s assets occurs if, in a twelve (12)-month period, any one person or more than one person acting as a group acquires
assets from the Bank or the Company having a total gross fair market value equal to or exceeding 40% of the total gross fair market
value of the Bank’s or the Company’s entire assets immediately before the acquisition or acquisitions. For this purpose,
“gross fair market value” means the value of the Bank’s or the Company’s assets, or the value of the assets
being disposed of, determined without regard to any liabilities associated with the assets.
Notwithstanding anything herein to the contrary,
conversion of the Bank’s mutual holding company to stock form or the issuance of common stock by the Company shall not be
deemed to be a
Change in Control nor shall any subsequent “second-step”
conversion and stock issuance be deemed to be a Change in Control for purposes of this Agreement.
8.
Termination
by the Bank without Cause
. The Executive’s employment with the Bank may be terminated without Cause by the Board of Directors
at any time upon notice to the Executive, provided, however, that the Bank shall have the obligation upon any such termination
to make the payments to the Executive provided for under Section 9 of this Agreement.
9.
Certain
Termination Benefits
. In the event of termination pursuant to Sections 7.1 or 8 of this Agreement,
and provided that
the Executive has not yet attained the age of
65
at the time of such termination,
the Executive shall be entitled to
each of the following benefits:
9.1
Earnings
to Date of Termination
. An amount equal to the sum of (i) the base salary or other compensation
earned through the date of termination, plus (ii) the Executive’s
pro rata
share (based on the portion of the then-current
calendar year during which the Executive was employed before termination of his employment) of his Average Bonus (as hereinafter
defined), plus (c) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable
plans and programs of the Bank. For purposes of this Agreement, the term “Average Bonus” shall mean the average of
the aggregate annual amounts paid to the Executive (or accrued) as bonuses or other cash incentive compensation for each of the
three calendar years immediately preceding the termination of employment.
9.2
Payment
of Remaining Salary Obligation
. A severance benefit equal to three times the sum of (i) the Executive’s
annual base salary (calculated without regard to any payments that may have been made at the 60% Rate, as defined in Section 11.1
of this Agreement) and (ii) his Average Bonus. This payment shall be made in twelve equal monthly installments beginning as of
the date of termination of employment,
provided however
that in the event of termination of employment within two (2) years
following a Change in Control, this payment shall be made in a lump sum at the time of the termination.
9.3
Benefit
Continuation
. For the period subsequent to the date of termination until the Expiration Date,
the Bank will continue to provide the Executive and his dependents with life insurance coverage and non-taxable medical and dental
insurance coverage substantially comparable to the coverage maintained by the Bank for the Executive and his dependents immediately
prior to his date of termination at no cost to the Executive. If the Bank cannot provide one or more of the benefits set forth
in this provision because the Executive is no longer an employee, applicable rules and regulations prohibit the benefits or the
payment of the benefits in the manner contemplated, or it would subject the Bank to penalties, then the Bank shall pay the Executive
a cash lump sum payment reasonably estimated to be equal to the value of the benefits or the value of the remaining benefits at
the time of such determination. The cash payment shall be made in a lump sum within thirty (30) days after the later of the Executive’s
date of termination or the effective date of the rules or regulations prohibiting the benefits or subjecting the Bank to penalties.
9.4
Vesting
of Awards Under Long Term Incentive Plan
. There shall be an acceleration of all vesting provisions,
so that as of the date of termination of the Executive’s employment, all awards made by the Bank to the Executive under the
Bank’s Amended and Restated Long Term Incentive Plan, dated February 22, 2005, to the extent then unvested or forfeitable,
shall become immediately and fully vested and non-forfeitable.
9.5
No
Benefits Paid Under this Section upon Termination at or after age 65
. The Executive shall
not be entitled to receive any benefits under this Section 9 in the event of any termination pursuant to Sections 7.1 or 8 of this
Agreement that occurs on or after the Executive has attained the age of 65. In the event of any such termination at or after age
65, however, the Executive shall
be entitled
to receive the benefits provided in Section 7.3 of this Agreement as if he had voluntarily retired at or after age 62.
9.6
Waiver
of Claims
. Notwithstanding any provision of this Agreement to the contrary, no payments or benefits
shall be required to be paid under Sections 7.1, 8 or 9 of this Agreement unless the Executive executes a waiver and release
of claims against the Bank and its affiliates, including the Company, in a form acceptable to the Bank, and the execution occurs
not later than the later of (i) the date on which distribution of the payments and benefits would commence in the absence of this
Section 9.6, and (ii) the expiration of the minimum review and revocation period(s), if any, required under the Age Discrimination
in Employment Act of 1967, 29 U.S.C. Sections 621 through 634, in order for the waiver and release of claims to be effective. This
provision shall not apply with respect to any payment made in the event of a termination of employment following a Change in Control.
9.7
Separation
from Service
. Notwithstanding any provision of this Agreement to the contrary, to the extent
that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section
409A of the Code, and to the extent that the payment or benefit is payable upon the Executive’s termination of employment,
the payment or benefit shall be payable only upon the Executive’s “separation from service.” The term “separation
from service” shall mean the Executive’s “separation from service” from the Bank, any affiliate of the
Bank, or a successor entity, within the meaning set forth in Section 409A of the Code, determined in accordance with the presumptions
set forth in Treasury Regulation Section 1.409A-1(h).
10.
Adjustment
for Unavailability of Benefits
. If, in spite of the provisions of this Agreement, benefits or service credits under
any benefit plan provided by a third party shall not be payable or provided under any such plan to the Executive, or to the Executive’s
dependents, beneficiaries or estate, because the Executive is no longer deemed to be an employee of the Bank, the Bank shall pay
or provide for payment of such benefits and service credits for the benefits to the Executive, or to the Executive’s dependents,
beneficiaries or estate.
11.
Disability
.
11.1
Termination
Due to Disability
. The Bank may terminate the Executive's employment upon a determination, by
vote of a majority of the members of the Board of Directors of the Bank, acting in reliance on the written advice of a medical
professional acceptable to the Board of Directors, that the Executive has become disabled. For purposes of this Agreement, disability
means any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months that: (i) renders the Executive unable to engage in any substantial
gainful activity, or (ii) causes the Executive to receive income replacement benefits for a period of not less than three (3) months
under an accident and health plan of the Bank covering the Executive. In such event:
(a) The
Bank shall pay and deliver to the Executive an amount equal to the sum of (i) the base salary or other compensation earned through
the date of termination, plus (ii) any other compensation and benefits as may be provided in accordance with the terms and provisions
of any applicable plans and programs of the Bank.
(b) In
addition to the amounts payable pursuant to Section 11.1(a), the Bank shall continue to pay the Executive his base salary, at the
annual rate in effect for him immediately prior to the termination of his employment, during the “Initial Continuation Period.”
The “Initial Continuation Period” shall commence on the date of termination of employment pursuant to Section 11.1
and shall end on the earliest of: (i) the expiration of one hundred and eighty (180) days after the date of termination of his
employment; (ii) the date on which long-term disability
insurance benefits are first payable to him under any long-term disability insurance plan (“LTD Plan”) covering employees
of the Bank (the “LTD Eligibility Date”); (iii) the date of his death; and (iv) the Expiration Date. If the end of
the Initial Continuation Period is neither the LTD Eligibility Date nor the date of his death, the Bank shall continue to pay the
Executive his base salary, at an annual rate equal to sixty percent (60%) of the annual rate in effect for him immediately prior
to the termination of his employment (the “60% Rate”), during an additional period ending on the earliest of the LTD
Eligibility Date, the date of his death and the Expiration Date.
(c) The
Executive shall be entitled to continuation of the Executive’s medical benefits at the level in effect on, and at the same
out-of-pocket cost to the Executive as of, the date of termination for the one-year period following termination of the Executive’s
employment due to disability pursuant to this Section 11.
11.2
Effective
Date of Termination
. A termination of employment due to disability under this Section 11 shall
be effected by notice of termination given to the Executive by the Bank and shall take effect on the later of the effective date
of termination specified in the notice or the date on which the notice of termination is deemed given to the Executive.
12.
Confidential
Information
. The Executive will not disclose to any other Person (as defined in Section 15.2) (except as required by
applicable law or in connection with the performance of his duties and responsibilities hereunder), or use for his own benefit
or gain, any confidential information of the Bank or any affiliate obtained by him incident to his employment with the Bank. The
term “confidential information” includes, without limitation, financial information, business plans, prospects and
opportunities (such as lending relationships, financial product developments, or possible acquisitions or dispositions of business
or facilities) which have been discussed or considered by the management of the Bank but does not include any information which
has become part of the public domain by means other than the Executive’s nonobservance of his obligations hereunder.
13.
No
Mitigation; No Offset
. In the event of any termination of employment under this Agreement, the Executive shall be under
no obligation to seek other employment or to mitigate damages, and there shall be no offset against any amounts due to him under
this Agreement for any reason, including, without limitation, on account of any remuneration attributable to any subsequent employment
that the Executive may obtain. Any amounts due under this Agreement are in the nature of severance payments or liquidated damages,
or both, and are not in the nature of a penalty.
14.
Non-Competition;
Non-Solicitation
.
14.1
While
Employed
. During such time as the Executive is employed hereunder, the Executive will not compete
with the banking or any other business conducted by the Bank or any affiliate of the Bank, including the Company,
during
the period of his employment hereunder, nor will he attempt to hire any employee of the Bank or any affiliate, assist in such hiring
by any other Person, encourage any such employee to terminate his or her relationship with the Bank or any affiliate, or interfere
with or damage (or attempt to interfere with or damage) any relationship between the Bank and any customers of the Bank or solicit
or encourage any customer of the Bank to terminate its relationship with the Bank or to conduct with any other person any business
or activity which such customer conducts or could conduct with the Bank
.
14.2
Post-Employment
.
The provisions of this Section 14.2 shall not be binding on the Executive (and shall become of no further force or effect) after
a Change in Control shall have occurred. The Executive agrees that during the one-year period following termination of his employment
for any reason (the “Noncompetition Period”), the Executive will not, directly or indirectly, become a trustee, director,
officer, employee, principal, agent, consultant or independent contractor of any insured depository
institution,
trust company or parent holding company of any such institution or company which has an office within 25 miles of Amesbury, Massachusetts,
or within 25 miles of Portsmouth, New Hampshire (a “Competing Business”). During the Noncompetition Period, the Executive
shall not hire or attempt to hire any employee of the Bank or an affiliate, assist in such hiring by any other Person, encourage
any such employee to terminate his or her relationship with the Bank or an affiliate, or interfere with or damage (or attempt to
interfere with or damage) any relationship between the Bank and any customers of the Bank or solicit or encourage any customer
of the Bank to terminate its relationship with the Bank or to conduct with any other Person any business or activity which such
customer conducts or could conduct with the Bank. Notwithstanding the above, this provision is not intended to prevent the Executive
from being employed at a national and/or regional insured depository institution, trust company or parent holding company that
has branches that are within 25 miles of Amesbury, Massachusetts, or within 25 miles of Portsmouth, New Hampshire, if said insured
depository institution, trust company or parent holding company is headquartered outside of New England and the Executive’s
employment is also outside of New England and not physically located in the above defined market area.
15.
Miscellaneous
.
15.1
Conflicting
Agreements
. The Executive hereby represents and warrants that the execution of this Agreement
and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which he is a party
or is bound, and that he is not now subject to any covenants against competition or similar covenants which would affect the performance
of his obligations hereunder.
15.2
Definition
of “Person” and “Affiliate”
. For purposes of this Agreement, the term
“Person” shall mean an individual, a corporation, an association, a partnership, an estate, a trust and any other entity
or organization. The term “affiliate” includes any entity that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with the Bank, including the Company and Provident Bancorp.
15.3
Withholding
.
All payments made under this Agreement shall be net of any tax or other amounts required to be withheld under applicable law.
15.4
Arbitration
of Disputes
. Any controversy or claim arising out of or relating to this Agreement or the breach
thereof shall be settled by arbitration in accordance with the laws of
the Commonwealth of Massachusetts
by three arbitrators, one of whom shall be appointed by the Bank, one by the Executive and the third by the first two arbitrators.
If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. The arbitration shall be conducted in the City of Boston in accordance
with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided
in this Section 15
.
4. Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof
.
15.5
Interpretation
.
The recitals hereto constitute an integral part of this Agreement. References to Sections include subsections, which are part of
the related Section
(e.g.,
a section numbered “Section 5.5” would be part of “Section 5” and references
to “Section 5” would also refer to material contained in the subsection described as “Section 5.5”).
15.6
Assignment;
Successors and Assigns, etc.
(a) This
Agreement shall be binding upon the Bank and any successors to the the Bank, including any Persons acquiring directly or indirectly
all or substantially all of the business or assets
of the Bank by purchase, merger, consolidation, reorganization,
or otherwise, but this Agreement and the Bank’s obligations under this Agreement are not otherwise assignable, transferable,
or delegable by the Bank. By agreement in form and substance satisfactory to the Executive, the Bank shall require any successor
to all or substantially all of the business or assets of the Bank expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Bank would be required to perform had no succession occurred.
(b) This
Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, and legatees.
(c) Without
written consent of the other parties, no party shall assign, transfer, or delegate this Agreement or any rights or obligations
under this Agreement, except as expressly provided herein. Without limiting the generality or effect of the foregoing, the Executive’s
right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise,
except for a transfer by the Executive’s will or by the laws of descent and distribution. If the Executive attempts an assignment
or transfer that is contrary to this Section 15.6, the Bank shall have no liability to pay any amount to the assignee or transferee.
15.7
Enforceability
.
If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by law.
15.8
Reductions
.
Notwithstanding anything to the contrary contained in this Agreement, any and all payments and benefits to be provided to the Executive
hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal,
state and other governmental and regulatory bodies having jurisdiction over the Bank. The Executive confirms that he is aware of
the fact that the Federal Deposit Insurance Corporation has the power to preclude the Bank from making payments to the Executive
under this Agreement under certain circumstances. The Executive agrees that the Bank shall not be deemed to be in breach of this
Agreement if it is precluded from making a payment otherwise payable hereunder by reason of regulatory requirements binding on
the Bank, as the case may be. Pursuant to the foregoing:
(a) In
no event shall the Bank be obligated to make any payment pursuant to this Agreement that is prohibited by Section 18(k) of the
Federal Deposit Insurance Act (codified at 12 U.S.C. sec. 1828(k)), 12 C.F.R. Part 359, or any other applicable law.
(b) In
no event shall the Bank be obligated to make any payment pursuant to this Agreement if:
(i) the
Bank is in default as defined in Section 3(x) (12 U.S.C. sec. 1818(x)(1)) of the Federal Deposit Insurance Act, as amended; or
(ii) the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c)
(12 U.S.C. sec. 1823(c)) of the Federal Deposit Insurance Act, as amended.
15.9
Waiver
.
No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any
party to require the performance of any term or
obligation of
this Agreement, or the waiver by any party of any breach of this
Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.
15.10
Notices
.
Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, and addressed to the Executive at his last known address on
the books of the Bank or, in the case of the Bank, at its main office, attention of the Board of Directors.
15.11
Amendment
.
This Agreement may be amended or modified only by a written instrument signed by the Executive and by duly authorized representatives
of the Bank.
15.12
Attorney’s
Fees
. The Bank agrees to reimburse the Executive for reasonable out-of-pocket expenses (including
reasonable attorney’s fees) incurred in enforcing this Agreement if the Executive succeeds on the merits in enforcing this
Agreement.
15.13
No
Effect on Length of Service
. Nothing in this Agreement shall be deemed to prohibit the Bank from
terminating the Executive’s employment before the end of the term of this Agreement with or without notice for any reason.
This Agreement shall determine the relative rights and obligations of the Bank and the Executive in the event of any such termination.
In addition, nothing in this Agreement shall require the termination of the Executive’s employment at the expiration of the
term of this Agreement. Any continuation of the Executive’s employment beyond the expiration of the term of this Agreement
shall be on an “at-will” basis unless the Bank and the Executive agree otherwise.
15.14
Payments
to Estate or Beneficiaries
. In the event of the Executive’s death prior to the completion
by the Bank of all payments due him under this Agreement, the Bank shall continue such payments (other than payments which by their
terms cease upon death) to the Executive’s beneficiary designated in writing to the Bank prior to his death (or to his estate,
if he fails to make such designation) and, as applicable, to his surviving dependents.
15.15
Entire
Agreement; Effect on Prior Agreements
. This Agreement constitutes the entire agreement between
the parties pertaining to its subject matter and supersedes all prior and contemporaneous agreements, understandings, negotiations,
prior draft agreements, and discussions of the parties, whether oral or written.
15.16
Governing
Law
. This is a Massachusetts contract and shall be construed under and be governed in all respects
by the laws of The Commonwealth of Massachusetts without giving effect to its principles of conflicts of laws.
15.17
Section
409A
. The parties agree that this Agreement shall be interpreted to comply with or be exempt
from Section 409A, and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding
taxes or penalties under Section 409A. Each payment and benefit payable under this Agreement is intended to constitute a separate
payment for purposes of Treasury Regulations Section 1.409A-2(b)(ii).
[signature page follows]
IN WITNESS WHEREOF, this Agreement has been
executed as a sealed instrument by the Bank, by its duly authorized officer, and by the Executive, as of the date first above written.
|
ATTEST:
|
|
THE PROVIDENT BANK
|
|
|
|
|
|
/s/ Beverly Ledoux
|
|
By:
|
/s/ Charles R. Cullen
|
|
|
|
|
|
|
|
|
Title:
|
Chairman of the Board
|
|
|
|
|
|
[Seal]
|
|
|
|
WITNESS
|
|
EXECUTIVE
|
|
|
|
|
|
/s/ Beverly Ledoux
|
|
/s/ David P. Mansfield
|
|
|
|
David P. Mansfield
|
|
|
|
|
|
|
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”)
is made as of the 1st day of January, 2015 (the “Effective Date”), by and between The Provident Bank, a state-chartered
savings bank organized and existing under the laws of the Commonwealth of Massachusetts (the “Bank”), and Charles F.
Withee
of Hampton, New Hampshire (the “Executive”). References in this Agreement to the
“Company” are to Provident Bancorp, Inc., the holding company of the Bank.
WITNESSETH
WHEREAS, the Bank wishes to assure itself of
the continued services of the Executive for the period provided in this Agreement; and
WHEREAS, in order to induce the Executive to
remain in the employ of the Bank and to provide further incentive for the Executive to achieve the financial performance objectives
of the Bank, the parties desire to enter into this Agreement; and
WHEREAS, the Bank desires to set forth the rights
and responsibilities of the Executive and the compensation payable to the Executive, as modified from time to time.
NOW THEREFORE, in consideration of the mutual
covenants contained in this Agreement, and upon the other terms and conditions provided in this Agreement, the parties hereby agree
as follows:
1.
Employment
. The
Executive shall serve the Bank as its President and Chief Lending Officer. In his capacity as President and Chief Lending Officer,
the Executive shall have the duties, responsibilities and authorities determined and designated from time to time by the Board
of Directors of the Bank (the “Board of Directors”), including without limitation, complete management authority with
respect to, and responsibility for, the overall day-to-day business affairs of the Bank. Notwithstanding the foregoing, the Executive
shall not be required to perform any duties and responsibilities that would result in a noncompliance with or a violation of any
applicable law or regulation.
2.
Effective
Date and Term
.
(a) The
term of this Agreement shall begin as of the Effective Date and shall continue for thirty-six (36) full calendar months thereafter. Commencing
as of January 1, 2016, and continuing on each January 1 thereafter (the “Anniversary Date”), this Agreement shall renew
for an additional year such that the remaining term shall again become thirty-six (36) months, provided, however, that in order
for this Agreement to renew, the disinterested members of the Board of Directors must take the following actions: (i) conduct a
comprehensive performance evaluation and review of the Executive for purposes of determining whether to extend this Agreement;
and (ii) affirmatively approve the renewal or non-renewal of this Agreement. If the decision of the disinterested
members of the Board of Directors is not to renew this Agreement, then the Board of Directors shall provide the Executive with
a written notice of non-renewal (“Non-Renewal Notice”) prior to the applicable Anniversary Date, and the term of this
Agreement shall terminate at the end of thirty-six (36) months following the Effective Date or the previous Anniversary Date, as
applicable. Notwithstanding the foregoing, the term of this Agreement shall terminate on an earlier date as may be specifically
provided in this Agreement in the event of the Executive’s death, Retirement, Voluntary Termination or Termination for Cause.
The last day of the term of this Agreement, as so extended from time to time, is herein sometimes referred to as the “Expiration
Date.” Reference in this Agreement to the term of this Agreement shall refer to both the initial term and the extended terms.
(b) Nothing
in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the
term of this Agreement.
3.
Compensation
and Benefits
. The compensation and benefits payable to the Executive under this Agreement shall
be as follows:
3.1
Salary
. For
all services rendered by the Executive to the Bank and its affiliates, the Executive shall be entitled to receive a base salary
at an annual rate not less than $300,000, subject to increase from time to time in accordance with the usual practices of the Bank
with respect to review of compensation of its senior executives. The Executive’s salary shall be payable
in periodic installments in accordance with the Bank’s usual practice for its senior executives.
3.2
Regular
Benefits
. The Executive shall also be entitled to participate in any and all employee benefit plans,
medical insurance plans, disability income plans, retirement plans, bonus incentive plans, and other benefit plans from time to
time in effect for senior executives of the Bank. Participation in these arrangements shall be subject to
(a) the terms of the applicable plan documents, (b) generally applicable policies of the Bank and (c) the discretion of the Board
of Directors or any administrative or other committee provided for in or contemplated by the plans.
3.3
Business
Expenses
. The Bank shall reimburse the Executive for all reasonable travel and other business expenses
incurred by him in the performance of his duties and responsibilities, subject to the reasonable requirements with respect to substantiation
and documentation as may be specified by the Bank. Reimbursements of expenses and in-kind benefits subject
to this Section 3.3 or otherwise provided to the Executive shall be subject to the following rules: (i) the amount of the expenses
eligible for reimbursement or in-kind benefits provided in any taxable year shall not affect the expenses eligible for reimbursement
or in-kind benefits provided in any other taxable year, except as otherwise allowed by Section 409A of the Internal Revenue Code
of 1986, as amended (the Code); (ii) any reimbursement shall be made as soon as practicable and no later than the last day of the
calendar year following the calendar year in which the expenses to be reimbursed were incurred; and (iii) no right to reimbursement
or in-kind benefits may be liquidated or exchanged for another benefit.
3.4
Vacation
. The
Executive shall be entitled to not less than four (4) weeks of vacation per calendar year, and any unused vacation of up to two
(2) weeks for any year may be carried over to, but not beyond, the next following calendar year. All vacations
shall be taken at the times and intervals determined by the Executive with the approval of the Bank, which approval shall not be
unreasonably withheld.
3.5
General
. Nothing
paid to the Executive under any plan, policy or arrangement currently in effect or made available in the future shall be deemed
to be in lieu of other compensation to the Executive as described in this Agreement.
3.6
Timing
of Certain Payments
. Except as provided for in Section 3.3 of this Agreement, to the extent that this
Section 3 provides for the deferral of compensation subject to Section 409A of the Code, the compensation shall be paid or
provided not later than two and one-half months after the calendar year in which the compensation is no longer subject to a substantial
risk of forfeiture, within the meaning of Treasury Regulations Section 1.409A-1(d).
4.
Extent
of Service
. During the term of this Agreement, except for periods of absence occasioned by illness,
reasonable vacation periods, and reasonable leaves of absence, the Executive will devote all of his business time, attention, skill
and efforts to the faithful performance of his duties under this Agreement. The Executive shall not engage
in any other business activity, except as may be approved by
the Board of Directors;
provided, however,
that so long as
his activities do not materially interfere with the faithful performance of his duties hereunder, adversely affect the reputation
of the Bank or any affiliate of the Bank, or present any conflict of interest, nothing herein shall be construed as preventing
the Executive from:
(a) investing
his assets in the form or manner as shall not require any material services on his part in the operations or affairs of the companies
or the other entities in which the investments are made; or
(b) serving
on the board of trustees or directors of any company not in competition with the Bank or any affiliate and not having any business
relationship with the Bank or any affiliate of the Bank (other than as a customer of the Bank),
provided
that the Executive
shall not render any material services with respect to the operations or affairs of any such company; or
(c) engaging
in religious, charitable or other community or non-profit activities which do not impair his ability to fulfill his duties and
responsibilities under this Agreement.
5.
Termination
Upon Death
. In the event of the Executive’s death during the term of this Agreement, the
Executive’s employment (and the term of this Agreement) shall terminate on the date of his death. The
Bank shall pay to the Executive’s beneficiary, designated in writing to the Bank prior to his death (or to his estate, if
he fails to make a designation), (i) any base salary or other compensation earned through the date of death, plus (ii) the base
salary that the Executive would have earned for a period of six months following his death, plus (iii) any other compensation and
benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs of the Bank. In
addition, the Bank shall continue in effect the medical benefits of the Executive’s dependents at the level in effect on,
and at the same out-of-pocket cost to the Executive as of, the date of death for a twelve-month period commencing on the date of
death (or, if the continuation is not permitted by applicable law or if the Board of Directors so determines in its sole discretion,
the Bank shall provide the economic equivalent in lieu thereof to the Executive’s dependents).
6. Termination
for Cause
6.1
Cause
. The
Bank may terminate the Executive’s employment for Cause (a “Termination for Cause”) at any time after notice
to the Executive setting forth in reasonable detail the nature of the Cause and after an opportunity for the Executive, together
with his counsel, to be heard before the Board of Directors. The following, as determined by the Board of
Directors in its reasonable judgment, shall constitute Cause for termination of employment: (i) the Executive’s deliberate
dishonesty with respect to the Bank or any subsidiary or affiliate thereof; or (ii) conviction of a crime related to banking activity
or moral turpitude; or (iii) gross and willful failure to perform (other than on account of a medically determinable disability
which renders the Executive incapable of performing such services) a substantial portion of the Executive’s duties and responsibilities
as an officer of the Bank, which failure continues for more than thirty (30) days after written notice given to the Executive pursuant
to a two-thirds (2/3) vote of all of the members of the Board of Directors then in office, such vote to set forth in reasonable
detail the nature of such failure; or (iv) the willful engaging by the Executive in illegal or gross misconduct which is materially
and demonstrably injurious to the Bank or the Company. For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith
or without reasonable belief that the Executive’s action or omission was in the best interests of the Bank. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the Board of Directors or a senior officer of the Bank,
or based upon the advice of counsel for the Bank, shall be conclusively presumed to be done, or omitted to be done, by the Executive
in good faith and in the best interests of the Bank. Notwithstanding the foregoing, the Executive shall
not be deemed to have been discharged for “Cause” unless and until there shall have been delivered to him a
copy of a certification by the Clerk of the Bank that two-thirds
(2/3) of the entire Board of Directors found in good faith that the Executive was guilty of conduct which is deemed to be Cause.
In the event of a Termination for Cause, the Bank shall have no further obligation to the Executive, except as provided for in
Section 6.2 of this Agreement.
6.2
Termination
of Obligations
. In the event of a Termination for Cause pursuant to this Section 6, the term of this
Agreement shall terminate and the Bank shall pay to the Executive an amount equal to the sum of (a) the base salary or other compensation
earned through the date of termination, plus (b) any other compensation and benefits as may be provided in accordance with the
terms and provisions of any applicable plans and programs of the Bank. All other obligations of the Bank
under this Agreement shall terminate as of the date of termination.
7.
Termination
by the Executive
.
7.1
Termination
by the Executive for Good Reason
. The Executive shall be entitled to terminate his employment hereunder
for Good Reason (as defined in Section 7.3 of this Agreement) effective immediately by giving written notice to the Board of Directors
of the Bank. Upon a termination for Good Reason, the Executive shall be entitled to receive the benefits set forth in Section 9
of this Agreement.
7.2
Other
Voluntary Termination by the Executive
. During the term of this Agreement, the Executive may effect,
upon sixty (60) days prior written notice to the Bank, a Voluntary Termination of his employment hereunder. A
“Voluntary Termination” shall mean a termination of employment by the Executive on his own initiative
other than
(a) a termination due to death or Disability (as defined in Section 11 of this Agreement), or (b) a termination for Good Reason. If,
during the term of this Agreement, the Executive terminates employment due to a Voluntary Termination, the term of this Agreement
shall end and the Bank shall pay to the Executive an amount equal to the sum of (x) the base salary or other compensation earned
through the date of termination, plus (y) any other compensation and benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs of the Bank.
7.3
Termination
Due to Retirement
. “Retirement” means the termination of the Executive’s employment
with the Bank for any reason by the Executive at any time after the Executive attains age 62. The Executive
may terminate the Executive’s employment hereunder due to Retirement upon sixty (60) days prior written notice to the Bank. If,
during the term of this Agreement, the Executive terminates employment due to Retirement
,
the
term of this Agreement shall thereupon end and the Executive shall be entitled to (a) continuation of the Executive’s medical
benefits at the level in effect on, and at the same out-of-pocket cost to the Executive as of, the date of termination for the
one-year period following the termination of the Executive’s employment due to Retirement (or, if such continuation is not
permitted by applicable law or if the Board of Directors so determines in its sole discretion, the Bank shall provide the economic
equivalent in lieu thereof to the Executive), and (b) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans and programs of the Bank.
7.4
Good
Reason
. For purposes of this Agreement, the term “Good Reason” shall mean any of the following:
(a) the
failure of the Board of Directors to elect the Executive as President and Chief Lending Officer of the Bank, or to continue employ
the Executive as President and Chief Lending Officer
of the Bank or a material reduction in the Executive’s authority,
duties or responsibilities from the position and attributes associated with his position as President and Chief Lending Officer;
(b) a
breach of Section 3.1 of this Agreement;
(c) a
material breach by the Bank of any other provision of this Agreement which failure or breach shall have continued for thirty (30)
days after written notice from the Executive to the Bank specifying the nature of the failure or breach.
In addition, “Good Reason” shall include each of the
following events but only if the event and the Executive’s termination of employment under Section 7.1 shall occur within
two years following a Change in Control (as defined in Section 7.5):
(d) a
change in the Executive’s principal place of employment to a place that is not the principal executive office of the Bank,
or a relocation of the Bank’s principal executive office to a location that increases the Executive’s commute from
the Executive’s principal residence to the Bank’s principal executive office by more than ten (10) miles;
(e) the
failure by the Bank to continue to provide the Executive with benefits substantially similar to those available to the Executive
under any of the life insurance, medical, health and accident, or disability plans or any other material benefit plans in which
the Executive was participating at the time of the Change in Control, or the taking of any action by either the Bank or any successor
which would directly or indirectly materially reduce any of such benefits, or the failure by the Bank to provide the Executive
with the number of paid vacation days to which the Executive is entitled in accordance with the terms of this Agreement; or
(f) the
failure of the Bank to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement.
7.5
Change
in Control
. For purposes of this Agreement, Change in Control shall mean a change in control of the
Bank or the Company, as defined in Section 409A of the Code, and the regulations promulgated thereunder, including the following:
(a) Change
in ownership: A change in ownership of the Bank of the Company occurs on the date any one person or group of persons accumulates
ownership of more than 50% of the total fair market value or total voting power of the Bank or the Company; or
(b) Change
in effective control: A change in effective control occurs when either (i) any one person or more than one person acting as a group
acquires within a twelve (12)-month period ownership of stock of the Bank or the Company possessing 30% or more of the total voting
power of the Bank or the Company; or (ii) a majority of the Bank’s or the Company’s Board of Directors is replaced
during any twelve (12)-month period by individuals whose appointment or election is not endorsed in advance by a majority of the
Bank’s or the Company’s Board of Directors, or
(c) Change
in ownership of a substantial portion of assets: A change in the ownership of a substantial portion of the Bank’s or the
Company’s assets occurs if, in a twelve (12)-month period, any one person or more than one person acting as a group acquires
assets from the Bank or the Company having a total gross fair market value equal to or exceeding 40% of the total gross fair market
value of the Bank’s or the Company’s entire assets immediately before the acquisition or acquisitions. For this purpose,
“gross fair market value” means the value of the Bank’s or the Company’s assets, or the value of the assets
being disposed of, determined without regard to any liabilities associated with the assets.
Notwithstanding anything herein to the contrary,
conversion of the Bank’s mutual holding company to stock form or the issuance of common stock by the Company shall not be
deemed to be a
Change in Control nor shall any subsequent “second-step”
conversion and stock issuance be deemed to be a Change in Control for purposes of this Agreement.
8.
Termination
by the Bank without Cause
. The Executive’s employment with the Bank may be terminated without
Cause by the Board of Directors at any time upon notice to the Executive, provided, however, that the Bank shall have the obligation
upon any such termination to make the payments to the Executive provided for under Section 9 of this Agreement.
9.
Certain
Termination Benefits
. In the event of termination pursuant to Sections 7.1 or 8 of this Agreement,
and provided that the Executive has not yet attained the age of
65
at the time of such termination,
the Executive
shall be entitled to each of the following benefits:
9.1
Earnings
to Date of Termination
. An amount equal to the sum of (i) the base salary or other compensation earned
through the date of termination, plus (ii) the Executive’s
pro rata
share (based on the portion of the then-current
calendar year during which the Executive was employed before termination of his employment) of his Average Bonus (as hereinafter
defined), plus (c) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable
plans and programs of the Bank. For purposes of this Agreement, the term “Average Bonus” shall
mean the average of the aggregate annual amounts paid to the Executive (or accrued) as bonuses or other cash incentive compensation
for each of the three calendar years immediately preceding the termination of employment.
9.2
Payment
of Remaining Salary Obligation
. A severance benefit equal to three times the sum of (i) the Executive’s
annual base salary (calculated without regard to any payments that may have been made at the 60% Rate, as defined in Section 11.1
of this Agreement) and (ii) his Average Bonus. This payment shall be made in twelve equal monthly installments beginning as of
the date of termination of employment,
provided however
that in the event of termination of employment within two (2) years
following a Change in Control, this payment shall be made in a lump sum at the time of the termination.
9.3
Benefit
Continuation
. For the period subsequent to the date of termination until the Expiration Date, the Bank
will continue to provide the Executive and his dependents with life insurance coverage and non-taxable medical and dental insurance
coverage substantially comparable to the coverage maintained by the Bank for the Executive and his dependents immediately prior
to his date of termination at no cost to the Executive. If the Bank cannot provide one or more of the benefits
set forth in this provision because the Executive is no longer an employee, applicable rules and regulations prohibit the benefits
or the payment of the benefits in the manner contemplated, or it would subject the Bank to penalties, then the Bank shall pay the
Executive a cash lump sum payment reasonably estimated to be equal to the value of the benefits or the value of the remaining benefits
at the time of such determination. The cash payment shall be made in a lump sum within thirty (30) days
after the later of the Executive’s date of termination or the effective date of the rules or regulations prohibiting the
benefits or subjecting the Bank to penalties.
9.4
Vesting
of Awards Under Long Term Incentive Plan
. There shall be an acceleration of all vesting
provisions, so that as of the date of termination of the Executive’s employment, all awards made by the Bank to the Executive
under the Bank’s Amended and Restated Long Term Incentive Plan, dated February 22, 2005, to the extent then unvested or
forfeitable, shall become immediately and fully vested and non-forfeitable.
9.5
No
Benefits Paid Under this Section upon Termination at or after age 65
. The
Executive shall not be entitled to receive any benefits under this Section 9 in the event of any termination pursuant to Sections
7.1 or 8 of this Agreement that occurs on or after the Executive has attained the age of 65. In the event
of any such termination at or after age 65, however, the Executive shall
be entitled to receive the benefits provided in Section 7.3 of this
Agreement as if he had voluntarily retired at or after age 62.
9.6
Waiver
of Claims
. Notwithstanding any provision of this Agreement to the contrary, no payments or benefits
shall be required to be paid under Sections 7.1, 8 or 9 of this Agreement unless the Executive executes a waiver and release
of claims against the Bank and its affiliates, including the Company, in a form acceptable to the Bank, and the execution occurs
not later than the later of (i) the date on which distribution of the payments and benefits would commence in the absence of this
Section 9.6, and (ii) the expiration of the minimum review and revocation period(s), if any, required under the Age Discrimination
in Employment Act of 1967, 29 U.S.C. Sections 621 through 634, in order for the waiver and release of claims to be effective. This
provision shall not apply with respect to any payment made in the event of a termination of employment following a Change in Control.
9.7
Separation
from Service.
Notwithstanding any provision of this Agreement to the contrary, to the extent that any
payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A
of the Code, and to the extent that the payment or benefit is payable upon the Executive’s termination of employment, the
payment or benefit shall be payable only upon the Executive’s “separation from service.” The term “separation
from service” shall mean the Executive’s “separation from service” from the Bank, any affiliate of the
Bank, or a successor entity, within the meaning set forth in Section 409A of the Code, determined in accordance with the presumptions
set forth in Treasury Regulation Section 1.409A-1(h).
10.
Adjustment
for Unavailability of Benefits
. If, in spite of the provisions of this Agreement, benefits or
service credits under any benefit plan provided by a third party shall not be payable or provided under any such plan to the Executive,
or to the Executive’s dependents, beneficiaries or estate, because the Executive is no longer deemed to be an employee of
the Bank, the Bank shall pay or provide for payment of such benefits and service credits for the benefits to the Executive, or
to the Executive’s dependents, beneficiaries or estate.
11.
Disability
.
11.1
Termination
Due to Disability
. The Bank may terminate the Executive's employment upon a determination, by vote of
a majority of the members of the Board of Directors of the Bank, acting in reliance on the written advice of a medical professional
acceptable to the Board of Directors, that the Executive has become disabled. For purposes of this Agreement,
disability means any medically determinable physical or mental impairment that can be expected to result in death or can be expected
to last for a continuous period of not less than twelve (12) months that: (i) renders the Executive unable to engage in any substantial
gainful activity, or (ii) causes the Executive to receive income replacement benefits for a period of not less than three (3) months
under an accident and health plan of the Bank covering the Executive. In such event:
(a) The
Bank shall pay and deliver to the Executive an amount equal to the sum of (i) the base salary or other compensation earned through
the date of termination, plus (ii) any other compensation and benefits as may be provided in accordance with the terms and provisions
of any applicable plans and programs of the Bank.
(b) In
addition to the amounts payable pursuant to Section 11.1(a), the Bank shall continue to pay the Executive his base salary, at the
annual rate in effect for him immediately prior to the termination of his employment, during the “Initial Continuation Period.”
The “Initial Continuation Period” shall commence on the date of termination of employment pursuant to Section 11.1
and shall end on the earliest of: (i) the expiration of one hundred and eighty (180) days after the date of termination of his
employment; (ii) the date on which long-term disability insurance
benefits are first payable to him under any long-term disability insurance plan (“LTD Plan”) covering employees of
the Bank (the “LTD Eligibility Date”); (iii) the date of his death; and (iv) the Expiration Date. If
the end of the Initial Continuation Period is neither the LTD Eligibility Date nor the date of his death, the Bank shall continue
to pay the Executive his base salary, at an annual rate equal to sixty percent (60%) of the annual rate in effect for him immediately
prior to the termination of his employment (the “60% Rate”), during an additional period ending on the earliest of
the LTD Eligibility Date, the date of his death and the Expiration Date.
(c) The
Executive shall be entitled to continuation of the Executive’s medical benefits at the level in effect on, and at the same
out-of-pocket cost to the Executive as of, the date of termination for the one-year period following termination of the Executive’s
employment due to disability pursuant to this Section 11.
11.2
Effective
Date of Termination
. A termination of employment due to disability under this Section 11 shall be effected
by notice of termination given to the Executive by the Bank and shall take effect on the later of the effective date of termination
specified in the notice or the date on which the notice of termination is deemed given to the Executive.
12.
Confidential
Information
. The Executive will not disclose to any other Person (as defined in Section 15.2)
(except as required by applicable law or in connection with the performance of his duties and responsibilities hereunder), or use
for his own benefit or gain, any confidential information of the Bank or any affiliate obtained by him incident to his employment
with the Bank. The term “confidential information” includes, without limitation, financial information,
business plans, prospects and opportunities (such as lending relationships, financial product developments, or possible acquisitions
or dispositions of business or facilities) which have been discussed or considered by the management of the Bank but does not include
any information which has become part of the public domain by means other than the Executive’s nonobservance of his obligations
hereunder.
13.
No
Mitigation; No Offset
. In the event of any termination of employment under this Agreement, the
Executive shall be under no obligation to seek other employment or to mitigate damages, and there shall be no offset against any
amounts due to him under this Agreement for any reason, including, without limitation, on account of any remuneration attributable
to any subsequent employment that the Executive may obtain. Any amounts due under this Agreement are in
the nature of severance payments or liquidated damages, or both, and are not in the nature of a penalty.
14.
Non-Competition;
Non-Solicitation
.
14.1
While
Employed
. During such time as the Executive is employed hereunder, the Executive will not compete with
the banking or any other business conducted by the Bank or any affiliate of the Bank, including the Company,
during
the period of his employment hereunder, nor will he attempt to hire any employee of the Bank or any affiliate, assist in such hiring
by any other Person, encourage any such employee to terminate his or her relationship with the Bank or any affiliate, or interfere
with or damage (or attempt to interfere with or damage) any relationship between the Bank and any customers of the Bank or solicit
or encourage any customer of the Bank to terminate its relationship with the Bank or to conduct with any other person any business
or activity which such customer conducts or could conduct with the Bank
.
14.2
Post-Employment
. The
provisions of this Section 14.2 shall not be binding on the Executive (and shall become of no further force or effect) after a
Change in Control shall have occurred. The Executive agrees that during the one-year period following termination
of his employment for any reason (the “Noncompetition Period”), the Executive will not, directly or indirectly, become
a trustee, director, officer, employee, principal, agent, consultant or independent contractor of any insured depository
institution, trust company or parent holding company of any such
institution or company which has an office within 25 miles of Amesbury, Massachusetts, or within 25 miles of Portsmouth, New Hampshire
(a “Competing Business”). During the Noncompetition Period, the Executive shall not hire or
attempt to hire any employee of the Bank or an affiliate, assist in such hiring by any other Person, encourage any such employee
to terminate his or her relationship with the Bank or an affiliate, or interfere with or damage (or attempt to interfere with or
damage) any relationship between the Bank and any customers of the Bank or solicit or encourage any customer of the Bank to terminate
its relationship with the Bank or to conduct with any other Person any business or activity which such customer conducts or could
conduct with the Bank. Notwithstanding the above, this provision is not intended to prevent the Executive
from being employed at a national and/or regional insured depository institution, trust company or parent holding company that
has branches that are within 25 miles of Amesbury, Massachusetts, or within 25 miles of Portsmouth, New Hampshire, if said insured
depository institution, trust company or parent holding company is headquartered outside of New England and the Executive’s
employment is also outside of New England and not physically located in the above defined market area.
15.
Miscellaneous
.
15.1
Conflicting
Agreements
. The Executive hereby represents and warrants that the execution of this Agreement and the
performance of his obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or is
bound, and that he is not now subject to any covenants against competition or similar covenants which would affect the performance
of his obligations hereunder.
15.2
Definition
of “Person” and “Affiliate”
. For purposes of this Agreement, the term “Person”
shall mean an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization. The
term “affiliate” includes any entity that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the Bank, including the Company and Provident Bancorp.
15.3
Withholding
. All
payments made under this Agreement shall be net of any tax or other amounts required to be withheld under applicable law.
15.4
Arbitration
of Disputes
. Any controversy or claim arising out of or relating to this Agreement or the breach thereof
shall be settled by arbitration in accordance with the laws of
the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Bank, one by the Executive and the third by the first two arbitrators. If
the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by
the American Arbitration Association in the City of Boston. The arbitration shall be conducted in the City
of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this Section 15
.
4. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction thereof
.
15.5
Interpretation
. The
recitals hereto constitute an integral part of this Agreement. References to Sections include subsections, which are part of the
related Section
(e.g.,
a section numbered “Section 5.5” would be part of “Section 5” and references
to “Section 5” would also refer to material contained in the subsection described as “Section 5.5”).
15.6
Assignment;
Successors and Assigns, etc.
(a) This
Agreement shall be binding upon the Bank and any successors to the the Bank, including any Persons acquiring directly or indirectly
all or substantially all of the business or assets
of the Bank by purchase, merger, consolidation, reorganization,
or otherwise, but this Agreement and the Bank’s obligations under this Agreement are not otherwise assignable, transferable,
or delegable by the Bank. By agreement in form and substance satisfactory to the Executive, the Bank shall
require any successor to all or substantially all of the business or assets of the Bank expressly to assume and agree to perform
this Agreement in the same manner and to the same extent the Bank would be required to perform had no succession occurred.
(b) This
Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, and legatees.
(c) Without
written consent of the other parties, no party shall assign, transfer, or delegate this Agreement or any rights or obligations
under this Agreement, except as expressly provided herein. Without limiting the generality or effect of
the foregoing, the Executive’s right to receive payments hereunder is not assignable or transferable, whether by pledge,
creation of a security interest, or otherwise, except for a transfer by the Executive’s will or by the laws of descent and
distribution. If the Executive attempts an assignment or transfer that is contrary to this Section 15.6, the Bank shall have no
liability to pay any amount to the assignee or transferee.
15.7
Enforceability
. If
any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction,
then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which
it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
15.8
Reductions
. Notwithstanding
anything to the contrary contained in this Agreement, any and all payments and benefits to be provided to the Executive hereunder
are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and
other governmental and regulatory bodies having jurisdiction over the Bank. The Executive confirms that he is aware of the fact
that the Federal Deposit Insurance Corporation has the power to preclude the Bank from making payments to the Executive under this
Agreement under certain circumstances. The Executive agrees that the Bank shall not be deemed to be in breach of this Agreement
if it is precluded from making a payment otherwise payable hereunder by reason of regulatory requirements binding on the Bank,
as the case may be. Pursuant to the foregoing:
(a) In
no event shall the Bank be obligated to make any payment pursuant to this Agreement that is prohibited by Section 18(k) of the
Federal Deposit Insurance Act (codified at 12 U.S.C. sec. 1828(k)), 12 C.F.R. Part 359, or any other applicable law.
(b) In
no event shall the Bank be obligated to make any payment pursuant to this Agreement if:
(i) the
Bank is in default as defined in Section 3(x) (12 U.S.C. sec. 1818(x)(1)) of the Federal Deposit Insurance Act, as amended;
or
(ii) the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c)
(12 U.S.C. sec. 1823(c)) of the Federal Deposit Insurance Act, as amended.
15.9
Waiver
. No
waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The
failure of any party to require the performance of any term or
obligation of this Agreement, or the waiver by any party of any
breach of this
Agreement, shall not prevent any subsequent enforcement of such term or obligation
or be deemed a waiver of any subsequent breach.
15.10
Notices
. Any
notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, and addressed to the Executive at his last known address on
the books of the Bank or, in the case of the Bank, at its main office, attention of the Board of Directors.
15.11
Amendment
. This
Agreement may be amended or modified only by a written instrument signed by the Executive and by duly authorized representatives
of the Bank.
15.12
Attorney’s
Fees
. The Bank agrees to reimburse the Executive for reasonable out-of-pocket expenses (including reasonable
attorney’s fees) incurred in enforcing this Agreement if the Executive succeeds on the merits in enforcing this Agreement.
15.13
No
Effect on Length of Service
. Nothing in this Agreement shall be deemed to prohibit the Bank from terminating
the Executive’s employment before the end of the term of this Agreement with or without notice for any reason. This Agreement
shall determine the relative rights and obligations of the Bank and the Executive in the event of any such termination. In addition,
nothing in this Agreement shall require the termination of the Executive’s employment at the expiration of the term of this
Agreement. Any continuation of the Executive’s employment beyond the expiration of the term of this
Agreement shall be on an “at-will” basis unless the Bank and the Executive agree otherwise.
15.14
Payments
to Estate or Beneficiaries
. In the event of the Executive’s death prior to the completion by the
Bank of all payments due him under this Agreement, the Bank shall continue such payments (other than payments which by their terms
cease upon death) to the Executive’s beneficiary designated in writing to the Bank prior to his death (or to his estate,
if he fails to make such designation) and, as applicable, to his surviving dependents.
15.15
Entire
Agreement; Effect on Prior Agreements
. This Agreement constitutes the entire agreement between the parties
pertaining to its subject matter and supersedes all prior and contemporaneous agreements, understandings, negotiations, prior draft
agreements, and discussions of the parties, whether oral or written.
15.16
Governing
Law
. This is a Massachusetts contract and shall be construed under and be governed in all respects by
the laws of The Commonwealth of Massachusetts without giving effect to its principles of conflicts of laws.
15.17
Section
409A
. The parties agree that this Agreement shall be interpreted to comply with or be exempt from Section
409A, and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or
penalties under Section 409A. Each payment and benefit payable under this Agreement is intended to constitute
a separate payment for purposes of Treasury Regulations Section 1.409A-2(b)(ii).
IN WITNESS WHEREOF, this Agreement has been
executed as a sealed instrument by the Bank, by its duly authorized officer, and by the Executive, as of the date first above written.
|
ATTEST:
|
|
THE PROVIDENT BANK
|
|
|
|
|
|
|
/s/ Carol Houle, CFO
|
|
By:
|
/s/ David P. Mansfield
|
|
|
|
|
|
|
|
|
Title:
|
Chief Executive Officer
|
|
|
|
|
|
|
[Seal]
|
|
|
|
|
WITNESS
|
|
EXECUTIVE
|
|
|
|
|
|
|
/s/ Carol Houle
|
|
/s/ Charles F. Withee
|
|
|
|
Charles F. Withee
|
Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”)
is made as of the 1
st
day of January, 2015 (the “Effective Date”), by and between The Provident Bank, a
state-chartered savings bank organized and existing under the laws of the Commonwealth of Massachusetts (the “Bank”),
and Carol L. Houle
of Salem, New Hampshire (the “Executive”). References in this Agreement to the “Company”
are to Provident Bancorp, Inc., the holding company of the Bank.
WITNESSETH
WHEREAS, the Bank wishes to assure itself of
the continued services of the Executive for the period provided in this Agreement; and
WHEREAS, in order to induce the Executive to
remain in the employ of the Bank and to provide further incentive for the Executive to achieve the financial performance objectives
of the Bank, the parties desire to enter into this Agreement; and
WHEREAS, the Bank desires to set forth the rights
and responsibilities of the Executive and the compensation payable to the Executive, as modified from time to time.
NOW THEREFORE, in consideration of the mutual
covenants contained in this Agreement, and upon the other terms and conditions provided in this Agreement, the parties hereby agree
as follows:
1.
Employment
.
The Executive shall serve the Bank as its Executive Vice President and Chief Financial Officer. In her capacity as Executive Vice
President and Chief Financial Officer, the Executive shall have the duties, responsibilities and authorities determined and designated
from time to time by the Board of Directors of the Bank (the “Board of Directors”), including without limitation, complete
management authority with respect to, and responsibility for, the overall day-to-day business affairs of the Bank. Notwithstanding
the foregoing, the Executive shall not be required to perform any duties and responsibilities that would result in a noncompliance
with or a violation of any applicable law or regulation.
2.
Effective
Date and Term
.
(a) The
term of this Agreement shall begin as of the Effective Date and shall continue for twenty-four (24) full calendar months thereafter.
Commencing as of January 1, 2016, and continuing on each January 1 thereafter (the “Anniversary Date”), this Agreement
shall renew for an additional year such that the remaining term shall again become twenty-four (24) months, provided, however,
that in order for this Agreement to renew, the disinterested members of the Board of Directors must take the following actions:
(i) conduct a comprehensive performance evaluation and review of the Executive for purposes of determining whether to extend this
Agreement; and (ii) affirmatively approve the renewal or non-renewal of this Agreement. If the decision of the disinterested members
of the Board of Directors is not to renew this Agreement, then the Board of Directors shall provide the Executive with a written
notice of non-renewal (“Non-Renewal Notice”) prior to the applicable Anniversary Date, and the term of this Agreement
shall terminate at the end of twenty-four (24) months following the Effective Date or the previous Anniversary Date, as applicable.
Notwithstanding the foregoing, the term of this Agreement shall terminate on an earlier date as may be specifically provided in
this Agreement in the event of the Executive’s death, Retirement, Voluntary Termination or Termination for Cause. The last
day of the term of this Agreement, as so extended from time to time, is herein sometimes referred to as the “Expiration Date.”
Reference in this Agreement to the term of this Agreement shall refer to both the initial term and the extended terms.
(b) Nothing
in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the
term of this Agreement.
3.
Compensation
and Benefits
. The compensation and benefits payable to the Executive under this Agreement shall be as follows:
3.1
Salary
.
For all services rendered by the Executive to the Bank and its affiliates, the Executive shall be entitled to receive a base salary
at an annual rate not less than $210,000, subject to increase from time to time in accordance with the usual practices of the
Bank with respect to review of compensation of its senior executives. The Executive’s salary shall be payable in periodic
installments in accordance with the Bank’s usual practice for its senior executives.
3.2
Regular
Benefits
.
The Executive shall also be entitled to participate in any and all
employee benefit plans, medical insurance plans, disability income plans, retirement plans, bonus incentive plans, and other benefit
plans from time to time in effect for senior executives of the Bank. Participation in these arrangements shall be subject to (a)
the terms of the applicable plan documents, (b) generally applicable policies of the Bank and (c) the discretion of the Board of
Directors or any administrative or other committee provided for in or contemplated by the plans.
3.3
Business
Expenses
.
The Bank shall reimburse the Executive for all reasonable travel and
other business expenses incurred by her in the performance of her duties and responsibilities, subject to the reasonable requirements
with respect to substantiation and documentation as may be specified by the Bank. Reimbursements of expenses and in-kind benefits
subject to this Section 3.3 or otherwise provided to the Executive shall be subject to the following rules: (i) the amount of the
expenses eligible for reimbursement or in-kind benefits provided in any taxable year shall not affect the expenses eligible for
reimbursement or in-kind benefits provided in any other taxable year, except as otherwise allowed by Section 409A of the Internal
Revenue Code of 1986, as amended (the Code); (ii) any reimbursement shall be made as soon as practicable and no later than the
last day of the calendar year following the calendar year in which the expenses to be reimbursed were incurred; and (iii) no right
to reimbursement or in-kind benefits may be liquidated or exchanged for another benefit.
3.4
Vacation
.
The Executive shall be entitled to not less than four (4) weeks of vacation per calendar year, and any unused vacation of up
to two (2) weeks for any year may be carried over to, but not beyond, the next following calendar year. All vacations shall be
taken at the times and intervals determined by the Executive with the approval of the Bank, which approval shall not be unreasonably
withheld.
3.5
General
.
Nothing paid to the Executive under any plan, policy or arrangement currently in effect or made available in the future shall
be deemed to be in lieu of other compensation to the Executive as described in this Agreement.
3.6
Timing
of Certain Payments
.
Except as provided for in Section 3.3 of this Agreement,
to the extent that this Section 3 provides for the deferral of compensation subject to Section 409A of the Code, the compensation
shall be paid or provided not later than two and one-half months after the calendar year in which the compensation is no longer
subject to a substantial risk of forfeiture, within the meaning of Treasury Regulations Section 1.409A-1(d).
4.
Extent
of Service
. During the term of this Agreement, except for periods of absence occasioned
by illness, reasonable vacation periods, and reasonable leaves of absence, the Executive will devote all of her business time,
attention, skill and efforts to the faithful performance of her duties under this
Agreement. The Executive shall not engage in
any other business activity, except as may be approved by the Board of Directors;
provided, however,
that so long as her
activities do not materially interfere with the faithful performance of her duties hereunder, adversely affect the reputation of
the Bank or any affiliate of the Bank, or present any conflict of interest, nothing herein shall be construed as preventing the
Executive from:
(a) investing
her assets in the form or manner as shall not require any material services on her part in the operations or affairs of the companies
or the other entities in which the investments are made; or
(b) serving
on the board of trustees or directors of any company not in competition with the Bank or any affiliate and not having any business
relationship with the Bank or any affiliate of the Bank (other than as a customer of the Bank),
provided
that the Executive
shall not render any material services with respect to the operations or affairs of any such company; or
(c) engaging
in religious, charitable or other community or non-profit activities which do not impair her ability to fulfill her duties and
responsibilities under this Agreement.
5.
Termination
Upon Death
. In the event of the Executive’s death during the term
of this Agreement, the Executive’s employment (and the term of this Agreement) shall terminate on the date of her death.
The Bank shall pay to the Executive’s beneficiary, designated in writing to the Bank prior to her death (or to her estate,
if she fails to make a designation), (i) any base salary or other compensation earned through the date of death, plus (ii) the
base salary that the Executive would have earned for a period of six months following her death, plus (iii) any other compensation
and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs of the Bank. In
addition, the Bank shall continue in effect the medical benefits of the Executive’s dependents at the level in effect on,
and at the same out-of-pocket cost to the Executive as of, the date of death for a twelve-month period commencing on the date of
death (or, if the continuation is not permitted by applicable law or if the Board of Directors so determines in its sole discretion,
the Bank shall provide the economic equivalent in lieu thereof to the Executive’s dependents).
6. Termination
for Cause
6.1
Cause
.
The Bank may terminate the Executive’s employment for Cause (a “Termination for Cause”) at any time after
notice to the Executive setting forth in reasonable detail the nature of the Cause and after an opportunity for the Executive,
together with her counsel, to be heard before the Board of Directors. The following, as determined by the Board of Directors in
its reasonable judgment, shall constitute Cause for termination of employment: (i) the Executive’s deliberate dishonesty
with respect to the Bank or any subsidiary or affiliate thereof; or (ii) conviction of a crime related to banking activity or moral
turpitude; or (iii) gross and willful failure to perform (other than on account of a medically determinable disability which renders
the Executive incapable of performing such services) a substantial portion of the Executive’s duties and responsibilities
as an officer of the Bank, which failure continues for more than thirty (30) days after written notice given to the Executive pursuant
to a two-thirds (2/3) vote of all of the members of the Board of Directors then in office, such vote to set forth in reasonable
detail the nature of such failure; or (iv) the willful engaging by the Executive in illegal or gross misconduct which is materially
and demonstrably injurious to the Bank or the Company. For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith
or without reasonable belief that the Executive’s action or omission was in the best interests of the Bank. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the Board of Directors or a senior officer of the Bank,
or based upon the advice of counsel for the Bank, shall be conclusively presumed to be done, or omitted to be done, by the Executive
in good faith and in the best interests of the Bank. Notwithstanding the foregoing, the Executive shall not
be deemed to have been
discharged for “Cause” unless and until there shall have been delivered to her a copy of a certification by the Clerk
of the Bank that two-thirds (2/3) of the entire Board of Directors found in good faith that the Executive was guilty of conduct
which is deemed to be Cause. In the event of a Termination for Cause, the Bank shall have no further obligation to the Executive,
except as provided for in Section 6.2 of this Agreement.
6.2
Termination
of Obligations
.
In the event of a Termination for Cause pursuant to this Section
6, the term of this Agreement shall terminate and the Bank shall pay to the Executive an amount equal to the sum of (a) the base
salary or other compensation earned through the date of termination, plus (b) any other compensation and benefits as may be provided
in accordance with the terms and provisions of any applicable plans and programs of the Bank. All other obligations of the Bank
under this Agreement shall terminate as of the date of termination.
7.
Termination
by the Executive
.
7.1
Termination
by the Executive for Good Reason
.
The Executive shall be entitled to terminate
her employment hereunder for Good Reason (as defined in Section 7.3 of this Agreement) effective immediately by giving written
notice to the Board of Directors of the Bank. Upon a termination for Good Reason, the Executive shall be entitled to receive the
benefits set forth in Section 9 of this Agreement.
7.2
Other
Voluntary Termination by the Executive
.
During the term of this Agreement, the
Executive may effect, upon sixty (60) days prior written notice to the Bank, a Voluntary Termination of her employment hereunder.
A “Voluntary Termination” shall mean a termination of employment by the Executive on her own initiative
other than
(a) a termination due to death or Disability (as defined in Section 11 of this Agreement), or (b) a termination for Good Reason.
If, during the term of this Agreement, the Executive terminates employment due to a Voluntary Termination, the term of this Agreement
shall end and the Bank shall pay to the Executive an amount equal to the sum of (x) the base salary or other compensation earned
through the date of termination, plus (y) any other compensation and benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs of the Bank.
7.3
Termination
Due to Retirement
.
“Retirement” means the termination of the Executive’s
employment with the Bank for any reason by the Executive at any time after the Executive attains age 65. The Executive may terminate
the Executive’s employment hereunder due to Retirement upon sixty (60) days prior written notice to the Bank. If, during
the term of this Agreement, the Executive terminates employment due to Retirement
,
the term
of this Agreement shall thereupon end and the Executive shall be entitled to (a) continuation of the Executive’s medical
benefits at the level in effect on, and at the same out-of-pocket cost to the Executive as of, the date of termination for the
one-year period following the termination of the Executive’s employment due to Retirement (or, if such continuation is not
permitted by applicable law or if the Board of Directors so determines in its sole discretion, the Bank shall provide the economic
equivalent in lieu thereof to the Executive), and (b) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans and programs of the Bank.
7.4
Good
Reason
.
For purposes of this Agreement, the term “Good Reason” shall
mean any of the following:
(a) the
failure of the Board of Directors to elect the Executive as Executive Vice President and Chief Financial Officer of the Bank, or
to continue employ the Executive as Executive Vice President and Chief Financial Officer
of the Bank or a material reduction
in the Executive’s authority,
duties or responsibilities from the position and attributes associated with her position as
Executive Vice President and Chief Financial Officer;
(b) a
breach of Section 3.1 of this Agreement;
(c) a
material breach by the Bank of any other provision of this Agreement which failure or breach shall have continued for thirty (30)
days after written notice from the Executive to the Bank specifying the nature of the failure or breach.
In addition, “Good Reason” shall include each of the
following events but only if the event and the Executive’s termination of employment under Section 7.1 shall occur within
two years following a Change in Control (as defined in Section 7.5):
(d) a
change in the Executive’s principal place of employment to a place that is not the principal executive office of the Bank,
or a relocation of the Bank’s principal executive office to a location that increases the Executive’s commute from
the Executive’s principal residence to the Bank’s principal executive office by more than ten (10) miles;
(e) the
failure by the Bank to continue to provide the Executive with benefits substantially similar to those available to the Executive
under any of the life insurance, medical, health and accident, or disability plans or any other material benefit plans in which
the Executive was participating at the time of the Change in Control, or the taking of any action by either the Bank or any successor
which would directly or indirectly materially reduce any of such benefits, or the failure by the Bank to provide the Executive
with the number of paid vacation days to which the Executive is entitled in accordance with the terms of this Agreement; or
(f) the
failure of the Bank to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement.
7.5
Change
in Control
.
For purposes of this Agreement, Change in Control shall mean a change
in control of the Bank or the Company, as defined in Section 409A of the Code, and the regulations promulgated thereunder, including
the following:
(a) Change
in ownership: A change in ownership of the Bank of the Company occurs on the date any one person or group of persons accumulates
ownership of more than 50% of the total fair market value or total voting power of the Bank or the Company; or
(b) Change
in effective control: A change in effective control occurs when either (i) any one person or more than one person acting as a group
acquires within a twelve (12)-month period ownership of stock of the Bank or the Company possessing 30% or more of the total voting
power of the Bank or the Company; or (ii) a majority of the Bank’s or the Company’s Board of Directors is replaced
during any twelve (12)-month period by individuals whose appointment or election is not endorsed in advance by a majority of the
Bank’s or the Company’s Board of Directors, or
(c) Change
in ownership of a substantial portion of assets: A change in the ownership of a substantial portion of the Bank’s or the
Company’s assets occurs if, in a twelve (12)-month period, any one person or more than one person acting as a group acquires
assets from the Bank or the Company having a total gross fair market value equal to or exceeding 40% of the total gross fair market
value of the Bank’s or the Company’s entire assets immediately before the acquisition or acquisitions. For this purpose,
“gross fair market value” means the value of the Bank’s or the Company’s assets, or the value of the assets
being disposed of, determined without regard to any liabilities associated with the assets.
Notwithstanding anything herein to the contrary,
conversion of the Bank’s mutual holding company to stock form or the issuance of common stock by the Company shall not be
deemed to be a Change in Control nor shall any subsequent “second-step” conversion and stock issuance be deemed to
be a Change in Control for purposes of this Agreement.
8.
Termination
by the Bank without Cause
. The Executive’s employment with the Bank may be terminated
without Cause by the Board of Directors at any time upon notice to the Executive, provided, however, that the Bank shall have the
obligation upon any such termination to make the payments to the Executive provided for under Section 9 of this Agreement.
9.
Certain
Termination Benefits
. In the event of termination pursuant to Sections
7.1 or 8 of this Agreement,
and provided that the Executive has not yet attained the age of
65
at the time of such termination,
the Executive shall be entitled to each of the following benefits:
9.1
Earnings
to Date of Termination
.
An amount equal to the sum of (i) the base salary or
other compensation earned through the date of termination, plus (ii) the Executive’s
pro rata
share (based on the
portion of the then-current calendar year during which the Executive was employed before termination of her employment) of her
Average Bonus (as hereinafter defined), plus (c) any other compensation and benefits as may be provided in accordance with the
terms and provisions of any applicable plans and programs of the Bank. For purposes of this Agreement, the term “Average
Bonus” shall mean the average of the aggregate annual amounts paid to the Executive (or accrued) as bonuses or other cash
incentive compensation for each of the three calendar years immediately preceding the termination of employment.
9.2
Payment
of Remaining Salary Obligation
.
A severance benefit equal to two times the sum
of (i) the Executive’s annual base salary (calculated without regard to any payments that may have been made at the 60% Rate,
as defined in Section 11.1 of this Agreement) and (ii) her Average Bonus. This payment shall be made in twelve equal monthly installments
beginning as of the date of termination of employment,
provided however
that in the event of termination of employment within
two (2) years following a Change in Control, this payment shall be made in a lump sum at the time of the termination.
9.3
Benefit
Continuation
.
For the period subsequent to the date of termination until the
Expiration Date, the Bank will continue to provide the Executive and her dependents with life insurance coverage and non-taxable
medical and dental insurance coverage substantially comparable to the coverage maintained by the Bank for the Executive and her
dependents immediately prior to her date of termination at no cost to the Executive. If the Bank cannot provide one or more of
the benefits set forth in this provision because the Executive is no longer an employee, applicable rules and regulations prohibit
the benefits or the payment of the benefits in the manner contemplated, or it would subject the Bank to penalties, then the Bank
shall pay the Executive a cash lump sum payment reasonably estimated to be equal to the value of the benefits or the value of the
remaining benefits at the time of such determination. The cash payment shall be made in a lump sum within thirty (30) days after
the later of the Executive’s date of termination or the effective date of the rules or regulations prohibiting the benefits
or subjecting the Bank to penalties.
9.4
Vesting
of Awards Under Long Term Incentive Plan
.
There shall be an acceleration of
all vesting provisions, so that as of the date of termination of the Executive’s employment, all awards made by the Bank
to the Executive under the Bank’s Amended and Restated Long Term Incentive Plan, dated February 22, 2005, to the extent then
unvested or forfeitable, shall become immediately and fully vested and non-forfeitable.
9.5
No
Benefits Paid Under this Section upon Termination at or after age 65
.
The
Executive shall not be entitled to receive any benefits under this Section 9 in the event of any termination pursuant to Sections
7.1 or 8 of this Agreement that occurs on or after the Executive has attained the age of 65. In the event of any such termination
at or after age 65, however, the Executive shall be entitled to receive the benefits provided in Section 7.3 of this Agreement
as if she had voluntarily retired at or after age 62.
9.6
Waiver
of Claims
.
Notwithstanding any provision of this Agreement to the contrary, no
payments or benefits shall be required to be paid under Sections 7.1, 8 or 9 of this Agreement unless the Executive executes
a waiver and release of claims against the Bank and its affiliates, including the Company, in a form acceptable to the Bank, and
the execution occurs not later than the later of (i) the date on which distribution of the payments and benefits would commence
in the absence of this Section 9.6, and (ii) the expiration of the minimum review and revocation period(s), if any, required under
the Age Discrimination in Employment Act of 1967, 29 U.S.C. Sections 621 through 634, in order for the waiver and release of claims
to be effective. This provision shall not apply with respect to any payment made in the event of a termination of employment following
a Change in Control.
9.7
Separation
from Service
.
Notwithstanding any provision of this Agreement to the contrary,
to the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation”
under Section 409A of the Code, and to the extent that the payment or benefit is payable upon the Executive’s termination
of employment, the payment or benefit shall be payable only upon the Executive’s “separation from service.” The
term “separation from service” shall mean the Executive’s “separation from service” from the Bank,
any affiliate of the Bank, or a successor entity, within the meaning set forth in Section 409A of the Code, determined in accordance
with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).
10.
Adjustment
for Unavailability of Benefits
. If, in spite of the provisions of this
Agreement, benefits or service credits under any benefit plan provided by a third party shall not be payable or provided under
any such plan to the Executive, or to the Executive’s dependents, beneficiaries or estate, because the Executive is no longer
deemed to be an employee of the Bank, the Bank shall pay or provide for payment of such benefits and service credits for the benefits
to the Executive, or to the Executive’s dependents, beneficiaries or estate.
11.
Disability
.
11.1
Termination
Due to Disability
.
The Bank may terminate the Executive's employment upon a determination,
by vote of a majority of the members of the Board of Directors of the Bank, acting in reliance on the written advice of a medical
professional acceptable to the Board of Directors, that the Executive has become disabled. For purposes of this Agreement, disability
means any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months that: (i) renders the Executive unable to engage in any substantial
gainful activity, or (ii) causes the Executive to receive income replacement benefits for a period of not less than three (3) months
under an accident and health plan of the Bank covering the Executive. In such event:
(a) The
Bank shall pay and deliver to the Executive an amount equal to the sum of (i) the base salary or other compensation earned through
the date of termination, plus (ii) any other compensation and benefits as may be provided in accordance with the terms and provisions
of any applicable plans and programs of the Bank.
(b) In
addition to the amounts payable pursuant to Section 11.1(a), the Bank shall continue to pay the Executive her base salary, at the
annual rate in effect for her immediately prior to the termination of her employment, during the “Initial Continuation Period.”
The “Initial Continuation Period” shall commence on the date of termination of employment pursuant to Section 11.1
and shall end on the earliest of: (i) the expiration of one hundred and eighty (180) days after the date of termination of her
employment; (ii) the date on which long-term disability insurance benefits are first payable to her under any long-term disability
insurance plan (“LTD Plan”) covering employees of the Bank (the “LTD Eligibility Date”); (iii) the date
of her death; and (iv) the Expiration Date. If the end of the Initial Continuation Period is neither the LTD Eligibility Date nor
the date of her death, the Bank shall continue to pay the Executive her base salary, at an annual rate equal to sixty percent (60%)
of the annual rate in effect for her immediately prior to the termination of her employment (the “60% Rate”), during
an additional period ending on the earliest of the LTD Eligibility Date, the date of her death and the Expiration Date.
(c) The
Executive shall be entitled to continuation of the Executive’s medical benefits at the level in effect on, and at the same
out-of-pocket cost to the Executive as of, the date of termination for the one-year period following termination of the Executive’s
employment due to disability pursuant to this Section 11.
11.2
Effective
Date of Termination
.
A termination of employment due to disability under this
Section 11 shall be effected by notice of termination given to the Executive by the Bank and shall take effect on the later of
the effective date of termination specified in the notice or the date on which the notice of termination is deemed given to the
Executive.
12.
Confidential
Information
. The Executive will not disclose to any other Person (as defined
in Section 15.2) (except as required by applicable law or in connection with the performance of her duties and responsibilities
hereunder), or use for her own benefit or gain, any confidential information of the Bank or any affiliate obtained by her incident
to her employment with the Bank. The term “confidential information” includes, without limitation, financial information,
business plans, prospects and opportunities (such as lending relationships, financial product developments, or possible acquisitions
or dispositions of business or facilities) which have been discussed or considered by the management of the Bank but does not include
any information which has become part of the public domain by means other than the Executive’s nonobservance of her obligations
hereunder.
13.
No
Mitigation; No Offset
. In the event of any termination of employment under
this Agreement, the Executive shall be under no obligation to seek other employment or to mitigate damages, and there shall be
no offset against any amounts due to her under this Agreement for any reason, including, without limitation, on account of any
remuneration attributable to any subsequent employment that the Executive may obtain. Any amounts due under this Agreement are
in the nature of severance payments or liquidated damages, or both, and are not in the nature of a penalty.
14.
Non-Competition;
Non-Solicitation
.
14.1
While
Employed
.
During such time as the Executive is employed hereunder, the Executive
will not compete with the banking or any other business conducted by the Bank or any affiliate of the Bank, including the Company,
during the period of her employment hereunder, nor will she attempt to hire any employee of the Bank
or any affiliate, assist in such hiring by any other Person, encourage any such employee to terminate his or her relationship with
the Bank or any affiliate, or interfere with or damage (or attempt to interfere with or damage) any relationship between the Bank
and any customers of the Bank or solicit or encourage any customer of the Bank to terminate its relationship with the Bank or to
conduct with any other person any business or activity which such customer conducts or could conduct with the Bank
.
14.2
Post-Employment
.
The provisions of this Section 14.2 shall not be binding on the Executive (and shall become of no further force or effect)
after a Change in Control shall have occurred. The Executive agrees that during the one-year period following termination of her
employment for any reason (the “Noncompetition Period”), the Executive will not, directly or indirectly, become a trustee,
director, officer, employee, principal, agent, consultant or independent contractor of any insured depository institution, trust
company or parent holding company of any such institution or company which has an office within 25 miles of Amesbury, Massachusetts,
or within 25 miles of Portsmouth, New Hampshire (a “Competing Business”). During the Noncompetition Period, the Executive
shall not hire or attempt to hire any employee of the Bank or an affiliate, assist in such hiring by any other Person, encourage
any such employee to terminate his or her relationship with the Bank or an affiliate, or interfere with or damage (or attempt to
interfere with or damage) any relationship between the Bank and any customers of the Bank or solicit or encourage any customer
of the Bank to terminate its relationship with the Bank or to conduct with any other Person any business or activity which such
customer conducts or could conduct with the Bank. Notwithstanding the above, this provision is not intended to prevent the Executive
from being employed at a national and/or regional insured depository institution, trust company or parent holding company that
has branches that are within 25 miles of Amesbury, Massachusetts, or within 25 miles of Portsmouth, New Hampshire, if said insured
depository institution, trust company or parent holding company is headquartered outside of New England and the Executive’s
employment is also outside of New England and not physically located in the above defined market area.
15.
Miscellaneous
.
15.1
Conflicting
Agreements
.
The Executive hereby represents and warrants that the execution of
this Agreement and the performance of her obligations hereunder will not breach or be in conflict with any other agreement to which
she is a party or is bound, and that she is not now subject to any covenants against competition or similar covenants which would
affect the performance of her obligations hereunder.
15.2
Definition
of “Person” and “Affiliate”
. For purposes of this Agreement, the term “Person” shall mean
an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization. The term
“affiliate” includes any entity that directly, or indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with the Bank, including the Company and Provident Bancorp.
15.3
Withholding
.
All payments made under this Agreement shall be net of any tax or other amounts required to be withheld under applicable law.
15.4
Arbitration
of Disputes
.
Any controversy or claim arising out of or relating to this Agreement
or the breach thereof shall be settled by arbitration in accordance with the laws of
the Commonwealth
of Massachusetts by three arbitrators, one of whom shall be appointed by the Bank, one by the Executive and the third by the first
two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator
shall be appointed by the American Arbitration Association in the City of Boston. The arbitration shall be conducted in the City
of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this Section 15
.
4. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof
.
15.5
Interpretation
.
The recitals hereto constitute an integral part of this Agreement. References to Sections include subsections, which are part
of the related Section
(e.g.,
a section numbered “Section 5.5” would be part of “Section 5” and
references to “Section 5” would also refer to material contained in the subsection described as “Section 5.5”).
15.6
Assignment;
Successors and Assigns, etc
.
(a) This
Agreement shall be binding upon the Bank and any successors to the the Bank, including any Persons acquiring directly or indirectly
all or substantially all of the business or assets of the Bank by purchase, merger, consolidation, reorganization, or otherwise,
but this Agreement and the Bank’s obligations under this Agreement are not otherwise assignable, transferable, or delegable
by the Bank. By agreement in form and substance satisfactory to the Executive, the Bank shall require any successor to all or substantially
all of the business or assets of the Bank expressly to assume and agree to perform this Agreement in the same manner and to the
same extent the Bank would be required to perform had no succession occurred.
(b) This
Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, and legatees.
(c) Without
written consent of the other parties, no party shall assign, transfer, or delegate this Agreement or any rights or obligations
under this Agreement, except as expressly provided herein. Without limiting the generality or effect of the foregoing, the Executive’s
right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise,
except for a transfer by the Executive’s will or by the laws of descent and distribution. If the Executive attempts an assignment
or transfer that is contrary to this Section 15.6, the Bank shall have no liability to pay any amount to the assignee or transferee.
15.7
Enforceability
.
If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by law.
15.8
Reductions
.
Notwithstanding anything to the contrary contained in this Agreement, any and all payments and benefits to be provided to the
Executive hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of
federal, state and other governmental and regulatory bodies having jurisdiction over the Bank. The Executive confirms that she
is aware of the fact that the Federal Deposit Insurance Corporation has the power to preclude the Bank from making payments to
the Executive under this Agreement under certain circumstances. The Executive agrees that the Bank shall not be deemed to be in
breach of this Agreement if it is precluded from making a payment otherwise payable hereunder by reason of regulatory requirements
binding on the Bank, as the case may be. Pursuant to the foregoing:
(a) In
no event shall the Bank be obligated to make any payment pursuant to this Agreement that is prohibited by Section 18(k) of the
Federal Deposit Insurance Act (codified at 12 U.S.C. sec. 1828(k)), 12 C.F.R. Part 359, or any other applicable law.
(b) In
no event shall the Bank be obligated to make any payment pursuant to this Agreement if:
(i) the
Bank is in default as defined in Section 3(x) (12 U.S.C. sec. 1818(x)(1)) of the Federal Deposit Insurance Act, as amended;
or
(ii) the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c)
(12 U.S.C. sec. 1823(c)) of the Federal Deposit Insurance Act, as amended.
15.9
Waiver
.
No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of
any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this
Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.
15.10
Notices
.
Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and
delivered in person or sent by registered or certified mail, postage prepaid, and addressed to the Executive at her last known
address on the books of the Bank or, in the case of the Bank, at its main office, attention of the Board of Directors.
15.11
Amendment
.
This Agreement may be amended or modified only by a written instrument signed by the Executive and by duly authorized representatives
of the Bank.
15.12
Attorney’s
Fees
.
The Bank agrees to reimburse the Executive for reasonable out-of-pocket
expenses (including reasonable attorney’s fees) incurred in enforcing this Agreement if the Executive succeeds on the merits
in enforcing this Agreement.
15.13
No
Effect on Length of Service
.
Nothing in this Agreement shall be deemed to prohibit
the Bank from terminating the Executive’s employment before the end of the term of this Agreement with or without notice
for any reason. This Agreement shall determine the relative rights and obligations of the Bank and the Executive in the event of
any such termination. In addition, nothing in this Agreement shall require the termination of the Executive’s employment
at the expiration of the term of this Agreement. Any continuation of the Executive’s employment beyond the expiration of
the term of this Agreement shall be on an “at-will” basis unless the Bank and the Executive agree otherwise.
15.14
Payments
to Estate or Beneficiaries
.
In the event of the Executive’s death prior
to the completion by the Bank of all payments due her under this Agreement, the Bank shall continue such payments (other than payments
which by their terms cease upon death) to the Executive’s beneficiary designated in writing to the Bank prior to her death
(or to her estate, if she fails to make such designation) and, as applicable, to her surviving dependents.
15.15
Entire
Agreement; Effect on Prior Agreements
.
This Agreement constitutes the entire
agreement between the parties pertaining to its subject matter and supersedes all prior and contemporaneous agreements, understandings,
negotiations, prior draft agreements, and discussions of the parties, whether oral or written.
15.16
Governing
Law
.
This is a Massachusetts contract and shall be construed under and be governed
in all respects by the laws of The Commonwealth of Massachusetts without giving effect to its principles of conflicts of laws.
15.17
Section
409A
.
The parties agree that this Agreement shall be interpreted to comply with
or be exempt from Section 409A, and all provisions of this Agreement shall be construed in a manner consistent with the requirements
for avoiding taxes or penalties under Section 409A. Each
payment and benefit payable under this Agreement is intended to constitute
a separate payment for purposes of Treasury Regulations Section 1.409A-2(b)(ii).
[signature page follows]
IN WITNESS WHEREOF, this Agreement has been
executed as a sealed instrument by the Bank, by its duly authorized officer, and by the Executive, as of the date first above written.
|
ATTEST:
|
|
THE PROVIDENT BANK
|
|
|
|
|
|
|
/s/ Charles F. Withee, President
|
|
By:
|
/s/ David P. Mansfield
|
|
|
|
|
|
|
|
|
Title:
|
Chief Executive Officer
|
|
|
|
|
|
|
[Seal]
|
|
|
|
|
WITNESS
|
|
EXECUTIVE
|
|
|
|
|
|
/s/ Charles F. Withee
|
|
/s/ Carol L. Houle
|
|
|
|
Carol L. Houle
|
Exhibit 10.5
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Agreement, made and entered into as of
21st of February, 2015 by and between THE PROVIDENT BANK, a state-chartered savings bank organized and existing under the laws
of The Commonwealth of Massachusetts (the “Bank”), Provident Bancorp, Inc. (the “Company”), Provident Bancorp
(the “MHC”) and DAVID P. MANSFIELD, a key employee and executive of the Bank (the “Executive”), amends
and restates in its entirety the Supplemental Executive Retirement Agreement originally dated as of December 27, 2002, and restated
as of June 17, 2004, December 10, 2007, and December 8, 2010, and as subsequently amended as of December 14, 2011, and June 24,
2013.
WITNESSETH.
WHEREAS, the Executive is a valuable, key employee
of the Bank, serving the Bank as its Chief Executive Officer; and
WHEREAS, because of the Executive’s experience,
knowledge of the affairs of the Bank, and reputation and contacts in the banking industry, the Bank deems the Executive’s
continued employment with the Bank important for its future growth; and
WHEREAS, it is the desire of the Bank and in
its best interest that the Executive’s services be retained; and
WHEREAS, in order to induce the Executive to
continue in the employ of the Bank, the Bank has previously entered into this arrangement to provide the Executive or his beneficiaries
with certain benefits in accordance with the terms and conditions hereinafter set forth; and
WHEREAS, the parties have agreed to amend and
restate the agreement in its entirety.
NOW, THEREFORE, in consideration of services
performed in the past and to be performed in the future, as well as of the mutual promises and covenants herein contained, it is
agreed as follows:
ARTICLE 1
DEFINITIONS
1.1
Actuarial
Equivalent
shall mean a benefit of equivalent value to the benefit, computed on the basis of the discount rates, mortality
tables (to the extent applicable), Applicable Interest Rate(s) and other assumptions expressed under Section 417(e) of the Internal
Revenue Code of 1986, as it may be amended from time to time (the “Code”). For this purpose, the Applicable Interest
Rate(s) are to be determined without regard to any transition adjustments under Section 417(e)(3)(D), and using the rates published
for November prior to the calendar year in which the Payment Date occurs.
1.2
Beneficiary
shall mean the person or persons designated by the Executive in accordance with Section 3.2 hereof to receive benefits under this
Agreement after the death of the Executive.
1.3
Benefit
Percentage
shall be equal to sixty-two percent (62%) multiplied by a “Time at Bank Factor.” The Time at Bank Factor
shall equal 4.76% for each full year of service with the Bank from the Executive’s date of hire (April 23, 2001) (with any
calendar year in which the Executive is employed by the Bank for six months or more counted as a full year of service). In the
event of (i) the Executive’s death prior to his Separation from Service, (ii) the Executive’s Disability or (iii) a
Change in
Control, the Time at Bank Factor shall equal one (1), regardless
of the Executive’s years of service with the Bank.
1.4
Calendar
Year
shall mean a calendar year from January 1 to December 31.
1.5
Change
in Control.
For purposes of this Agreement, Change in Control shall mean a change in control of the Bank or the Company, as
defined in Section 409A of the Code, and the regulations promulgated thereunder, including the following:
1.5.1
Change
in ownership:
A change in ownership of the Bank of the Company occurs on the date any one person or group of persons accumulates
ownership of more than 50% of the total fair market value or total voting power of the Bank or the Company; or
1.5.2
Change
in effective control:
A change in effective control occurs when either (i) any one person or more than one person acting as
a group acquires within a twelve (12)-month period ownership of stock of the Bank or the Company possessing 30% or more of the
total voting power of the Bank or the Company; or (ii) a majority of the Bank’s or the Company’s Board of Directors
is replaced during any twelve (12)-month period by individuals whose appointment or election is not endorsed in advance by a majority
of the Bank’s or the Company’s Board of Directors, or
1.5.3
Change
in ownership of a substantial portion of assets:
A change in the ownership of a substantial portion of the Bank’s or
the Company’s assets occurs if, in a twelve (12)-month period, any one person or more than one person acting as a group acquires
assets from the Bank or the Company having a total gross fair market value equal to or exceeding 40% of the total gross fair market
value of the Bank’s or the Company’s entire assets immediately before the acquisition or acquisitions. For this purpose,
“gross fair market value” means the value of the Bank’s or the Company’s assets, or the value of the assets
being disposed of, determined without regard to any liabilities associated with the assets.
Notwithstanding anything herein to the contrary,
conversion of the Bank’s mutual holding company to stock form or the issuance of common stock by the Company shall not be
deemed to be a Change in Control nor shall any subsequent “second-step” conversion and stock issuance be deemed to
be a Change in Control for purposes of this Agreement.
1.6
Compensation
shall mean all compensation reported on the Executive’s Form W-2 (wages, tips, other compensation box) for a Calendar Year,
including, but not limited to, any bonuses actually paid by the Bank to the Executive during the Calendar Year, but adding thereto
any amount which is contributed by the Bank on the Executive’s behalf pursuant to a salary reduction agreement and which
is not includable in the Executive’s gross income under Sections 125, 132(f) or 401(e)(3) of the Code, and excluding therefrom
any payout from The Provident Bank Long Term Incentive Plan (Phantom Stock Plan), any taxable employee benefits of any kind (
e.g.
,
reimbursements of moving and relocation expenses; insurance premiums; automobile, health, medical, and dental expenses; the cost
of group-term life insurance; compensation arising from the exercise of a nonqualified stock option or from a stock grant; and
any fringe benefit which is not excluded from gross income under Section 132 of the Code) and excluding further any extraordinary,
one-time payments made to the Executive in 2015.
1.7
Final
Average Compensation
shall mean the average of the Compensation of the Executive for the three (3) consecutive Calendar Years
during his final ten (10) Calendar Years of employment with the Bank during which his Compensation was the highest. For purposes
of determining the Executive’s Compensation for any partial year under this Section 1.7, the amounts actually paid to or
contributed on behalf of the Executive shall be annualized to determine
the amount that would have been paid had the Executive
been employed by the Bank for the entire Calendar Year.
1.8
Good
Reason
shall mean the following events but only if they shall occur within three years following a Change in Control:
1.8.1 The
failure of the Board of Directors of the Bank (the
“Board of Directors”
) or its successor to elect the Executive
to the office held as of the date of this Agreement, or to such other office(s) in which the Executive is then serving at the mutual
agreement of the Executive and the Bank or to continue the Executive in such office; or
1.8.2 A
reduction in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time
to time; or
1.8.3 A
material breach by the Bank or its successor of any of the provisions of this Agreement which failure or breach shall have continued
for thirty (30) days after written notice from the Executive to the Bank specifying the nature of such failure or breach; or
1.8.4 The
failure of the Bank to obtain a satisfactory agreement from any successor thereof to assume and agree to perform this Agreement.
1.8.5 The
failure by the Bank to continue to provide the Executive with benefits substantially similar to those available to the Executive
under any of the life insurance, medical, health and accident, or disability plans or any other material benefit plans in which
the Executive was participating at the time of the Change in Control, or the taking of any action by the Bank which would directly
or indirectly materially reduce any of such benefits, or the failure by the Bank to provide the Executive with the number of paid
vacation days to which the Executive is entitled on the basis of years of employment with the Bank in accordance with the normal
vacation policies in effect at the time of the Change in Control; or
1.8.6 A
reasonable determination by the Executive that, as a result of a Change in Control, he is unable to exercise the responsibilities,
authorities, powers, functions or duties exercised by the Executive immediately prior to such Change in Control.
1.9
Insurance
Policy
means such insurance policy or policies (if any) as the Bank, in its sole and absolute discretion, may choose to purchase
to fund some or all of the benefits payable hereunder.
1.10
Normal
Retirement Age
shall mean the date on which the Executive attains age sixty-two (62).
1.11
Payment
Date
shall mean the date of Executive’s Separation from Service as defined at Section 1.13 or the date of the Executive’s
death upon Executive’s Disability (as defined at Section 2.4.1), the Payment Date shall be the date upon which the Executive
attains age sixty-two (62) as provided for in Section 2.4 of the Plan.
1.12
Rabbi
Trust
means such unfunded and unsecured trust or trusts (if any), established in conformity with the requirements of Internal
Revenue Service Revenue Procedure 92-64, 1992-2 C.B. 422, as the Bank, in its sole and absolute discretion, may choose to establish
to fund some or all of the benefits payable hereunder.
1.13
Separation
from Service
shall mean any termination of the Executive’s employment with the Bank pursuant to which the level of services
provided by the Executive to the Bank (whether as an employee or as a consultant) is permanently reduced to a level of services
that is 49% or less than the services provided in the immediately preceding 36 months and with respect for which the Bank and Executive
reasonably anticipate that a significant reduction in the Executive’s services will lead to a cessation of services or a
reduction to less than 20% of the Executive’s previous level of services. This definition is intended to comply with the
definition of Separation from Service in Section 409A of the Code and the regulations issued thereunder.
1.14
Specially-Defined Cause
shall have the meaning defined in Section
2.8.1.
1.15
Specified
Employee
means an individual who also satisfies the definition of “key employee” as that term is defined in Code
Section 416(i) (without regard to paragraph (5) thereof). In the event Executive is a Specified Employee, no distribution shall
be made to Executive upon Separation from Service (other than due to death or Disability) prior to the date which is six (6) months
following Separation from Service.
1.16
Terminating
Event
shall mean any of the following:
1.16.1 Separation
from Service due to termination by the Bank of the Executive’s employment for any reason whatsoever
other than
(i)
the Executive’s death or (ii) for “Specially-Defined Cause” (as such term is defined in, and in accordance with
the procedures set forth in, Section 2.8.1), or
1.16.2 Separation
from Service due to resignation of the Executive from the employ of the Bank for Good Reason, while the Executive is not receiving
payments or benefits from the Bank by reason of the Executive’s Disability.
1.17
Vested
Percentage.
1.17.1 Except
as otherwise provided in Section 1.17.2, the Vested Percentage shall be 100%.
1.17.2 Notwithstanding
the provisions of Section 1.17.1, the following rule shall govern the determination of the Vested Percentage in the circumstance
described below:
A. The Vested Percentage shall be
zero if the Executive’s employment with the Bank terminates for Specially-Defined Cause.
1.18
Yearly
Benefit Amount
shall mean an annual supplemental retirement benefit in an amount determined by:
1.18.1
multiplying
(i) the Benefit Percentage times (ii) the Executive’s Final Average Compensation (determined as of the date of Separation
from Service); and
1.18.2 then,
multiplying
such result by the Vested Percentage.
ARTICLE 2
BENEFITS
2.1
Calculation
of Benefit and Timing of Payment.
Upon Separation from Service (other than for “Specially-Defined Cause,” as such
term is defined in Section 2.8.1), the Executive shall be entitled to be paid a “Retirement Benefit” under this Agreement,
calculated pursuant to Section 2.2 and, as applicable, Section 2.3 in the case of Separation from Service following a Change in
Control, Section 2.4 in the event of Disability, or Sections 2.5 or 2.6 as applicable in the event of death. In each case, the
Retirement Benefit shall be paid in a lump sum payment not later than 30 days after the Payment Date.
2.2
Retirement Benefit.
The Retirement Benefit payment shall be a lump sum payment that is the Actuarial Equivalent of
a twenty year stream of annual payments, each payment equal to the Yearly Benefit Amount. For purposes of calculating such
Actuarial Equivalent, the stream of payments shall be assumed to commence upon the later of the date of Separation from
Service or Normal Retirement Age in order to appropriately adjust such benefit for the time value of money in the event that
the benefit is paid prior to the Normal Retirement Age. The Actuarial Equivalent of such stream of payments shall be
determined as of the Payment Date.
2.3
Benefits
Upon Change in Control.
If within three years following a Change in Control of the Bank a Terminating Event occurs with respect
to the Executive, the Executive shall be entitled to a Retirement Benefit pursuant to Section 2.2 calculated as if (i) the Executive
had remained employed by the Bank until the age of sixty-two (62), and (ii) the Executive’s Compensation had increased 5%
each year from the date of such Terminating Event until the age of sixty-two (62).
2.4
Disability.
In the event that the Executive shall become “Disabled” (as defined below) while in the employ of the Bank and prior
to his attaining age sixty-two (62), the Executive shall be entitled to a Retirement Benefit pursuant to Section 2.2 calculated
as if (i) the Executive had remained employed by the Bank until the age of sixty-two (62), and (ii) the Executive’s Compensation
had increased 4.5% each year from the date of Disability until the age of sixty-two (62). Such payments shall be in addition to
any payments otherwise payable to the Executive as a result of disability under any other plans or agreements in effect from time
to time.
2.4.1 The
Executive shall be considered to be “Disabled” (and to have a “Disability”), within the meaning of this
Agreement and in accordance with Section 409A(a)(2)(c) of the Code and any regulations or other Internal Revenue Service guidance
promulgated thereunder, when the Bank in its sole and absolute discretion has determined that the Executive is totally and permanently
disable because the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than
12 months or the Executive by reason of any medically determinable physical or mental impairment that can be expected to result
in death. The Bank may, but is not required to, delegate its determination of whether the Executive is Disabled to its long term
disability insurance policy carrier, if any, or to any other third-party.
2.4.2 For
purposes of the accrual of benefits under this Agreement, time spent on Disability shall be deemed to be time spent as an employee
of the Bank. If the Executive recovers from his Disability and returns to the employ of the Bank, upon his subsequent Separation
from Service, he shall be entitled to such retirement or termination benefits as he has accrued during his employment at the Bank,
including time before, during and after his Disability.
2.5
Death
Prior to Termination of Employment.
If the Executive should die prior to Separation from Service, the Executive’s Beneficiary
shall be entitled to receive a Retirement Benefit, calculated as if (i) the Executive had remained employed by the Bank until the
age of sixty-two (62), and (ii) the Executive’s Compensation had increased 4.5% each year from the date of death until the
age of sixty-two (62), and (iii) the stream of payments described in Section 2.2 is assumed to commence upon the Executive’s
date of death. Payment made under this Section 2.5 shall be in lieu of and in complete substitution for any other benefits otherwise
payable under this Agreement.
2.6
Death
After Termination of Employment.
Upon the death of the Executive after Separation of Service, the Executive’s Beneficiaries
shall not be entitled to receive any benefit under this agreement unless: (i) the Executive’s death occurred prior to payment
of his lump sum Retirement Benefit (in which case the Beneficiaries shall be entitled to receive such lump sum payment); or (ii)
the Executive had elected an optional form of payment pursuant to Section 3.1 which provides for payment after his death (in which
case the Beneficiaries shall be entitled to payment pursuant to the terms of such optional form of payment).
2.7
No
Benefits Upon Discharge for Specially-Defined Cause.
Should the Executive be discharged for Specially-Defined Cause in accordance
with the procedures set forth in Section 2.8 at any time (before or after his Normal Retirement Age), all Benefits under Section
2 of this Agreement shall be forfeited. If a dispute arises as to whether the Executive was discharged for “Specially-Defined
Cause”, such dispute shall be resolved by arbitration as set forth in Section 3.11 of this Agreement.
2.8
Discharge
for Specially-Defined Cause.
2.8.1
Specially-Defined
Cause.
For purposes of this Agreement, the term “Specially-Defined Cause” shall mean (i) the Executive’s
deliberate dishonesty with respect to the Bank or any subsidiary or affiliate thereof; or (ii) conviction of a crime related to
banking activity or moral turpitude; or (iii) gross and willful failure to perform (
other than
on account of a medically
determinable disability which renders the Executive incapable of performing such services) a substantial portion of the Executive’s
duties and responsibilities as an officer of the Bank, which failure continues for more than thirty (30) days after written notice
given to the Executive pursuant to a two-thirds (2/3) vote of all of the members of the Board of Directors then in office, such
vote to set forth in reasonable detail the nature of such failure; or (iv) the willful engaging by the Executive in illegal or
gross misconduct which is materially and demonstrably injurious to the Bank or the Company. For purposes of this provision, no
act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best
interests of the Bank. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board
of Directors or a senior officer of the Bank, or based upon the advice of counsel for the Bank, shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Bank. Notwithstanding the foregoing,
the Executive shall not be deemed to have been discharged for “Specially-Defined Cause” unless and until there shall
have been delivered to him a copy of a certification by the Clerk of the Bank that two-thirds (2/3) of the entire Board of Directors
found in good faith that the Executive was guilty of conduct which is deemed to be Specially-Defined Cause as defined in this
Section 2.8 and specifying in particulars thereof, after reasonable notice to the Executive setting forth in reasonable detail
the nature of such Specially-Defined Cause and an opportunity for him together with his counsel, to be heard before the Board
of Directors in accordance with the provisions of Section 2.8.2.
|
|
|
2.8.2
Board of Directors Termination Procedure.
In
each case, in determining Specially-Defined Cause, the alleged acts or omissions of the Executive shall be measured against standards
prevailing in the banking industry generally, and the ultimate existence of Specially-Defined Cause must be confirmed by not less
than two-thirds (2/3) of the Board of Directors at a meeting prior to any termination or within thirty (30) days following any
termination therefor;
provided, however,
that it shall be the Bank’s burden to prove the alleged facts and omissions
and the prevailing nature of the standards of the Bank shall have alleged are violated by such acts and/or omissions of the Executive.
In the event of such a confirmation by two-thirds (2/3) or more of the Board of Directors, the Bank shall notify the Executive
that the Bank intends to terminate or has terminated the Executive’s employment for Specially-Defined Cause under this Section
2.8 (the
“Confirmation Notice”
) and that no payment under this Agreement shall be made. The Confirmation Notice
shall specify the acts or omissions upon the basis of which the Board of Directors has confirmed the existence of Specially-Defined
Cause and must be delivered to the Executive within ninety (90) days after a majority of the Board of Directors (excluding, if
applicable, the Executive) has actual knowledge of the events giving rise to such proposed or after actual termination. If the
Executive notifies the Bank in writing (the
“Opportunity Notice”
) within thirty (30) days after the Executive
has received the Confirmation Notice, the Executive (together with counsel) shall be provided one opportunity to meet with the
Board of Directors (or a sufficient quorum thereof) to discuss such acts or omissions. Such meeting shall take place at the principal
offices of the Bank or such other location as agreed to by the Executive and the Bank. If the Executive has not already been terminated,
during the period commencing on the date the Bank receives the Opportunity Notice and ending on the date next succeeding the date
on which such meeting between the Board of Directors (or a sufficient quorum thereof) and the Executive is scheduled to occur and
notwithstanding anything to the contrary in this Agreement, the Executive shall be suspended from employment with the Bank (with
pay to the extent not prohibited by applicable law), and the Board of Directors may, during such suspension period, reasonably
limit the Executive’s access to the principal offices of the Bank or any of its assets. If the Board of Directors properly
sets the date of such meeting and if the Board of Directors (or a sufficient quorum thereof) attends such meeting and in good faith
does not rescind its confirmation of Specially-Defined Cause at such meeting or if the Executive fails to attend such meeting for
any reason, the Executive’s employment by the Bank shall, immediately upon the closing of such meeting and the delivery to
the Executive of the notice of termination, be terminated for Specially-Defined Cause. If the Executive does not respond in writing
to the Confirmation Notice in the manner and within the time period specified in this Section 2.8.2, the Executive’s employment
with the Bank shall, on the thirty-first (31
st
) day after the receipt by the Executive of the Confirmation Notice, be
terminated for Specially-Defined Cause under this Section 2.8.
|
|
|
|
2.8.3
No Limitation on Authority of Board of Directors.
As is provided in Section 3.14, nothing contained in this Agreement (and nothing contained in this Section 2.8) shall in any way
limit the right of the Bank to discharge the Executive with or without Specially-Defined Cause or to limit the access of the Executive
to the premises or assets of the Bank.
|
ARTICLE 3
ADDITIONAL
PROVISIONS
3.1
Alternative
Forms of Benefit Payment.
In lieu of the lump sum Retirement Benefit provided in Part 2, upon request the Executive may obtain
an optional form of payment that is the Actuarial Equivalent of such lump sum payment;
provided
that such request complies
with the provisions of Section 409A of the Code and any regulations or other Internal Revenue Service guidance promulgated thereunder.
Acceptable forms of payment presently include:
(i) Life Annuity,
or
(ii) Joint and 50%
Survivor Annuity or Joint and 100% Survivor Annuity
The Executive shall have the right within thirty (30) days upon
becoming subject to the Plan to elect the form of payment in which his Benefit is to be paid. Prior to the Payment Date, the Executive
may change the form of payment he has elected,
provided, however,
that such change must conform with the provisions of this
Agreement and with any applicable requirements of Section 409A of the Code (and any other applicable tax law regarding deferral
of income or avoidance of constructive receipt). Pursuant to Treasury Regulation Section 1.409A-2(b)(1), all such changes (other
than those from one form of life annuity to an actuarially-equivalent form of life annuity) must be made at least one year before
the Payment Date and must extend the Payment Date for an additional period of at least five (5) years (which means that payment
of the benefit under this Agreement shall be made or commence on a date that is at least five years after the Payment Date).
3.2
Beneficiary Designation Procedure.
The Executive
may designate one or more Beneficiaries to receive specified percentages of any death benefit payments to be paid hereunder. The
Executive shall designate any such Beneficiaries in writing and shall submit such writing to the Treasurer of the Bank. Only designated
Beneficiaries alive at the Executive’s death shall be entitled to share in the benefit payments. Absent a contrary specification
by the Executive in writing submitted to the Treasurer of the Bank, each Beneficiary alive at the Executive’s death (or,
in the case of the Beneficiary’s death after the Executive’s death, the Beneficiary’s estate) shall share equally
in death benefit payments. If no designated Beneficiary is alive at the Executive’s death, his surviving spouse shall be
entitled to all death benefit payments. If the Executive dies leaving neither a designated Beneficiary nor a surviving spouse,
his estate shall be entitled to any death benefit payments. Except to the extent specifically provided in this Section 3.2, the
Executive may not, without the written consent of the Bank, assign to any individual, trust or other organization, any right title
or interest in an Insurance Policy nor any rights, options, privileges or duties created under this Agreement.
3.3
Assistance in Purchase of Life Insurance.
If the Bank elects to invest in an Insurance Policy or to establish a Rabbi Trust to fund the benefits hereunder, the Executive
shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such
insurance or annuities or to establish such trust. It is agreed and understood, however, that the Bank is under no obligation to
fund the benefits payable under this Agreement with any form of insurance or Rabbi Trust.
3.4
Alienability and Assignment Prohibition.
Neither the Executive, his surviving spouse nor any other Beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder,
nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed
by the Executive or his Beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise.
In the event the Executive or any Beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits
hereunder, the Bank’s liabilities shall forthwith cease and terminate.
3.5
Binding Obligation of Bank and any
Successor in Interest.
This Agreement shall bind the Executive and the Bank, their heirs, successors, personal representatives
and assigns. The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all
of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge
the duties and obligations of the Bank under this Agreement. Upon the occurrence
of such event, the term “Bank” as used in this Agreement
shall be deemed to refer to such successor or survivor organization.
3.6
Amendment.
During the 1ifetime
of the Executive, this Agreement may be amended only with the mutual written assent of the Executive and the Bank.
3.7
General.
The benefits provided
by the Bank to the Executive pursuant to this Agreement are in the nature of a fringe benefit and shall in no event be construed
to affect or limit the Executive’s current or prospective salary increases, cash bonuses or profit-sharing distributions
or credits, or his right to participate in or be covered by any qualified or non- qualified pension, profit-sharing, group, bonus
or other supplemental compensation or fringe benefit plan.
3.8
Applicable Law.
This Agreement
shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts
without regard to its principles of conflicts of laws.
3.9
Named Fiduciary and Plan Administrator.
The “Named Fiduciary and Plan Administrator”
of this Agreement shall be The Provident Bank until its removal
by the Board of Directors. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management control
and administration of the benefits to be provided under this Agreement. The Named Fiduciary may delegate to others certain aspects
of the management and operation responsibilities of the Agreement including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
3.10
Claims Procedure.
In the event
a dispute arises over benefits under this Agreement and benefits are not paid to the Executive (or to his Beneficiary in the case
of the Executive’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be
made to the Plan Administrator named above within sixty (60) days from the date payments are refused. The Plan Administrator shall
review the written claim and, if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of
receipt of such claim its specific reasons for such denial, reference to the provisions of this Agreement upon which the denial
is based and any additional material or information necessary to perfect the claim (“Denial Notice”). Such written
notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired.
A claim shall be deemed to have been denied if the Plan Administrator fails to take any action within the aforesaid sixty (60)
day period.
If claimants desire a second review, they shall
notify the Plan Administrator in writing within ninety (90) days of the mailing of the Denial Notice. Claimants may review this
Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate. In its sole discretion,
the Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such
claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions
of this Agreement upon which the decision is based.
3.11
Arbitration.
Any controversy
or claim arising out of or relating to the Agreement, or the breach thereof, or any failure to agree where agreement of the parties
is necessary pursuant hereto, including the determination of the scope of this agreement to arbitrate, shall be resolved by the
following procedures:
3.11.1 The parties agree to submit
any dispute to final and binding arbitration administered by the American Arbitration Association (the
“AAA”
),
pursuant to the Commercial
Arbitration Rules of the AAA as in effect at the time
of submission. The arbitration shall be held in Boston, Massachusetts before a single neutral, independent, and impartial arbitrator
(the
“Arbitrator”
).
3.11.2 Unless the parties have
agreed upon the selection of the Arbitrator before then, the AAA shall appoint the Arbitrator within thirty (30) days after the
submission to AAA for binding arbitration. The arbitration hearings shall commence within fifteen (15) days after the selection
of the Arbitrator. Each party shall be limited to two (2) pre- hearing depositions each lasting no longer than two (2) hours. The
parties shall exchange documents to be used at the hearing no later than ten (10) days prior to the hearing date. Each party shall
have no longer than three (3) hours to present its position, and the entire proceedings before the Arbitrator shall be on no more
than two (2) hearing days within a two (2) week period. The award shall be made no more than ten (10) days following the close
of the proceeding. The Arbitrator’s award shall not include consequential, exemplary, or punitive damages. The Arbitrator’s
award shall be a final and binding determination of the dispute and sha11 be fully enforceable in any court of competent jurisdiction.
Except in a proceeding to enforce the results of the arbitration, neither party nor the Arbitrator may disclose the existence,
content, or results of any arbitration hereunder without the prior written consent of both parties.
3.12
Entire Agreement.
This Agreement
constitutes the entire agreement between the parties pertaining to its subject matter and supersedes all prior and contemporaneous
agreements, understandings, negotiations, prior draft agreements, and discussions of the parties, whether oral or written. This
Agreement specifically supersedes and replaces the previous agreement in its entirety.
3.13
Interpretation.
When a reference
is made in this Agreement to Sections or Exhibits, such reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. References to Sections include subsections, which are part of the related Section (e.g., a section numbered
“Section 5.5.1” would be part of “Section 5.5” and references to “Section 5.5” would also refer
to material contained in the subsection described as “Section 5.5.1”). The recitals hereto constitute an integral part
of this Agreement. The headings and subheadings contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words ‘‘include”, “includes”
or “including” are used in this Agreement, they shall be deemed to be followed by the words ‘‘without limitation.”
The phrases “the date of this Agreement”, “the date hereof’ and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to the date set forth in the Preamble to this Agreement.
3.14
Employment.
No provision of
this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive,
nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Bank to discharge
the Executive with or without Specially-Defined Cause. In a similar fashion, no provision shall limit the Executive’s rights
to voluntarily terminate his employment at any time.
The benefits provided by this Agreement are
not part of any salary reduction plan or any arrangement deferring a bonus or salary increase. The Executive has no option to take
any current payment or bonus in lieu of these benefits.
3.15
Communications.
All notices
and other communications hereunder shall be in writing and shal1 given by hand, sent by facsimile transmission with confirmation
of receipt requested, sent via a reputable overnight courier service with continuation of receipt requested, or mailed by registered
or certified mail (postage prepaid and return receipt requested) to the parties at their respective addresses set
forth below (or at such other address for a party as shall be specified
by like notice), and shall be deemed given on the date on which delivered by hand or otherwise on the date of receipt as confirmed:
To the Bank:
The Provident Bank
5 Market Street
P.O. Box 37
Amesbury, Massachusetts 01913-2408
Attention: Chief Financial Officer
To the Executive:
David P. Mansfield
[address omitted]
3.16
Service
with Affiliates.
For purposes of this Agreement, including without limitation for purposes of determining the Executive’s
eligibility for and the amount of any Retirement Benefit payable under the Agreement and whether the Executive had a Separation
from Service, all periods of employment by the Executive with the Company and the MHC, and amounts payable to the Executive with
respect to such employment, shall be deemed to constitute service with and payment by the Bank.
[signature page follows]
IN WITNESS WHEREOF, the parties have executed
this Agreement as an instrument under seal, as of the date first written above.
|
|
|
THE PROVIDENT BANK
|
|
|
|
|
|
/s/ Beverly Ledoux
|
|
/s/ Charles R. Cullen
|
|
Witness
|
|
By: Charles R. Cullen
|
|
|
|
Title: Chairman of the Board
|
|
|
|
|
|
|
|
PROVIDENT BANCORP, INC.
|
|
|
|
|
|
/s/ Beverly Ledoux
|
|
/s/ Charles R. Cullen
|
|
Witness
|
|
By: Charles R. Cullen
|
|
|
|
Title: Chairman of the Board
|
|
|
|
|
|
|
|
PROVIDENT BANCORP
|
|
|
|
|
|
/s/ Beverly Ledoux
|
|
/s/ Charles R. Cullen
|
|
Witness
|
|
By: Charles R. Cullen
|
|
|
|
Title: Chairman of the Board
|
|
|
|
|
|
|
|
EXECUTIVE
|
|
|
|
|
|
/s/ Beverly Ledoux
|
|
/s/ David P. Mansfield
|
|
Witness
|
|
David P. Mansfield
|
Exhibit 10.6
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Agreement, made and entered into as of
26
th
of February, 2015 by and between THE PROVIDENT BANK, a state-chartered savings bank organized and existing under
the laws of The Commonwealth of Massachusetts (the “Bank”), Provident Bancorp, Inc. (the “Company”), Provident
Bancorp (the “MHC”) and CHARLES F. WITHEE, a key employee and executive of the Bank (the “Executive”),
amends and restates in its entirety the Supplemental Executive Retirement Agreement originally dated as of August 13, 2004, and
restated as of December 10, 2007 and December 8, 2010, and as subsequently amended as of December 14, 2011 and June 24, 2013.
WITNESSETH.
WHEREAS, the Executive is a valuable, key employee
of the Bank, serving the Bank as its President and Senior Lending Officer; and
WHEREAS, because of the Executive’s experience,
knowledge of the affairs of the Bank, and reputation and contacts in the banking industry, the Bank deems the Executive’s
continued employment with the Bank important for its future growth; and
WHEREAS, it is the desire of the Bank and in
its best interest that the Executive’s services be retained; and
WHEREAS, in order to induce the Executive to
continue in the employ of the Bank, the Bank has previously entered into this arrangement to provide the Executive or his beneficiaries
with certain benefits in accordance with the terms and conditions hereinafter set forth; and
WHEREAS, the parties have agreed to amend and
restate the agreement in its entirety.
NOW, THEREFORE, in consideration of services
performed in the past and to be performed in the future, as well as of the mutual promises and covenants herein contained, it is
agreed as follows:
ARTICLE 1
DEFINITIONS
1.1
Actuarial
Equivalent
shall mean a benefit of equivalent value to the benefit, computed on the basis of the discount rates, mortality
tables (to the extent applicable), Applicable Interest Rate(s) and other assumptions expressed under Section 417(e) of the Internal
Revenue Code of 1986, as it may be amended from time to time (the “Code”). For this purpose, the Applicable Interest
Rate(s) are to be determined without regard to any transition adjustments under Section 417(e)(3)(D), and using the rates published
for November prior to the calendar year in which the Payment Date occurs.
1.2
Beneficiary
shall mean the person or persons designated by the Executive in accordance with Section 3.2 hereof to receive benefits under this
Agreement after the death of the Executive.
1.3
Benefit
Percentage
shall be equal to sixty percent (60%) multiplied by a “Time at Bank Factor.” The Time at Bank Factor
shall equal 4.87% for each full year of service with the Bank from the Executive’s date of hire (January 6, 2004) (with any
calendar year in which the Executive is employed by the Bank for six months or more counted as a full year of service); provided,
however, that the Time at Bank Factor shall not exceed one (1). In the event of (i) the Executive’s death prior to his Separation
from Service, (ii) the Executive’s Disability or (iii) a Change in Control, the Time at Bank Factor shall equal one (1),
regardless of the Executive’s years of service with the Bank.
1.4
Calendar
Year
shall mean a calendar year from January 1 to December 31.
1.5
Change
in Control.
For purposes of this Agreement, Change in Control shall mean a change in control of the Bank or the Company, as
defined in Section 409A of the Code, and the regulations promulgated thereunder, including the following:
1.5.1
Change
in ownership:
A change in ownership of the Bank of the Company occurs on the date any one person or group of persons accumulates
ownership of more than 50% of the total fair market value or total voting power of the Bank or the Company; or
1.5.2
Change
in effective control:
A change in effective control occurs when either (i) any one person or more than one person acting as
a group acquires within a twelve (12)-month period ownership of stock of the Bank or the Company possessing 30% or more of the
total voting power of the Bank or the Company; or (ii) a majority of the Bank’s or the Company’s Board of Directors
is replaced during any twelve (12)-month period by individuals whose appointment or election is not endorsed in advance by a majority
of the Bank’s or the Company’s Board of Directors, or
1.5.3
Change
in ownership of a substantial portion of assets:
A change in the ownership of a substantial portion of the Bank’s or
the Company’s assets occurs if, in a twelve (12)-month period, any one person or more than one person acting as a group acquires
assets from the Bank or the Company having a total gross fair market value equal to or exceeding 40% of the total gross fair market
value of the Bank’s or the Company’s entire assets immediately before the acquisition or acquisitions. For this purpose,
“gross fair market value” means the value of the Bank’s or the Company’s assets, or the value of the assets
being disposed of, determined without regard to any liabilities associated with the assets.
Notwithstanding anything herein to the contrary,
conversion of the Bank’s mutual holding company to stock form or the issuance of common stock by the Company shall not be
deemed to be a Change in Control nor shall any subsequent “second-step” conversion and stock issuance be deemed to
be a Change in Control for purposes of this Agreement.
1.6
Compensation
shall mean all compensation reported on the Executive’s Form W-2 (wages, tips, other compensation box) for a Calendar Year,
including, but not limited to, any bonuses actually paid by the Bank to the Executive during the Calendar Year, but adding thereto
any amount which is contributed by the Bank on the Executive’s behalf pursuant to a salary reduction agreement and which
is not includable in the Executive’s gross income under Sections 125, 132(f) or 401(e)(3) of the Code, and excluding therefrom
any payout from The Provident Bank Long Term Incentive Plan (Phantom Stock Plan), any taxable employee benefits of any kind (
e.g.
,
reimbursements of moving and relocation expenses; insurance premiums; automobile, health, medical, and dental expenses; the cost
of group-term life insurance; compensation arising from the exercise of a nonqualified stock option or from a stock grant; and
any fringe benefit which is not excluded from gross income under Section 132 of the Code) and excluding further any extraordinary,
one-time payments made to the Executive in 2015.
1.7
Final
Average Compensation
shall mean the average of the Compensation of the Executive for the three (3) consecutive Calendar Years
during his final ten (10) Calendar Years of employment with the Bank during which his Compensation was the highest. For purposes
of determining the Executive’s Compensation for any partial year under this Section 1.7, the amounts actually paid to or
contributed on behalf of the Executive shall be annualized to determine the amount that would have been paid had the Executive
been employed by the Bank for the entire Calendar Year.
1.8
Good
Reason
shall mean the following events but only if they shall occur within three years following a Change in Control:
1.8.1 The
failure of the Board of Directors of the Bank (the
“Board of Directors”
) or its successor to elect the Executive
to the office held as of the date of this Agreement, or to such other office(s) in which the Executive is then serving at the mutual
agreement of the Executive and the Bank or to continue the Executive in such office; or
1.8.2 A
reduction in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time
to time; or
1.8.3 A
material breach by the Bank or its successor of any of the provisions of this Agreement which failure or breach shall have continued
for thirty (30) days after written notice from the Executive to the Bank specifying the nature of such failure or breach; or
1.8.4 The
failure of the Bank to obtain a satisfactory agreement from any successor thereof to assume and agree to perform this Agreement.
1.8.5 The
failure by the Bank to continue to provide the Executive with benefits substantially similar to those available to the Executive
under any of the life insurance, medical, health and accident, or disability plans or any other material benefit plans in which
the Executive was participating at the time of the Change in Control, or the taking of any action by the Bank which would directly
or indirectly materially reduce any of such benefits, or the failure by the Bank to provide the Executive with the number of paid
vacation days to which the Executive is entitled on the basis of years of employment with the Bank in accordance with the normal
vacation policies in effect at the time of the Change in Control; or
1.8.6 A
reasonable determination by the Executive that, as a result of a Change in Control, he is unable to exercise the responsibilities,
authorities, powers, functions or duties exercised by the Executive immediately prior to such Change in Control.
1.9
Insurance
Policy
means such insurance policy or policies (if any) as the Bank, in its sole and absolute discretion, may choose to purchase
to fund some or all of the benefits payable hereunder.
1.10
Normal
Retirement Age
shall mean the date on which the Executive attains age sixty-two (62).
1.11
Payment
Date
shall mean the date of Executive’s Separation from Service as defined at Section 1.13 or the date of the Executive’s
death upon Executive’s Disability (as defined at Section 2.4.1), the Payment Date shall be the date upon which the Executive
attains age sixty-two (62) as provided for in Section 2.4 of the Plan.
1.12
Rabbi
Trust
means such unfunded and unsecured trust or trusts (if any), established in conformity with the requirements of Internal
Revenue Service Revenue Procedure 92-64, 1992-2 C.B. 422, as the Bank, in its sole and absolute discretion, may choose to establish
to fund some or all of the benefits payable hereunder.
1.13
Separation
from Service
shall mean any termination of the Executive’s employment with the Bank pursuant to which the level of
services provided by the Executive to the Bank (whether as an employee or as a consultant) is permanently reduced to a level
of services that is 49% or less than the services provided in the immediately preceding 36 months and with respect for which
the Bank and Executive reasonably anticipate that a significant reduction in the Executive’s services will lead to a
cessation of services or a reduction to less than 20% of the Executive’s previous level of services. This definition is
intended to comply with the definition of Separation from Service in Section 409A of the Code and the regulations issued
thereunder.
1.14
Specially-Defined
Cause
shall have the meaning defined in Section 2.8.1.
1.15
Specified
Employee
means an individual who also satisfies the definition of “key employee” as that term is defined in Code
Section 416(i) (without regard to paragraph (5) thereof). In the event Executive is a Specified Employee, no distribution shall
be made to Executive upon Separation from Service (other than due to death or Disability) prior to the date which is six (6) months
following Separation from Service.
1.16
Terminating
Event
shall mean any of the following:
1.16.1 Separation
from Service due to termination by the Bank of the Executive’s employment for any reason whatsoever
other than
(i)
the Executive’s death or (ii) for “Specially-Defined Cause” (as such term is defined in, and in accordance with
the procedures set forth in, Section 2.8.1), or
1.16.2 Separation
from Service due to resignation of the Executive from the employ of the Bank for Good Reason, while the Executive is not receiving
payments or benefits from the Bank by reason of the Executive’s Disability.
1.17
Vested
Percentage.
1.17.1 Except
as otherwise provided in Section 1.17.2, the Vested Percentage shall be 100%.
1.17.2 Notwithstanding
the provisions of Section 1.17.1, the following rule shall govern the determination of the Vested Percentage in the circumstance
described below:
A. The Vested Percentage shall be
zero if the Executive’s employment with the Bank terminates for Specially-Defined Cause.
1.18
Yearly
Benefit Amount
shall mean an annual supplemental retirement benefit in an amount determined by:
1.18.1
multiplying
(i) the Benefit Percentage times (ii) the Executive’s Final Average Compensation (determined as of the date of Separation
from Service); and
1.18.2 then,
multiplying
such result by the Vested Percentage.
ARTICLE 2
BENEFITS
2.1
Calculation
of Benefit and Timing of Payment.
Upon Separation from Service (other than for “Specially-Defined Cause,” as such
term is defined in Section 2.8.1), the Executive shall be entitled to be paid a “Retirement Benefit” under this Agreement,
calculated pursuant to Section 2.2 and, as applicable, Section 2.3 in the case of Separation from Service following a Change in
Control, Section 2.4 in the event of Disability, or Sections 2.5 or 2.6 as applicable in the event of death. In each case, the
Retirement Benefit shall be paid in a lump sum payment not later than 30 days after the Payment Date.
2.2
Retirement Benefit.
The Retirement Benefit payment
shall be a lump sum payment that is the Actuarial Equivalent of a twenty year stream of annual payments, each payment equal to
the Yearly Benefit Amount. For purposes of calculating such Actuarial Equivalent, the stream of payments shall be assumed to commence
upon the later of the date of Separation from Service or Normal Retirement Age in order to appropriately adjust such benefit for
the time value of money in the event that the benefit is paid prior to the Normal Retirement Age. The Actuarial Equivalent of such
stream of payments shall be determined as of the Payment Date.
2.3
Benefits
Upon Change in Control.
If within three years following a Change in Control of the Bank a Terminating Event occurs with respect
to the Executive, the Executive shall be entitled to a Retirement Benefit pursuant to Section 2.2 calculated as if (i) the Executive
had remained employed by the Bank until the age of sixty-two (62), and (ii) the Executive’s Compensation had increased 5%
each year from the date of such Terminating Event until the age of sixty-two (62).
2.4
Disability.
In the event that the Executive shall become “Disabled” (as defined below) while in the employ of the Bank and prior
to his attaining age sixty-two (62), the Executive shall be entitled to a Retirement Benefit pursuant to Section 2.2 calculated
as if (i) the Executive had remained employed by the Bank until the age of sixty-two (62), and (ii) the Executive’s Compensation
had increased 4.5% each year from the date of Disability until the age of sixty-two (62). Such payments shall be in addition to
any payments otherwise payable to the Executive as a result of disability under any other plans or agreements in effect from time
to time.
2.4.1 The
Executive shall be considered to be “Disabled” (and to have a “Disability”), within the meaning of this
Agreement and in accordance with Section 409A(a)(2)(c) of the Code and any regulations or other Internal Revenue Service guidance
promulgated thereunder, when the Bank in its sole and absolute discretion has determined that the Executive is totally and permanently
disable because the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than
12 months or the Executive by reason of any medically determinable physical or mental impairment that can be expected to result
in death. The Bank may, but is not required to, delegate its determination of whether the Executive is Disabled to its long term
disability insurance policy carrier, if any, or to any other third-party.
2.4.2 For
purposes of the accrual of benefits under this Agreement, time spent on Disability shall be deemed to be time spent as an employee
of the Bank. If the Executive recovers from his Disability and returns to the employ of the Bank, upon his subsequent Separation
from Service, he shall be entitled to such retirement or termination benefits as he has accrued during his employment at the Bank,
including time before, during and after his Disability.
2.5
Death
Prior to Termination of Employment.
If the Executive should die prior to Separation from Service, the Executive’s Beneficiary
shall be entitled to receive a Retirement Benefit, calculated as if (i) the Executive had remained employed by the Bank until the
age of sixty-two (62), and (ii) the Executive’s Compensation had increased 4.5% each year from the date of death until the
age of sixty-two (62), and (iii) the stream of payments described in Section 2.2 is assumed to commence upon the Executive’s
date of death. Payment made under this Section 2.5 shall be in lieu of and in complete substitution for any other benefits otherwise
payable under this Agreement.
2.6
Death
After Termination of Employment.
Upon the death of the Executive after Separation of Service, the Executive’s Beneficiaries
shall not be entitled to receive any benefit under this agreement unless: (i) the Executive’s death occurred prior to payment
of his lump sum Retirement Benefit (in which case the Beneficiaries shall be entitled to receive such lump sum payment); or (ii)
the Executive had elected an optional form of payment pursuant to Section 3.1 which provides for payment after his death (in which
case the Beneficiaries shall be entitled to payment pursuant to the terms of such optional form of payment).
2.7
No
Benefits Upon Discharge for Specially-Defined Cause.
Should the Executive be discharged for Specially-Defined Cause in accordance
with the procedures set forth in Section 2.8 at any time (before or after his Normal Retirement Age), all Benefits under Section
2 of this Agreement shall be forfeited. If a dispute arises as to whether the Executive was discharged for “Specially-Defined
Cause”, such dispute shall be resolved by arbitration as set forth in Section 3.11 of this Agreement.
2.8
Discharge
for Specially-Defined Cause.
2.8.1
Specially-Defined
Cause.
For purposes of this Agreement, the term “Specially-Defined Cause” shall mean (i) the Executive’s
deliberate dishonesty with respect to the Bank or any subsidiary or affiliate thereof; or (ii) conviction of a crime related to
banking activity or moral turpitude; or (iii) gross and willful failure to perform (
other than
on account of a medically
determinable disability which renders the Executive incapable of performing such services) a substantial portion of the Executive’s
duties and responsibilities as an officer of the Bank, which failure continues for more than thirty (30) days after written notice
given to the Executive pursuant to a two-thirds (2/3) vote of all of the members of the Board of Directors then in office, such
vote to set forth in reasonable detail the nature of such failure; or (iv) the willful engaging by the Executive in illegal or
gross misconduct which is materially and demonstrably injurious to the Bank or the Company. For purposes of this provision, no
act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best
interests of the Bank. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board
of Directors or a senior officer of the Bank, or based upon the advice of counsel for the Bank, shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Bank. Notwithstanding the foregoing,
the Executive shall not be deemed to have been discharged for “Specially-Defined Cause” unless and until there shall
have been delivered to him a copy of a certification by the Clerk of the Bank that two-thirds (2/3) of the entire Board of Directors
found in good faith that the Executive was guilty of conduct which is deemed to be Specially-Defined Cause as defined in this
Section 2.8 and specifying in particulars thereof, after reasonable notice to the Executive setting forth in reasonable detail
the nature of such Specially-Defined Cause and an opportunity for him together with his counsel, to be heard before the Board
of Directors in accordance with the provisions of Section 2.8.2.
|
|
|
2.8.2
Board of Directors Termination Procedure.
In
each case, in determining Specially-Defined Cause, the alleged acts or omissions of the Executive shall be measured against standards
prevailing in the banking industry generally, and the ultimate existence of Specially-Defined Cause must be confirmed by not less
than two-thirds (2/3) of the Board of Directors at a meeting prior to any termination or within thirty (30) days following any
termination therefor;
provided, however,
that it shall be the Bank’s burden to prove the alleged facts and omissions
and the prevailing nature of the standards of the Bank shall have alleged are violated by such acts and/or omissions of the Executive.
In the event of such a confirmation by two-thirds (2/3) or more of the Board of Directors, the Bank shall notify the Executive
that the Bank intends to terminate or has terminated the Executive’s employment for Specially-Defined Cause under this Section
2.8 (the
“Confirmation Notice”
) and that no payment under this Agreement shall be made. The Confirmation Notice
shall specify the acts or omissions upon the basis of which the Board of Directors has confirmed the existence of Specially-Defined
Cause and must be delivered to the Executive within ninety (90) days after a majority of the Board of Directors (excluding, if
applicable, the Executive) has actual knowledge of the events giving rise to such proposed or after actual termination. If the
Executive notifies the Bank in writing (the
“Opportunity Notice”
) within thirty (30) days after the Executive
has received the Confirmation Notice, the Executive (together with counsel) shall be provided one opportunity to meet with the
Board of Directors (or a sufficient quorum thereof) to discuss such acts or omissions. Such meeting shall take place at the principal
offices of the Bank or such other location as agreed to by the Executive and the Bank. If the Executive has not already been terminated,
during the period commencing on the date the Bank receives the Opportunity Notice and ending on the date next succeeding the date
on which such meeting between the Board of Directors (or a sufficient quorum thereof) and the Executive is scheduled to occur and
notwithstanding anything to the contrary in this Agreement, the Executive shall be suspended from employment with the Bank (with
pay to the extent not prohibited by applicable law), and the Board of Directors may, during such suspension period, reasonably
limit the Executive’s access to the principal offices of the Bank or any of its assets. If the Board of Directors properly
sets the date of such meeting and if the Board of Directors (or a sufficient quorum thereof) attends such meeting and in good faith
does not rescind its confirmation of Specially-Defined Cause at such meeting or if the Executive fails to attend such meeting for
any reason, the Executive’s employment by the Bank shall, immediately upon the closing of such meeting and the delivery to
the Executive of the notice of termination, be terminated for Specially-Defined Cause. If the Executive does not respond in writing
to the Confirmation Notice in the manner and within the time period specified in this Section 2.8.2, the Executive’s employment
with the Bank shall, on the thirty-first (31
st
) day after the receipt by the Executive of the Confirmation Notice, be
terminated for Specially-Defined Cause under this Section 2.8.
|
|
|
|
2.8.3
No Limitation on Authority of Board of Directors.
As is provided in Section 3.14, nothing contained in this Agreement (and nothing contained in this Section 2.8) shall in any way
limit the right of the Bank to discharge the Executive with or without Specially-Defined Cause or to limit the access of the Executive
to the premises or assets of the Bank.
|
ARTICLE 3
ADDITIONAL
PROVISIONS
3.1
Alternative
Forms of Benefit Payment.
In lieu of the lump sum Retirement Benefit provided in Part 2, upon request the Executive may obtain
an optional form of payment that is the Actuarial Equivalent of such lump sum payment;
provided
that such request complies
with the provisions of Section 409A of the Code and any regulations or other Internal Revenue Service guidance promulgated thereunder.
Acceptable forms of payment presently include:
|
|
(ii)
|
Joint and 50% Survivor Annuity or Joint and 100% Survivor
Annuity
|
The Executive shall have the right within thirty (30) days upon
becoming subject to the Plan to elect the form of payment in which his Benefit is to be paid. Prior to the Payment Date, the Executive
may change the form of payment he has elected,
provided, however,
that such change must conform with the provisions of this
Agreement and with any applicable requirements of Section 409A of the Code (and any other applicable tax law regarding deferral
of income or avoidance of constructive receipt). Pursuant to Treasury Regulation Section 1.409A-2(b)(1), all such changes (other
than those from one form of life annuity to an actuarially-equivalent form of life annuity) must be made at least one year before
the Payment Date and must extend the Payment Date for an additional period of at least five (5) years (which means that payment
of the benefit under this Agreement shall be made or commence on a date that is at least five years after the Payment Date).
3.2
Beneficiary Designation Procedure.
The Executive
may designate one or more Beneficiaries to receive specified percentages of any death benefit payments to be paid hereunder. The
Executive shall designate any such Beneficiaries in writing and shall submit such writing to the Treasurer of the Bank. Only designated
Beneficiaries alive at the Executive’s death shall be entitled to share in the benefit payments. Absent a contrary specification
by the Executive in writing submitted to the Treasurer of the Bank, each Beneficiary alive at the Executive’s death (or,
in the case of the Beneficiary’s death after the Executive’s death, the Beneficiary’s estate) shall share equally
in death benefit payments. If no designated Beneficiary is alive at the Executive’s death, his surviving spouse shall be
entitled to all death benefit payments. If the Executive dies leaving neither a designated Beneficiary nor a surviving spouse,
his estate shall be entitled to any death benefit payments. Except to the extent specifically provided in this Section 3.2, the
Executive may not, without the written consent of the Bank, assign to any individual, trust or other organization, any right title
or interest in an Insurance Policy nor any rights, options, privileges or duties created under this Agreement.
3.3
Assistance in Purchase of Life Insurance.
If the Bank elects to invest in an Insurance Policy or to establish a Rabbi Trust to fund the benefits hereunder, the Executive
shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such
insurance or annuities or to establish such trust. It is agreed and understood, however, that the Bank is under no obligation to
fund the benefits payable under this Agreement with any form of insurance or Rabbi Trust.
3.4
Alienability and Assignment Prohibition.
Neither the Executive, his surviving spouse nor any other Beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder,
nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed
by the Executive or his Beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise.
In the event the Executive or any Beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits
hereunder, the Bank’s liabilities shall forthwith cease and terminate.
3.5
Binding Obligation of Bank and any
Successor in Interest.
This Agreement shall bind the Executive and the Bank, their heirs, successors, personal representatives
and assigns. The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all
of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge
the duties and obligations of the Bank under this Agreement. Upon the occurrence
of such event, the term “Bank” as used in this Agreement
shall be deemed to refer to such successor or survivor organization.
3.6
Amendment.
During the 1ifetime
of the Executive, this Agreement may be amended only with the mutual written assent of the Executive and the Bank.
3.7
General.
The benefits provided
by the Bank to the Executive pursuant to this Agreement are in the nature of a fringe benefit and shall in no event be construed
to affect or limit the Executive’s current or prospective salary increases, cash bonuses or profit-sharing distributions
or credits, or his right to participate in or be covered by any qualified or non- qualified pension, profit-sharing, group, bonus
or other supplemental compensation or fringe benefit plan.
3.8
Applicable Law.
This Agreement
shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts
without regard to its principles of conflicts of laws.
3.9
Named Fiduciary and Plan Administrator.
The “Named Fiduciary and Plan Administrator”
of this Agreement shall be The Provident Bank until its removal
by the Board of Directors. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management control
and administration of the benefits to be provided under this Agreement. The Named Fiduciary may delegate to others certain aspects
of the management and operation responsibilities of the Agreement including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
3.10
Claims Procedure.
In the event
a dispute arises over benefits under this Agreement and benefits are not paid to the Executive (or to his Beneficiary in the case
of the Executive’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be
made to the Plan Administrator named above within sixty (60) days from the date payments are refused. The Plan Administrator shall
review the written claim and, if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of
receipt of such claim its specific reasons for such denial, reference to the provisions of this Agreement upon which the denial
is based and any additional material or information necessary to perfect the claim (“Denial Notice”). Such written
notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired.
A claim shall be deemed to have been denied if the Plan Administrator fails to take any action within the aforesaid sixty (60)
day period.
If claimants desire a second review, they shall
notify the Plan Administrator in writing within ninety (90) days of the mailing of the Denial Notice. Claimants may review this
Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate. In its sole discretion,
the Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such
claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions
of this Agreement upon which the decision is based.
3.11
Arbitration.
Any controversy
or claim arising out of or relating to the Agreement, or the breach thereof, or any failure to agree where agreement of the parties
is necessary pursuant hereto, including the determination of the scope of this agreement to arbitrate, shall be resolved by the
following procedures:
3.11.1 The parties agree to submit
any dispute to final and binding arbitration administered by the American Arbitration Association (the
“AAA”
),
pursuant to the Commercial
Arbitration Rules of the AAA as in effect at the time
of submission. The arbitration shall be held in Boston, Massachusetts before a single neutral, independent, and impartial arbitrator
(the
“Arbitrator”
).
3.11.2 Unless the parties have
agreed upon the selection of the Arbitrator before then, the AAA shall appoint the Arbitrator within thirty (30) days after the
submission to AAA for binding arbitration. The arbitration hearings shall commence within fifteen (15) days after the selection
of the Arbitrator. Each party shall be limited to two (2) pre- hearing depositions each lasting no longer than two (2) hours. The
parties shall exchange documents to be used at the hearing no later than ten (10) days prior to the hearing date. Each party shall
have no longer than three (3) hours to present its position, and the entire proceedings before the Arbitrator shall be on no more
than two (2) hearing days within a two (2) week period. The award shall be made no more than ten (10) days following the close
of the proceeding. The Arbitrator’s award shall not include consequential, exemplary, or punitive damages. The Arbitrator’s
award shall be a final and binding determination of the dispute and sha11 be fully enforceable in any court of competent jurisdiction.
Except in a proceeding to enforce the results of the arbitration, neither party nor the Arbitrator may disclose the existence,
content, or results of any arbitration hereunder without the prior written consent of both parties.
3.12
Entire Agreement.
This Agreement
constitutes the entire agreement between the parties pertaining to its subject matter and supersedes all prior and contemporaneous
agreements, understandings, negotiations, prior draft agreements, and discussions of the parties, whether oral or written. This
Agreement specifically supersedes and replaces the previous agreement in its entirety.
3.13
Interpretation.
When a reference
is made in this Agreement to Sections or Exhibits, such reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. References to Sections include subsections, which are part of the related Section (e.g., a section numbered
“Section 5.5.1” would be part of “Section 5.5” and references to “Section 5.5” would also refer
to material contained in the subsection described as “Section 5.5.1”). The recitals hereto constitute an integral part
of this Agreement. The headings and subheadings contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words ‘‘include”, “includes”
or “including” are used in this Agreement, they shall be deemed to be followed by the words ‘‘without limitation.”
The phrases “the date of this Agreement”, “the date hereof’ and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to the date set forth in the Preamble to this Agreement.
3.14
Employment.
No provision of
this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive,
nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Bank to discharge
the Executive with or without Specially-Defined Cause. In a similar fashion, no provision shall limit the Executive’s rights
to voluntarily terminate his employment at any time.
The benefits provided by this Agreement are
not part of any salary reduction plan or any arrangement deferring a bonus or salary increase. The Executive has no option to take
any current payment or bonus in lieu of these benefits.
3.15
Communications.
All notices
and other communications hereunder shall be in writing and shal1 given by hand, sent by facsimile transmission with confirmation
of receipt requested, sent via a reputable overnight courier service with continuation of receipt requested, or mailed by registered
or certified mail (postage prepaid and return receipt requested) to the parties at their respective addresses set
forth below (or at such other address for a party as shall be specified
by like notice), and shall be deemed given on the date on which delivered by hand or otherwise on the date of receipt as confirmed:
To the Bank:
The Provident Bank
5 Market Street
P.O. Box 37
Amesbury, Massachusetts 01913-2408
Attention: Chief Financial Officer
To the Executive:
Charles F. Withee
[address omitted]
3.16
Service
with Affiliates.
For purposes of this Agreement, including without limitation for purposes of determining the Executive’s
eligibility for and the amount of any Retirement Benefit payable under the Agreement and whether the Executive had a Separation
from Service, all periods of employment by the Executive with the Company and the MHC, and amounts payable to the Executive with
respect to such employment, shall be deemed to constitute service with and payment by the Bank.
[signature page follows]
IN WITNESS WHEREOF, the parties have executed
this Agreement as an instrument under seal, as of the date first written above.
|
|
|
THE PROVIDENT BANK
|
|
|
|
|
|
/s/ Carol Houle
|
|
/s/ David P. Mansfield
|
|
Witness
|
|
By: David P. Mansfield
|
|
|
|
Title: Chief Executive Officer
|
|
|
|
|
|
|
|
PROVIDENT BANCORP, INC.
|
|
|
|
|
|
/s/ Carol Houle
|
|
/s/ David P. Mansfield
|
|
Witness
|
|
By: David P. Mansfield
|
|
|
|
Title: Chief Executive Officer
|
|
|
|
|
|
|
|
PROVIDENT BANCORP
|
|
|
|
|
|
/s/ Carol Houle
|
|
/s/ David P. Mansfield
|
|
Witness
|
|
By: David P. Mansfield
|
|
|
|
Title: Chief Executive Officer
|
|
|
|
|
|
|
|
EXECUTIVE
|
|
|
|
|
|
/s/ Carol Houle
|
|
/s/ Charles F. Withee
|
|
Witness
|
|
Charles F. Withee
|
Exhibit 10.7
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Agreement is made and entered into as of
26
th
of February, 2015 by and between THE PROVIDENT BANK, a state-chartered savings bank organized and existing under
the laws of The Commonwealth of Massachusetts (the “Bank”) and CAROL L. HOULE, a key employee and executive of the
Bank (the “Executive”).
WITNESSETH.
WHEREAS, the Executive is a valuable, key employee
of the Bank, serving the Bank as its Chief Financial Officer; and
WHEREAS, because of the Executive’s experience,
knowledge of the affairs of the Bank, and reputation and contacts in the banking industry, the Bank deems the Executive’s
continued employment with the Bank important for its future growth; and
WHEREAS, it is the desire of the Bank and in
its best interest that the Executive’s services be retained; and
WHEREAS, in order to induce the Executive to
continue in the employ of the Bank, the Bank has entered into this arrangement to provide the Executive or her beneficiaries with
certain benefits in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of services
performed in the past and to be performed in the future, as well as of the mutual promises and covenants herein contained, it is
agreed as follows:
ARTICLE 1
DEFINITIONS
1.1
Actuarial Equivalent
shall mean
a benefit of equivalent value to the benefit, computed on the basis of the discount rates, mortality tables (to the extent applicable),
Applicable Interest Rate(s) and other assumptions expressed under Section 417(e) of the Internal Revenue Code of 1986, as it may
be amended from time to time (the “Code”). For this purpose, the Applicable Interest Rate(s) are to be determined without
regard to any transition adjustments under Section 417(e)(3)(D), and using the rates published for November prior to the calendar
year in which the Payment Date occurs.
1.2
Beneficiary
shall mean the person
or persons designated by the Executive in accordance with Section 3.2 hereof to receive benefits under this Agreement after the
death of the Executive.
1.3
Benefit Percentage
shall be equal
to twenty percent (20%) multiplied by a “Time at Bank Factor.” The Time at Bank Factor shall be a fraction, the numerator
of which is the Executive’s years of employment (including partial years) from the Executive’s original date of hire
by the Bank and the denominator of which is the difference in the number of years (or partial years) between the Executive’s
Normal Retirement Age and the Executive’s original date of hire by the Bank; provided, however, that the Time at Bank Factor
shall not exceed one (1). In the event of (i) the Executive’s death prior to his Separation from Service, (ii) the Executive’s
Disability or (iii) a Change in Control, the Time at Bank Factor shall equal one (1), regardless of the Executive’s years
of employment.
1.4
Calendar Year
shall mean a calendar
year from January 1 to December 31.
1.5
Change in Control.
For purposes
of this Agreement, Change in Control shall mean a change in control of the Bank or Provident Bancorp, Inc. (the “Company”),
as defined in Section 409A of the Code, and the regulations promulgated thereunder, including the following:
1.5.1
Change in ownership:
A change in ownership of the Bank of the Company occurs on the date any one person or group of persons accumulates ownership of
more than 50% of the total fair market value or total voting power of the Bank or the Company; or
1.5.2
Change in effective control:
A change in effective control occurs when either (i) any one person or more than one person acting as a group acquires within a
twelve (12)-month period ownership of stock of the Bank or the Company possessing 30% or more of the total voting power of the
Bank or the Company; or (ii) a majority of the Bank’s or the Company’s Board of Directors is replaced during any twelve
(12)-month period by individuals whose appointment or election is not endorsed in advance by a majority of the Bank’s or
the Company’s Board of Directors, or
1.5.3
Change in ownership of
a substantial portion of assets:
A change in the ownership of a substantial portion of the Bank’s or the Company’s
assets occurs if, in a twelve (12)-month period, any one person or more than one person acting as a group acquires assets from
the Bank or the Company having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of
the Bank’s or the Company’s entire assets immediately before the acquisition or acquisitions. For this purpose, “gross
fair market value” means the value of the Bank’s or the Company’s assets, or the value of the assets being disposed
of, determined without regard to any liabilities associated with the assets.
Notwithstanding anything herein to the contrary,
conversion of the Bank’s mutual holding company to stock form or the issuance of common stock by the Company shall not be
deemed to be a Change in Control nor shall any subsequent “second-step” conversion and stock issuance be deemed to
be a Change in Control for purposes of this Agreement.
1.6
Compensation
shall mean all compensation
reported on the Executive’s Form W-2 (wages, tips, other compensation box) for a Calendar Year, including, but not limited
to, any bonuses actually paid by the Bank to the Executive during the Calendar Year, but adding thereto any amount which is contributed
by the Bank on the Executive’s behalf pursuant to a salary reduction agreement and which is not includable in the Executive’s
gross income under Sections 125, 132(f) or 401(e)(3) of the Code, and excluding therefrom any payout from The Provident Bank Long
Term Incentive Plan (Phantom Stock Plan), any taxable employee benefits of any kind (
e.g.
, reimbursements of moving and
relocation expenses; insurance premiums; automobile, health, medical, and dental expenses; the cost of group-term life insurance;
compensation arising from the exercise of a nonqualified stock option or from a stock grant; and any fringe benefit which is not
excluded from gross income under Section 132 of the Code) and excluding further any extraordinary, one-time payments made to the
Executive in 2015.
1.7
Disability
shall mean the Executive
shall be considered to be “Disabled” (and to have a “Disability”), within the meaning of this Agreement
and in accordance with Section 409A(a)(2)(c) of the Code and any regulations or other Internal Revenue Service guidance promulgated
thereunder, when the Bank in its sole and absolute discretion has determined that the Executive is totally and permanently disable
because the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than
12 months or the Executive by reason of any medically determinable physical or mental impairment that can be expected to result
in death. The Bank
may, but is not required to, delegate its determination of whether
the Executive is Disabled to its long term disability insurance policy carrier, if any, or to any other third-party.
1.8
Final Average Compensation
shall
mean the average of the Compensation of the Executive for the three (3) consecutive Calendar Years during her final ten (10) Calendar
Years of employment (or number of years the Executive has been employed by the Bank, if less than ten) with the Bank during which
her Compensation was the highest. For purposes of determining the Executive’s Compensation for any partial year under this
Section 1.8, the amounts actually paid to or contributed on behalf of the Executive shall be annualized to determine the amount
that would have been paid had the Executive
been employed by the Bank for the entire Calendar Year.
1.9
Insurance
Policy
means such insurance policy or policies (if any) as the Bank, in its sole and absolute discretion, may choose to purchase
to fund some or all of the benefits payable hereunder.
1.10
Normal
Retirement Age
shall mean the date on which the Executive attains age sixty-two (62).
1.11
Payment
Date
shall mean the date of Executive’s Separation from Service as defined at Section 1.13.
1.12
Rabbi
Trust
means such unfunded and unsecured trust or trusts (if any), established in conformity with the requirements of Internal
Revenue Service Revenue Procedure 92-64, 1992-2 C.B. 422, as the Bank, in its sole and absolute discretion, may choose to establish
to fund some or all of the benefits payable hereunder.
1.13
Separation
from Service
shall mean any termination of the Executive’s employment with the Bank pursuant to which the level of services
provided by the Executive to the Bank (whether as an employee or as a consultant) is permanently reduced to a level of services
that is 49% or less than the services provided in the immediately preceding 36 months and with respect for which the Bank and Executive
reasonably anticipate that a significant reduction in the Executive’s services will lead to a cessation of services or a
reduction to less than 20% of the Executive’s previous level of services. This definition is intended to comply with the
definition of Separation from Service in Section 409A of the Code and the regulations issued thereunder.
1.14
Specially-Defined
Cause
shall have the meaning defined in Section 2.6.1.
1.15
Specified
Employee
means an individual who also satisfies the definition of “key employee” as that term is defined in Code
Section 416(i) (without regard to paragraph (5) thereof). In the event Executive is a Specified Employee, no distribution shall
be made to Executive upon Separation from Service (other than due to death or Disability) prior to the date which is six (6) months
following Separation from Service.
1.16
Vested
Percentage.
1.16.1 Except as otherwise provided
in Section 1.16.2, the Vested Percentage shall be 0% from the effective date of this Agreement until December 31, 2019, and be
100% on and after January 1, 2020.
1.16.2 Notwithstanding the provisions
of Section 1.16.1, the following rule shall govern the determination of the Vested Percentage in the circumstance described below:
A. The Vested Percentage shall be
zero if the Executive’s employment with the Bank terminates for Specially-Defined Cause.
1.17
Yearly
Benefit Amount
shall mean an annual supplemental retirement benefit in an amount determined by:
1.17.1
multiplying
(i) the
Benefit Percentage times (ii) the Executive’s Final Average Compensation (determined as of the date of Separation from Service);
and
1.17.2 then,
multiplying
such result by the Vested Percentage.
ARTICLE 2
BENEFITS
2.1
Calculation of Benefit and Timing
of Payment.
Upon Separation from Service (other than for “Specially-Defined Cause,” as such term is defined in
Section 2.6.1), the Executive shall be entitled to be paid a “Retirement Benefit” under this Agreement, calculated
pursuant to Section 2.2, or Sections 2.3 or 2.4 as applicable in the event of death. In each case, the Retirement Benefit shall
be paid in a lump sum payment not later than 30 days after the Payment Date.
2.2
Retirement Benefit.
The Retirement
Benefit payment shall be a lump sum payment that is the Actuarial Equivalent of a twenty year stream of annual payments, each payment
equal to the Yearly Benefit Amount. For purposes of calculating such Actuarial Equivalent, the stream of payments shall be assumed
to commence upon the later of the date of Separation from Service or Normal Retirement Age in order to appropriately adjust such
benefit for the time value of money in the event that the benefit is paid prior to the Normal Retirement Age. The Actuarial Equivalent
of such stream of payments shall be determined as of the Payment Date.
2.3
Death Prior to Termination of Employment.
If the Executive should die prior to Separation from Service, the Executive’s Beneficiary shall be entitled to receive a
Retirement Benefit. Payment made under this Section 2.3 shall be in lieu of and in complete substitution for any other benefits
otherwise payable under this Agreement.
2.4
Death After Termination of Employment.
Upon the death of the Executive after Separation of Service, the Executive’s Beneficiaries shall not be entitled to receive
any benefit under this agreement unless: (i) the Executive’s death occurred prior to payment of her lump sum Retirement Benefit
(in which case the Beneficiaries shall be entitled to receive such lump sum payment); or (ii) the Executive had elected an optional
form of payment pursuant to Section 3.1 which provides for payment after her death (in which case the Beneficiaries shall be entitled
to payment pursuant to the terms of such optional form of payment).
2.5
No Benefits Upon Discharge for Specially-Defined
Cause.
Should the Executive be discharged for Specially-Defined Cause in accordance with the procedures set forth in Section
2.6 at any time (before or after her Normal Retirement Age), all Benefits under Section 2 of this Agreement shall be forfeited.
If a dispute arises as to whether the Executive was discharged for “Specially-Defined Cause”, such dispute shall be
resolved by arbitration as set forth in Section 3.11 of this Agreement.
2.6
Discharge for Specially-Defined Cause.
2.6.1
Specially-Defined Cause.
For purposes of this Agreement, the term “Specially-Defined Cause” shall mean (i) the Executive’s deliberate
dishonesty with respect to the Bank or
any subsidiary or affiliate thereof; or (ii) conviction
of a crime related to banking activity or moral turpitude; or (iii) gross and willful failure to perform (
other than
on
account of a medically determinable disability which renders the Executive incapable of performing such services) a substantial
portion of the Executive’s duties and responsibilities as an officer of the Bank, which failure continues for more than thirty
(30) days after written notice given to the Executive pursuant to a two-thirds (2/3) vote of all of the members of the Board of
Directors then in office, such vote to set forth in reasonable detail the nature of such failure; or (iv) the willful engaging
by the Executive in illegal or gross misconduct which is materially and demonstrably injurious to the Bank or the Company. For
purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered “willful” unless
it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action
or omission was in the best interests of the Bank. Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board of Directors or a senior officer of the Bank, or based upon the advice of counsel for the Bank, shall
be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Bank.
Notwithstanding the foregoing, the Executive shall not be deemed to have been discharged for “Specially-Defined Cause”
unless and until there shall have been delivered to her a copy of a certification by the Clerk of the Bank that two-thirds (2/3)
of the entire Board of Directors found in good faith that the Executive was guilty of conduct which is deemed to be Specially-Defined
Cause as defined in this Section 2.6 and specifying in particulars thereof, after reasonable notice to the Executive setting forth
in reasonable detail the nature of such Specially-Defined Cause and an opportunity for her together with her counsel, to be heard
before the Board of Directors in accordance with the provisions of Section 2.6.2.
2.6.2
Board of Directors Termination
Procedure.
In each case, in determining Specially-Defined Cause, the alleged acts or omissions of the Executive shall be measured
against standards prevailing in the banking industry generally, and the ultimate existence of Specially-Defined Cause must be confirmed
by not less than two-thirds (2/3) of the Board of Directors at a meeting prior to any termination or within thirty (30) days following
any termination therefor;
provided, however,
that it shall be the Bank’s burden to prove the alleged facts and omissions
and the prevailing nature of the standards of the Bank shall have alleged are violated by such acts and/or omissions of the Executive.
In the event of such a confirmation by two-thirds (2/3) or more of the Board of Directors, the Bank shall notify the Executive
that the Bank intends to terminate or has terminated the Executive’s employment for Specially-Defined Cause under this Section
2.6 (the
“Confirmation Notice”
) and that no payment under this Agreement shall be made. The Confirmation Notice
shall specify the acts or omissions upon the basis of which the Board of Directors has confirmed the existence of Specially-Defined
Cause and must be delivered to the Executive within ninety (90) days after a majority of the Board of Directors (excluding, if
applicable, the Executive) has actual knowledge of the events giving rise to such proposed or after actual termination. If the
Executive notifies the Bank in writing (the
“Opportunity Notice”
) within thirty (30) days after the Executive
has received the Confirmation Notice, the Executive (together with counsel) shall be provided one opportunity to meet with the
Board of Directors (or a sufficient quorum thereof) to discuss such acts or omissions. Such meeting shall take place at the principal
offices of the Bank or such other location as agreed to by the Executive and the Bank. If the Executive has not already been terminated,
during the period commencing on the date the Bank receives the Opportunity Notice and ending on the date next succeeding the date
on which such meeting between the Board of Directors (or a sufficient quorum thereof) and the Executive is scheduled to occur and
notwithstanding anything to the contrary in this Agreement, the Executive shall be suspended from employment with the Bank (with
pay to the extent not prohibited by applicable law), and the Board of Directors may, during such suspension period, reasonably
limit the Executive’s access to the principal offices of the Bank or any of its
assets. If the Board of Directors properly sets the date
of such meeting and if the Board of Directors (or a sufficient quorum thereof) attends such meeting and in good faith does not
rescind its confirmation of Specially-Defined Cause at such meeting or if the Executive fails to attend such meeting for any reason,
the Executive’s employment by the Bank shall, immediately upon the closing of such meeting and the delivery to the Executive
of the notice of termination, be terminated for Specially-Defined Cause. If the Executive does not respond in writing to the Confirmation
Notice in the manner and within the time period specified in this Section 2.6.2, the Executive’s employment with the Bank
shall, on the thirty-first (31
st
) day after the receipt by the Executive of the Confirmation Notice, be terminated for
Specially-Defined Cause under this Section 2.6.
2.6.3
No Limitation on Authority
of Board of Directors.
As is provided in Section 3.14, nothing contained in this Agreement (and nothing contained in this Section
2.6) shall in any way limit the right of the Bank to discharge the Executive with or without Specially-Defined Cause or to limit
the access of the Executive to the premises or assets of the Bank.
ARTICLE 3
ADDITIONAL
PROVISIONS
3.1
Alternative Forms of Benefit Payment.
In lieu of the lump sum Retirement Benefit provided in Part 2, upon request the Executive may obtain an optional form of payment
that is the Actuarial Equivalent of such lump sum payment;
provided
that such request complies with the provisions of Section
409A of the Code and any regulations or other Internal Revenue Service guidance promulgated thereunder. Acceptable forms of payment
presently include:
(i) Life Annuity, or
(ii) Joint and 50% Survivor Annuity or Joint and 100%
Survivor Annuity
The Executive shall have the right within thirty (30) days upon
becoming subject to the Plan to elect the form of payment in which her Benefit is to be paid. Prior to the Payment Date, the Executive
may change the form of payment she has elected,
provided, however,
that such change must conform with the provisions of
this Agreement and with any applicable requirements of Section 409A of the Code (and any other applicable tax law regarding deferral
of income or avoidance of constructive receipt). Pursuant to Treasury Regulation Section 1.409A-2(b)(1), all such changes (other
than those from one form of life annuity to an actuarially-equivalent form of life annuity) must be made at least one year before
the Payment Date and must extend the Payment Date for an additional period of at least five (5) years (which means that payment
of the benefit under this Agreement shall be made or commence on a date that is at least five years after the Payment Date).
3.2
Beneficiary Designation Procedure.
The Executive may designate one or more Beneficiaries to receive specified percentages of any death benefit payments to be paid
hereunder. The Executive shall designate any such Beneficiaries in writing and shall submit such writing to the Treasurer of the
Bank. Only designated Beneficiaries alive at the Executive’s death shall be entitled to share in the benefit payments. Absent
a contrary specification by the Executive in writing submitted to the Treasurer of the Bank, each Beneficiary alive at the Executive’s
death (or, in the case of the Beneficiary’s death after the Executive’s death, the Beneficiary’s estate) shall
share equally in death benefit payments. If no designated Beneficiary is alive at the Executive’s death, her surviving spouse
shall be entitled to all death benefit payments. If the Executive dies leaving neither a designated Beneficiary nor a surviving
spouse, her estate shall be entitled to any death benefit payments. Except to the extent specifically provided in this Section
3.2, the Executive may not, without the written consent of the Bank, assign to any individual,
trust or other organization, any right title or interest in an Insurance
Policy nor any rights, options, privileges or duties created under this Agreement.
3.3
Assistance in Purchase of Life Insurance.
If the Bank elects to invest in an Insurance Policy or to establish a Rabbi Trust to fund the benefits hereunder, the Executive
shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such
insurance or annuities or to establish such trust. It is agreed and understood, however, that the Bank is under no obligation to
fund the benefits payable under this Agreement with any form of insurance or Rabbi Trust.
3.4
Alienability and Assignment Prohibition.
Neither the Executive, her surviving spouse nor any other Beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder,
nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed
by the Executive or her Beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise.
In the event the Executive or any Beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits
hereunder, the Bank’s liabilities shall forthwith cease and terminate.
3.5
Binding Obligation of Bank and any
Successor in Interest.
This Agreement shall bind the Executive and the Bank, their heirs, successors, personal representatives
and assigns. The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all
of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge
the duties and obligations of the Bank under this Agreement. Upon the occurrence of such event, the term “Bank” as
used in this Agreement shall be deemed to refer to such successor or survivor organization.
3.6
Amendment.
During the 1ifetime
of the Executive, this Agreement may be amended only with the mutual written assent of the Executive and the Bank.
3.7
General.
The benefits provided
by the Bank to the Executive pursuant to this Agreement are in the nature of a fringe benefit and shall in no event be construed
to affect or limit the Executive’s current or prospective salary increases, cash bonuses or profit-sharing distributions
or credits, or her right to participate in or be covered by any qualified or non- qualified pension, profit-sharing, group, bonus
or other supplemental compensation or fringe benefit plan.
3.8
Applicable Law.
This Agreement
shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts
without regard to its principles of conflicts of laws.
3.9
Named Fiduciary and Plan Administrator.
The “Named Fiduciary and Plan Administrator”
of this Agreement shall be The Provident Bank until its removal
by the Board of Directors. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management control
and administration of the benefits to be provided under this Agreement. The Named Fiduciary may delegate to others certain aspects
of the management and operation responsibilities of the Agreement including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
3.10
Claims Procedure.
In the event
a dispute arises over benefits under this Agreement and benefits are not paid to the Executive (or to her Beneficiary in the case
of the Executive’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be
made to the Plan
Administrator named above within sixty (60) days from the date payments
are refused. The Plan Administrator shall review the written claim and, if the claim is denied, in whole or in part, it shall provide
in writing within sixty (60) days of receipt of such claim its specific reasons for such denial, reference to the provisions of
this Agreement upon which the denial is based and any additional material or information necessary to perfect the claim (“Denial
Notice”). Such written notice shall further indicate the additional steps to be taken by claimants if a further review of
the claim denial is desired. A claim shall be deemed to have been denied if the Plan Administrator fails to take any action within
the aforesaid sixty (60) day period.
If claimants desire a second review, they shall
notify the Plan Administrator in writing within ninety (90) days of the mailing of the Denial Notice. Claimants may review this
Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate. In its sole discretion,
the Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such
claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions
of this Agreement upon which the decision is based.
3.11
Arbitration.
Any controversy
or claim arising out of or relating to the Agreement, or the breach thereof, or any failure to agree where agreement of the parties
is necessary pursuant hereto, including the determination of the scope of this agreement to arbitrate, shall be resolved by the
following procedures:
3.11.1 The parties
agree to submit any dispute to final and binding arbitration administered by the American Arbitration Association (the
“AAA”
),
pursuant to the Commercial Arbitration Rules of the AAA as in effect at the time of submission. The arbitration shall be held in
Boston, Massachusetts before a single neutral, independent, and impartial arbitrator (the
“Arbitrator”
).
3.11.2 Unless the
parties have agreed upon the selection of the Arbitrator before then, the AAA shall appoint the Arbitrator within thirty (30) days
after the submission to AAA for binding arbitration. The arbitration hearings shall commence within fifteen (15) days after the
selection of the Arbitrator. Each party shall be limited to two (2) pre- hearing depositions each lasting no longer than two (2)
hours. The parties shall exchange documents to be used at the hearing no later than ten (10) days prior to the hearing date. Each
party shall have no longer than three (3) hours to present its position, and the entire proceedings before the Arbitrator shall
be on no more than two (2) hearing days within a two (2) week period. The award shall be made no more than ten (10) days following
the close of the proceeding. The Arbitrator’s award shall not include consequential, exemplary, or punitive damages. The
Arbitrator’s award shall be a final and binding determination of the dispute and sha11 be fully enforceable in any court
of competent jurisdiction. Except in a proceeding to enforce the results of the arbitration, neither party nor the Arbitrator may
disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties.
3.12
Entire Agreement.
This Agreement
constitutes the entire agreement between the parties pertaining to its subject matter and supersedes all prior and contemporaneous
agreements, understandings, negotiations, prior draft agreements, and discussions of the parties, whether oral or written.
3.13
Interpretation.
When a reference
is made in this Agreement to Sections or Exhibits, such reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. References to Sections include subsections, which are part of the related Section (e.g., a section numbered
“Section 5.5.1” would be part of “Section 5.5” and references to “Section 5.5” would also refer
to
material contained in the subsection described as “Section
5.5.1”). The recitals hereto constitute an integral part of this Agreement. The headings and subheadings contained in this
Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever
the words ‘‘include”, “includes” or “including” are used in this Agreement, they shall
be deemed to be followed by the words ‘‘without limitation.” The phrases “the date of this Agreement”,
“the date hereof’ and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the
date set forth in the Preamble to this Agreement.
3.14
Employment.
No provision of
this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive,
nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Bank to discharge
the Executive with or without Specially-Defined Cause. In a similar fashion, no provision shall limit the Executive’s rights
to voluntarily terminate her employment at any time.
The benefits provided by this Agreement are
not part of any salary reduction plan or any arrangement deferring a bonus or salary increase. The Executive has no option to take
any current payment or bonus in lieu of these benefits.
3.15
Communications.
All notices
and other communications hereunder shall be in writing and shal1 given by hand, sent by facsimile transmission with confirmation
of receipt requested, sent via a reputable overnight courier service with continuation of receipt requested, or mailed by registered
or certified mail (postage prepaid and return receipt requested) to the parties at their respective addresses set forth below (or
at such other address for a party as shall be specified by like notice), and shall be deemed given on the date on which delivered
by hand or otherwise on the date of receipt as confirmed:
To the Bank:
The Provident Bank
5 Market Street
P.O. Box 37
Amesbury, Massachusetts 01913-2408
Attention: Chief Financial Officer
To the Executive:
Carol L. Houle
[Address omitted]
Section 3.16
Service with Affiliates.
For purposes of
this Agreement, including without limitation for purposes of determining the Executive’s eligibility for and the amount of
any Retirement Benefit payable under the Agreement and whether the Executive had a Separation from Service, all periods of employment
by the Executive with the Company and the MHC, and amounts payable to the Executive with respect to such employment, shall be deemed
to constitute service with and payment by the Bank.
[signature page follows]
IN WITNESS WHEREOF, the parties have executed
this Agreement as an instrument under seal, as of the date first written above.
|
|
|
THE PROVIDENT BANK
|
|
|
|
|
|
/s/ Charles F. Withee
|
|
/s/ David P. Mansfield
|
|
Witness
|
|
By: David P. Mansfield
|
|
|
|
Title: Chief Executive Officer
|
|
|
|
|
|
|
|
EXECUTIVE
|
|
|
|
|
|
/s/ Charles F. Withee
|
|
/s/ Carol L. Houle
|
|
Witness
|
|
Carol L. Houle
|
Exhibit 10.8
THE PROVIDENT BANK
EXECUTIVE ANNUAL INCENTIVE PLAN
ARTICLE I
Establishment, Purpose and Duration
1.1 Establishment.
This Executive
Annual Incentive Plan (the “Plan”) is adopted by The Provident Bank (the “Bank”), effective as of January
1, 2015.
1.2 Purpose.
The objectives of the Plan are to optimize the profitability and growth of the Bank (including its affiliates) through incentives
consistent with the Bank’s goals in order to link and align the personal interests of the Participants with the incentive
for individual and overall Bank performance. This Plan is further intended to provide flexibility to the Bank in its ability to
motivate, attract and retain the services of Participants who make significant contributions to the Bank’s success and to
allow Participants to share in the success of the Bank.
1.3 Duration
of this Plan
. This Plan shall commence on the Effective Date, and shall remain in effect until terminated, modified or amended
in accordance with Section 3.1 of the Plan.
ARTICLE II
Definitions
Definitions
. Whenever used in this
Plan, the following words and phrases shall have the meanings specified:
1.1
“
Base
Salary
” means the Participant’s annual rate of base salary paid during each calendar year, excluding bonuses and
other forms of variable income, fringe benefits, reimbursements, etc.
1.2
“
Bonus
Award
” means an annual bonus paid as a cash lump sum under the Plan.
1.3
“
Committee
”
means the Compensation Committee of the Bank’s Board of Directors.
1.4 “Eligible
Employee”
means an employee of the Bank who is selected by the Committee, in its sole discretion, to participate in
this Plan. Being selected to participate in this Plan for one Plan Year does not guarantee selection for participation in the
Plan for any other Plan Year.
1.5
“
Plan
Year
” means the Bank’s fiscal year, which is the calendar year.
1.6
“
Participant
”
means an Eligible Employee who has been notified by the Committee that he or she has been selected to participate in this Plan
for the current Plan Year.
ARTICLE II
Annual Cash Bonuses
2.1 Bonus
Award
(a) No
later than 90 days after the
commencement of each Plan Year, the
Committee shall set performance objectives pursuant to Section 2.2 for each Participant in writing in an award agreement, which
shall be provided to each Participant and included as an exhibit to the Plan. If the performance objectives for the Participant
are accomplished, the Participant shall receive a Bonus Award under the Plan equal to a designated percentage of the Participant’s
Base Salary, as determined by the Committee in its sole discretion and set forth in the Participant’s award agreement.
(b) In
addition to the attainment of the performance objectives set forth by the Committee for the Participant in the award agreement,
payment of the Bonus Award is also contingent on the Participant’s overall performance level being “at expectation”
as determined by the Committee. The Committee shall have the final authority to determine whether any Participant has satisfied
these requirements.
(c) If
an Eligible Employee becomes a Participant at any time after the beginning of a Plan Year, the Bonus Award payable to that Participant
shall be pro-rated, such that, the percentage of Base Salary that constitutes the Bonus Award for that Plan Year shall be multiplied
by a fraction, where the numerator is the number of full calendar months that the individual was a Participant during the Plan
Year and the denominator is 12.
2.2 Performance
Objectives
.
(a) Payment
of Bonus Awards in any Plan Year is contingent upon the performance objectives specified by the Committee for any Participant
being met by the Bank and/or Participant. The specific performance objectives are determined annually by the Committee and are
subject to change by the Committee, but generally include objective performance targets focused on financial performance, growth,
asset quality, and risk management, including, but not limited to, return on average assets, net income margin, return on equity,
loan production, asset quality and subjective, discretionary performance targets, such as particular qualitative factors for each
Participant, based on his or her duties for the Bank.
(b) Each
performance objective shall specify levels of achievement of goals ranging as follows:
(i) Threshold
Level: The level for minimum performance deemed worthy of a Bonus Award.
(ii) Target
Level: The level for typical, expected performance.
(iii) Maximum
Level. The level for outstanding performance.
(c) Each
objective will be weighted based on priority as a percentage of the total Bonus Award payable to the Participant. The weight of
each performance objective attributable to a Participant shall be set forth in his or her award agreement.
2.3 Termination
of Employment.
Unless otherwise determined by the Committee, a Participant who is not employed as of the payout date for his
or her Bonus Award shall forfeit the Bonus Award.
2.4 Time
of Payout.
No later than two and one half (2 ½) months after the close of the Plan Year (i.e., by the March 15 that
immediately follows the end of the Plan Year for which the performance is measured), the Bonus Award will be paid to the Participant
in a cash lump sum, through regular payroll practices, including all applicable withholdings. Bonus Awards under the Plan are
intended to be exempt from Section 409A of the Internal Revenue Code under the “short term deferral rule” set forth
in Treasury Regulations Section 1.409A-1(b)(4).
ARTICLE III
Amendments and Termination
3.1 Right
to Amend or Terminate
. The Committee may amend or terminate this Plan at any time without the consent of any Participants,
provided, however, that the Committee may not reduce the amount of the Bonus Award already earned by any Participant in any Plan
Year without the Participant’s consent.
ARTICLE IV
Miscellaneous
4.1 No
Guarantee of Employment
. This Plan is not an employment policy or contract. It does not give any Participant the right to
remain an employee of the Bank, nor does it interfere with the Bank’s right to discharge the Participant. It also does not
interfere with the Participant’s right to terminate employment at any time.
4.2 Non-Transferability
.
Bonus Awards under this Plan cannot be sold, transferred, assigned, pledged, attached, or encumbered in any manner.
4.3 Applicable
Law
. The Plan and all rights hereunder will be governed by the laws of the Commonwealth of Massachusetts, except to the extent
preempted by the laws of the United States of America.
4.4 Entire
Agreement.
This Plan constitutes the entire agreement between the Bank and each Participant as to the subject matter hereof.
No rights are granted to the Participant by virtue of this Plan other than those specifically set forth herein.
4.5 Administration.
The Committee shall have powers which are necessary to administer this Plan, including but not limited to:
(a) Interpreting
the provisions of the Plan;
(b) Determine
the persons eligible to participate in the Plan;
(c) Maintaining
a record of benefit payments; and
(d) Establishing
rules and prescribing any forms necessary or desirable to administer the Plan.
THE PROVIDENT BANK
EXECUTIVE ANNUAL INCENTIVE PLAN
AWARD AGREEMENT
Name: _______________________________________________________________________
Plan Year: ___________________________________________________________________
Plan Year Base Salary: _________________________________________________________
|
|
|
|
|
Award
as a % Base Salary
|
Performance
Objective
|
|
Weight
|
|
Below
Threshold
|
|
Threshold
|
|
Target
|
|
Maximum
&
Above
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
Totals
|
|
100%
|
|
0%
|
|
|
|
|
|
|
Exhibit 10.9
Provident
Bank
Long-Term
Incentive Plan
February
2005
2005 Amended and Restated Long-Term
Incentive Plan
Objective
Provident Bank is committed to rewarding and retaining senior managers
who make substantial contributions to the long-term success and growth in the Bank. The Bank’s original long-term incentive
plan (“Plan”) was developed in 1999, with initial phantom share grants awarded in 2000. Based on significant growth
of the Bank since 2000, the Plan has been modified to include additional participants and to align more closely with competitive
market practice. The original intent of the plan has stayed the same. The objectives of Provident Bank’s Long-Term Incentive
Plan are to:
|
|
·
|
Align key executives with the Bank’s long-term goals and objectives.
|
|
|
·
|
Encourage focus and collaboration needed to ensure the Bank continues
to grow and enhance its earnings.
|
|
|
·
|
Provide competitive total compensation opportunities aligned with the
Banks’ success.
|
|
|
·
|
Enable the Bank to attract and retain talented senior management.
|
The Plan is based on the concept of stock options
used by public banks, but since Provident Bank is a mutual, phantom shares are used and valued according to the Bank’s ability
to grow earnings and capital.
Eligibility
Select key senior managers. The Plan is intended to include those
who have the most influence on the long-term earnings of the Bank. In general, participants must be hired by January 1 of the plan
year to be included in that years’ grants. However, newly eligible participants may be eligible to receive an initial award
at the time of their hire date.
Performance Period
The Plan operates on a calendar year schedule (January 1 –
December 31). Grant awards will be considered annually, although actual grants will vary based on the achievement of pre-defined
performance goals and objectives.
Long-Term Incentive Award Ranges
Each participant will have a specified target incentive grant award
based on his or her role at the Bank. Target incentives are based on competitive practices and reflect the amount of long-term
incentive to be paid for meeting defined goals.
Plan grants will be allocated based on a combination of Bank and
individual performance. Each participant will have specific performance measures (e.g. Bank performance, department performance,
individual production goals) that will have a defined goals. At the end of each year, the participant will be reviewed relative
to his/her goals and an overall performance assessment made to determine Plan award.
Attachment (A) Shows award grant ranges.
Plan Gate
I
n order for the Plan to pay out any
awards in a given year, Provident Bank must achieve a threshold level of earnings
.
Threshold earnings are defined
as pretax earnings, net of extraordinary items and securities gains, at 90% of Budgeted pretax earnings. Once we achieve this threshold
level of performance, all participants are eligible for an award based on their specific performance goals.
Phantom Share Grant Award
There are three key steps in determining Plan awards each year.
|
|
1.
|
Determine whether Plan exceeded the gate level of earnings. If the earnings exceeded threshold earnings, the Plan is activated.
If earnings did not achieve this gate, there are no awards granted for any participant in that year.
|
|
|
2.
|
Review executive performance against the specific goals set at the start of the year to determine the relative award (i.e.
threshold, target, stretch). Award grants will be assessed based on achievements relative to the threshold, target and stretch
performance goals. Interpolation between the measures will be calculated to encourage and reward incremental performance improvement.
This will determine the participant’s value of the award as a percentage of salary.
|
|
|
3.
|
The value of the executive’s award (as percent of base salary) will then be converted to a number of phantom shares based
on the present value
1
of the share. These shares will vest fully after five years at which time the value to the participant
will grow in line with increases in Bank’s earnings over that five-year period.
|
Phantom Share Value
The phantom shares operate in a manner similar to stock options.
However, because Provident Bank does not have real shares of stock, we use a bookkeeping process to determine the value of an underlying
“phantom share”. The total number of shares for the Plan was determined based on the Bank’s tier 1 capital in
1999. At the inception of the Plan, the bank had a total of 1,957,745 Share Units with a calculated Share Unit Value (SUV) of $10.00.
The SUV going forward is determined by dividing the Bank’s
tier 1 capital as of December 31 of each Plan year by the total number of Share Units – 1,957,745 that were created at the
time of the initiation of the plan. The SUV is adjusted for extraordinary items and securities gains, net of tax. In addition,
the Board of Directors may, at its discretion, recognize outstanding achievement by the Bank in a given year by adding an amount
up to 10% to that year’s SUV.
In summary, participants receive the appreciation in the SUV of
the phantom stock share that occurs between the time of the share grant and the time of its redemption.
|
|
1
|
Because a phantom share operates similar to a stock option, we use a valuation process that is similar as well. Because stock
options and phantom shares have no value until the vesting period is served, we determine the future value of a stock grant, given
certain expectations of growth and then determine an equivalent cash value today to determine appropriate awards.
|
For example
|
|
·
|
Tier 1 capital at the time of grant is divided by the total number
of shares allocated to the Plan (1,957,745) to determine the original SUV.
|
|
|
·
|
An executive is granted shares with current value based on the original
SUV and a five-year cliff vest (i.e. the executive receives the value of the award after five years).
|
|
|
·
|
Earnings during the vesting period increase the bank’s tier
1 capital.
|
|
|
·
|
Tier 1 capital (adjusted for any extraordinary items and/or securities
gains) at the time of vesting is divided by the total number of shares allocated to the Plan (1,957,745) to determine the present
SUV.
|
|
|
·
|
The difference between the present SUV and the original SUV is then
multiplied by the number of shares granted to determine a cash award.
|
The plan design supports its objective to align participants with
the long-term earnings of the Bank while providing a powerful retention feature. For new employees, the Plan will provide it’s
first payment after five years’ service. After five years, assuming annual grants are awarded, participants will receive
payouts based on the growth of the shares granted five years prior.
Share Allocation
The Plan is funded with 500,000 shares for employees and 121,000
shares for Directors, which are available for distribution while the Plan remains in force. Grant awards reduce available shares,
while redeemed vested shares increase available shares.
Vesting
Each phantom stock grant will have a five year cliff vesting provision
that requires the participant to wait five years before the value of the grant is awarded.
All grants are considered fully vested upon retirement at age 62
or later, death, or termination as a result of full disability of the participant.
If the participant leaves the Bank prior to satisfying the vesting
requirement, his/her grant will be forfeited.
Plan participants terminated for cause will forfeit all rights to
their unvested grants.
Terms and Conditions
Effective Date
This Plan is effective January 1, 2005 to reflect plan year January
1, 2005 to December 31, 2005. The Plan will be reviewed annually by the Bank’s Board and Executive Management to ensure proper
alignment with the Bank’s business objectives. Provident Bank retains the rights as described below to amend, modify or discontinue
the Plan at any time during the specified period.
Program Administration
The Plan is authorized and administered by the Board of Directors,
with recommendations from the Compensation Committee. The Chief Executive Officer and/or the Board of Directors have the sole authority
to interpret the Plan and to make or nullify any rules and procedures, as necessary, for proper administration. Any determination
by the Chief Executive Officer and/or Board of Directors will be final and binding on all participants.
Program Changes or Discontinuance
Provident Bank has developed the Plan on the basis of existing business,
market and economic conditions; current services; and staff assignments. If substantial changes occur that affect these conditions,
services, assignments, or forecasts, Provident Bank may add to, amend, modify or discontinue any of the terms or conditions of
the Plan at any time.
The Board of Directors may, at its sole discretion, waive, change
or amend any portion of the Plan, as it deems appropriate.
Long-Term Incentive Award Payments
Phantom share grants will be awarded as soon after the year-end
as possible. Once vested, the shares will be paid in cash, based on the value determined. Payouts will be made within the first
two and a half months following year-end. Phantom share payments are considered taxable income to participants in the year paid
and will be subject to withholding for required income and other applicable taxes.
Any rights accruing to a participant or his/her beneficiary under
the Plan shall be solely those of an unsecured general creditor of Provident Bank. Nothing contained in the Plan, and no action
taken pursuant to the provisions hereof, will create or be construed to create a trust of any kind, or a pledge, or a fiduciary
relationship between Provident Bank or the participant or any other person. Nothing herein will be construed to require Provident
Bank to maintain any fund or to segregate any amount for a participant’s benefit.
Program Funding
The Plan is funded and accrued based on Bank performance results.
Reduced Work Schedules, Promotions, and Transfers
If a participant changes his/her role during the Plan year, and
it is deemed that new phantom share grant targets are appropriate, he/she will be eligible for the new target awards on a pro rata
basis (i.e. the award will be prorated based on the number of months employed in the respective positions.)
In the event of an approved leave of absence, the award opportunity
level for the year will be adjusted to reflect the time in active status.
Ethics and Interpretation
If there is any ambiguity as to the meaning of any terms or provisions
of this plan or any questions as to the correct interpretation of any information contained therein, the Bank’s interpretation
expressed by the CEO and/or Board of Directors will be final and binding.
The altering, inflating, and/or inappropriate manipulation of performance/financial
results or any other infraction of recognized ethical business standards, will subject the employee to disciplinary action up to
and including termination of employment. In addition, any incentive compensation as provided by this plan to which the employee
would otherwise be entitled will be revoked.
Participants who have willfully engaged in any activity, injurious
to the Bank, will upon termination of employment, death, or retirement, forfeit any incentive award earned during the award period
in which the termination occurred.
Miscellaneous
The Plan will not be deemed to give any participant the right to
be retained in the employ of Provident Bank, nor will the Plan interfere with the right of Provident Bank to discharge any participant
at any time.
In the absence of an authorized, written employment contract, the
relationship between employees and Provident Bank is one of at-will employment. The Plan does not alter the relationship.
This incentive plan and the transactions and payments hereunder
shall, in all respect, be governed by, and construed and enforced in accordance with the laws of the state of Massachusetts.
Each provision in this Plan is severable, and if any provision is
held to be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions shall not,
in any way, be affected or impaired thereby.
This plan is proprietary and confidential to Provident Bank and
its employees and should not be shared outside the organization.
Attachment (A)
Long-Term Incentive Award Ranges – Tier 1
|
|
|
Annual LTI Grant
|
|
|
|
|
%
of Base Salary
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Stretch
|
|
|
President/CFO
|
|
|
10
|
%
|
|
|
20
|
%
|
|
|
30
|
%
|
|
|
o
|
Threshold = 90% of Budgeted Pretax Earnings
|
|
|
o
|
Target = Budgeted Pretax Earnings
|
|
|
o
|
Stretch = 115% of Budgeted Pretax Earnings
|
Long-Term Incentive Award Ranges – Tier 2
|
|
|
Annual LTI Grant
|
|
|
|
|
%
of Base Salary
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Stretch
|
|
|
EVP Senior Lender
|
|
|
5
|
%
|
|
|
15
|
%
|
|
|
25
|
%
|
50% of the Award Based on the Following:
|
|
o
|
Threshold = Net Total Loan Goal Misses Budget by no more than 10%
|
|
|
o
|
Target = Net Total Loan Goal Meets Budget
|
|
|
o
|
Stretch = Net Total Loan Goal Exceeds Budget by 20%
|
Strong Consideration to be given to Volume, Mix, Credit
Quality and Yield
50% of the Award Based on Bank Performance as Follows:
|
|
o
|
Threshold = 90% of Budgeted Pretax Earnings
|
|
|
o
|
Target = Budgeted Pretax Earnings
|
|
|
o
|
Stretch = 115% of Budgeted Pretax Earnings
|
Attachment (A)
Long-Term Incentive Award Ranges – Tier 2 (Continued)
|
|
|
Annual LTI Grant
|
|
|
|
|
%
of Base Salary
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Stretch
|
|
|
SVP Retail Banking
|
|
|
5
|
%
|
|
|
15
|
%
|
|
|
25
|
%
|
50% of the Award Based on the Following:
|
|
o
|
Threshold = Net Deposit Goal Misses Budget by no more than 10%
|
|
|
o
|
Target = Net Deposit Goal Meets Budget
|
|
|
o
|
Stretch = Net Deposit Goal Exceeds Budget by 20%
|
Strong Consideration to be given to Mix and Yield
50% of the Award Based on Bank Performance as Follows:
|
|
o
|
Threshold = 90% of Budgeted Pretax Earnings
|
|
|
o
|
Target = Budgeted Pretax Earnings
|
|
|
o
|
Stretch = 115% of Budgeted Pretax Earnings
|
Attachment (A)
Long-Term Incentive Award Ranges – Tier 3
|
|
|
Annual LTI Grant
|
|
|
|
|
%
of Base Salary
|
|
|
|
|
Target
|
|
|
Stretch
|
|
|
SVP Senior Credit Officer
|
|
|
10
|
%
|
|
|
20
|
%
|
50% of the Award Based on the Following:
|
|
o
|
Target = Net Total Loan Goal Meets Budget
|
|
|
o
|
Stretch = Net Total Loan Goal Exceeds Budget by 20%
|
Strong Consideration to be given to Volume, Mix, Credit
Quality and Credit Administration
50% of the Award Based on Bank Performance as Follows:
|
|
o
|
Target = Budgeted Pretax Earnings
|
|
|
o
|
Stretch = 115% of Budgeted Pretax Earnings
|
|
|
|
Annual LTI Grant
|
|
|
|
|
%
of Base Salary
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Stretch
|
|
|
SVP Commercial Lending, VP Commercial
Lenders
|
|
|
0
|
%
|
|
|
10
|
%
|
|
|
20
|
%
|
|
|
o
|
Target = Loan Goals Achieved (Volume, Mix, Credit Quality and Rate)
|
|
|
o
|
Stretch = Loan Goals Exceeded by 25%
|
Exhibit 21
Subsidiaries of the Registrant
|
Name
|
|
State of Incorporation
|
|
|
|
|
|
The Provident Bank
|
|
Massachusetts (direct)
|
|
|
|
|
|
Provident Security Corporation
|
|
Massachusetts (indirect)
|
|
|
|
|
|
5 Market Street Security Corporation
|
|
Massachusetts (indirect)
|
Exhibit 23.2
Board of Trustees
Provident Bancorp
Boards of Directors
Provident Bancorp, Inc.
The Provident Bank
5 Market Street
Amesbury, Massachusetts 01913
Members of the Boards of Trustees and Directors:
We hereby consent to the
use of our firm’s name in the Form MHC-2 Application for Approval of a Minority Stock Issuance by a Subsidiary of a Mutual
Holding Company, and any amendments thereto, to be filed with the Federal Reserve Board, and in the Registration Statement on Form
S-1, and any amendments thereto, to be filed with the Securities and Exchange Commission. We also hereby consent to the inclusion
of, summary of and references to our Valuation Appraisal Report and any Valuation Appraisal Report Updates and our statement concerning
subscription rights and liquidation rights in such filings including the prospectus of Provident Bancorp, Inc. We also consent
to the reference to our firm under the heading “Experts” in the prospectus.
|
|
Sincerely,
|
|
|
RP
®
FINANCIAL, LC.
|
|
|
|
|
|
|
|
|
|
|
Washington Headquarters
|
|
|
Three Ballston Plaza
|
Telephone: (703) 528-1700
|
|
1100 North Glebe Road, Suite 600
|
Fax No.: (703) 528-1788
|
|
Arlington, VA 22201
|
Toll-Free No.: (866) 723-0594
|
|
www.rpfinancial.com
|
E-Mail: mail@rpfinancial.com
|
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration
Statement on Form S-1 of Provident Bancorp, Inc. of our report, dated March 10, 2015 related to our audits of the consolidated
financial statements of Provident Bancorp, Inc. and Subsidiaries as of December 31, 2014 and 2013, and for the years then ended,
which appear in this Registration Statement on Form S-1 of Provident Bancorp, Inc.
We consent to the reference to us under the caption “Experts”
in this Registration Statement on Form S -1.
We consent to the use of our report with respect to the consolidated
financial statements included herein and to the reference to our firm under the heading “Experts” in the Prospectus.
Whittlesey & Hadley, P.C.
Hartford, Connecticut
March 10, 2015
Offices in Hartford, Connecticut & Holyoke, Massachusetts
Exhibit 99.1
|
RP
®
FINANCIAL, LC.
|
|
|
Advisory | Planning
| Valuation
|
|
Mr. David P. Mansfield
Chief Executive Officer
The Provident Bank
A Subsidiary of Provident Bancorp, Inc.
Five Market Street, PO Box 37
Amesbury, MA 01913
Dear Mr. Mansfield:
This letter sets forth
the agreement between The Provident Bank, Amesbury, Massachusetts (the “Bank”), the wholly-owned subsidiary of Provident
Bancorp, Inc. (collectively, the “Company”), which in turn is the subsidiary of Provident Bancorp, the mutual holding
company, (the “MHC”), and RP
®
Financial, LC. (“RP Financial”), whereby RP Financial will
provide the independent appraisal services in conjunction with the minority stock offering by the Company. The scope, timing and
fee structure for these appraisal services are described below.
These appraisal services
will be directed by the undersigned, with the assistance of a Director, Consulting Associate and a Research Associate.
Description of Appraisal Services
In conjunction with these
appraisal services, RP Financial will conduct a financial due diligence, including on-site interviews of senior management and
reviews of historical and pro forma financial information and other documents and records, to gain insight into the operations,
financial condition, profitability, market area, risks and various internal and external factors of the Company, all of which will
be considered in estimating the pro forma market value of the Company in accordance with the applicable regulatory appraisal guidelines.
RP Financial will prepare a detailed written valuation report of the Company that will be fully consistent with applicable regulatory
appraisal guidelines and standard pro forma valuation practices, taking into consideration the intended minority stock offering.
The appraisal report will include an analysis of the Company’s financial condition and operating results, as well as an assessment
of the interest rate risk, credit risk and liquidity risk. The appraisal report will incorporate an evaluation of the Company’s
business strategies, market area, prospects for the future and the intended use of proceeds. A peer group analysis relative to
certain relatively comparable publicly-traded banking companies will be conducted for the purpose of determining appropriate valuation
adjustments for the Company relative to the peer group’s pricing ratios.
We will review pertinent
sections of the prospectus and conduct discussions with Company representatives to obtain key information for the appraisal report,
including key deal elements such as dividend policy and related regulatory requirements, use of proceeds, reinvestment rate, tax
rate, offering expenses, stock plans characteristics, SBLF redemption and charitable foundation contribution.
|
|
|
|
|
|
|
Washington Headquarters
|
|
|
Three Ballston Plaza
|
Direct: (703) 647-6543
|
|
1100 North Glebe Road, Suite 600
|
Telephone: (703) 528-1700
|
|
Arlington, VA 22201
|
Fax No.: (703) 528-1788
|
|
E-Mail: rriggins@rpfinancial.com
|
Toll-Free No.: (866) 723-0594
|
Mr. David P. Mansfield
October 22, 2014
Page 2
The original appraisal
report will establish a midpoint pro forma market value in accordance with the applicable regulatory requirements. The appraisal
report will provide the basis for the Company to determine the size of the minority stock offering. The appraisal report may be
periodically updated throughout the conversion process, and, in accordance with the conversion regulations, there will be at least
one updated appraisal prepared at the closing of the minority stock offering to determine the number of shares to be issued. In
the event of a syndicated community offering, it may be necessary to file an update in conjunction with the close of the subscription
offering and prior to the pricing phase in the syndicated community offering.
RP Financial agrees to
deliver the original appraisal report and subsequent updates, in writing, to the Company at the above address, in conjunction with
the filing of the regulatory conversion applications and amendments thereto. Subsequent updates will be filed promptly as certain
events occur which would warrant the preparation and filing of such appraisal updates pursuant to regulatory guidelines. Further,
RP Financial agrees to perform such other services as are necessary or required in connection with the regulatory review of the
appraisal and respond to the regulatory comments, if any, regarding the valuation original appraisal and subsequent updates.
In the event of a syndicated
community offering phase, RP Financial will participate in the various all hands calls regarding the offering results, pricing
discussions and timing.
RP Financial expects to
formally present the appraisal report, including the appraisal methodology, peer group selection and assumptions, to the Board
of Directors for review and consideration. If appropriate, RP Financial will present subsequent updates to the Board. It is understood
that this appraisal may be presented either in person or telephonically.
Fee Structure and Payment Schedule
The Company agrees to pay
RP Financial fees for preparation and delivery of the original appraisal report and subsequent appraisal updates as shown in the
detail below, plus reimbursable expenses. Payment of these fees shall be made according to the following schedule:
|
|
·
|
$10,000 upon execution of this letter
of agreement engaging RP Financial’s appraisal services;
|
|
|
·
|
$65,000 upon delivery of the completed
original appraisal report; and
|
|
|
·
|
$10,000 upon delivery of each subsequent
appraisal update report required in conjunction with the regulatory application and stock offering. It is anticipated that there
will be at least one appraisal update report, specifically the update to be prepared in conjunction with the completion of the
stock offering.
|
The Company will reimburse
RP Financial for reasonable out-of-pocket expenses incurred in preparation of the original appraisal and subsequent updates. Such
out-of-pocket
Mr. David P. Mansfield
October 22, 2014
Page 3
expenses will likely include travel, printing,
telephone, facsimile, shipping, reasonable counsel fees, computer and data services, and will not exceed $7,500 in the aggregate,
without the Company’s authorization to exceed this level.
In the event the Company
shall, for any reason, discontinue the proposed transaction prior to delivery of the completed original appraisal report or subsequent
updates and payment of the corresponding fees, the Company agrees to compensate RP Financial according to RP Financial’s
standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the respective
fee caps noted above, after applying full credit to the initial retainer fee towards such payment, together with reasonable out-of-pocket
expenses, subject to the cap on such expenses as set forth above. RP Financial’s standard billing rates range from $75 per
hour for research associates to $450 per hour for managing directors.
If during the course of
the proposed transaction, unforeseen events occur so as to materially change the nature or the work content of the services described
in this contract, the terms of said contract shall be subject to renegotiation by the Company and RP Financial. Such unforeseen
events shall include, but not be limited to, material changes to the structure of the transaction such as inclusion of a simultaneous
business combination transaction, material changes in the conversion regulations, appraisal guidelines or processing procedures
as they relate to conversion appraisals, material changes in management or procedures, operating policies or philosophies, and
excessive delays or suspension of processing of conversion applications by the regulators such that completion of the conversion
transaction requires the preparation by RP Financial of a new appraisal.
Covenants, Representations and Warranties
The Company and RP Financial
agree to the following:
1. The
Company agrees to make available or to supply to RP Financial such information with respect to its business and financial condition
as RP Financial may reasonably request in order to provide the aforesaid valuation. Such information heretofore or hereafter supplied
or made available to RP Financial shall include: annual financial statements, periodic regulatory filings and material agreements,
debt instruments, off balance sheet assets or liabilities, commitments and contingencies, unrealized gains or losses and corporate
books and records. All information provided by the Company to RP Financial shall remain strictly confidential (unless such information
is otherwise made available to the public), and if the conversion is not consummated or the services of RP Financial are terminated
hereunder, RP Financial shall promptly return to the Company the original and any copies of such information.
2. The
Company represents and warrants to RP Financial that any information provided to RP Financial does not and will not, to the best
of the Company’s knowledge, at the times it is provided to RP Financial, contain any untrue statement of a material fact
or in response to informational requests by RP Financial fail to state a material fact necessary to make the statements therein
not false or misleading in light of the circumstances under which they were made.
Mr. David P. Mansfield
October 22, 2014
Page 4
3. (a) The
Company agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective members, officers,
agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with
the services called for under this agreement (hereinafter referred to as “RP Financial”), from and against any and
all losses, claims, damages and liabilities (including, but not limited to, reasonable attorneys fees, and all losses and expenses
in connection with claims under the federal securities laws) attributable to (i) any untrue statement or alleged untrue statement
of a material fact contained in the financial statements or other information furnished or otherwise provided by the Company to
RP Financial, either orally or in writing; (ii) the omission or alleged omission of a material fact from the financial statements
or other information furnished or otherwise made available by the Company to RP Financial; or (iii) any action or omission to act
by the Company, or the Company’s respective officers, directors, employees or agents, which action or omission is undertaken
in bad faith or is negligent. The Company will be under no obligation to indemnify RP Financial hereunder if a court determines
that RP Financial was negligent or acted in bad faith with respect to any actions or omissions of RP Financial related to a matter
for which indemnification is sought hereunder. Reasonable time devoted by RP Financial to situations for which RP Financial is
deemed entitled to indemnification hereunder, shall be an indemnifiable cost payable by the Company at the normal hourly professional
rate chargeable by such employee.
(b) RP
Financial shall give written notice to the Company of such claim or facts within thirty days of the assertion of any claim or discovery
of material facts upon which RP Financial intends to base a claim for indemnification hereunder, including the name of counsel
that RP Financial intends to engage in connection with any indemnification related matter. In the event the Company elects, within
seven days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, the Company
shall not be obligated to make payments under Section 3(c), but RP Financial will be entitled to be paid any amounts payable by
the Company hereunder within five days after the final non-appealable determination of such contest either by written acknowledgement
of the Company or a decision of a court of competent jurisdiction or alternative adjudication forum, unless it is determined in
accordance with Section 3(c) hereof that RP Financial is not entitled to indemnity hereunder. If the Company does not so elect
to contest a claim for indemnification by RP Financial hereunder, RP Financial shall (subject to the Company’s receipt of
the written statement and undertaking under Section 3(c) hereof) be paid promptly and in any event within thirty days after receipt
by the Company of detailed billing statements or invoices for which RP Financial is entitled to reimbursement under Section 3(c)
hereof.
(c) Subject
to the Company’s right to contest under Section 3(b) hereof, the Company shall pay for or reimburse the reasonable expenses,
including reasonable attorneys’ fees, incurred by RP Financial in advance of the final disposition of any proceeding within
thirty days of the receipt of such request if RP Financial furnishes the Company: (1) a written statement of RP Financial’s
good faith belief that it is entitled to indemnification hereunder; (2) a written undertaking to repay the advance if it ultimately
is determined in a final, non-appealable adjudication of such proceeding that it or he is not entitled to such indemnification;
and (3) a detailed invoice of the expenses for which reimbursement is sought.
Mr. David P. Mansfield
October 22, 2014
Page 5
(d) In
the event the Company does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms
of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation.
This agreement constitutes
the entire understanding of the Company and RP Financial concerning the subject matter addressed herein, and such contract shall
be governed and construed in accordance with the Commonwealth of Massachusetts. This agreement may not be modified, supplemented
or amended except by written agreement executed by both parties.
The Company and RP Financial
are not affiliated, and neither the Company nor RP Financial has an economic interest in, or is held in common with, the other
and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the
other. RP Financial represents and warrants that it is not aware of any fact or circumstance that would cause it not to be “independent”
within the meaning of the conversion regulations of the federal banking agencies or otherwise prohibit or restrict in anyway RP
Financial from serving in the role of independent appraiser for the Company.
* * * * * * * * * * *
Please acknowledge your
agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter, together with
the engagement fee of $10,000.
|
|
Sincerely,
|
|
|
|
|
|
|
|
|
Ronald S. Riggins
|
|
|
President and Managing Director
|
|
Agreed To and Accepted By:
|
David P. Mansfield
|
/s/ David P. Mansfield
|
|
|
Chief Executive Officer
|
|
Upon Authorization by the Board of Directors For:
|
The Provident Bank
|
|
|
A subsidiary of Provident Bancorp, Inc.
|
|
|
Amesbury, Massachusetts
|
Exhibit 99.2
Board of Trustees
Provident Bancorp
Boards of Directors
Provident Bancorp, Inc.
The Provident Bank
5 Market Street
Amesbury, Massachusetts 01913
|
|
Re:
|
Plan of Stock Issuance
|
Provident Bancorp
Provident Bancorp, Inc.
Members of the Boards of Trustees and Directors:
All capitalized terms not
otherwise defined in this letter have the meanings given such terms in the Plan of Stock Issuance (the “Plan”) adopted
by the Board of Trustees of Provident Bancorp, a Massachusetts chartered mutual holding company (the “MHC”), and Provident
Bancorp, Inc., a Massachusetts corporation (the “Company”). Pursuant to the Plan, when the stock offering is completed
purchasers in the stock offering will own 45.0% of the Company’s outstanding shares of common stock, the MHC will 53.0% of
the Company’s outstanding shares of common stock and The Provident Community Charitable Organization, Inc. will own 2.0%
of the Company’s outstanding shares of common stock.
We understand that in accordance
with the Plan, subscription rights to purchase shares of common stock in the Company are to be issued to: (1) Eligible Account
Holders; (2) Tax-Qualified Plans including Provident Bank’s employee stock ownership plan (the “ESOP”); and (3)
Employees, Officers, Directors, Trustees and Corporators. Based solely upon our observation that the subscription rights will be
available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the
right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community
or syndicated offerings but without undertaking any independent investigation of state or federal law or the position of the Internal
Revenue Service with respect to this issue, we are of the belief that, as a factual matter:
|
|
(1)
|
the subscription rights will have no ascertainable market value; and,
|
|
|
(2)
|
the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the
shares upon issuance.
|
Changes in the local and
national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially
impact the value of thrift stocks as a whole or the Company’s value alone. Accordingly, no assurance can be given that persons
who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the
same price paid in the subscription offering.
|
|
Sincerely,
|
|
|
|
|
|
|
|
|
|
|
|
RP
Financial, LC.
|
|
|
|
|
Washington Headquarters
|
|
|
Three Ballston Plaza
|
Telephone: (703) 528-1700
|
|
1100 North Glebe Road, Suite 600
|
Fax No.: (703) 528-1788
|
|
Arlington, VA 22201
|
Toll-Free No.: (866) 723-0594
|
|
www.rpfinancial.com
|
E-Mail: mail@rpfinancial.com
|
Exhibit 99.3
Board of Trustees
Provident Bancorp
Boards of Directors
Provident Bancorp, Inc.
The Provident Bank
5 Market Street
Amesbury, Massachusetts 01913
Members of the Boards of Trustees and Directors:
At your request, we have
completed and hereby provide an independent appraisal ("Appraisal") of the estimated pro forma market value of the common
stock which is to be issued in connection with the stock issuance transaction described below.
This Appraisal is furnished
pursuant to the requirements stipulated in the Code of Federal Regulations and has been prepared in accordance with the “Guidelines
for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization”
(the “Valuation Guidelines”) of the Office of Thrift Supervision (“OTS”) and accepted by the Federal Reserve
Board (“FRB”), the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation
(“FDIC”) and the Massachusetts Commissioner of Banks (the “Commissioner”), and applicable regulatory interpretations
thereof.
Description of Plan of
Stock Issuance
On March 10, 2015, the Board
of Trustees of the Provident Bancorp (the “MHC”) and the Board of Directors of Provident Bancorp, Inc. (Provident Bancorp”
or the “Company”) adopted the Plan of Stock Issuance (the “Plan”). Pursuant to the Plan, Provident Bancorp
will issue a majority of its common stock to the MHC and sell a minority of its common stock to the public. Concurrent with the
completion of the public stock offering, The Provident Bank will receive at least 50.0% of the net stock proceeds and the balance
will be retained by Provident Bancorp. The MHC will own a controlling interest in the Company of at least 51%, and the Company
will be the sole subsidiary of the MHC. For purposes of this document, the existing consolidated entity will hereinafter be referred
to as Provident Bancorp or the Company.
Provident Bancorp will offer its common stock in a subscription offering to Eligible Account Holders, Supplemental
Eligible Account Holders, Tax-Qualified Plans including The Provident Bank’s employee stock ownership plan (the “ESOP”),
and Employees, Officers, Directors, Trustees and Corporators of The Provident Bank and the MHC as such terms are defined in the
Company’s Plan for purposes of applicable federal regulatory guidelines governing stock offerings by mutual institutions.
To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering,
the shares may be offered for sale to members of the general public in a community offering and a
|
Washington Headquarters
|
|
|
Three Ballston Plaza
|
Telephone: (703) 528-1700
|
|
1100 North Glebe Road, Suite 600
|
Fax No.: (703) 528-1788
|
|
Arlington, VA 22201
|
Toll-Free No.: (866) 723-0594
|
|
www.rpfinancial.com
|
E-Mail: mail@rpfinancial.com
|
Board of Trustees
Boards of Directors
February 13, 2015
Page 2
a syndicated offering. A portion
of the net proceeds received from the sale of the common stock will be used to purchase all of the then to be issued and outstanding
capital stock of The Provident Bank and the balance of the net proceeds will be retained by the Company.
At this time, no other activities
are contemplated for the Company other than the ownership of The Provident Bank, a loan to the newly-formed ESOP and reinvestment
of the proceeds that are retained by the Company. In the future, Provident Bancorp may acquire or organize other operating subsidiaries,
diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to
undertake such activities at the present time.
The Plan provides for the
establishment of a new charitable foundation (the “Foundation”). The Foundation contribution will be funded with 2.0%
of the number of shares of common stock issued in the stock issuance and $250,000 in cash. The purpose of the Foundation is to
provide financial support to charitable organizations in the communities in which The Provident Bank operates and to enable those
communities to share in the Bank’s long-term growth. The Foundation will be dedicated completely to community activities
and the promotion of charitable causes.
RP
®
Financial,
LC.
RP
®
Financial,
LC. (“RP Financial”) is a financial consulting firm serving the financial services industry nationwide that, among
other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma
valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed
in Exhibit V-1. We believe that, except for the fee we will receive for the Appraisal, we are independent of the Company, the Bank,
the MHC and the other parties engaged by the Bank, the Company or the MHC to assist in the stock conversion process.
Valuation Methodology
In preparing our Appraisal,
we have reviewed the regulatory applications of the Company, the Bank and the MHC, including the prospectus as filed with the
FRB, the Commissioner and the Securities and Exchange Commission (“SEC”). We have conducted a financial analysis of
the Company, the Bank and the MHC that has included a review of audited financial information for the years ended December 31,
2010 through December 31, 2014, a review of various unaudited information and internal financial reports through December 31,
2014, and due diligence related discussions with the Company’s management; Whittlesey & Hadley, P.C., the Company’s
independent auditor; Luse Gorman, PC, the Company’s counsel for the stock issuance and Sandler O’Neill & Partners,
L.P., the Company’s marketing advisor in connection with the stock offering. All assumptions and conclusions set forth in
the Appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information
based on other available published sources that we believe are reliable. While we believe the information and data gathered from
all these sources are reliable, we cannot guarantee the accuracy and completeness of such information.
Board of Trustees
Boards of Directors
February 13, 2015
Page 3
We have investigated the
competitive environment within which Provident Bancorp operates and have assessed Provident Bancorp’s relative strengths
and weaknesses. We have kept abreast of the changing regulatory and legislative environment for financial institutions and analyzed
the potential impact on Provident Bancorp and the industry as a whole. We have analyzed the potential effects of the stock offering
on Provident Bancorp’s operating characteristics and financial performance as they relate to the pro forma market value of
Provident Bancorp. We have reviewed the economic and demographic characteristics of the Company’s primary market area. We
have compared Provident Bancorp’s financial performance and condition with selected publicly-traded thrifts in accordance
with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies. We have reviewed the current
conditions in the securities markets in general and the market for thrift stocks in particular, including the market for existing
thrift issues and initial public offerings by thrifts and thrift holding companies. We have excluded from such analyses thrifts
subject to announced or rumored acquisition, and/or institutions that exhibit other unusual characteristics.
The Appraisal is based on
Provident Bancorp’s representation that the information contained in the regulatory applications and additional information
furnished to us by Provident Bancorp and its independent auditor, legal counsel and other authorized agents are truthful, accurate
and complete. We did not independently verify the financial statements and other information provided by Provident Bancorp, or
its independent auditor, legal counsel and other authorized agents nor did we independently value the assets or liabilities of
Provident Bancorp. The valuation considers Provident Bancorp only as a going concern and should not be considered as an indication
of Provident Bancorp’s liquidation value.
Our appraised value is predicated
on a continuation of the current operating environment for Provident Bancorp and for all thrifts and their holding companies. Changes
in the local, state and national economy, the legislative and regulatory environment for financial institutions and mutual holding
companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events)
may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole
or the value of Provident Bancorp’s stock alone. It is our understanding that there are no current plans for selling control
of Provident Bancorp following completion of the stock offering. To the extent that such factors can be foreseen, they have been
factored into our analysis.
The estimated pro forma
market value is defined as the price at which Provident Bancorp’s common stock, immediately upon completion of the stock
offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and
both having reasonable knowledge of relevant facts.
Valuation Conclusion
It is our opinion that, as of
February 13, 2015, the estimated aggregate pro forma market value of the shares to be issued immediately following the offering,
both shares issued publicly as well as to the MHC, was $81,600,000 at the midpoint, equal to 8,160,000 shares issued at a per share
value of $10.00. Pursuant to conversion guidelines, the 15% offering range indicates a minimum value of $69,360,000 and a maximum
value of $93,840,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total
shares outstanding of 6,936,000 shares at the minimum of the valuation range and 9,384,000 total
Board of Trustees
Boards of Directors
February 13, 2015
Page 4
shares outstanding at the maximum of the valuation
range. In the event that the appraised value is subject to an increase, the aggregate pro forma market value may be increased up
to a super maximum value of $107,916,000 without a resolicitation. Based on the $10.00 per share offering price, the super maximum
value would result in total shares outstanding of 10,791,600. The Board of Directors has established a public offering range such
that the public ownership of the Company will constitute a 45.0% ownership interest of the Company prior to the issuance of the
shares to the Foundation. Accordingly, the offering range to the public of the minority stock will be $31,212,000 at the minimum,
$36,720,000 at the midpoint, $42,228,000 at the maximum and $48,562,200 at the super maximum. Based on the public offering range,
and inclusive of the shares issued to the Foundation, the public ownership of the shares will represent 47.0% of the shares issued,
with the MHC owning the majority of the shares.
Limiting Factors and Considerations
The valuation is not intended,
and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover,
because such valuation is determined in accordance with applicable regulatory guidelines and is necessarily based upon estimates
and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons
who purchase shares of common stock in the stock offering will thereafter be able to buy or sell such shares at prices related
to the foregoing valuation of the estimated pro forma market value thereof. The appraisal reflects only a valuation range as of
this date for the pro forma market value of Provident Bancorp immediately upon issuance of the stock and does not take into account
any trading activity with respect to the purchase and sale of common stock in the secondary market on the date of issuance of such
securities or at anytime thereafter following the completion of the stock offering.
RP Financial’s valuation
was based on the financial condition and operations of Provident Bancorp as of September 30, 2014, the date of the financial data
included in the prospectus.
RP Financial is not a seller
of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be
used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which
prohibits RP Financial, its principals or employees from purchasing stock of its client institutions.
This valuation will be updated
as provided for in the conversion regulations and guidelines. These updates will consider, among other things, any developments
or changes in the financial performance and condition of Provident Bancorp, management policies, and current conditions in the
equity markets for thrift shares, both existing issues and new issues. These updates may also consider changes in other external
factors which impact value including, but not limited to: various changes in the legislative and regulatory environment for financial
institutions, the stock market and the market for thrift stocks, and interest rates. Should any such new developments or changes
be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will
be made. The reasons for any such adjustments will be explained in the update at the date of the release of
Board of Trustees
Boards of Directors
February 13, 2015
Page 5
the update. The valuation
will also be updated at the completion of Provident Bancorp’s stock offering.
|
|
Respectfully submitted,
|
|
|
RP
®
FINANCIAL, LC.
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
S. Riggins
|
|
|
Managing Director
|
|
|
|
|
|
|
|
|
|
|
|
Gregory E. Dunn
|
|
|
Director
|
|
RP
®
Financial, LC.
|
TABLE OF CONTENTS
|
|
|
i
|
TABLE OF CONTENTS
PROVIDENT BANCORP, INC.
THE PROVIDENT BANK
Amesbury, Massachusetts
|
|
PAGE
|
|
DESCRIPTION
|
NUMBER
|
|
|
|
|
CHAPTER ONE
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
|
|
|
Introduction
|
I.1
|
|
Plan of Stock Issuance
|
I.1
|
|
Strategic Overview
|
I.2
|
|
Balance Sheet Trends
|
I.4
|
|
Income and Expense Trends
|
I.8
|
|
Interest Rate Risk Management
|
I.11
|
|
Lending Activities and Strategy
|
I.12
|
|
Asset Quality
|
I.14
|
|
Funding Composition and Strategy
|
I.15
|
|
Subsidiary Activity
|
I.16
|
|
Legal Proceedings
|
I.16
|
|
|
|
|
CHAPTER TWO
|
MARKET AREA
|
|
|
|
|
|
Introduction
|
II.1
|
|
National Economic Factors
|
II.1
|
|
Market Area Demographics
|
II.4
|
|
Regional Economy
|
II.6
|
|
Unemployment Trends
|
II.9
|
|
Market Area Deposit Characteristics and Competition
|
II.9
|
|
|
|
|
CHAPTER THREE
|
PEER GROUP ANALYSIS
|
|
|
|
|
|
Peer Group Selection
|
III.1
|
|
Financial Condition
|
III.5
|
|
Income and Expense Components
|
III.8
|
|
Loan Composition
|
III.11
|
|
Interest Rate Risk
|
III.13
|
|
Credit Risk
|
III.13
|
|
Summary
|
III.16
|
|
RP
®
Financial, LC.
|
TABLE OF CONTENTS
|
|
|
ii
|
TABLE OF CONTENTS
PROVIDENT BANCORP, INC.
THE PROVIDENT BANK
Amesbury, Massachusetts
(continued)
|
|
PAGE
|
|
DESCRIPTION
|
NUMBER
|
|
|
|
|
CHAPTER FOUR
|
VALUATION ANALYSIS
|
|
|
|
|
|
Introduction
|
IV.1
|
|
Appraisal Guidelines
|
IV.1
|
|
RP Financial Approach to the Valuation
|
IV.1
|
|
Valuation Analysis
|
IV.2
|
|
1. Financial Condition
|
IV.3
|
|
2. Profitability, Growth and Viability of Earnings
|
IV.4
|
|
3. Asset Growth
|
IV.6
|
|
4. Primary Market Area
|
IV.6
|
|
5. Dividends
|
IV.8
|
|
6. Liquidity of the Shares
|
IV.9
|
|
7. Marketing of the Issue
|
IV.9
|
|
A. The Public Market
|
IV.10
|
|
B. The New Issue Market
|
IV.14
|
|
C. The Acquisition Market
|
IV.17
|
|
8. Management
|
IV.18
|
|
9. Effect of Government Regulation and Regulatory Reform
|
IV.18
|
|
Summary of Adjustments
|
IV.18
|
|
Valuation Approaches: Fully-Converted Basis
|
IV.19
|
|
Basis of Valuation- Fully-Converted Pricing Ratios
|
IV.20
|
|
1. Price-to-Earnings ("P/E")
|
IV.20
|
|
2. Price-to-Book ("P/B")
|
IV.24
|
|
3. Price-to-Assets ("P/A")
|
IV.25
|
|
Comparison to Publicly-Traded MHCs
|
IV.25
|
|
Comparison to Recent Offerings
|
IV.29
|
|
Valuation Conclusion
|
IV.30
|
|
RP
®
Financial, LC.
|
LIST OF TABLES
|
|
|
iii
|
LIST OF TABLES
PROVIDENT BANCORP, INC.
THE PROVIDENT BANK
Amesbury, Massachusetts
|
TABLE
|
|
|
|
|
|
Number
|
|
DESCRIPTION
|
|
page
|
|
|
|
|
|
|
|
1.1
|
|
Historical Balance Sheet Data
|
|
I.5
|
|
1.2
|
|
Historical Income Statements
|
|
I.9
|
|
|
|
|
|
|
|
2.1
|
|
Summary Demographic Data
|
|
II.5
|
|
2.2
|
|
Primary Market Area Employment Sectors
|
|
II.7
|
|
2.3
|
|
Largest Employers in Local Market Area
|
|
II.8
|
|
2.4
|
|
Unemployment Trends
|
|
II.9
|
|
2.5
|
|
Deposit Summary
|
|
II.10
|
|
2.6
|
|
Market Area Deposit Competitors
|
|
II.11
|
|
|
|
|
|
|
|
3.1
|
|
Peer Group of Publicly-Traded Thrifts
|
|
III.3
|
|
3.2
|
|
Balance Sheet Composition and Growth Rates
|
|
III.6
|
|
3.3
|
|
Income as a Pct. of Avg. Assets and Yields, Costs, Spreads
|
|
III.9
|
|
3.4
|
|
Loan Portfolio Composition and Related Information
|
|
III.12
|
|
3.5
|
|
Interest Rate Risk Measures and Net Interest Income Volatility
|
|
III.14
|
|
3.6
|
|
Credit Risk Measures and Related Information
|
|
III.15
|
|
|
|
|
|
|
|
4.1
|
|
Market Area Unemployment Rates
|
|
IV.8
|
|
4.2
|
|
Pricing Characteristics and After-Market Trends
|
|
IV.15
|
|
4.3
|
|
Market Pricing Comparatives
|
|
IV.16
|
|
4.4
|
|
Fully-Converted Market Pricing Versus Peer Group
|
|
IV.22
|
|
4.5
|
|
MHC Market Pricing Versus Peer Group
|
|
IV.23
|
|
4.6
|
|
Calculation of Implied Per Share Data- Incorporating MHC
|
|
|
|
|
|
Second Step Conversion
|
|
IV.27
|
|
4.7
|
|
MHC Institutions Implied Pricing Ratios, Full Conversion Basis
|
|
IV.28
|
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.1
|
I.
Overview and Financial Analysis
Introduction
The Provident Bank (“Provident
Bank” or the “Bank”, chartered in 1828, is a Massachusetts chartered stock co-operative bank headquartered in
Amesbury, Massachusetts. In 2000, Provident Bank reorganized into the mutual holding company structure, forming Provident Bancorp,
a Massachusetts chartered mutual holding company (the “MHC”). The MHC’s primary purpose is to act as the holding
company for Provident Bancorp, Inc., a Massachusetts corporation (“Provident Bancorp” or the “Company”),
which was formed in 2011. Provident Bank is the wholly-owned subsidiary of the Company. Provident Bank serves the Boston metropolitan
area and southern New Hampshire through the main office, six full service branch offices and two loan production offices. The main
office and one branch are located in Amesbury. Branch offices are also maintained in Newburyport, Massachusetts and Portsmouth,
Exeter and Seabrook, New Hampshire. Amesbury and Newburyport are located in Essex County, while all of the New Hampshire branches
are located in Rockingham County. The loan production offices are located in Bedford and Nashua, New Hampshire. A map of Provident
Bank’s branch office locations is provided in Exhibit I-1. Provident Bank is a member of the Federal Home Loan Bank (“FHLB”)
system and its deposits are insured up to the maximum allowable amount by the Federal Deposit Insurance Corporation (“FDIC”).
As of December 31, 2014, Provident Bancorp had consolidated total assets of $658.6 million, total deposits of $536.9 million and
total equity of $75.8 million equal to 11.51% of total assets. The Company’s audited financial statements are included by
reference as Exhibit I-2.
Plan of Stock
Issuance
On March 10 2015, the Board
of Trustees of the MHC and the Board of Directors of Provident Bancorp adopted the Plan of Stock Issuance (the “Plan”).
Pursuant to the Plan, Provident Bancorp will issue a majority of its common stock to the MHC and sell a minority of its common
stock to the public. Concurrent with the completion of the public stock offering, the Bank will receive at least 50.0% of the net
stock proceeds and the balance will be retained by Provident Bancorp. The MHC will own a controlling interest in the Company of
at least 51%, and the Company will be the sole subsidiary of the MHC. For purposes of this document, the existing consolidated
entity will hereinafter be referred to as Provident Bancorp or the Company.
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.2
|
Provident Bancorp will offer
its common stock in a subscription offering to Eligible Account Holders, Supplemental Eligible Account Holders, Tax-Qualified Plans
including Provident Bank’s employee stock ownership plan (the “ESOP”), and Employees, Officers, Directors, Trustees
and Corporators of the Bank and the MHC, as such terms are defined in the Company’s Plan for purposes of applicable federal
regulatory guidelines governing stock offerings by mutual institutions. To the extent that shares remain available for purchase
after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to members of
the general public in a community offering and a syndicated offering. A portion of the net proceeds received from the sale of the
common stock will be used to purchase all of the then to be issued and outstanding capital stock of Provident Bank and the balance
of the net proceeds will be retained by the Company.
At this time, no other activities
are contemplated for the Company other than the ownership of the Bank, funding a loan to the newly-formed ESOP and reinvestment
of the proceeds that are retained by the Company. In the future, Provident Bancorp may acquire or organize other operating subsidiaries,
diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to
undertake such activities at the present time.
The Plan provides for the
establishment of a new charitable foundation (the “Foundation”). The Foundation contribution will be funded with 2.0%
of the number of shares of common stock issued in the stock issuance and $250,000 in cash. The purpose of the Foundation is to
provide financial support to charitable organizations in the communities in which Provident Bank operates and to enable those communities
to share in the Bank’s long-term growth. The Foundation will be dedicated completely to community activities and the promotion
of charitable causes.
Strategic
Overview
Provident Bancorp maintains
a local community banking emphasis, with a primary strategic objective of meeting the borrowing and deposit needs of its local
customer base. Provident Bancorp strategic emphasis has shifted from that of a traditional thrift to that of a commercial bank.
The Company is pursuing a strategy of strengthening its community bank franchise dedicated to meeting the banking needs of business
and retail customers in the communities that are served by the Company. In recent years, growth strategies have
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.3
|
emphasized increased lending
diversification that targets growth of commercial real estate and commercial business loans.
Investments serve as a supplement
to the Company’s lending activities and the investment portfolio is considered to be indicative of a low risk investment
philosophy. Mortgage-backed securities guaranteed by government sponsored enterprises (“GSEs”) constitute the largest
portion of the Company’s investment portfolio, with other investments consisting of municipal bonds, U.S. Government and
federal agency obligations, marketable equity securities, trust preferred securities, corporate debt and asset-backed securities.
Deposits have consistently
served as the primary funding source for the Company, with supplemental funding provided by utilization of borrowings as an alternative
funding source for purposes of managing funding costs and interest rate risk. Borrowings currently held by the Company consist
of FHLB advances.
Provident Bancorp’s
earnings base is largely dependent upon net interest income and operating expense levels. The Company has maintained a relatively
stable net interest margin during the past five years. Redeployment of lower yielding cash and investments into loan growth has
helped to preserve the Company’s net interest margin in the prevailing interest rate environment, where financial institutions
in general have experienced interest rate spread compression due to interest-earning asset yields declining more significantly
relative to interest-bearing funding costs. Operating expense ratios have trended lower in recent years, as the Company has been
effective in implementing recent growth strategies without significantly increasing operating expenses. Non-interest operating
income has been a fairly stable contributor to the Company’s earnings, while the amount of loan loss provisions established
has increased in recent periods largely due to growth of the loan portfolio.
The post-offering business
plan of the Company is expected to continue to focus on operating and growing a profitable institution. Accordingly, Provident
Bancorp will continue to be an independent full service community bank, with a commitment to meeting the retail and commercial
banking needs of individuals and businesses in the Boston metropolitan area and southern New Hampshire.
The Company’s Board of
Directors has elected to complete a public stock offering to sustain growth strategies and facilitate implementation of its strategic
plan. The capital realized from the stock offering will increase the Company’s operating flexibility and allow for additional
growth of the balance sheet. The additional funds realized from the stock offering will provide
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.4
|
an alternative funding source to deposits and
borrowings in meeting the Company’s future funding needs, which may facilitate a reduction in Provident Bancorp’s funding
costs. Additionally, Provident Bancorp’s higher equity-to-assets ratio will enable the Company to pursue expansion opportunities.
Such expansion would most likely occur through the establishment of additional banking offices to gain a market presence in nearby
markets that are complementary to the Company’s existing branch network. The Company will also be in a better position to
pursue growth through acquisition of other financial service providers following the stock offering, given its strengthened capital
position. At this time, other than the planned opening of a full service branch office in Bedford, New Hampshire, which will include
the consolidation of the two loan production offices into that facility, the Company has no specific plans for expansion. The projected
uses of proceeds are highlighted below.
|
|
o
|
The Company.
The Company is expected
to retain up to 50% of the net conversion proceeds. At present, funds at the holding company level are expected to be initially
held in liquid funds. Over time, the funds may be utilized for various corporate purposes, which may include redeeming all or a
portion of the Company’s outstanding shares of Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred
Stock”) acquisitions, infusing additional equity into the Bank, repurchases of common stock, and the payment of dividends.
|
|
|
o
|
The Bank.
Approximately 50% of the
net conversion proceeds will be infused into the Bank. Cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock
purchases) infused into the Bank are anticipated to become part of general operating funds and are expected to be primarily utilized
to fund loan growth over time.
|
Overall, it is the Company’s
objective to pursue controlled growth that will serve to increase returns, while, without significantly increasing the overall
risk associated with Provident Bancorp’s operations.
Balance Sheet
Trends
Table 1.1 shows the Company’s
historical balance sheet data for the past five years. From yearend 2010 through yearend 2014, Provident Bancorp’s assets
increased at a 7.24% annual rate. Asset growth was largely driven by loan growth, which was partially funded with redeployment
of cash and investments. Asset growth was funded by deposit growth, which funded a reduction in borrowings as well. A summary of
Provident Bancorp’s key operating ratios for the past five years is presented in Exhibit I-3.
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.5
|
Table 1.1
Provident Bancorp, Inc.
Historical Balance Sheet
Data
|
|
|
|
|
12/31/10-
|
|
|
|
|
|
12/31/14
|
|
|
|
At December 31,
|
|
Annual.
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Growth Rate
|
|
|
|
Amount
|
|
Pct(1)
|
|
Amount
|
|
Pct(1)
|
|
Amount
|
|
Pct(1)
|
|
Amount
|
|
Pct(1)
|
|
Amount
|
|
Pct(1)
|
|
Pct
|
|
|
|
($000)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amount of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$498,026
|
|
100.00%
|
|
$530,577
|
|
100.00%
|
|
$576,450
|
|
100.00%
|
|
$624,659
|
|
100.00%
|
|
$658,606
|
|
100.00%
|
|
7.24%
|
|
Cash and cash equivalents
|
|
17,329
|
|
3.48%
|
|
24,789
|
|
4.67%
|
|
23,101
|
|
4.01%
|
|
15,356
|
|
2.46%
|
|
9,558
|
|
1.45%
|
|
-13.82%
|
|
Investment securities/CDs
|
|
118,611
|
|
23.82%
|
|
130,613
|
|
24.62%
|
|
147,895
|
|
25.66%
|
|
134,376
|
|
21.51%
|
|
121,591
|
|
18.46%
|
|
0.62%
|
|
Loans receivable, net
|
|
333,895
|
|
67.04%
|
|
345,565
|
|
65.13%
|
|
377,118
|
|
65.42%
|
|
439,712
|
|
70.39%
|
|
494,183
|
|
75.03%
|
|
10.30%
|
|
FHLB stock
|
|
4,067
|
|
0.82%
|
|
4,067
|
|
0.77%
|
|
3,799
|
|
0.66%
|
|
5,318
|
|
0.85%
|
|
3,642
|
|
0.55%
|
|
-2.72%
|
|
Bank-owned life insurance
|
|
5,108
|
|
1.03%
|
|
5,286
|
|
1.00%
|
|
5,461
|
|
0.95%
|
|
11,764
|
|
1.88%
|
|
12,144
|
|
1.84%
|
|
24.17%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$379,455
|
|
76.19%
|
|
$404,308
|
|
76.20%
|
|
$449,664
|
|
78.01%
|
|
$508,554
|
|
81.41%
|
|
$536,934
|
|
81.53%
|
|
9.07%
|
|
Borrowings
|
|
68,316
|
|
13.72%
|
|
54,866
|
|
10.34%
|
|
49,461
|
|
8.58%
|
|
40,988
|
|
6.56%
|
|
39,237
|
|
5.96%
|
|
-12.95%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$44,551
|
|
8.95%
|
|
$64,725
|
|
12.20%
|
|
$67,060
|
|
11.63%
|
|
$69,827
|
|
11.18%
|
|
$75,791
|
|
11.51%
|
|
14.21%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans/Deposits
|
|
|
|
87.99%
|
|
|
|
85.47%
|
|
|
|
83.87%
|
|
|
|
86.46%
|
|
|
|
92.04%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
(1) Ratios are as a percent
of ending assets.
Sources: Provident Bancorp's
prospectus, audited and unaudited financial statements, SNL Financial and RP Financial calculations.
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.6
|
Provident Bancorp’s
loans receivable portfolio increased at a 10.30% annual rate from yearend 2010 through yearend 2014, in which the loans receivable
balance showed a steady upward trend during the period. The most significant loan growth was realized during the past two years,
which was primarily attributable to growth of commercial real estate and commercial business loans. The Company’s higher
loan growth rate compared to its asset growth rate served to increase the loans-to-assets ratio from 67.04% at yearend 2010 to
75.03% at yearend 2014.
Provident Bancorp’s
emphasis on growing commercial loans is evidenced by recent trends in its loan portfolio composition. Trends in the Company’s
loan portfolio composition since yearend 2010 show that the concentration of 1-4 family mortgage loans (including home equity loans
and lines of credit) comprising total loans decreased from 34.03% of total loans at yearend 2010 to 20.84% of total loans at yearend
2014. Comparatively, from yearend 2010 through yearend 2014, commercial real estate loans (including multi-family loans) decreased
from 51.66% to 49.76% of total loans and commercial business loans increased from 8.04% to 19.45% of total loans. Over the same
time period, the relative concentrations of construction and land loans increased from 5.98% of total loans to 9.38% of total loans
and consumer loans increased from 0.30% of total loans to 0.57% of total loans. Recent trends in the Company’s loan portfolio
composition are generally expected to continue, particularly as the Company is no longer originating 1-4 family permanent mortgage
loans.
The intent of the Company’s
investment policy is to provide adequate liquidity and to generate a favorable return within the context of supporting Provident
Bancorp’s overall credit and interest rate risk objectives. It is anticipated that proceeds retained at the holding company
level will either be invested into liquid funds held as a deposit at the Bank or to pay down the Series A Preferred Stock. The
Company currently intends to redeem at least 50% or $8.6 million of the Series A Preferred Stock with proceeds realized from the
stock offering. Since yearend 2010, the Company’s level of cash and investment securities (inclusive of FHLB stock) ranged
from a low of 20.47% of assets at yearend 2014 to a high of 30.37% of assets at yearend 2012. The decrease in the balance of cash
and investments since yearend 2012 was largely related to redeployment of those funds for purposes of funding loan growth. Mortgage-backed
securities totaling $54.9 million comprised the most significant component of the Company’s investment portfolio at December
31, 2014. Other investments held by the Company at December 31, 2014 consisted of municipal bonds ($49.5 million), marketable equity
securities ($10.3 million), asset-backed securities ($2.6 million), U.S. Government and
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.7
|
federal agency obligations
($2.1 million), trust preferred securities ($1.1 million) and corporate debt ($1.1 million). As of December 31, 2014, investments
maintained as held to maturity totaled $45.6 million and consisted entirely of municipal bonds. Investments maintained as available-for
sale totaled $76.0 million at December 31, 2014 and had a net unrealized gain of $3.9 million. Exhibit I-4 provides historical
detail of the Company’s investment portfolio. As of December 31, 2014, the Company also held $9.6 million of cash and cash
equivalents and $3.6 million of FHLB stock.
The Company also maintains
an investment in bank-owned life insurance (“BOLI”) policies, which cover the lives of certain officers and directors
of the Company. The purpose of the investment is to provide funding for employee and director benefit plans. The life insurance
policies earn tax-exempt income through cash value accumulation and death proceeds. As of December 31, 2014, the cash surrender
value of the Company’s BOLI equaled $12.1 million.
Since yearend 2010, Provident
Bancorp’s funding needs have been addressed through a combination of deposits, borrowings and internal cash flows. From yearend
2010 through yearend 2014, the Company’s deposits increased at a 9.07% annual rate. Deposits growth was sustained throughout
the period covered in Table 1.1. Deposit growth trends in recent years reflect that deposit growth has primarily consisted of certificates
of deposit (“CDs”), which has been largely related to increased utilization of brokered CDs by the Company. Core deposits
comprised 76.88% of total deposits at December 31, 2014, versus 83.35% of total deposits at December 31, 2012.
Borrowings serve as an alternative
funding source for the Company to address funding needs for growth and to support management of deposit costs and interest rate
risk. From yearend 2010 through yearend, 2014, borrowings decreased from $68.3 million or 13.72% of assets to $39.2 million or
5.96% of assets. Borrowing utilized by the Company have generally been limited to FHLB advances and repurchase agreements and as
of December 31, 2014 consisted entirely of FHLB advances.
The Company’s equity
increased at a 14.21% annual rate from yearend 2010 through yearend 2014. Capital growth was supplemented with the issuance of
$17.1 million of the Series A Preferred Stock in 2011. On September 13, 2011, as part of the Small Business Lending Fund Program
(“SBLF”) of the U.S. Treasury (“Treasury”), the Company entered into a Letter Agreement pursuant to which
the Company issued and sold to the Treasury 17,145 shares of the Company’s Series A Preferred Stock, having a liquidation
preference of $1,000
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.8
|
per preferred share. Non-cumulative
dividends on the Series A Preferred Stock accrue at an annual rate of between 1% and 5% for the first four and one-half years and
at an annual rate of 9% thereafter. The variable rate is determined based upon changes in the amount of the Company’s “Qualified
Small Business Lending” as compared to a baseline level. At December 31, 2014, as a result of the Company’s small business
lending activity, the dividend rate was 1.00%. Net proceeds retained by the Company from the minority stock offering may be used
to repay all or a portion of the Series A Preferred Stock. The Company currently intends to redeem at least 50% or $8.6 million
of the Series A Preferred Stock with proceeds realized from the stock offering. Overall, comparatively stronger equity growth relative
to asset growth increased the Company’s equity-to-assets ratio from 8.95% at yearend 2010 to 11.51% at yearend 2014. The
Bank maintained capital surpluses relative to all of its regulatory capital requirements at December 31, 2014. The addition of
stock proceeds will serve to strengthen the Company’s capital position, facilitate repayment of the Series A Preferred stock,
as well as support growth opportunities. At the same time, the increase in Provident Bancorp’s pro forma capital position
will initially depress its ROE.
Income and
Expense Trends
Table 1.2 shows the Company’s
historical income statements for the past five years. The Company’s reported earnings ranged from a low of $2.2 million or
0.44% of average assets during 2010 to a high of $4.6 million or 0.71% of average assets during 2014. Net interest income and operating
expenses represent the primary components of the Company’s earnings. Non-interest operating income has been a fairly stable
source of earnings for the Company, while loan loss provisions have generally been relatively limited; although, primarily due
to loan growth, the amount of loan loss provisions established has increased in recent years. Non-operating income has primarily
consisted of gains on sale of investment securities.
During the period covered
in Table 1.2, the Company’s net interest income to average assets ratio ranged from a low of 3.10% during 2012 to a high
of 3.41% during 2011. For 2014, the Company’s net interest income to average assets ratio equaled 3.29%. The decline in the
Company’s net interest income ratio since 2011 has been largely attributable to interest rate spread compression that has
resulted from a more significant decrease in the yield earned on interest-earnings assets relative to the cost of interest-bearing
liabilities. As the result of the prolonged low interest rate environment, the decline in yield earned on less rate sensitive interest-earning
assets has become more significant relative to the decline in rate paid on more
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.9
|
Table 1.2
Provident Bancorp, Inc.
Historical Income Statements
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
|
|
Amount
|
|
Pct(1)
|
|
Amount
|
|
Pct(1)
|
|
Amount
|
|
Pct(1)
|
|
Amount
|
|
Pct(1)
|
|
Amount
|
|
Pct(1)
|
|
|
|
($000)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$22,333
|
|
4.43%
|
|
$21,246
|
|
4.26%
|
|
$20,829
|
|
3.78%
|
|
$21,638
|
|
3.57%
|
|
$23,311
|
|
3.65%
|
|
Interest expense
|
|
(5,616)
|
|
-1.11%
|
|
(4,248)
|
|
-0.85%
|
|
(3,714)
|
|
-0.67%
|
|
(2,625)
|
|
-0.43%
|
|
(2,291)
|
|
-0.36%
|
|
Net interest income
|
|
$16,717
|
|
3.32%
|
|
$16,998
|
|
3.41%
|
|
$17,115
|
|
3.10%
|
|
$19,013
|
|
3.14%
|
|
$21,020
|
|
3.29%
|
|
Provision for loan losses
|
|
(467)
|
|
-0.09%
|
|
(458)
|
|
-0.09%
|
|
(681)
|
|
-0.12%
|
|
(1,175)
|
|
-0.19%
|
|
(1,452)
|
|
-0.23%
|
|
Net interest income after provisions
|
|
$16,250
|
|
3.22%
|
|
$16,540
|
|
3.32%
|
|
$16,434
|
|
2.98%
|
|
$17,838
|
|
2.95%
|
|
$19,568
|
|
3.06%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest operating income
|
|
$3,254
|
|
0.65%
|
|
$3,680
|
|
0.74%
|
|
$3,265
|
|
0.59%
|
|
$3,064
|
|
0.51%
|
|
$3,440
|
|
0.54%
|
|
Operating expense
|
|
(16,799)
|
|
-3.33%
|
|
(16,629)
|
|
-3.33%
|
|
(16,829)
|
|
-3.05%
|
|
(17,362)
|
|
-2.87%
|
|
(17,421)
|
|
-2.72%
|
|
Net operating income
|
|
$2,705
|
|
0.54%
|
|
$3,591
|
|
0.72%
|
|
$2,870
|
|
0.52%
|
|
$3,540
|
|
0.58%
|
|
$5,587
|
|
0.87%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income/(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sales of securities, net
|
|
$446
|
|
0.09%
|
|
$3,379
|
|
0.68%
|
|
$565
|
|
0.10%
|
|
$2,253
|
|
0.37%
|
|
$428
|
|
0.07%
|
|
Writedown of securities
|
|
(48)
|
|
-0.01%
|
|
(164)
|
|
-0.03%
|
|
-
|
|
0.00%
|
|
(141)
|
|
-0.02%
|
|
-
|
|
0.00%
|
|
Loss on sales and writedowns of OREO
|
|
(102)
|
|
-0.02%
|
|
(25)
|
|
-0.01%
|
|
(52)
|
|
-0.01%
|
|
(33)
|
|
-0.01%
|
|
-
|
|
0.00%
|
|
Net non-operating income(loss)
|
|
$296
|
|
0.06%
|
|
$3,190
|
|
0.64%
|
|
$513
|
|
0.09%
|
|
$2,079
|
|
0.34%
|
|
$428
|
|
0.07%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before tax
|
|
$3,001
|
|
0.60%
|
|
$6,781
|
|
1.36%
|
|
$3,383
|
|
0.61%
|
|
$5,619
|
|
0.93%
|
|
$6,015
|
|
0.94%
|
|
Income tax provision
|
|
(796)
|
|
-0.16%
|
|
(2,242)
|
|
-0.45%
|
|
(818)
|
|
-0.15%
|
|
(1,607)
|
|
-0.27%
|
|
(1,453)
|
|
-0.23%
|
|
Net income (loss)
|
|
$2,205
|
|
0.44%
|
|
$4,539
|
|
0.91%
|
|
$2,565
|
|
0.47%
|
|
$4,012
|
|
0.66%
|
|
$4,562
|
|
0.71%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$2,205
|
|
0.44%
|
|
$4,539
|
|
0.91%
|
|
$2,565
|
|
0.47%
|
|
$4,012
|
|
0.66%
|
|
$4,562
|
|
0.71%
|
|
Add(Deduct): Non-operating income
|
|
(296)
|
|
-0.06%
|
|
(3,190)
|
|
-0.64%
|
|
(513)
|
|
-0.09%
|
|
(2,079)
|
|
-0.34%
|
|
(428)
|
|
-0.07%
|
|
Tax effect (2)
|
|
118
|
|
0.02%
|
|
1,276
|
|
0.26%
|
|
205
|
|
0.04%
|
|
832
|
|
0.14%
|
|
171
|
|
0.03%
|
|
Adjusted earnings
|
|
$2,027
|
|
0.40%
|
|
$2,625
|
|
0.53%
|
|
$2,257
|
|
0.41%
|
|
$2,765
|
|
0.46%
|
|
$4,305
|
|
0.67%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Coverage Ratio (3)
|
|
1.00x
|
|
|
|
1.02x
|
|
|
|
1.02x
|
|
|
|
1.09x
|
|
|
|
1.21x
|
|
|
|
Efficiency Ratio (4)
|
|
83.88%
|
|
|
|
80.24%
|
|
|
|
82.66%
|
|
|
|
78.63%
|
|
|
|
71.02%
|
|
|
(1) Ratios are as a percent
of average assets.
(2) Assumes a 40.0% effective
tax rate.
(3) Expense coverage ratio
calculated as net interest income before provisions for loan losses divided by operating expenses.
(4) Efficiency ratio calculated
as operating expenses divided by the sum of net interest income before provisions for loan losses plus non-interest operating income.
Sources: Provident Bancorp's
prospectus, audited & unaudited financial statements, SNL Financial and RP Financial calculations.
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.10
|
rate sensitive liabilities
which had more significant downward repricing earlier in the prevailing interest rate environment. The increase in the Company’s
net interest income ratio since 2012 has been due to a decrease in the interest expense ratio in 2013 and 2104, as well as an increase
in the interest income ratio during 2014. Notably, a shift in the Company’s interest-earning asset composition towards a
higher concentration of comparatively higher yielding loans relative to lower yielding investments has helped to preserve the overall
yield on interest-earning assets. Overall, during the past five years, the Company’s interest rate spread decreased from
a peak of 3.43% during 2011 to a low of 3.05% during 2012. For 2013 and 2014, the Company’s interest rate spreads increased
to 3.16% and 3.32%, respectively. The Company’s net interest rate spreads and yields and costs for the past five years are
set forth in Exhibit I-3 and Exhibit I-5.
Non-interest operating income
as a percent of average assets has been a fairly stable contributor to the Company’s earnings, ranging from a low of $3.1
million or 0.51% of average assets during 2013 to a high of $3.7 million or 0.74% of average assets during 2011. For 2014, non-interest
operating income amounted to $3.4 million or 0.54% of average assets. Service charges on deposit accounts and other fees and charges
are the primary contributors to the Company’s non-interest operating revenues, which also includes income earned on BOLI.
Operating expenses represent
the other major component of the Company’s earnings, ranging from a low of $16.6 million or 3.33% of average assets during
2011 to a high of $17.4 million or 2.72% of average assets during 2014. In recent years, the Company has effectively leveraged
it operating expense ratio through containing increases in operating expenses during a period of relatively strong asset growth
sustained by loan growth. Upward pressure will be placed on the Company’s operating expense ratio following the stock offering,
due to expenses associated with operating as a publicly-traded company, including expenses related to the stock benefit plans.
At the same time, the increase in capital realized from the stock offering will increase the Company’s capacity to further
leverage operating expenses through balance sheet growth.
Overall, during the past
five years, the Company’s expense coverage ratios (net interest income divided by operating expenses) ranged from a low of
1.00x during 2010 to a high of 1.21x during 2014. Similar trends were reflected in the Company’s efficiency ratio (operating
expenses as a percent of the sum of net interest income and other operating income) over the
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.11
|
past five years, with the
Company’s efficiency ratio ranging from a high of 83.88% during 2010 to a low of 71.02% during 2014.
During the period covered
in Table 1.2, the amount of loan loss provisions established ranged from a low of $458,000 or 0.09% of average assets during 2011
to a high of $1.5 million or 0.23% of average assets during 2014. The higher amount of loan loss provisions established in recent
periods has been mostly to address growth of the loan portfolio, which has primarily been realized through growth of commercial
real estate loans and commercial business loans. As of December 31, 2014 the Company maintained loan loss allowances of $7.2 million,
equal to 1.44% of total loans and 187.49% of non-performing loans. Exhibit I-6 sets forth the Company’s loan loss allowance
activity for the past five years.
Non-operating gains and
losses have had a varied impact on the Company’s earnings during the period covered in Table 1.2, ranging from net non-operating
gains of $296,000 or 0.06% of average assets during 2010 to net non-operating gains of $2.1 million or 0.34% of average assets
during 2013. For 2014, the Company reported net non-operating gains of $428,000 or 0.07% of average assets. Non-operating gains
reported during 2014 consisted entirely of gains on the sale of investment securities.
The Company’s effective
tax rate ranged from 24.16% during 2014 to 33.06% during 2011. As set forth in the prospectus, the Company’s effective marginal
tax rate is 40.0%.
Interest
Rate Risk Management
The Company’s balance
sheet is slightly liability sensitive in the short-term (less than one year). While financial institutions in general have been
experiencing some interest spread compression during recent periods, due to the average yield earned on interest-earning assets
declining more relative to the average rate paid on interest-bearing liabilities, the Company has been effective in preserving
its interest rate spread through increasing the concentration of interest-earning comprised of loans relative to lower yielding
cash and investments. The increase in the concentration of interest-earning assets maintained in loans has been realized through
loan growth, which has been partially funded by redeployment of cash and investments. The Company’s interest rate risk analysis
as of December 31, 2014 indicates that in the event of a 200 basis point increase in interest rates over a one year period, assuming
a parallel and immediate shift across the yield curve over such period, net interest income would increase by
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.12
|
0.43% and Economic Value of
Equity would decrease by 4.3%, which were within policy limits (see Exhibit I-7).
The Company pursues a number
of strategies to manage interest rate risk, particularly with respect to seeking to limit the repricing mismatch between interest
rate sensitive assets and liabilities. The Company manages interest rate risk from the asset side of the balance sheet through
investing in investment securities with durations of no more than seven years and emphasizing growth of commercial real estate
and commercial business loans, which consists primarily of shorter term fixed rate loans and adjustable rate loans. As of December
31, 2014, of the Company’s total loans due after December 31, 2015, ARM loans comprised 69.16%% of those loans (see Exhibit
I-8). On the liability side of the balance sheet, management of interest rate risk has been pursued through emphasizing growth
of lower costing and less interest rate sensitive transaction and savings accounts. Transaction and savings accounts comprised
76.88% of the Company’s total deposits at December 31, 2014.
The infusion of stock proceeds
will serve to further limit the Company’s interest rate risk exposure, as most of the net proceeds will be redeployed into
interest-earning assets and the increase in the Company’s capital position will lessen the proportion of interest rate sensitive
liabilities funding assets.
Lending Activities
and Strategy
Pursuant to the Company’s
strategic plan, the Company is pursuing a diversified lending strategy emphasizing commercial real estate loans and commercial
business loans as the primary areas of targeted loan growth. Historically, Provident Bancorp’s lending activities emphasized
origination of 1-4 family permanent mortgage loans, but at this time the Company no longer offers 1-4 family permanent mortgage
loans as a loan product. Other areas of lending diversification for the Company include construction and land development loans,
home equity loans and consumer loans on a very limited basis. Exhibit I-9 provides historical detail of Provident Bancorp’s
loan portfolio composition for the past five years and Exhibit I-10 provides the contractual maturity of the Company’s loan
portfolio by loan type as of December 31, 2014.
Commercial Real Estate
Loans
Commercial real estate loans consist of loans originated by the Company, which are collateralized by properties in the
Company’s regional lending area. Recent growth of the commercial real estate loan portfolio has been primarily realized through
originations of commercial real estate loans in the Company’s southern New Hampshire lending
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.13
|
markets, where the Company
has emphasized originations of loans secured by owner occupied properties. Provident Bancorp generally originates commercial real
estate loans up to a loan-to-value (“LTV”) ratio of 75.0% for owner occupied properties and 70.0% for investment properties.
Owner occupied properties require a minimum debt-coverage ratio of 1.20 times and investment properties require a minimum debt-coverage
ratio of 1.25 times. The Company offers both fixed and adjustable rate commercial real estate loans, generally for terms of up
to 20 years. Fixed rate loans generally have a shorter term balloon provision of five or ten years. Adjustable rate loans reprice
every three, five or seven years and are indexed to the corresponding FHLB advance rate. Commercial real estate loans offered by
the Company also include floating lines of credit indexed to
The Wall Street Journal
prime rate for up to five years followed
by a 20 year amortization term. Properties securing the commercial real estate loan portfolio include mixed use, office, apartments,
industrial/manufacturing/warehouse, gas stations, non-owner occupied 1-4 family residences and retail. As of December 31, 2014,
the Company’s outstanding balance of commercial real estate loans totaled $249.7 million equal to 49.76% of total loans outstanding.
1-4 Family Residential
Loans.
In 2014, the Company discontinued origination of 1-4 family permanent mortgage loans and, thus, 1-4 family loans will
become a smaller portion of the Company’s loan portfolio over time. Previously, Provident Bancorp offered both fixed rate
and adjustable rate 1-4 family permanent mortgage loans, which were typically underwritten to secondary market guidelines. The
Company generally retained all originations for investment. As of December 31, 2014, the Company’s outstanding balance of
1-4 family loans (excluding home equity loans and lines of credit) equaled $80.9 million or 16.12% of total loans outstanding.
Commercial Business Loans
The commercial business loan portfolio is generated through extending loans to businesses operating in the local market area. Expansion
of commercial business lending activities is a desired area of loan growth for the Company, pursuant to which the Company is seeking
to become a full service community bank to its commercial loan customers through offering a full range of commercial loan products
that can be packaged with lower cost commercial deposit products. Commercial business loans offered by the Company consist of floating
lines of credit indexed to
The Wall Street Journal
prime rate, fixed rate term loans priced off of the corresponding FHLB
advance rate, and adjustable rate term loans indexed to
The Wall Street Journal
prime rate. Commercial business loans are
generally offered for terms up to seven years. The commercial business loan portfolio consists
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.14
|
substantially of loans secured
by business assets such as inventory, equipment and real estate. As of December 31, 2014, Provident Bancorp’s outstanding
balance of commercial business loans totaled $97.6 million equal to 19.45% of total loans outstanding.
Construction and Land
Development Loans
The Company primarily originates construction loans for commercial development projects, such as apartments,
condominiums and office buildings Construction loans are interest-only loans during the construction phase, which is typically
up to 24 months. Commercial real estate construction loans may be originated up to a maximum LTV ratio of 80.0% of the appraised
market value upon completion of the project. On a more limited basis, the Company’s originates 1-4 family residential construction
loans and residential land or development loans, which are offered with similar terms as commercial construction loans. Construction
lending has been a recent area of minor loan growth for the Company, as the regional economy in southern New Hampshire has supported
an increase in demand for construction of commercial properties. As of December 31, 2014, Provident Bancorp’s outstanding
balance of construction and land development loans totaled $47.1 million equal to 9.38% of total loans outstanding.
Home Equity Loans and
Lines of Credit.
The Company discontinued origination of home equity loans in 2014. Home equity loans were generally offered
for terms up to 10 years, with a fixed rate for the first year of the loan and then converted to a floating rate loan indexed to
the prime rate as published in
The Wall Street Journal
. Home equity lines of credit are tied to the prime rate as published
in
The Wall Street Journal
and are offered for terms of up to a 10-year draw period followed by a 15 year repayment period.
The Company will originate home equity lines of credit up to a maximum loan-to value (“LTV”) ratio of 80.0%, inclusive
of other liens on the property.
As of December 31, 2014, the Company’s outstanding balance of home equity loans and
lines of credit totaled $23.7 million equal to 4.72% of total loans outstanding.
Consumer Loans.
Consumer
lending is currently not an active lending area for the Company. The small balance of consumer loans held in the Company’s
loan portfolio primarily consist of automobile loans and other types of installment loans. As of December 31, 2014, the consumer
loan portfolio totaled $2.9 million equal to 0.57% of total loans outstanding.
Asset Quality
The Company’s emphasis
on lending in local and familiar markets has generally supported the maintenance of relatively favorable credit quality measures.
Provident Bancorp’s
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.15
|
balance of non-performing
assets ranged from a low of $2.4 million or 0.48% of assets at yearend 2010 to a high of $3.9 million or 0.59% of assets at yearend
2014. Most of the increase in the Company’s balance of non-performing assets since yearend 2010 was due to an increase in
non-accruing commercial real estate loans. As shown in Exhibit I-11, the Company’s balance of non-performing assets at December
31, 2014 consisted entirely of non-accruing loans. Non-accruing loans commercial real estate loans and 1-4 family permanent mortgage
loans constituted the Company’s largest concentrations of non-accruing loans at December 31, 2014, with such balances totaling
$1.8 million and $1.6 million, respectively.
To track the Company’s
asset quality and the adequacy of valuation allowances, Provident Bancorp has established detailed asset classification policies
and procedures which are consistent with regulatory guidelines. Classified assets are reviewed monthly by senior management and
the Loan Committee, and quarterly by the full Board. The loan portfolio is also reviewed by an independent third party. Pursuant
to these procedures, when needed, the Company establishes additional valuation allowances to cover anticipated losses in classified
or non-classified assets. As of December 31 2014, the Company maintained loan loss allowances of $7.2 million, equal to 1.44% of
total loans receivable and 187.49% of non-performing loans.
Funding Composition
and Strategy
Deposits have consistently
served as the Company’s primary funding source and at December 31, 2014 deposits accounted for 93.19% of Provident Bancorp’s
interest-bearing funding composition. Exhibit I-12 sets forth the Company’s deposit composition for the past three years.
Transaction and savings account deposits comprised 76.88% of total deposits at December 31, 2014, as compared to 83.35% of total
deposits at December 31, 2012. The decrease in the concentration of core deposits comprising total deposits since 2012 was due
to stronger growth of CDs relative to growth of core deposits, which was mostly related to an increase in brokered CDs held by
the Company. Non-interest bearing demand deposits comprise the largest concentration of the Company’s core deposits, totaling
$128.4 million or 31.11% of total core deposits at December 31, 2014.
The balance of the Company’s
deposits consists of CDs, which equaled 23.12% of total deposits at December 31, 2014 compared to 16.65% of total deposits at December
31, 2012. Provident Bancorp’s current CD composition reflects a higher concentration of jumbo CDs (CDs with balances of $100,000
or more). The CD portfolio totaled $124.1 million at December 31, 2014 and $96.8 million or 77.96% consisted of jumbo CDs. Exhibit
I-13 sets forth the maturity
|
RP
®
Financial, LC.
|
OVERVIEW AND FINANCIAL ANALYSIS
|
|
|
I.16
|
schedule of the Company’s
jumbo CDs as of December 31, 2014. The Company held $67.0 million of brokered CDs at December 31, 2014.
Borrowings serve as an alternative
funding source for the Company to facilitate management of funding costs and interest rate risk Borrowings totaled $39.2 million
at December 31, 2014 and consisted entirely of FHLB advances. At December 31, 2014, the FHLB advances had schedules maturities
through 2017 and had a weighted average interest rate of 1.43%. Exhibit I-14 provides further detail of the Company’s borrowings
activities during the past three years.
Subsidiary
Activity
Provident Bancorp, Inc.
has no direct subsidiaries other than Provident Bank. Provident Bank has two wholly-owned subsidiaries, Provident Security Corporation
(“Provident Security”) and 5 Market Street Security Corporation (“5 Market Street”). 5 Market Street is
an inactive corporation. Provident Security busy, sells and holds securities on its own behalf as a wholly-owned subsidiary of
Provident Bank, which results in tax advantages in Massachusetts.
Legal Proceedings
The Company is not currently
party to any pending legal proceedings that the Company’s management believes would have a material adverse effect on the
Company’s financial condition, results of operations or cash flows.
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.1
|
II. MARKET AREA
Introduction
Provident Bancorp serves the
Boston metropolitan area through the main office in Amesbury, Massachusetts and two branch offices in Massachusetts and four additional
branch offices in New Hampshire. Within Massachusetts, a branch office is also located in Amesbury and the other branch is located
in Newburyport. Within New Hampshire, the Company has branch offices in Seabrook, Portsmouth, Hampton, and Exeter. The Massachusetts
offices are in Essex County and the New Hampshire offices are in Rockingham County. The Company also operates two LPOs in Bedford
and Nashua, New Hampshire, which are both located in Hillsborough County. Exhibit II-1 provides information on the Company’s
office properties.
With operations in a major metropolitan
area, the Company’s competitive environment includes a significant number of thrifts, commercial banks and other financial
services companies, some of which have a regional or national presence and are larger than the Company in terms of deposits, loans,
scope of operations, and number of branches. These institutions also have greater resources at their disposal than the Company.
The Boston metropolitan area has a highly developed economy, with a relatively high concentration of highly skilled workers who
are employed in a number of different industry clusters including healthcare, financial services and technology.
Future growth opportunities for Provident
Bancorp depend on the future growth and stability of the national and regional economy, demographic growth trends and the nature
and intensity of the competitive environment. These factors have been examined to help determine the growth potential that exists
for the Company, the relative economic health of the Company’s market area, and the resultant impact on value.
National Economic
Factors
The future success of the Company’s
operations is partially dependent upon various national and local economic trends. In assessing national economic trends over the
past few quarters, the employment report for July 2014 showed job growth slowing more than expected, as 209,000 jobs were added
in July and the unemployment rate for July edged up to 6.2%. Both manufacturing and non-manufacturing activity expanded at slightly
higher rates in July compared to June’s readings. Signs of the recovery in housing gaining traction were indicated by month-over-month
increases for July housing starts and sales of existing homes, although
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.2
|
new home sales declined from to June to July. Aided by strong
sales of aircraft, durable-goods orders jumped by more than 22% in July compared to June. Manufacturing activity expanded at a
faster rate in August, while service sector activity growth eased in August. The employment report for August showed only 142,000
jobs were added, which was the smallest increase in eight months. However, the unemployment rate for August edged down to 6.1%,
as more people dropped out of the labor force. In contrast to July, housing starts and existing home sales showed month-over-month
declines in August, while new home sales were up solidly in August compared to July. After posting a significant increase in July,
orders for durable-goods were down by more than 18% in August. The growth rates for manufacturing and service sector activity slowed
slightly in September. A stronger-than-expected 248,000 jobs were added to the U.S. economy in September and the September unemployment
rate declined to a six-year low of 5.9%. September retail sales were down 0.3% compared to the prior month, while September housing
starts showed a 6.3% increase compared to August and sales of existing homes climbed 2.4% in September. New home sales edged up
0.2% in September compared to August. Durable-goods orders fell 1.3% from August to September. Third quarter GDP came in at a 3.5%
annual growth rate, which was driven by an increase in military spending.
U.S employers added 214,000 jobs in
October 2014, which provided for a decline in the national unemployment rate to 5.8%. Manufacturing activity expanded at a faster
rate in October compared to September, while the rate of expansion for the service sector declined slightly from September to October.
Retail sales rose 0.3% in October after declining 0.3% in September. October existing home sales jumped to their highest level
in more than a year, rising 1.5% from September. Comparatively, new home sales increased 0.7% from September to October. The pace
of manufacturing and service sector activity both eased slightly in November compared to October. U.S. employers added 321,000
jobs in November, which was the most in one month since January 2012. The November unemployment rate was unchanged at 5.8% and
wage growth showed a slight pick-up in November. Retail sales rose 0.7% in November from October, as retailers got a boost from
a sharp drop in gasoline prices. November existing and new home sales declined 6.1% and 1.5%, respectively, from October. Manufacturing
and service activity slowed further in December, with service sector activity slipping to a six month low. Employers added 252,000
jobs in December and the December unemployment rate dipped to 5.6%. December retail sales fell 0.9% compared to November, which
was largely related to a decline in gasoline spending due to falling oil prices. New and existing home sales rebounded in December,
with respective increases of 11.6% and 2.4% compared to the previous month. Comparatively, durable goods orders for December fell
3.4%
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.3
|
from November and fourth quarter GDP increased at an annual
rate of 2.6% compared to a third quarter annual growth rate of 5.0%.
Manufacturing activity for January 2015
declined to its lowest level in a year with an index reading of 53.5 compared to 55.1 for December 2014, as slow global growth
started to weigh on demand for goods made in the U.S. Comparatively, service sector activity edged up slightly in January 2015
with an index reading of 56.7 compared to 56.5 for December 2014. U.S. job growth showed a solid increase of 257,000 jobs in January
2015, although the unemployment rate for January edged up to 5.7%. Led by plunging gas prices, retail sales declined 0.8% in January.
Excluding gas sales, retail spending was flat January.
In terms of
interest rates trends over the past few quarters, better-than-expected job growth reflected in the June employment report contributed
to long-term Treasury yields increasing slightly at the start of the third quarter of 2014. Treasury yields eased lower in mid-July,
as investors moved to safer assets on news that a jet was shot down over eastern Ukraine. The 10-year Treasury yield hovered around
2.50% through the end of July. The policy statement from the Federal Reserve’s end of July meeting indicated that the Federal
Reserve would remain patient about raising interest rates and monthly bond purchases by the Federal Reserve would be scaled back
by another $10 billion to $25 billion per month. Weaker than expected job growth reflected in the July employment report and turmoil
in the Mideast and Ukraine contributed to long-term Treasury yields edging lower in early-August. Low inflation readings and mixed
economic data provided for a stable interest rate environment through early-September. Long-term Treasury yields edged higher ahead
of the mid-September meeting of the Federal Reserve, with the yield on the on the 10-year Treasury approximating 2.60%. The Federal
Reserve concluded its mid-September by maintaining “considerable time” phrasing with respect to its stance on keeping
short-term interest rates near zero and concluded its bond buying program with $15 billion of purchases in October.
Treasury yields
dipped lower at the start of the fourth quarter of 2014, as investors moved into safe haven investments amid heightened concerns
that slowing economic growth in Europe would negatively impact corporate earnings for the third quarter. Heightened volatility
in the stock market sustained the bond rally into mid-October. Treasury yields remained fairly stable through the balance of October
and the first half of November, as the Federal Reserve concluded its late-October session with a policy statement that confirmed
the end of quantitative easing and reaffirmed its commitment to keep interest rates low for the foreseeable future. The Federal
Reserve’s policy statement also included a brighter economic outlook. A sharp decline
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.4
|
in oil prices and more signs of
economic weakness in Europe and Japan served to push long-term Treasury yields lower during the first half of December, which was
followed by relatively stable interest rates during the balance of 2014.
The 10-year
Treasury yield dipped below 2.0% in early-January 2015 and continued to trend lower into mid-January, as investors moved into safe
haven investments amid heightened concerns over global economic growth and an increase in financial market turmoil. Long-term Treasury
yields continued to edge lower through the end of January, as investors took into consideration economic data suggesting that the
economic recovery was losing momentum and indications from the Federal Reserve that it would keep its target rate near zero until
at least mid-year. A jump in oil prices and the strong job growth reflected in the January employment report pushed long-term Treasury
yields higher in the first half of February, as expectations increased that the Federal Reserve would raise rates in mid-2015.
As of February 13, 2015, the bond equivalent yields for U.S. Treasury bonds with terms of one and ten years equaled 0.23% and 2.02%,
respectively, versus comparable year ago yields of 0.12% and 2.73%. Exhibit II-2 provides historical interest rate trends.
Based on the consensus outlook of economists
surveyed by The Wall Street Journal in January 2015, GDP growth was projected to come in at 2.6% in 2014 and increase to 3.0% in
2015. The unemployment rate was forecasted to decline to 5.2% in December 2015. An average of 240,000 jobs were projected to be
added per month during 2015. On average, the economists did not expect the Federal Reserve to begin raising its target rate until
mid-2015 at the earliest and the 10-year Treasury yield would increase to 2.87% at the end of 2015. The surveyed economists also
forecasted home prices would rise 4.1% in 2015 and housing starts were forecasted to continue to trend slightly higher in 2015.
Market Area Demographics
Demographic and economic growth
trends, measured by changes in population, number of households, age distribution and median household income, provide key insight
into the health of the market area served by Provident Bancorp. Demographic data for Essex and Rockingham Counties, as well as
for Massachusetts, New Hampshire, and the U.S., is provided in Table 2.1.
Population and household data indicate
that the market area served by the Company’s branches is largely suburban in nature. Essex County was the first established
county in Massachusetts and is also one of the most populated counties in Massachusetts with a
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.5
|
Table 2.1
Provident Bancorp, Inc.
Summary Demographic Data
|
|
|
Year
|
|
Growth Rate
|
|
|
|
2010
|
|
2014
|
|
2019
|
|
2010-2014
|
|
2014-2019
|
|
|
|
|
|
|
|
|
|
(%)
|
|
(%)
|
|
Population (000)
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
308,746
|
|
317,199
|
|
328,309
|
|
0.7%
|
|
0.7%
|
|
Massachusetts
|
|
6,548
|
|
6,704
|
|
6,908
|
|
0.6%
|
|
0.6%
|
|
Essex, MA
|
|
743
|
|
763
|
|
788
|
|
0.7%
|
|
0.6%
|
|
New Hampshire
|
|
1,316
|
|
1,324
|
|
1,333
|
|
0.1%
|
|
0.1%
|
|
Rockingham, NH
|
|
295
|
|
298
|
|
302
|
|
0.3%
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Households (000)
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
116,716
|
|
120,163
|
|
124,623
|
|
0.7%
|
|
0.7%
|
|
Massachusetts
|
|
2,547
|
|
2,613
|
|
2,700
|
|
0.6%
|
|
0.7%
|
|
Essex, MA
|
|
286
|
|
294
|
|
304
|
|
0.7%
|
|
0.7%
|
|
New Hampshire
|
|
519
|
|
525
|
|
532
|
|
0.3%
|
|
0.3%
|
|
Rockingham, NH
|
|
115
|
|
117
|
|
119
|
|
0.5%
|
|
0.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median Household Income ($)
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
NA
|
|
51,579
|
|
53,943
|
|
NA
|
|
0.9%
|
|
Massachusetts
|
|
NA
|
|
65,736
|
|
70,154
|
|
NA
|
|
1.3%
|
|
Essex, MA
|
|
NA
|
|
65,986
|
|
70,087
|
|
NA
|
|
1.2%
|
|
New Hampshire
|
|
NA
|
|
64,840
|
|
69,032
|
|
NA
|
|
1.3%
|
|
Rockingham, NH
|
|
NA
|
|
76,173
|
|
80,682
|
|
NA
|
|
1.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Capita Income ($)
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
NA
|
|
27,721
|
|
29,220
|
|
NA
|
|
1.1%
|
|
Massachusetts
|
|
NA
|
|
36,030
|
|
39,020
|
|
NA
|
|
1.6%
|
|
Essex, MA
|
|
NA
|
|
34,967
|
|
37,583
|
|
NA
|
|
1.5%
|
|
New Hampshire
|
|
NA
|
|
33,685
|
|
36,400
|
|
NA
|
|
1.6%
|
|
Rockingham, NH
|
|
NA
|
|
37,336
|
|
39,861
|
|
NA
|
|
1.3%
|
|
2014 Age Distribution (%)
|
|
0-14 Yrs.
|
|
15-34 Yrs.
|
|
35-54 Yrs.
|
|
55-69 Yrs.
|
|
70+ Yrs.
|
|
USA
|
|
19.3
|
|
27.3
|
|
26.6
|
|
17.3
|
|
9.5
|
|
Massachusetts
|
|
17.0
|
|
27.3
|
|
27.4
|
|
18.1
|
|
10.2
|
|
Essex, MA
|
|
18.0
|
|
24.9
|
|
27.7
|
|
18.9
|
|
10.5
|
|
New Hampshire
|
|
16.5
|
|
25.0
|
|
28.3
|
|
20.2
|
|
10.0
|
|
Rockingham, NH
|
|
16.5
|
|
22.9
|
|
30.4
|
|
20.6
|
|
9.5
|
|
|
|
Less Than
|
|
$25,000 to
|
|
$50,000 to
|
|
|
|
|
|
2014 HH Income Dist. (%)
|
|
25,000
|
|
50,000
|
|
100,000
|
|
$100,000+
|
|
|
|
USA
|
|
24.4
|
|
24.4
|
|
29.8
|
|
21.3
|
|
|
|
Massachusetts
|
|
20.7
|
|
19.1
|
|
28.9
|
|
31.3
|
|
|
|
Essex, MA
|
|
20.8
|
|
19.3
|
|
28.4
|
|
31.5
|
|
|
|
New Hampshire
|
|
17.2
|
|
21.9
|
|
32.7
|
|
28.2
|
|
|
|
Rockingham, NH
|
|
13.5
|
|
17.7
|
|
33.4
|
|
35.3
|
|
|
Source: SNL Financial, LC.
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.6
|
population of 763,000. The adjacent
Rockingham County in New Hampshire is the second-most populous county in New Hampshire with a population of 298,000. Essex County’s
population increased at a 0.7% annual rate from 2010 to 2014, which was slightly higher than the comparable Massachusetts population
growth rate of 0.6% and equaled the comparable U.S. population growth rate. Rockingham County’s population increased at a
lower 0.3% annual rate over the same time period, which was higher than the comparable New Hampshire growth rate of 0.1%.
Household growth rates paralleled
population growth trends in both market area counties, with Essex County displaying a higher rate of household growth. Population
and household growth trends for both market area counties are generally expected to continue over the next five years.
Income measures show that Essex
and Rockingham Counties are relatively affluent markets, based on median household and per capita income measures that were well
above the comparable U.S. measures. Rockingham County’s income measures were both higher than the comparable New Hampshire
income measures, while Essex County’s median household income and per capital income were similar to and slightly below the
respective income measures for Massachusetts. Projected income growth measures for Essex and Rockingham Counties were generally
in line with the comparable projected growth rates for Massachusetts, New Hampshire, and the U.S.
Household income distribution
measures provide another indication of the relative affluence of Essex and Rockingham Counties. Essex and Rockingham Counties maintained
relatively high percentages of households with income above $100,000 at 31.5% and 35.3%, respectively, as compared to 31.3% for
Massachusetts, 28.2% for New Hampshire, and 21.3% for the U.S. Age distribution measures reflect that Essex and Rockingham Counties
have slightly older populations relative to the U.S, but are similar to the statewide measures.
Regional Economy
Comparative employment data shown
in Table 2.2 shows that employment in services constituted the major source of jobs in Essex and Rockingham Counties, as well as
Massachusetts and New Hampshire. Wholesale/retail employment represented the second largest employment sector in Essex and Rockingham
Counties followed by finance/insurance/real estate employment in Essex County and construction employment in Rockingham County.
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.7
|
Compared to Massachusetts, Essex
County maintained higher levels of employment in wholesale/retail trade, construction, healthcare, manufacturing and transportation/utility.
Likewise, compared to New Hampshire, Rockingham County maintained higher levels of employment in wholesale/retail trade, construction,
healthcare and agriculture.
Table 2.2
Provident Bancorp, Inc.
Primary Market Area Employment Sectors
(Percent of Labor Force)
|
|
|
|
|
New
|
|
Essex
|
|
Rockingham
|
|
Employment Sector
|
|
Massachusetts
|
|
Hampshire
|
|
County
|
|
County
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
35.4%
|
|
33.8%
|
|
34.8%
|
|
33.1%
|
|
Wholesale/Retail Trade
|
|
25.7%
|
|
25.5%
|
|
26.0%
|
|
27.5%
|
|
Finance/Insurance/Real Estate
|
|
10.6%
|
|
9.2%
|
|
10.0%
|
|
9.1%
|
|
Construction
|
|
8.1%
|
|
9.3%
|
|
8.6%
|
|
9.6%
|
|
Healthcare
|
|
4.8%
|
|
4.4%
|
|
5.0%
|
|
4.5%
|
|
Manufacturing
|
|
3.6%
|
|
4.3%
|
|
4.1%
|
|
4.1%
|
|
Government
|
|
3.4%
|
|
4.7%
|
|
3.2%
|
|
3.0%
|
|
Transportation/Utility
|
|
3.0%
|
|
3.1%
|
|
3.1%
|
|
3.1%
|
|
Agriculture
|
|
2.2%
|
|
2.7%
|
|
2.2%
|
|
2.8%
|
|
Communications
|
|
0.8%
|
|
0.8%
|
|
0.7%
|
|
0.8%
|
|
Other
|
|
2.4%
|
|
2.2%
|
|
2.2%
|
|
2.3%
|
|
|
|
100.0%
|
|
100.0%
|
|
100.0%
|
|
100.0%
|
Source: SNL Financial, LC.
The market area served by the
Company, characterized primarily as the Boston MSA, has a highly developed and diverse economy, with the regions’ many colleges
and universities serving to attract industries in need of a highly skilled and educated workforce. Healthcare, high-tech and financial
services companies constitute major sources of employment in the Company’s regional market area, as well as the colleges
and universities that populate the Boston MSA. Tourism also is a prominent component of market area’s economy, as Boston
annually ranks as one of the nation’s top tourist destinations.
Essex County is designated as
the Essex National Heritage Area by the National Park Service, due to the county’s rich colonial and maritime history, and
thus attracts tourism in its reserve sites. The city of Amesbury is located on the left bank of the Merrimack River, upstream from
Salisbury and across the river from Newburyport (where a Provident Bank branch office is located). A former farming and mill town,
Amesbury is today largely residential.
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.8
|
It is one of the two northernmost
towns in Massachusetts. Newburyport is a small, coastal city with a vibrant tourism industry. The mooring, winter storage, and
maintenance of recreational boats remains a significant source of business in Newburyport.
Rockingham County is located
to the north of Essex County and is home to New Hampshire's entire seacoast and features several popular resort towns. Portsmouth
is a historic seaport and popular summer destination, while Hampton is located beside the Atlantic Ocean and is home to Hampton
Beach, also a summer tourist destination. Located at the southern end of the coast of New Hampshire on the border with Massachusetts,
Seabrook is noted as the location of the Seabrook Nuclear Power Station, the third-most recently constructed nuclear power plant
in the U.S. Exeter is home to the Phillips Exeter Academy, a private university-preparatory school and is situated where the Exeter
River feeds into the tidal Squamscott River. Additionally, Exeter is home to a large manufacturing facility and former headquarters
of SIG Sauer, Inc., which is one of the largest firearms manufacturing entities in the world. Table 2.3 lists in detail the major
employers in Essex County and Rockingham County.
Table 2.3
Provident Bancorp, Inc.
Largest Employers in Local Market Area
|
Company
|
|
Community
|
|
Industry
|
|
Employees
|
|
|
|
|
|
|
|
|
|
|
|
Essex County
|
|
|
|
|
|
|
|
|
Mass General for Children
|
|
Salem
|
|
Healthcare
|
|
5,000-9,999
|
|
|
American Renal Associates
|
|
Beverly
|
|
Healthcare
|
|
1,000-4,999
|
|
|
Anna Jaques Hospital
|
|
Newburyport
|
|
Healthcare
|
|
1,000-4,999
|
|
|
CGI
|
|
Andover
|
|
Technology
|
|
1,000-4,999
|
|
|
Columbia Gas of MA
|
|
Lawrence
|
|
Utilities
|
|
1,000-4,999
|
|
|
Ebsco Information Svc
|
|
Ipswich
|
|
Information
|
|
1,000-4,999
|
|
|
GE Aviation
|
|
Lynn
|
|
Manufacturing
|
|
1,000-4,999
|
|
|
Green's Ace Hardware
|
|
Marblehead
|
|
Retail Trade
|
|
1,000-4,999
|
|
|
Holy Family Hospital
|
|
Methuen
|
|
Healthcare
|
|
1,000-4,999
|
|
|
Home Health VNA
|
|
Lawrence
|
|
Healthcare
|
|
1,000-4,999
|
|
|
|
|
|
|
|
|
|
|
|
Rockingham County
|
|
|
|
|
|
|
|
|
City of Portsmouth
|
|
Portsmouth
|
|
Government
|
|
1,542
|
|
|
Insight Technology, Inc.
|
|
Londonderry
|
|
Manufacturing
|
|
1,300
|
|
|
Portsmouth Consular Center, US Dept of State
|
|
Portsmouth
|
|
Government
|
|
1,265
|
|
|
HCA Portsmouth Regional Hospital
|
|
Portsmouth
|
|
Healthcare
|
|
1,040
|
|
|
Liberty Mutual Insurance
|
|
Portsmouth
|
|
Insurance Services
|
|
1,013
|
|
|
Next Era
|
|
Seabrook
|
|
Utilities
|
|
1,000
|
|
|
Exeter Hospital
|
|
Exeter
|
|
Healthcare
|
|
900
|
|
|
Lonza Biologies
|
|
Portsmouth
|
|
Contract Pharmaceuticals
|
|
772
|
|
|
Timberlane Regional School District
|
|
Plaistow
|
|
Education
|
|
740
|
|
|
Rockingham County Home & Jail
|
|
Brentwood
|
|
Nursing Home & Correctional Facility
|
|
690
|
|
Source: Essex County - Executive Office of Labor and Workforce Development; Rockingham
County - Economic & Labor Market Information Bureau.
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.9
|
Unemployment Trends
Comparative unemployment rates
for Essex and Rockingham Counties, as well as for the U.S., Massachusetts, and New Hampshire, are shown in Table 2.4. The December
2014 unemployment rates for Essex and Rockingham Counties, at 5.1% and 4.2% respectively, were slightly higher than their comparable
statewide unemployment rates of 4.8% (Massachusetts) and 3.8% (New Hampshire) and lower than the comparable nationwide unemployment
rate of 5.6%. Similar to the U.S., Essex and Rockingham Counties, along with the states of Massachusetts and New Hampshire, reported
lower unemployment rates for December 2014 compared to a year ago.
Table 2.4
Provident Bancorp, Inc.
Unemployment Trends
|
|
December 2013
|
December 2014
|
|
Region
|
Unemployment
|
Unemployment
|
|
USA
|
6.7%
|
5.6%
|
|
Massachusetts
|
6.7%
|
4.8%
|
|
Essex, MA
|
7.0%
|
5.1%
|
|
New Hampshire
|
4.8%
|
3.8%
|
|
Rockingham, NH
|
5.2%
|
4.2%
|
|
|
|
|
|
Source: SNL Financial, LC.
|
|
|
Market Area Deposit Characteristics
and Competition
The Company’s deposit base
is closely tied to the economic fortunes of Essex and Rockingham Counties and, in particular, the areas that are nearby to the
Company’s branches. Table 2.5 displays deposit market trends from June 30, 2010 through June 30, 2014 for Provident Bancorp,
as well as for all commercial bank and savings institution branches located in the market area counties and the state of Massachusetts
and New Hampshire.
Commercial banks maintained a
larger market share of deposits than savings institutions in the states of Massachusetts and New Hampshire, as well as in Rockingham
County, however, within Essex County, savings institutions held a larger market share of deposits than commercial banks. For the
four year period covered in Table 2.5, savings institutions experienced a decrease in deposit market share in the market area counties
as well as in the states of Massachusetts and New Hampshire. Overall, for the past four years, bank and thrift
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.10
|
deposits increased at a comparatively
higher annual rate of 4.9% in Rockingham County versus 3.3% for Essex County. Comparatively, deposits increased at a 2.3% annual
rate in the state of New Hampshire and a 14.0% annual rate in the state of Massachusetts during the four year period.
As of June 30, 2014, Provident
Bancorp maintained relatively low deposit market shares in Essex and Rockingham Counties of 1.8% and 3.4% respectively. The Company’s
deposits increased at annual rates of 4.9% and 12.8% in Essex and Rockingham Counties, respectively, which provided for slightly
increases in deposit market share in both counties during the four period.
Table 2.5
Provident Bancorp, Inc.
Deposit Summary
|
|
|
As
of June 30,
|
|
|
|
|
|
2010
|
|
2014
|
|
Deposit
|
|
|
|
|
|
Market
|
|
No. of
|
|
|
|
Market
|
|
No. of
|
|
Growth Rate
|
|
|
|
Deposits
|
|
Share
|
|
Branches
|
|
Deposits
|
|
Share
|
|
Branches
|
|
2010-2014
|
|
|
|
(Dollars in
Thousands)
|
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Massachusetts
|
|
$205,201,264
|
|
100.0%
|
|
2,217
|
|
$346,200,609
|
|
100.0%
|
|
2,227
|
|
14.0%
|
|
Commercial
Banks
|
|
128,910,606
|
|
62.8%
|
|
1,005
|
|
279,600,652
|
|
80.8%
|
|
1,332
|
|
21.4%
|
|
Savings
Institutions
|
|
76,290,658
|
|
37.2%
|
|
1,212
|
|
66,599,957
|
|
19.2%
|
|
895
|
|
-3.3%
|
|
Provident
Bancorp
|
|
277,520
|
|
0.1%
|
|
3
|
|
335,849
|
|
0.1%
|
|
3
|
|
4.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Essex County
|
|
$16,496,705
|
|
100.0%
|
|
255
|
|
$18,802,084
|
|
100.0%
|
|
258
|
|
3.3%
|
|
Commercial Banks
|
|
5,155,887
|
|
31.3%
|
|
95
|
|
7,676,480
|
|
40.8%
|
|
122
|
|
10.5%
|
|
Savings Institutions
|
|
11,340,818
|
|
68.7%
|
|
160
|
|
11,125,604
|
|
59.2%
|
|
136
|
|
-0.5%
|
|
Provident Bancorp
|
|
277,520
|
|
1.7%
|
|
3
|
|
335,849
|
|
1.8%
|
|
3
|
|
4.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Hampshire
|
|
$26,366,843
|
|
100.0%
|
|
433
|
|
$28,897,852
|
|
100.0%
|
|
431
|
|
2.3%
|
|
Commercial
Banks
|
|
19,019,454
|
|
72.1%
|
|
258
|
|
21,608,644
|
|
74.8%
|
|
274
|
|
3.2%
|
|
Savings
Institutions
|
|
7,347,389
|
|
27.9%
|
|
175
|
|
7,289,208
|
|
25.2%
|
|
157
|
|
-0.2%
|
|
Provident
Bancorp
|
|
123,094
|
|
0.5%
|
|
4
|
|
199,233
|
|
0.7%
|
|
4
|
|
12.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockingham County
|
|
$4,862,352
|
|
100.0%
|
|
94
|
|
$5,898,252
|
|
100.0%
|
|
95
|
|
4.9%
|
|
Commercial Banks
|
|
3,332,012
|
|
68.5%
|
|
62
|
|
4,614,959
|
|
78.2%
|
|
68
|
|
8.5%
|
|
Savings Institutions
|
|
1,530,340
|
|
31.5%
|
|
32
|
|
1,283,293
|
|
21.8%
|
|
27
|
|
-4.3%
|
|
Provident Bancorp
|
|
123,094
|
|
2.5%
|
|
4
|
|
199,233
|
|
3.4%
|
|
4
|
|
12.8%
|
Source: FDIC.
As implied by the Company’s relatively
low market shares of deposits in Essex and Rockingham Counties, competition among financial institutions in the Company’s
market area is significant. Among the Company’s competitors are much larger and more diversified institutions, which have
greater resources than maintained by Provident Bancorp. Financial institution competitors in the Company’s primary market
area include other locally based thrifts and banks, as well as regional, super regional and money center banks. From a competitive
standpoint, Provident Bancorp has sought to emphasize its community orientation in the markets served by its branches. There are
a total of 38 banking institutions operating in Essex
|
RP
®
Financial, LC.
|
MARKET AREA
|
|
|
II.11
|
County, with Provident Bancorp holding the 14th largest
market share of deposits. In Rockingham County, there are a total of 23 banking institutions, with Provident Bancorp holding the
9th largest market share of deposits.
Table 2.6 lists the Company’s
largest competitors in the market area counties, based on deposit market share as noted parenthetically.
Table 2.6
Provident Bancorp, Inc.
Market Area Deposit Competitors
|
Location
|
Name
|
Market Share
|
|
Rank
|
|
Essex County, MA
|
Toronto-Dominion Bank
|
12.77%
|
|
|
|
|
Salem Five Bancorp (MA)
|
10.89%
|
|
|
|
|
Eastern Bank Corp. (MA)
|
9.54%
|
|
|
|
|
Inst for Svgs in Newburyport (MA)
|
8.93%
|
|
|
|
|
Bank of America Corp. (NC)
|
8.35%
|
|
|
|
|
Provident Bancorp
|
1.79%
|
|
14 out of 38
|
|
|
|
|
|
|
|
Rockingham County, NH
|
Toronto-Dominion Bank
|
26.89%
|
|
|
|
|
Royal Bank of Scotland Group
|
18.95%
|
|
|
|
|
Bank of America Corp. (NC)
|
12.01%
|
|
|
|
|
People's United Financial Inc. (CT)
|
7.74%
|
|
|
|
|
Banco Santander
|
6.18%
|
|
|
|
|
Provident Bancorp
|
3.38%
|
|
9 out of 23
|
Source: SNL Financial LC.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.1
|
III.
PEER GROUP ANALYSIS
This chapter presents
an analysis of Provident Bancorp’s operations versus a group of comparable savings institutions (the "Peer Group")
selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines.
The basis of the pro forma market valuation of Provident Bancorp is derived from the pricing ratios of the Peer Group institutions,
incorporating valuation adjustments for key differences in relation to the Peer Group. Since no Peer Group can be exactly comparable
to Provident Bancorp, key areas examined for differences are: financial condition; profitability, growth and viability of earnings;
asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government
regulations and regulatory reform.
Peer Group
Selection
The Peer Group selection
process is governed by the general parameters set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is
comprised of only those publicly-traded savings institutions whose common stock is either listed on the NYSE or NASDAQ, since their
stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions.
Institutions that are not listed on the NYSE or NASDAQ are inappropriate, since the trading activity for thinly-traded or closely-held
stocks are typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value.
We have also excluded from the Peer Group those companies under acquisition or subject to rumored acquisition and recent conversions,
since their pricing ratios are subject to unusual distortion and/or have limited trading history. A recent listing of the universe
of all publicly-traded savings institutions is included as Exhibit III-1.
Ideally, the Peer
Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of publicly-traded
MHCs with comparable resources, strategies and financial characteristics as Provident Bancorp. However, there are currently only
ten publicly-traded MHCs, of which two have announced plans to complete a second-step conversion offering. Accordingly, in deriving
a Peer Group comprised of institutions with relatively comparable characteristics as Provident Bancorp, the companies selected
for Provident Bancorp’s Peer Group are all fully-converted companies. The valuation adjustments applied in the Chapter IV
analysis will take into consideration differences between
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.2
|
the Company’s
MHC form of ownership relative to the fully-converted Peer Group companies. Also included in Chapter IV is a pricing analysis of
the publicly-traded MHCs on a fully-converted basis.
From the universe
of publicly-traded thrifts, we selected ten institutions with characteristics similar to those of Provident Bancorp. In the selection
process, we applied two “screens” to the universe of all public companies that were eligible for consideration:
|
|
o
|
Screen #1 Northeast institutions with
assets between $500 million and $1.5 billion, tangible equity-to-assets ratios of greater than 8.0% and positive core earnings.
Six companies met the criteria for Screen #1 and four were included in the Peer Group: BSB Bancorp, Inc. of Massachusetts, SI Financial
Group, Inc. of Connecticut, Wellesley Bancorp, Inc. of Massachusetts and Westfield Financial, Inc. of Massachusetts. Hampden Bancorp,
Inc. of Massachusetts and Peoples Federal Bancshares, Inc. of Massachusetts were excluded as the result of being the targets of
announced acquisitions. Exhibit III-2 provides financial and public market pricing characteristics of all publicly-traded Northeast
thrifts.
|
|
|
o
|
Screen #2 Mid-Atlantic institutions with
assets between $500 million and $1.5 billion, tangible equity-to-assets ratios of greater than 8.0% and positive core earnings.
Nine companies met the criteria for Screen #2 and six were included in the Peer Group: Cape Bancorp, Inc. of New Jersey, Fox Chase
Bancorp, Inc. of Pennsylvania, Malvern Bancorp, Inc. of Pennsylvania, Ocean Shore Holding Co. of New Jersey, Oneida Financial Corp.
of New York and Prudential Bancorp, Inc. of Pennsylvania. Colonial Financial Services, Inc. of New Jersey was excluded as the result
of being the target of an announced acquisition. Clifton Bancorp, Inc. of New Jersey and Pathfinder Bancorp, Inc. of New York were
excluded from the Peer Group due to their recent conversion status (Clifton Bancorp’s conversion was completed in April 2014
and Pathfinder Bancorp’s conversion was completed in October 2014). Exhibit III-3 provides financial and public market pricing
characteristics of all publicly-traded Mid-Atlantic thrifts.
|
Table 3.1 shows the
general characteristics of each of the ten Peer Group companies and Exhibit III-4 provides summary demographic and deposit market
share data for the primary market areas served by each of the Peer Group companies. While there are expectedly some differences
between the Peer Group companies and Provident Bancorp, we believe that the Peer Group companies, on average, provide a good basis
for valuation subject to valuation adjustments. The following sections present a comparison of Provident Bancorp’s financial
condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group as of the most
recent publicly available date. Comparative data for all publicly-traded thrifts and publicly-traded Massachusetts thrifts have
been included in the Chapter III tables as well.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.3
|
Table 3.1
Peer Group of Publicly-Traded
Thrifts
As of December 31, 2014 or
the Most Recent Date Available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 13, 2015
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Fiscal
|
|
Conv.
|
|
Stock
|
|
Market
|
|
Ticker
|
|
Financial Institution
|
Exchange
|
|
City
|
State
|
|
Assets
|
|
Offices
|
|
Year End
|
|
Date
|
|
Price
|
|
Value
|
|
|
|
|
|
|
|
|
|
($Mil)
|
|
|
|
|
|
|
|
($)
|
|
($Mil)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT
|
|
BSB Bancorp, Inc.
|
NASDAQ
|
|
Belmont
|
MA
|
|
1,426
|
|
6
|
|
Dec
|
|
10/5/2011
|
|
18.88
|
|
171.20
|
|
SIFI
|
|
SI Financial Group, Inc.
|
NASDAQ
|
|
Willimantic
|
CT
|
|
1,351
|
|
26
|
|
Dec
|
|
1/13/2011
|
|
11.32
|
|
144.67
|
|
WFD
|
|
Westfield Financial, Inc.
|
NASDAQ
|
|
Westfield
|
MA
|
|
1,320
|
|
14
|
|
Dec
|
|
1/4/2007
|
|
7.41
|
|
138.80
|
|
FXCB
|
|
Fox Chase Bancorp, Inc.
|
NASDAQ
|
|
Hatboro
|
PA
|
|
1,095
|
|
10
|
|
Dec
|
|
6/29/2010
|
|
16.31
|
|
192.50
|
|
CBNJ
|
|
Cape Bancorp, Inc.
|
NASDAQ
|
|
Cape May Court House
|
NJ
|
|
1,080
|
|
15
|
|
Dec
|
|
2/1/2008
|
|
8.82
|
|
101.21
|
|
OSHC
|
|
Ocean Shore Holding Co.
|
NASDAQ
|
|
Ocean City
|
NJ
|
|
1,025
|
|
11
|
|
Dec
|
|
12/21/2009
|
|
14.07
|
|
89.95
|
|
ONFC
|
|
Oneida Financial Corp.
|
NASDAQ
|
|
Oneida
|
NY
|
|
798
|
|
14
|
|
Dec
|
|
7/7/2010
|
|
13.15
|
|
92.35
|
|
MLVF
|
|
Malvern Bancorp, Inc.
|
NASDAQ
|
|
Paoli
|
PA
|
|
603
|
|
8
|
|
Sep
|
|
10/12/2012
|
|
12.30
|
|
80.67
|
|
WEBK
|
|
Wellesley Bancorp, Inc.
|
NASDAQ
|
|
Wellesley
|
MA
|
|
535
|
|
5
|
|
Dec
|
|
1/26/2012
|
|
18.75
|
|
46.10
|
|
PBIP
|
|
Prudential Bancorp, Inc.
|
NASDAQ
|
|
Philadelphia
|
PA
|
|
527
|
|
8
|
|
Sep
|
|
10/10/2013
|
|
12.22
|
|
113.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: SNL Financial, LC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.4
|
In addition to the selection
criteria used to identify the Peer Group companies, a summary description of the key comparable characteristics of each of the
Peer Group companies relative to Provident Bancorp’s characteristics is detailed below.
|
|
o
|
BSB Bancorp, Inc. of Massachusetts. Comparable due to Boston market area, similar size of branch
network, lending diversification emphasis on commercial real estate loans and relatively favorable credit quality measures.
|
|
|
o
|
Cape Bancorp, Inc. of New Jersey. Comparable due to similar interest-earning asset composition,
similar net interest income to average assets ratio, similar impact of loan loss provisions on earnings, similar earnings contribution
from sources of non-interest operating income, and lending diversification emphasis on commercial real estate loans.
|
|
|
o
|
Fox Chase Bancorp, Inc. of Pennsylvania.
Comparable due to similar return on average assets ratio, similar impact of loan loss provisions on earnings, similar concentration
of 1-4 family permanent mortgage loans as a percent of assets, lending diversification emphasis on commercial real estate and commercial
business loans, and relatively favorable credit quality measures.
|
|
|
o
|
Malvern Bancorp, Inc. of Pennsylvania. Comparable
due to similar asset size, similar size of branch network, similar ratio of operating expenses as a percent of average assets,
lending diversification emphasis on commercial real estate loans and relatively favorable credit quality measures.
|
|
|
o
|
Ocean Shore Holding Co. of New Jersey. Comparable
due to similar interest-earning asset composition, similar interest-bearing funding composition, lending diversification emphasis
on commercial real estate loans and relatively favorable credit quality measures.
|
|
|
o
|
Oneida Financial Corp. of New York. Comparable
due to similar asset size, similar return on average assets ratio, similar concentration of 1-4 family permanent mortgage loans
as a percent of assets, lending diversification emphasis on commercial real estate loans and relatively favorable credit quality
measures.
|
|
|
o
|
Prudential Bancorp, Inc. of Pennsylvania.
Comparable due to similar asset size and similar size of branch network.
|
|
|
o
|
SI Financial Group, Inc. of Connecticut.
Comparable due to similar interest-earning asset composition, similar earnings contribution from sources of non-interest operating
income, lending diversification emphasis on commercial real estate loans and relatively favorable credit quality measures.
|
|
|
o
|
Wellesley Bancorp, Inc. of Massachusetts.
Comparable due to Boston market area, similar asset size, similar interest-bearing funding composition, similar net interest income
to average assets ratio, similar ratio of operating expenses as a percent of average assets, lending diversification emphasis on
commercial real estate loans and relatively favorable credit quality measures.
|
|
|
o
|
Westfield Financial Inc. of Massachusetts.
Comparable due to lending diversification emphasis on commercial real estate loans and commercial business loans, and relatively
favorable credit quality measures.
|
In aggregate, the Peer Group
companies maintained a slightly lower level of tangible equity than the industry average (12.27% of assets versus 12.92% for all
public companies),
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.5
|
generated lower earnings as a percent
of average assets (0.44% core ROAA versus 0.71% for all public companies), and earned a lower ROE (3.53% core ROE versus 5.74%
for all public companies). Overall, the Peer Group's average P/TB ratio and average core P/E multiple were below and above the
respective averages for all publicly-traded thrifts.
|
|
All
|
|
|
|
|
Publicly-Traded
|
|
Peer Group
|
|
Financial Characteristics (Averages)
|
|
|
|
|
Assets ($Mil)
|
$3,166
|
|
$976
|
|
Market capitalization ($Mil)
|
$452
|
|
$117
|
|
Tangible equity/assets (%)
|
12.92%
|
|
12.27%
|
|
Core return on average assets (%)
|
0.71
|
|
0.44
|
|
Core return on average equity (%)
|
5.74
|
|
3.53
|
|
|
|
|
|
|
Pricing
Ratios (Averages)
(1)
|
|
|
|
|
Core price/earnings (x)
|
16.76x
|
|
22.09x
|
|
Price/tangible book (%)
|
113.74%
|
|
103.37%
|
|
Price/assets (%)
|
13.62
|
|
12.42
|
(1) Based on market
prices as of February 13, 2015.
Ideally, the Peer
Group companies would be comparable to Provident Bancorp in terms of all of the selection criteria, but the universe of publicly-traded
thrifts does not provide for an appropriate number of such companies. However, in general, the companies selected for the Peer
Group were fairly comparable to Provident Bancorp, as will be highlighted in the following comparative analysis. Comparative data
for all publicly-traded thrifts and publicly-traded Massachusetts thrifts have been included in the Chapter III tables as well.
Financial
Condition
Table 3.2 shows comparative
balance sheet measures for Provident Bancorp and the Peer Group, reflecting the expected similarities and some differences given
the selection procedures outlined above. The Company’s and the Peer Group's ratios reflect balances as of December 31, 2014.
Provident Bancorp’s equity-to-assets ratio of 11.51% was lower than the Peer Group's average net worth ratio of 13.00%. With
the infusion of the net proceeds, the Company’s pro forma equity-to-assets ratio will be more comparable to or exceed the
Peer Group’s equity-to-assets ratio. However, somewhat negating the Company’s stronger capital position is that it
includes $17.1 million of Series A Preferred Stock, which will reprice from a current annual dividend rate of 1.0% to 9.0% in June
2016. Comparatively, none of the Peer
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.6
|
Table 3.2
Balance Sheet Composition and
Growth Rates
Comparable Institution Analysis
As of December 31, 2014 or the
Most Recent Date Available
|
|
|
|
|
|
|
Balance Sheet as a Percent of Assets
|
|
Balance Sheet Annual Growth Rates
|
|
Regulatory Capital
|
|
|
|
|
|
|
|
Cash &
|
|
MBS &
|
|
|
|
Net
|
|
|
|
Borrowed
|
|
Sub.
|
|
Total
|
|
Goodwill
|
|
Tangible
|
|
|
|
MBS, Cash &
|
|
|
|
|
|
Borrows.
|
|
Total
|
|
Tangible
|
|
Tier 1
|
|
Tier 1
|
|
Risk-Based
|
|
|
|
|
|
|
|
Equivalents
|
|
Invest
|
|
BOLI
|
|
Loans (1)
|
|
Deposits
|
|
Funds
|
|
Debt
|
|
Equity
|
|
& Intang
|
|
Equity
|
|
Assets
|
|
Investments
|
|
Loans
|
|
Deposits
|
|
&Subdebt
|
|
Equity
|
|
Equity
|
|
Leverage
|
|
Risk-Based
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provident Bancorp, Inc.
|
|
MA
|
|
1.45%
|
|
19.01%
|
|
1.84%
|
|
75.03%
|
|
81.53%
|
|
5.96%
|
|
0.00%
|
|
11.51%
|
|
0.00%
|
|
11.51%
|
|
5.43%
|
|
-13.07%
|
|
12.39%
|
|
5.64%
|
|
-4.27%
|
|
8.54%
|
|
8.54%
|
|
11.31%
|
|
13.87%
|
|
15.37%
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Public Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
4.68%
|
|
18.84%
|
|
1.96%
|
|
69.98%
|
|
73.69%
|
|
11.28%
|
|
0.39%
|
|
13.61%
|
|
0.67%
|
|
12.92%
|
|
8.66%
|
|
2.34%
|
|
13.64%
|
|
8.12%
|
|
9.73%
|
|
17.98%
|
|
16.54%
|
|
11.93%
|
|
18.86%
|
|
19.95%
|
|
Medians
|
|
|
|
3.13%
|
|
16.50%
|
|
1.96%
|
|
71.31%
|
|
74.07%
|
|
10.37%
|
|
0.00%
|
|
12.80%
|
|
0.00%
|
|
11.53%
|
|
4.33%
|
|
-1.11%
|
|
9.09%
|
|
2.76%
|
|
0.00%
|
|
3.79%
|
|
4.04%
|
|
10.74%
|
|
17.04%
|
|
18.28%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of
|
|
MA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
6.48%
|
|
14.46%
|
|
1.78%
|
|
75.14%
|
|
73.35%
|
|
13.10%
|
|
0.00%
|
|
12.69%
|
|
0.13%
|
|
12.55%
|
|
16.90%
|
|
16.99%
|
|
20.21%
|
|
14.96%
|
|
15.42%
|
|
36.77%
|
|
33.43%
|
|
9.88%
|
|
13.88%
|
|
14.90%
|
|
Medians
|
|
|
|
3.64%
|
|
10.53%
|
|
1.68%
|
|
80.83%
|
|
70.17%
|
|
11.49%
|
|
0.00%
|
|
10.80%
|
|
0.00%
|
|
10.80%
|
|
15.57%
|
|
13.44%
|
|
15.12%
|
|
13.56%
|
|
9.46%
|
|
5.79%
|
|
6.12%
|
|
10.08%
|
|
13.21%
|
|
14.29%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
4.18%
|
|
21.77%
|
|
2.24%
|
|
68.31%
|
|
73.53%
|
|
12.20%
|
|
0.13%
|
|
13.00%
|
|
0.73%
|
|
12.27%
|
|
6.23%
|
|
4.18%
|
|
7.94%
|
|
6.02%
|
|
6.02%
|
|
1.58%
|
|
1.98%
|
|
11.71%
|
|
19.44%
|
|
20.42%
|
|
Medians
|
|
|
|
3.63%
|
|
19.56%
|
|
2.26%
|
|
68.75%
|
|
74.04%
|
|
12.06%
|
|
0.00%
|
|
11.84%
|
|
0.00%
|
|
10.55%
|
|
1.00%
|
|
1.06%
|
|
3.61%
|
|
2.37%
|
|
-1.29%
|
|
2.31%
|
|
2.87%
|
|
9.86%
|
|
16.32%
|
|
17.18%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT
|
|
BSB Bancorp, Inc.
|
|
MA
|
|
3.64%
|
|
10.83%
|
|
1.68%
|
|
82.73%
|
|
69.07%
|
|
20.17%
|
|
0.00%
|
|
9.61%
|
|
0.00%
|
|
9.61%
|
|
35.17%
|
|
9.94%
|
|
40.57%
|
|
28.74%
|
|
97.85%
|
|
5.05%
|
|
5.05%
|
|
9.42%
|
|
11.43%
|
|
12.23%
|
|
CBNJ
|
|
Cape Bancorp, Inc.
|
|
NJ
|
|
2.60%
|
|
15.98%
|
|
2.88%
|
|
71.33%
|
|
73.81%
|
|
12.63%
|
|
0.00%
|
|
13.05%
|
|
2.11%
|
|
10.94%
|
|
-1.19%
|
|
-3.56%
|
|
-1.49%
|
|
-0.17%
|
|
-5.28%
|
|
0.32%
|
|
0.40%
|
|
9.94%
|
|
13.34%
|
|
14.55%
|
|
FXCB
|
|
Fox Chase Bancorp, Inc.
|
|
PA
|
|
1.57%
|
|
28.34%
|
|
1.37%
|
|
66.17%
|
|
65.04%
|
|
18.27%
|
|
0.00%
|
|
16.07%
|
|
0.00%
|
|
16.07%
|
|
-1.97%
|
|
-5.56%
|
|
0.53%
|
|
5.67%
|
|
-23.22%
|
|
1.41%
|
|
1.41%
|
|
13.99%
|
|
18.97%
|
|
20.02%
|
|
MLVF
|
|
Malvern Bancorp, Inc.
|
|
PA
|
|
7.97%
|
|
23.14%
|
|
3.05%
|
|
63.56%
|
|
73.05%
|
|
12.93%
|
|
0.00%
|
|
12.91%
|
|
0.00%
|
|
12.91%
|
|
1.54%
|
|
25.32%
|
|
-5.87%
|
|
-6.45%
|
|
81.40%
|
|
4.39%
|
|
4.39%
|
|
10.97%
|
|
18.53%
|
|
19.78%
|
|
OSHC
|
|
Ocean Shore Holding Co.
|
|
NJ
|
|
7.84%
|
|
10.86%
|
|
2.31%
|
|
75.53%
|
|
76.81%
|
|
10.73%
|
|
0.70%
|
|
10.33%
|
|
0.51%
|
|
9.82%
|
|
0.46%
|
|
-13.93%
|
|
3.92%
|
|
0.82%
|
|
-2.57%
|
|
-0.39%
|
|
-0.35%
|
|
9.78%
|
|
18.73%
|
|
19.24%
|
|
ONFC
|
|
Oneida Financial Corp.
|
|
NY
|
|
3.89%
|
|
38.97%
|
|
2.21%
|
|
46.09%
|
|
86.34%
|
|
0.00%
|
|
0.00%
|
|
12.01%
|
|
3.29%
|
|
8.71%
|
|
7.50%
|
|
7.98%
|
|
9.58%
|
|
8.15%
|
|
-100.00%
|
|
5.66%
|
|
8.46%
|
|
9.36%
|
|
15.77%
|
|
16.54%
|
|
PBIP
|
|
Prudential Bancorp, Inc.
|
|
PA
|
|
6.30%
|
|
26.95%
|
|
2.37%
|
|
63.03%
|
|
74.27%
|
|
0.06%
|
|
0.00%
|
|
24.31%
|
|
0.00%
|
|
24.31%
|
|
0.36%
|
|
-4.36%
|
|
3.30%
|
|
0.64%
|
|
0.00%
|
|
-1.80%
|
|
-1.80%
|
|
24.98%
|
|
54.19%
|
|
55.23%
|
|
SIFI
|
|
SI Financial Group, Inc.
|
|
CT
|
|
2.91%
|
|
13.58%
|
|
1.58%
|
|
77.42%
|
|
74.84%
|
|
10.98%
|
|
0.61%
|
|
11.68%
|
|
1.38%
|
|
10.30%
|
|
0.31%
|
|
5.68%
|
|
-0.34%
|
|
2.64%
|
|
-15.17%
|
|
3.20%
|
|
4.33%
|
|
9.37%
|
|
14.86%
|
|
15.87%
|
|
WEBK
|
|
Wellesley Bancorp, Inc.
|
|
MA
|
|
3.62%
|
|
10.53%
|
|
1.28%
|
|
82.95%
|
|
78.91%
|
|
11.49%
|
|
0.00%
|
|
9.22%
|
|
0.00%
|
|
9.22%
|
|
16.70%
|
|
28.29%
|
|
15.43%
|
|
18.10%
|
|
17.14%
|
|
5.46%
|
|
5.46%
|
|
8.58%
|
|
11.67%
|
|
12.88%
|
|
WFD
|
|
Westfield Financial, Inc.
|
|
MA
|
|
1.42%
|
|
38.54%
|
|
3.69%
|
|
54.29%
|
|
63.19%
|
|
24.73%
|
|
0.00%
|
|
10.80%
|
|
0.00%
|
|
10.80%
|
|
3.39%
|
|
-8.03%
|
|
13.77%
|
|
2.09%
|
|
10.08%
|
|
-7.53%
|
|
-7.53%
|
|
10.74%
|
|
16.86%
|
|
17.81%
|
(1) Includes loans held for sale.
Source: SNL Financial, LC. and
RP
®
Financial, LC. calculations. The information provided in this table has been obtained from sources we believe
are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP
®
Financial, LC.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.7
|
Group companies’
capital structures included preferred stock. Tangible equity-to-assets ratios for the Company and the Peer Group equaled 11.51%
and 12.27%, respectively. The increase in Provident Bancorp’s pro forma capital position will be favorable from a risk perspective
and in terms of future earnings potential that could be realized through leverage and lower funding costs. At the same time, the
Company’s higher pro forma capitalization will initially depress return on equity. Both Provident Bancorp’s and the
Peer Group's capital ratios reflected capital surpluses with respect to the regulatory capital requirements.
The interest-earning
asset compositions for the Company and the Peer Group were somewhat similar, with loans constituting the bulk of interest-earning
assets for both Provident Bancorp and the Peer Group. The Company’s loans-to-assets ratio of 75.03% was higher than the comparable
Peer Group ratio of 68.31%. Comparatively, the Company’s cash and investments-to-assets ratio of 20.46% was lower than the
comparable Peer Group ratio of 25.95%. Overall, Provident Bancorp’s interest-earning assets amounted to 95.49% of assets,
which was slightly above the comparable Peer Group ratio of 94.26%. The Company’s non-interest earning assets included bank-owned
life insurance (“BOLI”) equal to 1.84% of assets, while the Peer Group’s non-interest assets included BOLI equal
to 2.24% of assets and goodwill/intangible equal to 0.73% of assets.
Provident Bancorp’s
funding liabilities reflected a funding strategy that was somewhat similar to that of the Peer Group's funding composition. The
Company’s deposits equaled 81.53% of assets, which was above the Peer Group’s ratio of 73.53%. Comparatively, the Company
maintained a lower level of borrowings than the Peer Group, as indicated by borrowings-to-assets ratios of 5.96% and 12.33% for
Provident Bancorp and the Peer Group, respectively. Total interest-bearing liabilities maintained by the Company and the Peer Group,
as a percent of assets, equaled 87.49% and 85.86%, respectively.
A key measure of balance
sheet strength for a thrift institution is its interest-earnings assets/interest-bearing liabilities (“IEA/IBL”) ratio.
Presently, the Company’s IEA/IBL ratio is slightly lower than the Peer Group’s ratio, based on IEA/IBL ratios of 109.14%
and 109.78%, respectively. The additional capital realized from stock proceeds should serve to provide Provident Bancorp with an
IEA/IBL ratio that exceeds the Peer Group’s ratio, as the increase in capital provided by the infusion of stock proceeds
will serve to lower the level of interest-bearing liabilities funding assets and will be primarily deployed into interest-earning
assets.
The growth rate section
of Table 3.2 shows annual growth rates for key balance sheet items. Provident Bancorp’s and the Peer Group’s growth
rates are based on annual growth for
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.8
|
the twelve months ended December 31, 2014.
Provident Bancorp recorded a 5.43% increase in assets, versus asset growth of 6.23% recorded by the Peer Group. Asset growth for
Provident Bancorp was driven by a 12.39% increase in loans, which was in part funded by a 13.07% reduction in cash and investments.
Similarly, asset growth for the Peer Group was largely sustained by a 7.94% increase in loans and supplemented with a 4.18% increase
in cash and investments.
Asset growth for Provident
Bancorp was funded by a 5.64% increase in deposits, which also funded a 4.27% decrease in borrowings. Asset growth for the Peer
Group was funded through deposit growth of 6.02% and a 6.02% increase in borrowings as well. The Company’s tangible capital
increased 8.54%, which was largely realized through retention of earnings. Comparatively, the Peer Group’s tangible capital
increased 1.98%, as retention of earnings for the Peer Group were somewhat offset by capital management strategies such as dividend
payments and stock repurchases. The Company’s post-conversion capital growth rate will initially be constrained by maintenance
of a higher pro forma capital position. Additionally, implementation of any stock repurchases and dividend payments, pursuant to
regulatory limitations and guidelines, could also slow the Company’s capital growth rate in the longer term following the
stock offering.
Income and Expense Components
Table 3.3 displays
statements of operations for the Company and the Peer Group. The Company’s and the Peer Group’s ratios are based on
earnings for the twelve months ended December 31, 2014. Provident Bancorp and the Peer Group reported net income to average assets
ratios of 0.71% and 0.46%, respectively. Higher ratios for net interest income and non-operating gains represented earnings advantages
for the Company, which were partially offset by the Peer Group’s higher ratio for non-interest operating income and slightly
lower ratio for loan loss provisions.
The Company’s
higher net interest income to average assets ratio was realized through both a higher interest income ratio and a lower interest
expense ratio. The Company’s higher interest income ratio was supported by maintaining a higher concentration of interest-earning
assets in loans, which translated into a higher overall yield earned on interest-earning assets (3.84% versus 3.67% for the Peer
Group). Likewise, the Company’s lower interest expense ratio was supported by a lower cost of funds (0.52% versus 0.80% for
the Peer Group). Overall,
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.9
|
Table 3.3
Income as Percent of Average
Assets and Yields, Costs, Spreads
Comparable Institution Analysis
For the 12 Months Ended December
31, 2014 or the Most Recent Date Available
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
Non-Interest Income
|
|
|
|
Non-Op. Items
|
|
|
|
Yields, Costs, and Spreads
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
NII
|
|
Gain
|
|
Other
|
|
Total
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
MEMO:
|
|
MEMO:
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
Provis.
|
|
After
|
|
on Sale of
|
|
Non-Int
|
|
Non-Int
|
|
Net Gains/
|
|
Extrao.
|
|
for
|
|
Yield
|
|
Cost
|
|
Yld-Cost
|
|
Assets/
|
|
Effective
|
|
|
|
|
|
|
|
Income
|
|
Income
|
|
Expense
|
|
NII
|
|
on IEA
|
|
Provis.
|
|
Loans
|
|
Income
|
|
Expense
|
|
Losses (1)
|
|
Items
|
|
Taxes
|
|
On IEA
|
|
Of IBL
|
|
Spread
|
|
FTE Emp.
|
|
Tax Rate
|
|
|
|
|
|
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
|
|
(%)
|
|
Provident Bancorp, Inc.
|
|
MA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
0.71%
|
|
3.65%
|
|
0.36%
|
|
3.29%
|
|
0.23%
|
|
3.06%
|
|
0.00%
|
|
0.54%
|
|
2.72%
|
|
0.07%
|
|
0.00%
|
|
0.23%
|
|
3.84%
|
|
0.52%
|
|
3.32%
|
|
$6,098
|
|
24.16%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Public Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
0.66%
|
|
3.61%
|
|
0.61%
|
|
3.00%
|
|
0.08%
|
|
2.92%
|
|
0.29%
|
|
0.61%
|
|
2.93%
|
|
-0.01%
|
|
0.00%
|
|
0.16%
|
|
3.86%
|
|
0.76%
|
|
3.06%
|
|
$6,190
|
|
25.93%
|
|
Medians
|
|
|
|
0.63%
|
|
3.56%
|
|
0.59%
|
|
3.00%
|
|
0.07%
|
|
2.94%
|
|
0.05%
|
|
0.46%
|
|
2.79%
|
|
0.00%
|
|
0.00%
|
|
0.24%
|
|
3.83%
|
|
0.72%
|
|
3.08%
|
|
$5,448
|
|
32.08%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of
|
|
MA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
0.49%
|
|
3.61%
|
|
0.62%
|
|
2.99%
|
|
0.21%
|
|
2.78%
|
|
0.02%
|
|
0.28%
|
|
2.42%
|
|
0.05%
|
|
0.00%
|
|
0.23%
|
|
3.81%
|
|
0.79%
|
|
3.01%
|
|
$8,378
|
|
33.71%
|
|
Medians
|
|
|
|
0.42%
|
|
3.74%
|
|
0.64%
|
|
3.06%
|
|
0.12%
|
|
2.64%
|
|
0.02%
|
|
0.32%
|
|
2.39%
|
|
0.00%
|
|
0.00%
|
|
0.22%
|
|
3.92%
|
|
0.82%
|
|
3.11%
|
|
$7,984
|
|
34.92%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
0.46%
|
|
3.42%
|
|
0.63%
|
|
2.79%
|
|
0.12%
|
|
2.67%
|
|
0.02%
|
|
0.68%
|
|
2.74%
|
|
0.04%
|
|
0.00%
|
|
0.21%
|
|
3.67%
|
|
0.80%
|
|
2.87%
|
|
$6,750
|
|
28.66%
|
|
Medians
|
|
|
|
0.42%
|
|
3.42%
|
|
0.64%
|
|
2.63%
|
|
0.12%
|
|
2.58%
|
|
0.02%
|
|
0.30%
|
|
2.39%
|
|
0.01%
|
|
0.00%
|
|
0.20%
|
|
3.68%
|
|
0.87%
|
|
2.94%
|
|
$7,198
|
|
30.25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT
|
|
BSB Bancorp, Inc.
|
|
MA
|
|
0.35%
|
|
3.14%
|
|
0.57%
|
|
2.57%
|
|
0.13%
|
|
2.44%
|
|
0.04%
|
|
0.23%
|
|
2.15%
|
|
0.00%
|
|
0.00%
|
|
0.21%
|
|
3.23%
|
|
0.76%
|
|
2.47%
|
|
$10,517
|
|
37.39%
|
|
CBNJ
|
|
Cape Bancorp, Inc.
|
|
NJ
|
|
0.62%
|
|
3.74%
|
|
0.48%
|
|
3.26%
|
|
0.28%
|
|
2.99%
|
|
0.04%
|
|
0.39%
|
|
2.53%
|
|
0.14%
|
|
0.00%
|
|
0.39%
|
|
4.10%
|
|
0.60%
|
|
3.50%
|
|
$6,217
|
|
38.53%
|
|
FXCB
|
|
Fox Chase Bancorp, Inc.
|
|
PA
|
|
0.76%
|
|
3.71%
|
|
0.61%
|
|
3.09%
|
|
0.18%
|
|
2.91%
|
|
0.00%
|
|
0.22%
|
|
2.06%
|
|
0.00%
|
|
0.00%
|
|
0.32%
|
|
3.82%
|
|
0.87%
|
|
2.95%
|
|
$7,639
|
|
29.43%
|
|
MLVF
|
|
Malvern Bancorp, Inc.
|
|
PA
|
|
0.10%
|
|
3.41%
|
|
0.86%
|
|
2.55%
|
|
0.05%
|
|
2.51%
|
|
0.06%
|
|
0.28%
|
|
2.75%
|
|
0.01%
|
|
0.00%
|
|
0.00%
|
|
3.61%
|
|
1.06%
|
|
2.55%
|
|
$7,181
|
|
3.01%
|
|
OSHC
|
|
Ocean Shore Holding Co.
|
|
NJ
|
|
0.61%
|
|
3.42%
|
|
0.73%
|
|
2.69%
|
|
0.04%
|
|
2.65%
|
|
0.00%
|
|
0.41%
|
|
2.11%
|
|
0.01%
|
|
0.00%
|
|
0.34%
|
|
4.01%
|
|
0.93%
|
|
3.08%
|
|
$6,047
|
|
35.87%
|
|
ONFC
|
|
Oneida Financial Corp.
|
|
NY
|
|
0.66%
|
|
2.90%
|
|
0.34%
|
|
2.56%
|
|
0.06%
|
|
2.50%
|
|
0.03%
|
|
3.94%
|
|
5.72%
|
|
0.10%
|
|
0.00%
|
|
0.19%
|
|
3.34%
|
|
0.41%
|
|
2.93%
|
|
$2,261
|
|
22.16%
|
|
PBIP
|
|
Prudential Bancorp, Inc.
|
|
PA
|
|
0.37%
|
|
3.22%
|
|
0.66%
|
|
2.56%
|
|
0.06%
|
|
2.50%
|
|
0.03%
|
|
0.15%
|
|
2.24%
|
|
0.08%
|
|
0.00%
|
|
0.14%
|
|
3.32%
|
|
0.89%
|
|
2.43%
|
|
$7,298
|
|
27.43%
|
|
SIFI
|
|
SI Financial Group, Inc.
|
|
CT
|
|
0.33%
|
|
3.51%
|
|
0.61%
|
|
2.90%
|
|
0.11%
|
|
2.79%
|
|
0.02%
|
|
0.73%
|
|
3.07%
|
|
0.00%
|
|
0.00%
|
|
0.15%
|
|
3.76%
|
|
0.72%
|
|
3.04%
|
|
$4,765
|
|
31.07%
|
|
WEBK
|
|
Wellesley Bancorp, Inc.
|
|
MA
|
|
0.36%
|
|
4.00%
|
|
0.70%
|
|
3.30%
|
|
0.13%
|
|
3.16%
|
|
0.02%
|
|
0.17%
|
|
2.77%
|
|
0.00%
|
|
0.00%
|
|
0.23%
|
|
4.09%
|
|
0.87%
|
|
3.22%
|
|
$8,361
|
|
38.32%
|
|
WFD
|
|
Westfield Financial, Inc.
|
|
MA
|
|
0.48%
|
|
3.17%
|
|
0.77%
|
|
2.41%
|
|
0.12%
|
|
2.28%
|
|
0.00%
|
|
0.32%
|
|
2.01%
|
|
0.02%
|
|
0.00%
|
|
0.15%
|
|
3.41%
|
|
0.89%
|
|
2.52%
|
|
$7,214
|
|
23.40%
|
(1) Net gains/losses includes
gain/loss on sale of securities and nonrecurring income and expense.
Source: SNL Financial, LC. and
RP
®
Financial, LC. calculations. The information provided in this table has been obtained from sources we believe
are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP
®
Financial, LC.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.10
|
Provident Bancorp and
the Peer Group reported net interest income to average assets ratios of 3.29% and 2.79%, respectively.
In another key area
of core earnings strength, the Company and the Peer Group maintained similar levels of operating expenses. For the period covered
in Table 3.3, the Company and the Peer Group reported operating expense to average assets ratios of 2.72% and 2.74%, respectively.
The Company’s slightly lower operating expense ratio was achieved notwithstanding the slightly higher number of employees
maintained relative to its asset size. Assets per full time equivalent employee equaled $6.098 million for the Company, versus
$6.750 million for the Peer Group.
When viewed together,
net interest income and operating expenses provide considerable insight into a thrift's earnings strength, since those sources
of income and expenses are typically the most prominent components of earnings and are generally more predictable than losses and
gains realized from the sale of assets or other non-recurring activities. In this regard, as measured by their expense coverage
ratios (net interest income divided by operating expenses), the Company’s earnings were more favorable than the Peer Group’s.
Expense coverage ratios for Provident Bancorp and the Peer Group equaled 1.21x and 1.02x, respectively.
Sources of non-interest
operating income provided a larger contribution to the Peer Group’s earnings, with such income amounting to 0.54% and 0.70%
of Provident Bancorp’s and the Peer Group’s average assets, respectively. Taking non-interest operating income into
account in comparing the Company’s and the Peer Group's earnings, Provident Bancorp’s efficiency ratio (operating expenses,
as a percent of the sum of non-interest operating income and net interest income) of 71.02% was slightly more favorable than the
Peer Group's efficiency ratio of 78.51%.
Loan loss provisions
had a slightly larger impact on the Company’s earnings, with loan loss provisions established by the Company and the Peer
Group equaling 0.23% and 0.12% of average assets, respectively.
Net non-operating
gains equaled 0.07% of average assets for the Company, versus net non-operating gains equal to 0.04% of average assets for the
Peer Group. Typically, gains and losses generated from the sale of assets and other non-operating activities are viewed as earnings
with a relatively high degree of volatility, particularly to the extent that such gains and losses result from the sale of investments
or other assets that are not considered to be part of
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.11
|
an institution’s core operations.
Extraordinary items were not a factor in either the Company’s or the Peer Group's earnings.
Taxes had a slightly
lower impact on the Company’s earnings, as the Company and the Peer Group posted effective tax rates of 24.16% and 28.66%,
respectively. As indicated in the prospectus, the Company’s effective marginal tax rate is equal to 40.0%.
Loan Composition
Table 3.4 presents
data related to the Company’s and the Peer Group’s loan portfolio compositions (including the investment in mortgage-backed
securities). The Company’s loan portfolio composition reflected a lower concentration of 1-4 family permanent mortgage loans
and mortgage-backed securities combined, in comparison to the Peer Group (20.61% of assets versus 50.31% for the Peer Group), as
the Peer Group maintained higher concentrations of both mortgage-backed securities and 1-4 family permanent mortgage loans. Loans
serviced for others equaled 1.55% and 4.17% of the Company’s and the Peer Group’s assets, respectively, thereby indicating
that loan servicing income had a slightly larger impact on the Peer Group’s earnings. Loan servicing intangibles constituted
a relatively small balance sheet item for the Peer Group, versus a zero balance for the Company.
Overall, diversification
into higher risk and higher yielding types of lending was more significant for the Company, which was mostly attributable to the
Company’s higher concentrations of commercial real estate loans and commercial business loans. Commercial real estate loans
constituted the most significant type of lending diversification for the Company and the Peer Group, equaling 33.93% of the Company’s
assets and 16.90% of the Peer Group’s assets. Commercial business loans accounted for the second largest area of lending
diversification for the Company amounting to 14.82% of assets, versus 5.86% of assets for the Peer Group. The Company also maintained
higher concentrations of construction and land loans, multi-family loans and consumer loans relative to the comparable Peer Group
ratios. In total, construction/land, commercial real estate, multi-family, commercial business and consumer loans comprised 63.91%
and 29.67% of the Company’s and the Peer Group’s assets, respectively. Overall, the Company’s asset composition
provided for a higher risk weighted assets-to-assets ratio of 80.21%, versus a comparable Peer Group ratio of 63.25%.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.12
|
Table 3.4
Loan Portfolio Composition and
Related Information
Comparable Institution Analysis
As of December 31, 2014 or the
Most Recent Date Available
|
|
|
|
|
|
|
Portfolio
Composition as a Percent of Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
|
|
Constr.
|
|
Multi-
|
|
|
|
Commerc.
|
|
|
|
RWA/
|
|
Serviced
|
|
Servicing
|
|
|
|
|
|
|
|
MBS
|
|
Family
|
|
& Land
|
|
Family
|
|
Comm RE
|
|
Business
|
|
Consumer
|
|
Assets
|
|
For Others
|
|
Assets
|
|
|
|
|
|
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
($000)
|
|
($000)
|
|
Provident Bancorp, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
MA
|
|
8.33%
|
|
12.28%
|
|
7.15%
|
|
3.98%
|
|
33.93%
|
|
14.82%
|
|
4.03%
|
|
80.21%
|
|
$10,207
|
|
$0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Public Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
12.71%
|
|
33.34%
|
|
3.38%
|
|
8.09%
|
|
17.57%
|
|
4.38%
|
|
1.25%
|
|
65.65%
|
|
$2,179,758
|
|
$15,326
|
|
Medians
|
|
|
|
11.14%
|
|
32.56%
|
|
2.45%
|
|
3.60%
|
|
16.90%
|
|
2.20%
|
|
0.28%
|
|
63.96%
|
|
$79,625
|
|
$441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
of
|
|
MA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
6.12%
|
|
34.01%
|
|
6.70%
|
|
5.19%
|
|
22.36%
|
|
5.85%
|
|
1.46%
|
|
73.70%
|
|
$61,811
|
|
$294
|
|
Medians
|
|
|
|
4.32%
|
|
35.27%
|
|
6.44%
|
|
4.76%
|
|
19.45%
|
|
6.58%
|
|
0.19%
|
|
74.28%
|
|
$65,216
|
|
$268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
11.96%
|
|
38.35%
|
|
2.98%
|
|
2.32%
|
|
16.90%
|
|
5.86%
|
|
1.61%
|
|
63.25%
|
|
$40,653
|
|
$255
|
|
Medians
|
|
|
|
9.20%
|
|
38.38%
|
|
2.07%
|
|
1.86%
|
|
17.15%
|
|
4.80%
|
|
0.09%
|
|
62.84%
|
|
$1,331
|
|
$65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT
|
|
BSB Bancorp,
Inc.
|
|
MA
|
|
7.31%
|
|
39.67%
|
|
1.13%
|
|
5.94%
|
|
21.31%
|
|
0.44%
|
|
8.82%
|
|
78.63%
|
|
$67,096
|
|
$453
|
|
CBNJ
|
|
Cape Bancorp,
Inc.
|
|
NJ
|
|
7.17%
|
|
28.91%
|
|
2.60%
|
|
4.25%
|
|
30.60%
|
|
6.02%
|
|
0.06%
|
|
72.55%
|
|
$1,515
|
|
$2
|
|
FXCB
|
|
Fox Chase
Bancorp, Inc.
|
|
PA
|
|
27.02%
|
|
16.24%
|
|
2.87%
|
|
2.09%
|
|
29.35%
|
|
15.32%
|
|
0.04%
|
|
71.65%
|
|
$24,219
|
|
$126
|
|
MLVF
|
|
Malvern
Bancorp, Inc.
|
|
PA
|
|
10.82%
|
|
51.42%
|
|
1.00%
|
|
0.90%
|
|
9.78%
|
|
0.78%
|
|
0.44%
|
|
58.54%
|
|
$0
|
|
$441
|
|
OSHC
|
|
Ocean
Shore Holding Co.
|
|
NJ
|
|
8.19%
|
|
63.46%
|
|
2.65%
|
|
0.35%
|
|
8.48%
|
|
0.85%
|
|
0.05%
|
|
51.74%
|
|
$0
|
|
$3
|
|
ONFC
|
|
Oneida
Financial Corp.
|
|
NY
|
|
14.52%
|
|
22.28%
|
|
0.50%
|
|
1.64%
|
|
9.62%
|
|
6.51%
|
|
5.98%
|
|
57.09%
|
|
$98,370
|
|
$337
|
|
PBIP
|
|
Prudential
Bancorp, Inc.
|
|
PA
|
|
10.21%
|
|
54.09%
|
|
2.42%
|
|
1.36%
|
|
3.05%
|
|
0.38%
|
|
0.08%
|
|
45.72%
|
|
$0
|
|
$0
|
|
SIFI
|
|
SI Financial
Group, Inc.
|
|
CT
|
|
5.19%
|
|
37.08%
|
|
1.31%
|
|
3.95%
|
|
22.54%
|
|
12.41%
|
|
0.46%
|
|
61.72%
|
|
$214,149
|
|
$1,189
|
|
WEBK
|
|
Wellesley
Bancorp, Inc.
|
|
MA
|
|
3.17%
|
|
48.95%
|
|
13.58%
|
|
0.48%
|
|
17.22%
|
|
3.59%
|
|
0.05%
|
|
70.88%
|
|
$37
|
|
$0
|
|
WFD
|
|
Westfield
Financial, Inc.
|
|
MA
|
|
26.01%
|
|
21.43%
|
|
1.72%
|
|
2.20%
|
|
17.08%
|
|
12.35%
|
|
0.11%
|
|
63.96%
|
|
$1,147
|
|
$0
|
|
|
Source:
|
SNL Financial LC. and RP
®
Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness
of such information.
|
Copyright (c) 2015 by RP
®
Financial, LC.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.13
|
Interest Rate Risk
Table 3.5 reflects
various key ratios highlighting the relative interest rate risk exposure of the Company versus the Peer Group. In terms of balance
sheet composition, Provident Bancorp’s interest rate risk characteristics were considered to be slightly less favorable relative
to the comparable measures for the Peer Group. Most notably, the Company’s slightly lower tangible equity-to-assets and IEA/IBL
ratios were viewed to be somewhat offset by the Company’s lower ratio of non-interest earning assets as a percent of assets.
On a pro forma basis, the infusion of stock proceeds should serve to provide the Company with more favorable balance sheet interest
rate risk characteristics, with respect to the increases that will be realized in Company’s equity-to-assets and IEA/IBL
ratios.
To analyze interest
rate risk associated with the net interest margin, we reviewed quarterly changes in net interest income as a percent of average
assets for Provident Bancorp and the Peer Group. In general, the comparative fluctuations in the Company’s and the Peer Group’s
net interest income ratios implied that the interest rate risk associated with their respective net interest margins was fairly
similar, based on the interest rate environment that prevailed during the period covered in Table 3.5. The stability of the Company’s
net interest margin should be enhanced by the infusion of stock proceeds, as interest rate sensitive liabilities will be funding
a lower portion of Provident Bancorp’s assets and the proceeds will be substantially deployed into interest-earning assets.
Credit Risk
Overall, based on
a comparison of credit risk measures, the Company’s implied credit risk exposure was viewed to be similar relative to the
Peer Group’s credit risk exposure. As shown in Table 3.6, the Company’s ratios for non-performing/assets and non-performing
loans/loans equaled 0.86% and 1.13%, respectively, versus comparable measures of 0.91% and 1.11% for the Peer Group. It should
be noted that the measures for non-performing assets and non-performing loans in Table 3.6 include accruing loans that are classified
as troubled debt restructurings. The Company’s and Peer Group’s loss reserves as a percent of non-performing loans
equaled 127.75% and 113.00%, respectively. Loss reserves maintained as percent of loans receivable equaled 1.13% for the Company,
versus 1.11% for the Peer Group. Net loan charge-offs were a slightly larger factor for the Peer Group, as net loan charge-offs
for the Company and the Peer Group equaled 0.06% and 0.14% of loans, respectively.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.14
|
Table 3.5
Interest Rate Risk Measures
and Net Interest Income Volatility
Comparable Institution Analysis
As of December 31, 2014 or the
Most Recent Date Available
|
|
|
|
|
|
|
Balance
Sheet Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
|
|
|
|
Non-Earn.
|
|
Quarterly
Change in Net Interest Income
|
|
|
|
|
|
|
|
Equity/
|
|
IEA/
|
|
Assets/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
IBL
|
|
Assets
|
|
12/31/2014
|
|
9/30/2014
|
|
6/30/2014
|
|
3/31/2014
|
|
12/31/2013
|
|
9/30/2013
|
|
|
|
|
|
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(change in
net interest income is annualized in basis points)
|
|
Provident
Bancorp, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2014
|
|
MA
|
|
11.5%
|
|
109.1%
|
|
4.5%
|
|
12
|
|
6
|
|
7
|
|
-7
|
|
4
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Public Companies
|
|
|
|
13.0%
|
|
109.5%
|
|
6.5%
|
|
0
|
|
0
|
|
1
|
|
-1
|
|
5
|
|
3
|
|
State of
MA
|
|
|
|
12.6%
|
|
111.1%
|
|
3.9%
|
|
0
|
|
1
|
|
3
|
|
-7
|
|
7
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
12.3%
|
|
110.1%
|
|
5.7%
|
|
-3
|
|
1
|
|
0
|
|
-6
|
|
7
|
|
3
|
|
Median
|
|
|
|
10.6%
|
|
108.0%
|
|
5.5%
|
|
-5
|
|
0
|
|
2
|
|
-3
|
|
9
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT
|
|
BSB Bancorp,
Inc.
|
|
MA
|
|
9.6%
|
|
108.9%
|
|
2.8%
|
|
-10
|
|
0
|
|
-10
|
|
-24
|
|
9
|
|
12
|
|
CBNJ
|
|
Cape Bancorp,
Inc.
|
|
NJ
|
|
11.2%
|
|
104.0%
|
|
10.1%
|
|
-7
|
|
-1
|
|
-7
|
|
-13
|
|
2
|
|
5
|
|
FXCB
|
|
Fox Chase
Bancorp, Inc.
|
|
PA
|
|
16.1%
|
|
115.3%
|
|
3.9%
|
|
-3
|
|
3
|
|
5
|
|
-4
|
|
12
|
|
7
|
|
MLVF
|
|
Malvern
Bancorp, Inc.
|
|
PA
|
|
12.9%
|
|
110.1%
|
|
5.3%
|
|
-8
|
|
-5
|
|
2
|
|
0
|
|
19
|
|
8
|
|
OSHC
|
|
Ocean
Shore Holding Co.
|
|
NJ
|
|
9.8%
|
|
106.8%
|
|
5.8%
|
|
3
|
|
0
|
|
-3
|
|
4
|
|
15
|
|
2
|
|
ONFC
|
|
Oneida
Financial Corp.
|
|
NY
|
|
9.0%
|
|
103.0%
|
|
11.0%
|
|
-4
|
|
6
|
|
3
|
|
-21
|
|
-11
|
|
6
|
|
PBIP
|
|
Prudential
Bancorp, Inc.
|
|
PA
|
|
24.3%
|
|
129.5%
|
|
3.7%
|
|
-6
|
|
4
|
|
7
|
|
14
|
|
9
|
|
-32
|
|
SIFI
|
|
SI Financial
Group, Inc.
|
|
CT
|
|
10.4%
|
|
108.7%
|
|
6.1%
|
|
9
|
|
5
|
|
-12
|
|
-2
|
|
29
|
|
5
|
|
WEBK
|
|
Wellesley
Bancorp, Inc.
|
|
MA
|
|
9.2%
|
|
107.4%
|
|
2.9%
|
|
-7
|
|
-2
|
|
11
|
|
-17
|
|
-13
|
|
12
|
|
WFD
|
|
Westfield
Financial, Inc.
|
|
MA
|
|
10.8%
|
|
107.2%
|
|
5.7%
|
|
-2
|
|
0
|
|
1
|
|
0
|
|
-5
|
|
8
|
|
|
Source:
|
SNL Financial LC. and RP
®
Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness
of such information.
|
Copyright (c) 2015 by RP
®
Financial, LC.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.15
|
Table 3.6
Credit Risk Measures and Related
Information
Comparable Institution Analysis
As of December 31, 2014 or the
Most Recent Date Available
|
|
|
|
|
|
|
|
|
NPAs &
|
|
|
|
|
|
|
|
Rsrves/
|
|
|
|
|
|
|
|
|
|
|
|
REO/
|
|
90+Del/
|
|
NPLs/
|
|
Rsrves/
|
|
Rsrves/
|
|
NPAs &
|
|
Net Loan
|
|
NLCs/
|
|
|
|
|
|
Assets
|
|
Assets (1)
|
|
Loans (1)
|
|
Loans HFI
|
|
NPLs (1)
|
|
90+Del (1)
|
|
Chargeoffs (2)
|
|
Loans
|
|
|
|
|
|
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
Provident Bancorp, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
MA
|
|
0.00%
|
|
0.86%
|
|
1.13%
|
|
1.44%
|
|
127.75%
|
|
127.75%
|
|
$305
|
|
0.06%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Public Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
0.30%
|
|
1.86%
|
|
2.05%
|
|
1.23%
|
|
91.67%
|
|
76.25%
|
|
$2,962
|
|
0.17%
|
|
Medians
|
|
|
|
0.16%
|
|
1.31%
|
|
1.62%
|
|
1.08%
|
|
69.57%
|
|
54.82%
|
|
$674
|
|
0.10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of
|
|
MA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
0.03%
|
|
0.82%
|
|
1.03%
|
|
0.90%
|
|
113.10%
|
|
110.17%
|
|
$813
|
|
0.15%
|
|
Medians
|
|
|
|
0.00%
|
|
0.67%
|
|
0.88%
|
|
0.95%
|
|
90.01%
|
|
90.01%
|
|
$180
|
|
0.03%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
0.12%
|
|
0.91%
|
|
1.11%
|
|
0.97%
|
|
113.00%
|
|
94.28%
|
|
$988
|
|
0.14%
|
|
Medians
|
|
|
|
0.06%
|
|
0.85%
|
|
1.04%
|
|
1.00%
|
|
91.96%
|
|
87.52%
|
|
$643
|
|
0.09%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT
|
|
BSB Bancorp, Inc.
|
|
MA
|
|
0.00%
|
|
0.73%
|
|
0.88%
|
|
0.75%
|
|
85.03%
|
|
85.03%
|
|
$628
|
|
0.06%
|
|
CBNJ
|
|
Cape Bancorp, Inc.
|
|
NJ
|
|
0.49%
|
|
1.68%
|
|
1.60%
|
|
1.20%
|
|
75.28%
|
|
51.66%
|
|
$2,957
|
|
0.38%
|
|
FXCB
|
|
Fox Chase Bancorp, Inc.
|
|
PA
|
|
0.26%
|
|
0.90%
|
|
0.96%
|
|
1.46%
|
|
151.60%
|
|
108.47%
|
|
$2,743
|
|
0.38%
|
|
MLVF
|
|
Malvern Bancorp, Inc.
|
|
PA
|
|
0.25%
|
|
0.80%
|
|
0.86%
|
|
1.19%
|
|
137.68%
|
|
95.14%
|
|
$518
|
|
0.13%
|
|
OSHC
|
|
Ocean Shore Holding Co.
|
|
NJ
|
|
0.06%
|
|
0.95%
|
|
1.17%
|
|
0.48%
|
|
41.22%
|
|
38.48%
|
|
$901
|
|
0.12%
|
|
ONFC
|
|
Oneida Financial Corp.
|
|
NY
|
|
0.03%
|
|
0.17%
|
|
0.29%
|
|
0.95%
|
|
327.08%
|
|
265.98%
|
|
$107
|
|
0.03%
|
|
PBIP
|
|
Prudential Bancorp, Inc.
|
|
PA
|
|
0.07%
|
|
1.46%
|
|
2.20%
|
|
0.75%
|
|
34.02%
|
|
32.50%
|
|
$168
|
|
0.05%
|
|
SIFI
|
|
SI Financial Group, Inc.
|
|
CT
|
|
0.09%
|
|
0.74%
|
|
0.79%
|
|
0.74%
|
|
94.14%
|
|
81.62%
|
|
$658
|
|
0.06%
|
|
WEBK
|
|
Wellesley Bancorp, Inc.
|
|
MA
|
|
0.00%
|
|
0.94%
|
|
1.12%
|
|
1.06%
|
|
93.91%
|
|
93.91%
|
|
$115
|
|
0.03%
|
|
WFD
|
|
Westfield Financial, Inc.
|
|
MA
|
|
0.00%
|
|
0.67%
|
|
1.22%
|
|
1.10%
|
|
90.01%
|
|
90.01%
|
|
$1,086
|
|
0.16%
|
(1) Includes TDRs for the Company
and the Peer Group.
(2) Net loan chargeoffs are shown
on a last twelve month basis.
|
|
Source:
|
SNL Financial, LC and RP
®
Financial, LC. calculations. The information
provided in this table has been obrained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness
of such information.
|
Copyright (c) 2015 by RP
®
Financial, LC.
|
RP
®
Financial, LC.
|
PEER GROUP ANALYSIS
|
|
|
III.16
|
Summary
Based on the above
analysis, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of the
Company. Such general characteristics as asset size, capital position, interest-earning asset composition, funding composition,
core earnings measures, loan composition, credit quality and exposure to interest rate risk all tend to support the reasonability
of the Peer Group from a financial standpoint. Those areas where differences exist will be addressed in the form of valuation adjustments
to the extent necessary.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.1
|
IV.
VALUATION ANALYSIS
Introduction
This chapter presents the valuation
analysis and methodology prepared pursuant to the regulatory guidelines, and valuation adjustments and assumptions used to determine
the estimated pro forma market value of the common stock to be issued in conjunction with the Company’s minority stock offering.
Appraisal Guidelines
The federal regulatory appraisal
guidelines required by the FRB, the FDIC and state banking agencies specify the pro forma market value methodology for estimating
the pro forma market value of an institution. Pursuant to this methodology: (1) a peer group of comparable publicly-traded institutions
is selected; (2) a financial and operational comparison of the subject company to the peer group is conducted to discern key differences;
and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing
of the peer group as of the date of valuation, incorporating valuation adjustments for key differences. In addition, the pricing
characteristics of recent conversions, both at conversion and in the aftermarket, must be considered. Given the unique differences
in the pricing characteristics of publicly-traded MHCs relative to fully-converted thrift stocks, we have also reviewed the pricing
characteristics of publicly-traded MHCs on a fully-converted basis.
RP Financial Approach
to the Valuation
The valuation analysis herein
complies with such regulatory approval guidelines. Accordingly, the valuation incorporates a detailed analysis based on the Peer
Group, discussed in Chapter III, which constitutes "fundamental analysis" techniques. Additionally, the valuation incorporates
a "technical analysis" of recently completed conversions, including closing pricing and aftermarket trading of such offerings.
It should be noted that these valuation analyses cannot possibly fully account for all the market forces which impact trading activity
and pricing characteristics of a stock on a given day.
The pro forma market value determined
herein is a preliminary value for the Company’s to-be-issued stock. Throughout the stock issuance process, RP Financial will:
(1) review
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.2
|
changes in the Company’s
operations and financial condition; (2) monitor the Company’s operations and financial condition relative to the Peer Group
to identify any fundamental changes; (3) monitor the external factors affecting value including, but not limited to, local and
national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks; and (4)
monitor pending conversion offerings, both regionally and nationally. If material changes should occur prior to the close of the
offering, RP Financial will evaluate if updated valuation reports should be prepared reflecting such changes and their related
impact on value, if any. RP Financial will also prepare a final valuation update at the closing of the offering to determine if
the prepared valuation analysis and resulting range of value continues to be appropriate.
The appraised value determined
herein is based on the current market and operating environment for the Company and for all thrifts. Subsequent changes in the
local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces
(such as natural disasters or major world events), which may occur from time to time (often with great unpredictability) may materially
impact the market value of all thrift stocks, including Provident Bancorp’s value, the market value of the stocks of public
MHC institutions, or Provident Bancorp’s value alone. To the extent a change in factors impacting the Company’s value
can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into its analysis.
Valuation Analysis
A fundamental analysis discussing
similarities and differences relative to the Peer Group was presented in Chapter III. The following sections summarize the key
differences between the Company and the Peer Group and how those differences affect the pro forma valuation. Emphasis is placed
on the specific strengths and weaknesses of the Company relative to the Peer Group in such key areas as financial condition, profitability,
growth and viability of earnings, asset growth, primary market area, dividends, liquidity of the shares, marketing of the issue,
management, and the effect of government regulations and/or regulatory reform. We have also considered the market for thrift stocks,
in particular new issues, to assess the impact on value of Provident Bancorp coming to market at this time.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.3
|
The financial condition of an
institution is an important determinant in pro forma market value because investors typically look to such factors as liquidity,
capital, asset composition and quality, and funding sources in assessing investment attractiveness. The similarities and differences
in the Company’s and the Peer Group's financial strengths are noted as follows:
|
|
o
|
Overall A/L Composition
. Loans funded by retail deposits were the primary components of
both Provident Bancorp’s and the Peer Group's balance sheets. The Company’s interest-earning asset composition exhibited
a higher concentration of loans and a greater degree of diversification into higher risk and higher yielding types of loans. Overall,
the Company’s asset composition provided for a slightly higher yield earned on interest-earning assets and a higher risk
weighted assets-to-assets ratio in comparison to the Peer Group’s ratios. Provident Bancorp’s funding composition reflected
a higher level of deposits and a lower level of borrowings in comparison to the Peer Group’s ratios, which provided the Company
with a lower cost of funds than maintained by the Peer Group. Overall, as a percent of assets, the Company maintained slightly
higher levels of interest-earning assets and interest-bearing liabilities relative to the comparable ratios for the Peer Group,
which translated into a slightly lower IEA/IBL ratio for the Company. After factoring in the impact of the net stock proceeds,
the Company’s IEA/IBL ratio will be more comparable to or exceed the Peer Group’s ratio. On balance, RP Financial concluded
that asset/liability was a slightly positive factor in our adjustment for financial condition.
|
|
|
o
|
Credit Quality.
The Company and the Peer Group maintained comparable non-performing assets
ratios as a percent of assets. Loss reserves as a percent loans were higher for the Company, while loss reserves as a percent of
non-performing loans were higher for the Peer Group. Net loan charge-offs as a percent of loans were slightly higher for the Peer
Group. Loan growth was more significant for the Company relative to the Peer Group’s rate of loan growth, which was largely
sustained by originations of higher risk types of loans. Accordingly, the comparatively higher concentration of unseasoned higher
risk types of loans held in the Company’s loan portfolio represented an area of potentially greater credit risk exposure
for the Company. The Company’s risk weighted assets-to-assets ratio was higher than the Peer Group’s ratio. Overall,
RP Financial concluded that credit quality was a neutral factor in our adjustment for financial condition.
|
|
|
o
|
Balance Sheet Liquidity
. The Peer Group operated with a higher level of cash and investment
securities relative to the Company (25.95% of assets versus 20.46% for the Company). Following the infusion of stock proceeds,
the Company’s cash and investments ratio is expected to increase as a portion of the proceeds retained at the holding company
level will initially be held in short-term liquid funds. The Company’s future borrowing capacity was considered to be slightly
greater than the Peer Group’s borrowing capacity, given that the Company’s borrowings-to-assets ratio was lower than
the comparable Peer Group ratio. Overall, RP Financial concluded that balance sheet liquidity was a neutral factor in our adjustment
for financial condition.
|
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.4
|
|
|
o
|
Funding Liabilities
. The Company’s interest-bearing funding composition reflected
a higher concentration of deposits and a lower level of borrowings relative to the comparable Peer Group ratios, which translated
into a slightly lower cost of funds for the Company. The Company’s ratio of total interest-bearing liabilities as a percent
of assets was slightly above the Peer Group’s ratio. Following the stock offering, the increase in the Company’s capital
position will reduce the level of interest-bearing liabilities funding the Company’s assets to a level that is more comparable
to or lower than the Peer Group’s ratio of interest-bearing liabilities as a percent of assets. Overall, RP Financial concluded
that funding liabilities were a slightly positive factor in our adjustment for financial condition.
|
|
|
o
|
Capital
. The Peer Group currently operates with a slightly higher equity-to-assets ratio
than the Company. Following the stock offering, Provident Bancorp’s pro forma capital position will be more comparable to
or exceed the Peer Group's equity-to-assets ratio. At the same time, approximately one-fourth of the Company’s current tangible
equity consists of preferred stock, with a current annual dividend rate of 1.0% that will increase to an annual rate of 9.0% beginning
in June 2016. Comparatively, none of the Peer Group companies held preferred stock. Accordingly, to the extent the net conversion
proceeds are applied to redeeming the preferred stock, there will be less of an increase in the Company’s pro forma capital
position. On balance, RP Financial concluded that capital strength was a neutral factor in our adjustment for financial condition.
|
On balance, Provident Bancorp’s
pro forma balance sheet strength was considered to be comparable to the Peer Group's. Accordingly, no adjustment was applied for
the Company’s financial condition.
|
|
2.
|
Profitability, Growth and Viability of Earnings
|
Earnings are a key factor in
determining pro forma market value, as the level and risk characteristics of an institution's earnings stream and prospects to
generate future earnings heavily influence the multiple that the investment community will pay for earnings. The major factors
considered in the valuation are described below.
|
|
o
|
Reported Earnings
. The Company’s reported earnings were higher than the Peer Group’s
on a ROAA basis (0.71% of average assets versus 0.46% for the Peer Group). The Company maintained more favorable ratios for net
interest income, net gains and effective tax rate, which were partially offset by the Peer Group’s more favorable ratios
for loan loss provisions and non-interest operating income. Reinvestment of stock proceeds into interest-earning assets will serve
to increase the Company’s earnings, with the benefit of reinvesting proceeds expected to be somewhat offset by higher operating
expenses associated with operating as a publicly-traded company and the implementation of stock benefit plans. Overall, the Company’s
reported earnings were considered to be slightly more favorable than the Peer Group’s and, thus, the Company’s reported
|
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.5
|
earnings were considered
as a slightly positive factor in our adjustment for the Company’s profitability growth and viability of earnings.
|
|
o
|
Core Earnings
. Net interest income, operating expenses, non-interest operating income and
loan loss provisions were reviewed in assessing the relative strengths and weaknesses of the Company’s and the Peer Group’s
core earnings. In these measures, the Company operated with a higher net interest income ratio, a slightly lower operating expense
ratio and a lower level of non-interest operating income. The Company’s higher net interest income ratio and lower operating
expense ratio translated into a higher expense coverage ratio in comparison to the Peer Group’s ratio (equal to 1.21x versus
1.02x for the Peer Group). Similarly, the Company’s efficiency ratio of 71.02% was slightly more favorable than the Peer
Group’s efficiency ratio of 78.51%. Loan loss provisions had a slightly larger impact on the Company’s earnings. Overall,
these measures, as well as the expected earnings benefits the Company should realize from the redeployment of stock proceeds into
interest-earning assets and leveraging of post-conversion capital, which will be somewhat negated by expenses associated with the
stock benefit plans and operating as a publicly-traded company, indicate that the Company’s pro forma core earnings will
remain slightly more favorable than the Peer Group’s core earnings. Therefore, RP Financial concluded that this was a slightly
positive factor in our adjustment for profitability, growth and viability of earnings.
|
|
|
o
|
Interest Rate Risk
. Quarterly changes in the Company’s and the Peer Group's net interest
income to average assets ratios indicated that a similar degree of volatility was associated with their respective net interest
margins. Other measures of interest rate risk, such as capital levels, IEA/IBL ratios and levels of non-interest earning assets
were mixed, as the Peer Group’s higher tangible equity-to-assets and IEA/IBL ratios were partially offset by the Company
lower ratio of non-interest earning assets as a percent of assets. On a pro forma basis, the infusion of stock proceeds can be
expected to provide the Company with equity-to-assets and IEA/ILB ratios that are comparable to or exceed the Peer Group ratios,
as well as enhance the stability of the Company’s net interest margin. Accordingly, on balance, this was a neutral factor
in our adjustment for profitability, growth and viability of earnings.
|
|
|
o
|
Credit Risk
. Loan loss provisions were a slightly larger factor in the Company’s earnings
(0.23% of average assets versus 0.12% of average assets for the Peer Group). In terms of future exposure to credit quality related
losses, the Company maintained a higher concentration of assets in loans and greater diversification into higher risk types of
loans. The Company’s higher rate of loan growth was largely sustained by originations of higher risk types of loans. Credit
quality measures for non-performing assets and loss reserves as a percent of non-performing loans and loans were fairly similar
for the Company and the Peer Group. Overall, RP Financial concluded that credit risk was a neutral factor in our adjustment for
profitability, growth and viability of earnings.
|
|
|
o
|
Earnings Growth Potential
. Several factors were considered in assessing earnings growth
potential. First, the Company currently maintains a higher interest rate spread than the Peer Group, which would tend to facilitate
a continuation of a higher net interest margin for the Company goring forward.
|
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.6
|
Second, the infusion of
stock proceeds will provide the Company with similar or greater growth potential through leverage than currently maintained by
the Peer Group. Third, the Company’s lower ratio of non-interest operating income was viewed as a relative earning advantage
for the Peer Group to sustain earnings growth during periods when net interest margins come under pressure as the result of adverse
changes in interest rates. Overall, earnings growth potential was considered to be a neutral factor in our adjustment for profitability,
growth and viability of earnings.
|
|
o
|
Return on Equity
. Currently, the Company’s core ROE is higher than the Peer Group’s
core ROE. However, as the result of the increase in capital that will be realized from the infusion of net stock proceeds into
the Company’s equity, the Company’s pro forma return on equity on a core earnings basis will be comparable to the Peer
Group’s return on equity ratio. Accordingly, this was a neutral factor in the adjustment for profitability, growth and viability
of earnings.
|
On balance, Provident Bancorp’s
pro forma earnings strength was considered to be slightly more favorable than the strength of the Peer Group's earnings. Accordingly,
a slight upward adjustment was applied for the Company’s profitability, growth and viability of earnings.
Comparative asset growth rates
for the Company and the Peer Group showed a 5.43% increase in the Company’s assets, versus a 6.23% increase in the Peer Group’s
assets. Asset growth for the Company was sustained by a 12.39% increase in loans, which was partially funded with cash and investments.
Similarly, the Peer Group’s asset growth was primarily sustained by a 7.94% increase in loans, which was supplemented with
a 4.18% increase in cash and investments. Overall, the Company’s recent asset growth trends would tend to be viewed slightly
more favorable than the Peer Group’s asset growth trends in terms of supporting future earnings growth. On a pro forma basis,
the Company’s tangible equity-to-assets ratio will be comparable to or exceed the Peer Group's tangible equity-to-assets
ratio, providing the Company with similar or greater leverage capacity than maintained by the Peer Group. On balance, a slight
upward adjustment was applied for asset growth.
The general condition of an institution’s
market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the
local market served. Provident Bancorp serves the Boston metropolitan area and southern New Hampshire that its main office, six
full service branch offices and two loan production offices. Operating in a
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.7
|
densely populated market area provides the Company with
growth opportunities, but such growth must be achieved in a highly competitive market environment. The Company competes against
significantly larger institutions that provide a larger array of services and have significantly larger branch networks than maintained
by Provident Bancorp. The competitiveness of the market area is highlighted by the Company’s relatively low market share
of deposits in Essex County.
The Peer Group companies generally
operate in markets with smaller populations compared to Essex County. Population growth for the primary market area counties served
by the Peer Group companies reflected a range of growth rates, but overall population growth rates in the markets served by the
Peer Group companies were slightly less than Essex County’s recent historical and projected population growth rates. Essex
County has a slightly higher per capita income compared to the Peer Group’s average per capita income, while, on average,
the Peer Group’s primary market area counties were similarly affluent markets within their respective states compared to
Essex County’s per capita income as a percent of Massachusetts’ per capita income (101.7% for the Peer Group versus
97.0% for Essex County). The average and median deposit market shares maintained by the Peer Group companies were well above the
Company’s market share of deposits in Essex County. Overall, the degree of competition faced by the Peer Group companies
was viewed as less than faced by the Company in Essex County, while the growth potential in the markets served by the Peer Group
companies was for the most part viewed to be slightly less favorable than provided by the Company’s primary market area.
Summary demographic and deposit market share data for the Company and the Peer Group companies is provided in Exhibit III-4. As
shown in Table 4.1, the average unemployment rate for the primary market area counties served by the Peer Group companies was above
the unemployment rate reflected for Essex County. On balance, we concluded that a slight upward adjustment was appropriate for
the Company’s market area.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.8
|
Table 4.1
Market Area Unemployment Rates
Provident Bancorp, Inc. and the Peer Group Companies (1)
|
|
|
|
|
December 2014
|
|
|
|
County
|
|
Unemployment
|
|
|
|
|
|
|
|
Provident Bancorp, Inc. - MA
|
|
Essex
|
|
5.1%
|
|
|
|
|
|
|
|
Peer Group Average
|
|
|
|
6.6
|
|
|
|
|
|
|
|
The Peer Group
|
|
|
|
|
|
|
|
|
|
|
|
BSB Bancorp, Inc. – MA
|
|
Middlesex
|
|
3.7
|
|
Cape Bancorp, Inc. - NJ
|
|
Cape May
|
|
12.7
|
|
Fox Chase Bancorp, Inc. – PA
|
|
Montgomery
|
|
3.8
|
|
Malvern Bancorp, Inc. – PA
|
|
Chester
|
|
3.4
|
|
Ocean Shore Holding Co. – NJ
|
|
Cape May
|
|
12.7
|
|
Oneida Financial Corp. – NY
|
|
Madison
|
|
6.5
|
|
Prudential Bancorp, Inc. - PA
|
|
Philadelphia
|
|
6.2
|
|
SI Financial Group, Inc. – CT
|
|
Windham
|
|
6.5
|
|
Wellesley Bancorp, Inc. - MA
|
|
Norfolk
|
|
3.9
|
|
Westfield Financial Inc. – MA
|
|
Hampden
|
|
6.5
|
(1) Unemployment rates are not seasonally adjusted.
Source: SNL Financial, LC; Department of Labor.
At this time the Company has
not established a dividend policy. Future declarations of dividends by the Board of Directors will depend upon a number of factors,
including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital
requirements, regulatory limitations, stock market characteristics and general economic conditions.
Eight out of the ten Peer Group
companies pay regular cash dividends, with implied dividend yields ranging from 0.53% to 3.65%. The average dividend yield on the
stocks of the Peer Group institutions equaled 1.61% as of February 13, 2015. Comparatively, as of February 13, 2015, the average
dividend yield on the stocks of all fully-converted publicly-traded thrifts equaled 1.81%.
Our valuation adjustment for
dividends for Provident Bancorp also considered the regulatory policy with regard to payment of dividends to the MHC. Under current
FRB policy, any dividends declared by Provident Bancorp would be required to be paid to all shareholders. Accordingly, dividends
paid by Provident Bancorp would increase the amount of assets held by
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.9
|
the MHC, after adjusting for applicable
income taxes, and, thereby, increase the implied dilution incurred by the minority shareholders in a second-step conversion pursuant
to the calculation to account for net assets held by the MHC in a second-step offering.
Overall, while the Company has
not established a definitive dividend policy prior to its stock offering, the Company will have the capacity to pay a dividend
comparable to the Peer Group’s average dividend yield based on pro forma earnings and capitalization. At the same time, dividend
payments retained by the MHC would increase the implied dilution to minority shareholders in a second-step offering. On balance,
we concluded that a slight downward adjustment was warranted for purposes of the Company’s dividend policy.
|
|
6.
|
Liquidity of the Shares
|
The Peer Group is by definition
composed of companies that are traded in the public markets. All ten of the Peer Group members trade on the NASDAQ system. Typically,
the number of shares outstanding and market capitalization provides an indication of how much liquidity there will be in a particular
stock. The market capitalization of the Peer Group companies ranged from $46.1 million to $192.5 million as of February 13, 2015,
with average and median market values of $117.1 million and $107.5 million, respectively. The shares issued and outstanding of
the Peer Group companies ranged from 2.5 million to 18.7 million, with average and median shares outstanding of 9.6 million and
9.2 million, respectively. The Company’s stock offering is expected to have a pro forma market value and shares outstanding
that will be in the lower end of the ranges of market values and shares outstanding indicated for the Peer Group companies. Like
all of the Peer Group companies, the Company’s stock will be quoted on the NASDAQ following the stock offering. Overall,
we anticipate that the Company’s public stock will have a comparable trading market as the Peer Group companies on average
and, therefore, concluded no adjustment was necessary for this factor.
|
|
7.
|
Marketing of the Issue
|
Three separate markets exist
for thrift stocks: (1) the after-market for public companies, both fully-converted stock companies and MHCs, in which trading activity
is regular and investment decisions are made based upon financial condition, earnings, capital, ROE, dividends and future prospects;
(2) the new issue market in which converting thrifts are evaluated on the basis of the same factors but on a pro forma basis without
the benefit of prior
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.10
|
operations as a publicly-held company
and stock trading history; and (3) the thrift acquisition market. All three of these markets were considered in the valuation of
the Company’s to-be-issued stock.
The value of publicly-traded thrift
stocks is easily measurable, and is tracked by most investment houses and related organizations. Exhibit IV-1 provides pricing
and financial data on all publicly-traded thrifts. In general, thrift stock values react to market stimuli such as interest rates,
inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general.
Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts
and commercial banks. Exhibit IV-3 displays historical stock price indices for thrifts only.
In terms of assessing general stock
market conditions, the performance of the overall stock market has been mixed in recent quarters. At the start of the third quarter
of 2014, the Dow Jones Industrial Average (“DJIA”) closed above 17000 for the first time as better-than-expected job
growth reflected in June employment report contributed to stock market gains. The DJIA retreated back under 17000 following the
record close, as caution prevailed ahead of the second quarter earnings season. Some better-than-expected earnings reports coming
out of the banking and technology sectors helped to propel the DJIA to record highs in mid-July. Global tensions in Ukraine and
the Middle East pressured stocks lower heading into late-July. Stocks tumbled lower at the end of July, as worries about the global
economy, including Europe’s prolonged economic slump and Argentina defaulting on its debt, translated into a broad-based
sell-off. In the first full trading week of August, weaker–than-expected job growth reflected in the July employment report
and ongoing geopolitical concerns pushed the DJIA to its lowest close since late-April which was followed by the DJIA rebounding
on the last trading day of the week. Following the first week of August, the broader stock market generally drifted higher through
the balance of August as investors were encouraged by the absence of more negative geopolitical news coming out of the Middle East
and Ukraine along with a favorable report on housing starts for July. The S&P 500 closed above 2000 for the first time in late-August.
Stocks traded higher to close out the first week of September, as weaker-than-expected job growth reflected in the August employment
report lessened expectations of a near term rate hike by the Federal Reserve. Escalating tensions in Ukraine and the upcoming
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.11
|
meeting of the Federal Reserve
weighed on the stock market heading into mid-September. Reassuring comments from the Federal Reserve that short-term rates will
remain near zero for a “considerable time” contributed to the DJIA closing at a record high following the Federal Reserve’s
mid-September policy meeting. Concerns about the pace of China’s economic growth and some favorable economic reports on the
U.S. economy provided for an up and down stock market at the close of third quarter.
Volatility continued to prevail
in the broader stock market at the start of the fourth quarter of 2014, with concerns about a softening global economy contributing
to a sell-off at the beginning of the fourth quarter that was followed by a rebound supported by a favorable employment report
for September. Heightened concerns over slowing economic growth in Europe, a disappointing retail sales report for September and
the uncertain outlook for third quarter earnings fueled a sharp decline in the broader stock market in mid-October, with the DJIA
declining 5% over five trading sessions. Stocks rallied following the sell-off with such factors as some favorable third quarter
earnings reports, increased expectations that the European Central Bank would increase stimulus, a rise in U.S. consumer sentiment
in October and an increase in September housing starts contributing to the gains. The upward trend in the broader stock market
continued into the first half of November, with the DJIA closing at record highs for five consecutive trading sessions following
the mid-term election. The positive trend in the broader stock market continued during the second half of November and into early-December,
as investors cheered China’s rate cut. Led by a rebound in big energy stocks and a favorable employment report for November,
the DJIA and S&P 500 closed at record highs in early-December. Pressured by steepening decline in oil prices and fresh signs
of economic weakness in Europe and Japan, stocks retreated heading into mid-December. The Federal Reserve’s pledge to be
patient when it comes to raising interest rates and stronger-than-expected third quarter GDP growth helped stocks to rally in the
second half of December. The DJIA closed above 18000 for the first time on December 23, 2014 and posted gains for seven consecutive
trading sessions through December 26, 2014. Stocks retreated at the close of 2014, which was largely attributable to profit taking.
Stocks tumbled at the start of
2015, as oil fell below $50 per barrel and fresh worries about Europe’s economy stoked fears of deflation. A rebound in oil
prices supported a two day rebound in the broader stock market, which was followed by a downward trend through mid-January. Factors
contributing to the downturn included a further drop in oil prices, a weak
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.12
|
reading for December wage growth,
disappointing retail sales for December and lackluster fourth quarter earnings results posted by some of the nation’s largest
banks. After five consecutive sessions of losses, some upbeat reports on the U.S. economy, a rebound in energy shares and a new
round of stimulus efforts proposed by the European Central Bank contributed to a stock market rally heading into the second half
of January. Volatility prevailed in the broader stock at the end of January and into early-February, as investors reacted to mixed
earnings reports, fluctuating oil prices and weaker-than-expected fourth quarter GDP growth. Higher oil prices contributed to stocks
closing out the first week of trading in February with a net gain. Some favorable fourth quarter earnings reports and growing optimism
that Greece would reach an agreement with its international credits boosted stocks heading into mid-February. On February 13, 2015,
the DJIA closed at 18019.35, an increase of 11.5% from one year ago and an increase of 1.1% year-to-date, and the NASDAQ closed
at 4893.84, an increase of 15.3% from one year ago and an increase of 3.3% year-to-date. The Standard & Poor’s 500 Index
closed at 2096.99 on February 13, 2015, an increase of 14.1% from one year ago and an increase of 1.9% year-to-date.
The market for thrift stocks has also
experienced varied trends in recent quarters. The favorable employment report for June boosted thrift stocks, along with the broader
stock market, at the start of the third quarter of 2014. Financial shares eased lower ahead of the second quarter earnings season.
Mixed second earnings reports coming out of the banking sector provided for a narrow trading range for thrift shares through mid-July.
Thrift stocks faltered along with stocks in general heading into the second half of July, as investors moved to safe haven investments
on reports of a Malaysian airliner being shot down and Israel’s invasion of Gaza. Merger activity in the banking sector helped
to lift thrift stocks heading into late-July. Thrift shares traded lower to close out July and at the start of August, as concerns
that an improving U.S. economy could prompt the Federal Reserve to raise rates sooner than expected weighed on interest rate sensitive
issues. In the first full week trading in August, thrift shares stabilized and then rebounded along with the broader stock market
to close out the week. Thrift stocks edged higher along with the broader stock market during the last three weeks of August, with
the favorable report for July housing starts contributing to stock market gains in the thrift sector. Investors shrugged off the
disappointing employment report for August, as the thrift sector showed little movement during the first two weeks of September.
Financial shares edged higher following the Federal Reserve’s mid-September policy meeting, based on comments that the Federal
Reserve was staying the course regarding interest rate monetary policies.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.13
|
Concerns about a global economic slowdown
dragged bank and thrift stocks lower at the close of the third quarter.
Financial shares traded in line with the
broader stock market in early-October 2014, initially trading lower on the global economic outlook and then rebounding in response
to September employment data showing stronger-than-expected job growth. The rebound was short-lived, as the financial sector participated
in the broader stock market sell-off in mid-October. Third quarter earnings releases posted by some of the big banks showed net
interest margins continued to be squeezed by low interest rates. Some favorable reports on September housing starts and existing
home sales helped thrift stocks to rebound modestly following the sell-off. Thrift stocks participated in the broader stock market
rally that extended into mid-November, as the Federal Reserve’s late-October policy statement repeated its pledge to keep
interest rates low for the foreseeable future and indicated a brighter economic outlook. Signs of financial sector merger activity
picking up also contributed to the gains in thrift stocks heading into mid-November. Thrift shares traded in a narrow range during
the second half of November and then retreated at the start of December, as disappointing economic reports coming out of China
and Europe impacted the broader stock market. November’s favorable employment report boosted the thrift sector at the close
of the first week of December, which was followed by a downturn in financial shares going into mid-December as the prolonged slump
in oil prices raised doubts about the health of the global economy and sparked a sell-off in the broader stock market. Financial
shares rebounded along with the broader stock market during the second half of December, as the Federal Reserve’s comments
on remaining patient with its approach to future rate increases were well received by bank investors.
Thrift stocks followed the broader stock
market lower during the first half of January 2015, as a weak report for December retail sales and fourth quarter bank earnings
showing net interest margins continued to be squeezed depressed financial stocks in general. The broader stock market rally at
the start of the second half of January boosted thrift shares as well. Financial shares rallied heading into late-January in response
to Royal Bank of Canada’s $5.4 billion acquisition of City National. Thrift stocks retreated at the close of January and
then rebounded during the first half of February, as investors reacted to some encouraging news on home prices, the January employment
report showing stronger-than-expected job growth, signs of acquisition activity heating up in the banking sector and gains in the
broader stock market.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.14
|
On February 13, 2015, the SNL Index for
all publicly-traded thrifts closed at 735.2, an increase of 7.3% from one year ago and a decrease of 0.5% year-to-date.
In addition to thrift stock market
conditions in general, the new issue market for converting thrifts is also an important consideration in determining the Company’s
pro forma market value. The new issue market is separate and distinct from the market for seasoned thrift stocks in that the pricing
ratios for converting issues are computed on a pro forma basis, specifically: (1) the numerator and denominator are both impacted
by the conversion offering amount, unlike existing stock issues in which price change affects only the numerator; and (2) the pro
forma pricing ratio incorporates assumptions regarding source and use of proceeds, effective tax rates, stock plan purchases, etc.
which impact pro forma financials, whereas pricing for existing issues are based on reported financials. The distinction between
pricing of converting and existing issues is perhaps no clearer than in the case of the price/book ("P/B") ratio in that
the P/B ratio of a converting thrift will typically result in a discount to book value whereas in the current market for existing
thrifts the P/B ratio often reflects a premium to book value. Therefore, it is appropriate to also consider the market for new
issues, both at the time of the conversion and in the aftermarket.
As shown in Table 4.2, three standard
conversions and two second-step conversion have been completed during the past three months. There have been no recent MHC offerings.
For purposes of estimating the Company’s pro forma market value on a fully-converted basis, the standard conversion offerings
are considered to be more relevant for our analysis. The average closing pro forma price/tangible book ratio of the recent standard
conversion offerings equaled 62.40%. On average, the recent standard conversion offerings were up 16.9% after their first week
of trading and after their first month of trading. As of February 13, 2015, the three recent standard conversion offerings showed
average price appreciation of 17.80% from their respective IPO prices.
Shown in Table 4.3 are the current
pricing ratios for the two fully-converted offerings completed during the past three months that trade on NASDAQ, one of which
was a second-step offering. The current P/TB ratio of the fully-converted publicly-traded recent conversions equaled 94.66%, based
on closing stock prices as of February 13, 2015.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.15
|
Table 4.2
Pricing Characteristics and After-Market
Trends
Conversions Completed in the
Last Three Months
|
Institutional
Information
|
Pre-Conversion
Data
|
Offering
Information
|
Contribution
to
|
Insider
Purchases
|
|
Pro
Forma Data
|
|
Post-IPO
Pricing Trends
|
|
|
|
|
Financial
Info.
|
Asset
Quality
|
|
|
|
|
Char. Found.
|
%
Off Incl. Fdn.+Merger Shares
|
|
Pricing
Ratios(2)(5)
|
Financial
Charac.
|
|
Closing
Price:
|
|
|
|
|
|
|
|
|
Excluding
Foundation
|
|
%
of
|
Benefit
Plans
|
|
Initial
|
|
|
|
|
|
|
|
First
|
|
After
|
|
After
|
|
|
|
|
|
Conversion
|
|
|
Equity/
|
NPAs/
|
Res.
|
Gross
|
%
|
%
of
|
Exp./
|
|
Public
Off.
|
|
Recog.
|
Stk
|
Mgmt.&
|
Div.
|
|
Core
|
|
Core
|
|
Core
|
IPO
|
Trading
|
%
|
First
|
%
|
First
|
%
|
Thru
|
%
|
|
Institution
|
Date
|
Ticker
|
Assets
|
Assets
|
Assets
|
Cov.
|
Proc.
|
Offer
|
Mid.
|
Proc.
|
Form
|
Inc.
Fdn.
|
ESOP
|
Plans
|
Option
|
Dirs.
|
Yield
|
P/TB
|
P/E
|
P/A
|
ROA
|
TE/A
|
ROE
|
Price
|
Day
|
Chge
|
Week(3)
|
Chge
|
Month(4)
|
Chge
|
2/13/15
|
Chge
|
|
|
|
|
($Mil)
|
(%)
|
(%)
|
(%)
|
($Mil.)
|
(%)
|
(%)
|
(%)
|
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)(1)
|
(%)
|
(%)
|
(x)
|
(%)
|
(%)
|
(%)
|
(%)
|
($)
|
($)
|
(%)
|
($)
|
(%)
|
($)
|
(%)
|
($)
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard
Conversions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Northwest Bancorp - WA*
|
1/30/15
|
FNWB-NASDAQ
|
$ 788
|
10.39%
|
0.80%
|
137%
|
$ 121.7
|
100%
|
132%
|
2.7%
|
C/S
|
$400K/7.12%
|
8.0%
|
4.0%
|
10.0%
|
1.1%
|
0.00%
|
69.9%
|
64.6x
|
14.7%
|
0.2%
|
21.0%
|
1.1%
|
$10.00
|
$12.18
|
21.8%
|
$12.49
|
24.9%
|
$12.53
|
25.3%
|
$12.53
|
25.3%
|
|
MW
Bancorp, Inc. - OH
|
1/30/15
|
MWBC-OTC
Pink
|
$ 90
|
9.75%
|
1.70%
|
115%
|
$ 8.8
|
100%
|
103%
|
12.7%
|
N.A.
|
N.A.
|
8.0%
|
4.0%
|
10.0%
|
14.3%
|
0.00%
|
56.9%
|
NM
|
9.0%
|
-0.5%
|
15.9%
|
-3.4%
|
$10.00
|
$11.50
|
15.0%
|
$12.00
|
20.0%
|
$12.00
|
20.0%
|
$12.00
|
20.0%
|
|
MB
Bancorp, Inc. - MD
|
12/30/14
|
MBCQ-OTC
Pink
|
$ 136
|
12.75%
|
3.02%
|
43%
|
$ 21.2
|
100%
|
132%
|
5.0%
|
N.A.
|
N.A.
|
8.0%
|
4.0%
|
10.0%
|
2.7%
|
0.00%
|
60.6%
|
NM
|
13.8%
|
-1.3%
|
22.7%
|
-5.9%
|
$10.00
|
$10.45
|
4.5%
|
$10.59
|
5.9%
|
$10.55
|
5.5%
|
$10.80
|
8.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
- Standard Conversions:
|
$ 338
|
10.96%
|
1.84%
|
98%
|
$ 50.5
|
100%
|
123%
|
6.8%
|
N.A.
|
N.A.
|
8.0%
|
4.0%
|
10.0%
|
6.0%
|
0.00%
|
62.4%
|
64.6x
|
12.5%
|
-0.5%
|
19.9%
|
-2.7%
|
$10.00
|
$11.38
|
13.8%
|
$11.69
|
16.9%
|
$11.69
|
16.9%
|
$11.78
|
17.8%
|
|
Medians
- Standard Conversions:
|
$ 136
|
10.39%
|
1.70%
|
115%
|
$ 21.2
|
100%
|
132%
|
5.0%
|
N.A.
|
N.A.
|
8.0%
|
4.0%
|
10.0%
|
2.7%
|
0.00%
|
60.6%
|
64.6x
|
13.8%
|
-0.5%
|
21.0%
|
-3.4%
|
$10.00
|
$11.50
|
15.0%
|
$12.00
|
20.0%
|
$12.00
|
20.0%
|
$12.00
|
20.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Step Conversions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben
Franklin Financial, Inc. - IL
|
1/22/15
|
BFFI-OTCQB
|
$ 87
|
9.96%
|
2.38%
|
95%
|
$ 3.9
|
56%
|
92%
|
28.4%
|
N.A.
|
N.A.
|
7.0%
|
3.0%
|
10.0%
|
7.2%
|
0.00%
|
62.8%
|
NM
|
7.8%
|
-1.8%
|
12.4%
|
-14.2%
|
$10.00
|
$10.11
|
1.1%
|
$10.45
|
4.5%
|
$10.40
|
4.0%
|
$10.40
|
4.0%
|
|
Beneficial
Bancorp, Inc. - PA*
|
1/13/15
|
BNCL-NASDAQ
|
$ 4,360
|
14.03%
|
0.86%
|
146%
|
$ 503.8
|
61%
|
92%
|
1.7%
|
N.A.
|
N.A.
|
4.0%
|
4.0%
|
10.0%
|
0.2%
|
0.00%
|
88.2%
|
57.9x
|
17.2%
|
0.3%
|
20.0%
|
1.3%
|
$10.00
|
$10.82
|
8.2%
|
$10.75
|
7.5%
|
$11.54
|
15.4%
|
$11.54
|
15.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
- Second Step Conversions:
|
$ 2,224
|
12.00%
|
1.62%
|
121%
|
$ 253.9
|
59%
|
92%
|
15.1%
|
N.A.
|
N.A.
|
5.5%
|
3.5%
|
10.0%
|
3.7%
|
0.00%
|
75.5%
|
57.9x
|
12.5%
|
-0.7%
|
16.2%
|
-6.4%
|
$10.00
|
$10.47
|
4.7%
|
$10.60
|
6.0%
|
$10.97
|
9.7%
|
$10.97
|
9.7%
|
|
Medians
- Second Step Conversions:
|
$ 2,224
|
12.00%
|
1.62%
|
121%
|
$ 253.9
|
59%
|
92%
|
15.1%
|
N.A.
|
N.A.
|
5.5%
|
3.5%
|
10.0%
|
3.7%
|
0.00%
|
75.5%
|
57.9x
|
12.5%
|
-0.7%
|
16.2%
|
-6.4%
|
$10.00
|
$10.47
|
4.7%
|
$10.60
|
6.0%
|
$10.97
|
9.7%
|
$10.97
|
9.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
- All Conversions:
|
$ 1,092
|
11.38%
|
1.75%
|
107%
|
$ 131.9
|
83%
|
110%
|
10.1%
|
N.A.
|
N.A.
|
7.0%
|
3.8%
|
10.0%
|
5.1%
|
0.00%
|
67.7%
|
61.2x
|
12.5%
|
-0.6%
|
18.4%
|
-4.2%
|
$10.00
|
$11.01
|
10.1%
|
$11.26
|
12.6%
|
$11.40
|
14.0%
|
$11.45
|
14.5%
|
|
Medians
- All Conversions:
|
$ 136
|
10.39%
|
1.70%
|
115%
|
$ 21.2
|
100%
|
103%
|
5.0%
|
N.A.
|
N.A.
|
8.0%
|
4.0%
|
10.0%
|
2.7%
|
0.00%
|
62.8%
|
61.2x
|
13.8%
|
-0.5%
|
20.0%
|
-3.4%
|
$10.00
|
$10.82
|
8.2%
|
$10.75
|
7.5%
|
$11.54
|
15.4%
|
$11.54
|
15.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: *
- Appraisal performed by RP Financial; BOLD = RP Fin. Did the business plan, "NT" - Not Traded; "NA" -
Not Applicable, Not Available; C/S-Cash/Stock.
|
|
(1) As a percent
of MHC offering for MHC transactions.
|
(5) Mutual holding company pro forma data on full
conversion basis.
|
|
|
(2) Does not
take into account the adoption of SOP 93-6.
|
(6) Simultaneously completed acquisition of another
financial institution.
|
|
|
(3) Latest price
if offering is less than one week old.
|
(7) Simultaneously converted to a commercial bank
charter.
|
|
|
(4) Latest
price if offering is more than one week but less than one month old.
|
(8) Former credit union.
|
February
13, 2015
|
|
|
|
|
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.16
|
Table 4.3
Market Pricing Comparatives
Prices As of February 13, 2015
|
|
|
|
|
Market
|
|
Per
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
Core
|
|
Book
|
|
|
|
|
|
|
|
|
|
|
|
Dividends(3)
|
|
Financial
Characteristics(5)
|
|
|
|
|
|
Price/
|
|
Market
|
|
12 Month
|
|
Value/
|
|
Pricing
Ratios(2)
|
|
Amount/
|
|
|
|
Payout
|
|
Total
|
|
Equity/
|
|
Tang Eq/
|
|
NPAs/
|
|
Reported
|
|
Core
|
|
Financial
Institution
|
|
|
|
Share
|
|
Value
|
|
EPS(1)
|
|
Share
|
|
P/E
|
|
P/B
|
|
P/A
|
|
P/TB
|
|
P/Core
|
|
Share
|
|
Yield
|
|
Ratio(4)
|
|
Assets
|
|
Assets
|
|
Assets
|
|
Assets
|
|
ROA
|
|
ROE
|
|
ROA
|
|
ROE
|
|
|
|
|
|
($)
|
|
($Mil)
|
|
($)
|
|
($)
|
|
(x)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(x)
|
|
($)
|
|
(%)
|
|
(%)
|
|
($Mil)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Non-MHC
Public Companies
|
|
|
|
$16.85
|
|
$452.30
|
|
$0.94
|
|
$15.74
|
|
17.62x
|
|
105.51%
|
|
13.62%
|
|
113.74%
|
|
16.76x
|
|
$0.30
|
|
1.81%
|
|
50.20%
|
|
$3,166
|
|
13.47%
|
|
12.90%
|
|
1.95%
|
|
0.67%
|
|
5.64%
|
|
0.71%
|
|
5.74%
|
|
Converted
Last 3 Months (no MHC)
|
|
|
|
$12.04
|
|
$559.33
|
|
$0.16
|
|
$13.60
|
|
NM
|
|
88.54%
|
|
19.09%
|
|
94.66%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$2,854
|
|
21.56%
|
|
20.49%
|
|
0.83%
|
|
0.28%
|
|
1.29%
|
|
0.26%
|
|
1.21%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Converted
Last 3 Months (no MHC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BNCL
|
Beneficial
Bancorp, Inc.
|
|
PA
|
|
$11.54
|
|
$954.50
|
|
$0.17
|
|
$12.89
|
|
NM
|
|
89.53%
|
|
19.82%
|
|
101.76%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$4,814
|
|
22.14%
|
|
20.01%
|
|
0.86%
|
|
0.32%
|
|
1.44%
|
|
0.30%
|
|
1.34%
|
|
FNWB
|
First Northwest
Bancorp
|
|
WA
|
|
$12.53
|
|
$164.15
|
|
$0.15
|
|
$14.31
|
|
NM
|
|
87.56%
|
|
18.37%
|
|
87.56%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$894
|
|
20.98%
|
|
20.97%
|
|
0.80%
|
|
0.24%
|
|
1.15%
|
|
0.23%
|
|
1.08%
|
|
|
(1)
|
Core income, on a diluted per-share basis. Core income
is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the
sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
|
|
|
(2)
|
P/E = Price to earnings; P/B = Price to book; P/A = Price
to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative
or above 35x.
|
|
|
(3)
|
Indicated 12 month dividend, based on last quarterly dividend
declared.
|
|
|
(4)
|
Indicated 12 month dividend as a percent of trailing 12
month earnings.
|
|
|
(5)
|
ROAA (return on average assets) and ROAE (return on average
equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.
|
|
|
(6)
|
Excludes from averages and medians those companies the
subject of actual or rumored acquisition activities or unusual operating characteristics.
|
Source: SNL Financial,
LC. and RP
®
Financial, LC. calculations. The information provided in this report has been obtained from sources
we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP
®
Financial, LC.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.17
|
|
|
C.
|
The Acquisition Market
|
Also considered in the valuation
was the potential impact on Provident Bancorp’s stock price of recently completed and pending acquisitions of other savings
institutions operating in Massachusetts. As shown in Exhibit IV-4, there were twelve Massachusetts thrift acquisitions completed
from the beginning of 2011 through year-to-date 2015, and there are currently two acquisition pending for a Massachusetts savings
institution. To the extent that speculation of a re-mutualization may impact the Company’s valuation, we have largely taken
this into account in selecting companies for the Peer Group which operate in markets that have experienced a comparable level of
acquisition activity as the Company’s market and, thus, are subject to the same type of acquisition speculation that may
influence Provident Bancorp’s stock. However, since converting thrifts are subject to a three-year regulatory moratorium
from being acquired, acquisition speculation in Provident Bancorp’s stock would tend to be less compared to the stocks of
the Peer Group companies. Furthermore, in comparison to the stocks of the fully-converted Peer Group companies, the degree of acquisition
speculation in the Company’s stock is also viewed to be relatively more limited since there are fewer potential acquirers
for the Company’s stock as a re-mutualization transaction can only be completed by a mutual institution or an institution
in the MHC form of ownership. Additionally, there tends to be less acquisition speculation in the stocks of publicly-traded MHCs
in general, given the majority of the shares are held by the MHC rather than public shareholders which own 100% of the stocks of
the fully-converted Peer Group companies. Accordingly, the Peer Group companies are considered to be subject to a greater degree
of acquisition speculation relative to the acquisition speculation that may influence Provident Bancorp’s trading price.
* * * * * * * * * * *
In determining our valuation adjustment
for marketing of the issue, we considered trends in both the overall thrift market, the new issue market including the new issue
market for MHC shares and the local acquisition market for thrift stocks. Taking these factors and trends into account, RP Financial
concluded that a slight downward adjustment was appropriate in the valuation analysis for purposes of marketing of the issue.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.18
|
Provident Bancorp’s management
team appears to have experience and expertise in all of the key areas of the Company’s operations. Exhibit IV-5 provides
summary resumes of Provident Bancorp’s Board of Directors and senior management. The financial characteristics of the Company
suggest that the Board and senior management have been effective in implementing an operating strategy that can be well managed
by the Company’s present organizational structure. The Company currently does not have any senior management positions that
are vacant.
Similarly, the returns, capital
positions and other operating measures of the Peer Group companies are indicative of well-managed financial institutions, which
have Boards and management teams that have been effective in implementing competitive operating strategies. Therefore, on balance,
we concluded no valuation adjustment relative to the Peer Group was appropriate for this factor.
|
|
9.
|
Effect of Government Regulation and Regulatory Reform
|
In summary, as a federally-insured
savings institution operating in the MHC form of ownership, Provident Bancorp will be operating in substantially the same regulatory
environment as the Peer Group members -- all of whom are adequately capitalized institutions and the substantial majority
are operating with no apparent restrictions. Exhibit IV-6 reflects the Company’s pro forma regulatory capital ratios. Accordingly,
no adjustment has been applied for the effect of government regulation and regulatory reform.
Summary of Adjustments
Overall, based on the factors
discussed above, we concluded that the Company’s pro forma market value should reflect the following valuation adjustments
relative to the Peer Group:
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.19
|
|
Key Valuation Parameters
:
|
Valuation Adjustment
|
|
|
|
|
Financial Condition
|
No Adjustment
|
|
Profitability, Growth and Viability of Earnings
|
Slight Upward
|
|
Asset Growth
|
Slight Upward
|
|
Primary Market Area
|
Slight Upward
|
|
Dividends
|
Slight Downward
|
|
Liquidity of the Shares
|
No Adjustment
|
|
Marketing of the Issue
|
Slight Downward
|
|
Management
|
No Adjustment
|
|
Effect of Government Regulations and Regulatory Reform
|
No Adjustment
|
Valuation Approaches:
Fully-Converted Basis
In applying the accepted
valuation methodology promulgated by the FRB and the Commissioner, i.e., the pro forma market value approach, we considered
the three key pricing ratios in valuing Provident Bancorp’s to-be-issued stock -- price/earnings ("P/E"),
price/book ("P/B"), and price/assets ("P/A") approaches -- all performed on a pro forma basis
including the effects of the stock proceeds. In computing the pro forma impact of the conversion and the related pricing
ratios, we have incorporated the valuation parameters disclosed in Provident Bancorp’s prospectus for reinvestment
rate, effective tax rate, stock benefit plan assumptions, the Foundation and offering expenses (summarized in Exhibits IV-9
and IV-10). The assumptions utilized in the pro forma analysis in calculating the Company’s full conversion value were
consistent with the assumptions utilized for the minority stock offering, except expenses were assumed to equal 3.0% of gross
proceeds (summarized in Exhibits IV-7 and IV-8).
In our estimate of value, we
assessed the relationship of the pro forma pricing ratios relative to the Peer Group, recent conversions and publicly-traded MHCs
on a fully-converted basis.
RP Financial's valuation placed
an emphasis on the following:
|
|
·
|
P/E Approach
. The P/E approach is generally
the best indicator of long-term value for a stock. Given the similarities between the Company’s and the Peer Group's earnings
composition and overall financial condition, the P/E approach was carefully considered in this valuation. At the same time, recognizing
that (1) the earnings multiples will be evaluated on a pro forma fully-converted basis for the Company; and (2) the Peer Group
on average has had the opportunity to realize the benefit of reinvesting net conversion proceeds, we also gave weight to the other
valuation approaches.
|
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.20
|
|
|
·
|
P/B Approach
. P/B ratios have generally served
as a useful benchmark in the valuation of thrift stocks, particularly in the context of an initial public offering, as the earnings
approach involves assumptions regarding the use of proceeds. RP Financial considered the P/B approach to be a valuable indicator
of pro forma value taking into account the pricing ratios under the P/E and P/A approaches. We have also modified the P/B approach
to exclude the impact of intangible assets (i.e., price/tangible book value or “P/TB”), in that the investment community
frequently makes this adjustment in its evaluation of this pricing approach.
|
|
|
·
|
P/A Approach
. P/A ratios are generally a less
reliable indicator of market value, as investors typically assign less weight to assets and attribute greater weight to book value
and earnings. Furthermore, this approach as set forth in the regulatory valuation guidelines does not take into account the amount
of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio. At the same time, the P/A ratio is
an indicator of franchise value, and, in the case of highly capitalized institutions, high P/A ratios may limit the investment
community's willingness to pay market multiples for earnings or book value when ROE is expected to be low.
|
The Company will adopt “Employers’
Accounting for Employee Stock Ownership Plans” (“ASC 718-40”), which will cause earnings per share computations
to be based on shares issued and outstanding excluding unreleased ESOP shares. For purposes of preparing the pro forma pricing
analyses, we have reflected all shares issued in the offering, including all ESOP shares, to capture the full dilutive impact,
particularly since the ESOP shares are economically dilutive, receive dividends and can be voted. However, we did consider the
impact of ASC 718-40 in the valuation.
Based on the application of the
three valuation approaches, taking into consideration the valuation adjustments discussed above and the dilutive impact of the
stock contribution to the Foundation, RP Financial concluded that as of February 13, 2015, the pro forma market value of Provident
Bancorp’s full conversion offering equaled $81,600,000 at the midpoint, equal to 8,160,000 shares at $10.00 per share.
Basis of Valuation
- Fully-Converted Pricing Ratios
1.
Price-to-Earnings
("P/E")
. The application of the P/E valuation method requires calculating the Company’s pro forma market value
by applying a valuation P/E multiple (fully-converted basis) to the pro forma earnings base. In applying this technique, we considered
both reported earnings and a recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus
the estimated after-tax earnings benefit of the reinvestment
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.21
|
of the net proceeds. The Company’s
reported earnings equaled $4.562 million for the twelve months ended December 31, 2014. In deriving Provident Bancorp’s core
earnings, the only adjustment made to reported earnings was to eliminate the gain on sale of securities equal to $428,000. As shown
below, on a tax effected basis, assuming an effective marginal tax rate of 40.0% for the adjustments, the Company’s core
earnings were determined to equal $4.305 million for the twelve months ended December 31, 2014.
|
|
|
Amount
|
|
|
|
|
($000
|
)
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,562
|
|
|
Less: Gain on sale of securities(1)
|
|
|
(257
|
)
|
|
Core earnings estimate
|
|
$
|
4,305
|
|
(1) Tax effected at 40.0%.
Based on Provident Bancorp’s
reported and estimated core earnings and incorporating the impact of the pro forma assumptions discussed previously, the Company’s
pro forma reported and core P/E multiples (fully-converted basis) at the $81.6 million midpoint value equaled 19.16 times and 20.39
times, respectively, which provided for discounts of 9.02% and 7.70% relative to the Peer Group's average reported and core P/E
multiples of 21.06 times and 22.09 times, respectively (see Table 4.4). In comparison to the Peer Group’s median reported
and core earnings multiples which equaled 21.79 times and 22.56 times, respectively, the Company’s pro forma reported and
core P/E multiples (fully-converted basis) at the midpoint value indicated discounts of 12.07% and 9.62%, respectively. The Company’s
pro forma reported P/E ratios (fully-converted basis) at the minimum and the super maximum equaled 16.11 times and 25.93 times,
respectively. The Company’s pro forma core P/E ratios (fully-converted basis) at the minimum and the super maximum equaled
17.14 times and 27.63 times, respectively.
On an MHC reported basis, the Company’s
reported and core P/E multiples at the midpoint value of $81.6 million equaled 18.72 times and 19.90 times, respectively (see Table
4.5). The Company’s reported and core P/E multiples provided for discounts of 11.11% and 9.91% relative to the Peer Group’s
average reported and core P/E multiples of 21.06 times and 22.09 times, respectively. In comparison to the Peer Group’s median
reported and core earnings multiples which equaled 21.79 times and 22.56 times, respectively, the Company’s pro forma reported
and core P/E multiples (MHC basis) at the midpoint value indicated discounts of
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.22
|
Table 4.4
Fully-Converted Market Pricing Versus
Peer Group
Provident Bancorp, Inc. and the
Comparables
As of February 13, 2015
|
|
|
|
|
Market
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
Core
|
|
Book
|
|
|
|
|
|
|
|
|
|
|
|
Dividends(3)
|
|
Financial Characteristics(5)
|
|
|
|
|
|
|
|
Price/
|
|
Market
|
|
12 Month
|
|
Value/
|
|
Pricing Ratios(2)
|
|
Amount/
|
|
|
|
Payout
|
|
Total
|
|
Comm Eq./
|
|
Comm T. Eq./
|
|
NPAs/
|
|
Reported
|
|
Core
|
|
Offering
|
|
|
|
|
|
Share
|
|
Value
|
|
EPS(1)
|
|
Share
|
|
P/E
|
|
P/B
|
|
P/A
|
|
P/TB
|
|
P/Core
|
|
Share
|
|
Yield
|
|
Ratio(4)
|
|
Assets
|
|
Assets
|
|
T. Assets
|
|
Assets
|
|
ROAA
|
|
ROAE
|
|
ROAA
|
|
ROAE
|
|
Range
|
|
|
|
|
|
($)
|
|
($Mil)
|
|
($)
|
|
($)
|
|
(x)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(x)
|
|
($)
|
|
(%)
|
|
(%)
|
|
($Mil)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
($Mil)
|
|
Provident Bancorp, Inc.
|
|
MA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supermaximum
|
|
|
|
$10.00
|
|
$107.92
|
|
$0.36
|
|
$13.81
|
|
25.93x
|
|
72.41%
|
|
14.41%
|
|
72.41%
|
|
27.63x
|
|
$0.00
|
|
0.00%
|
|
0.00%
|
|
$749
|
|
19.90%
|
|
19.90%
|
|
0.76%
|
|
0.56%
|
|
2.79%
|
|
0.52%
|
|
2.62%
|
|
$105.80
|
|
Maximum
|
|
|
|
$10.00
|
|
$93.84
|
|
$0.42
|
|
$14.62
|
|
22.27x
|
|
68.40%
|
|
12.73%
|
|
68.40%
|
|
23.71x
|
|
$0.00
|
|
0.00%
|
|
0.00%
|
|
$737
|
|
18.61%
|
|
18.61%
|
|
0.77%
|
|
0.57%
|
|
3.07%
|
|
0.54%
|
|
2.88%
|
|
$92.00
|
|
Midpoint
|
|
|
|
$10.00
|
|
$81.60
|
|
$0.49
|
|
$15.56
|
|
19.16x
|
|
64.27%
|
|
11.23%
|
|
64.27%
|
|
20.39x
|
|
$0.00
|
|
0.00%
|
|
0.00%
|
|
$727
|
|
17.46%
|
|
17.46%
|
|
0.78%
|
|
0.59%
|
|
3.36%
|
|
0.55%
|
|
3.15%
|
|
$80.00
|
|
Minimum
|
|
|
|
$10.00
|
|
$69.36
|
|
$0.58
|
|
$16.82
|
|
16.11x
|
|
59.45%
|
|
9.68%
|
|
59.45%
|
|
17.14x
|
|
$0.00
|
|
0.00%
|
|
0.00%
|
|
$717
|
|
16.28%
|
|
16.28%
|
|
0.79%
|
|
0.60%
|
|
3.69%
|
|
0.56%
|
|
3.47%
|
|
$68.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Non-MHC Public Companies(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
$16.85
|
|
$452.30
|
|
$0.94
|
|
$15.74
|
|
17.62x
|
|
105.51%
|
|
13.62%
|
|
113.74%
|
|
16.76x
|
|
$0.30
|
|
1.81%
|
|
50.20%
|
|
$3,166
|
|
13.19%
|
|
12.59%
|
|
1.95%
|
|
0.67%
|
|
5.64%
|
|
0.71%
|
|
5.74%
|
|
|
|
Median
|
|
|
|
$13.99
|
|
$113.69
|
|
$0.81
|
|
$14.54
|
|
15.53x
|
|
98.79%
|
|
12.81%
|
|
101.92%
|
|
15.21x
|
|
$0.24
|
|
1.49%
|
|
41.38%
|
|
$980
|
|
12.42%
|
|
11.24%
|
|
1.42%
|
|
0.67%
|
|
5.29%
|
|
0.71%
|
|
5.14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Non-MHC State of MA(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
$22.84
|
|
$193.77
|
|
$1.28
|
|
$19.33
|
|
20.91x
|
|
107.46%
|
|
14.29%
|
|
108.11%
|
|
19.46x
|
|
$0.20
|
|
0.68%
|
|
25.70%
|
|
$1,219
|
|
13.81%
|
|
13.71%
|
|
0.82%
|
|
0.46%
|
|
4.64%
|
|
0.45%
|
|
4.29%
|
|
|
|
Medians
|
|
|
|
$16.33
|
|
$138.80
|
|
$0.34
|
|
$15.57
|
|
21.79x
|
|
97.65%
|
|
12.01%
|
|
97.65%
|
|
21.60x
|
|
$0.10
|
|
0.53%
|
|
20.06%
|
|
$1,320
|
|
11.33%
|
|
11.33%
|
|
0.67%
|
|
0.36%
|
|
3.71%
|
|
0.36%
|
|
3.68%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of MA(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BHBK
|
Blue Hills Bancorp, Inc.
|
|
MA
|
|
$12.97
|
|
$369.21
|
|
$0.16
|
|
$14.46
|
|
NM
|
|
89.70%
|
|
21.36%
|
|
92.72%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$1,728
|
|
23.82%
|
|
23.22%
|
|
0.27%
|
|
-0.01%
|
|
-0.07%
|
|
0.26%
|
|
1.47%
|
|
|
|
BLMT
|
BSB Bancorp, Inc.
|
|
MA
|
|
$18.88
|
|
$171.20
|
|
$0.49
|
|
$15.11
|
|
NM
|
|
124.95%
|
|
12.01%
|
|
124.95%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$1,426
|
|
9.61%
|
|
9.61%
|
|
0.73%
|
|
0.35%
|
|
3.24%
|
|
0.35%
|
|
3.24%
|
|
|
|
CBNK
|
Chicopee Bancorp, Inc.
|
|
MA
|
|
$16.33
|
|
$86.06
|
|
($0.11)
|
|
$16.72
|
|
NM
|
|
97.65%
|
|
13.46%
|
|
97.65%
|
|
NM
|
|
$0.28
|
|
1.71%
|
|
NM
|
|
$639
|
|
13.79%
|
|
13.79%
|
|
1.92%
|
|
-0.10%
|
|
-0.64%
|
|
-0.10%
|
|
-0.66%
|
|
|
|
GTWN
|
Georgetown Bancorp, Inc.
|
|
MA
|
|
$17.55
|
|
$32.07
|
|
$0.85
|
|
$16.81
|
|
20.65x
|
|
104.41%
|
|
11.83%
|
|
104.41%
|
|
20.65x
|
|
$0.17
|
|
0.97%
|
|
20.00%
|
|
$271
|
|
11.33%
|
|
11.33%
|
|
0.59%
|
|
0.55%
|
|
5.04%
|
|
0.55%
|
|
5.04%
|
|
|
|
HIFS
|
Hingham Institution for Savings
|
|
MA
|
|
$87.30
|
|
$185.84
|
|
$8.52
|
|
$57.08
|
|
8.36x
|
|
152.94%
|
|
11.97%
|
|
152.94%
|
|
10.25x
|
|
$1.12
|
|
1.28%
|
|
20.11%
|
|
$1,552
|
|
7.83%
|
|
7.83%
|
|
0.40%
|
|
1.52%
|
|
19.30%
|
|
1.24%
|
|
15.75%
|
|
|
|
MELR
|
Melrose Bancorp, Inc.
|
|
MA
|
|
$13.99
|
|
$39.59
|
|
$0.21
|
|
$15.57
|
|
NM
|
|
89.85%
|
|
18.23%
|
|
89.85%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$217
|
|
20.28%
|
|
20.28%
|
|
0.43%
|
|
0.28%
|
|
1.36%
|
|
0.28%
|
|
1.36%
|
|
|
|
EBSB
|
Meridian Bancorp, Inc.
|
|
MA
|
|
$12.34
|
|
$675.10
|
|
$0.34
|
|
$10.56
|
|
29.38x
|
|
116.86%
|
|
20.59%
|
|
119.69%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$3,279
|
|
17.62%
|
|
17.28%
|
|
1.43%
|
|
0.75%
|
|
5.69%
|
|
0.61%
|
|
4.65%
|
|
|
|
WEBK
|
Wellesley Bancorp, Inc.
|
|
MA
|
|
$18.75
|
|
$46.10
|
|
$0.77
|
|
$20.07
|
|
24.35x
|
|
93.42%
|
|
8.62%
|
|
93.42%
|
|
24.40x
|
|
$0.10
|
|
0.53%
|
|
9.74%
|
|
$535
|
|
9.22%
|
|
9.22%
|
|
0.94%
|
|
0.36%
|
|
3.71%
|
|
0.36%
|
|
3.68%
|
|
|
|
WFD
|
Westfield Financial, Inc.
|
|
MA
|
|
$7.41
|
|
$138.80
|
|
$0.33
|
|
$7.61
|
|
21.79x
|
|
97.37%
|
|
10.51%
|
|
97.37%
|
|
22.56x
|
|
$0.12
|
|
1.62%
|
|
52.94%
|
|
$1,320
|
|
10.80%
|
|
10.80%
|
|
0.67%
|
|
0.48%
|
|
4.18%
|
|
0.46%
|
|
4.04%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
$13.32
|
|
$117.11
|
|
$0.51
|
|
$13.81
|
|
21.06x
|
|
96.30%
|
|
12.42%
|
|
103.37%
|
|
22.09x
|
|
$0.21
|
|
1.61%
|
|
44.74%
|
|
$976
|
|
13.00%
|
|
12.34%
|
|
0.90%
|
|
0.46%
|
|
3.70%
|
|
0.44%
|
|
3.53%
|
|
|
|
Medians
|
|
|
|
$12.73
|
|
$107.45
|
|
$0.51
|
|
$13.66
|
|
21.79x
|
|
94.89%
|
|
11.14%
|
|
100.47%
|
|
22.56x
|
|
$0.14
|
|
1.52%
|
|
42.17%
|
|
$1,052
|
|
11.84%
|
|
10.62%
|
|
0.85%
|
|
0.42%
|
|
3.94%
|
|
0.41%
|
|
3.86%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT
|
BSB Bancorp, Inc.
|
|
MA
|
|
$18.88
|
|
$171.20
|
|
$0.49
|
|
$15.11
|
|
NM
|
|
124.95%
|
|
12.01%
|
|
124.95%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$1,426
|
|
9.61%
|
|
9.61%
|
|
0.73%
|
|
0.35%
|
|
3.24%
|
|
0.35%
|
|
3.24%
|
|
|
|
CBNJ
|
Cape Bancorp, Inc.
|
|
NJ
|
|
$8.82
|
|
$101.21
|
|
$0.53
|
|
$12.28
|
|
14.46x
|
|
71.84%
|
|
9.37%
|
|
85.68%
|
|
16.78x
|
|
$0.24
|
|
2.72%
|
|
39.34%
|
|
$1,080
|
|
13.05%
|
|
11.17%
|
|
1.65%
|
|
0.62%
|
|
4.80%
|
|
0.54%
|
|
4.14%
|
|
|
|
FXCB
|
Fox Chase Bancorp, Inc.
|
|
PA
|
|
$16.31
|
|
$192.50
|
|
$0.71
|
|
$14.90
|
|
22.97x
|
|
109.43%
|
|
17.59%
|
|
109.43%
|
|
22.97x
|
|
$0.56
|
|
3.43%
|
|
84.51%
|
|
$1,095
|
|
16.07%
|
|
16.07%
|
|
0.90%
|
|
0.76%
|
|
4.63%
|
|
0.76%
|
|
4.63%
|
|
|
|
MLVF
|
Malvern Bancorp, Inc.
|
|
PA
|
|
$12.30
|
|
$80.67
|
|
$0.08
|
|
$11.88
|
|
NM
|
|
103.57%
|
|
13.37%
|
|
103.57%
|
|
NM
|
|
$0.11
|
|
0.00%
|
|
NM
|
|
$603
|
|
12.91%
|
|
12.91%
|
|
0.80%
|
|
0.10%
|
|
0.76%
|
|
0.09%
|
|
0.71%
|
|
|
|
OSHC
|
Ocean Shore Holding Co.
|
|
NJ
|
|
$14.07
|
|
$89.95
|
|
$1.02
|
|
$16.55
|
|
14.36x
|
|
85.01%
|
|
8.78%
|
|
91.08%
|
|
13.81x
|
|
$0.24
|
|
1.71%
|
|
24.49%
|
|
$1,025
|
|
10.33%
|
|
9.87%
|
|
0.95%
|
|
0.61%
|
|
5.90%
|
|
0.61%
|
|
5.90%
|
|
|
|
ONFC
|
Oneida Financial Corp.
|
|
NY
|
|
$13.15
|
|
$92.35
|
|
$0.69
|
|
$13.65
|
|
18.01x
|
|
96.36%
|
|
11.57%
|
|
134.82%
|
|
19.12x
|
|
$0.48
|
|
3.65%
|
|
65.75%
|
|
$798
|
|
12.00%
|
|
9.00%
|
|
0.17%
|
|
0.66%
|
|
5.44%
|
|
0.62%
|
|
5.14%
|
|
|
|
PBIP
|
Prudential Bancorp, Inc.
|
|
PA
|
|
$12.22
|
|
$113.69
|
|
$0.17
|
|
$13.68
|
|
NM
|
|
89.33%
|
|
21.72%
|
|
89.33%
|
|
NM
|
|
$0.12
|
|
0.98%
|
|
45.00%
|
|
$527
|
|
24.31%
|
|
24.31%
|
|
1.46%
|
|
0.37%
|
|
1.51%
|
|
0.32%
|
|
1.30%
|
|
|
|
SIFI
|
SI Financial Group, Inc.
|
|
CT
|
|
$11.32
|
|
$144.67
|
|
$0.32
|
|
$12.35
|
|
31.44x
|
|
91.66%
|
|
10.71%
|
|
103.99%
|
|
34.98x
|
|
$0.16
|
|
1.41%
|
|
36.11%
|
|
$1,351
|
|
11.68%
|
|
10.44%
|
|
0.71%
|
|
0.33%
|
|
2.82%
|
|
0.30%
|
|
2.56%
|
|
|
|
WEBK
|
Wellesley Bancorp, Inc.
|
|
MA
|
|
$18.75
|
|
$46.10
|
|
$0.77
|
|
$20.07
|
|
24.35x
|
|
93.42%
|
|
8.62%
|
|
93.42%
|
|
24.40x
|
|
$0.10
|
|
0.53%
|
|
9.74%
|
|
$535
|
|
9.22%
|
|
9.22%
|
|
0.94%
|
|
0.36%
|
|
3.71%
|
|
0.36%
|
|
3.68%
|
|
|
|
WFD
|
Westfield Financial, Inc.
|
|
MA
|
|
$7.41
|
|
$138.80
|
|
$0.33
|
|
$7.61
|
|
21.79x
|
|
97.37%
|
|
10.51%
|
|
97.37%
|
|
22.56x
|
|
$0.12
|
|
1.62%
|
|
52.94%
|
|
$1,320
|
|
10.80%
|
|
10.80%
|
|
0.67%
|
|
0.48%
|
|
4.18%
|
|
0.46%
|
|
4.04%
|
|
|
|
|
(1)
|
Core income, on a diluted per-share basis. Core income
is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the
sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
|
|
|
(2)
|
P/E = Price to earnings; P/B = Price to book; P/A = Price
to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative
or above 35x.
|
|
|
(3)
|
Indicated 12 month dividend, based on last quarterly dividend
declared.
|
|
|
(4)
|
Indicated 12 month dividend as a percent of trailing 12
month earnings.
|
|
|
(5)
|
Equity and tangible equity equal common equity and tangible
common equity, respectively. ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on
trailing 12 month earnings and average equity and assets balances.
|
|
|
(6)
|
Excludes from averages and medians those companies the
subject of actual or rumored acquisition activities or unusual operating characteristics.
|
Source: SNL
Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe
are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP® Financial,
LC.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.23
|
Table 4.5
MHC Market Pricing Versus Peer Group
Provident Bancorp, Inc. and the
Comparables
As of February 13, 2015
|
|
|
|
|
Market
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
Core
|
|
Book
|
|
|
|
|
|
|
|
|
|
|
|
Dividends(3)
|
|
Financial Characteristics(5)
|
|
|
|
|
|
|
|
Price/
|
|
Market
|
|
12 Month
|
|
Value/
|
|
Pricing Ratios(2)
|
|
Amount/
|
|
|
|
Payout
|
|
Total
|
|
Comm Eq./
|
|
Comm T. Eq./
|
|
NPAs/
|
|
Reported
|
|
Core
|
|
Offering
|
|
|
|
|
|
Share
|
|
Value
|
|
EPS(1)
|
|
Share
|
|
P/E
|
|
P/B
|
|
P/A
|
|
P/TB
|
|
P/Core
|
|
Share
|
|
Yield
|
|
Ratio(4)
|
|
Assets
|
|
Assets
|
|
T. Assets
|
|
Assets
|
|
ROAA
|
|
ROAE
|
|
ROAA
|
|
ROAE
|
|
Range
|
|
|
|
|
|
($)
|
|
($Mil)
|
|
($)
|
|
($)
|
|
(x)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(x)
|
|
($)
|
|
(%)
|
|
(%)
|
|
($Mil)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
($Mil)
|
|
Provident Bancorp,
Inc.
|
|
MA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supermaximum
|
|
|
|
$10.00
|
|
$107.92
|
|
$0.37
|
|
$9.26
|
|
25.11x
|
|
107.99%
|
|
15.42%
|
|
107.99%
|
|
26.71x
|
|
$0.00
|
|
0.00%
|
|
0.00%
|
|
$700
|
|
14.28%
|
|
14.28%
|
|
0.81%
|
|
0.61%
|
|
4.30%
|
|
0.58%
|
|
4.04%
|
|
$48.56
|
|
Maximum
|
|
|
|
$10.00
|
|
$93.84
|
|
$0.43
|
|
$10.05
|
|
21.67x
|
|
99.50%
|
|
13.52%
|
|
99.50%
|
|
23.04x
|
|
$0.00
|
|
0.00%
|
|
0.00%
|
|
$694
|
|
13.59%
|
|
13.59%
|
|
0.81%
|
|
0.62%
|
|
4.59%
|
|
0.59%
|
|
4.32%
|
|
$42.23
|
|
Midpoint
|
|
|
|
$10.00
|
|
$81.60
|
|
$0.50
|
|
$10.97
|
|
18.72x
|
|
91.16%
|
|
11.84%
|
|
91.16%
|
|
19.90x
|
|
$0.00
|
|
0.00%
|
|
0.00%
|
|
$689
|
|
12.98%
|
|
12.98%
|
|
0.82%
|
|
0.63%
|
|
4.87%
|
|
0.59%
|
|
4.58%
|
|
$36.72
|
|
Minimum
|
|
|
|
$10.00
|
|
$69.36
|
|
$0.60
|
|
$12.20
|
|
15.81x
|
|
81.97%
|
|
10.13%
|
|
81.97%
|
|
16.80x
|
|
$0.00
|
|
0.00%
|
|
0.00%
|
|
$685
|
|
12.36%
|
|
12.36%
|
|
0.83%
|
|
0.64%
|
|
5.18%
|
|
0.60%
|
|
4.88%
|
|
$31.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Non-MHC Public
Companies(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
$16.85
|
|
$452.30
|
|
$0.94
|
|
$15.74
|
|
17.62x
|
|
105.51%
|
|
13.62%
|
|
113.74%
|
|
16.76x
|
|
$0.30
|
|
1.81%
|
|
50.20%
|
|
$3,166
|
|
13.19%
|
|
12.59%
|
|
1.95%
|
|
0.67%
|
|
5.64%
|
|
0.71%
|
|
5.74%
|
|
|
|
Median
|
|
|
|
$13.99
|
|
$113.69
|
|
$0.81
|
|
$14.54
|
|
15.53x
|
|
98.79%
|
|
12.81%
|
|
101.92%
|
|
15.21x
|
|
$0.24
|
|
1.49%
|
|
41.38%
|
|
$980
|
|
12.42%
|
|
11.24%
|
|
1.42%
|
|
0.67%
|
|
5.29%
|
|
0.71%
|
|
5.14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Non-MHC State of
MA(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
$22.84
|
|
$193.77
|
|
$1.28
|
|
$19.33
|
|
20.91x
|
|
107.46%
|
|
14.29%
|
|
108.11%
|
|
19.46x
|
|
$0.20
|
|
0.68%
|
|
25.70%
|
|
$1,219
|
|
13.81%
|
|
13.71%
|
|
0.82%
|
|
0.46%
|
|
4.64%
|
|
0.45%
|
|
4.29%
|
|
|
|
Medians
|
|
|
|
$16.33
|
|
$138.80
|
|
$0.34
|
|
$15.57
|
|
21.79x
|
|
97.65%
|
|
12.01%
|
|
97.65%
|
|
21.60x
|
|
$0.10
|
|
0.53%
|
|
20.06%
|
|
$1,320
|
|
11.33%
|
|
11.33%
|
|
0.67%
|
|
0.36%
|
|
3.71%
|
|
0.36%
|
|
3.68%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of MA(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BHBK
|
Blue Hills Bancorp, Inc.
|
|
MA
|
|
$12.97
|
|
$369.21
|
|
$0.16
|
|
$14.46
|
|
NM
|
|
89.70%
|
|
21.36%
|
|
92.72%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$1,728
|
|
23.82%
|
|
23.22%
|
|
0.27%
|
|
-0.01%
|
|
-0.07%
|
|
0.26%
|
|
1.47%
|
|
|
|
BLMT
|
BSB Bancorp, Inc.
|
|
MA
|
|
$18.88
|
|
$171.20
|
|
$0.49
|
|
$15.11
|
|
NM
|
|
124.95%
|
|
12.01%
|
|
124.95%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$1,426
|
|
9.61%
|
|
9.61%
|
|
0.73%
|
|
0.35%
|
|
3.24%
|
|
0.35%
|
|
3.24%
|
|
|
|
CBNK
|
Chicopee Bancorp, Inc.
|
|
MA
|
|
$16.33
|
|
$86.06
|
|
($0.11)
|
|
$16.72
|
|
NM
|
|
97.65%
|
|
13.46%
|
|
97.65%
|
|
NM
|
|
$0.28
|
|
1.71%
|
|
NM
|
|
$639
|
|
13.79%
|
|
13.79%
|
|
1.92%
|
|
-0.10%
|
|
-0.64%
|
|
-0.10%
|
|
-0.66%
|
|
|
|
GTWN
|
Georgetown Bancorp, Inc.
|
|
MA
|
|
$17.55
|
|
$32.07
|
|
$0.85
|
|
$16.81
|
|
20.65x
|
|
104.41%
|
|
11.83%
|
|
104.41%
|
|
20.65x
|
|
$0.17
|
|
0.97%
|
|
20.00%
|
|
$271
|
|
11.33%
|
|
11.33%
|
|
0.59%
|
|
0.55%
|
|
5.04%
|
|
0.55%
|
|
5.04%
|
|
|
|
HIFS
|
Hingham Institution for Savings
|
|
MA
|
|
$87.30
|
|
$185.84
|
|
$8.52
|
|
$57.08
|
|
8.36x
|
|
152.94%
|
|
11.97%
|
|
152.94%
|
|
10.25x
|
|
$1.12
|
|
1.28%
|
|
20.11%
|
|
$1,552
|
|
7.83%
|
|
7.83%
|
|
0.40%
|
|
1.52%
|
|
19.30%
|
|
1.24%
|
|
15.75%
|
|
|
|
MELR
|
Melrose Bancorp, Inc.
|
|
MA
|
|
$13.99
|
|
$39.59
|
|
$0.21
|
|
$15.57
|
|
NM
|
|
89.85%
|
|
18.23%
|
|
89.85%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$217
|
|
20.28%
|
|
20.28%
|
|
0.43%
|
|
0.28%
|
|
1.36%
|
|
0.28%
|
|
1.36%
|
|
|
|
EBSB
|
Meridian Bancorp, Inc.
|
|
MA
|
|
$12.34
|
|
$675.10
|
|
$0.34
|
|
$10.56
|
|
29.38x
|
|
116.86%
|
|
20.59%
|
|
119.69%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$3,279
|
|
17.62%
|
|
17.28%
|
|
1.43%
|
|
0.75%
|
|
5.69%
|
|
0.61%
|
|
4.65%
|
|
|
|
WEBK
|
Wellesley Bancorp, Inc.
|
|
MA
|
|
$18.75
|
|
$46.10
|
|
$0.77
|
|
$20.07
|
|
24.35x
|
|
93.42%
|
|
8.62%
|
|
93.42%
|
|
24.40x
|
|
$0.10
|
|
0.53%
|
|
9.74%
|
|
$535
|
|
9.22%
|
|
9.22%
|
|
0.94%
|
|
0.36%
|
|
3.71%
|
|
0.36%
|
|
3.68%
|
|
|
|
WFD
|
Westfield Financial, Inc.
|
|
MA
|
|
$7.41
|
|
$138.80
|
|
$0.33
|
|
$7.61
|
|
21.79x
|
|
97.37%
|
|
10.51%
|
|
97.37%
|
|
22.56x
|
|
$0.12
|
|
1.62%
|
|
52.94%
|
|
$1,320
|
|
10.80%
|
|
10.80%
|
|
0.67%
|
|
0.48%
|
|
4.18%
|
|
0.46%
|
|
4.04%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
|
|
$13.32
|
|
$117.11
|
|
$0.51
|
|
$13.81
|
|
21.06x
|
|
96.30%
|
|
12.42%
|
|
103.37%
|
|
22.09x
|
|
$0.21
|
|
1.61%
|
|
44.74%
|
|
$976
|
|
13.00%
|
|
12.34%
|
|
0.90%
|
|
0.46%
|
|
3.70%
|
|
0.44%
|
|
3.53%
|
|
|
|
Medians
|
|
|
|
$12.73
|
|
$107.45
|
|
$0.51
|
|
$13.66
|
|
21.79x
|
|
94.89%
|
|
11.14%
|
|
100.47%
|
|
22.56x
|
|
$0.14
|
|
1.52%
|
|
42.17%
|
|
$1,052
|
|
11.84%
|
|
10.62%
|
|
0.85%
|
|
0.42%
|
|
3.94%
|
|
0.41%
|
|
3.86%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT
|
BSB Bancorp, Inc.
|
|
MA
|
|
$18.88
|
|
$171.20
|
|
$0.49
|
|
$15.11
|
|
NM
|
|
124.95%
|
|
12.01%
|
|
124.95%
|
|
NM
|
|
$0.00
|
|
0.00%
|
|
NM
|
|
$1,426
|
|
9.61%
|
|
9.61%
|
|
0.73%
|
|
0.35%
|
|
3.24%
|
|
0.35%
|
|
3.24%
|
|
|
|
CBNJ
|
Cape Bancorp, Inc.
|
|
NJ
|
|
$8.82
|
|
$101.21
|
|
$0.53
|
|
$12.28
|
|
14.46x
|
|
71.84%
|
|
9.37%
|
|
85.68%
|
|
16.78x
|
|
$0.24
|
|
2.72%
|
|
39.34%
|
|
$1,080
|
|
13.05%
|
|
11.17%
|
|
1.65%
|
|
0.62%
|
|
4.80%
|
|
0.54%
|
|
4.14%
|
|
|
|
FXCB
|
Fox Chase Bancorp, Inc.
|
|
PA
|
|
$16.31
|
|
$192.50
|
|
$0.71
|
|
$14.90
|
|
22.97x
|
|
109.43%
|
|
17.59%
|
|
109.43%
|
|
22.97x
|
|
$0.56
|
|
3.43%
|
|
84.51%
|
|
$1,095
|
|
16.07%
|
|
16.07%
|
|
0.90%
|
|
0.76%
|
|
4.63%
|
|
0.76%
|
|
4.63%
|
|
|
|
MLVF
|
Malvern Bancorp, Inc.
|
|
PA
|
|
$12.30
|
|
$80.67
|
|
$0.08
|
|
$11.88
|
|
NM
|
|
103.57%
|
|
13.37%
|
|
103.57%
|
|
NM
|
|
$0.11
|
|
0.00%
|
|
NM
|
|
$603
|
|
12.91%
|
|
12.91%
|
|
0.80%
|
|
0.10%
|
|
0.76%
|
|
0.09%
|
|
0.71%
|
|
|
|
OSHC
|
Ocean Shore Holding Co.
|
|
NJ
|
|
$14.07
|
|
$89.95
|
|
$1.02
|
|
$16.55
|
|
14.36x
|
|
85.01%
|
|
8.78%
|
|
91.08%
|
|
13.81x
|
|
$0.24
|
|
1.71%
|
|
24.49%
|
|
$1,025
|
|
10.33%
|
|
9.87%
|
|
0.95%
|
|
0.61%
|
|
5.90%
|
|
0.61%
|
|
5.90%
|
|
|
|
ONFC
|
Oneida Financial Corp.
|
|
NY
|
|
$13.15
|
|
$92.35
|
|
$0.69
|
|
$13.65
|
|
18.01x
|
|
96.36%
|
|
11.57%
|
|
134.82%
|
|
19.12x
|
|
$0.48
|
|
3.65%
|
|
65.75%
|
|
$798
|
|
12.00%
|
|
9.00%
|
|
0.17%
|
|
0.66%
|
|
5.44%
|
|
0.62%
|
|
5.14%
|
|
|
|
PBIP
|
Prudential Bancorp, Inc.
|
|
PA
|
|
$12.22
|
|
$113.69
|
|
$0.17
|
|
$13.68
|
|
NM
|
|
89.33%
|
|
21.72%
|
|
89.33%
|
|
NM
|
|
$0.12
|
|
0.98%
|
|
45.00%
|
|
$527
|
|
24.31%
|
|
24.31%
|
|
1.46%
|
|
0.37%
|
|
1.51%
|
|
0.32%
|
|
1.30%
|
|
|
|
SIFI
|
SI Financial Group, Inc.
|
|
CT
|
|
$11.32
|
|
$144.67
|
|
$0.32
|
|
$12.35
|
|
31.44x
|
|
91.66%
|
|
10.71%
|
|
103.99%
|
|
34.98x
|
|
$0.16
|
|
1.41%
|
|
36.11%
|
|
$1,351
|
|
11.68%
|
|
10.44%
|
|
0.71%
|
|
0.33%
|
|
2.82%
|
|
0.30%
|
|
2.56%
|
|
|
|
WEBK
|
Wellesley Bancorp, Inc.
|
|
MA
|
|
$18.75
|
|
$46.10
|
|
$0.77
|
|
$20.07
|
|
24.35x
|
|
93.42%
|
|
8.62%
|
|
93.42%
|
|
24.40x
|
|
$0.10
|
|
0.53%
|
|
9.74%
|
|
$535
|
|
9.22%
|
|
9.22%
|
|
0.94%
|
|
0.36%
|
|
3.71%
|
|
0.36%
|
|
3.68%
|
|
|
|
WFD
|
Westfield Financial, Inc.
|
|
MA
|
|
$7.41
|
|
$138.80
|
|
$0.33
|
|
$7.61
|
|
21.79x
|
|
97.37%
|
|
10.51%
|
|
97.37%
|
|
22.56x
|
|
$0.12
|
|
1.62%
|
|
52.94%
|
|
$1,320
|
|
10.80%
|
|
10.80%
|
|
0.67%
|
|
0.48%
|
|
4.18%
|
|
0.46%
|
|
4.04%
|
|
|
|
|
(1)
|
Core income, on a diluted per-share basis. Core income
is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the
sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
|
|
|
(2)
|
P/E = Price to earnings; P/B = Price to book; P/A = Price
to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative
or above 35x.
|
|
|
(3)
|
Indicated 12 month dividend, based on last quarterly dividend
declared.
|
|
|
(4)
|
Indicated 12 month dividend as a percent of trailing 12
month earnings.
|
|
|
(5)
|
Equity and tangible equity equal common equity and tangible
common equity, respectively. ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on
trailing 12 month earnings and average equity and assets balances.
|
|
|
(6)
|
Excludes from averages and medians those companies the
subject of actual or rumored acquisition activities or unusual operating characteristics.
|
Source: SNL
Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe
are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP® Financial,
LC.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.24
|
14.09% and 11.79%, respectively. The
Company’s pro forma reported P/E ratios (MHC basis) at the minimum and the super maximum equaled 15.81 times and 25.11 times,
respectively. The Company’s pro forma core P/E ratios (MHC basis) at the minimum and the super maximum equaled 16.80 times
and 26.71 times, respectively.
2.
Price-to-Book
("P/B")
. The application of the P/B valuation method requires calculating the Company’s pro forma market value
by applying a valuation P/B ratio, as derived from the Peer Group’s P/B ratio, to Provident Bancorp’s pro forma book
value (fully-converted basis). Based on the $81.6 million midpoint valuation, Provident Bancorp’s pro forma P/B and P/TB
ratios (fully-converted basis) both equaled 64.27%. In comparison to the average P/B and P/TB ratios for the Peer Group of 96.30%
and 103.37%, respectively, the Company’s ratios reflected a discount of 33.26% on a P/B basis and a discount of 37.83% on
a P/TB basis. In comparison to the Peer Group’s median P/B and P/TB ratios of 94.89% and 100.47%, respectively, the Company’s
pro forma P/B and P/TB ratios (fully-converted basis) at the midpoint value reflected discounts of 32.27% and 36.03%, respectively.
At the top of the super range, the Company’s P/B and P/TB ratios (fully-converted basis) both equaled 72.41%. In comparison
to the Peer Group’s average P/B and P/TB ratios, the Company’s P/B and P/TB ratios at the top of the super range reflected
discounts of 24.81% and 29.95%, respectively. In comparison to the Peer Group’s median P/B and P/TB ratios, the Company’s
P/B and P/TB ratios at the top of the super range reflected discounts of 23.69% and of 27.93%, respectively. RP Financial considered
the discounts under the P/B approach to be reasonable, given the nature of the calculation of the P/B ratio which mathematically
results in a ratio discounted to book value.
On an MHC reported basis, the
Company’s P/B and P/TB ratios at the $81.6 million midpoint value both equaled 91.16%. In comparison to the average P/B and
P/TB ratios indicated for the Peer Group of 96.30% and 103.37%, respectively, Provident Bancorp’s ratios were discounted
by 5.34% on a P/B basis and 11.81% on a P/TB basis. In comparison to the Peer Group’s median P/B and P/TB ratios of 94.89%
and 100.47%, respectively, the Company’s pro forma P/B and P/TB ratios (MHC basis) at the midpoint value reflected discounts
of 3.93% and 9.27%, respectively. At the top of the super range, the Company’s P/B and P/TB ratios (MHC basis) both equaled
107.99%. In comparison to the Peer Group’s average P/B and P/TB ratios, the Company’s P/B and P/TB ratios at the top
of the super range reflected premiums of 12.14% and 4.47%, respectively. In comparison to the Peer Group’s median P/B and
P/TB
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.25
|
ratios, the Company’s P/B
and P/TB ratios at the top of the super range reflected premiums of 13.81% and 7.48%, respectively.
3.
Price-to-Assets
("P/A")
. The P/A valuation methodology determines market value by applying a valuation P/A ratio (fully-converted
basis) to the Company’s pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases.
In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio which is computed herein.
At the $81.6 million midpoint of the valuation range, Provident Bancorp’s pro forma P/A ratio (fully-converted basis) equaled
11.23% of pro forma assets. Comparatively, the Peer Group companies exhibited an average P/A ratio of 12.42%, which implies a discount
of 9.58% has been applied to the Company’s pro forma P/A ratio. In comparison to the Peer Group’s median P/A ratio
of 11.14%, the Company’s pro forma P/A ratio (fully-converted basis) at the midpoint value reflects a premium of 0.81%.
On an MHC reported basis, Provident
Bancorp’s pro forma P/A ratio at the $81.6 million midpoint value equaled 11.84%. In comparison to the Peer Group's average
P/A ratio of 12.42%, Provident Bancorp’s P/A ratio (MHC basis) indicated a discount of 4.67%. In comparison to the Peer Group’s
median P/A ratio of 11.14%, the Company’s pro forma P/A ratio (MHC basis) at the midpoint value reflects a premium of 6.28%.
Comparison to
Publicly-Traded MHCs
As indicated in Chapter III,
we believe there are a number of characteristics of MHC shares that make them different from the shares of fully-converted companies.
These factors include: (1) lower aftermarket liquidity in the MHC shares since less than 50% of the shares are available for trading;
(2) no opportunity for public shareholders to exercise voting control; (3) the potential pro forma impact of second-step conversions
on the pricing of MHC institutions; and (4) the regulatory policies regarding the accounting for net assets held by the MHC in
a second-step conversion and, thereby, lessening the attractiveness of paying cash dividends. The above characteristics of MHC
shares have provided MHC stocks with different trading characteristics versus fully-converted companies. To account for the unique
trading characteristics of MHC shares, RP Financial has placed the financial data and pricing ratios of the publicly-traded MHCs
on a fully-converted basis to make them comparable for valuation purposes. Using the per share and pricing information of the publicly-traded
MHCs on a fully-converted basis
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.26
|
accomplishes a number of objectives.
First, such figures eliminate distortions that result when trying to compare institutions that have different public ownership
interests outstanding. Secondly, such an analysis provides ratios that are comparable to the pricing information of fully-converted
public companies and are directly applicable to determining the pro forma market value range of the 100% ownership interest in
Provident Bancorp as an MHC. This technique is validated by the investment community's evaluation of MHC pricing, which also incorporates
the pro forma impact of a second-step conversion based on the current market price.
To calculate the fully-converted
pricing information for MHCs, the reported financial information for the public MHCs incorporate the following assumptions: (1)
all shares owned by the MHC are assumed to be sold at the current trading price in a second step-conversion; (2) the gross proceeds
from such a sale are adjusted to reflect reasonable offering expenses and standard stock based benefit plan parameters that would
be factored into a second-step conversion of an MHC institution; and (3) net proceeds are assumed to be reinvested at market rates
on a tax effected basis. Book value per share and earnings per share figures for the public MHCs were adjusted by the impact of
the assumed second step-conversion, resulting in an estimation of book value per share and earnings per share figures on a fully-converted
basis. Table 4.6 on the following page shows the calculation of per share financial data (fully-converted basis) for each of the
eight publicly-traded MHC institutions, which have not announced plans to complete a second-step conversion offering.
The table below shows a comparative
pricing analysis of the publicly-traded MHCs on a fully-converted basis versus the Company’s Peer Group. In comparison to
the Peer Group’s P/TB ratio, the P/TB ratio of the publicly-traded MHCs reflected a discount of 24.01%. In comparison to
the Peer Group’s core P/E multiple, the core P/E multiple of the publicly-traded MHCs reflected a premium of 123.49%. Detailed
pricing characteristics of the fully-converted MHCs is shown in Table 4.7.
|
|
Publicly-Traded
|
|
|
|
MHCs
|
Peer Group
|
|
|
|
|
|
Pricing Ratios (Averages)
(1)
|
|
|
|
Core price/earnings (x)
|
49.37x
|
22.09x
|
|
Price/tangible book (%)
|
78.55%
|
103.37%
|
|
Price/assets (%)
|
17.881
|
12.42
|
(1) Based on market prices as
of February 13, 2015.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.27
|
Table 4.6
Calculation of Implied Per Share Data - Incorporating MHC Second Step Conversion
Publicly
Traded MHC Institutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share
|
|
|
|
|
|
Net
|
|
Net
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
Current
Ownership
|
|
TTM
Net Income
|
|
Book
|
|
Tang.
|
|
|
|
Share
|
|
Gross
|
|
Capital
|
|
Income
|
|
Net
Inc./
|
|
Core
Net Inc./
|
|
Bk
Value/
|
|
Tang.
Bk.
|
|
Assets/
|
|
Ticker
|
|
Name
|
|
City
|
|
State
|
|
Exhange
|
|
Public
|
|
MHC
Shares
|
|
Total
Shares
|
|
Reported
|
|
Core
|
|
Value
|
|
Bk
Value
|
|
Assets
|
|
Price
|
|
Proceeds(1)
|
|
Increase(2)
|
|
Increase(3)
|
|
Share
|
|
Share
|
|
Share
|
|
Value/Share
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GCBC
|
|
Greene County Bancorp,
Inc. (MHC)
|
|
Catskill
|
|
NY
|
|
NASDAQ
|
|
1,914,225
|
|
2,304,632
|
|
4,218,857
|
|
$1.57
|
|
$1.60
|
|
$15.28
|
|
$15.28
|
|
$168.87
|
|
$29.50
|
|
$67,986,644
|
|
$57,788,647
|
|
($92,210)
|
|
$1.55
|
|
$1.57
|
|
$28.98
|
|
$28.98
|
|
$182.56
|
|
KFFB
|
|
Kentucky First Federal
Bancorp (MHC)
|
|
Frankfort
|
|
KY
|
|
NASDAQ
|
|
3,729,577
|
|
4,727,938
|
|
8,457,515
|
|
$0.23
|
|
$0.23
|
|
$7.94
|
|
$6.23
|
|
$35.84
|
|
$8.02
|
|
$37,918,536
|
|
$32,230,755
|
|
($51,429)
|
|
$0.22
|
|
$0.22
|
|
$11.76
|
|
$10.04
|
|
$39.65
|
|
LSBK
|
|
Lake Shore Bancorp,
Inc. (MHC)
|
|
Dunkirk
|
|
NY
|
|
NASDAQ
|
|
2,263,125
|
|
3,636,875
|
|
5,900,000
|
|
$0.54
|
|
$0.51
|
|
$12.14
|
|
$12.14
|
|
$82.62
|
|
$13.50
|
|
$49,097,813
|
|
$41,733,141
|
|
($66,591)
|
|
$0.52
|
|
$0.50
|
|
$19.21
|
|
$19.21
|
|
$89.70
|
|
MGYR
|
|
Magyar Bancorp, Inc.
(MHC)
|
|
New Brunswick
|
|
NJ
|
|
NASDAQ
|
|
2,614,994
|
|
3,200,450
|
|
5,815,444
|
|
$0.11
|
|
$0.10
|
|
$7.94
|
|
$7.94
|
|
$90.20
|
|
$8.45
|
|
$27,043,803
|
|
$22,987,232
|
|
($36,680)
|
|
$0.10
|
|
$0.10
|
|
$11.89
|
|
$11.89
|
|
$94.15
|
|
NECB
|
|
NorthEast Community
Bancorp, Inc. (MHC)
|
|
White Plains
|
|
NY
|
|
NASDAQ
|
|
5,102,452
|
|
7,273,750
|
|
12,376,202
|
|
$0.10
|
|
$0.10
|
|
$8.37
|
|
$8.28
|
|
$40.57
|
|
$6.96
|
|
$50,625,300
|
|
$43,031,505
|
|
($68,663)
|
|
$0.09
|
|
$0.10
|
|
$11.85
|
|
$11.76
|
|
$44.04
|
|
OFED
|
|
Oconee Federal Financial
Corp. (MHC)
|
|
Seneca
|
|
SC
|
|
NASDAQ
|
|
1,706,925
|
|
4,127,470
|
|
5,834,395
|
|
$0.65
|
|
$0.58
|
|
$13.27
|
|
$13.27
|
|
$61.21
|
|
$20.41
|
|
$84,241,663
|
|
$71,605,413
|
|
($114,257)
|
|
$0.63
|
|
$0.56
|
|
$25.54
|
|
$25.54
|
|
$73.48
|
|
PSBH
|
|
PSB Holdings, Inc.
(MHC)
|
|
Putnam
|
|
CT
|
|
NASDAQ
|
|
2,811,715
|
|
3,729,846
|
|
6,541,561
|
|
$0.14
|
|
$0.17
|
|
$7.92
|
|
$6.87
|
|
$72.81
|
|
$7.62
|
|
$28,421,427
|
|
$24,158,213
|
|
($38,548)
|
|
$0.14
|
|
$0.16
|
|
$11.61
|
|
$10.56
|
|
$76.51
|
|
TFSL
|
|
TFS Financial Corporation
(MHC)
|
|
Cleveland
|
|
OH
|
|
NASDAQ
|
|
72,027,705
|
|
227,119,132
|
|
299,146,837
|
|
$0.22
|
|
$0.22
|
|
$6.06
|
|
$6.03
|
|
$40.34
|
|
$14.47
|
|
$3,286,413,840
|
|
$2,793,451,764
|
|
($4,457,363)
|
|
$0.21
|
|
$0.21
|
|
$15.40
|
|
$15.37
|
|
$49.68
|
|
|
(1)
|
Gross proceeds calculated as stock price multiplied by
the number of shares owned by the MHC (i.e. non-public shares).
|
|
|
(2)
|
Net increase in capital reflects gross proceeds less offering
expenses, contra-equity account for leveraged ESOP and Restricted Stock Plan. For MHC's with assets at the MHC level, the net
increase in capital also includes consolidation of MHC assets with the capital of the institution concurrent with hypothetical
second step.
|
|
Offering Expense Percent:
|
3.00%
|
|
ESOP Percent Purchase:
|
8.00%
|
|
RRP Percent Purchase:
|
4.00%
|
|
|
(3)
|
Net increase in earnings reflects after-tax reinvestment
income (assumes ESOP and RRP do not generate reinvestment income), less after-tax ESOP amortization and RRP vesting.
|
|
After-Tax Reinvestment Rate:
|
1.17%
|
|
ESOP Loan Term (Yrs.):
|
20
|
|
Recognition Plan Vesting (Yrs.):
|
5
|
|
Effective Tax Rate:
|
34.00%
|
Source: SNL Financial, LC and RP Financial,
LC. calculations.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.28
|
Table 4.7
MHC Institutions, Implied Pricing
Ratios, Full Conversion Basis
Financial Data as of the Most Recent
Quarter or Twelve Month Period Available
Prices as of February 13, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data
|
|
Pricing Ratios
|
|
Dividends
|
|
|
|
|
|
|
|
LTM
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Mkt
|
|
LTM
|
|
LTM
|
|
BV/
|
|
Tang.
|
|
P/E
|
|
P/E Cre
|
|
Price/
|
|
Price/
|
|
Price/
|
|
Ann Div
|
|
Div.
|
|
Div Pay
|
|
Total
|
|
|
|
Tang.
|
|
Reported
|
|
Core
|
|
Ticker
|
|
Company Name
|
|
City
|
|
State
|
|
Exchange
|
|
Price
|
|
Value
|
|
EPS
|
|
Cr EPS
|
|
Shr
|
|
BV/Sh
|
|
LTM
|
|
LTM
|
|
Book
|
|
TBk
|
|
Assts
|
|
Rate
|
|
Yield
|
|
Ratio
|
|
Assets
|
|
E/A
|
|
E/A
|
|
ROAA
|
|
ROAE
|
|
ROAA
|
|
ROAE
|
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
($M)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
(x)
|
|
(x)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
($)
|
|
(%)
|
|
(%)
|
|
($000)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publicly Traded MHCs, Full Conversion Basis - Averages
|
|
13.62
|
|
613.1
|
|
0.43
|
|
0.43
|
|
17.03
|
|
16.67
|
|
49.65
|
|
49.37
|
|
76.20
|
|
78.55
|
|
17.88
|
|
0.29
|
|
2.09
|
|
87.11
|
|
2,314,733
|
|
23.43
|
|
22.68
|
|
0.47
|
|
2.07
|
|
0.46
|
|
2.06
|
|
Publicly Traded MHCs, Full Conversion Basis - Medians
|
|
10.98
|
|
82.9
|
|
0.21
|
|
0.21
|
|
13.65
|
|
13.63
|
|
45.76
|
|
42.04
|
|
70.65
|
|
76.02
|
|
15.98
|
|
0.28
|
|
1.95
|
|
75.25
|
|
537,149
|
|
24.16
|
|
23.37
|
|
0.49
|
|
1.61
|
|
0.48
|
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publicly Traded MHCs, Full Conversion Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GCBC
|
|
Greene County Bancorp, Inc. (MHC)
|
|
Catskill
|
|
NY
|
|
NASDAQ
|
|
29.50
|
|
124.5
|
|
1.55
|
|
1.57
|
|
28.98
|
|
28.98
|
|
19.02
|
|
18.73
|
|
101.80
|
|
101.80
|
|
16.16
|
|
0.72
|
|
2.44
|
|
46.4
|
|
770,211
|
|
15.87
|
|
15.87
|
|
0.85
|
|
5.35
|
|
0.86
|
|
5.43
|
|
KFFB
|
|
Kentucky First Federal Bancorp (MHC)
|
|
Frankfort
|
|
KY
|
|
NASDAQ
|
|
8.02
|
|
67.8
|
|
0.22
|
|
0.22
|
|
11.76
|
|
10.04
|
|
36.54
|
|
36.54
|
|
68.22
|
|
79.88
|
|
20.23
|
|
0.40
|
|
4.99
|
|
182.2
|
|
335,345
|
|
29.65
|
|
25.32
|
|
0.55
|
|
1.87
|
|
0.55
|
|
1.87
|
|
LSBK
|
|
Lake Shore Bancorp, Inc. (MHC)
|
|
Dunkirk
|
|
NY
|
|
NASDAQ
|
|
13.50
|
|
79.7
|
|
0.52
|
|
0.50
|
|
19.21
|
|
19.21
|
|
25.76
|
|
27.10
|
|
70.26
|
|
70.26
|
|
15.05
|
|
0.28
|
|
2.07
|
|
53.4
|
|
529,204
|
|
21.42
|
|
21.42
|
|
0.58
|
|
2.73
|
|
0.56
|
|
2.59
|
|
MGYR
|
|
Magyar Bancorp, Inc. (MHC)
|
|
New Brunswick
|
|
NJ
|
|
NASDAQ
|
|
8.45
|
|
49.1
|
|
0.10
|
|
0.10
|
|
11.89
|
|
11.89
|
|
83.53
|
|
86.31
|
|
71.04
|
|
71.04
|
|
8.97
|
|
0.00
|
|
0.00
|
|
0.0
|
|
547,532
|
|
12.63
|
|
12.63
|
|
0.11
|
|
0.85
|
|
0.10
|
|
0.82
|
|
NECB
|
|
NorthEast Community Bancorp, Inc. (MHC)
|
|
White Plains
|
|
NY
|
|
NASDAQ
|
|
6.96
|
|
86.1
|
|
0.09
|
|
0.10
|
|
11.85
|
|
11.76
|
|
75.01
|
|
72.49
|
|
58.76
|
|
59.18
|
|
15.80
|
|
0.12
|
|
1.72
|
|
129.3
|
|
545,094
|
|
26.89
|
|
26.70
|
|
0.21
|
|
0.78
|
|
0.22
|
|
0.81
|
|
OFED
|
|
Oconee Federal Financial Corp. (MHC)
|
|
Seneca
|
|
SC
|
|
NASDAQ
|
|
20.41
|
|
119.1
|
|
0.63
|
|
0.56
|
|
25.54
|
|
25.54
|
|
32.60
|
|
36.28
|
|
79.90
|
|
79.90
|
|
27.78
|
|
0.40
|
|
1.96
|
|
63.9
|
|
428,701
|
|
34.76
|
|
34.76
|
|
0.85
|
|
2.45
|
|
0.77
|
|
2.20
|
|
PSBH
|
|
PSB Holdings, Inc. (MHC)
|
|
Putnam
|
|
CT
|
|
NASDAQ
|
|
7.62
|
|
49.8
|
|
0.14
|
|
0.16
|
|
11.61
|
|
10.56
|
|
54.99
|
|
47.54
|
|
65.60
|
|
72.17
|
|
9.96
|
|
0.12
|
|
1.57
|
|
86.6
|
|
500,479
|
|
15.18
|
|
13.80
|
|
0.18
|
|
1.19
|
|
0.21
|
|
1.38
|
|
TFSL
|
|
TFS Financial Corporation (MHC)
|
|
Cleveland
|
|
OH
|
|
NASDAQ
|
|
14.47
|
|
4,328.7
|
|
0.21
|
|
0.21
|
|
15.40
|
|
15.37
|
|
69.76
|
|
69.96
|
|
93.98
|
|
94.17
|
|
29.13
|
|
0.28
|
|
1.94
|
|
135.0
|
|
14,861,295
|
|
30.99
|
|
30.93
|
|
0.42
|
|
1.35
|
|
0.42
|
|
1.34
|
Source: SNL Financial, LC and RP Financial,
LC. calculations.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.29
|
In comparison to the publicly-traded
MHCs, the Company’s pro forma P/TB ratio (fully-converted basis) of 64.27% at the midpoint of the valuation range reflected
a discount of 18.18%. At the top of the super range, the Company’s P/TB ratio (fully-converted basis) of 72.41% reflected
a discount of 7.82%. In comparison to the publicly-traded MHCs, the Company’s pro forma core P/E multiple (fully-converted
basis) of 20.39 times at the midpoint of the valuation range reflected a discount of 58.70%. At the top of the super range, the
Company’s core P/E multiple (fully-converted basis) of 27.63 times reflected a discount of 44.03%.
It should be noted that in a
comparison of the publicly-traded MHCs to Provident Bancorp, the publicly-traded MHCs maintain certain inherit characteristics
in support of increasing the attractiveness of their stocks relative to Provident Bancorp’s stock as an MHC that will just
be completing an IPO: (1) the seasoned publicly-traded MHCs are viewed as potential candidates to complete a second-step offering;
(2) some of the publicly-traded MHCs have been grandfathered to waive dividend payments to the MHC pursuant to receiving an annual
majority vote by the depositors to approve the waiver of dividends; and (3) as there have been no MHC offerings completed in the
past four years, there is a degree of uncertainty on how well an MHC offering will be received in the prevailing regulatory environment.
Comparison to
Recent Offerings
As indicated at the beginning
of this chapter, RP Financial’s analysis of recent conversion offering pricing characteristics at closing and in the aftermarket
has been limited to a “technical” analysis and, thus, the pricing characteristics of recent conversion offerings can
not be a primary determinate of value. Particular focus was placed on the P/TB approach in this analysis, since the P/E multiples
do not reflect the actual impact of reinvestment and the source of the stock proceeds (i.e., external funds vs. deposit withdrawals).
The three recently completed standard conversion offerings closed at an average price/tangible book ratio of 62.40%. In comparison,
the Company’s P/TB ratio (fully-converted basis) of 64.27% at the midpoint value reflected an implied premium of 3.00% relative
to the average closing P/TB ratio of the recent standard conversion offerings. At the top of the super range, the Company’s
P/TB ratio of 72.41% reflected an implied premium of 16.04% relative to the average closing P/TB ratio of the recent standard conversion
offerings.
|
RP
®
Financial, LC.
|
VALUATION ANALYSIS
|
|
|
IV.30
|
Valuation Conclusion
Based on the foregoing, it is
our opinion that, as of February 13, 2015, the estimated aggregate pro forma market value of the shares to be issued immediately
following the conversion, both shares issued publicly as well as to the MHC, equaled $81,600,000 at the midpoint, equal to 8,160,000
shares offered at a per share value of $10.00. Pursuant to conversion guidelines, the 15% offering range indicates a minimum value
of $69,360,000 and a maximum value of $93,840,000. Based on the $10.00 per share offering price determined by the Board, this valuation
range equates to total shares outstanding of 6,936,000 at the minimum and 9,384,000 at the maximum. In the event the appraised
value is subject to an increase, the aggregate pro forma market value may be increased up to a super maximum value of $107,916,000
without a resolicitation. Based on the $10.00 per share offering price, the super maximum value would result in total shares outstanding
of 10,791,600. The Board of Directors has established a public offering range such that the public ownership of the Company will
constitute a 45.0% ownership interest prior to the issuance of shares to the Foundation. Accordingly, the offering to the public
of the minority stock will equal $31,212,000 at the minimum, $36,720,000 at the midpoint, $42,228,000 at the maximum and $48,562,200
at the super maximum of the valuation range. Based on the public offering range and inclusive of the shares issued to the Foundation,
equal to 2.0% of the shares issued in the stock issuance, the public ownership of shares will represent 47.0% of the shares issued
throughout the valuation range. The pro forma valuation calculations relative to the Peer Group (fully-converted basis) are shown
in Table 4.4 and are detailed in Exhibit IV-7 and Exhibit IV-8; the pro forma valuation calculations relative to the Peer Group
based on reported financials are shown in Table 4.5 and are detailed in Exhibits IV-9 and IV-10.
EXHIBITS
LIST OF EXHIBITS
|
Exhibit
|
|
|
Number
|
Description
|
|
|
|
|
I-1
|
Map of Office Locations
|
|
|
|
|
I-2
|
Audited Financial Statements
|
|
|
|
|
I-3
|
Key Operating Ratios
|
|
|
|
|
I-4
|
Investment Portfolio Composition
|
|
|
|
|
I-5
|
Yields and Costs
|
|
|
|
|
I-6
|
Loan Loss Allowance Activity
|
|
|
|
|
I-7
|
Interest Rate Risk Analysis
|
|
|
|
|
I-8
|
Fixed and Adjustable Rate Loans
|
|
|
|
|
I-9
|
Loan Portfolio Composition
|
|
|
|
|
I-10
|
Contractual Maturity by Loan Type
|
|
|
|
|
I-11
|
Non-Performing Assets
|
|
|
|
|
I-12
|
Deposit Composition
|
|
|
|
|
I-13
|
Maturity of Jumbo Time Deposits
|
|
|
|
|
I-14
|
Borrowing Activity
|
|
|
|
|
|
|
|
|
|
|
II-1
|
Description of Office Properties
|
|
|
|
|
II-2
|
Historical Interest Rates
|
LIST OF EXHIBITS (continued)
|
Exhibit
|
|
|
Number
|
Description
|
|
|
|
|
III-1
|
General Characteristics of Publicly-Traded Institutions
|
|
|
|
|
III-2
|
Public Market Pricing of Northeast Thrift Institutions
|
|
|
|
|
III-3
|
Public Market Pricing of Mid-Atlantic Thrift Institutions
|
|
|
|
|
III-4
|
Peer Group Market Area Comparative Analysis
|
|
|
|
|
|
|
|
|
|
|
IV-1
|
Stock Prices: As of February 13, 2015
|
|
|
|
|
IV-2
|
Historical Stock Price Indices
|
|
|
|
|
IV-3
|
Historical Thrift Stock Indices
|
|
|
|
|
IV-4
|
Massachusetts Thrift Acquisitions 2011 - Present
|
|
|
|
|
IV-5
|
Director and Senior Management Summary Resumes
|
|
|
|
|
IV-6
|
Pro Forma Regulatory Capital Ratios
|
|
|
|
|
IV-7
|
Pro Forma Analysis Sheet – Fully Converted Basis
|
|
|
|
|
IV-8
|
Pro Forma Effect of Conversion Proceeds – Fully Converted Basis
|
|
|
|
|
IV-9
|
Pro Forma Analysis Sheet – Minority Stock Offering
|
|
|
|
|
IV-10
|
Pro Forma Effect of Conversion Proceeds – Minority Stock Offering
|
|
|
|
|
V-1
|
Firm Qualifications Statement
|
EXHIBIT I-1
Provident Bancorp, Inc.
Map of Office Locations
Exhibit I-1
Provident Bancorp, Inc.
Map of Office Locations
EXHIBIT I-2
Provident Bancorp, Inc.
Audited Financial Statements
[Incorporated by Reference]
EXHIBIT I-3
Provident Bancorp, Inc.
Key Operating Ratios
Exhibit I-3
Provident Bancorp, Inc.
Key Operating Ratios
|
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.71%
|
|
|
|
0.66%
|
|
|
|
0.47%
|
|
|
|
0.91%
|
|
|
|
0.44%
|
|
|
Return on average equity
|
|
|
6.24%
|
|
|
|
5.85%
|
|
|
|
3.83%
|
|
|
|
10.56%
|
|
|
|
4.34%
|
|
|
Interest rate spread (1)
|
|
|
3.32%
|
|
|
|
3.16%
|
|
|
|
3.05%
|
|
|
|
3.43%
|
|
|
|
3.38%
|
|
|
Net interest margin (2)
|
|
|
3.47%
|
|
|
|
3.31%
|
|
|
|
3.27%
|
|
|
|
3.59%
|
|
|
|
3.50%
|
|
|
Efficiency ratio (3)
|
|
|
70.00%
|
|
|
|
71.87%
|
|
|
|
80.55%
|
|
|
|
69.67%
|
|
|
|
82.88%
|
|
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
137.39%
|
|
|
|
133.59%
|
|
|
|
130.21%
|
|
|
|
117.73%
|
|
|
|
110.39%
|
|
|
Average equity to average assets
|
|
|
11.43%
|
|
|
|
11.35%
|
|
|
|
12.15%
|
|
|
|
10.17%
|
|
|
|
8.53%
|
|
|
Average common equity to average assets
|
|
|
8.75%
|
|
|
|
8.18%
|
|
|
|
9.04%
|
|
|
|
9.31%
|
|
|
|
8.53%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets (bank only)
|
|
|
15.37%
|
|
|
|
16.61%
|
|
|
|
17.87%
|
|
|
|
19.08%
|
|
|
|
13.73%
|
|
|
Tier 1 capital to risk weighted assets (bank only)
|
|
|
13.87%
|
|
|
|
15.16%
|
|
|
|
16.35%
|
|
|
|
17.50%
|
|
|
|
11.77%
|
|
|
Tier 1 capital to average assets (bank only)
|
|
|
11.30%
|
|
|
|
11.08%
|
|
|
|
11.36%
|
|
|
|
12.72%
|
|
|
|
8.11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of total loans (4)
|
|
|
1.44%
|
|
|
|
1.36%
|
|
|
|
1.31%
|
|
|
|
1.29%
|
|
|
|
1.30%
|
|
|
Allowance for loan losses as a percentage of non-performing loans
|
|
|
187.49%
|
|
|
|
183.15%
|
|
|
|
179.61%
|
|
|
|
155.57%
|
|
|
|
191.45%
|
|
|
Net charge-offs to average outstanding loans during the year
|
|
|
0.06%
|
|
|
|
0.03%
|
|
|
|
0.05%
|
|
|
|
0.10%
|
|
|
|
0.06%
|
|
|
Non-performing loans as a percentage of total loans (4)
|
|
|
0.77%
|
|
|
|
0.74%
|
|
|
|
0.73%
|
|
|
|
0.83%
|
|
|
|
0.68%
|
|
|
Non-performing loans as a percentage of total assets
|
|
|
0.59%
|
|
|
|
0.53%
|
|
|
|
0.48%
|
|
|
|
0.55%
|
|
|
|
0.46%
|
|
|
Total non-performing assets as a percentage of total assets
|
|
|
0.59%
|
|
|
|
0.53%
|
|
|
|
0.48%
|
|
|
|
0.69%
|
|
|
|
0.48%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
Number of full-time equivalent employees
|
|
|
103
|
|
|
|
111
|
|
|
|
109
|
|
|
|
104
|
|
|
|
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.
|
|
|
(4)
|
Loans are presented before the allowance for loan losses but include deferred fees/costs.
|
Source: Provident Bancorp’s
prospectus.
EXHIBIT I-4
Provident Bancorp, Inc.
Investment Portfolio Composition
Exhibit
I-4
Provident Bancorp, Inc.
Investment Portfolio Composition
The following table sets forth the amortized
cost and estimated fair value of our available-for-sale securities portfolio at the dates indicated.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
|
|
(In thousands)
|
|
|
U.S. Government and federal agency
|
|
$
|
1,991
|
|
|
$
|
2,084
|
|
|
$
|
4,391
|
|
|
$
|
4,403
|
|
|
$
|
6,260
|
|
|
$
|
6,535
|
|
|
State and municipal
|
|
|
3,479
|
|
|
|
3,901
|
|
|
|
3,485
|
|
|
|
3,629
|
|
|
|
4,087
|
|
|
|
4,605
|
|
|
Corporate debt
|
|
|
1,000
|
|
|
|
1,114
|
|
|
|
1,000
|
|
|
|
1,153
|
|
|
|
1,000
|
|
|
|
1,174
|
|
|
Asset-backed securities
|
|
|
2,733
|
|
|
|
2,645
|
|
|
|
738
|
|
|
|
723
|
|
|
|
—
|
|
|
|
—
|
|
|
Government mortgage-backed securities
|
|
|
54,063
|
|
|
|
54,853
|
|
|
|
67,515
|
|
|
|
67,478
|
|
|
|
92,231
|
|
|
|
93,931
|
|
|
Trust preferred securities
|
|
|
1,502
|
|
|
|
1,122
|
|
|
|
2,706
|
|
|
|
1,392
|
|
|
|
2,847
|
|
|
|
621
|
|
|
Marketable equity securities
|
|
|
7,349
|
|
|
|
10,313
|
|
|
|
6,487
|
|
|
|
8,869
|
|
|
|
4,137
|
|
|
|
6,519
|
|
|
Total
|
|
$
|
72,117
|
|
|
$
|
76,032
|
|
|
$
|
86,322
|
|
|
$
|
87,647
|
|
|
$
|
110,562
|
|
|
$
|
113,385
|
|
The following table sets forth the amortized
cost and estimated fair value of our held-to-maturity securities portfolio at the dates indicated.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
45,559
|
|
|
$
|
47,435
|
|
|
$
|
46,729
|
|
|
$
|
45,524
|
|
|
$
|
34,510
|
|
|
$
|
35,146
|
|
|
Total
|
|
$
|
45,559
|
|
|
$
|
47,435
|
|
|
$
|
46,729
|
|
|
$
|
45,524
|
|
|
$
|
34,510
|
|
|
$
|
36,146
|
|
Source: Provident Bancorp’s
prospectus.
EXHIBIT I-5
Provident Bancorp, Inc.
Yields and Costs
Exhibit I-5
Provident Bancorp, Inc.
Yields and Costs
|
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
Average
Outstanding
Balance
|
|
Interest
|
|
Average
Yield/Rate
|
|
Average
Outstanding
Balance
|
|
Interest
|
|
Average
Yield/Rate
|
|
Average
Outstanding
Balance
|
|
Interest
|
|
Average
Yield/Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
471,628
|
|
|
$
|
20,030
|
|
|
|
4.25%
|
|
|
$
|
419,084
|
|
|
$
|
18,368
|
|
|
|
4.38%
|
|
|
$
|
360,543
|
|
|
$
|
17,626
|
|
|
|
4.89%
|
|
|
Interest-earning deposits
|
|
|
1,628
|
|
|
|
7
|
|
|
|
0.43
|
|
|
|
6,947
|
|
|
|
23
|
|
|
|
0.33
|
|
|
|
20,342
|
|
|
|
45
|
|
|
|
0.22
|
|
|
Investment securities
|
|
|
128,510
|
|
|
|
3,200
|
|
|
|
2.49
|
|
|
|
142,647
|
|
|
|
3,230
|
|
|
|
2.26
|
|
|
|
138,052
|
|
|
|
3,138
|
|
|
|
2.27
|
|
|
Federal Home Loan Bank of Boston stock
|
|
|
4,541
|
|
|
|
74
|
|
|
|
1.62
|
|
|
|
4,870
|
|
|
|
17
|
|
|
|
0.35
|
|
|
|
3,849
|
|
|
|
20
|
|
|
|
0.52
|
|
|
Total interest-earning assets
|
|
|
606,307
|
|
|
|
23,311
|
|
|
|
3.84
|
|
|
|
573,548
|
|
|
|
21,638
|
|
|
|
3.77
|
|
|
|
522,786
|
|
|
|
20,829
|
|
|
|
3.98
|
|
|
Non-interest-earning assets
|
|
|
33,156
|
|
|
|
|
|
|
|
|
|
|
|
31,811
|
|
|
|
|
|
|
|
|
|
|
|
28,662
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
639,463
|
|
|
|
|
|
|
|
|
|
|
$
|
605,389
|
|
|
|
|
|
|
|
|
|
|
$
|
551,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
87,677
|
|
|
|
106
|
|
|
|
0.12
|
|
|
$
|
84,514
|
|
|
|
104
|
|
|
|
0.12
|
|
|
$
|
79,686
|
|
|
|
130
|
|
|
|
0.16
|
|
|
Money market accounts
|
|
|
111,218
|
|
|
|
309
|
|
|
|
0.28
|
|
|
|
105,277
|
|
|
|
312
|
|
|
|
0.30
|
|
|
|
114,114
|
|
|
|
477
|
|
|
|
0.42
|
|
|
NOW accounts
|
|
|
74,464
|
|
|
|
117
|
|
|
|
0.16
|
|
|
|
81,216
|
|
|
|
132
|
|
|
|
0.16
|
|
|
|
85,415
|
|
|
|
242
|
|
|
|
0.28
|
|
|
Certificates of deposit
|
|
|
125,599
|
|
|
|
1,192
|
|
|
|
0.95
|
|
|
|
89,094
|
|
|
|
1,169
|
|
|
|
1.31
|
|
|
|
76,423
|
|
|
|
1,383
|
|
|
|
1.81
|
|
|
Total interest-bearing deposits
|
|
|
398,958
|
|
|
|
1,724
|
|
|
|
0.43
|
|
|
|
360,101
|
|
|
|
1,717
|
|
|
|
0.48
|
|
|
|
355,638
|
|
|
|
2,232
|
|
|
|
0.63
|
|
|
Federal Home Loan Bank advances
|
|
|
42,361
|
|
|
|
567
|
|
|
|
1.34
|
|
|
|
67,241
|
|
|
|
908
|
|
|
|
1.35
|
|
|
|
38,623
|
|
|
|
1,178
|
|
|
|
3.05
|
|
|
Securities sold under agreements to repurchase
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,227
|
|
|
|
304
|
|
|
|
4.21
|
|
|
Total interest-bearing liabilities
|
|
|
441,319
|
|
|
|
2,291
|
|
|
|
0.52
|
|
|
|
429,342
|
|
|
|
2,625
|
|
|
|
0.61
|
|
|
|
401,488
|
|
|
|
3,714
|
|
|
|
0.93
|
|
|
Non-interest-bearing deposits
|
|
|
131,700
|
|
|
|
|
|
|
|
|
|
|
|
100,504
|
|
|
|
|
|
|
|
|
|
|
|
75,809
|
|
|
|
|
|
|
|
|
|
|
Other non-interest-bearing liabilities
|
|
|
5,622
|
|
|
|
|
|
|
|
|
|
|
|
8,772
|
|
|
|
|
|
|
|
|
|
|
|
7,169
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
566,378
|
|
|
|
|
|
|
|
|
|
|
|
536,618
|
|
|
|
|
|
|
|
|
|
|
|
484,466
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
73,085
|
|
|
|
|
|
|
|
|
|
|
|
68,741
|
|
|
|
|
|
|
|
|
|
|
|
66,982
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and total equity
|
|
$
|
639,463
|
|
|
|
|
|
|
|
|
|
|
$
|
605,359
|
|
|
|
|
|
|
|
|
|
|
$
|
551,448
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
21,020
|
|
|
|
|
|
|
|
|
|
|
$
|
19,013
|
|
|
|
|
|
|
|
|
|
|
$
|
17,115
|
|
|
|
|
|
|
Net interest rate spread (1)
|
|
|
|
|
|
|
|
|
|
|
3.32%
|
|
|
|
|
|
|
|
|
|
|
|
3.16%
|
|
|
|
|
|
|
|
|
|
|
|
3.05%
|
|
|
Net interest-earning assets (2)
|
|
$
|
164,988
|
|
|
|
|
|
|
|
|
|
|
$
|
146,206
|
|
|
|
|
|
|
|
|
|
|
$
|
121,298
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (3)
|
|
|
|
|
|
|
|
|
|
|
3.47%
|
|
|
|
|
|
|
|
|
|
|
|
3.31%
|
|
|
|
|
|
|
|
|
|
|
|
3.27%
|
|
|
Average interest-earning assets to interest-bearing liabilities
|
|
|
137.4%
|
|
|
|
|
|
|
|
|
|
|
|
133.6%
|
|
|
|
|
|
|
|
|
|
|
|
130.2%
|
|
|
|
|
|
|
|
|
|
__________________________
|
|
(1)
|
Net
interest rate spread represents the difference between the weighted average yield on
interest-earning assets and the weighted average rate of interest-bearing liabilities.
|
|
|
(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.
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-6
Provident Bancorp, Inc.
Loan Loss Allowance Activity
Exhibit I-6
Provident Bancorp, Inc.
Loan Loss Allowance Activity
|
|
|
Years Ended December 31,
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at beginning of year
|
|
$
|
6,077
|
|
|
$
|
5,013
|
|
|
$
|
4,507
|
|
|
$
|
4,390
|
|
|
$
|
4,118
|
|
|
Provision for loan losses
|
|
|
1,452
|
|
|
|
1,175
|
|
|
|
681
|
|
|
|
458
|
|
|
|
468
|
|
|
Charge offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
30
|
|
|
|
50
|
|
|
|
65
|
|
|
|
112
|
|
|
|
180
|
|
|
Commercial
|
|
|
243
|
|
|
|
—
|
|
|
|
148
|
|
|
|
245
|
|
|
|
20
|
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
—
|
|
|
|
19
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer loans
|
|
|
91
|
|
|
|
85
|
|
|
|
76
|
|
|
|
50
|
|
|
|
52
|
|
|
Total charge-offs
|
|
|
364
|
|
|
|
154
|
|
|
|
305
|
|
|
|
407
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
24
|
|
|
|
37
|
|
|
|
16
|
|
|
|
33
|
|
|
|
13
|
|
|
Commercial
|
|
|
24
|
|
|
|
—
|
|
|
|
55
|
|
|
|
12
|
|
|
|
14
|
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
5
|
|
|
|
5
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer loans
|
|
|
6
|
|
|
|
1
|
|
|
|
48
|
|
|
|
21
|
|
|
|
29
|
|
|
Total recoveries
|
|
|
59
|
|
|
|
43
|
|
|
|
130
|
|
|
|
66
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries
|
|
|
(305
|
)
|
|
|
(111
|
)
|
|
|
(175
|
)
|
|
|
(341
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of year
|
|
$
|
7,224
|
|
|
$
|
6,077
|
|
|
$
|
5,013
|
|
|
$
|
4,507
|
|
|
$
|
4,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans at end of year
|
|
$
|
3,853
|
|
|
$
|
3,318
|
|
|
$
|
2,791
|
|
|
$
|
2,897
|
|
|
$
|
2,293
|
|
|
Total loans outstanding at end of year (1)
|
|
$
|
501,407
|
|
|
$
|
445,789
|
|
|
$
|
382,131
|
|
|
$
|
350,075
|
|
|
$
|
338,286
|
|
|
Average loans outstanding during the year (1)
|
|
$
|
471,628
|
|
|
$
|
419,084
|
|
|
$
|
360,543
|
|
|
$
|
343,086
|
|
|
$
|
338,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to non-performing loans
|
|
|
187.49%
|
|
|
|
183.15%
|
|
|
|
179.61%
|
|
|
|
155.57%
|
|
|
|
191.45%
|
|
|
Allowance to total loans outstanding at the end of the year
|
|
|
1.44%
|
|
|
|
1.36%
|
|
|
|
1.31%
|
|
|
|
1.29%
|
|
|
|
1.30%
|
|
|
Net (charge-offs) recoveries to average loans outstanding during the year
|
|
|
0.06%
|
|
|
|
0.03%
|
|
|
|
0.05%
|
|
|
|
0.10%
|
|
|
|
0.06%
|
|
__________________________
|
|
(1)
|
Loans are presented before the allowance for loan losses but include deferred fees/costs.
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-7
Provident Bancorp, Inc.
Interest Rate Risk Analysis
Exhibit I-7
Provident Bancorp, Inc.
Interest Rate Risk Analysis
|
|
|
At December 31,
|
|
|
|
2014
|
|
|
2013
|
Changes in
Interest Rates
(Basis Points)
|
|
Estimated 12-
Months Net
Interest
Income
|
|
|
Change
|
|
|
Estimated 12-
Months Net
Interest
Income
|
|
|
Change
|
|
(Dollars in thousands)
|
|
|
|
200
|
|
$
|
22,763
|
|
|
|
0.43%
|
|
|
$
|
20,118
|
|
|
(1.21)%
|
|
0
|
|
$
|
22,666
|
|
|
|
—
|
|
|
$
|
20,365
|
|
|
—
|
|
-100
|
|
$
|
22,502
|
|
|
|
(0.72)%
|
|
|
$
|
20,207
|
|
|
(0.77)%
|
|
|
|
At December 31,
|
|
Changes in
|
|
2014
|
|
2013
|
Interest Rates
(Basis Points)
|
|
Economic
Value of Equity
|
|
|
Change
|
|
Economic
Value of Equity
|
|
|
Change
|
|
(Dollars in thousands)
|
|
|
|
400
|
|
$
|
80,288
|
|
|
(9.7)%
|
|
$
|
67,571
|
|
|
(21.4)%
|
|
300
|
|
$
|
82,799
|
|
|
(6.9)%
|
|
$
|
71,472
|
|
|
(16.8)%
|
|
200
|
|
$
|
85,104
|
|
|
(4.3)%
|
|
$
|
74,546
|
|
|
(13.3)%
|
|
100
|
|
$
|
87,853
|
|
|
(1.2)%
|
|
$
|
80,849
|
|
|
(5.9)%
|
|
0
|
|
$
|
88,916
|
|
|
—
|
|
$
|
85,963
|
|
|
—
|
|
-100
|
|
$
|
83,778
|
|
|
(6.8)%
|
|
$
|
83,926
|
|
|
(2.4)%
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-8
Provident Bancorp, Inc.
Fixed and Adjustable Rate Loans
Exhibit I-8
Provident Bancorp, Inc.
Fixed and Adjustable Rate Loans
|
|
|
Due After December 31, 2014
|
|
|
|
Fixed
|
|
Adjustable
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
74,928
|
|
|
$
|
29,597
|
|
|
$
|
104,525
|
|
|
Commercial
|
|
|
7,516
|
|
|
|
223,359
|
|
|
|
230,875
|
|
|
Construction and land development
|
|
|
13,175
|
|
|
|
22,742
|
|
|
|
35,917
|
|
|
Commercial business loans
|
|
|
40,236
|
|
|
|
34,813
|
|
|
|
75,049
|
|
|
Consumer loans
|
|
|
2,600
|
|
|
|
—
|
|
|
|
2,600
|
|
|
Total loans
|
|
$
|
138,455
|
|
|
$
|
310,511
|
|
|
$
|
448,966
|
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-9
Provident Bancorp, Inc.
Loan Portfolio Composition
Exhibit I-9
Provident Bancorp, Inc.
Loan Portfolio Composition
|
|
|
At December 31,
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential (1)
|
|
$
|
104,568
|
|
|
|
20.84
|
%
|
|
$
|
111,244
|
|
|
|
24.93
|
%
|
|
$
|
109,725
|
|
|
|
28.69
|
%
|
|
$
|
113,962
|
|
|
|
32.55
|
%
|
|
$
|
115,081
|
|
|
|
34.03
|
%
|
|
Commercial (2)
|
|
|
249,691
|
|
|
|
49.76
|
|
|
|
223,642
|
|
|
|
50.12
|
|
|
|
189,031
|
|
|
|
49.42
|
|
|
|
181,277
|
|
|
|
51.78
|
|
|
|
174,713
|
|
|
|
51.66
|
|
|
Construction and land development
|
|
|
47,079
|
|
|
|
9.38
|
|
|
|
20,588
|
|
|
|
4.61
|
|
|
|
12,520
|
|
|
|
3.27
|
|
|
|
12,769
|
|
|
|
3.65
|
|
|
|
20,225
|
|
|
|
5.98
|
|
|
Commercial business loans
|
|
|
97,589
|
|
|
|
19.45
|
|
|
|
87,405
|
|
|
|
19.59
|
|
|
|
67,528
|
|
|
|
17.66
|
|
|
|
41,040
|
|
|
|
11.72
|
|
|
|
27,180
|
|
|
|
8.04
|
|
|
Consumer loans
|
|
|
2,863
|
|
|
|
0.57
|
|
|
|
3,329
|
|
|
|
0.75
|
|
|
|
3,666
|
|
|
|
0.96
|
|
|
|
1,054
|
|
|
|
0.30
|
|
|
|
1,014
|
|
|
|
0.30
|
|
|
|
|
|
501,790
|
|
|
|
100.00
|
%
|
|
|
446,208
|
|
|
|
100.00
|
%
|
|
|
382,470
|
|
|
|
100.00
|
%
|
|
|
350,102
|
|
|
|
100.00
|
%
|
|
|
338,213
|
|
|
|
100.00
|
%
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees, net
|
|
|
(383
|
)
|
|
|
|
|
|
|
(419
|
)
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
Allowance for losses
|
|
|
(7,224
|
)
|
|
|
|
|
|
|
(6,077
|
)
|
|
|
|
|
|
|
(5,013
|
)
|
|
|
|
|
|
|
(4,507
|
)
|
|
|
|
|
|
|
(4,390
|
)
|
|
|
|
|
|
Total loans
|
|
$
|
494,183
|
|
|
|
|
|
|
$
|
439,712
|
|
|
|
|
|
|
$
|
377,118
|
|
|
|
|
|
|
$
|
345,564
|
|
|
|
|
|
|
$
|
333,896
|
|
|
|
|
|
_____________________
|
|
(1)
|
Includes home equity loans and lines of credit.
|
|
|
(2)
|
Includes multi-family real estate loans
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-10
Provident Bancorp, Inc.
Contractual Maturity by Loan Type
Exhibit I-10
Provident Bancorp, Inc.
Contractual Maturity by Loan Type
|
December 31, 2014
|
|
Residential
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Construction
and Land
Development
|
|
|
Commercial
Business
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
43
|
|
|
$
|
18,816
|
|
|
$
|
11,162
|
|
|
$
|
22,540
|
|
|
$
|
263
|
|
|
$
|
52,824
|
|
|
More than one to five years
|
|
|
3,526
|
|
|
|
18,164
|
|
|
|
12,487
|
|
|
|
37,777
|
|
|
|
2,600
|
|
|
|
74,554
|
|
|
More than five years to ten years
|
|
|
17,836
|
|
|
|
16,801
|
|
|
|
86
|
|
|
|
30,492
|
|
|
|
—
|
|
|
|
64,715
|
|
|
More than ten years
|
|
|
83,163
|
|
|
|
196,410
|
|
|
|
23,344
|
|
|
|
6,780
|
|
|
|
—
|
|
|
|
309,697
|
|
|
Total
|
|
$
|
104,568
|
|
|
$
|
249,691
|
|
|
$
|
47,079
|
|
|
$
|
97,589
|
|
|
$
|
2,863
|
|
|
$
|
501,790
|
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-11
Provident Bancorp, Inc.
Non-Performing Assets
Exhibit I-11
Provident Bancorp, Inc.
Non-Performing Assets
|
|
|
At December 31,
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,564
|
|
|
$
|
1,608
|
|
|
$
|
1,348
|
|
|
$
|
1,218
|
|
|
$
|
1,727
|
|
|
Commercial
|
|
|
1,773
|
|
|
|
1,049
|
|
|
|
920
|
|
|
|
1,160
|
|
|
|
268
|
|
|
Construction and land development
|
|
|
—
|
|
|
|
185
|
|
|
|
206
|
|
|
|
219
|
|
|
|
219
|
|
|
Commercial business loans
|
|
|
516
|
|
|
|
474
|
|
|
|
317
|
|
|
|
300
|
|
|
|
79
|
|
|
Consumer loans
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total non-accrual loans
|
|
|
3,853
|
|
|
|
3,318
|
|
|
|
2,791
|
|
|
|
2,897
|
|
|
|
2,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
755
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
3,853
|
|
|
$
|
3,318
|
|
|
$
|
2,791
|
|
|
$
|
3,652
|
|
|
$
|
2,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (1)
|
|
$
|
501,407
|
|
|
$
|
445,789
|
|
|
$
|
382,131
|
|
|
$
|
350,075
|
|
|
$
|
338,286
|
|
|
Total assets
|
|
$
|
658,606
|
|
|
$
|
624,659
|
|
|
$
|
576,460
|
|
|
$
|
530,598
|
|
|
$
|
498,026
|
|
|
Total non-performing loans to total loans (1)
|
|
|
0.77
|
%
|
|
|
0.74
|
%
|
|
|
0.73
|
%
|
|
|
0.83
|
%
|
|
|
0.68
|
%
|
|
Total non-performing assets to total assets
|
|
|
0.59
|
%
|
|
|
0.53
|
%
|
|
|
0.48
|
%
|
|
|
0.55
|
%
|
|
|
0.46
|
%
|
_____________________
(1)
Loans are presented before the allowance for loan losses but include deferred fees/costs.
|
|
|
At December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Accruing
|
|
|
|
|
(In Thousands)
|
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
—
|
|
|
$
|
221
|
|
|
$
|
185
|
|
|
$
|
227
|
|
|
$
|
206
|
|
|
$
|
363
|
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
1,029
|
|
|
$
|
624
|
|
|
Commercial
|
|
|
1,490
|
|
|
|
1,385
|
|
|
|
729
|
|
|
|
1,438
|
|
|
|
768
|
|
|
|
1,495
|
|
|
|
503
|
|
|
|
1,127
|
|
|
|
847
|
|
|
|
—
|
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial business loans
|
|
|
202
|
|
|
|
196
|
|
|
|
266
|
|
|
|
139
|
|
|
|
38
|
|
|
|
154
|
|
|
|
301
|
|
|
|
169
|
|
|
|
50
|
|
|
|
—
|
|
|
Consumer loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
1,692
|
|
|
$
|
1,802
|
|
|
$
|
1,180
|
|
|
$
|
1,804
|
|
|
$
|
1,012
|
|
|
$
|
2,012
|
|
|
$
|
1,023
|
|
|
$
|
1,296
|
|
|
$
|
1,926
|
|
|
$
|
624
|
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-12
Provident Bancorp, Inc.
Deposit Composition
Exhibit I-12
Provident Bancorp, Inc.
Deposit Composition
|
|
|
At December 31,
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
Amount
|
|
|
Percent
|
|
Amount
|
|
|
Percent
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing
|
|
$
|
128,407
|
|
|
|
23.91
|
%
|
|
|
$
|
109,257
|
|
|
|
21.48
|
%
|
|
|
$
|
90,783
|
|
|
|
20.13
|
%
|
|
|
Negotiable order of withdrawal (NOW)
|
|
|
83,521
|
|
|
|
15.56
|
|
|
|
|
83,505
|
|
|
|
16.42
|
|
|
|
|
99,954
|
|
|
|
22.15
|
|
|
|
Statement savings
|
|
|
90,388
|
|
|
|
16.83
|
|
|
|
|
84,769
|
|
|
|
16.68
|
|
|
|
|
82,043
|
|
|
|
18.18
|
|
|
|
Money market
|
|
|
110,468
|
|
|
|
20.57
|
|
|
|
|
107,713
|
|
|
|
21.19
|
|
|
|
|
103,263
|
|
|
|
22.89
|
|
|
|
Certificates of deposit
|
|
|
124,149
|
|
|
|
23.12
|
|
|
|
|
123,310
|
|
|
|
24.26
|
|
|
|
|
75,116
|
|
|
|
16.65
|
|
|
|
Total
|
|
$
|
536,933
|
|
|
|
100.00
|
%
|
|
|
$
|
508,285
|
|
|
|
100.00
|
%
|
|
|
$
|
451,159
|
|
|
|
100.00
|
%
|
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-13
Provident Bancorp, Inc.
Maturity of Jumbo Time Deposits
Exhibit I-13
Provident Bancorp, Inc.
Maturity of Jumbo Time Deposits
|
|
|
At
December 31, 2014
|
|
|
|
|
(In thousands)
|
|
|
Maturity Period:
|
|
|
|
|
|
Three months or less
|
|
$
|
13,641
|
|
|
|
Over three through six months
|
|
|
10,584
|
|
|
|
Over six through twelve months
|
|
|
8,310
|
|
|
|
Over twelve months
|
|
|
64,246
|
|
|
|
Total
|
|
$
|
96,781
|
|
|
Source: Provident Bancorp’s prospectus.
EXHIBIT I-14
Provident Bancorp, Inc.
Borrowing Activity
Exhibit I-14
Provident Bancorp, Inc.
Borrowing Activity
|
|
|
At or For the Year
Ended December 31,
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at end of year
|
|
$
|
39,237
|
|
|
$
|
40,988
|
|
|
$
|
49,461
|
|
|
Weighted average interest rate at the end of year
|
|
|
1.43
|
%
|
|
|
1.34
|
%
|
|
|
2.23
|
%
|
|
Maximum amount of borrowings outstanding at any month end during the year
|
|
$
|
55,988
|
|
|
$
|
109,520
|
|
|
$
|
51,549
|
|
|
Average balance outstanding during the year
|
|
$
|
42,360
|
|
|
$
|
67,241
|
|
|
$
|
38,623
|
|
|
Weighted average interest rate during the year
|
|
|
1.34
|
%
|
|
|
1.35
|
%
|
|
|
3.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Provident Bancorp’s prospectus.
EXHIBIT II-1
Description of Office Properties
Exhibit II-1
Provident Bancorp, Inc.
Description of Office Properties
Properties
At December 31, 2014,
we conducted business through our main office and six branch offices located in Amesbury and Newburyport, Massachusetts and Exeter,
Hampton, Portsmouth and Seabrook, New Hampshire, as well as two loan production offices located in Bedford, New Hampshire and Nashua,
New Hampshire. We also lease land in Bedford, New Hampshire that will be used to establish a new branch office. We own four of
our offices and lease three of our offices. At December 31, 2014, the total net book value of our land, buildings, furniture,
fixtures and equipment was $10.5 million.
Source: Provident Bancorp’s prospectus.
EXHIBIT II-2
Historical Interest Rates
Exhibit II-2
Historical Interest Rates(1)
|
|
|
|
Prime
|
|
90 Day
|
|
One Year
|
|
10 Year
|
|
Year/Qtr. Ended
|
|
Rate
|
|
T-Note
|
|
T-Note
|
|
T-Note
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
Quarter 1
|
|
4.00%
|
|
0.95%
|
|
1.20%
|
|
3.86%
|
|
|
Quarter 2
|
|
4.00%
|
|
1.33%
|
|
2.09%
|
|
4.62%
|
|
|
Quarter 3
|
|
4.75%
|
|
1.70%
|
|
2.16%
|
|
4.12%
|
|
|
Quarter 4
|
|
5.25%
|
|
2.22%
|
|
2.75%
|
|
4.24%
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
Quarter 1
|
|
5.75%
|
|
2.80%
|
|
3.43%
|
|
4.51%
|
|
|
Quarter 2
|
|
6.00%
|
|
3.12%
|
|
3.51%
|
|
3.98%
|
|
|
Quarter 3
|
|
6.75%
|
|
3.55%
|
|
4.01%
|
|
4.34%
|
|
|
Quarter 4
|
|
7.25%
|
|
4.08%
|
|
4.38%
|
|
4.39%
|
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
Quarter 1
|
|
7.75%
|
|
4.63%
|
|
4.82%
|
|
4.86%
|
|
|
Quarter 2
|
|
8.25%
|
|
5.01%
|
|
5.21%
|
|
5.15%
|
|
|
Quarter 3
|
|
8.25%
|
|
4.88%
|
|
4.91%
|
|
4.64%
|
|
|
Quarter 4
|
|
8.25%
|
|
5.02%
|
|
5.00%
|
|
4.71%
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
Quarter 1
|
|
8.25%
|
|
5.04%
|
|
4.90%
|
|
4.65%
|
|
|
Quarter 2
|
|
8.25%
|
|
4.82%
|
|
4.91%
|
|
5.03%
|
|
|
Quarter 3
|
|
7.75%
|
|
3.82%
|
|
4.05%
|
|
4.59%
|
|
|
Quarter 4
|
|
7.25%
|
|
3.36%
|
|
3.34%
|
|
3.91%
|
|
|
|
|
|
|
|
|
|
|
|
|
2008:
|
Quarter 1
|
|
5.25%
|
|
1.38%
|
|
1.55%
|
|
3.45%
|
|
|
Quarter 2
|
|
5.00%
|
|
1.90%
|
|
2.36%
|
|
3.99%
|
|
|
Quarter 3
|
|
5.00%
|
|
0.92%
|
|
1.78%
|
|
3.85%
|
|
|
Quarter 4
|
|
3.25%
|
|
0.11%
|
|
0.37%
|
|
2.25%
|
|
|
|
|
|
|
|
|
|
|
|
|
2009:
|
Quarter 1
|
|
3.25%
|
|
0.21%
|
|
0.57%
|
|
2.71%
|
|
|
Quarter 2
|
|
3.25%
|
|
0.19%
|
|
0.56%
|
|
3.53%
|
|
|
Quarter 3
|
|
3.25%
|
|
0.14%
|
|
0.40%
|
|
3.31%
|
|
|
Quarter 4
|
|
3.25%
|
|
0.06%
|
|
0.47%
|
|
3.85%
|
|
|
|
|
|
|
|
|
|
|
|
|
2010:
|
Quarter 1
|
|
3.25%
|
|
0.16%
|
|
0.41%
|
|
3.84%
|
|
|
Quarter 2
|
|
3.25%
|
|
0.18%
|
|
0.32%
|
|
2.97%
|
|
|
Quarter 3
|
|
3.25%
|
|
0.18%
|
|
0.32%
|
|
2.97%
|
|
|
Quarter 4
|
|
3.25%
|
|
0.12%
|
|
0.29%
|
|
3.30%
|
|
|
|
|
|
|
|
|
|
|
|
|
2011:
|
Quarter 1
|
|
3.25%
|
|
0.09%
|
|
0.30%
|
|
3.47%
|
|
|
Quarter 2
|
|
3.25%
|
|
0.03%
|
|
0.19%
|
|
3.18%
|
|
|
Quarter 3
|
|
3.25%
|
|
0.02%
|
|
0.13%
|
|
1.92%
|
|
|
Quarter 4
|
|
3.25%
|
|
0.02%
|
|
0.12%
|
|
1.89%
|
|
|
|
|
|
|
|
|
|
|
|
|
2012:
|
Quarter 1
|
|
3.25%
|
|
0.07%
|
|
0.19%
|
|
2.23%
|
|
|
Quarter 2
|
|
3.25%
|
|
0.09%
|
|
0.21%
|
|
1.67%
|
|
|
Quarter 3
|
|
3.25%
|
|
0.10%
|
|
0.17%
|
|
1.65%
|
|
|
Quarter 4
|
|
3.25%
|
|
0.05%
|
|
0.16%
|
|
1.78%
|
|
|
|
|
|
|
|
|
|
|
|
|
2013:
|
Quarter 1
|
|
3.25%
|
|
0.07%
|
|
0.14%
|
|
1.87%
|
|
|
Quarter 2
|
|
3.25%
|
|
0.04%
|
|
0.15%
|
|
2.52%
|
|
|
Quarter 3
|
|
3.25%
|
|
0.02%
|
|
0.10%
|
|
2.64%
|
|
|
Quarter 4
|
|
3.25%
|
|
0.07%
|
|
0.13%
|
|
3.04%
|
|
|
|
|
|
|
|
|
|
|
|
|
2014:
|
Quarter 1
|
|
3.25%
|
|
0.05%
|
|
0.13%
|
|
2.73%
|
|
|
Quarter 2
|
|
3.25%
|
|
0.04%
|
|
0.11%
|
|
2.53%
|
|
|
Quarter 3
|
|
3.25%
|
|
0.02%
|
|
0.13%
|
|
2.52%
|
|
|
Quarter 4
|
|
3.25%
|
|
0.04%
|
|
0.25%
|
|
2.17%
|
|
As of Feb. 13, 2015
|
|
3.25%
|
|
0.01%
|
|
0.23%
|
|
2.02%
|
(1) End of period data.
Sources: Federal Reserve and The Wall Street Journal.
EXHIBIT III-1
General Characteristics of Publicly-Traded Institutions
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
February 13, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
13, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Fiscal
|
|
Conv.
|
|
Stock
|
|
|
Market
|
|
|
Ticker
|
|
Financial
Institution
|
|
Exchange
|
|
Region
|
|
City
|
|
State
|
|
Assets
|
|
|
|
Offices
|
|
Mth
End
|
|
Date
|
|
Price
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($Mil)
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
($Mil)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLB
|
|
Alliance
Bancorp, Inc. of Pennsylvania
|
|
NASDAQ
|
|
MA
|
|
Broomall
|
|
PA
|
|
$423
|
|
(1)
|
|
8
|
|
Dec
|
|
1/18/11
|
|
$
|
16.50
|
|
|
$
|
66
|
|
|
ANCB
|
|
Anchor Bancorp
|
|
NASDAQ
|
|
WE
|
|
Lacey
|
|
WA
|
|
386
|
|
|
|
11
|
|
Jun
|
|
1/26/11
|
|
|
22.14
|
|
|
|
56
|
|
|
ABCW
|
|
Anchor BanCorp
Wisconsin Inc.
|
|
NASDAQ
|
|
MW
|
|
Madison
|
|
WI
|
|
2,107
|
|
|
|
53
|
|
Dec
|
|
7/16/92
|
|
|
33.49
|
|
|
|
320
|
|
|
ASBB
|
|
ASB Bancorp, Inc.
|
|
NASDAQ
|
|
SE
|
|
Asheville
|
|
NC
|
|
749
|
|
|
|
13
|
|
Dec
|
|
10/12/11
|
|
|
19.90
|
|
|
|
87
|
|
|
AF
|
|
Astoria Financial
Corporation
|
|
NYSE
|
|
MA
|
|
Lake Success
|
|
NY
|
|
15,460
|
|
|
|
87
|
|
Dec
|
|
11/18/93
|
|
|
13.18
|
|
|
|
1,317
|
|
|
AFCB
|
|
Athens Bancshares
Corporation
|
|
NASDAQ
|
|
SE
|
|
Athens
|
|
TN
|
|
302
|
|
|
|
7
|
|
Dec
|
|
1/7/10
|
|
|
24.77
|
|
|
|
45
|
|
|
ACFC
|
|
Atlantic Coast
Financial Corporation
|
|
NASDAQ
|
|
SE
|
|
Jacksonville
|
|
FL
|
|
714
|
|
|
|
12
|
|
Dec
|
|
2/4/11
|
|
|
3.95
|
|
|
|
61
|
|
|
BKMU
|
|
Bank Mutual Corporation
|
|
NASDAQ
|
|
MW
|
|
Brown Deer
|
|
WI
|
|
2,327
|
|
|
|
77
|
|
Dec
|
|
10/30/03
|
|
|
7.18
|
|
|
|
334
|
|
|
BFIN
|
|
BankFinancial
Corporation
|
|
NASDAQ
|
|
MW
|
|
Burr Ridge
|
|
IL
|
|
1,421
|
|
|
|
20
|
|
Dec
|
|
6/24/05
|
|
|
11.75
|
|
|
|
248
|
|
|
BNCL
|
|
Beneficial Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Philadelphia
|
|
PA
|
|
4,360
|
|
|
|
60
|
|
Dec
|
|
1/13/15
|
|
|
11.54
|
|
|
|
955
|
|
|
BHBK
|
|
Blue Hills Bancorp,
Inc.
|
|
NASDAQ
|
|
NE
|
|
Norwood
|
|
MA
|
|
1,687
|
|
|
|
10
|
|
Dec
|
|
7/22/14
|
|
|
12.97
|
|
|
|
369
|
|
|
BOFI
|
|
BofI Holding,
Inc.
|
|
NASDAQ
|
|
WE
|
|
San Diego
|
|
CA
|
|
4,825
|
|
|
|
1
|
|
Jun
|
|
3/14/05
|
|
|
91.39
|
|
|
|
1,378
|
|
|
BYFC
|
|
Broadway Financial
Corporation
|
|
NASDAQ
|
|
WE
|
|
Los Angeles
|
|
CA
|
|
338
|
|
(1)
|
|
3
|
|
Dec
|
|
1/9/96
|
|
|
1.28
|
|
|
|
27
|
|
|
BLMT
|
|
BSB Bancorp, Inc.
|
|
NASDAQ
|
|
NE
|
|
Belmont
|
|
MA
|
|
1,336
|
|
|
|
6
|
|
Dec
|
|
10/5/11
|
|
|
18.88
|
|
|
|
171
|
|
|
CBNJ
|
|
Cape Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Cape May Court
House
|
|
NJ
|
|
1,082
|
|
|
|
15
|
|
Dec
|
|
2/1/08
|
|
|
8.82
|
|
|
|
101
|
|
|
CFFN
|
|
Capitol Federal
Financial, Inc.
|
|
NASDAQ
|
|
MW
|
|
Topeka
|
|
KS
|
|
9,865
|
|
|
|
47
|
|
Sep
|
|
12/22/10
|
|
|
12.74
|
|
|
|
1,792
|
|
|
CARV
|
|
Carver Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
New York
|
|
NY
|
|
644
|
|
|
|
10
|
|
Mar
|
|
10/25/94
|
|
|
5.68
|
|
|
|
21
|
|
|
CFBK
|
|
Central Federal
Corporation
|
|
NASDAQ
|
|
MW
|
|
Worthington
|
|
OH
|
|
308
|
|
(1)
|
|
4
|
|
Dec
|
|
12/30/98
|
|
|
1.31
|
|
|
|
21
|
|
|
CHFN
|
|
Charter Financial
Corporation
|
|
NASDAQ
|
|
SE
|
|
West Point
|
|
GA
|
|
1,010
|
|
|
|
17
|
|
Sep
|
|
4/9/13
|
|
|
11.55
|
|
|
|
195
|
|
|
CHEV
|
|
Cheviot Financial
Corp.
|
|
NASDAQ
|
|
MW
|
|
Cheviot
|
|
OH
|
|
573
|
|
|
|
12
|
|
Dec
|
|
1/18/12
|
|
|
14.44
|
|
|
|
97
|
|
|
CBNK
|
|
Chicopee Bancorp,
Inc.
|
|
NASDAQ
|
|
NE
|
|
Chicopee
|
|
MA
|
|
626
|
|
|
|
9
|
|
Dec
|
|
7/20/06
|
|
|
16.33
|
|
|
|
86
|
|
|
CSBK
|
|
Clifton Bancorp
Inc.
|
|
NASDAQ
|
|
MA
|
|
Clifton
|
|
NJ
|
|
1,212
|
|
|
|
12
|
|
Mar
|
|
4/2/14
|
|
|
13.46
|
|
|
|
365
|
|
|
CWAY
|
|
Coastway Bancorp,
Inc.
|
|
NASDAQ
|
|
NE
|
|
Warwick
|
|
RI
|
|
451
|
|
|
|
11
|
|
Dec
|
|
1/15/14
|
|
|
11.02
|
|
|
|
55
|
|
|
DCOM
|
|
Dime Community
Bancshares, Inc.
|
|
NASDAQ
|
|
MA
|
|
Brooklyn
|
|
NY
|
|
4,384
|
|
|
|
25
|
|
Dec
|
|
6/26/96
|
|
|
15.63
|
|
|
|
576
|
|
|
ENFC
|
|
Entegra Financial
Corp.
|
|
NASDAQ
|
|
SE
|
|
Franklin
|
|
NC
|
|
884
|
|
|
|
12
|
|
Dec
|
|
10/1/14
|
|
|
15.40
|
|
|
|
101
|
|
|
ESSA
|
|
ESSA Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Stroudsburg
|
|
PA
|
|
1,575
|
|
|
|
28
|
|
Sep
|
|
4/4/07
|
|
|
12.50
|
|
|
|
143
|
|
|
EVER
|
|
EverBank Financial
Corp
|
|
NYSE
|
|
SE
|
|
Jacksonville
|
|
FL
|
|
20,510
|
|
|
|
12
|
|
Dec
|
|
5/2/12
|
|
|
18.26
|
|
|
|
2,258
|
|
|
FCAP
|
|
First Capital,
Inc.
|
|
NASDAQ
|
|
MW
|
|
Corydon
|
|
IN
|
|
460
|
|
|
|
12
|
|
Dec
|
|
1/4/99
|
|
|
24.50
|
|
|
|
67
|
|
|
FBNK
|
|
First Connecticut
Bancorp, Inc.
|
|
NASDAQ
|
|
NE
|
|
Farmington
|
|
CT
|
|
2,396
|
|
|
|
25
|
|
Dec
|
|
6/30/11
|
|
|
15.20
|
|
|
|
244
|
|
|
FDEF
|
|
First Defiance
Financial Corp.
|
|
NASDAQ
|
|
MW
|
|
Defiance
|
|
OH
|
|
2,151
|
|
|
|
33
|
|
Dec
|
|
10/2/95
|
|
|
31.98
|
|
|
|
295
|
|
|
FFNM
|
|
First Federal
of Northern Michigan Bancorp, Inc.
|
|
NASDAQ
|
|
MW
|
|
Alpena
|
|
MI
|
|
312
|
|
(1)
|
|
9
|
|
Dec
|
|
4/4/05
|
|
|
5.45
|
|
|
|
20
|
|
|
FFNW
|
|
First Financial
Northwest, Inc.
|
|
NASDAQ
|
|
WE
|
|
Renton
|
|
WA
|
|
915
|
|
|
|
1
|
|
Dec
|
|
10/10/07
|
|
|
12.19
|
|
|
|
185
|
|
|
FNWB
|
|
First Northwest
Bancorp
|
|
NASDAQ
|
|
WE
|
|
Port Angeles
|
|
WA
|
|
788
|
|
|
|
9
|
|
Jun
|
|
1/30/15
|
|
|
12.53
|
|
|
|
164
|
|
|
FBC
|
|
Flagstar Bancorp,
Inc.
|
|
NYSE
|
|
MW
|
|
Troy
|
|
MI
|
|
9,625
|
|
|
|
107
|
|
Dec
|
|
4/30/97
|
|
|
14.85
|
|
|
|
837
|
|
|
FXCB
|
|
Fox Chase Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Hatboro
|
|
PA
|
|
1,075
|
|
|
|
10
|
|
Dec
|
|
6/29/10
|
|
|
16.31
|
|
|
|
193
|
|
|
FSBW
|
|
FS Bancorp, Inc.
|
|
NASDAQ
|
|
WE
|
|
Mountlake Terrace
|
|
WA
|
|
472
|
|
|
|
8
|
|
Dec
|
|
7/10/12
|
|
|
19.36
|
|
|
|
63
|
|
|
GTWN
|
|
Georgetown Bancorp,
Inc.
|
|
NASDAQ
|
|
NE
|
|
Georgetown
|
|
MA
|
|
270
|
|
|
|
3
|
|
Dec
|
|
7/12/12
|
|
|
17.55
|
|
|
|
32
|
|
|
HBK
|
|
Hamilton Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Towson
|
|
MD
|
|
293
|
|
|
|
5
|
|
Mar
|
|
10/10/12
|
|
|
12.89
|
|
|
|
44
|
|
|
HFFC
|
|
HF Financial Corp.
|
|
NASDAQ
|
|
MW
|
|
Sioux Falls
|
|
SD
|
|
1,257
|
|
|
|
27
|
|
Jun
|
|
4/8/92
|
|
|
14.82
|
|
|
|
105
|
|
|
HIFS
|
|
Hingham Institution
for Savings
|
|
NASDAQ
|
|
NE
|
|
Hingham
|
|
MA
|
|
1,506
|
|
|
|
13
|
|
Dec
|
|
12/20/88
|
|
|
87.30
|
|
|
|
186
|
|
|
HMNF
|
|
HMN Financial,
Inc.
|
|
NASDAQ
|
|
MW
|
|
Rochester
|
|
MN
|
|
594
|
|
|
|
11
|
|
Dec
|
|
6/30/94
|
|
|
12.01
|
|
|
|
54
|
|
|
HBCP
|
|
Home Bancorp,
Inc.
|
|
NASDAQ
|
|
SW
|
|
Lafayette
|
|
LA
|
|
1,260
|
|
|
|
27
|
|
Dec
|
|
10/3/08
|
|
|
21.42
|
|
|
|
153
|
|
|
HFBL
|
|
Home Federal Bancorp,
Inc. of Louisiana
|
|
NASDAQ
|
|
SW
|
|
Shreveport
|
|
LA
|
|
340
|
|
|
|
5
|
|
Jun
|
|
12/22/10
|
|
|
19.45
|
|
|
|
42
|
|
|
HMST
|
|
HomeStreet, Inc.
|
|
NASDAQ
|
|
WE
|
|
Seattle
|
|
WA
|
|
3,475
|
|
|
|
34
|
|
Dec
|
|
2/10/12
|
|
|
17.75
|
|
|
|
264
|
|
|
IROQ
|
|
IF Bancorp, Inc.
|
|
NASDAQ
|
|
MW
|
|
Watseka
|
|
IL
|
|
540
|
|
|
|
6
|
|
Jun
|
|
7/8/11
|
|
|
16.70
|
|
|
|
72
|
|
|
ISBC
|
|
Investors Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Short Hills
|
|
NJ
|
|
17,833
|
|
|
|
136
|
|
Dec
|
|
5/8/14
|
|
|
11.70
|
|
|
|
4,189
|
|
|
JXSB
|
|
Jacksonville Bancorp,
Inc.
|
|
NASDAQ
|
|
MW
|
|
Jacksonville
|
|
IL
|
|
314
|
|
|
|
6
|
|
Dec
|
|
7/15/10
|
|
|
23.00
|
|
|
|
41
|
|
|
LPSB
|
|
La Porte Bancorp,
Inc.
|
|
NASDAQ
|
|
MW
|
|
La Porte
|
|
IN
|
|
511
|
|
|
|
7
|
|
Dec
|
|
10/5/12
|
|
|
12.58
|
|
|
|
71
|
|
|
LABC
|
|
Louisiana Bancorp,
Inc.
|
|
NASDAQ
|
|
SW
|
|
Metairie
|
|
LA
|
|
322
|
|
|
|
4
|
|
Dec
|
|
7/10/07
|
|
|
20.59
|
|
|
|
60
|
|
|
MCBK
|
|
Madison County
Financial, Inc.
|
|
NASDAQ
|
|
MW
|
|
Madison
|
|
NE
|
|
302
|
|
(1)
|
|
5
|
|
Dec
|
|
10/4/12
|
|
|
20.10
|
|
|
|
61
|
|
|
MLVF
|
|
Malvern Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Paoli
|
|
PA
|
|
542
|
|
|
|
8
|
|
Sep
|
|
10/12/12
|
|
|
12.30
|
|
|
|
81
|
|
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
February 13, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
13, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Fiscal
|
|
Conv.
|
|
Stock
|
|
|
Market
|
|
|
Ticker
|
|
Financial
Institution
|
|
Exchange
|
|
Region
|
|
City
|
|
State
|
|
Assets
|
|
|
|
Offices
|
|
Mth
End
|
|
Date
|
|
Price
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($Mil)
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
($Mil)
|
|
|
MELR
|
|
Melrose
Bancorp, Inc.
|
|
NASDAQ
|
|
NE
|
|
Melrose
|
|
MA
|
|
213
|
|
(1)
|
|
1
|
|
Dec
|
|
10/22/14
|
|
|
13.99
|
|
|
|
40
|
|
|
EBSB
|
|
Meridian Bancorp,
Inc.
|
|
NASDAQ
|
|
NE
|
|
Peabody
|
|
MA
|
|
3,169
|
|
|
|
27
|
|
Dec
|
|
7/29/14
|
|
|
12.34
|
|
|
|
675
|
|
|
CASH
|
|
Meta Financial
Group, Inc.
|
|
NASDAQ
|
|
MW
|
|
Sioux Falls
|
|
SD
|
|
2,054
|
|
|
|
12
|
|
Sep
|
|
9/20/93
|
|
|
34.34
|
|
|
|
221
|
|
|
NVSL
|
|
Naugatuck Valley
Financial Corporation
|
|
NASDAQ
|
|
NE
|
|
Naugatuck
|
|
CT
|
|
489
|
|
(1)
|
|
10
|
|
Dec
|
|
6/30/11
|
|
|
9.14
|
|
|
|
64
|
|
|
NHTB
|
|
New Hampshire
Thrift Bancshares, Inc.
|
|
NASDAQ
|
|
NE
|
|
Newport
|
|
NH
|
|
1,483
|
|
|
|
36
|
|
Dec
|
|
5/27/86
|
|
|
15.43
|
|
|
|
127
|
|
|
NYCB
|
|
New York Community
Bancorp, Inc.
|
|
NYSE
|
|
MA
|
|
Westbury
|
|
NY
|
|
48,680
|
|
|
|
278
|
|
Dec
|
|
11/23/93
|
|
|
16.37
|
|
|
|
7,245
|
|
|
NFBK
|
|
Northfield Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Woodbridge
|
|
NJ
|
|
2,925
|
|
|
|
30
|
|
Dec
|
|
1/25/13
|
|
|
14.53
|
|
|
|
703
|
|
|
NWBI
|
|
Northwest Bancshares,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Warren
|
|
PA
|
|
7,827
|
|
|
|
165
|
|
Dec
|
|
12/18/09
|
|
|
11.91
|
|
|
|
1,128
|
|
|
OSHC
|
|
Ocean Shore Holding
Co.
|
|
NASDAQ
|
|
MA
|
|
Ocean City
|
|
NJ
|
|
1,040
|
|
|
|
11
|
|
Dec
|
|
12/21/09
|
|
|
14.07
|
|
|
|
90
|
|
|
OCFC
|
|
OceanFirst Financial
Corp.
|
|
NASDAQ
|
|
MA
|
|
Toms River
|
|
NJ
|
|
2,309
|
|
|
|
24
|
|
Dec
|
|
7/3/96
|
|
|
16.85
|
|
|
|
285
|
|
|
ONFC
|
|
Oneida Financial
Corp.
|
|
NASDAQ
|
|
MA
|
|
Oneida
|
|
NY
|
|
787
|
|
|
|
14
|
|
Dec
|
|
7/7/10
|
|
|
13.15
|
|
|
|
92
|
|
|
ORIT
|
|
Oritani Financial
Corp.
|
|
NASDAQ
|
|
MA
|
|
Township of Washington
|
|
NJ
|
|
3,217
|
|
|
|
26
|
|
Jun
|
|
6/24/10
|
|
|
14.48
|
|
|
|
639
|
|
|
PBHC
|
|
Pathfinder Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Oswego
|
|
NY
|
|
570
|
|
|
|
17
|
|
Dec
|
|
10/17/14
|
|
|
9.87
|
|
|
|
43
|
|
|
PBCT
|
|
People's United
Financial, Inc.
|
|
NASDAQ
|
|
NE
|
|
Bridgeport
|
|
CT
|
|
34,775
|
|
|
|
407
|
|
Dec
|
|
4/16/07
|
|
|
14.95
|
|
|
|
4,602
|
|
|
PBSK
|
|
Poage Bankshares,
Inc.
|
|
NASDAQ
|
|
MW
|
|
Ashland
|
|
KY
|
|
412
|
|
(1)
|
|
8
|
|
Dec
|
|
9/13/11
|
|
|
14.95
|
|
|
|
58
|
|
|
PBCP
|
|
Polonia Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Huntingdon Valley
|
|
PA
|
|
298
|
|
(1)
|
|
5
|
|
Dec
|
|
11/13/12
|
|
|
10.40
|
|
|
|
35
|
|
|
PROV
|
|
Provident Financial
Holdings, Inc.
|
|
NASDAQ
|
|
WE
|
|
Riverside
|
|
CA
|
|
1,107
|
|
|
|
15
|
|
Jun
|
|
6/28/96
|
|
|
15.85
|
|
|
|
143
|
|
|
PFS
|
|
Provident Financial
Services, Inc.
|
|
NYSE
|
|
MA
|
|
Jersey City
|
|
NJ
|
|
8,419
|
|
|
|
90
|
|
Dec
|
|
1/16/03
|
|
|
18.64
|
|
|
|
1,210
|
|
|
PBIP
|
|
Prudential Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Philadelphia
|
|
PA
|
|
525
|
|
|
|
8
|
|
Sep
|
|
10/10/13
|
|
|
12.22
|
|
|
|
114
|
|
|
PULB
|
|
Pulaski Financial
Corp.
|
|
NASDAQ
|
|
MW
|
|
Saint Louis
|
|
MO
|
|
1,380
|
|
|
|
13
|
|
Sep
|
|
12/3/98
|
|
|
11.79
|
|
|
|
142
|
|
|
RVSB
|
|
Riverview Bancorp,
Inc.
|
|
NASDAQ
|
|
WE
|
|
Vancouver
|
|
WA
|
|
842
|
|
|
|
17
|
|
Mar
|
|
10/1/97
|
|
|
4.48
|
|
|
|
101
|
|
|
SVBI
|
|
Severn Bancorp,
Inc.
|
|
NASDAQ
|
|
MA
|
|
Annapolis
|
|
MD
|
|
769
|
|
|
|
4
|
|
Dec
|
|
1/0/00
|
|
|
4.45
|
|
|
|
45
|
|
|
SIFI
|
|
SI Financial Group,
Inc.
|
|
NASDAQ
|
|
NE
|
|
Willimantic
|
|
CT
|
|
1,340
|
|
|
|
26
|
|
Dec
|
|
1/13/11
|
|
|
11.32
|
|
|
|
145
|
|
|
SBCP
|
|
Sunshine Bancorp,
Inc.
|
|
NASDAQ
|
|
SE
|
|
Plant City
|
|
FL
|
|
223
|
|
|
|
5
|
|
Dec
|
|
7/15/14
|
|
|
12.03
|
|
|
|
51
|
|
|
TBNK
|
|
Territorial Bancorp
Inc.
|
|
NASDAQ
|
|
WE
|
|
Honolulu
|
|
HI
|
|
1,656
|
|
|
|
29
|
|
Dec
|
|
7/13/09
|
|
|
21.70
|
|
|
|
215
|
|
|
TSBK
|
|
Timberland Bancorp,
Inc.
|
|
NASDAQ
|
|
WE
|
|
Hoquiam
|
|
WA
|
|
746
|
|
|
|
22
|
|
Sep
|
|
1/13/98
|
|
|
10.92
|
|
|
|
77
|
|
|
TRST
|
|
TrustCo Bank Corp
NY
|
|
NASDAQ
|
|
MA
|
|
Glenville
|
|
NY
|
|
4,582
|
|
|
|
144
|
|
Dec
|
|
1/0/00
|
|
|
6.82
|
|
|
|
647
|
|
|
UCBA
|
|
United Community
Bancorp
|
|
NASDAQ
|
|
MW
|
|
Lawrenceburg
|
|
IN
|
|
523
|
|
|
|
8
|
|
Jun
|
|
1/10/13
|
|
|
12.16
|
|
|
|
56
|
|
|
UCFC
|
|
United Community
Financial Corp.
|
|
NASDAQ
|
|
MW
|
|
Youngstown
|
|
OH
|
|
1,802
|
|
|
|
32
|
|
Dec
|
|
7/9/98
|
|
|
5.28
|
|
|
|
260
|
|
|
UBNK
|
|
United Financial
Bancorp, Inc.
|
|
NASDAQ
|
|
NE
|
|
Glastonbury
|
|
CT
|
|
5,314
|
|
|
|
58
|
|
Dec
|
|
3/4/11
|
|
|
12.78
|
|
|
|
653
|
|
|
WSBF
|
|
Waterstone Financial,
Inc.
|
|
NASDAQ
|
|
MW
|
|
Wauwatosa
|
|
WI
|
|
1,799
|
|
(1)
|
|
11
|
|
Dec
|
|
1/23/14
|
|
|
12.97
|
|
|
|
446
|
|
|
WAYN
|
|
Wayne Savings
Bancshares, Inc.
|
|
NASDAQ
|
|
MW
|
|
Wooster
|
|
OH
|
|
414
|
|
|
|
12
|
|
Dec
|
|
1/9/03
|
|
|
13.85
|
|
|
|
39
|
|
|
WEBK
|
|
Wellesley Bancorp,
Inc.
|
|
NASDAQ
|
|
NE
|
|
Wellesley
|
|
MA
|
|
506
|
|
|
|
5
|
|
Dec
|
|
1/26/12
|
|
|
18.75
|
|
|
|
46
|
|
|
WBB
|
|
Westbury Bancorp,
Inc.
|
|
NASDAQ
|
|
MW
|
|
West Bend
|
|
WI
|
|
569
|
|
|
|
9
|
|
Sep
|
|
4/10/13
|
|
|
16.13
|
|
|
|
79
|
|
|
WFD
|
|
Westfield Financial,
Inc.
|
|
NASDAQ
|
|
NE
|
|
Westfield
|
|
MA
|
|
1,311
|
|
|
|
14
|
|
Dec
|
|
1/4/07
|
|
|
7.41
|
|
|
|
139
|
|
|
WBKC
|
|
Wolverine Bancorp,
Inc.
|
|
NASDAQ
|
|
MW
|
|
Midland
|
|
MI
|
|
339
|
|
(1)
|
|
4
|
|
Dec
|
|
1/20/11
|
|
|
23.75
|
|
|
|
54
|
|
|
WSFS
|
|
WSFS Financial
Corporation
|
|
NASDAQ
|
|
MA
|
|
Wilmington
|
|
DE
|
|
4,783
|
|
|
|
46
|
|
Dec
|
|
11/26/86
|
|
|
79.54
|
|
|
|
748
|
|
|
WVFC
|
|
WVS Financial
Corp.
|
|
NASDAQ
|
|
MA
|
|
Pittsburgh
|
|
PA
|
|
317
|
|
|
|
6
|
|
Jun
|
|
11/29/93
|
|
|
11.02
|
|
|
|
23
|
|
|
GCBC
|
|
Greene County
Bancorp, Inc. (MHC)
|
|
NASDAQ
|
|
MA
|
|
Catskill
|
|
NY
|
|
699
|
|
|
|
14
|
|
Jun
|
|
12/30/98
|
|
|
29.32
|
|
|
|
124
|
|
|
KRNY
|
|
Kearny Financial
Corp. (MHC)
|
|
NASDAQ
|
|
MA
|
|
Fairfield
|
|
NJ
|
|
3,531
|
|
|
|
42
|
|
Jun
|
|
2/24/05
|
|
|
13.48
|
|
|
|
908
|
|
|
KFFB
|
|
Kentucky First
Federal Bancorp (MHC)
|
|
NASDAQ
|
|
MW
|
|
Frankfort
|
|
KY
|
|
296
|
|
|
|
7
|
|
Jun
|
|
3/3/05
|
|
|
8.02
|
|
|
|
68
|
|
|
LSBK
|
|
Lake Shore Bancorp,
Inc. (MHC)
|
|
NASDAQ
|
|
MA
|
|
Dunkirk
|
|
NY
|
|
487
|
|
|
|
11
|
|
Dec
|
|
4/4/06
|
|
|
13.50
|
|
|
|
80
|
|
|
MGYR
|
|
Magyar Bancorp,
Inc. (MHC)
|
|
NASDAQ
|
|
MA
|
|
New Brunswick
|
|
NJ
|
|
530
|
|
|
|
6
|
|
Sep
|
|
1/24/06
|
|
|
8.45
|
|
|
|
49
|
|
|
MSBF
|
|
MSB Financial
Corp. (MHC)
|
|
NASDAQ
|
|
MA
|
|
Millington
|
|
NJ
|
|
345
|
|
(1)
|
|
5
|
|
Dec
|
|
1/5/07
|
|
|
10.25
|
|
|
|
51
|
|
|
NECB
|
|
NorthEast Community
Bancorp, Inc. (MHC)
|
|
NASDAQ
|
|
MA
|
|
White Plains
|
|
NY
|
|
502
|
|
(1)
|
|
9
|
|
Dec
|
|
7/6/06
|
|
|
6.96
|
|
|
|
86
|
|
|
OFED
|
|
Oconee Federal
Financial Corp. (MHC)
|
|
NASDAQ
|
|
SE
|
|
Seneca
|
|
SC
|
|
357
|
|
(1)
|
|
7
|
|
Jun
|
|
1/14/11
|
|
|
20.41
|
|
|
|
120
|
|
|
PSBH
|
|
PSB Holdings,
Inc. (MHC)
|
|
NASDAQ
|
|
NE
|
|
Putnam
|
|
CT
|
|
472
|
|
(1)
|
|
8
|
|
Jun
|
|
10/5/04
|
|
|
7.62
|
|
|
|
50
|
|
|
TFSL
|
|
TFS Financial
Corporation (MHC)
|
|
NASDAQ
|
|
MW
|
|
Cleveland
|
|
OH
|
|
11,803
|
|
|
|
38
|
|
Sep
|
|
4/23/07
|
|
|
14.47
|
|
|
|
4,317
|
|
(1) As of September 30, 2014.
Source: SNL Financial, LC.
EXHIBIT III-2
Public Market Pricing of Northeast Thrift Institutions
Exhibit III-2
Public Market Pricing
Northeast Companies
As of February 13, 2015
|
|
|
Market
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
Core
|
Book
|
|
|
|
|
|
|
|
Dividends(3)
|
|
Financial Characteristics(5)
|
|
|
|
Price/
|
Market
|
|
12 Month
|
Value/
|
|
Pricing Ratios(2)
|
|
Amount/
|
|
Payout
|
|
Total
|
Equity/
|
Tang. Eq./
|
NPAs/
|
Reported
|
|
Core
|
|
|
|
Share
|
Value
|
|
EPS(1)
|
Share
|
|
P/E
|
P/B
|
P/A
|
P/TB
|
P/Core
|
|
Share
|
Yield
|
Ratio(4)
|
|
Assets
|
Assets
|
T. Assets
|
Assets
|
ROAA
|
ROAE
|
|
ROAA
|
ROAE
|
|
|
|
($)
|
($Mil)
|
|
($)
|
($)
|
|
(x)
|
(%)
|
(%)
|
(%)
|
(x)
|
|
($)
|
(%)
|
(%)
|
|
($Mil)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
|
(%)
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Non-MHC Public Companies(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
$16.85
|
$452.30
|
|
$0.94
|
$15.74
|
|
17.62x
|
105.51%
|
13.62%
|
113.74%
|
16.76x
|
|
$0.30
|
1.81%
|
50.20%
|
|
$3,166
|
13.47%
|
12.90%
|
1.95%
|
0.67%
|
5.64%
|
|
0.71%
|
5.74%
|
|
Median
|
|
$13.99
|
$113.69
|
|
$0.81
|
$14.54
|
|
15.53x
|
98.79%
|
12.81%
|
101.92%
|
15.21x
|
|
$0.24
|
1.49%
|
41.38%
|
|
$980
|
12.70%
|
11.63%
|
1.42%
|
0.67%
|
5.29%
|
|
0.71%
|
5.14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast Non-MHC Public Companies(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
$18.46
|
$477.03
|
|
$0.52
|
$17.30
|
|
21.25x
|
103.84%
|
12.71%
|
116.63%
|
18.86x
|
|
$0.23
|
1.24%
|
59.84%
|
|
$3,671
|
12.23%
|
11.42%
|
1.28%
|
0.37%
|
3.72%
|
|
0.37%
|
3.18%
|
|
Medians
|
|
$14.47
|
$141.73
|
|
$0.56
|
$15.05
|
|
21.79x
|
99.32%
|
11.97%
|
104.41%
|
19.19x
|
|
$0.14
|
1.13%
|
36.11%
|
|
$1,388
|
11.17%
|
10.30%
|
1.65%
|
0.36%
|
3.71%
|
|
0.44%
|
4.01%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast Non-MHC Public Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BHBK
|
Blue Hills Bancorp, Inc.
|
MA
|
$12.97
|
$369.21
|
|
NA
|
$14.46
|
|
NM
|
89.70%
|
21.36%
|
92.72%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$1,728
|
23.82%
|
23.22%
|
0.27%
|
-0.01%
|
-0.07%
|
|
0.26%
|
1.47%
|
|
BLMT
|
BSB Bancorp, Inc.
|
MA
|
$18.88
|
$171.20
|
|
$0.49
|
$15.11
|
|
NM
|
124.95%
|
12.01%
|
124.95%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$1,426
|
9.61%
|
9.61%
|
NA
|
0.35%
|
3.24%
|
|
0.35%
|
3.24%
|
|
CBNK
|
Chicopee Bancorp, Inc.
|
MA
|
$16.33
|
$86.06
|
|
($0.11)
|
$16.72
|
|
NM
|
97.65%
|
13.46%
|
97.65%
|
NM
|
|
$0.28
|
1.71%
|
NM
|
|
$639
|
13.79%
|
13.79%
|
1.92%
|
-0.10%
|
-0.64%
|
|
-0.10%
|
-0.66%
|
|
CWAY
|
Coastway Bancorp, Inc.
|
RI
|
$11.02
|
$54.54
|
|
NA
|
NA
|
|
NM
|
77.48%
|
NA
|
77.48%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$466
|
15.14%
|
15.14%
|
NA
|
-0.22%
|
-1.41%
|
|
0.01%
|
0.04%
|
|
FBNK
|
First Connecticut Bancorp, Inc.
|
CT
|
$15.20
|
$243.60
|
|
$0.62
|
$14.57
|
|
24.52x
|
104.30%
|
9.81%
|
104.30%
|
24.52x
|
|
$0.20
|
1.32%
|
27.42%
|
|
$2,484
|
9.40%
|
9.40%
|
NA
|
0.41%
|
3.98%
|
|
0.41%
|
3.98%
|
|
GTWN
|
Georgetown Bancorp, Inc.
|
MA
|
$17.55
|
$32.07
|
|
$0.85
|
$16.81
|
|
20.65x
|
104.41%
|
11.83%
|
104.41%
|
20.65x
|
|
$0.17
|
0.97%
|
20.00%
|
|
$271
|
11.33%
|
11.33%
|
NA
|
0.55%
|
5.04%
|
|
0.55%
|
5.04%
|
|
HIFS
|
Hingham Institution for Savings
|
MA
|
$87.30
|
$185.84
|
|
NA
|
$57.08
|
|
8.36x
|
152.94%
|
11.97%
|
152.94%
|
NM
|
|
$1.12
|
1.28%
|
20.11%
|
|
$1,552
|
7.83%
|
7.83%
|
NA
|
1.52%
|
19.30%
|
|
NA
|
NA
|
|
MELR
|
Melrose Bancorp, Inc.
|
MA
|
$13.99
|
$39.59
|
|
NA
|
NA
|
|
NM
|
NA
|
NA
|
NA
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$213
|
10.17%
|
10.17%
|
NA
|
NA
|
NA
|
|
NA
|
NA
|
|
EBSB
|
Meridian Bancorp, Inc.
|
MA
|
$12.34
|
$675.10
|
|
$0.34
|
$10.56
|
|
29.38x
|
116.86%
|
20.59%
|
119.69%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$3,279
|
17.62%
|
17.28%
|
NA
|
0.75%
|
5.69%
|
|
0.61%
|
4.65%
|
|
NVSL
|
Naugatuck Valley Financial Corporation
|
CT
|
$9.14
|
$64.00
|
|
($0.25)
|
$8.49
|
|
NM
|
107.68%
|
13.08%
|
107.68%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$489
|
12.15%
|
12.15%
|
1.65%
|
-0.42%
|
-3.54%
|
|
-0.34%
|
-2.90%
|
|
NHTB
|
New Hampshire Thrift Bancshares, Inc.
|
NH
|
$15.43
|
$127.42
|
|
$1.25
|
$15.96
|
|
12.97x
|
96.65%
|
8.52%
|
163.51%
|
12.32x
|
|
$0.52
|
3.37%
|
43.70%
|
|
$1,504
|
9.30%
|
5.93%
|
NA
|
0.68%
|
6.81%
|
|
0.72%
|
7.16%
|
|
PBCT
|
People's United Financial, Inc.
|
CT
|
$14.95
|
$4,601.61
|
|
$0.84
|
$15.05
|
|
17.80x
|
99.32%
|
12.78%
|
181.84%
|
17.74x
|
|
$0.66
|
4.41%
|
78.57%
|
|
$35,997
|
12.87%
|
7.47%
|
NA
|
0.75%
|
5.44%
|
|
0.75%
|
5.46%
|
|
SIFI
|
SI Financial Group, Inc.
|
CT
|
$11.32
|
$144.67
|
|
NA
|
$12.35
|
|
31.44x
|
91.66%
|
10.71%
|
103.99%
|
NM
|
|
$0.16
|
1.41%
|
36.11%
|
|
$1,351
|
11.68%
|
10.44%
|
NA
|
0.33%
|
2.82%
|
|
NA
|
NA
|
|
UBNK
|
United Financial Bancorp, Inc.
|
CT
|
$12.78
|
$652.71
|
|
$0.83
|
NA
|
|
NM
|
103.26%
|
NA
|
127.53%
|
15.38x
|
|
$0.40
|
3.13%
|
250.00%
|
|
$5,477
|
11.00%
|
8.93%
|
NA
|
0.16%
|
1.28%
|
|
0.82%
|
6.64%
|
|
WEBK
|
Wellesley Bancorp, Inc.
|
MA
|
$18.75
|
$46.10
|
|
NA
|
$20.07
|
|
24.35x
|
93.42%
|
8.62%
|
93.42%
|
NM
|
|
$0.10
|
0.53%
|
9.74%
|
|
$535
|
9.22%
|
9.22%
|
NA
|
0.36%
|
3.71%
|
|
NA
|
NA
|
|
WFD
|
Westfield Financial, Inc.
|
MA
|
$7.41
|
$138.80
|
|
$0.33
|
$7.61
|
|
21.79x
|
97.37%
|
10.51%
|
97.37%
|
22.56x
|
|
$0.12
|
1.62%
|
52.94%
|
|
$1,320
|
10.80%
|
10.80%
|
NA
|
0.48%
|
4.18%
|
|
0.46%
|
4.04%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast MHCs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSBH
|
PSB Holdings, Inc. (MHC)
|
CT
|
$7.62
|
$49.85
|
|
$0.20
|
$7.93
|
|
NM
|
96.10%
|
10.56%
|
110.87%
|
NM
|
|
$0.12
|
1.57%
|
16.67%
|
|
$472
|
10.99%
|
9.67%
|
NA
|
0.23%
|
2.08%
|
|
0.26%
|
2.33%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast Companies Under Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HBNK
|
Hampden Bancorp, Inc.
|
MA
|
$21.40
|
$118.87
|
|
$0.79
|
$15.47
|
|
31.94x
|
138.33%
|
16.68%
|
138.33%
|
27.01x
|
|
$0.32
|
1.50%
|
44.78%
|
|
$711
|
12.05%
|
12.05%
|
1.36%
|
0.51%
|
4.20%
|
|
0.61%
|
5.00%
|
|
PEOP
|
Peoples Federal Bancshares, Inc.
|
MA
|
$21.62
|
$134.90
|
|
$0.30
|
$16.74
|
|
NM
|
129.13%
|
22.59%
|
129.13%
|
NM
|
|
$0.20
|
0.93%
|
117.65%
|
|
$597
|
17.50%
|
17.50%
|
NA
|
0.17%
|
1.01%
|
|
0.28%
|
1.62%
|
(1) Core income, on a diluted per-share basis. Core income is net income after
taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities,
amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
(2) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB
= Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x.
(3) Indicated 12 month dividend, based on last quarterly dividend declared.
(4) Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5) ROAA (return on average assets) and ROAE (return on average equity) are indicated
ratios based on trailing 12 month earnings and average equity and assets balances.
(6) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
Source: SNL Financial, LC. and RP Financial, LC.
calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee
the accuracy or completeness of such information.
Copyright (c) 2015 by RP® Financial, LC.
EXHIBIT III-3
Public Market Pricing of Mid-Atlantic Thrift Institutions
Exhibit III-3
Public Market Pricing
Mid-Atlantic Companies
As of February 13, 2015
|
|
|
Market
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
Core
|
Book
|
|
|
|
|
|
|
|
Dividends(3)
|
|
Financial Characteristics(5)
|
|
|
|
Price/
|
Market
|
|
12 Month
|
Value/
|
|
Pricing Ratios(2)
|
|
Amount/
|
|
Payout
|
|
Total
|
Equity/
|
Tang. Eq./
|
NPAs/
|
Reported
|
|
Core
|
|
|
|
Share
|
Value
|
|
EPS(1)
|
Share
|
|
P/E
|
P/B
|
P/A
|
P/TB
|
P/Core
|
|
Share
|
Yield
|
Ratio(4)
|
|
Assets
|
Assets
|
T. Assets
|
Assets
|
ROAA
|
ROAE
|
|
ROAA
|
ROAE
|
|
|
|
($)
|
($Mil)
|
|
($)
|
($)
|
|
(x)
|
(%)
|
(%)
|
(%)
|
(x)
|
|
($)
|
(%)
|
(%)
|
|
($Mil)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
|
(%)
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Non-MHC Public Companies(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
$16.85
|
$452.30
|
|
$0.94
|
$15.74
|
|
17.62x
|
105.51%
|
13.62%
|
113.74%
|
16.76x
|
|
$0.30
|
1.81%
|
50.20%
|
|
$3,166
|
13.47%
|
12.90%
|
1.95%
|
0.67%
|
5.64%
|
|
0.71%
|
5.74%
|
|
Median
|
|
$13.99
|
$113.69
|
|
$0.81
|
$14.54
|
|
15.53x
|
98.79%
|
12.81%
|
101.92%
|
15.21x
|
|
$0.24
|
1.49%
|
41.38%
|
|
$980
|
12.70%
|
11.63%
|
1.42%
|
0.67%
|
5.29%
|
|
0.71%
|
5.14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Atlantic Non-MHC Public Companies(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages
|
|
$14.99
|
$781.37
|
|
$0.81
|
$14.06
|
|
17.77x
|
109.87%
|
13.99%
|
122.81%
|
18.96x
|
|
$0.31
|
2.07%
|
59.92%
|
|
$5,105
|
13.92%
|
13.05%
|
1.59%
|
0.60%
|
4.88%
|
|
0.62%
|
4.95%
|
|
Medians
|
|
$12.89
|
$192.50
|
|
$0.53
|
$12.91
|
|
15.05x
|
103.57%
|
13.93%
|
109.43%
|
15.18x
|
|
$0.24
|
1.71%
|
47.92%
|
|
$1,198
|
12.86%
|
10.99%
|
1.29%
|
0.61%
|
4.80%
|
|
0.63%
|
5.14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Atlantic Non-MHC Public Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLB
|
Alliance Bancorp, Inc. of Pennsylvania
|
PA
|
$16.50
|
$66.45
|
|
$0.48
|
$16.30
|
|
34.38x
|
101.22%
|
15.69%
|
101.22%
|
34.38x
|
|
$0.24
|
1.45%
|
47.92%
|
|
$423
|
15.50%
|
15.50%
|
1.93%
|
0.46%
|
2.84%
|
|
0.46%
|
2.84%
|
|
AF
|
Astoria Financial Corporation
|
NY
|
$13.18
|
$1,317.21
|
|
$0.88
|
$14.51
|
|
14.98x
|
90.83%
|
8.49%
|
104.12%
|
14.99x
|
|
$0.16
|
1.21%
|
18.18%
|
|
$15,640
|
10.10%
|
9.03%
|
NA
|
0.61%
|
6.12%
|
|
0.61%
|
6.11%
|
|
BNCL
|
Beneficial Bancorp, Inc.
|
PA
|
$11.54
|
$954.50
|
|
$0.25
|
NA
|
|
NM
|
155.96%
|
NA
|
197.47%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$4,752
|
12.86%
|
10.44%
|
0.40%
|
0.40%
|
2.95%
|
|
0.46%
|
3.37%
|
|
CBNJ
|
Cape Bancorp, Inc.
|
NJ
|
$8.82
|
$101.21
|
|
$0.53
|
$12.28
|
|
14.46x
|
71.84%
|
9.37%
|
85.68%
|
16.78x
|
|
$0.24
|
2.72%
|
39.34%
|
|
$1,080
|
13.05%
|
11.17%
|
NA
|
0.62%
|
4.80%
|
|
0.54%
|
4.14%
|
|
CARV
|
Carver Bancorp, Inc.
|
NY
|
$5.68
|
$20.99
|
|
$0.04
|
$2.63
|
|
NM
|
215.94%
|
3.50%
|
215.94%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$644
|
8.41%
|
8.41%
|
3.07%
|
-0.11%
|
-1.32%
|
|
-0.05%
|
-0.58%
|
|
CSBK
|
Clifton Bancorp Inc.
|
NJ
|
$13.46
|
$365.47
|
|
$0.26
|
$13.40
|
|
NM
|
100.44%
|
30.49%
|
100.44%
|
NM
|
|
$0.24
|
1.78%
|
115.38%
|
|
$1,198
|
30.36%
|
30.36%
|
NA
|
0.54%
|
2.09%
|
|
0.54%
|
2.07%
|
|
DCOM
|
Dime Community Bancshares, Inc.
|
NY
|
$15.63
|
$576.04
|
|
$1.20
|
$12.47
|
|
12.71x
|
125.30%
|
12.81%
|
142.55%
|
13.02x
|
|
$0.56
|
3.58%
|
45.53%
|
|
$4,497
|
10.22%
|
9.10%
|
0.49%
|
1.03%
|
9.83%
|
|
1.01%
|
9.60%
|
|
ESSA
|
ESSA Bancorp, Inc.
|
PA
|
$12.50
|
$142.93
|
|
$0.89
|
$14.81
|
|
14.71x
|
84.41%
|
9.12%
|
91.12%
|
14.12x
|
|
$0.28
|
2.24%
|
32.94%
|
|
$1,568
|
10.81%
|
10.09%
|
1.83%
|
0.60%
|
5.35%
|
|
0.63%
|
5.57%
|
|
FXCB
|
Fox Chase Bancorp, Inc.
|
PA
|
$16.31
|
$192.50
|
|
$0.71
|
$14.90
|
|
22.97x
|
109.43%
|
17.59%
|
109.43%
|
22.97x
|
|
$0.56
|
3.43%
|
84.51%
|
|
$1,095
|
16.07%
|
16.07%
|
0.90%
|
0.76%
|
4.63%
|
|
0.76%
|
4.63%
|
|
HBK
|
Hamilton Bancorp, Inc.
|
MD
|
$12.89
|
$43.99
|
|
($0.28)
|
$17.70
|
|
NM
|
72.83%
|
15.24%
|
76.39%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$289
|
20.93%
|
20.15%
|
NA
|
-0.25%
|
-1.24%
|
|
-0.31%
|
-1.55%
|
|
ISBC
|
Investors Bancorp, Inc.
|
NJ
|
$11.70
|
$4,188.75
|
|
$0.41
|
$9.99
|
|
30.79x
|
117.07%
|
22.31%
|
121.16%
|
28.20x
|
|
$0.20
|
1.71%
|
52.53%
|
|
$18,774
|
19.06%
|
NA
|
0.81%
|
0.76%
|
4.71%
|
|
0.83%
|
5.14%
|
|
MLVF
|
Malvern Bancorp, Inc.
|
PA
|
$12.30
|
$80.67
|
|
$0.08
|
$11.88
|
|
NM
|
103.57%
|
13.37%
|
103.57%
|
NM
|
|
$0.11
|
0.00%
|
NM
|
|
$603
|
12.91%
|
12.91%
|
0.80%
|
0.10%
|
0.76%
|
|
0.09%
|
0.71%
|
|
NYCB
|
New York Community Bancorp, Inc.
|
NY
|
$16.37
|
$7,245.15
|
|
$1.08
|
$13.06
|
|
15.02x
|
125.31%
|
14.92%
|
217.07%
|
15.21x
|
|
$1.00
|
6.11%
|
91.74%
|
|
$48,559
|
11.91%
|
7.24%
|
NA
|
1.01%
|
8.41%
|
|
1.00%
|
8.31%
|
|
NFBK
|
Northfield Bancorp, Inc.
|
NJ
|
$14.53
|
$703.28
|
|
$0.42
|
$12.27
|
|
NM
|
118.41%
|
23.28%
|
121.81%
|
34.37x
|
|
$0.28
|
1.93%
|
65.85%
|
|
$3,021
|
19.66%
|
19.22%
|
1.29%
|
0.73%
|
3.07%
|
|
0.75%
|
3.17%
|
|
NWBI
|
Northwest Bancshares, Inc.
|
PA
|
$11.91
|
$1,128.13
|
|
$0.64
|
$11.22
|
|
17.78x
|
106.16%
|
14.51%
|
127.57%
|
18.48x
|
|
$0.56
|
4.70%
|
228.36%
|
|
$7,775
|
13.67%
|
11.64%
|
1.72%
|
0.79%
|
5.69%
|
|
0.76%
|
5.47%
|
|
OSHC
|
Ocean Shore Holding Co.
|
NJ
|
$14.07
|
$89.95
|
|
NA
|
$16.55
|
|
14.36x
|
85.01%
|
8.78%
|
91.08%
|
NM
|
|
$0.24
|
1.71%
|
24.49%
|
|
$1,025
|
10.33%
|
NA
|
NA
|
0.61%
|
5.90%
|
|
NA
|
NA
|
|
OCFC
|
OceanFirst Financial Corp.
|
NJ
|
$16.85
|
$284.79
|
|
$1.16
|
$12.91
|
|
14.16x
|
130.48%
|
12.08%
|
130.48%
|
14.56x
|
|
$0.52
|
3.09%
|
42.02%
|
|
$2,357
|
9.26%
|
9.26%
|
1.89%
|
0.86%
|
9.18%
|
|
0.84%
|
8.93%
|
|
ONFC
|
Oneida Financial Corp.
|
NY
|
$13.15
|
$92.35
|
|
$0.69
|
NA
|
|
18.01x
|
97.35%
|
NA
|
134.82%
|
19.12x
|
|
$0.48
|
3.65%
|
65.75%
|
|
$798
|
12.01%
|
9.01%
|
NA
|
0.66%
|
5.44%
|
|
0.62%
|
5.14%
|
|
ORIT
|
Oritani Financial Corp.
|
NJ
|
$14.48
|
$639.13
|
|
$0.96
|
$11.42
|
|
15.08x
|
126.78%
|
19.80%
|
126.78%
|
15.08x
|
|
$0.70
|
4.83%
|
98.96%
|
|
$3,251
|
15.62%
|
15.62%
|
0.67%
|
1.31%
|
7.81%
|
|
1.31%
|
7.81%
|
|
PBHC
|
Pathfinder Bancorp, Inc.
|
NY
|
$9.87
|
$42.93
|
|
NA
|
$12.82
|
|
15.66x
|
76.96%
|
7.84%
|
83.78%
|
NM
|
|
$0.12
|
1.22%
|
13.43%
|
|
$561
|
12.34%
|
11.62%
|
NA
|
0.52%
|
5.89%
|
|
NA
|
NA
|
|
PBCP
|
Polonia Bancorp, Inc.
|
PA
|
$10.40
|
$34.69
|
|
($0.00)
|
$11.64
|
|
NM
|
89.38%
|
11.65%
|
89.38%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$298
|
13.03%
|
13.03%
|
NA
|
0.00%
|
0.02%
|
|
0.00%
|
0.02%
|
|
PFS
|
Provident Financial Services, Inc.
|
NJ
|
$18.64
|
$1,209.85
|
|
$1.30
|
$17.63
|
|
15.28x
|
105.75%
|
14.19%
|
166.78%
|
14.36x
|
|
$0.64
|
3.43%
|
50.00%
|
|
$8,523
|
13.42%
|
NA
|
NA
|
0.92%
|
6.75%
|
|
0.97%
|
7.18%
|
|
PBIP
|
Prudential Bancorp, Inc.
|
PA
|
$12.22
|
$113.69
|
|
$0.17
|
$13.68
|
|
NM
|
89.33%
|
21.72%
|
89.33%
|
NM
|
|
$0.12
|
0.98%
|
45.00%
|
|
$527
|
24.31%
|
24.31%
|
1.46%
|
0.37%
|
1.51%
|
|
0.32%
|
1.30%
|
|
SVBI
|
Severn Bancorp, Inc.
|
MD
|
$4.45
|
$44.79
|
|
NA
|
$5.68
|
|
NM
|
78.35%
|
5.97%
|
78.81%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$777
|
10.79%
|
10.75%
|
5.47%
|
0.37%
|
3.54%
|
|
NA
|
NA
|
|
TRST
|
TrustCo Bank Corp NY
|
NY
|
$6.82
|
$646.93
|
|
$0.45
|
$4.15
|
|
14.64x
|
164.43%
|
13.93%
|
164.66%
|
15.14x
|
|
$0.26
|
3.85%
|
56.33%
|
|
$4,644
|
8.47%
|
8.46%
|
NA
|
0.97%
|
11.54%
|
|
0.93%
|
11.16%
|
|
WSFS
|
WSFS Financial Corporation
|
DE
|
$79.54
|
$747.91
|
|
$6.29
|
$52.01
|
|
13.76x
|
152.93%
|
15.41%
|
173.35%
|
12.64x
|
|
$0.60
|
0.75%
|
9.34%
|
|
$4,853
|
10.08%
|
9.00%
|
1.08%
|
1.17%
|
12.22%
|
|
1.27%
|
13.30%
|
|
WVFC
|
WVS Financial Corp.
|
PA
|
$11.02
|
$22.60
|
|
NA
|
$15.52
|
|
21.19x
|
71.01%
|
7.67%
|
71.01%
|
NM
|
|
$0.16
|
1.45%
|
30.77%
|
|
$295
|
10.80%
|
10.80%
|
NA
|
0.33%
|
3.25%
|
|
NA
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Atlantic MHCs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GCBC
|
Greene County Bancorp, Inc. (MHC)
|
NY
|
$29.32
|
$123.80
|
|
$1.59
|
$15.28
|
|
18.68x
|
191.89%
|
17.36%
|
191.89%
|
18.39x
|
|
$0.72
|
2.46%
|
45.54%
|
|
$712
|
9.05%
|
9.05%
|
1.11%
|
0.97%
|
10.83%
|
|
0.99%
|
11.00%
|
|
KRNY
|
Kearny Financial Corp. (MHC)
|
NJ
|
$13.48
|
$908.22
|
|
$0.16
|
$7.32
|
|
NM
|
184.14%
|
25.60%
|
236.56%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$3,548
|
13.90%
|
11.17%
|
NA
|
0.28%
|
2.01%
|
|
0.32%
|
2.30%
|
|
LSBK
|
Lake Shore Bancorp, Inc. (MHC)
|
NY
|
$13.50
|
$79.65
|
|
NA
|
$12.14
|
|
24.55x
|
111.20%
|
16.34%
|
111.20%
|
NM
|
|
$0.28
|
2.07%
|
50.91%
|
|
$487
|
14.69%
|
14.69%
|
NA
|
0.65%
|
4.58%
|
|
NA
|
NA
|
|
MGYR
|
Magyar Bancorp, Inc. (MHC)
|
NJ
|
$8.45
|
$49.14
|
|
$0.10
|
$7.94
|
|
NM
|
106.40%
|
9.37%
|
106.40%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$525
|
8.80%
|
8.80%
|
NA
|
0.12%
|
1.37%
|
|
0.11%
|
1.32%
|
|
MSBF
|
MSB Financial Corp. (MHC)
|
NJ
|
$10.25
|
$51.36
|
|
$0.20
|
$8.21
|
|
NM
|
124.91%
|
14.86%
|
124.91%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$345
|
11.90%
|
11.90%
|
5.65%
|
0.28%
|
2.39%
|
|
0.28%
|
2.39%
|
|
NECB
|
NorthEast Community Bancorp, Inc. (MHC)
|
NY
|
$6.96
|
$86.14
|
|
$0.10
|
$8.37
|
|
NM
|
83.17%
|
17.16%
|
84.02%
|
NM
|
|
$0.12
|
1.72%
|
120.00%
|
|
$502
|
20.63%
|
20.46%
|
4.97%
|
0.26%
|
1.17%
|
|
0.27%
|
1.21%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Atlantic Companies Under Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMSB
|
CMS Bancorp, Inc.
|
NY
|
$13.19
|
$24.57
|
|
$0.47
|
$12.10
|
|
NM
|
109.00%
|
9.23%
|
109.00%
|
27.80x
|
|
$0.00
|
0.00%
|
NM
|
|
$268
|
8.98%
|
8.98%
|
NA
|
0.19%
|
2.21%
|
|
0.31%
|
3.62%
|
|
COBK
|
Colonial Financial Services, Inc.
|
NJ
|
$13.41
|
$51.85
|
|
$0.27
|
$16.27
|
|
NM
|
82.41%
|
9.37%
|
82.41%
|
NM
|
|
$0.00
|
0.00%
|
NM
|
|
$553
|
11.36%
|
11.36%
|
3.74%
|
0.18%
|
1.64%
|
|
0.18%
|
1.61%
|
|
HCBK
|
Hudson City Bancorp, Inc.
|
NJ
|
$9.92
|
$5,246.77
|
|
$0.19
|
$9.04
|
|
31.00x
|
109.73%
|
14.35%
|
113.35%
|
NM
|
|
$0.16
|
1.61%
|
50.00%
|
|
$36,569
|
13.08%
|
12.71%
|
NA
|
0.42%
|
3.28%
|
|
0.25%
|
1.94%
|
(1) Core income, on a diluted per-share basis. Core income is net income after
taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities,
amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
(2) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB
= Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x.
(3) Indicated 12 month dividend, based on last quarterly dividend declared.
(4) Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5) ROAA (return on average assets) and ROAE (return on average equity) are indicated
ratios based on trailing 12 month earnings and average equity and assets balances.
(6) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
Source: SNL Financial, LC. and RP Financial, LC.
calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee
the accuracy or completeness of such information.
Copyright (c) 2015 by RP® Financial, LC.
EXHIBIT III-4
Peer Group Market Area Comparative Analysis
Exhibit III-4
Peer Group Market Area Comparative Analysis
|
|
|
|
|
Proj.
|
|
|
|
|
|
Per Capita Income
|
|
Deposit
|
|
|
|
Population
|
Pop.
|
|
2010-2014
|
|
2014-2019
|
2014
|
|
% State
|
|
Market
|
|
Institution
|
County
|
2010
|
2014
|
2019
|
|
% Change
|
|
% Change
|
Amount
|
|
Average
|
|
Share(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BSB Bancorp, Inc. - MA
|
Middlesex
|
1,503,085
|
1,559,038
|
1,625,777
|
|
0.9%
|
|
0.8%
|
|
43,022
|
|
119.4%
|
|
1.86%
|
|
Cape Bancorp, Inc. - NJ
|
Cape May
|
97,265
|
95,738
|
94,705
|
|
-0.4%
|
|
-0.2%
|
|
30,695
|
|
87.4%
|
|
13.29%
|
|
Fox Chase Bancorp, Inc. - PA
|
Montgomery
|
799,874
|
813,379
|
828,002
|
|
0.4%
|
|
0.4%
|
|
41,062
|
|
143.1%
|
|
1.25%
|
|
Malvern Bancorp, Inc. - PA
|
Chester
|
498,886
|
511,036
|
523,609
|
|
0.6%
|
|
0.5%
|
|
40,831
|
|
142.3%
|
|
3.59%
|
|
Ocean Shore Holding Co. - NJ
|
Cape May
|
97,265
|
95,738
|
94,705
|
|
-0.4%
|
|
-0.2%
|
|
30,695
|
|
87.4%
|
|
9.38%
|
|
Oneida Financial Corp. - NY
|
Madison
|
73,442
|
71,624
|
70,186
|
|
-0.6%
|
|
-0.4%
|
|
27,178
|
|
84.9%
|
|
63.92%
|
|
Prudential Bancorp, Inc. - PA
|
Philadelphia
|
1,526,006
|
1,560,706
|
1,597,398
|
|
0.6%
|
|
0.5%
|
|
21,411
|
|
74.6%
|
|
0.91%
|
|
SI Financial Group, Inc. - CT
|
Windham
|
118,428
|
116,806
|
115,261
|
|
-0.3%
|
|
-0.3%
|
|
29,373
|
|
78.8%
|
|
21.77%
|
|
Wellesley Bancorp, Inc. - MA
|
Norfolk
|
670,850
|
688,231
|
710,338
|
|
0.6%
|
|
0.6%
|
|
44,883
|
|
124.6%
|
|
1.77%
|
|
Westfield Financial Inc. - MA
|
Hampden
|
463,490
|
466,703
|
473,172
|
|
0.2%
|
|
0.3%
|
|
26,828
|
|
74.5%
|
|
9.11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages:
|
584,859
|
597,900
|
613,315
|
|
0.2%
|
|
0.2%
|
|
33,598
|
|
101.7%
|
|
12.69%
|
|
|
Medians:
|
481,188
|
488,870
|
498,391
|
|
0.3%
|
|
0.3%
|
|
30,695
|
|
87.4%
|
|
6.35%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provident Bancorp, Inc. - MA
|
Essex
|
743,159
|
762,929
|
787,929
|
|
0.7%
|
|
0.6%
|
|
34,967
|
|
97.0%
|
|
1.79%
|
(1) Total institution deposits in headquarters county as percent of total county
deposits as of June 30, 2014.
Sources: SNL Financial, LC.
EXHIBIT IV-1
Stock Prices:
As of February 13, 2015
RP
®
Financial, LC.
Exhibit IV-1A
Weekly Thrift Market Line - Part One
Prices As of February 13, 2015
|
|
|
|
Market Capitalization
|
|
Price Change Data
|
|
Current Per Share Financials
|
|
|
|
|
Price/
|
|
Shares
|
|
Market
|
|
52 Week (1)
|
|
|
|
% Change From
|
|
LTM
|
|
LTM Core
|
|
BV/
|
|
TBV/
|
|
Assets/
|
|
|
|
|
Share(1)
|
|
Outstanding
|
|
Capitalization
|
|
High
|
|
Low
|
|
Last Wk
|
|
Last Wk
|
|
52 Wks (2)
|
|
MRY (2)
|
|
EPS (3)
|
|
EPS (3)
|
|
Share
|
|
Share (4)
|
|
Share
|
|
|
|
|
($)
|
|
(000)
|
|
($Mil)
|
|
($)
|
|
($)
|
|
($)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLB
|
Alliance Bancorp, Inc. of Pennsylvania
|
PA
|
|
16.50
|
|
4,027
|
|
66.4
|
|
18.41
|
|
15.10
|
|
17.00
|
|
-2.94
|
|
7.84
|
|
-10.38
|
|
0.48
|
|
0.48
|
|
16.30
|
|
16.30
|
|
105.15
|
|
ANCB
|
Anchor Bancorp
|
WA
|
|
22.14
|
|
2,550
|
|
56.5
|
|
23.00
|
|
17.32
|
|
21.90
|
|
1.10
|
|
21.32
|
|
8.53
|
|
3.88
|
|
3.87
|
|
24.59
|
|
24.59
|
|
148.02
|
|
ABCW
|
Anchor BanCorp Wisconsin Inc.
|
WI
|
|
33.49
|
|
9,546
|
|
319.7
|
|
37.96
|
|
28.00
|
|
32.98
|
|
1.55
|
|
NA
|
|
-2.76
|
|
1.60
|
|
NA
|
|
23.85
|
|
23.85
|
|
218.15
|
|
ASBB
|
ASB Bancorp, Inc.
|
NC
|
|
19.90
|
|
4,378
|
|
87.1
|
|
21.96
|
|
17.26
|
|
19.55
|
|
1.79
|
|
14.04
|
|
-7.44
|
|
0.59
|
|
0.56
|
|
21.56
|
|
21.56
|
|
173.59
|
|
AF
|
Astoria Financial Corporation
|
NY
|
|
13.18
|
|
99,940
|
|
1,317.2
|
|
14.67
|
|
11.96
|
|
12.99
|
|
1.46
|
|
1.15
|
|
-1.35
|
|
0.88
|
|
0.88
|
|
14.51
|
|
12.66
|
|
156.49
|
|
AFCB
|
Athens Bancshares Corporation
|
TN
|
|
24.77
|
|
1,802
|
|
44.6
|
|
30.50
|
|
19.00
|
|
24.77
|
|
0.00
|
|
23.96
|
|
-2.48
|
|
1.52
|
|
NA
|
|
NA
|
|
NA
|
|
167.84
|
|
ACFC
|
Atlantic Coast Financial Corporation
|
FL
|
|
3.95
|
|
15,509
|
|
61.3
|
|
4.49
|
|
3.60
|
|
3.92
|
|
0.77
|
|
-3.42
|
|
-0.50
|
|
0.09
|
|
0.08
|
|
NA
|
|
NA
|
|
45.55
|
|
BKMU
|
Bank Mutual Corporation
|
WI
|
|
7.18
|
|
46,568
|
|
334.4
|
|
7.24
|
|
5.74
|
|
7.00
|
|
2.57
|
|
13.79
|
|
4.66
|
|
0.31
|
|
NA
|
|
6.03
|
|
6.03
|
|
50.00
|
|
BFIN
|
BankFinancial Corporation
|
IL
|
|
11.75
|
|
21,102
|
|
247.9
|
|
12.17
|
|
9.40
|
|
11.73
|
|
0.17
|
|
20.88
|
|
-0.93
|
|
2.01
|
|
2.03
|
|
10.24
|
|
10.15
|
|
69.44
|
|
BNCL
|
Beneficial Bancorp, Inc.
|
PA
|
|
11.54
|
|
82,713
|
|
954.5
|
|
13.05
|
|
10.61
|
|
11.41
|
|
1.14
|
|
8.12
|
|
3.45
|
|
0.22
|
|
0.25
|
|
NA
|
|
NA
|
|
57.45
|
|
BHBK
|
Blue Hills Bancorp, Inc.
|
MA
|
|
12.97
|
|
28,467
|
|
369.2
|
|
13.74
|
|
11.25
|
|
13.24
|
|
-2.04
|
|
NA
|
|
-4.49
|
|
NA
|
|
NA
|
|
14.46
|
|
13.99
|
|
60.71
|
|
BOFI
|
BofI Holding, Inc.
|
CA
|
|
91.39
|
|
15,077
|
|
1,377.8
|
|
106.55
|
|
64.62
|
|
88.99
|
|
2.70
|
|
10.78
|
|
17.45
|
|
4.55
|
|
4.65
|
|
29.65
|
|
29.65
|
|
344.56
|
|
BYFC
|
Broadway Financial Corporation
|
CA
|
|
1.28
|
|
29,077
|
|
37.2
|
|
2.95
|
|
1.00
|
|
1.15
|
|
11.30
|
|
13.27
|
|
-2.29
|
|
0.09
|
|
0.09
|
|
1.36
|
|
1.36
|
|
11.62
|
|
BLMT
|
BSB Bancorp, Inc.
|
MA
|
|
18.88
|
|
9,068
|
|
171.2
|
|
19.35
|
|
15.82
|
|
18.79
|
|
0.48
|
|
21.65
|
|
1.34
|
|
0.49
|
|
0.49
|
|
15.11
|
|
15.11
|
|
157.21
|
|
CBNJ
|
Cape Bancorp, Inc.
|
NJ
|
|
8.82
|
|
11,475
|
|
101.2
|
|
11.26
|
|
8.62
|
|
8.73
|
|
1.03
|
|
-16.56
|
|
-6.27
|
|
0.61
|
|
0.53
|
|
12.28
|
|
10.29
|
|
94.11
|
|
CFFN
|
Capitol Federal Financial, Inc.
|
KS
|
|
12.74
|
|
140,653
|
|
1,791.9
|
|
13.12
|
|
11.61
|
|
12.72
|
|
0.16
|
|
5.73
|
|
-0.31
|
|
0.58
|
|
0.58
|
|
10.42
|
|
10.42
|
|
64.39
|
|
CARV
|
Carver Bancorp, Inc.
|
NY
|
|
5.68
|
|
3,696
|
|
21.0
|
|
15.74
|
|
5.12
|
|
5.90
|
|
-3.73
|
|
-63.94
|
|
-9.12
|
|
-0.07
|
|
0.04
|
|
2.63
|
|
2.63
|
|
174.34
|
|
CFBK
|
Central Federal Corporation
|
OH
|
|
1.31
|
|
15,824
|
|
20.7
|
|
1.78
|
|
1.18
|
|
1.28
|
|
2.34
|
|
-5.76
|
|
7.38
|
|
0.05
|
|
0.01
|
|
1.45
|
|
1.45
|
|
19.44
|
|
CHFN
|
Charter Financial Corporation
|
GA
|
|
11.55
|
|
16,863
|
|
194.8
|
|
11.65
|
|
10.02
|
|
11.50
|
|
0.43
|
|
7.84
|
|
0.87
|
|
0.32
|
|
0.33
|
|
12.57
|
|
12.29
|
|
58.10
|
|
CHEV
|
Cheviot Financial Corp.
|
OH
|
|
14.44
|
|
6,719
|
|
97.0
|
|
14.65
|
|
10.12
|
|
14.35
|
|
0.63
|
|
38.18
|
|
1.62
|
|
0.47
|
|
0.36
|
|
14.32
|
|
NA
|
|
85.02
|
|
CBNK
|
Chicopee Bancorp, Inc.
|
MA
|
|
16.33
|
|
5,271
|
|
86.1
|
|
17.96
|
|
13.56
|
|
16.49
|
|
-0.98
|
|
-6.21
|
|
-2.51
|
|
-0.11
|
|
-0.11
|
|
16.72
|
|
16.72
|
|
121.28
|
|
CSBK
|
Clifton Bancorp Inc.
|
NJ
|
|
13.46
|
|
27,152
|
|
365.5
|
|
13.78
|
|
11.29
|
|
13.57
|
|
-0.81
|
|
1.45
|
|
-0.96
|
|
0.26
|
|
0.26
|
|
13.40
|
|
13.40
|
|
44.13
|
|
CWAY
|
Coastway Bancorp, Inc.
|
RI
|
|
11.02
|
|
4,949
|
|
54.5
|
|
11.89
|
|
10.13
|
|
11.11
|
|
-0.81
|
|
8.57
|
|
-5.16
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
94.12
|
|
DCOM
|
Dime Community Bancshares, Inc.
|
NY
|
|
15.63
|
|
36,855
|
|
576.0
|
|
18.23
|
|
14.02
|
|
15.70
|
|
-0.45
|
|
-2.50
|
|
-3.99
|
|
1.23
|
|
1.20
|
|
12.47
|
|
10.96
|
|
122.02
|
|
ENFC
|
Entegra Financial Corp.
|
NC
|
|
15.40
|
|
6,546
|
|
100.8
|
|
15.60
|
|
12.60
|
|
15.47
|
|
-0.45
|
|
NA
|
|
7.02
|
|
0.91
|
|
NA
|
|
16.39
|
|
16.39
|
|
138.04
|
|
ESSA
|
ESSA Bancorp, Inc.
|
PA
|
|
12.50
|
|
11,434
|
|
142.9
|
|
12.55
|
|
10.20
|
|
12.22
|
|
2.29
|
|
15.21
|
|
4.17
|
|
0.85
|
|
0.89
|
|
14.81
|
|
13.72
|
|
137.11
|
|
EVER
|
EverBank Financial Corp
|
FL
|
|
18.26
|
|
123,679
|
|
2,258.4
|
|
20.61
|
|
16.76
|
|
18.15
|
|
0.61
|
|
7.22
|
|
-4.20
|
|
1.10
|
|
NA
|
|
12.92
|
|
12.51
|
|
174.79
|
|
FCAP
|
First Capital, Inc.
|
IN
|
|
24.50
|
|
2,741
|
|
67.1
|
|
24.95
|
|
20.00
|
|
23.58
|
|
3.90
|
|
19.51
|
|
0.66
|
|
2.03
|
|
NA
|
|
NA
|
|
NA
|
|
172.51
|
|
FBNK
|
First Connecticut Bancorp, Inc.
|
CT
|
|
15.20
|
|
16,026
|
|
243.6
|
|
16.75
|
|
14.23
|
|
15.41
|
|
-1.36
|
|
-2.81
|
|
-6.86
|
|
0.62
|
|
0.62
|
|
14.57
|
|
14.57
|
|
155.02
|
|
FDEF
|
First Defiance Financial Corp.
|
OH
|
|
31.98
|
|
9,209
|
|
294.5
|
|
35.70
|
|
26.25
|
|
32.22
|
|
-0.74
|
|
19.82
|
|
-6.11
|
|
2.38
|
|
2.38
|
|
30.21
|
|
23.29
|
|
236.61
|
|
FFNM
|
First Federal of Northern Michigan Bancorp, Inc.
|
MI
|
|
5.45
|
|
3,727
|
|
20.3
|
|
6.30
|
|
4.69
|
|
5.55
|
|
-1.80
|
|
7.92
|
|
-0.73
|
|
0.52
|
|
NA
|
|
8.04
|
|
7.68
|
|
83.69
|
|
FFNW
|
First Financial Northwest, Inc.
|
WA
|
|
12.19
|
|
15,167
|
|
184.9
|
|
12.60
|
|
9.93
|
|
12.57
|
|
-3.02
|
|
17.32
|
|
1.25
|
|
0.71
|
|
0.71
|
|
11.96
|
|
11.96
|
|
61.78
|
|
FNWB
|
First Northwest Bancorp
|
WA
|
|
12.53
|
|
13,100
|
|
164.1
|
|
12.65
|
|
11.75
|
|
12.49
|
|
0.32
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
70.54
|
|
FBC
|
Flagstar Bancorp, Inc.
|
MI
|
|
14.85
|
|
56,332
|
|
836.5
|
|
22.88
|
|
14.12
|
|
14.85
|
|
0.00
|
|
-29.85
|
|
-5.59
|
|
-1.72
|
|
NA
|
|
19.64
|
|
19.64
|
|
174.68
|
|
FXCB
|
Fox Chase Bancorp, Inc.
|
PA
|
|
16.31
|
|
11,803
|
|
192.5
|
|
17.46
|
|
15.68
|
|
16.44
|
|
-0.79
|
|
-3.83
|
|
-2.16
|
|
0.71
|
|
0.71
|
|
14.90
|
|
14.90
|
|
92.74
|
|
FSBW
|
FS Bancorp, Inc.
|
WA
|
|
19.36
|
|
3,236
|
|
62.6
|
|
19.49
|
|
15.50
|
|
18.90
|
|
2.44
|
|
14.90
|
|
6.08
|
|
1.52
|
|
1.53
|
|
20.35
|
|
20.35
|
|
157.54
|
|
GTWN
|
Georgetown Bancorp, Inc.
|
MA
|
|
17.55
|
|
1,827
|
|
32.1
|
|
18.56
|
|
14.08
|
|
17.95
|
|
-2.23
|
|
17.39
|
|
6.69
|
|
0.85
|
|
0.85
|
|
16.81
|
|
16.81
|
|
148.33
|
|
HBK
|
Hamilton Bancorp, Inc.
|
MD
|
|
12.89
|
|
3,413
|
|
44.0
|
|
14.48
|
|
10.04
|
|
12.61
|
|
2.21
|
|
-6.12
|
|
-0.85
|
|
-0.22
|
|
-0.28
|
|
17.70
|
|
16.88
|
|
84.57
|
|
HFFC
|
HF Financial Corp.
|
SD
|
|
14.82
|
|
7,054
|
|
104.5
|
|
15.00
|
|
12.92
|
|
14.60
|
|
1.51
|
|
11.85
|
|
6.24
|
|
0.63
|
|
1.00
|
|
14.44
|
|
13.76
|
|
179.05
|
|
HIFS
|
Hingham Institution for Savings
|
MA
|
|
87.30
|
|
2,129
|
|
185.8
|
|
90.77
|
|
66.12
|
|
88.00
|
|
-0.80
|
|
12.54
|
|
0.33
|
|
10.44
|
|
NA
|
|
57.08
|
|
57.08
|
|
729.16
|
|
HMNF
|
HMN Financial, Inc.
|
MN
|
|
12.01
|
|
4,470
|
|
53.7
|
|
13.95
|
|
8.94
|
|
12.12
|
|
-0.91
|
|
2.21
|
|
-3.15
|
|
1.23
|
|
1.23
|
|
14.77
|
|
14.77
|
|
129.17
|
|
HBCP
|
Home Bancorp, Inc.
|
LA
|
|
21.42
|
|
7,123
|
|
152.6
|
|
23.23
|
|
19.79
|
|
21.67
|
|
-1.15
|
|
0.94
|
|
-6.63
|
|
1.42
|
|
1.63
|
|
21.64
|
|
NA
|
|
171.46
|
|
HFBL
|
Home Federal Bancorp, Inc. of Louisiana
|
LA
|
|
19.45
|
|
2,166
|
|
42.1
|
|
20.30
|
|
17.52
|
|
19.41
|
|
0.21
|
|
8.90
|
|
-0.41
|
|
1.48
|
|
1.44
|
|
19.76
|
|
19.76
|
|
159.86
|
|
HMST
|
HomeStreet, Inc.
|
WA
|
|
17.75
|
|
14,857
|
|
263.7
|
|
19.89
|
|
15.95
|
|
17.65
|
|
0.57
|
|
-4.31
|
|
1.95
|
|
1.49
|
|
1.52
|
|
20.34
|
|
19.39
|
|
237.95
|
|
IROQ
|
IF Bancorp, Inc.
|
IL
|
|
16.70
|
|
4,339
|
|
72.5
|
|
17.49
|
|
15.90
|
|
16.70
|
|
0.00
|
|
1.83
|
|
-1.24
|
|
0.85
|
|
0.86
|
|
19.29
|
|
19.29
|
|
126.72
|
|
ISBC
|
Investors Bancorp, Inc.
|
NJ
|
|
11.70
|
|
358,013
|
|
4,188.8
|
|
11.74
|
|
9.80
|
|
11.57
|
|
1.12
|
|
16.73
|
|
4.23
|
|
0.38
|
|
0.41
|
|
9.99
|
|
NA
|
|
52.44
|
|
JXSB
|
Jacksonville Bancorp, Inc.
|
IL
|
|
23.00
|
|
1,799
|
|
41.4
|
|
24.00
|
|
19.70
|
|
22.50
|
|
2.22
|
|
11.03
|
|
0.00
|
|
1.65
|
|
1.50
|
|
25.02
|
|
23.50
|
|
173.42
|
|
LPSB
|
La Porte Bancorp, Inc.
|
IN
|
|
12.58
|
|
5,673
|
|
71.4
|
|
13.15
|
|
10.63
|
|
12.60
|
|
-0.16
|
|
15.52
|
|
0.72
|
|
0.81
|
|
0.81
|
|
14.52
|
|
13.00
|
|
91.42
|
|
LABC
|
Louisiana Bancorp, Inc.
|
LA
|
|
20.59
|
|
2,901
|
|
59.7
|
|
24.10
|
|
18.40
|
|
20.66
|
|
-0.34
|
|
12.39
|
|
-8.28
|
|
1.06
|
|
1.06
|
|
20.13
|
|
20.13
|
|
114.91
|
|
MCBK
|
Madison County Financial, Inc.
|
NE
|
|
20.10
|
|
3,032
|
|
61.0
|
|
23.00
|
|
16.96
|
|
19.75
|
|
1.77
|
|
17.55
|
|
3.93
|
|
1.02
|
|
1.05
|
|
20.35
|
|
20.01
|
|
99.56
|
|
MLVF
|
Malvern Bancorp, Inc.
|
PA
|
|
12.30
|
|
6,558
|
|
80.7
|
|
13.00
|
|
10.13
|
|
12.04
|
|
2.16
|
|
15.50
|
|
1.74
|
|
0.09
|
|
0.08
|
|
11.88
|
|
11.88
|
|
91.97
|
|
MELR
|
Melrose Bancorp, Inc.
|
MA
|
|
13.99
|
|
2,830
|
|
39.6
|
|
14.12
|
|
12.75
|
|
13.29
|
|
5.27
|
|
NA
|
|
5.66
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
75.17
|
|
EBSB
|
Meridian Bancorp, Inc.
|
MA
|
|
12.34
|
|
54,708
|
|
675.1
|
|
12.73
|
|
9.60
|
|
12.37
|
|
-0.24
|
|
27.86
|
|
9.98
|
|
0.42
|
|
0.34
|
|
10.56
|
|
10.31
|
|
59.93
|
|
CASH
|
Meta Financial Group, Inc.
|
SD
|
|
34.34
|
|
6,421
|
|
220.5
|
|
46.38
|
|
32.02
|
|
34.37
|
|
-0.09
|
|
-14.56
|
|
-2.00
|
|
2.46
|
|
2.75
|
|
29.57
|
|
25.98
|
|
328.30
|
|
NVSL
|
Naugatuck Valley Financial Corporation
|
CT
|
|
9.14
|
|
7,002
|
|
64.0
|
|
9.24
|
|
7.10
|
|
8.80
|
|
3.86
|
|
28.73
|
|
6.78
|
|
-0.31
|
|
-0.25
|
|
8.49
|
|
8.49
|
|
69.85
|
|
NHTB
|
New Hampshire Thrift Bancshares, Inc.
|
NH
|
|
15.43
|
|
8,258
|
|
127.4
|
|
16.12
|
|
14.05
|
|
15.42
|
|
0.06
|
|
1.92
|
|
-1.22
|
|
1.19
|
|
1.25
|
|
15.96
|
|
9.44
|
|
182.10
|
|
NYCB
|
New York Community Bancorp, Inc.
|
NY
|
|
16.37
|
|
442,587
|
|
7,245.2
|
|
16.58
|
|
13.75
|
|
15.98
|
|
2.44
|
|
5.00
|
|
2.31
|
|
1.09
|
|
1.08
|
|
13.06
|
|
7.54
|
|
109.72
|
|
NFBK
|
Northfield Bancorp, Inc.
|
NJ
|
|
14.53
|
|
48,402
|
|
703.3
|
|
15.15
|
|
12.39
|
|
14.76
|
|
-1.56
|
|
16.24
|
|
-1.82
|
|
0.41
|
|
0.42
|
|
12.27
|
|
11.93
|
|
62.41
|
|
NWBI
|
Northwest Bancshares, Inc.
|
PA
|
|
11.91
|
|
94,721
|
|
1,128.1
|
|
15.11
|
|
11.73
|
|
11.85
|
|
0.51
|
|
-16.24
|
|
-4.95
|
|
0.67
|
|
0.64
|
|
11.22
|
|
9.34
|
|
82.08
|
|
OSHC
|
Ocean Shore Holding Co.
|
NJ
|
|
14.07
|
|
6,393
|
|
90.0
|
|
15.00
|
|
13.63
|
|
14.10
|
|
-0.21
|
|
2.25
|
|
-1.75
|
|
0.98
|
|
NA
|
|
16.55
|
|
NA
|
|
160.28
|
|
OCFC
|
OceanFirst Financial Corp.
|
NJ
|
|
16.85
|
|
16,902
|
|
284.8
|
|
19.00
|
|
13.94
|
|
16.93
|
|
-0.47
|
|
-2.77
|
|
-1.69
|
|
1.19
|
|
1.16
|
|
12.91
|
|
12.91
|
|
139.44
|
|
ONFC
|
Oneida Financial Corp.
|
NY
|
|
13.15
|
|
7,022
|
|
92.3
|
|
13.85
|
|
12.12
|
|
13.20
|
|
-0.38
|
|
6.56
|
|
1.15
|
|
0.73
|
|
0.69
|
|
NA
|
|
NA
|
|
113.66
|
|
ORIT
|
Oritani Financial Corp.
|
NJ
|
|
14.48
|
|
44,139
|
|
639.1
|
|
16.84
|
|
13.69
|
|
14.50
|
|
-0.14
|
|
-7.00
|
|
-5.97
|
|
0.96
|
|
0.96
|
|
11.42
|
|
11.42
|
|
73.65
|
|
PBHC
|
Pathfinder Bancorp, Inc.
|
NY
|
|
9.87
|
|
4,352
|
|
42.9
|
|
10.20
|
|
8.50
|
|
9.89
|
|
-0.24
|
|
12.78
|
|
0.67
|
|
0.63
|
|
NA
|
|
12.82
|
|
11.78
|
|
128.92
|
|
PBCT
|
People's United Financial, Inc.
|
CT
|
|
14.95
|
|
307,800
|
|
4,601.6
|
|
15.50
|
|
13.61
|
|
14.71
|
|
1.63
|
|
6.79
|
|
-1.52
|
|
0.84
|
|
0.84
|
|
15.05
|
|
8.22
|
|
116.95
|
|
PBSK
|
Poage Bankshares, Inc.
|
KY
|
|
14.95
|
|
3,882
|
|
58.0
|
|
16.60
|
|
12.46
|
|
14.99
|
|
-0.27
|
|
6.71
|
|
0.54
|
|
0.20
|
|
0.48
|
|
17.21
|
|
16.63
|
|
106.07
|
|
PBCP
|
Polonia Bancorp, Inc.
|
PA
|
|
10.40
|
|
3,336
|
|
34.7
|
|
10.91
|
|
9.25
|
|
10.50
|
|
-0.95
|
|
7.77
|
|
-0.48
|
|
0.00
|
|
0.00
|
|
11.64
|
|
11.64
|
|
89.30
|
|
PROV
|
Provident Financial Holdings, Inc.
|
CA
|
|
15.85
|
|
8,995
|
|
142.6
|
|
16.18
|
|
13.75
|
|
15.80
|
|
0.32
|
|
5.39
|
|
4.76
|
|
0.86
|
|
0.86
|
|
16.05
|
|
16.05
|
|
123.67
|
|
PFS
|
Provident Financial Services, Inc.
|
NJ
|
|
18.64
|
|
64,906
|
|
1,209.8
|
|
19.28
|
|
16.06
|
|
18.49
|
|
0.81
|
|
12.15
|
|
3.21
|
|
1.22
|
|
1.30
|
|
17.63
|
|
NA
|
|
131.32
|
|
PBIP
|
Prudential Bancorp, Inc.
|
PA
|
|
12.22
|
|
9,303
|
|
113.7
|
|
12.50
|
|
10.45
|
|
12.23
|
|
-0.08
|
|
16.38
|
|
-2.24
|
|
0.20
|
|
0.17
|
|
13.68
|
|
13.68
|
|
56.65
|
|
PULB
|
Pulaski Financial Corp.
|
MO
|
|
11.79
|
|
12,064
|
|
142.2
|
|
12.90
|
|
9.14
|
|
11.76
|
|
0.26
|
|
9.27
|
|
-4.38
|
|
0.95
|
|
0.95
|
|
9.78
|
|
9.45
|
|
118.24
|
RP
®
Financial, LC.
Exhibit IV-1A
Weekly Thrift Market Line - Part One
Prices As of February 13, 2015
|
|
|
|
Market Capitalization
|
|
Price Change Data
|
|
Current Per Share Financials
|
|
|
|
|
Price/
|
|
Shares
|
|
Market
|
|
52 Week (1)
|
|
|
|
% Change From
|
|
LTM
|
|
LTM Core
|
|
BV/
|
|
TBV/
|
|
Assets/
|
|
|
|
|
Share(1)
|
|
Outstanding
|
|
Capitalization
|
|
High
|
|
Low
|
|
Last Wk
|
|
Last Wk
|
|
52 Wks (2)
|
|
MRY (2)
|
|
EPS (3)
|
|
EPS (3)
|
|
Share
|
|
Share (4)
|
|
Share
|
|
|
|
|
($)
|
|
(000)
|
|
($Mil)
|
|
($)
|
|
($)
|
|
($)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RVSB
|
Riverview Bancorp, Inc.
|
WA
|
|
4.48
|
|
22,472
|
|
100.7
|
|
4.55
|
|
3.20
|
|
4.45
|
|
0.67
|
|
33.33
|
|
0.00
|
|
0.87
|
|
0.87
|
|
4.54
|
|
3.40
|
|
36.87
|
|
SVBI
|
Severn Bancorp, Inc.
|
MD
|
|
4.45
|
|
10,064
|
|
44.8
|
|
4.93
|
|
4.25
|
|
4.55
|
|
-2.19
|
|
0.68
|
|
-1.96
|
|
0.06
|
|
NA
|
|
5.68
|
|
5.65
|
|
77.17
|
|
SIFI
|
SI Financial Group, Inc.
|
CT
|
|
11.32
|
|
12,780
|
|
144.7
|
|
12.00
|
|
10.66
|
|
11.13
|
|
1.71
|
|
-3.17
|
|
-0.09
|
|
0.36
|
|
NA
|
|
12.35
|
|
10.89
|
|
105.68
|
|
SBCP
|
Sunshine Bancorp, Inc.
|
FL
|
|
12.03
|
|
4,232
|
|
50.9
|
|
12.73
|
|
11.21
|
|
11.91
|
|
1.01
|
|
NA
|
|
-1.64
|
|
NA
|
|
NA
|
|
14.56
|
|
14.56
|
|
54.31
|
|
TBNK
|
Territorial Bancorp Inc.
|
HI
|
|
21.70
|
|
9,919
|
|
215.2
|
|
22.56
|
|
19.56
|
|
21.68
|
|
0.09
|
|
-3.00
|
|
0.70
|
|
1.51
|
|
1.42
|
|
21.81
|
|
NA
|
|
170.57
|
|
TSBK
|
Timberland Bancorp, Inc.
|
WA
|
|
10.92
|
|
7,053
|
|
77.0
|
|
11.83
|
|
9.02
|
|
10.77
|
|
1.39
|
|
-3.28
|
|
3.02
|
|
0.83
|
|
0.83
|
|
11.95
|
|
11.15
|
|
106.33
|
|
TRST
|
TrustCo Bank Corp NY
|
NY
|
|
6.82
|
|
94,857
|
|
646.9
|
|
7.50
|
|
6.32
|
|
6.96
|
|
-2.01
|
|
3.49
|
|
-6.06
|
|
0.47
|
|
0.45
|
|
4.15
|
|
4.14
|
|
48.96
|
|
UCBA
|
United Community Bancorp
|
IN
|
|
12.16
|
|
4,635
|
|
56.4
|
|
12.58
|
|
10.45
|
|
12.01
|
|
1.25
|
|
10.44
|
|
4.56
|
|
0.44
|
|
NA
|
|
15.27
|
|
NA
|
|
109.81
|
|
UCFC
|
United Community Financial Corp.
|
OH
|
|
5.28
|
|
49,239
|
|
260.0
|
|
5.62
|
|
3.17
|
|
5.42
|
|
-2.58
|
|
51.72
|
|
-1.68
|
|
1.00
|
|
1.01
|
|
4.88
|
|
4.88
|
|
37.24
|
|
UBNK
|
United Financial Bancorp, Inc.
|
CT
|
|
12.78
|
|
51,073
|
|
652.7
|
|
14.67
|
|
12.00
|
|
12.98
|
|
-1.54
|
|
-1.39
|
|
-11.00
|
|
0.16
|
|
0.83
|
|
NA
|
|
NA
|
|
107.23
|
|
WSBF
|
Waterstone Financial, Inc.
|
WI
|
|
12.97
|
|
34,420
|
|
446.4
|
|
13.33
|
|
10.08
|
|
12.95
|
|
0.15
|
|
22.36
|
|
-1.37
|
|
0.36
|
|
0.36
|
|
13.03
|
|
13.01
|
|
52.28
|
|
WAYN
|
Wayne Savings Bancshares, Inc.
|
OH
|
|
13.85
|
|
2,807
|
|
38.9
|
|
14.59
|
|
11.00
|
|
13.88
|
|
-0.22
|
|
25.91
|
|
3.36
|
|
0.95
|
|
NA
|
|
14.25
|
|
13.64
|
|
148.75
|
|
WEBK
|
Wellesley Bancorp, Inc.
|
MA
|
|
18.75
|
|
2,459
|
|
46.1
|
|
20.00
|
|
17.52
|
|
19.17
|
|
-2.19
|
|
-0.79
|
|
-2.30
|
|
0.77
|
|
NA
|
|
20.07
|
|
20.07
|
|
217.64
|
|
WBB
|
Westbury Bancorp, Inc.
|
WI
|
|
16.13
|
|
4,925
|
|
79.4
|
|
16.86
|
|
14.01
|
|
16.35
|
|
-1.36
|
|
14.22
|
|
-1.66
|
|
-0.22
|
|
-0.15
|
|
17.24
|
|
17.24
|
|
120.74
|
|
WFD
|
Westfield Financial, Inc.
|
MA
|
|
7.41
|
|
18,731
|
|
138.8
|
|
8.00
|
|
6.85
|
|
7.39
|
|
0.27
|
|
-0.40
|
|
0.95
|
|
0.34
|
|
0.33
|
|
7.61
|
|
7.61
|
|
70.48
|
|
WBKC
|
Wolverine Bancorp, Inc.
|
MI
|
|
23.75
|
|
2,268
|
|
53.9
|
|
24.10
|
|
21.45
|
|
23.84
|
|
-0.38
|
|
8.05
|
|
-0.84
|
|
0.81
|
|
0.81
|
|
27.05
|
|
27.05
|
|
149.31
|
|
WSFS
|
WSFS Financial Corporation
|
DE
|
|
79.54
|
|
9,403
|
|
747.9
|
|
80.00
|
|
63.74
|
|
79.26
|
|
0.35
|
|
13.52
|
|
3.45
|
|
5.78
|
|
6.29
|
|
52.01
|
|
45.89
|
|
516.15
|
|
WVFC
|
WVS Financial Corp.
|
PA
|
|
11.02
|
|
2,051
|
|
22.6
|
|
12.50
|
|
10.75
|
|
11.18
|
|
-1.43
|
|
-8.17
|
|
2.22
|
|
0.52
|
|
NA
|
|
15.52
|
|
15.52
|
|
143.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MHCs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GCBC
|
Greene County Bancorp, Inc. (MHC)
|
NY
|
|
29.32
|
|
4,222
|
|
123.8
|
|
30.87
|
|
25.25
|
|
29.50
|
|
-0.61
|
|
14.87
|
|
-2.59
|
|
1.57
|
|
1.59
|
|
15.28
|
|
15.28
|
|
168.73
|
|
KRNY
|
Kearny Financial Corp. (MHC)
|
NJ
|
|
13.48
|
|
67,375
|
|
908.2
|
|
16.23
|
|
11.54
|
|
13.48
|
|
0.00
|
|
13.85
|
|
-1.96
|
|
0.14
|
|
0.16
|
|
7.32
|
|
5.70
|
|
52.66
|
|
KFFB
|
Kentucky First Federal Bancorp (MHC)
|
KY
|
|
8.02
|
|
8,458
|
|
67.8
|
|
8.97
|
|
7.47
|
|
8.13
|
|
-1.35
|
|
-8.86
|
|
-1.83
|
|
0.23
|
|
NA
|
|
7.94
|
|
6.23
|
|
35.84
|
|
LSBK
|
Lake Shore Bancorp, Inc. (MHC)
|
NY
|
|
13.50
|
|
5,900
|
|
79.7
|
|
14.00
|
|
11.95
|
|
13.50
|
|
0.00
|
|
8.09
|
|
-0.44
|
|
0.55
|
|
NA
|
|
12.14
|
|
12.14
|
|
82.62
|
|
MGYR
|
Magyar Bancorp, Inc. (MHC)
|
NJ
|
|
8.45
|
|
5,815
|
|
49.1
|
|
9.20
|
|
7.55
|
|
8.35
|
|
1.20
|
|
9.03
|
|
0.12
|
|
0.10
|
|
0.10
|
|
7.94
|
|
7.94
|
|
90.20
|
|
MSBF
|
MSB Financial Corp. (MHC)
|
NJ
|
|
10.25
|
|
5,010
|
|
51.4
|
|
10.75
|
|
7.83
|
|
10.50
|
|
-2.38
|
|
28.13
|
|
0.00
|
|
0.20
|
|
0.20
|
|
8.21
|
|
8.21
|
|
68.95
|
|
NECB
|
NorthEast Community Bancorp, Inc. (MHC)
|
NY
|
|
6.96
|
|
12,376
|
|
86.1
|
|
7.44
|
|
6.55
|
|
6.91
|
|
0.72
|
|
-4.40
|
|
-3.60
|
|
0.10
|
|
0.10
|
|
8.37
|
|
8.28
|
|
40.57
|
|
OFED
|
Oconee Federal Financial Corp. (MHC)
|
SC
|
|
20.41
|
|
5,871
|
|
119.8
|
|
21.50
|
|
16.90
|
|
20.18
|
|
1.14
|
|
16.70
|
|
2.05
|
|
0.66
|
|
NA
|
|
13.27
|
|
13.27
|
|
60.82
|
|
PSBH
|
PSB Holdings, Inc. (MHC)
|
CT
|
|
7.62
|
|
6,542
|
|
49.8
|
|
9.20
|
|
6.04
|
|
7.48
|
|
1.86
|
|
19.06
|
|
-2.06
|
|
0.18
|
|
0.20
|
|
7.93
|
|
6.87
|
|
72.14
|
|
TFSL
|
TFS Financial Corporation (MHC)
|
OH
|
|
14.47
|
|
298,315
|
|
4,316.6
|
|
15.38
|
|
11.37
|
|
14.29
|
|
1.26
|
|
25.72
|
|
-2.79
|
|
0.22
|
|
NA
|
|
6.06
|
|
6.03
|
|
40.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMSB
|
CMS Bancorp, Inc.
|
NY
|
|
13.19
|
|
1,863
|
|
24.6
|
|
13.65
|
|
8.95
|
|
13.17
|
|
0.15
|
|
41.83
|
|
2.41
|
|
0.26
|
|
0.47
|
|
12.10
|
|
12.10
|
|
143.78
|
|
COBK
|
Colonial Financial Services, Inc.
|
NJ
|
|
13.41
|
|
3,867
|
|
51.9
|
|
13.97
|
|
10.11
|
|
13.28
|
|
0.97
|
|
11.75
|
|
0.07
|
|
0.27
|
|
0.27
|
|
16.27
|
|
16.27
|
|
142.94
|
|
HBNK
|
Hampden Bancorp, Inc.
|
MA
|
|
21.40
|
|
5,554
|
|
118.9
|
|
21.49
|
|
15.05
|
|
20.81
|
|
2.84
|
|
34.09
|
|
0.90
|
|
0.67
|
|
0.79
|
|
15.47
|
|
15.47
|
|
128.02
|
|
HBOS
|
Heritage Financial Group, Inc.
|
GA
|
|
24.84
|
|
9,239
|
|
229.5
|
|
26.11
|
|
17.28
|
|
24.74
|
|
0.40
|
|
33.26
|
|
-4.09
|
|
0.95
|
|
1.21
|
|
17.32
|
|
NA
|
|
184.61
|
|
HCBK
|
Hudson City Bancorp, Inc.
|
NJ
|
|
9.92
|
|
528,909
|
|
5,246.8
|
|
10.35
|
|
8.53
|
|
9.61
|
|
3.23
|
|
7.71
|
|
-1.98
|
|
0.32
|
|
0.19
|
|
9.04
|
|
8.75
|
|
69.14
|
|
PEOP
|
Peoples Federal Bancshares, Inc.
|
MA
|
|
21.62
|
|
6,239
|
|
134.9
|
|
22.97
|
|
17.76
|
|
21.91
|
|
-1.32
|
|
20.11
|
|
-4.08
|
|
0.17
|
|
0.30
|
|
16.74
|
|
16.74
|
|
95.68
|
|
SMPL
|
Simplicity Bancorp, Inc.
|
CA
|
|
17.70
|
|
7,400
|
|
131.0
|
|
18.43
|
|
15.61
|
|
17.55
|
|
0.85
|
|
9.12
|
|
3.21
|
|
0.67
|
|
0.73
|
|
18.70
|
|
18.16
|
|
116.65
|
|
SIBC
|
State Investors Bancorp, Inc.
|
LA
|
|
21.10
|
|
2,308
|
|
48.7
|
|
21.10
|
|
14.97
|
|
20.86
|
|
1.15
|
|
36.13
|
|
1.83
|
|
0.53
|
|
0.53
|
|
18.21
|
|
18.21
|
|
117.81
|
(1) Average of High/Low or Bid/Ask price per share.
(2) Or since offering price if converted of first listed in the past 52 weeks.
Percent change figures are actual year-to-date and are not annualized.
(3) EPS (earnings per share) is based on actual trailing 12 month data and is
not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing 12 month common earnings and average common equity and total assets balances.
(6) Annualized based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing 12 month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by public
(non-MHC) shares.
Source: SNL Financial, LC. and RP
®
Financial, LC. calculations.
The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy
or completeness of such information.
Copyright (c) 2015 by RP
®
Financial, LC.
RP
®
Financial, LC.
Exhibit IV-1B
Weekly Thrift Market Line - Part Two
Prices As of February 13, 2015
|
|
|
|
|
Key Financial Ratios
|
|
Asset Quality Ratios
|
|
Pricing Ratios
|
|
Dividend Data (6)
|
|
|
|
|
|
Equity/
|
|
Tang Equity/
|
|
Reported Earnings
|
|
Core Earnings
|
|
NPAs/
|
|
Rsvs/
|
|
Price/
|
|
Price/
|
|
Price/
|
|
Price/
|
|
Price/
|
|
Div/
|
|
Dividend
|
|
Payout
|
|
|
|
|
Assets(1)
|
|
Assets(1)
|
|
ROA(5)
|
|
ROE(5)
|
|
ROA(5)
|
|
ROE(5)
|
|
Assets
|
|
NPLs
|
|
Earnings
|
|
Book
|
|
Assets
|
|
Tang Book
|
|
Core Earnings
|
|
Share
|
|
Yield
|
|
Ratio (7)
|
|
|
|
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(x)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(x)
|
|
($)
|
|
(%)
|
|
(%)
|
|
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLB
|
Alliance Bancorp, Inc. of Pennsylvania
|
PA
|
|
15.50
|
|
15.50
|
|
0.46
|
|
2.84
|
|
0.46
|
|
2.84
|
|
1.93
|
|
75.10
|
|
34.38
|
|
101.22
|
|
15.69
|
|
101.22
|
|
34.38
|
|
0.24
|
|
1.45
|
|
47.92
|
|
ANCB
|
Anchor Bancorp
|
WA
|
|
16.61
|
|
16.61
|
|
2.47
|
|
17.61
|
|
2.46
|
|
17.56
|
|
3.41
|
|
32.64
|
|
5.71
|
|
90.04
|
|
14.96
|
|
90.04
|
|
5.73
|
|
NA
|
|
NA
|
|
NM
|
|
ABCW
|
Anchor BanCorp Wisconsin Inc.
|
WI
|
|
10.93
|
|
10.93
|
|
0.69
|
|
6.89
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
20.93
|
|
140.42
|
|
15.35
|
|
140.42
|
|
NA
|
|
NA
|
|
NA
|
|
NM
|
|
ASBB
|
ASB Bancorp, Inc.
|
NC
|
|
12.42
|
|
12.42
|
|
0.33
|
|
2.51
|
|
0.31
|
|
2.38
|
|
2.15
|
|
79.40
|
|
33.73
|
|
92.30
|
|
11.46
|
|
92.30
|
|
35.69
|
|
NA
|
|
NA
|
|
NM
|
|
AF
|
Astoria Financial Corporation
|
NY
|
|
10.10
|
|
9.03
|
|
0.61
|
|
6.12
|
|
0.61
|
|
6.11
|
|
NA
|
|
NA
|
|
14.98
|
|
90.83
|
|
8.49
|
|
104.12
|
|
14.99
|
|
0.16
|
|
1.21
|
|
18.18
|
|
AFCB
|
Athens Bancshares Corporation
|
TN
|
|
14.11
|
|
14.08
|
|
0.90
|
|
6.52
|
|
NA
|
|
NA
|
|
2.50
|
|
70.11
|
|
16.30
|
|
107.22
|
|
NA
|
|
107.57
|
|
NA
|
|
0.20
|
|
0.81
|
|
13.16
|
|
ACFC
|
Atlantic Coast Financial Corporation
|
FL
|
|
10.24
|
|
10.24
|
|
0.19
|
|
1.89
|
|
0.17
|
|
1.70
|
|
NA
|
|
NA
|
|
43.89
|
|
86.91
|
|
NA
|
|
86.91
|
|
48.66
|
|
0.00
|
|
0.00
|
|
NM
|
|
BKMU
|
Bank Mutual Corporation
|
WI
|
|
12.22
|
|
12.21
|
|
0.63
|
|
5.13
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
23.16
|
|
119.11
|
|
14.38
|
|
119.16
|
|
NA
|
|
0.16
|
|
2.23
|
|
51.61
|
|
BFIN
|
BankFinancial Corporation
|
IL
|
|
14.75
|
|
14.64
|
|
2.83
|
|
22.58
|
|
2.86
|
|
22.80
|
|
NA
|
|
NA
|
|
5.85
|
|
114.73
|
|
16.92
|
|
115.72
|
|
5.79
|
|
0.16
|
|
1.36
|
|
5.97
|
|
BNCL
|
Beneficial Bancorp, Inc.
|
PA
|
|
12.86
|
|
10.44
|
|
0.40
|
|
2.95
|
|
0.46
|
|
3.37
|
|
0.40
|
|
292.54
|
|
52.89
|
|
155.96
|
|
NA
|
|
197.47
|
|
46.23
|
|
NA
|
|
NA
|
|
NM
|
|
BHBK
|
Blue Hills Bancorp, Inc.
|
MA
|
|
23.82
|
|
23.22
|
|
-0.01
|
|
-0.07
|
|
0.26
|
|
1.47
|
|
0.27
|
|
NA
|
|
NA
|
|
89.70
|
|
21.36
|
|
92.72
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
BOFI
|
BofI Holding, Inc.
|
CA
|
|
8.67
|
|
8.67
|
|
1.56
|
|
18.31
|
|
1.59
|
|
18.71
|
|
0.70
|
|
65.45
|
|
20.09
|
|
308.25
|
|
26.45
|
|
308.25
|
|
19.65
|
|
NA
|
|
NA
|
|
NM
|
|
BYFC
|
Broadway Financial Corporation
|
CA
|
|
8.12
|
|
8.12
|
|
0.53
|
|
6.76
|
|
0.54
|
|
6.80
|
|
8.13
|
|
36.32
|
|
14.22
|
|
94.44
|
|
7.67
|
|
94.44
|
|
14.22
|
|
0.04
|
|
0.00
|
|
NM
|
|
BLMT
|
BSB Bancorp, Inc.
|
MA
|
|
9.61
|
|
9.61
|
|
0.35
|
|
3.24
|
|
0.35
|
|
3.24
|
|
NA
|
|
NA
|
|
38.53
|
|
124.95
|
|
12.01
|
|
124.95
|
|
38.53
|
|
NA
|
|
NA
|
|
NM
|
|
CBNJ
|
Cape Bancorp, Inc.
|
NJ
|
|
13.05
|
|
11.17
|
|
0.62
|
|
4.80
|
|
0.54
|
|
4.14
|
|
NA
|
|
NA
|
|
14.46
|
|
71.84
|
|
9.37
|
|
85.68
|
|
16.78
|
|
0.24
|
|
2.72
|
|
39.34
|
|
CFFN
|
Capitol Federal Financial, Inc.
|
KS
|
|
16.19
|
|
16.19
|
|
0.81
|
|
5.29
|
|
0.81
|
|
5.27
|
|
0.62
|
|
17.93
|
|
21.97
|
|
122.24
|
|
19.79
|
|
122.24
|
|
22.04
|
|
0.34
|
|
2.67
|
|
141.38
|
|
CARV
|
Carver Bancorp, Inc.
|
NY
|
|
8.41
|
|
8.41
|
|
-0.11
|
|
-1.32
|
|
-0.05
|
|
-0.58
|
|
3.07
|
|
37.09
|
|
NM
|
|
215.94
|
|
3.50
|
|
215.94
|
|
147.76
|
|
0.00
|
|
0.00
|
|
NM
|
|
CFBK
|
Central Federal Corporation
|
OH
|
|
11.17
|
|
11.17
|
|
0.37
|
|
3.89
|
|
0.11
|
|
1.12
|
|
2.77
|
|
90.96
|
|
26.20
|
|
90.17
|
|
7.00
|
|
90.17
|
|
182.96
|
|
0.00
|
|
0.00
|
|
NM
|
|
CHFN
|
Charter Financial Corporation
|
GA
|
|
21.76
|
|
21.38
|
|
0.58
|
|
2.43
|
|
0.59
|
|
2.46
|
|
1.05
|
|
101.48
|
|
36.09
|
|
91.90
|
|
20.00
|
|
94.01
|
|
35.50
|
|
0.20
|
|
1.73
|
|
62.50
|
|
CHEV
|
Cheviot Financial Corp.
|
OH
|
|
16.84
|
|
NA
|
|
0.53
|
|
3.28
|
|
0.41
|
|
2.53
|
|
NA
|
|
NA
|
|
30.72
|
|
100.87
|
|
16.98
|
|
115.28
|
|
39.86
|
|
0.36
|
|
2.49
|
|
76.60
|
|
CBNK
|
Chicopee Bancorp, Inc.
|
MA
|
|
13.79
|
|
13.79
|
|
-0.10
|
|
-0.64
|
|
-0.10
|
|
-0.66
|
|
1.92
|
|
43.86
|
|
NM
|
|
97.65
|
|
13.46
|
|
97.65
|
|
NM
|
|
0.28
|
|
1.71
|
|
NM
|
|
CSBK
|
Clifton Bancorp Inc.
|
NJ
|
|
30.36
|
|
30.36
|
|
0.54
|
|
2.09
|
|
0.54
|
|
2.07
|
|
NA
|
|
NA
|
|
51.77
|
|
100.44
|
|
30.49
|
|
100.44
|
|
52.31
|
|
0.24
|
|
1.78
|
|
115.38
|
|
CWAY
|
Coastway Bancorp, Inc.
|
RI
|
|
15.14
|
|
15.14
|
|
-0.22
|
|
-1.41
|
|
0.01
|
|
0.04
|
|
NA
|
|
NA
|
|
NA
|
|
77.48
|
|
NA
|
|
77.48
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
DCOM
|
Dime Community Bancshares, Inc.
|
NY
|
|
10.22
|
|
9.10
|
|
1.03
|
|
9.83
|
|
1.01
|
|
9.60
|
|
0.49
|
|
86.83
|
|
12.71
|
|
125.30
|
|
12.81
|
|
142.55
|
|
13.02
|
|
0.56
|
|
3.58
|
|
45.53
|
|
ENFC
|
Entegra Financial Corp.
|
NC
|
|
11.88
|
|
11.88
|
|
0.71
|
|
10.59
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
16.92
|
|
93.94
|
|
11.16
|
|
93.94
|
|
NA
|
|
NA
|
|
NA
|
|
NM
|
|
ESSA
|
ESSA Bancorp, Inc.
|
PA
|
|
10.81
|
|
10.09
|
|
0.60
|
|
5.35
|
|
0.63
|
|
5.57
|
|
1.83
|
|
33.09
|
|
14.71
|
|
84.41
|
|
9.12
|
|
91.12
|
|
14.12
|
|
0.28
|
|
2.24
|
|
32.94
|
|
EVER
|
EverBank Financial Corp
|
FL
|
|
8.08
|
|
7.87
|
|
0.77
|
|
8.82
|
|
NA
|
|
NA
|
|
0.52
|
|
67.15
|
|
16.60
|
|
141.36
|
|
10.52
|
|
145.98
|
|
NA
|
|
0.16
|
|
0.88
|
|
13.64
|
|
FCAP
|
First Capital, Inc.
|
IN
|
|
NA
|
|
NA
|
|
1.23
|
|
NA
|
|
NA
|
|
NA
|
|
1.08
|
|
96.15
|
|
12.07
|
|
119.51
|
|
NA
|
|
132.18
|
|
NA
|
|
0.84
|
|
3.43
|
|
41.38
|
|
FBNK
|
First Connecticut Bancorp, Inc.
|
CT
|
|
9.40
|
|
9.40
|
|
0.41
|
|
3.98
|
|
0.41
|
|
3.98
|
|
NA
|
|
NA
|
|
24.52
|
|
104.30
|
|
9.81
|
|
104.30
|
|
24.52
|
|
0.20
|
|
1.32
|
|
27.42
|
|
FDEF
|
First Defiance Financial Corp.
|
OH
|
|
12.80
|
|
10.17
|
|
1.10
|
|
8.59
|
|
1.10
|
|
8.60
|
|
2.52
|
|
50.73
|
|
13.44
|
|
105.87
|
|
13.55
|
|
137.34
|
|
13.42
|
|
0.70
|
|
2.19
|
|
27.31
|
|
FFNM
|
First Federal of Northern Michigan Bancorp, Inc.
|
MI
|
|
9.61
|
|
9.22
|
|
0.77
|
|
7.05
|
|
NA
|
|
NA
|
|
1.23
|
|
153.14
|
|
10.48
|
|
67.77
|
|
6.51
|
|
70.96
|
|
NA
|
|
0.08
|
|
1.47
|
|
15.38
|
|
FFNW
|
First Financial Northwest, Inc.
|
WA
|
|
19.36
|
|
19.36
|
|
1.17
|
|
5.82
|
|
1.18
|
|
5.82
|
|
6.92
|
|
18.88
|
|
17.17
|
|
101.92
|
|
19.73
|
|
101.92
|
|
17.15
|
|
0.20
|
|
1.64
|
|
28.17
|
|
FNWB
|
First Northwest Bancorp
|
WA
|
|
8.98
|
|
NA
|
|
0.35
|
|
3.53
|
|
0.34
|
|
3.39
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
FBC
|
Flagstar Bancorp, Inc.
|
MI
|
|
13.95
|
|
13.95
|
|
-0.70
|
|
-4.94
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NM
|
|
75.62
|
|
8.74
|
|
75.62
|
|
NA
|
|
0.00
|
|
0.00
|
|
NM
|
|
FXCB
|
Fox Chase Bancorp, Inc.
|
PA
|
|
16.07
|
|
16.07
|
|
0.76
|
|
4.63
|
|
0.76
|
|
4.63
|
|
0.90
|
|
151.60
|
|
22.97
|
|
109.43
|
|
17.59
|
|
109.43
|
|
22.97
|
|
0.56
|
|
3.43
|
|
84.51
|
|
FSBW
|
FS Bancorp, Inc.
|
WA
|
|
12.92
|
|
12.92
|
|
1.01
|
|
7.17
|
|
1.01
|
|
7.22
|
|
0.24
|
|
500.82
|
|
12.74
|
|
95.15
|
|
12.29
|
|
95.15
|
|
12.64
|
|
0.24
|
|
1.24
|
|
15.79
|
|
GTWN
|
Georgetown Bancorp, Inc.
|
MA
|
|
11.33
|
|
11.33
|
|
0.55
|
|
5.04
|
|
0.55
|
|
5.04
|
|
NA
|
|
NA
|
|
20.65
|
|
104.41
|
|
11.83
|
|
104.41
|
|
20.65
|
|
0.17
|
|
0.97
|
|
20.00
|
|
HBK
|
Hamilton Bancorp, Inc.
|
MD
|
|
20.93
|
|
20.15
|
|
-0.25
|
|
-1.24
|
|
-0.31
|
|
-1.55
|
|
NA
|
|
NA
|
|
NM
|
|
72.83
|
|
15.24
|
|
76.39
|
|
NM
|
|
NA
|
|
NA
|
|
NM
|
|
HFFC
|
HF Financial Corp.
|
SD
|
|
8.07
|
|
7.72
|
|
0.35
|
|
4.35
|
|
0.56
|
|
7.02
|
|
1.14
|
|
75.69
|
|
23.52
|
|
102.63
|
|
8.28
|
|
107.68
|
|
14.79
|
|
0.45
|
|
3.04
|
|
71.43
|
|
HIFS
|
Hingham Institution for Savings
|
MA
|
|
7.83
|
|
7.83
|
|
1.52
|
|
19.30
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
8.36
|
|
152.94
|
|
11.97
|
|
152.94
|
|
NA
|
|
1.12
|
|
1.28
|
|
20.11
|
|
HMNF
|
HMN Financial, Inc.
|
MN
|
|
13.16
|
|
13.16
|
|
1.21
|
|
9.12
|
|
1.21
|
|
9.12
|
|
NA
|
|
NA
|
|
9.76
|
|
81.33
|
|
9.46
|
|
81.33
|
|
9.76
|
|
0.00
|
|
0.00
|
|
NM
|
|
HBCP
|
Home Bancorp, Inc.
|
LA
|
|
12.62
|
|
NA
|
|
0.81
|
|
6.67
|
|
0.94
|
|
7.68
|
|
1.99
|
|
37.44
|
|
15.08
|
|
98.99
|
|
12.49
|
|
104.06
|
|
13.11
|
|
0.28
|
|
1.31
|
|
9.86
|
|
HFBL
|
Home Federal Bancorp, Inc. of Louisiana
|
LA
|
|
12.50
|
|
12.50
|
|
0.95
|
|
6.90
|
|
0.92
|
|
6.69
|
|
NA
|
|
NA
|
|
13.14
|
|
98.43
|
|
12.30
|
|
98.43
|
|
13.54
|
|
0.28
|
|
1.44
|
|
18.24
|
|
HMST
|
HomeStreet, Inc.
|
WA
|
|
8.55
|
|
8.18
|
|
0.69
|
|
7.69
|
|
0.71
|
|
7.85
|
|
2.89
|
|
23.77
|
|
11.91
|
|
87.25
|
|
7.46
|
|
91.56
|
|
11.68
|
|
0.44
|
|
0.00
|
|
NM
|
|
IROQ
|
IF Bancorp, Inc.
|
IL
|
|
15.23
|
|
15.23
|
|
0.62
|
|
4.18
|
|
0.62
|
|
4.23
|
|
1.10
|
|
73.72
|
|
19.65
|
|
86.55
|
|
13.18
|
|
86.55
|
|
19.41
|
|
0.10
|
|
0.60
|
|
11.76
|
|
ISBC
|
Investors Bancorp, Inc.
|
NJ
|
|
19.06
|
|
NA
|
|
0.76
|
|
4.71
|
|
0.83
|
|
5.14
|
|
0.81
|
|
139.10
|
|
30.79
|
|
117.07
|
|
22.31
|
|
121.16
|
|
28.20
|
|
0.20
|
|
1.71
|
|
52.53
|
|
JXSB
|
Jacksonville Bancorp, Inc.
|
IL
|
|
14.43
|
|
13.67
|
|
0.95
|
|
6.81
|
|
0.87
|
|
6.20
|
|
NA
|
|
NA
|
|
13.94
|
|
91.93
|
|
13.26
|
|
97.86
|
|
15.31
|
|
0.32
|
|
1.39
|
|
19.39
|
|
LPSB
|
La Porte Bancorp, Inc.
|
IN
|
|
15.89
|
|
14.46
|
|
0.86
|
|
5.38
|
|
0.86
|
|
5.35
|
|
NA
|
|
NA
|
|
15.53
|
|
86.62
|
|
13.76
|
|
96.76
|
|
15.61
|
|
0.16
|
|
1.27
|
|
19.75
|
|
LABC
|
Louisiana Bancorp, Inc.
|
LA
|
|
17.52
|
|
17.52
|
|
0.88
|
|
4.87
|
|
0.88
|
|
4.86
|
|
NA
|
|
NA
|
|
19.42
|
|
102.29
|
|
17.92
|
|
102.29
|
|
19.46
|
|
0.28
|
|
1.36
|
|
91.51
|
|
MCBK
|
Madison County Financial, Inc.
|
NE
|
|
20.47
|
|
20.20
|
|
1.01
|
|
4.69
|
|
1.04
|
|
4.84
|
|
NA
|
|
NM
|
|
19.71
|
|
98.78
|
|
20.22
|
|
100.46
|
|
19.09
|
|
0.24
|
|
1.19
|
|
23.53
|
|
MLVF
|
Malvern Bancorp, Inc.
|
PA
|
|
12.91
|
|
12.91
|
|
0.10
|
|
0.76
|
|
0.09
|
|
0.71
|
|
0.80
|
|
137.68
|
|
NM
|
|
103.57
|
|
13.37
|
|
103.57
|
|
145.41
|
|
0.11
|
|
0.00
|
|
NM
|
|
MELR
|
Melrose Bancorp, Inc.
|
MA
|
|
10.17
|
|
10.17
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
61.68
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
EBSB
|
Meridian Bancorp, Inc.
|
MA
|
|
17.62
|
|
17.28
|
|
0.75
|
|
5.69
|
|
0.61
|
|
4.65
|
|
NA
|
|
NA
|
|
29.38
|
|
116.86
|
|
20.59
|
|
119.69
|
|
35.93
|
|
NA
|
|
NA
|
|
NM
|
|
CASH
|
Meta Financial Group, Inc.
|
SD
|
|
8.71
|
|
7.74
|
|
0.76
|
|
9.28
|
|
0.85
|
|
10.36
|
|
0.10
|
|
247.28
|
|
13.96
|
|
116.12
|
|
10.12
|
|
132.16
|
|
12.51
|
|
0.52
|
|
1.51
|
|
21.14
|
|
NVSL
|
Naugatuck Valley Financial Corporation
|
CT
|
|
12.15
|
|
12.15
|
|
-0.42
|
|
-3.54
|
|
-0.34
|
|
-2.90
|
|
1.65
|
|
91.56
|
|
NM
|
|
107.68
|
|
13.08
|
|
107.68
|
|
NM
|
|
0.00
|
|
0.00
|
|
NM
|
|
NHTB
|
New Hampshire Thrift Bancshares, Inc.
|
NH
|
|
9.30
|
|
5.93
|
|
0.68
|
|
6.81
|
|
0.72
|
|
7.16
|
|
NA
|
|
NA
|
|
12.97
|
|
96.65
|
|
8.52
|
|
163.51
|
|
12.32
|
|
0.52
|
|
3.37
|
|
43.70
|
|
NYCB
|
New York Community Bancorp, Inc.
|
NY
|
|
11.91
|
|
7.24
|
|
1.01
|
|
8.41
|
|
1.00
|
|
8.31
|
|
NA
|
|
NA
|
|
15.02
|
|
125.31
|
|
14.92
|
|
217.07
|
|
15.21
|
|
1.00
|
|
6.11
|
|
91.74
|
|
NFBK
|
Northfield Bancorp, Inc.
|
NJ
|
|
19.66
|
|
19.22
|
|
0.73
|
|
3.07
|
|
0.75
|
|
3.17
|
|
1.29
|
|
69.03
|
|
35.44
|
|
118.41
|
|
23.28
|
|
121.81
|
|
34.37
|
|
0.28
|
|
1.93
|
|
65.85
|
|
NWBI
|
Northwest Bancshares, Inc.
|
PA
|
|
13.67
|
|
11.64
|
|
0.79
|
|
5.69
|
|
0.76
|
|
5.47
|
|
1.72
|
|
57.64
|
|
17.78
|
|
106.16
|
|
14.51
|
|
127.57
|
|
18.48
|
|
0.56
|
|
4.70
|
|
228.36
|
|
OSHC
|
Ocean Shore Holding Co.
|
NJ
|
|
10.33
|
|
NA
|
|
0.61
|
|
5.90
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
14.36
|
|
85.01
|
|
8.78
|
|
91.08
|
|
NA
|
|
0.24
|
|
1.71
|
|
24.49
|
|
OCFC
|
OceanFirst Financial Corp.
|
NJ
|
|
9.26
|
|
9.26
|
|
0.86
|
|
9.18
|
|
0.84
|
|
8.93
|
|
1.89
|
|
41.03
|
|
14.16
|
|
130.48
|
|
12.08
|
|
130.48
|
|
14.56
|
|
0.52
|
|
3.09
|
|
42.02
|
|
ONFC
|
Oneida Financial Corp.
|
NY
|
|
12.01
|
|
9.01
|
|
0.66
|
|
5.44
|
|
0.62
|
|
5.14
|
|
NA
|
|
NA
|
|
18.01
|
|
97.35
|
|
NA
|
|
134.82
|
|
19.12
|
|
0.48
|
|
3.65
|
|
65.75
|
|
ORIT
|
Oritani Financial Corp.
|
NJ
|
|
15.62
|
|
15.62
|
|
1.31
|
|
7.81
|
|
1.31
|
|
7.81
|
|
0.67
|
|
178.33
|
|
15.08
|
|
126.78
|
|
19.80
|
|
126.78
|
|
15.08
|
|
0.70
|
|
4.83
|
|
98.96
|
|
PBHC
|
Pathfinder Bancorp, Inc.
|
NY
|
|
12.34
|
|
11.62
|
|
0.52
|
|
5.89
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
15.66
|
|
76.96
|
|
7.84
|
|
83.78
|
|
NA
|
|
0.12
|
|
1.22
|
|
13.43
|
|
PBCT
|
People's United Financial, Inc.
|
CT
|
|
12.87
|
|
7.47
|
|
0.75
|
|
5.44
|
|
0.75
|
|
5.46
|
|
NA
|
|
NA
|
|
17.80
|
|
99.32
|
|
12.78
|
|
181.84
|
|
17.74
|
|
0.66
|
|
4.41
|
|
78.57
|
|
PBSK
|
Poage Bankshares, Inc.
|
KY
|
|
16.22
|
|
15.76
|
|
0.22
|
|
1.30
|
|
0.47
|
|
2.76
|
|
0.97
|
|
68.37
|
|
NM
|
|
86.87
|
|
14.09
|
|
89.92
|
|
30.88
|
|
0.20
|
|
1.34
|
|
100.00
|
|
PBCP
|
Polonia Bancorp, Inc.
|
PA
|
|
13.03
|
|
13.03
|
|
0.00
|
|
0.02
|
|
0.00
|
|
0.02
|
|
NA
|
|
NA
|
|
NM
|
|
89.38
|
|
11.65
|
|
89.38
|
|
NM
|
|
NA
|
|
NA
|
|
NM
|
|
PROV
|
Provident Financial Holdings, Inc.
|
CA
|
|
12.98
|
|
12.98
|
|
0.74
|
|
5.57
|
|
0.74
|
|
5.57
|
|
1.38
|
|
73.43
|
|
18.43
|
|
98.77
|
|
12.82
|
|
98.77
|
|
18.43
|
|
0.44
|
|
2.78
|
|
50.00
|
|
PFS
|
Provident Financial Services, Inc.
|
NJ
|
|
13.42
|
|
NA
|
|
0.92
|
|
6.75
|
|
0.97
|
|
7.18
|
|
NA
|
|
NA
|
|
15.28
|
|
105.75
|
|
14.19
|
|
166.78
|
|
14.36
|
|
0.64
|
|
3.43
|
|
50.00
|
|
PBIP
|
Prudential Bancorp, Inc.
|
PA
|
|
24.31
|
|
24.31
|
|
0.37
|
|
1.51
|
|
0.32
|
|
1.30
|
|
1.46
|
|
34.02
|
|
61.10
|
|
89.33
|
|
21.72
|
|
89.33
|
|
70.41
|
|
0.12
|
|
0.98
|
|
45.00
|
|
PULB
|
Pulaski Financial Corp.
|
MO
|
|
8.03
|
|
7.77
|
|
0.89
|
|
10.34
|
|
0.90
|
|
10.35
|
|
3.35
|
|
39.70
|
|
12.41
|
|
120.50
|
|
9.67
|
|
124.79
|
|
12.37
|
|
0.38
|
|
3.22
|
|
40.00
|
RP
®
Financial, LC.
Exhibit IV-1B
Weekly Thrift Market Line - Part Two
Prices As of February 13, 2015
|
|
|
|
|
Key Financial Ratios
|
|
Asset Quality Ratios
|
|
Pricing Ratios
|
|
Dividend Data (6)
|
|
|
|
|
|
Equity/
|
|
Tang Equity/
|
|
Reported Earnings
|
|
Core Earnings
|
|
NPAs/
|
|
Rsvs/
|
|
Price/
|
|
Price/
|
|
Price/
|
|
Price/
|
|
Price/
|
|
Div/
|
|
Dividend
|
|
Payout
|
|
|
|
|
Assets(1)
|
|
Assets(1)
|
|
ROA(5)
|
|
ROE(5)
|
|
ROA(5)
|
|
ROE(5)
|
|
Assets
|
|
NPLs
|
|
Earnings
|
|
Book
|
|
Assets
|
|
Tang Book
|
|
Core Earnings
|
|
Share
|
|
Yield
|
|
Ratio (7)
|
|
|
|
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(x)
|
|
(%)
|
|
(%)
|
|
(%)
|
|
(x)
|
|
($)
|
|
(%)
|
|
(%)
|
|
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RVSB
|
Riverview Bancorp, Inc.
|
WA
|
|
12.36
|
|
9.57
|
|
2.39
|
|
20.33
|
|
2.39
|
|
20.14
|
|
NA
|
|
NA
|
|
5.15
|
|
98.79
|
|
12.16
|
|
131.89
|
|
5.17
|
|
0.00
|
|
0.00
|
|
NM
|
|
SVBI
|
Severn Bancorp, Inc.
|
MD
|
|
10.79
|
|
10.75
|
|
0.37
|
|
3.54
|
|
NA
|
|
NA
|
|
5.47
|
|
23.26
|
|
NM
|
|
78.35
|
|
5.97
|
|
78.81
|
|
NA
|
|
0.00
|
|
0.00
|
|
NM
|
|
SIFI
|
SI Financial Group, Inc.
|
CT
|
|
11.68
|
|
10.44
|
|
0.33
|
|
2.82
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
31.44
|
|
91.66
|
|
10.71
|
|
103.99
|
|
NA
|
|
0.16
|
|
1.41
|
|
36.11
|
|
SBCP
|
Sunshine Bancorp, Inc.
|
FL
|
|
26.81
|
|
26.81
|
|
-1.11
|
|
-5.90
|
|
-1.11
|
|
-5.90
|
|
NA
|
|
NA
|
|
NA
|
|
82.61
|
|
22.15
|
|
82.61
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
TBNK
|
Territorial Bancorp Inc.
|
HI
|
|
12.79
|
|
NA
|
|
0.85
|
|
6.56
|
|
0.80
|
|
6.19
|
|
NA
|
|
NA
|
|
14.37
|
|
99.48
|
|
12.72
|
|
99.66
|
|
15.24
|
|
0.64
|
|
2.95
|
|
47.68
|
|
TSBK
|
Timberland Bancorp, Inc.
|
WA
|
|
11.24
|
|
10.56
|
|
0.81
|
|
7.34
|
|
0.81
|
|
7.34
|
|
4.32
|
|
44.59
|
|
13.16
|
|
91.39
|
|
10.27
|
|
97.96
|
|
13.14
|
|
0.24
|
|
2.20
|
|
24.10
|
|
TRST
|
TrustCo Bank Corp NY
|
NY
|
|
8.47
|
|
8.46
|
|
0.97
|
|
11.54
|
|
0.93
|
|
11.16
|
|
NA
|
|
NA
|
|
14.64
|
|
164.43
|
|
13.93
|
|
164.66
|
|
15.14
|
|
0.26
|
|
3.85
|
|
56.33
|
|
UCBA
|
United Community Bancorp
|
IN
|
|
13.91
|
|
NA
|
|
0.40
|
|
2.88
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
27.64
|
|
79.61
|
|
11.07
|
|
85.02
|
|
NA
|
|
0.24
|
|
1.97
|
|
54.55
|
|
UCFC
|
United Community Financial Corp.
|
OH
|
|
13.10
|
|
13.09
|
|
2.82
|
|
23.38
|
|
2.84
|
|
23.55
|
|
NA
|
|
NA
|
|
5.28
|
|
108.26
|
|
14.18
|
|
108.30
|
|
5.24
|
|
0.04
|
|
0.76
|
|
3.00
|
|
UBNK
|
United Financial Bancorp, Inc.
|
CT
|
|
11.00
|
|
8.93
|
|
0.16
|
|
1.28
|
|
0.82
|
|
6.64
|
|
NA
|
|
NA
|
|
NM
|
|
103.26
|
|
NA
|
|
127.53
|
|
15.38
|
|
0.40
|
|
3.13
|
|
250.00
|
|
WSBF
|
Waterstone Financial, Inc.
|
WI
|
|
24.93
|
|
24.90
|
|
0.70
|
|
3.23
|
|
0.70
|
|
3.23
|
|
4.39
|
|
38.45
|
|
36.03
|
|
99.54
|
|
24.81
|
|
99.67
|
|
36.03
|
|
0.20
|
|
1.54
|
|
55.56
|
|
WAYN
|
Wayne Savings Bancshares, Inc.
|
OH
|
|
9.58
|
|
9.21
|
|
0.64
|
|
6.62
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
14.58
|
|
97.18
|
|
9.31
|
|
101.55
|
|
NA
|
|
0.36
|
|
2.60
|
|
36.84
|
|
WEBK
|
Wellesley Bancorp, Inc.
|
MA
|
|
9.22
|
|
9.22
|
|
0.36
|
|
3.71
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
24.35
|
|
93.42
|
|
8.62
|
|
93.42
|
|
NA
|
|
0.10
|
|
0.53
|
|
9.74
|
|
WBB
|
Westbury Bancorp, Inc.
|
WI
|
|
14.55
|
|
14.55
|
|
-0.19
|
|
-1.19
|
|
-0.13
|
|
-0.80
|
|
1.18
|
|
90.12
|
|
NM
|
|
93.57
|
|
13.62
|
|
93.57
|
|
NM
|
|
NA
|
|
NA
|
|
NM
|
|
WFD
|
Westfield Financial, Inc.
|
MA
|
|
10.80
|
|
10.80
|
|
0.48
|
|
4.18
|
|
0.46
|
|
4.04
|
|
NA
|
|
NA
|
|
21.79
|
|
97.37
|
|
10.51
|
|
97.37
|
|
22.56
|
|
0.12
|
|
1.62
|
|
52.94
|
|
WBKC
|
Wolverine Bancorp, Inc.
|
MI
|
|
18.15
|
|
18.15
|
|
0.55
|
|
2.84
|
|
0.55
|
|
2.84
|
|
1.68
|
|
162.46
|
|
29.32
|
|
87.81
|
|
15.94
|
|
87.81
|
|
29.32
|
|
NA
|
|
NA
|
|
74.07
|
|
WSFS
|
WSFS Financial Corporation
|
DE
|
|
10.08
|
|
9.00
|
|
1.17
|
|
12.22
|
|
1.27
|
|
13.30
|
|
1.08
|
|
84.51
|
|
13.76
|
|
152.93
|
|
15.41
|
|
173.35
|
|
12.64
|
|
0.60
|
|
0.75
|
|
9.34
|
|
WVFC
|
WVS Financial Corp.
|
PA
|
|
10.80
|
|
10.80
|
|
0.33
|
|
3.25
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
21.19
|
|
71.01
|
|
7.67
|
|
71.01
|
|
NA
|
|
0.16
|
|
1.45
|
|
30.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MHCs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GCBC
|
Greene County Bancorp, Inc. (MHC)
|
NY
|
|
9.05
|
|
9.05
|
|
0.97
|
|
10.83
|
|
0.99
|
|
11.00
|
|
1.11
|
|
106.58
|
|
18.68
|
|
191.89
|
|
17.36
|
|
191.89
|
|
18.39
|
|
0.72
|
|
2.46
|
|
45.54
|
|
KRNY
|
Kearny Financial Corp. (MHC)
|
NJ
|
|
13.90
|
|
11.17
|
|
0.28
|
|
2.01
|
|
0.32
|
|
2.30
|
|
NA
|
|
NA
|
|
NM
|
|
184.14
|
|
25.60
|
|
236.56
|
|
83.74
|
|
0.00
|
|
0.00
|
|
NM
|
|
KFFB
|
Kentucky First Federal Bancorp (MHC)
|
KY
|
|
22.17
|
|
18.26
|
|
0.63
|
|
2.84
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
34.87
|
|
100.95
|
|
22.38
|
|
128.74
|
|
NA
|
|
0.40
|
|
4.99
|
|
173.91
|
|
LSBK
|
Lake Shore Bancorp, Inc. (MHC)
|
NY
|
|
14.69
|
|
14.69
|
|
0.65
|
|
4.58
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
24.55
|
|
111.20
|
|
16.34
|
|
111.20
|
|
NA
|
|
0.28
|
|
2.07
|
|
50.91
|
|
MGYR
|
Magyar Bancorp, Inc. (MHC)
|
NJ
|
|
8.80
|
|
8.80
|
|
0.12
|
|
1.37
|
|
0.11
|
|
1.32
|
|
NA
|
|
NA
|
|
NM
|
|
106.40
|
|
9.37
|
|
106.40
|
|
87.23
|
|
NA
|
|
NA
|
|
NM
|
|
MSBF
|
MSB Financial Corp. (MHC)
|
NJ
|
|
11.90
|
|
11.90
|
|
0.28
|
|
2.39
|
|
0.28
|
|
2.39
|
|
5.65
|
|
19.12
|
|
51.25
|
|
124.91
|
|
14.86
|
|
124.91
|
|
51.25
|
|
0.00
|
|
0.00
|
|
NM
|
|
NECB
|
NorthEast Community Bancorp, Inc. (MHC)
|
NY
|
|
20.63
|
|
20.46
|
|
0.26
|
|
1.17
|
|
0.27
|
|
1.21
|
|
4.97
|
|
18.40
|
|
69.60
|
|
83.17
|
|
17.16
|
|
84.02
|
|
67.44
|
|
0.12
|
|
1.72
|
|
120.00
|
|
OFED
|
Oconee Federal Financial Corp. (MHC)
|
SC
|
|
21.68
|
|
21.68
|
|
1.05
|
|
4.95
|
|
NA
|
|
NA
|
|
0.61
|
|
54.15
|
|
30.92
|
|
153.79
|
|
33.35
|
|
153.79
|
|
NA
|
|
0.40
|
|
1.96
|
|
60.61
|
|
PSBH
|
PSB Holdings, Inc. (MHC)
|
CT
|
|
10.99
|
|
9.67
|
|
0.23
|
|
2.08
|
|
0.26
|
|
2.33
|
|
NA
|
|
NA
|
|
42.33
|
|
96.10
|
|
10.56
|
|
110.87
|
|
37.88
|
|
0.12
|
|
1.57
|
|
16.67
|
|
TFSL
|
TFS Financial Corporation (MHC)
|
OH
|
|
15.02
|
|
14.95
|
|
0.56
|
|
3.57
|
|
NA
|
|
NA
|
|
2.13
|
|
33.96
|
|
65.77
|
|
238.80
|
|
35.87
|
|
240.09
|
|
NA
|
|
0.28
|
|
1.94
|
|
63.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMSB
|
CMS Bancorp, Inc.
|
NY
|
|
8.98
|
|
8.98
|
|
0.19
|
|
2.21
|
|
0.31
|
|
3.62
|
|
NA
|
|
NA
|
|
50.73
|
|
109.00
|
|
9.23
|
|
109.00
|
|
27.80
|
|
NA
|
|
NA
|
|
NM
|
|
COBK
|
Colonial Financial Services, Inc.
|
NJ
|
|
11.36
|
|
11.36
|
|
0.18
|
|
1.64
|
|
0.18
|
|
1.61
|
|
3.74
|
|
25.32
|
|
49.67
|
|
82.41
|
|
9.37
|
|
82.41
|
|
49.50
|
|
NA
|
|
NA
|
|
NM
|
|
HBNK
|
Hampden Bancorp, Inc.
|
MA
|
|
12.05
|
|
12.05
|
|
0.51
|
|
4.20
|
|
0.61
|
|
5.00
|
|
1.36
|
|
63.26
|
|
31.94
|
|
138.33
|
|
16.68
|
|
138.33
|
|
27.01
|
|
0.32
|
|
1.50
|
|
44.78
|
|
HBOS
|
Heritage Financial Group, Inc.
|
GA
|
|
9.38
|
|
NA
|
|
0.50
|
|
5.46
|
|
0.64
|
|
6.96
|
|
0.88
|
|
85.93
|
|
26.15
|
|
143.42
|
|
13.46
|
|
155.02
|
|
20.49
|
|
0.28
|
|
1.13
|
|
29.47
|
|
HCBK
|
Hudson City Bancorp, Inc.
|
NJ
|
|
13.08
|
|
12.71
|
|
0.42
|
|
3.28
|
|
0.25
|
|
1.94
|
|
NA
|
|
NA
|
|
31.00
|
|
109.73
|
|
14.35
|
|
113.35
|
|
52.42
|
|
0.16
|
|
1.61
|
|
50.00
|
|
PEOP
|
Peoples Federal Bancshares, Inc.
|
MA
|
|
17.50
|
|
17.50
|
|
0.17
|
|
1.01
|
|
0.28
|
|
1.62
|
|
NA
|
|
138.49
|
|
NM
|
|
129.13
|
|
22.59
|
|
129.13
|
|
72.84
|
|
0.20
|
|
0.93
|
|
117.65
|
|
SMPL
|
Simplicity Bancorp, Inc.
|
CA
|
|
16.01
|
|
15.63
|
|
0.56
|
|
3.52
|
|
0.61
|
|
3.83
|
|
1.79
|
|
25.39
|
|
26.42
|
|
94.66
|
|
15.16
|
|
97.45
|
|
24.22
|
|
0.36
|
|
2.03
|
|
53.73
|
|
SIBC
|
State Investors Bancorp, Inc.
|
LA
|
|
15.46
|
|
15.46
|
|
0.48
|
|
3.06
|
|
0.48
|
|
3.06
|
|
NA
|
|
NA
|
|
39.81
|
|
115.86
|
|
17.91
|
|
115.86
|
|
39.81
|
|
NA
|
|
NA
|
|
NM
|
(1) Average of High/Low or Bid/Ask price per share.
(2) Or since offering price if converted of first listed in the past 52 weeks.
Percent change figures are actual year-to-date and are not annualized.
(3) EPS (earnings per share) is based on actual trailing 12 month data and is
not shown on a pro forma basis.
(4) Exludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing 12 month common earnings and average common equity and total assets balances.
(6) Annualized based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing 12 month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by public
(non-MHC) shares.
Source: SNL Financial, LC. and RP
®
Financial, LC. calculations.
The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy
or completeness of such information.
Copyright (c) 2015 by RP
®
Financial, LC.
EXHIBIT IV-2
Historical Stock Price Indices
Exhibit IV-2
Historical Stock Price Indices(1)
|
|
|
|
|
|
|
|
|
|
SNL
|
|
SNL
|
|
|
|
|
|
|
|
|
NASDAQ
|
|
Thrift
|
|
Bank
|
|
Year/Qtr. Ended
|
|
DJIA
|
|
S&P 500
|
|
Composite
|
|
Index
|
|
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
Quarter 1
|
|
10357.7
|
|
1126.2
|
|
1994.2
|
|
1585.3
|
|
562.20
|
|
|
Quarter 2
|
|
10435.5
|
|
1140.8
|
|
2047.8
|
|
1437.8
|
|
546.62
|
|
|
Quarter 3
|
|
10080.3
|
|
1114.6
|
|
1896.8
|
|
1495.1
|
|
556.00
|
|
|
Quarter 4
|
|
10783.0
|
|
1211.9
|
|
2175.4
|
|
1605.6
|
|
595.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
Quarter 1
|
|
10503.8
|
|
1180.6
|
|
1999.2
|
|
1516.6
|
|
551.00
|
|
|
Quarter 2
|
|
10275.0
|
|
1191.3
|
|
2057.0
|
|
1577.1
|
|
563.27
|
|
|
Quarter 3
|
|
10568.7
|
|
1228.8
|
|
2151.7
|
|
1527.2
|
|
546.30
|
|
|
Quarter 4
|
|
10717.5
|
|
1248.3
|
|
2205.3
|
|
1616.4
|
|
582.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
Quarter 1
|
|
11109.3
|
|
1294.8
|
|
2339.8
|
|
1661.1
|
|
595.50
|
|
|
Quarter 2
|
|
11150.2
|
|
1270.2
|
|
2172.1
|
|
1717.9
|
|
601.14
|
|
|
Quarter 3
|
|
11679.1
|
|
1335.9
|
|
2258.4
|
|
1727.1
|
|
634.00
|
|
|
Quarter 4
|
|
12463.2
|
|
1418.3
|
|
2415.3
|
|
1829.3
|
|
658.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
Quarter 1
|
|
12354.4
|
|
1420.9
|
|
2421.6
|
|
1703.6
|
|
634.40
|
|
|
Quarter 2
|
|
13408.6
|
|
1503.4
|
|
2603.2
|
|
1645.9
|
|
622.63
|
|
|
Quarter 3
|
|
13895.6
|
|
1526.8
|
|
2701.5
|
|
1523.3
|
|
595.80
|
|
|
Quarter 4
|
|
13264.8
|
|
1468.4
|
|
2652.3
|
|
1058.0
|
|
492.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008:
|
Quarter 1
|
|
12262.9
|
|
1322.7
|
|
2279.1
|
|
1001.5
|
|
442.5
|
|
|
Quarter 2
|
|
11350.0
|
|
1280.0
|
|
2293.0
|
|
822.6
|
|
332.2
|
|
|
Quarter 3
|
|
10850.7
|
|
1166.4
|
|
2082.3
|
|
760.1
|
|
414.8
|
|
|
Quarter 4
|
|
8776.4
|
|
903.3
|
|
1577.0
|
|
653.9
|
|
268.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009:
|
Quarter 1
|
|
7608.9
|
|
797.9
|
|
1528.6
|
|
542.8
|
|
170.1
|
|
|
Quarter 2
|
|
8447.0
|
|
919.3
|
|
1835.0
|
|
538.8
|
|
227.6
|
|
|
Quarter 3
|
|
9712.3
|
|
1057.1
|
|
2122.4
|
|
561.4
|
|
282.9
|
|
|
Quarter 4
|
|
10428.1
|
|
1115.1
|
|
2269.2
|
|
587.0
|
|
260.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010:
|
Quarter 1
|
|
10856.6
|
|
1169.4
|
|
2398.0
|
|
626.3
|
|
301.1
|
|
|
Quarter 2
|
|
9744.0
|
|
1030.7
|
|
2109.2
|
|
564.5
|
|
257.2
|
|
|
Quarter 3
|
|
9744.0
|
|
1030.7
|
|
2109.2
|
|
564.5
|
|
257.2
|
|
|
Quarter 4
|
|
11577.5
|
|
1257.6
|
|
2652.9
|
|
592.2
|
|
290.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011:
|
Quarter 1
|
|
12319.7
|
|
1325.8
|
|
2781.1
|
|
578.1
|
|
293.1
|
|
|
Quarter 2
|
|
12414.3
|
|
1320.6
|
|
2773.5
|
|
540.8
|
|
266.8
|
|
|
Quarter 3
|
|
10913.4
|
|
1131.4
|
|
2415.4
|
|
443.2
|
|
198.9
|
|
|
Quarter 4
|
|
12217.6
|
|
1257.6
|
|
2605.2
|
|
481.4
|
|
221.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012:
|
Quarter 1
|
|
13212.0
|
|
1408.5
|
|
3091.6
|
|
529.3
|
|
284.9
|
|
|
Quarter 2
|
|
12880.1
|
|
1362.2
|
|
2935.1
|
|
511.6
|
|
257.3
|
|
|
Quarter 3
|
|
13437.1
|
|
1440.7
|
|
3116.2
|
|
557.6
|
|
276.8
|
|
|
Quarter 4
|
|
13104.1
|
|
1426.2
|
|
3019.5
|
|
565.8
|
|
292.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013:
|
Quarter 1
|
|
14578.5
|
|
1569.2
|
|
3267.5
|
|
602.3
|
|
318.9
|
|
|
Quarter 2
|
|
14909.6
|
|
1606.3
|
|
3404.3
|
|
625.3
|
|
346.7
|
|
|
Quarter 3
|
|
15129.7
|
|
1681.6
|
|
3771.5
|
|
650.8
|
|
354.4
|
|
|
Quarter 4
|
|
16576.7
|
|
1848.4
|
|
4176.6
|
|
706.5
|
|
394.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014:
|
Quarter 1
|
|
16457.7
|
|
1872.3
|
|
4199.0
|
|
718.9
|
|
410.8
|
|
|
Quarter 2
|
|
16826.6
|
|
1960.2
|
|
4408.2
|
|
723.9
|
|
405.2
|
|
|
Quarter 3
|
|
17042.9
|
|
1972.3
|
|
4493.4
|
|
697.7
|
|
411.0
|
|
|
Quarter 4
|
|
17823.1
|
|
2058.9
|
|
4736.1
|
|
738.7
|
|
432.8
|
|
As of Feb. 13, 2015
|
|
18019.4
|
|
2097.0
|
|
4893.8
|
|
735.2
|
|
422.0
|
(1) End of period data.
Sources: SNL Financial and The Wall Street Journal.
EXHIBIT IV-3
Historical Thrift Stock Indices
|
Index Values
|
|
|
|
|
Industry:
|
Savings Bank/Thrift/Mutual
|
|
Geography:
|
United
States and Canada
|
|
|
|
|
Change
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
/
|
|
|
Close
|
Last
Update
|
1
Day
|
1
Week
|
MTD
|
QTD
|
YTD
|
1
Year
|
3
Year
|
Earnings
(x)
|
|
SNL Custom** Indexes
|
|
|
|
|
|
|
|
|
|
|
|
SNL Banking Indexes
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Bank and Thrift
|
404.15
|
2/13/2015
|
0.24
|
1.82
|
8.31
|
(2.43)
|
(2.43)
|
7.75
|
64.77
|
19.2
|
|
SNL U.S. Thrift
|
735.24
|
2/13/2015
|
0.27
|
1.12
|
5.05
|
(0.47)
|
(0.47)
|
7.91
|
45.53
|
26.1
|
|
SNL TARP Participants
|
82.77
|
2/13/2015
|
(0.07)
|
0.88
|
12.32
|
6.41
|
6.41
|
13.84
|
72.14
|
15.3
|
|
S&P 500 Bank
|
229.84
|
2/13/2015
|
0.30
|
2.07
|
8.58
|
(3.00)
|
(3.00)
|
8.95
|
59.29
|
NA
|
|
NASDAQ Bank
|
2,625.34
|
2/13/2015
|
0.32
|
0.69
|
7.64
|
(1.89)
|
(1.89)
|
4.77
|
50.44
|
NA
|
|
S&P 500 Thrifts & Mortgage Finance
|
4.32
|
2/13/2015
|
0.16
|
2.44
|
8.42
|
(1.75)
|
(1.75)
|
7.25
|
29.62
|
NA
|
|
SNL Asset Size Indexes
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Thrift < $250M
|
942.36
|
2/13/2015
|
0.09
|
2.83
|
1.79
|
1.43
|
1.43
|
5.94
|
20.72
|
NA
|
|
SNL U.S. Thrift $250M-$500M
|
4,563.74
|
2/13/2015
|
0.41
|
0.56
|
0.43
|
0.00
|
0.00
|
14.66
|
63.85
|
25.6
|
|
SNL U.S. Thrift < $500M
|
1,554.99
|
2/13/2015
|
0.39
|
0.70
|
0.51
|
0.09
|
0.09
|
14.39
|
60.69
|
25.6
|
|
SNL U.S. Thrift $500M-$1B
|
1,914.18
|
2/13/2015
|
0.34
|
0.01
|
1.74
|
(0.20)
|
(0.20)
|
12.28
|
61.58
|
27.6
|
|
SNL U.S. Thrift $1B-$5B
|
2,360.77
|
2/13/2015
|
0.13
|
(0.17)
|
3.55
|
(0.41)
|
(0.41)
|
8.18
|
53.08
|
23.7
|
|
SNL U.S. Thrift $5B-$10B
|
747.32
|
2/13/2015
|
(0.24)
|
0.64
|
4.36
|
(1.84)
|
(1.84)
|
(5.57)
|
4.78
|
19.2
|
|
SNL U.S. Thrift > $10B
|
151.23
|
2/13/2015
|
0.44
|
1.90
|
6.41
|
(0.28)
|
(0.28)
|
10.13
|
48.29
|
28.2
|
|
SNL Market Cap Indexes
|
|
|
|
|
|
|
|
|
|
|
|
SNL Micro Cap U.S. Thrift
|
766.09
|
2/13/2015
|
0.30
|
0.34
|
1.79
|
0.38
|
0.38
|
12.28
|
64.88
|
21.5
|
|
SNL Micro Cap U.S. Bank & Thrift
|
512.55
|
2/13/2015
|
0.23
|
0.27
|
1.58
|
(0.18)
|
(0.18)
|
9.74
|
60.39
|
15.9
|
|
SNL Small Cap U.S. Thrift
|
513.69
|
2/13/2015
|
(0.07)
|
(0.33)
|
4.11
|
(2.68)
|
(2.68)
|
5.20
|
45.73
|
25.8
|
|
SNL Small Cap U.S. Bank & Thrift
|
447.18
|
2/13/2015
|
0.09
|
(0.22)
|
5.37
|
(2.79)
|
(2.79)
|
6.01
|
43.92
|
16.5
|
|
SNL Mid Cap U.S. Thrift
|
284.67
|
2/13/2015
|
0.35
|
1.19
|
5.67
|
(0.28)
|
(0.28)
|
7.19
|
41.91
|
29.6
|
|
SNL Mid Cap U.S. Bank & Thrift
|
304.47
|
2/13/2015
|
0.48
|
0.92
|
8.73
|
(0.74)
|
(0.74)
|
5.35
|
45.88
|
17.1
|
|
SNL Large Cap U.S. Thrift
|
151.94
|
2/13/2015
|
0.38
|
2.77
|
6.31
|
0.98
|
0.98
|
8.08
|
28.09
|
21.7
|
|
SNL Large Cap U.S. Bank & Thrift
|
268.34
|
2/13/2015
|
0.22
|
2.07
|
8.47
|
(2.64)
|
(2.64)
|
8.21
|
68.58
|
19.2
|
|
SNL Geographic Indexes
|
|
|
|
|
|
|
|
|
|
|
|
SNL Mid-Atlantic U.S. Thrift
|
2,928.84
|
2/13/2015
|
0.33
|
1.44
|
6.16
|
(0.10)
|
(0.10)
|
6.45
|
40.28
|
23.8
|
|
SNL Midwest U.S. Thrift
|
2,357.62
|
2/13/2015
|
0.62
|
0.66
|
3.02
|
(1.99)
|
(1.99)
|
11.70
|
57.57
|
41.7
|
|
SNL New England U.S. Thrift
|
1,991.91
|
2/13/2015
|
(0.19)
|
0.72
|
4.67
|
(1.55)
|
(1.55)
|
7.12
|
24.03
|
20.3
|
|
SNL Southeast U.S. Thrift
|
351.65
|
2/13/2015
|
0.08
|
0.60
|
3.75
|
(3.06)
|
(3.06)
|
8.03
|
87.37
|
20.1
|
|
SNL Southwest U.S. Thrift
|
609.74
|
2/13/2015
|
0.00
|
(0.44)
|
(1.25)
|
(4.83)
|
(4.83)
|
15.12
|
50.47
|
19.6
|
|
SNL Western U.S. Thrift
|
103.81
|
2/13/2015
|
(0.01)
|
1.48
|
4.90
|
9.54
|
9.54
|
8.72
|
93.58
|
17.5
|
|
SNL Stock Exchange Indexes
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Thrift NYSE
|
132.34
|
2/13/2015
|
0.29
|
1.70
|
5.94
|
0.28
|
0.28
|
1.87
|
44.05
|
15.3
|
|
SNL U.S. Thrift NASDAQ
|
2,049.73
|
2/13/2015
|
0.27
|
0.93
|
4.76
|
(0.71)
|
(0.71)
|
10.01
|
46.24
|
29.7
|
|
SNL U.S. Thrift Pink
|
231.40
|
2/13/2015
|
0.18
|
0.84
|
2.89
|
3.74
|
3.74
|
17.46
|
63.50
|
16.4
|
|
SNL Other Indexes
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Thrift MHCs
|
4,730.67
|
2/13/2015
|
1.07
|
0.92
|
2.90
|
(2.21)
|
(2.21)
|
14.87
|
67.65
|
62.3
|
|
Broad Market Indexes
|
|
|
|
|
|
|
|
|
|
|
|
DJIA
|
18,019.35
|
2/13/2015
|
0.26
|
1.09
|
4.98
|
1.10
|
1.10
|
12.43
|
39.97
|
NA
|
|
Source:
SNL Financial | Page 1 of 2
|
|
S&P 500
|
2,096.99
|
2/13/2015
|
0.41
|
2.02
|
5.11
|
1.85
|
1.85
|
14.60
|
55.13
|
NA
|
|
S&P Mid-Cap
|
1,502.78
|
2/13/2015
|
0.53
|
1.75
|
4.72
|
3.47
|
3.47
|
12.01
|
54.27
|
NA
|
|
S&P Small-Cap
|
705.45
|
2/13/2015
|
0.50
|
1.23
|
5.23
|
1.49
|
1.49
|
8.95
|
53.69
|
NA
|
|
S&P 500 Financials
|
328.84
|
2/13/2015
|
(0.10)
|
1.20
|
6.08
|
(1.34)
|
(1.34)
|
13.09
|
66.20
|
NA
|
|
SNL U.S. Financial Institutions
|
717.88
|
2/13/2015
|
0.08
|
1.52
|
7.13
|
(1.02)
|
(1.02)
|
12.05
|
69.41
|
17.7
|
|
MSCI US IMI Financials
|
1,213.58
|
2/12/2015
|
1.13
|
1.57
|
5.53
|
(0.39)
|
(0.39)
|
12.71
|
60.37
|
NA
|
|
NASDAQ
|
4,893.84
|
2/13/2015
|
0.75
|
3.15
|
5.58
|
3.33
|
3.33
|
15.40
|
66.95
|
NA
|
|
NASDAQ Finl
|
3,157.32
|
2/13/2015
|
0.08
|
0.84
|
7.47
|
0.49
|
0.49
|
5.79
|
49.02
|
NA
|
|
NYSE
|
11,042.70
|
2/13/2015
|
0.43
|
1.80
|
4.80
|
1.88
|
1.88
|
7.96
|
37.07
|
NA
|
|
Russell 1000
|
1,163.83
|
2/12/2015
|
0.98
|
1.24
|
4.68
|
1.70
|
1.70
|
14.43
|
56.44
|
NA
|
|
Russell 2000
|
1,216.27
|
2/12/2015
|
1.22
|
0.63
|
4.37
|
0.96
|
0.96
|
7.39
|
49.54
|
NA
|
|
Russell 3000
|
1,244.23
|
2/12/2015
|
0.99
|
1.20
|
4.65
|
1.64
|
1.64
|
13.86
|
55.87
|
NA
|
|
S&P TSX Composite
|
15,264.81
|
2/13/2015
|
0.23
|
1.20
|
4.03
|
4.32
|
4.32
|
9.02
|
23.12
|
NA
|
|
MSCI AC World (USD)
|
424.69
|
2/12/2015
|
1.13
|
0.59
|
3.50
|
1.82
|
1.82
|
5.84
|
31.09
|
NA
|
|
MSCI World (USD)
|
1,741.22
|
2/12/2015
|
1.14
|
0.79
|
3.80
|
1.85
|
1.85
|
6.32
|
37.14
|
NA
|
|
Bermuda Royal Gazette/BSX
|
1,373.16
|
2/12/2015
|
(3.44)
|
(0.13)
|
0.67
|
1.18
|
1.18
|
5.48
|
25.20
|
NA
|
Intraday data is available for certain exchanges. In all cases, the
data is at least 15 minutes delayed.
** - Non-publicly traded institutions and institutions outside of
your current subscription are not included in custom indexes. Custom indexes including foreign institutions do not take into account
currency translations. Data is as of the previous close.
All SNL indexes are market-value weighted; i.e., an institution's
effect on an index is proportional to that institution's market capitalization.
Source: MSCI. MSCI makes no express or implied warranties or representations
and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed
or used as a basis for other indices or any securities or financial products.
|
Mid-Atlantic: DE, DC, MD, NJ, NY, PA, PR
|
Midwest: IA, IN, IL, KS, KY, MI, MN, MO, ND, NE, OH, SD, WI
|
|
|
|
|
New England: CT, ME, MA, NH, RI, VT
|
Southeast: AL, AR, FL, GA, MS, NC, SC, TN, VA, WV
|
|
|
|
|
Southwest: CO, LA, NM, OK, TX, UT
|
West: AZ, AK, CA, HI, ID, MT, NV, OR, WA, WY
|
|
Source:
SNL Financial | Page 2 of 2
|
EXHIBIT IV-4
Massachusetts Thrift Acquisitions 2011 - Present
Exhibit IV-4
Massachusetts Thrift Acquisitions 2011-Present
|
|
|
|
|
|
|
|
|
|
Target Financials at Announcement
|
|
Deal Terms and Pricing at Announcement
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
LTM
|
LTM
|
NPAs/
|
Rsrvs/
|
|
Deal
|
Value/
|
|
|
|
|
Prem/
|
|
Announce
|
Complete
|
|
|
|
|
|
|
|
Assets
|
E/A
|
TE/A
|
ROAA
|
ROAE
|
Assets
|
NPLs
|
|
Value
|
Share
|
P/B
|
P/TB
|
P/E
|
P/A
|
Cdeps
|
|
Date
|
Date
|
|
Buyer Short Name
|
|
|
Target Name
|
|
|
($000)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
|
($M)
|
($)
|
(%)
|
(%)
|
(x)
|
(%)
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/04/2014
|
Def. Agrmt.
|
|
Berkshire Hills Bancorp Inc.
|
MA
|
|
Hampden Bancorp, Inc.
|
MA
|
|
705,681
|
12.14
|
12.14
|
0.64
|
5.20
|
1.48
|
55.99
|
|
114.5
|
20.882
|
134.81
|
134.81
|
25.16
|
16.86
|
6.00
|
|
08/05/2014
|
Def. Agrmt.
|
|
Independent Bank Corp.
|
MA
|
|
Peoples Federal Bancshares, Inc.
|
MA
|
|
606,201
|
17.11
|
17.11
|
0.35
|
1.96
|
0.30
|
220.44
|
|
130.6
|
20.386
|
122.66
|
122.66
|
59.96
|
21.55
|
7.28
|
|
07/16/2014
|
01/17/2015
|
|
Cape Ann SB
|
MA
|
|
Granite Savings Bank
|
MA
|
|
70,076
|
13.95
|
13.95
|
-0.09
|
-0.64
|
0.00
|
NA
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
|
02/13/2014
|
09/01/2014
|
|
North Shore Bancorp
|
MA
|
|
Saugusbank, a Co-operative Bank
|
MA
|
|
206,232
|
8.91
|
8.91
|
0.31
|
3.56
|
3.02
|
25.84
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
|
12/31/2013
|
06/01/2014
|
|
North Brookfield SB
|
MA
|
|
FamilyFirst Bank
|
MA
|
|
51,905
|
9.17
|
9.15
|
-0.39
|
-4.03
|
1.47
|
31.54
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
|
11/15/2013
|
04/30/2014
|
|
Rockville Financial Inc.
|
CT
|
|
United Financial Bancorp, Inc.
|
MA
|
|
2,490,737
|
12.16
|
10.56
|
0.37
|
2.93
|
0.76
|
81.88
|
|
370.7
|
18.416
|
119.66
|
140.26
|
48.46
|
14.88
|
7.21
|
|
05/14/2013
|
11/15/2013
|
|
Independent Bank Corp.
|
MA
|
|
Mayflower Bancorp, Inc.
|
MA
|
|
261,344
|
8.66
|
8.66
|
0.58
|
6.56
|
0.36
|
151.76
|
|
37.4
|
17.918
|
163.48
|
163.48
|
25.24
|
14.29
|
7.20
|
|
05/01/2012
|
11/09/2012
|
|
Independent Bank Corp.
|
MA
|
|
Central Bancorp, Inc.
|
MA
|
|
521,350
|
8.59
|
8.20
|
0.21
|
2.23
|
2.75
|
29.08
|
|
54.8
|
32.006
|
154.47
|
164.98
|
NM
|
10.51
|
8.43
|
|
03/14/2012
|
07/01/2012
|
|
Framingham Co-operative Bank
|
MA
|
|
Natick Federal Savings Bank
|
MA
|
|
155,587
|
9.23
|
9.23
|
-0.05
|
-0.53
|
1.26
|
11.04
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
|
09/13/2011
|
02/25/2012
|
|
South Adams Savings Bank
|
MA
|
|
Adams Co-operative Bank
|
MA
|
|
196,056
|
9.47
|
9.47
|
0.16
|
1.73
|
6.05
|
14.25
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
|
09/08/2011
|
01/03/2012
|
|
Haverhill Bank
|
MA
|
|
Economy Co-operative Bank
|
MA
|
|
24,145
|
10.33
|
10.33
|
0.13
|
1.33
|
0.31
|
127.03
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
|
09/01/2011
|
02/01/2012
|
|
Salem Five Bancorp
|
MA
|
|
Stoneham Savings Bank
|
MA
|
|
366,819
|
6.43
|
5.58
|
-1.29
|
-19.55
|
4.93
|
18.98
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
|
01/20/2011
|
06/30/2011
|
|
People's United Financial Inc.
|
CT
|
|
Danvers Bancorp, Inc.
|
MA
|
|
2,630,968
|
11.16
|
10.01
|
0.65
|
5.71
|
0.73
|
89.87
|
|
488.9
|
22.810
|
163.16
|
184.10
|
28.51
|
18.58
|
13.37
|
|
01/20/2011
|
04/01/2011
|
|
Hometown Bank A Co-Op Bank
|
MA
|
|
Athol-Clinton Co-operative Bank
|
MA
|
|
89,181
|
9.17
|
9.17
|
-1.50
|
-15.30
|
13.20
|
20.47
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average:
|
|
|
598,306
|
10.46
|
10.18
|
0.01
|
-0.63
|
2.62
|
67.55
|
|
|
|
143.04
|
151.72
|
37.47
|
16.11
|
8.25
|
|
|
|
|
|
|
|
Median:
|
|
|
233,788
|
9.35
|
9.35
|
0.18
|
1.85
|
1.37
|
31.54
|
|
|
|
144.64
|
151.87
|
28.51
|
15.87
|
7.25
|
Source: SNL Financial, LC.
EXHIBIT IV-5
Provident Bancorp, Inc.
Director and Senior Management Summary Resumes
Exhibit IV-5
Provident Bancorp, Inc.
Director and Senior Management Summary Resumes
The business experience for the
past five years of each of our directors is set forth below. The biographies also contain information regarding the person’s
experience, qualifications, attributes or skills that caused the board of directors to determine that the person should serve as
a director. Each director is also a director of The Provident Bank. Unless otherwise indicated, directors have held their positions
for the past five years.
John K. Bosen
is
an attorney and owner of Bosen & Associates, P.L.L.C., located in Portsmouth, New Hampshire, which he founded in April of 2004.
Mr. Bosen’s practice focuses in the areas of business law, real estate, and litigation. He is a member of both the New Hampshire
and Massachusetts Bar Associations. He is also admitted to practice before the United States District Court, District of New Hampshire,
and the United States Court of Appeals for the First Circuit. Mr. Bosen’s experience as an attorney assists the board of
directors in analyzing and addressing the legal requirements of Provident Bancorp, Inc. and The Provident Bank, including any litigation
matters.
Frank G. Cousins, Jr.
has
served as the Sheriff of Essex County, Massachusetts for 18 years. Mr. Cousins’ years of service as a law enforcement officer
in our community provides valuable insight into the economic and business needs of our community, as well as insight into where
we can best serve our community in other ways, including charitable donations.
Charles R. Cullen
is the Chairman of the Board of Provident Bancorp, Inc. and The Provident Bank, and previously served as President and Chief Executive
Officer of The Provident Bank from May 2003 until May 2013, with 30 years experience in the banking industry. Mr. Cullen’s
experience in banking, and specifically at The Provident Bank, provides him with extensive knowledge of our operations, as well
as banking regulation and internal controls.
Robert A. Gonthier, Jr.
retired in 1999 as the Vice President of Procurement of Gould Shawmut, a national distributor of fuses. Mr. Gonthier employed
by the company for 32 years. Mr. Gonthier’s years of experience in business assists us in developing strategic planning.
Laurie H. Knapp
is
a certified public accountant and sole owner of Laurie H. Knapp CPA PC, an accounting firm located in Amesbury, Massachusetts.
Ms. Knapp specializes in personal and corporate taxes. Her experience as a certified public accountant provides the board of directors
with experience when assessing our accounting practices and with respect to tax matters.
David P. Mansfield
has served as the President and Chief Executive Officer of Provident Bancorp, Inc. and Chief Executive Officer of The Provident
Bank since May 2013, having joined The Provident Bank as Chief Financial Officer in 2001. Mr. Mansfield previously worked as a
bank examiner for both the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporate, and is a Certified
Financial Analyst. Mr. Mansfield’s positions as President and Chief Executive Officer foster clear accountability, effective
decision-making, a clear and direct channel of communication from senior management to the full board of directors, and alignment
on corporate strategy.
Richard L. Peeke
is a former insurance executive who retired in 2007 after 41 years of experience in the insurance industry. Mr. Peeke’s experience
as a National General Adjuster at AIG gives him unique insights into our challenges, opportunities and operations in the insurance
products field and with respect to our insurance needs.
Wayne S. Tatro
retired
in 2001 following a 37-year career at LeBaron Bonney, a family owned business that began in the 1930’s. Mr. Tatro was part
owner and president of the company. The company manufactured upholstery for antique cars, and distributed their products both nationally
and internationally. The company was sold in 1998 and Mr. Tatro continued to work there until his retirement in 2001. Mr. Tatro’s
experience owning a business provides us insight with respect to our commercial business customers, and his long career in one
of our local markets provides us valuable insight regarding our market area.
Exhibit IV-5 (continued)
Provident Bancorp, Inc.
Director and Senior Management Summary Resumes
Executive Officers Who Are Not Directors of Provident
Bancorp, Inc.
The following sets forth information
regarding our executive officers who are not directors of Provident Bancorp, Inc. Age information is as of December 31, 2014. The
executive officers of Provident Bancorp, Inc. and The Provident Bank are elected annually.
Charles F. Withee
,
age 52, is the Provident Bank’s President and Chief Lending Officer, positions he has held since May 2013. Mr. Withee is
also a director of The Provident Bank. Mr. Withee joined The Provident Bank as Senior Lender in 2004, and had nearly 30 years of
commercial banking experience in Massachusetts and New Hampshire.
Carol L. Houle,
age
44, is Executive Vice President and Chief Financial Officer of The Provident Bancorp, Inc. and The Provident Bank. Ms. Houle is
a Certified Public Accountant, and joined the Provident Bank in September 2013. Previously, Ms. Houle was a partner at the accounting
firm of Shatswell, MacLeod & Company, P.C., where she worked for 17 years.
Source: Provident Bancorp’s prospectus.
EXHIBIT IV-6
Provident Bancorp, Inc.
Pro Forma Regulatory Capital Ratios
Exhibit IV-6
Provident Bancorp, Inc.
Pro Forma Regulatory Capital Ratios
|
|
|
The Provident Bank
Historical at
|
|
Pro Forma at December 31, 2014, Based Upon the Sale in the Offering of
|
|
|
|
December 31, 2014
|
|
3,121,200 Shares
|
|
3,672,000 Shares
|
|
4,222,800 Shares
|
|
4,856,220 Shares (1)
|
|
|
|
Amount
|
|
Percent of
Assets (2)
|
|
Amount
|
|
Percent of
Assets (2)
|
|
Amount
|
|
Percent of
Assets (2)
|
|
Amount
|
|
Percent of
Assets (2)
|
|
Amount
|
|
Percent of
Assets (2)
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Equity
|
|
$
|
75,694
|
|
|
|
11.49
|
%
|
|
$
|
86,530
|
|
|
|
12.87
|
%
|
|
$
|
88,569
|
|
|
|
13.13
|
%
|
|
$
|
90,607
|
|
|
|
13.38
|
%
|
|
$
|
92,951
|
|
|
|
13.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage capital
|
|
$
|
73,282
|
|
|
|
11.31
|
%
|
|
$
|
84,118
|
|
|
|
12.72
|
%
|
|
$
|
86,157
|
|
|
|
12.98
|
%
|
|
$
|
88,195
|
|
|
|
13.24
|
%
|
|
$
|
90,539
|
|
|
|
13.53
|
%
|
|
Tier
1 leverage requirement
|
|
|
32,393
|
|
|
|
5.00
|
|
|
|
33,065
|
|
|
|
5.00
|
|
|
|
33,190
|
|
|
|
5.00
|
|
|
|
33,315
|
|
|
|
5.00
|
|
|
|
33,459
|
|
|
|
5.00
|
|
|
Excess
|
|
$
|
40,889
|
|
|
|
6.31
|
%
|
|
$
|
51,053
|
|
|
|
7.72
|
%
|
|
$
|
52,967
|
|
|
|
7.98
|
%
|
|
$
|
54,880
|
|
|
|
8.24
|
%
|
|
$
|
57,080
|
|
|
|
8.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based
capital (3)
|
|
$
|
73,282
|
|
|
|
13.87
|
%
|
|
$
|
84,118
|
|
|
|
15.84
|
%
|
|
$
|
86,157
|
|
|
|
16.21
|
%
|
|
$
|
88,195
|
|
|
|
16.57
|
%
|
|
$
|
90,539
|
|
|
|
17.00
|
%
|
|
Tier
1 risk-based requirement
|
|
|
51,829
|
|
|
|
8.00
|
|
|
|
52,905
|
|
|
|
8.00
|
|
|
|
53,104
|
|
|
|
8.00
|
|
|
|
53,304
|
|
|
|
8.00
|
|
|
|
53,534
|
|
|
|
8.00
|
|
|
Excess
|
|
$
|
21,453
|
|
|
|
5.87
|
%
|
|
$
|
31,213
|
|
|
|
7.84
|
%
|
|
$
|
33,053
|
|
|
|
8.21
|
%
|
|
$
|
34,891
|
|
|
|
8.57
|
%
|
|
$
|
37,005
|
|
|
|
9.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based
capital (3)
|
|
$
|
81,229
|
|
|
|
15.37
|
%
|
|
$
|
92,065
|
|
|
|
17.33
|
%
|
|
$
|
94,104
|
|
|
|
17.70
|
%
|
|
$
|
96,142
|
|
|
|
18.07
|
%
|
|
$
|
98,486
|
|
|
|
18.49
|
%
|
Total
risk-based
requirement
|
|
|
52,841
|
|
|
|
10.00
|
|
|
|
53,110
|
|
|
|
10.00
|
|
|
|
53,160
|
|
|
|
10.00
|
|
|
|
53,210
|
|
|
|
10.00
|
|
|
|
53,268
|
|
|
|
10.00
|
|
|
Excess
|
|
$
|
28,388
|
|
|
|
5.37
|
%
|
|
$
|
38,955
|
|
|
|
7.33
|
%
|
|
$
|
40,944
|
|
|
|
7.70
|
%
|
|
$
|
42,932
|
|
|
|
8.07
|
%
|
|
$
|
45,218
|
|
|
|
8.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital
|
|
$
|
73,282
|
|
|
|
11.31
|
%
|
|
$
|
84,118
|
|
|
|
12.72
|
%
|
|
$
|
86,157
|
|
|
|
12.98
|
%
|
|
$
|
88,195
|
|
|
|
13.24
|
%
|
|
$
|
90,539
|
|
|
|
13.53
|
%
|
Common
equity tier 1
requirement
|
|
|
34,347
|
|
|
|
6.50
|
|
|
|
34,522
|
|
|
|
6.50
|
|
|
|
34,554
|
|
|
|
6.50
|
|
|
|
34,587
|
|
|
|
6.50
|
|
|
|
34,624
|
|
|
|
6.50
|
|
|
Excess
|
|
$
|
38,935
|
|
|
|
4.81
|
%
|
|
$
|
49,596
|
|
|
|
6.22
|
%
|
|
$
|
51,603
|
|
|
|
6.48
|
%
|
|
$
|
53,608
|
|
|
|
6.74
|
%
|
|
$
|
55,915
|
|
|
|
7.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of capital infused into The Provident Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds
|
|
|
$
|
14,748
|
|
|
|
|
|
|
$
|
17,477
|
|
|
|
|
|
|
$
|
20,206
|
|
|
|
|
|
|
$
|
23,344
|
|
|
|
|
|
|
Less: Common stock acquired by employee stock ownership plan
|
|
|
|
(2,608
|
)
|
|
|
|
|
|
|
(3,068
|
)
|
|
|
|
|
|
|
(3,528
|
)
|
|
|
|
|
|
|
(4,058
|
)
|
|
|
|
|
|
Less: Common stock acquired by stock-based benefit plan
|
|
|
|
(1,304
|
)
|
|
|
|
|
|
|
(1,534
|
)
|
|
|
|
|
|
|
(1,764
|
)
|
|
|
|
|
|
|
(2,029
|
)
|
|
|
|
|
|
Pro forma increase
|
|
|
$
|
10,836
|
|
|
|
|
|
|
$
|
12,875
|
|
|
|
|
|
|
$
|
14,914
|
|
|
|
|
|
|
$
|
17,257
|
|
|
|
|
|
________________________
|
|
(1)
|
As
adjusted to give effect to an increase in the number of shares, which could occur due
to a 15% increase in the offering range to reflect demand for the shares or changes in
market conditions following the commencement of the offering.
|
|
|
(2)
|
Equity
and Tier 1 leverage capital levels are shown as a percentage of total average assets.
Risk-based capital levels are shown as a percentage of risk-weighted assets.
|
|
|
(3)
|
Pro
forma amounts and percentages assume net proceeds are invested in assets that carry a
20% risk weighting.
|
Source: Provident
Bancorp’s prospectus.
EXHIBIT IV-7
Provident Bancorp, Inc.
Pro Forma Analysis Sheet – Fully Converted
Basis
Exhibit IV-7
PRO FORMA ANALYSIS SHEET - FULLY CONVERTED BASIS
Provident Bancorp, Inc.
Prices as of February 13, 2015
|
|
|
|
|
|
|
Peer Group
|
|
Massachusetts Companies
|
|
All Publicly-Traded
|
|
Price Multiple
|
|
Symbol
|
|
Subject (1)
|
|
Average
|
|
Median
|
|
Average
|
|
Median
|
|
Average
|
|
Median
|
|
Price-earnings ratio (x)
|
|
P/E
|
|
19.16
|
x
|
21.06x
|
|
21.79x
|
|
20.91x
|
|
21.79x
|
|
17.62x
|
|
15.53x
|
|
Price-core earnings ratio (x)
|
|
P/Core
|
|
20.39
|
x
|
22.09x
|
|
22.56x
|
|
19.46x
|
|
21.60x
|
|
16.76x
|
|
15.21x
|
|
Price-book ratio (%)
|
=
|
P/B
|
|
64.27%
|
|
96.30%
|
|
94.89%
|
|
107.46%
|
|
97.65%
|
|
105.51%
|
|
98.79%
|
|
Price-tangible book ratio (%)
|
=
|
P/TB
|
|
64.27%
|
|
103.37%
|
|
100.47%
|
|
108.11%
|
|
97.65%
|
|
113.74%
|
|
101.92%
|
|
Price-assets ratio (%)
|
=
|
P/A
|
|
11.23%
|
|
12.42%
|
|
11.14%
|
|
14.29%
|
|
12.01%
|
|
13.62%
|
|
12.81%
|
|
Valuation Parameters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Conversion Earnings (Y)
|
$4,562,000
|
|
ESOP Stock Purchases (E)
|
8.00%
|
(5)
|
|
Pre-Conversion Earnings (CY)
|
$4,305,000
|
|
Cost of ESOP Borrowings (S)
|
0.00%
|
(4)
|
|
Pre-Conversion Book Value (B)
|
$58,646,000
|
|
ESOP Amortization (T)
|
15.00
|
years
|
|
Pre-Conv. Tang. Book Val. (TB)
|
$58,646,000
|
|
RRP Amount (M)
|
4.00%
|
|
|
Pre-Conversion Assets (A)
|
$658,606,000
|
|
RRP Vesting (N)
|
5.00
|
years (5)
|
|
Reinvestment Rate (2)(R)
|
1.65%
|
|
Foundation (F)
|
2.31%
|
|
|
Est. Conversion Expenses (3)(X)
|
3.00%
|
|
Tax Benefit (Z)
|
740,000
|
|
|
Tax Rate (TAX)
|
40.00%
|
|
Percentage Sold (PCT)
|
100.00%
|
|
|
Shares Tax
|
$0
|
|
Option (O1)
|
10.00%
|
(6)
|
|
|
|
|
Estimated Option Value (O2)
|
21.70%
|
(6)
|
|
|
|
|
Option vesting (O3)
|
5.00
|
(6)
|
|
|
|
|
Option pct taxable (O4)
|
25.00%
|
(6)
|
|
Calculation of Pro Forma Value After Conversion
|
|
|
|
|
|
|
|
|
|
1.
|
V=
|
P/E * (Y)
|
|
V=
|
$81,600,000
|
|
|
|
1 - P/E * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3)
|
|
|
|
|
|
|
|
2.
|
V=
|
P/Core * (Y)
|
|
V=
|
$81,600,000
|
|
|
|
1 - P/core * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3)
|
|
|
|
|
|
|
|
3.
|
V=
|
P/B * (B+Z)
|
|
V=
|
$81,600,000
|
|
|
|
1 - P/B * PCT * (1-X-E-M-F)
|
|
|
|
|
|
|
|
4.
|
V=
|
P/TB * (TB+Z)
|
|
V=
|
$81,600,000
|
|
|
|
1 - P/TB * PCT * (1-X-E-M-F)
|
|
|
|
|
|
|
|
5.
|
V=
|
P/A * (A+Z)
|
|
V=
|
$81,600,000
|
|
|
|
1 - P/A * PCT * (1-X-E-M-F)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Aggregate
|
|
|
|
|
Shares Issued
|
|
|
Price Per
|
|
|
Gross Offering
|
|
|
Issued To
|
|
|
Total Shares
|
|
|
Market Value
|
|
|
Conclusion
|
|
To the Public
|
|
|
Share
|
|
|
Proceeds
|
|
|
Foundation
|
|
|
Issued
|
|
|
of Shares Issued
|
|
|
Supermaximum
|
|
|
10,580,000
|
|
|
|
10.00
|
|
|
$
|
105,800,000
|
|
|
|
211,600
|
|
|
|
10,791,600
|
|
|
$
|
107,916,000
|
|
|
Maximum
|
|
|
9,200,000
|
|
|
|
10.00
|
|
|
|
92,000,000
|
|
|
|
184,000
|
|
|
|
9,384,000
|
|
|
|
93,840,000
|
|
|
Midpoint
|
|
|
8,000,000
|
|
|
|
10.00
|
|
|
|
80,000,000
|
|
|
|
160,000
|
|
|
|
8,160,000
|
|
|
|
81,600,000
|
|
|
Minimum
|
|
|
6,800,000
|
|
|
|
10.00
|
|
|
|
68,000,000
|
|
|
|
136,000
|
|
|
|
6,936,000
|
|
|
|
69,360,000
|
|
(1) Pricing ratios shown reflect the midpoint value.
(2) Net return reflects a reinvestment rate of 1.65 percent and a tax rate of 40.0
percent.
(3) Offering expenses shown at estimated midpoint value.
(4) No cost is applicable since holding company will fund the ESOP loan.
(5) ESOP and MRP amortize over 15 years and 5 years, respectively; amortization
expenses tax effected at 40.0 percent.
(6) 10 percent option plan with an estimated Black-Scholes
valuation of 21.70 percent of the exercise price, including a 5 year vesting with 25 percent of the options (granted to directors)
tax effected at 40.0 percent.
EXHIBIT IV-8
Provident Bancorp, Inc.
Pro Forma Effect of Conversion Proceeds –
Fully Converted Basis
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Provident Bancorp, Inc.
At the Minimum
|
1.
|
Pro Forma
Market Capitalization
|
$69,360,000
|
|
|
|
Less:
Foundation Shares
|
1,360,000
|
|
|
2.
|
Offering
Proceeds
|
$68,000,000
|
|
|
|
Less:
Estimated Offering Expenses
|
2,040,000
|
|
|
|
Net
Conversion Proceeds
|
$65,960,000
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Estimated Additional Income
from Conversion Proceeds
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds
|
$65,960,000
|
|
|
|
Less: Cash Contribution
to Foundation
|
250,000
|
|
|
|
Less: Non-Cash Stock Purchases
(1)
|
8,323,200
|
|
|
|
Net Proceeds Reinvested
|
$57,386,800
|
|
|
|
Estimated net incremental
rate of return
|
0.99%
|
|
|
|
Reinvestment Income
|
$568,129
|
|
|
|
Less:
Shares Tax
|
0
|
|
|
|
Less: Estimated
cost of ESOP borrowings (2)
|
0
|
|
|
|
Less: Amortization
of ESOP borrowings (3)
|
221,952
|
|
|
|
Less: Amortization
of Options (4)
|
270,920
|
|
|
|
Less: Recognition
Plan Vesting (5)
|
332,928
|
|
|
|
Net Earnings Impact
|
($257,671
|
)
|
|
|
|
|
Net
|
|
|
|
|
Before
|
Earnings
|
After
|
|
4.
|
Pro Forma Earnings
|
Conversion
|
Increase
|
Conversion
|
|
|
|
|
|
|
|
|
12 Months ended December 31, 2014 (reported)
|
$4,562,000
|
($257,671)
|
$4,304,329
|
|
|
12 Months ended December 31, 2014 (core)
|
$4,305,000
|
($257,671)
|
$4,047,329
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
5.
|
Pro Forma Net Worth
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$58,646,000
|
$57,386,800
|
$644,000
|
$116,676,800
|
|
|
December 31, 2014 (Tangible)
|
$58,646,000
|
$57,386,800
|
$644,000
|
$116,676,800
|
|
|
|
|
|
|
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
6.
|
Pro Forma Assets
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$658,606,000
|
$57,386,800
|
$644,000
|
$716,636,800
|
(1) Includes ESOP
and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 15 years, amortization expense is tax-effected
at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assumes
25 percent is taxable.
(5) RRP is amortized over 5 years, and amortization expense is tax effected at
40.0 percent.
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Provident Bancorp, Inc.
At the Midpoint
|
1.
|
Pro Forma
Market Capitalization
|
$81,600,000
|
|
|
|
Less:
Foundation Shares
|
1,600,000
|
|
|
2.
|
Offering
Proceeds
|
$80,000,000
|
|
|
|
Less:
Estimated Offering Expenses
|
2,400,000
|
|
|
|
Net
Conversion Proceeds
|
$77,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Estimated Additional Income
from Conversion Proceeds
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds
|
$77,600,000
|
|
|
|
Less: Cash Contribution
to Foundation
|
250,000
|
|
|
|
Less: Non-Cash Stock Purchases
(1)
|
9,792,000
|
|
|
|
Net Proceeds Reinvested
|
$67,558,000
|
|
|
|
Estimated net incremental
rate of return
|
0.99%
|
|
|
|
Reinvestment Income
|
$668,824
|
|
|
|
Less:
Shares Tax
|
0
|
|
|
|
Less: Estimated
cost of ESOP borrowings (2)
|
0
|
|
|
|
Less: Amortization
of ESOP borrowings (3)
|
261,120
|
|
|
|
Less: Amortization
of Options (4)
|
318,730
|
|
|
|
Less: Recognition
Plan Vesting (5)
|
391,680
|
|
|
|
Net Earnings Impact
|
($302,705
|
)
|
|
|
|
|
Net
|
|
|
|
|
Before
|
Earnings
|
After
|
|
4.
|
Pro Forma Earnings
|
Conversion
|
Increase
|
Conversion
|
|
|
|
|
|
|
|
|
12 Months ended December 31, 2014 (reported)
|
$4,562,000
|
($302,705)
|
$4,259,295
|
|
|
12 Months ended December 31, 2014 (core)
|
$4,305,000
|
($302,705)
|
$4,002,295
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
5.
|
Pro Forma Net Worth
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$58,646,000
|
$67,558,000
|
$740,000
|
$126,944,000
|
|
|
December 31, 2014 (Tangible)
|
$58,646,000
|
$67,558,000
|
$740,000
|
$126,944,000
|
|
|
|
|
|
|
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
6.
|
Pro Forma Assets
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$658,606,000
|
$67,558,000
|
$740,000
|
$726,904,000
|
(1) Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total
shares issued, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 15 years, amortization expense is tax-effected
at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assumes
25 percent is taxable.
(5) RRP is amortized over 5 years, and amortization expense is tax effected at
40.0 percent.
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Provident Bancorp, Inc.
At the Maximum Value
|
1.
|
Pro Forma
Market Capitalization
|
$93,840,000
|
|
|
|
Less:
Foundation Shares
|
1,840,000
|
|
|
2.
|
Offering
Proceeds
|
$92,000,000
|
|
|
|
Less: Estimated
Offering Expenses
|
2,760,000
|
|
|
|
Net Conversion
Proceeds
|
$89,240,000
|
|
|
|
|
|
|
|
3.
|
Estimated Additional Income
from Conversion Proceeds
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds
|
$89,240,000
|
|
|
|
Less: Cash Contribution
to Foundation
|
250,000
|
|
|
|
Less: Non-Cash Stock Purchases
(1)
|
11,260,800
|
|
|
|
Net Proceeds Reinvested
|
$77,729,200
|
|
|
|
Estimated net incremental
rate of return
|
0.99%
|
|
|
|
Reinvestment Income
|
$769,519
|
|
|
|
Less:
Shares Tax
|
0
|
|
|
|
Less: Estimated
cost of ESOP borrowings (2)
|
0
|
|
|
|
Less: Amortization
of ESOP borrowings (3)
|
300,288
|
|
|
|
Less: Amortization
of Options (4)
|
366,539
|
|
|
|
Less: Recognition
Plan Vesting (5)
|
450,432
|
|
|
|
Net Earnings Impact
|
($347,740
|
)
|
|
|
|
|
Net
|
|
|
|
|
Before
|
Earnings
|
After
|
|
4.
|
Pro Forma Earnings
|
Conversion
|
Increase
|
Conversion
|
|
|
|
|
|
|
|
|
12 Months ended December 31, 2014 (reported)
|
$4,562,000
|
($347,740)
|
$4,214,260
|
|
|
12 Months ended December 31, 2014 (core)
|
$4,305,000
|
($347,740)
|
$3,957,260
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
5.
|
Pro Forma Net Worth
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$58,646,000
|
$77,729,200
|
$836,000
|
$137,211,200
|
|
|
December 31, 2014 (Tangible)
|
$58,646,000
|
$77,729,200
|
$836,000
|
$137,211,200
|
|
|
|
|
|
|
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
6.
|
Pro Forma Assets
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$658,606,000
|
$77,729,200
|
$836,000
|
$737,171,200
|
(1) Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total
shares issued, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 15 years, amortization expense is tax-effected
at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assumes
25 percent is taxable.
(5) RRP is amortized over 5 years, and amortization expense is tax effected at
40.0 percent.
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Provident Bancorp, Inc.
At the Super Maximum Value
|
1.
|
Pro Forma Market Capitalization
|
$107,916,000
|
|
|
|
Less: Foundation Shares
|
2,116,000
|
|
|
2.
|
Offering Proceeds
|
$105,800,000
|
|
|
|
Less: Estimated Offering
Expenses
|
3,174,000
|
|
|
|
Net Conversion Proceeds
|
$102,626,000
|
|
|
|
|
|
|
|
3.
|
Estimated Additional Income from Conversion Proceeds
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds
|
$102,626,000
|
|
|
|
Less: Cash Contribution to Foundation
|
250,000
|
|
|
|
Less: Non-Cash Stock Purchases (1)
|
12,949,920
|
|
|
|
Net Proceeds Reinvested
|
$89,426,080
|
|
|
|
Estimated net incremental rate of return
|
0.99%
|
|
|
|
Reinvestment Income
|
$885,318
|
|
|
|
Less: Shares Tax
|
0
|
|
|
|
Less: Estimated
cost of ESOP borrowings (2)
|
0
|
|
|
|
Less: Amortization
of ESOP borrowings (3)
|
345,331
|
|
|
|
Less: Amortization
of Options (4)
|
421,520
|
|
|
|
Less: Recognition
Plan Vesting (5)
|
517,997
|
|
|
|
Net Earnings Impact
|
($399,530
|
)
|
|
|
|
|
Net
|
|
|
|
|
Before
|
Earnings
|
After
|
|
4.
|
Pro Forma Earnings
|
Conversion
|
Increase
|
Conversion
|
|
|
|
|
|
|
|
|
12 Months ended December 31, 2014 (reported)
|
$4,562,000
|
($399,530)
|
$4,162,470
|
|
|
12 Months ended December 31, 2014 (core)
|
$4,305,000
|
($399,530)
|
$3,905,470
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
5.
|
Pro Forma Net Worth
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$58,646,000
|
$89,426,080
|
$946,400
|
$149,018,480
|
|
|
December 31, 2014 (Tangible)
|
$58,646,000
|
$89,426,080
|
$946,400
|
$149,018,480
|
|
|
|
|
|
|
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
6.
|
Pro Forma Assets
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$658,606,000
|
$89,426,080
|
$946,400
|
$748,978,480
|
(1) Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total
shares issued, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 15 years, amortization expense is tax-effected
at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assumes
25 percent is taxable.
(5) RRP is amortized over 5 years, and amortization expense is tax effected at
40.0 percent.
EXHIBIT IV-9
Provident Bancorp, Inc.
Pro Forma Analysis Sheet – Minority
Stock Offering
EXHIBIT IV-9
PRO FORMA ANALYSIS SHEET - MINORITY STOCK OFFERING
Provident Bancorp, Inc.
February 13, 2015
|
|
|
|
|
|
|
Peer Group
|
|
Massachusetts Companies
|
|
All Publicly-Traded
|
|
Price Multiple
|
|
Symbol
|
|
Subject (1)
|
|
Mean
|
|
Median
|
|
Mean
|
|
Median
|
|
Mean
|
|
Median
|
|
Price-earnings ratio (x)
|
|
P/E
|
|
18.72
|
x
|
21.06x
|
|
21.79x
|
|
20.91x
|
|
21.79x
|
|
17.62x
|
|
15.53x
|
|
Price-core earnings ratio (x)
|
|
P/Core
|
|
19.90
|
x
|
22.09x
|
|
22.56x
|
|
19.46x
|
|
21.60x
|
|
16.76x
|
|
15.21x
|
|
Price-book ratio (%)
|
=
|
P/B
|
|
91.16%
|
|
96.30%
|
|
94.89%
|
|
107.46%
|
|
97.65%
|
|
105.51%
|
|
98.79%
|
|
Price-tangible book ratio (%)
|
=
|
P/TB
|
|
91.16%
|
|
103.37%
|
|
100.47%
|
|
108.11%
|
|
97.65%
|
|
113.74%
|
|
101.92%
|
|
Price-assets ratio (%)
|
=
|
P/A
|
|
11.84%
|
|
12.42%
|
|
11.14%
|
|
14.29%
|
|
12.01%
|
|
13.62%
|
|
12.81%
|
|
Valuation Parameters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Conversion Earnings (Y)
|
$4,562,000
|
|
ESOP Stock Purchases (E)
|
8.00%
|
(5)
|
|
Pre-Conversion Earnings (CY)
|
$4,305,000
|
|
Cost of ESOP Borrowings (S)
|
0.00%
|
(4)
|
|
Pre-Conversion Book Value (B)
|
$58,646,000
|
|
ESOP Amortization (T)
|
15.00
|
years
|
|
Pre-Conv. Tang. Book Value (TB)
|
$58,646,000
|
|
MRP Amount (M)
|
4.00%
|
|
|
Pre-Conversion Assets (A)
|
$658,606,000
|
|
MRP Vesting (N)
|
5.00
|
years (5)
|
|
Reinvestment Rate (2)(R)
|
1.65%
|
|
Foundation (F)
|
4.44%
|
|
|
Est. Conversion Expenses (3)(X)
|
4.81%
|
|
Tax Benefit (Z)
|
752,800
|
|
|
Tax Rate (TAX)
|
40.00%
|
|
Percentage Sold (PCT)
|
47.00%
|
|
|
|
|
|
Option (O1)
|
10.00%
|
(6)
|
|
|
|
|
Estimated Option Value (O2)
|
28.30%
|
(6)
|
|
|
|
|
Option vesting (O3)
|
5.00
|
(6)
|
|
|
|
|
Option pct taxable (O4)
|
25.00%
|
(6)
|
|
Calculation of Pro Forma Value After Conversion
|
|
|
|
1.
|
V=
|
P/E * (Y)
|
V=
|
$81,600,000
|
|
|
1 - P/E * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3)
|
|
|
|
|
|
|
2.
|
V=
|
P/Core * (Y)
|
V=
|
$81,600,000
|
|
|
1 - P/core * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3)
|
|
|
|
|
|
|
3.
|
V=
|
P/B * (B+Z)
|
|
V=
|
$81,600,000
|
|
|
1 - P/B * PCT * (1-X-E-M-F)
|
|
|
|
|
|
|
4.
|
V=
|
P/TB * (TB+Z)
|
|
V=
|
$81,600,000
|
|
|
1 - P/TB * PCT * (1-X-E-M-F)
|
|
|
|
|
|
|
5.
|
V=
|
P/A * (A+Z)
|
|
V=
|
$81,600,000
|
|
|
1 - P/A * PCT * (1-X-E-M-F)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Market
Value
|
|
|
|
|
|
Shares
Owned by
|
|
|
Shares
Issued
|
|
Price
Per
|
|
Gross Offering
|
|
Issued to
|
|
Total
Shares
|
|
of Shares Issued
|
|
Full
Value
|
|
Conclusion
|
|
The
MHC
|
|
|
To
the Public
|
|
Share
|
|
Proceeds
|
|
Foundation
|
|
Issued
Publicly
|
|
Publicly
|
|
Total
Shares
|
|
Super Maximum
|
|
5,719,548
|
|
|
4,856,220
|
|
10.00
|
|
$
48,562,200
|
|
215,832
|
|
5,072,052
|
|
$ 50,720,520
|
|
10,791,600
|
|
Maximum
|
|
4,973,520
|
|
|
4,222,800
|
|
10.00
|
|
$
42,228,000
|
|
187,680
|
|
4,410,480
|
|
44,104,800
|
|
9,384,000
|
|
Midpoint
|
|
4,324,800
|
|
|
3,672,000
|
|
10.00
|
|
$
36,720,000
|
|
163,200
|
|
3,835,200
|
|
38,352,000
|
|
8,160,000
|
|
Minimum
|
|
3,676,080
|
|
|
3,121,200
|
|
10.00
|
|
$
31,212,000
|
|
138,720
|
|
3,259,920
|
|
32,599,200
|
|
6,936,000
|
(1) Pricing ratios shown reflect the midpoint value.
(2) Net return reflects a reinvestment rate of 1.65 percent, and a tax rate of
40.0 percent.
(3) Offering expenses shown at estimated midpoint value.
(4) No cost is applicable since holding company will fund the ESOP loan.
(5) ESOP and MRP amortize over 15 years and 5 years,
respectively; amortization expenses tax effected at 40.0 percent.
(6) 10 percent option plan with an estimated Black-Scholes
valuation of 28.30 percent of the exercise price, including a 5 year vesting with 25 percent of the options (granted to directors)
tax effected at 40.0 percent.
EXHIBIT IV-10
Provident Bancorp, Inc.
Pro Forma Effect of Conversion Proceeds –
Minority Stock Offering
Exhibit IV-10
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Provident Bancorp, Inc.
At the Minimum
|
1.
|
Pro Forma Market Capitalization
|
$32,599,200
|
|
|
|
Less: Foundation Shares
|
1,387,200
|
|
|
2.
|
Offering Proceeds
|
$31,212,000
|
|
|
|
Less: Estimated Offering
Expenses
|
1,715,791
|
|
|
|
Net Conversion Proceeds
|
$29,496,209
|
|
|
|
|
|
|
|
3.
|
Estimated Additional Income from Conversion Proceeds
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds
|
$29,496,209
|
|
|
|
Less: Cash Contribution to Foundation
|
250,000
|
|
|
|
Less: Non-Cash Stock Purchases (1)
|
3,911,904
|
|
|
|
Net Proceeds Reinvested
|
$25,334,305
|
|
|
|
Estimated net incremental rate of return
|
0.99%
|
|
|
|
Reinvestment Income
|
$250,810
|
|
|
|
Less: Estimated cost of ESOP
borrowings (2)
|
0
|
|
|
|
Less: Amortization of ESOP
borrowings (3)
|
104,317
|
|
|
|
Less: Amortization of Options
(4)
|
166,060
|
|
|
|
Less: Recognition Plan Vesting
(5)
|
156,476
|
|
|
|
Net Earnings Impact
|
($176,044
|
)
|
|
|
|
|
Net
|
|
|
|
|
Before
|
Earnings
|
After
|
|
4.
|
Pro Forma Earnings
|
Conversion
|
Increase
|
Conversion
|
|
|
|
|
|
|
|
|
12 Months ended December 31, 2014 (reported)
|
$4,562,000
|
($176,044)
|
$4,385,956
|
|
|
12 Months ended December 31, 2014 (core)
|
$4,305,000
|
($176,044)
|
$4,128,956
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
5.
|
Pro Forma Net Worth
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$58,646,000
|
$25,334,305
|
$654,880
|
$84,635,185
|
|
|
December 31, 2014 (Tangible)
|
$58,646,000
|
$25,334,305
|
$654,880
|
$84,635,185
|
|
|
|
|
|
|
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
6.
|
Pro Forma Assets
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$658,606,000
|
$25,334,305
|
$654,880
|
$684,595,185
|
(1) Includes ESOP and MRP stock purchases equal to 8.0 and 4.0 percent of the
public shares, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 15 years,
amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assuming
25 percent taxable.
(5) MRP is amortized over 5 years, and amortization expense is tax effected at
40.0 percent.
Exhibit IV-10
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Provident Bancorp, Inc.
At the Midpoint
|
1.
|
Pro Forma Market Capitalization
|
$38,352,000
|
|
|
|
Less: Foundation Shares
|
1,632,000
|
|
|
2.
|
Offering Proceeds
|
$36,720,000
|
|
|
|
Less: Estimated Offering
Expenses
|
1,766,268
|
|
|
|
Net Conversion Proceeds
|
$34,953,732
|
|
|
|
|
|
|
|
3.
|
Estimated Additional Income from Conversion Proceeds
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds
|
$34,953,732
|
|
|
|
Less: Cash Contribution to Foundation
|
250,000
|
|
|
|
Less: Non-Cash Stock Purchases (1)
|
4,602,240
|
|
|
|
Net Proceeds Reinvested
|
$30,101,492
|
|
|
|
Estimated net incremental rate of return
|
0.99%
|
|
|
|
Reinvestment Income
|
$298,005
|
|
|
|
Less: Estimated cost of ESOP
borrowings (2)
|
0
|
|
|
|
Less: Amortization of ESOP
borrowings (3)
|
122,726
|
|
|
|
Less: Amortization of Options
(4)
|
195,365
|
|
|
|
Less: Recognition Plan Vesting
(5)
|
184,090
|
|
|
|
Net Earnings Impact
|
($204,176
|
)
|
|
|
|
|
Net
|
|
|
|
|
Before
|
Earnings
|
After
|
|
4.
|
Pro Forma Earnings
|
Conversion
|
Increase
|
Conversion
|
|
|
|
|
|
|
|
|
12 Months ended December 31, 2014 (reported)
|
$4,562,000
|
($204,176)
|
$4,357,824
|
|
|
12 Months ended December 31, 2014 (core)
|
$4,305,000
|
($204,176)
|
$4,100,824
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
5.
|
Pro Forma Net Worth
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$58,646,000
|
$30,101,492
|
$752,800
|
$89,500,292
|
|
|
December 31, 2014 (Tangible)
|
$58,646,000
|
$30,101,492
|
$752,800
|
$89,500,292
|
|
|
|
|
|
|
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
6.
|
Pro Forma Assets
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$658,606,000
|
$30,101,492
|
$752,800
|
$689,460,292
|
(1) Includes ESOP and MRP stock purchases equal
to 8.0 and 4.0 percent of the public shares, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 15 years,
amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assuming
25 percent taxable.
(5) MRP is amortized over 5 years, and amortization expense is tax effected at
40.0 percent.
Exhibit IV-10
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Provident Bancorp, Inc.
At the Maximum
|
1.
|
Pro Forma Market Capitalization
|
$44,104,800
|
|
|
|
Less: Foundation Shares
|
1,876,800
|
|
|
2.
|
Offering Proceeds
|
$42,228,000
|
|
|
|
Less: Estimated Offering Expenses
|
1,816,746
|
|
|
|
Net Conversion Proceeds
|
$40,411,254
|
|
|
|
|
|
|
|
3.
|
Estimated Additional Income from
Conversion Proceeds
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds
|
$40,411,254
|
|
|
|
Less: Cash Contribution to Foundation
|
250,000
|
|
|
|
Less: Non-Cash Stock Purchases (1)
|
5,292,576
|
|
|
|
Net Proceeds Reinvested
|
$34,868,678
|
|
|
|
Estimated net incremental rate of
return
|
0.99%
|
|
|
|
Reinvestment Income
|
$345,200
|
|
|
|
Less: Estimated cost of ESOP borrowings
(2)
|
0
|
|
|
|
Less: Amortization of ESOP borrowings
(3)
|
141,135
|
|
|
|
Less: Amortization of Options (4)
|
224,670
|
|
|
|
Less: Recognition Plan Vesting (5)
|
211,703
|
|
|
|
Net Earnings Impact
|
($232,308
|
)
|
|
|
|
|
Net
|
|
|
|
|
Before
|
Earnings
|
After
|
|
4.
|
Pro Forma Earnings
|
Conversion
|
Increase
|
Conversion
|
|
|
|
|
|
|
|
|
12 Months ended December 31, 2014 (reported)
|
$4,562,000
|
($232,308)
|
$4,329,692
|
|
|
12 Months ended December 31, 2014 (core)
|
$4,305,000
|
($232,308)
|
$4,072,692
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
5.
|
Pro Forma Net Worth
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$58,646,000
|
$34,868,678
|
$850,720
|
$94,365,398
|
|
|
December 31, 2014 (Tangible)
|
$58,646,000
|
$34,868,678
|
$850,720
|
$94,365,398
|
|
|
|
|
|
|
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
6.
|
Pro Forma Assets
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$658,606,000
|
$34,868,678
|
$850,720
|
$694,325,398
|
(1) Includes ESOP and MRP stock purchases equal
to 8.0 and 4.0 percent of the public shares, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 15 years,
amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assuming
25 percent taxable.
(5) MRP is amortized over 5 years, and amortization expense is tax effected at
40.0 percent.
Exhibit IV-10
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Provident Bancorp, Inc.
At the Super Maximum Value
|
1.
|
Pro Forma Market Capitalization
|
$50,720,520
|
|
|
|
Less: Foundation
Shares
|
2,158,320
|
|
|
2.
|
Offering Proceeds
|
$48,562,200
|
|
|
|
Less: Estimated
Offering Expenses
|
1,874,796
|
|
|
|
Net Conversion
Proceeds
|
$46,687,404
|
|
|
|
|
|
|
|
3.
|
Estimated Additional Income from
Conversion Proceeds
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds
|
$46,687,404
|
|
|
|
Less: Cash Contribution to Foundation
|
250,000
|
|
|
|
Less: Non-Cash Stock Purchases (1)
|
6,086,462
|
|
|
|
Net Proceeds Reinvested
|
$40,350,942
|
|
|
|
Estimated net incremental rate of
return
|
0.99%
|
|
|
|
Reinvestment Income
|
$399,474
|
|
|
|
Less: Estimated
cost of ESOP borrowings (2)
|
0
|
|
|
|
Less: Amortization
of ESOP borrowings (3)
|
162,306
|
|
|
|
Less: Amortization
of Options (4)
|
258,370
|
|
|
|
Less: Recognition
Plan Vesting (5)
|
243,458
|
|
|
|
Net Earnings Impact
|
($264,660
|
)
|
|
|
|
|
Net
|
|
|
|
|
Before
|
Earnings
|
After
|
|
4.
|
Pro Forma Earnings
|
Conversion
|
Increase
|
Conversion
|
|
|
|
|
|
|
|
|
12 Months ended December 31, 2014 (reported)
|
$4,562,000
|
($264,660)
|
$4,297,340
|
|
|
12 Months ended December 31, 2014 (core)
|
$4,305,000
|
($264,660)
|
$4,040,340
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
5.
|
Pro Forma Net Worth
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$58,646,000
|
$40,350,942
|
$963,328
|
$99,960,270
|
|
|
December 31, 2014 (Tangible)
|
$58,646,000
|
$40,350,942
|
$963,328
|
$99,960,270
|
|
|
|
|
|
|
|
|
|
|
Before
|
Net Cash
|
Tax Benefit
|
After
|
|
6.
|
Pro Forma Assets
|
Conversion
|
Proceeds
|
Of
Contribution
|
Conversion
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
$658,606,000
|
$40,350,942
|
$963,328
|
$699,920,270
|
(1) Includes ESOP and MRP stock purchases equal
to 8.0 and 4.0 percent of the public shares, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 15 years,
amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assuming
25 percent taxable.
(5) MRP is amortized over 5 years, and amortization expense is tax effected at
40.0 percent.
EXHIBIT V-1
RP
®
Financial, LC.
Firm Qualifications Statement
RP FINANCIAL, LC.
Advisory | Planning | Valuation
|
FIRM QUALIFICATION STATEMENT
|
|
|
RP
®
Financial, LC. ("RP Financial") provides financial and management consulting, merger advisory and valuation services to the financial services companies, including banks, thrifts, credit unions, insurance companies, mortgage companies and others. We offer a broad array of services, high quality and prompt service, hands-on involvement by our senior staff, careful structuring of strategic initiatives and sophisticated valuation and other analyses consistent with industry practices and regulatory requirements. Our staff has extensive consulting, valuation, financial advisory and industry backgrounds.
|
|
|
|
|
|
|
|
|
|
|
STRATEGIC PLANNING SERVICES
|
|
|
RP Financial’s strategic planning services, for established or de novo banking companies, provide effective feasible plans with quantifiable results to enhance shareholder value, achieve regulatory approval or realize other objectives. We conduct situation analyses; establish mission/vision statements, develope strategic goals and objectives; and identify strategies to enhance value, address capital, increase earnings, manage risk and tackle operational or organizational matters. Our proprietary financial simulation models facilitate the evaluation of the feasibility, impact and merit of alternative financial strategies.
|
|
|
|
|
|
|
|
|
|
|
MERGER ADVISORY SERVICES
|
|
|
RP Financial’s merger advisory services include targeting buyers and sellers, assessing acquisition merit, conducting due diligence, negotiating and structuring deal terms, preparing merger business plans and financial simulations, rendering fairness opinions, preparing fair valuation analyses and supporting post-merger strategies. RP Financial is also expert in de novo charters, shelf charters and failed bank deals with loss sharing or other assistance. Through financial simulations, valuation proficiency and regulatory familiarity, RP Financial's merger advisory services center on enhancing shareholder returns.
|
|
|
|
|
|
|
|
|
|
|
VALUATION SERVICES
|
|
|
RP Financial’s extensive valuation practice includes mergers, thrift stock conversions, insurance company demutualizations, merger valuation and goodwill impairment, ESOPs, going private, secondary offerings and other purposes. We are highly experienced in performing appraisals conforming with regulatory guidelines and appraisal standards. RP Financial is the nation’s leading valuation firm for thrift stock conversions, with offerings ranging up to $4 billion.
|
|
|
|
|
|
|
|
|
MANAGEMENT STUDIES
|
|
|
RP Financial provides effective organizational planning, and we are often engaged to prepare independent management studies required for regulatory enforcement actions. We evaluate Board, management and staffing needs, assess existing talent and capabilities and make strategic recommendations for new positions, replacement, succession and other organizational matters.
|
|
|
|
|
|
|
ENTERPRISE RISK ASSESSMENT SERVICES
|
|
|
RP Financial provides effective enterprise risk assessment consulting services to assist our clients in evaluating the degree to which they have properly identified, understood, measured, monitored and controlled enterprise risk as part of a deliberate risk/reward strategy and to help them implement strategies to mitigate risk, enhance performance, ensure effective reporting and compliance with laws and regulations and avoid potential future damage to their reputation and associated consequences and to mitigate residual risk and unanticipated losses.
|
|
|
|
|
|
|
|
|
OTHER CONSULTING SERVICES
|
|
|
RP Financial provides other consulting services including evaluating regulatory changes, development diversification and branching strategies, conducting feasibility studies and other research, and preparing management studies in response to regulatory enforcement actions. We assist clients with CRA plans and revising policies and procedures. Our other consulting services are aided by proprietary valuation and financial simulation models.
|
|
|
|
|
|
|
KEY PERSONNEL (Years of Relevant Experience & Contact Information)
|
|
|
|
|
Ronald S. Riggins, Managing Director (34)
|
(703) 647-6543
|
rriggins@rpfinancial.com
|
|
William E. Pommerening, Managing Director (31)
|
(703) 647-6546
|
wpommerening@rpfinancial.com
|
|
Marcus Faust, Director (29)
|
(703) 647-6553
|
mfaust@rpfinancial.com
|
|
Gregory E. Dunn, Director (32)
|
(703) 647-6548
|
gdunn@rpfinancial.com
|
|
James P. Hennessey, Director (29)
|
(703) 647-6544
|
jhennessey@rpfinancial.com
|
|
James J. Oren, Director (28)
|
(703) 647-6549
|
joren@rpfinancial.com
|
|
Timothy M. Biddle, Senior Vice President (25)
|
(703) 647-6552
|
tbiddle@rpfinancial.com
|
|
Carla H. Pollard, Senior Vice President (26)
|
(703) 647-6556
|
cpollard@rpfinancial.com
|
|
|
|
|
|
RP Financial, LC.
|
|
Phone: (703) 528-1700
|
|
1100 North Glebe Road, Suite 600
|
|
Fax: (703) 528-1788
|
|
Arlington, VA 22201
|
1
|
www.rpfinancial.com
|
Exhibit 99.4
The Provident
Bank
Provident
Bancorp, Inc.
3/5/15
PROPOSED MAILING AND INFORMATIONAL MATERIALS
INDEX
|
Produced by the Financial Printer
|
|
|
|
|
1.
|
Dear Depositor & Friends Letter*
|
|
|
|
|
2.
|
Dear Depositor & Friends Letter for Non Eligible Jurisdictions*
|
|
|
|
|
3.
|
Dear Potential Investor Letter*
|
|
|
|
|
4.
|
Dear Prospective Investor Letter - Used as a Cover Letter for States Requiring "Agent" Mailing*
|
|
|
|
|
5.-8.
|
Stock Q&A*
|
|
|
|
|
9.
|
Stock Order Form
(page 1 of 2)
*
|
|
|
|
|
10.
|
Stock Order Form Certification
(page 2 of 2)*
|
|
|
|
|
11.
|
Stock Order Form Guidelines*
|
|
|
|
|
12
|
Community Meeting Invitation Card*
|
|
|
|
|
Produced by the Stock Information Center
|
|
|
|
|
13.
|
Dear Subscriber/Acknowledgment Letter - Initial Response to Stock Order Received
|
|
|
|
|
14.
|
Dear Interested Investor - No Shares Available Letter
|
|
|
|
|
15.
|
Welcome Stockholder Letter - For Initial DRS Statement Mailing
|
|
|
|
|
16.
|
Dear Interested Subscriber Letter - Subscription Rejection
|
|
|
|
|
17.
|
Letter for Sandler O’Neill Mailing to Clients*
|
|
|
|
|
18.
|
DRS Q&A
|
|
|
|
|
19.
|
Invitation Letter – Informational Meetings
|
|
|
|
|
20.
|
Tombstone (Meeting Advertisement)
|
|
|
|
|
21.
|
Tombstone (Offering Advertisement)
|
*Accompanied by a Prospectus
The Provident
Bank
Dear Depositors and Friends of The Provident
Bank:
We are pleased to announce that the Boards
of Provident Bancorp, our mutual holding company parent, and Provident Bancorp, Inc. have approved a Plan of Stock Issuance under
which Provident Bancorp, Inc. is offering common stock in a minority stock offering. Provident Bancorp will continue to own a majority
of the shares of Provident Bancorp, Inc. The proceeds of the offering will enhance our capital base and support our continued growth.
To continue our commitment to our local community, in conjunction with the stock issuance, we intend to establish a new charitable
foundation, The Provident Community Charitable Organization, Inc., which we will fund with a contribution of cash and shares of
our common stock. The foundation will be dedicated to supporting charitable causes within the communities in which we operate.
As a qualifying account holder of The Provident
Bank as of the close of business on February 28, 2014, you may take advantage of your nontransferable rights to subscribe for shares
of Provident Bancorp, Inc. common stock on a priority basis. The enclosed prospectus describes the stock offering in more detail.
Please read the prospectus carefully before making an investment decision.
If you wish to subscribe for shares of common
stock, please complete the enclosed stock order form and return it to Provident Bancorp, Inc., together with your payment for the
shares, using the enclosed postage-paid envelope marked “STOCK ORDER RETURN” or by overnight delivery service to our
Stock Information Center located at [Stock Information Center Address]. You may also hand deliver stock order forms at this location.
We will not accept stock order forms at our other banking offices.
Your order must be physically received (not postmarked) by
Provident Bancorp, Inc. no later than _:00 p.m., Eastern Time, on ___day, _____ __, 2015.
If you have any questions after reading the
enclosed material, please call our Stock Information Center at (___) ___-____,
Monday through Friday, between the hours
of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon Friday,
May 22, through 12:00 noon Tuesday, May 26, in observance of the Memorial Day holiday.
Sincerely,
David P. Mansfield
President and Chief Executive Officer
The shares of common stock being offered are not savings accounts
or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the
Depositors Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only
by the prospectus.
The Provident
Bank
Dear Depositor of The Provident Bank:
We are pleased to announce that the Boards
of Provident Bancorp, our mutual holding company parent, and Provident Bancorp, Inc. have approved a Plan of Stock Issuance under
which Provident Bancorp, Inc. is offering common stock in a minority stock offering. Provident Bancorp will continue to own a majority
of the shares of Provident Bancorp, Inc. The proceeds of the offering will enhance our capital base and support our continued growth.
To continue our commitment to our local community, in conjunction with the stock issuance, we intend to establish a new charitable
foundation, The Provident Community Charitable Organization, Inc., which we will fund with a contribution of cash and shares of
our common stock. The foundation will be dedicated to supporting charitable causes within the communities in which we operate.
We regret that we are unable to offer you common
stock in the subscription offering because the laws of your jurisdiction require us to register (1) the to-be-issued common stock
of Provident Bancorp, Inc. or (2) an agent of The Provident Bank to solicit the sale of such stock, and the number of eligible
subscribers in your jurisdiction does not justify the expense of such registration.
If you have any questions, please call our
Stock Information Center at (___) ___-____,
Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern
Time. Please note that the Stock Information Center will be closed from 12:00 noon Friday, May 22, through 12:00 noon Tuesday,
May 26, in observance of the Memorial Day holiday.
Sincerely,
David P. Mansfield
President and Chief Executive Officer
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock.
The offer is made only by the prospectus.
Provident Bancorp,
Inc.
Dear Potential Investor:
We are pleased to provide you with the enclosed
material in connection with the stock offering by Provident Bancorp, Inc. This information includes the following:
PROSPECTUS
:
This document provides detailed information about the operations of The Provident Bank and Provident Bancorp, Inc. and the proposed
stock offering by Provident Bancorp, Inc.
Please
read it carefully before making an investment decision.
STOCK ORDER FORM:
Use this
form to subscribe for shares of common stock. Please complete the form and return it to Provident Bancorp, Inc., together with
your payment for the shares, using the enclosed postage-paid envelope marked “STOCK ORDER RETURN” or by overnight delivery
service to our Stock Information Center located at [Stock Information Center Address]. You may also hand deliver stock order forms
at this location. We will not accept stock order forms at our other banking offices.
Your order must be physically received
(not postmarked) by Provident Bancorp, Inc. no later than _:00 p.m., Eastern Time, on ___day, _____ __, 2015.
We are pleased to offer you this opportunity
to become one of our stockholders. If you have any questions after reading the enclosed material, please call our Stock Information
Center at (___) ___-____,
Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note
that the Stock Information Center will be closed from 12:00 noon Friday, May 22, through 12:00 noon Tuesday, May 26, in observance
of the Memorial Day holiday.
Sincerely,
David P. Mansfield
President and Chief Executive Officer
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock.
The offer is made only by the prospectus.
Sandler O’Neill
+ Partners, L.P.
Dear Prospective Investor:
At the request of The Provident Bank and its
holding company, Provident Bancorp, Inc., we have enclosed material regarding the offering of common stock by Provident Bancorp,
Inc. These materials include a prospectus and a stock order form, which offer you the opportunity to subscribe for shares of common
stock of Provident Bancorp, Inc.
Please read the prospectus carefully before
making an investment decision.
If you have any questions after reading the enclosed material, please call the Stock Information
Center at (___) ___-____, Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time, and ask for a Sandler
O’Neill representative. Please note that the Stock Information Center will be closed from 12:00 noon Friday, May 22, through
12:00 noon Tuesday, May 26, in observance of the Memorial Day holiday.
If you decide to subscribe for shares, your order, together
with your payment for the shares, must be physically received (not postmarked) by Provident Bancorp, Inc. no later than _:00 p.m.,
Eastern Time, on ___day, _____ __, 2014.
We have been asked to forward these documents
to you in view of certain requirements of the securities laws of your jurisdiction. We should not be understood as recommending
or soliciting in any way any action by you with regard to the enclosed material.
Sandler O’Neill & Partners,
L.P.
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock.
The offer is made only by the prospectus.
Provident
Bancorp, Inc.
Questions
& Answers About Our Stock Offering
The Board of Trustees of Provident Bancorp,
the mutual holding company parent company of The Provident Bank, and the Board of Directors of Provident Bancorp, Inc., currently
the wholly-owned subsidiary of Provident Bancorp, have approved a Plan of Stock Issuance under which Provident Bancorp, Inc. is
offering common stock in a minority stock offering. To continue our commitment to our local community, in conjunction with the
stock issuance, we also intend to establish a new charitable foundation, The Provident Community Charitable Organization, Inc.,
which we will fund with a contribution of cash and shares of our common stock. This brochure provides answers to some of the most
commonly asked questions relating to the stock offering and the foundation.
Provident Bancorp, Inc.’s prospectus
that accompanies this brochure describes the stock offering in detail.
Investing in common stock involves certain risks.
For a discussion of these risks and other factors, investors are urged to read the accompanying prospectus before making an investment
decision.
|
|
Q.
|
Why is Provident Bancorp, Inc. issuing stock?
|
|
|
A.
|
Our primary reason for conducting the stock offering is to support our continued growth and expansion.
In recent years, we have been successful in growing both deposits and loans, and our objective is to continue that growth, which
will enable us to better serve both existing and new customers. While we currently exceed all regulatory capital requirements,
the proceeds from the offering will enable us to support our planned growth by increasing our overall capital and giving us the
flexibility to redeem some or all of the preferred stock.
|
|
|
Q.
|
What is a minority stock offering?
|
|
|
A.
|
A minority stock offering means that the shares of stock being sold in the offering will represent
less than 50% of the total shares of common stock of Provident Bancorp, Inc. outstanding at the completion of the offering. Our
mutual holding company corporate structure will not change, Provident Bancorp will continue to own a majority of the common stock
of Provident Bancorp, Inc. and Provident Bancorp, Inc. will continue to own all of the common stock of The Provident Bank.
|
|
|
Q.
|
What changes will occur as a result of the stock offering? Will the offering affect any of my
deposit accounts or loans?
|
|
|
A.
|
No changes are planned in the way we operate our business. The stock issuance will have no effect
on the staffing, products or services that we offer to our customers through our offices
,
and will not
affect the
balance or terms of any deposit account. Your deposits will continue to be federally insured to the fullest extent permissible
by law. The terms, including interest rates, of your loans with us will also be unaffected.
|
|
|
Q.
|
Who can purchase stock in the subscription offering?
|
|
|
A.
|
The common stock of Provident Bancorp, Inc. is being offered in the subscription offering in the
following order of priority:
|
|
|
1)
|
Eligible Account Holders - depositors of The Provident Bank with aggregate balances of $50 or more
at the close of business on February 28, 2014.
|
|
|
2)
|
The Provident Bank’s tax-qualified employee stock benefit plans.
|
|
|
3)
|
Employees, officers, directors, trustees and corporators of The Provident Bank or Provident Bancorp
who do not have a higher purchase priority.
|
|
|
Q.
|
I am not eligible to purchase stock in the subscription
offering. May I still place an order to purchase shares?
|
|
|
A.
|
Subject to the priority rights of qualifying depositors, the Bank’s stock benefit plans and
employees, officers, directors, trustees and corporators in the subscription offering, common stock may be offered to the general
public in a community offering, with priority to natural persons residing in the Massachusetts cities and towns of Amesbury, Merrimac,
Newbury, Newburyport, Salisbury and West Newbury, and the New Hampshire cities and towns of Brentwood, Exeter, Greenland, Hampton,
Hampton Falls, Kensington, New Castle, Newfields, Newington, Newmarket, North Hampton, Portsmouth, Rye, Seabrook, South Hampton
and Stratham. The community offering may begin concurrently with, during or any time after, the subscription offering.
|
|
|
Q.
|
Am I guaranteed to receive shares if I place an order?
|
|
|
A.
|
No. It is possible that orders received during the offering period will exceed the number of shares
being sold. Such an oversubscription would result in shares being allocated among subscribers starting with subscribers who are
Eligible Account Holders. If the offering is oversubscribed in the subscription offering, no orders received in any community offering
will be filled.
|
|
|
Q.
|
How many shares of stock are being offered, and at what price?
|
|
|
A.
|
Provident Bancorp, Inc. is offering a
maximum of 4,222,800
shares
of common stock at a price of $10.00 per share. The number of shares sold may be increased up to 4,856,220 as a result of demand
for the shares of common stock or changes in market conditions. Provident Bancorp, Inc. must sell a minimum of 3,121,200 shares
in order to complete the offering.
|
|
|
Q.
|
How much stock can I purchase?
|
|
|
A.
|
The minimum purchase is 25 shares ($250). As more fully described in the plan of stock issuance
and in the prospectus, the maximum purchase by any person in the subscription or community offering is 15,000 shares ($150,000).
In addition, no person, together with their associates, or a group of persons acting in concert may purchase more than 25,000 shares
($250,000) of common stock in the offering.
|
|
|
A.
|
If you decide to subscribe for shares, you must return your properly completed and signed stock
order form, along with full payment for the shares, to Provident Bancorp, Inc.
Your order must be physically received (not postmarked)
by Provident Bancorp, Inc. no later than _:00 p.m., Eastern Time, on ___day, _____ __, 2015.
You may return your order form
by mail using the enclosed postage-paid envelope marked “STOCK ORDER RETURN” or by overnight delivery service to
our Stock Information Center located at [Center Address]. You may also hand deliver stock order forms at this location. We will
not accept stock order forms at our other banking offices.
|
|
|
|
|
|
|
Q.
|
How can I pay for my shares of stock?
|
|
|
A.
|
You can pay for the common stock by check, money order, or withdrawal from your deposit account
or certificate of deposit at The Provident Bank. Checks and money orders must be made payable to Provident Bancorp, Inc. Withdrawals
from a certificate of deposit at The Provident Bank to buy shares of common stock may be made without penalty.
|
|
|
Q.
|
Can I use my home equity line of credit at The Provident Bank to pay for shares of common stock?
|
|
|
A.
|
No. The Provident Bank cannot knowingly lend funds to anyone to purchase shares. This includes
the use of funds available through a home equity line of credit.
|
|
|
Q.
|
When is the deadline to subscribe for stock?
|
|
|
A.
|
A properly completed stock order form with the required full payment
must be physically received
(not postmarked) by Provident Bancorp, Inc. no later than _:00 p.m., Eastern Time on ___day, _____ __, 2015
.
|
|
|
Q.
|
Can I subscribe for shares using funds in my IRA at The Provident Bank?
|
|
|
A.
|
No.
Applicable regulations do not permit the purchase of common stock with your existing
IRA or other qualified plan at The Provident Bank. To use these funds to subscribe for common stock, you need to establish a “self-directed”
IRA with an unaffiliated trustee.
The transfer of these funds takes time, so please make arrangements as soon as possible.
However, if you intend to subscribe for common stock using your eligibility as an IRA account holder but plan to use funds
from sources
other than
your IRA account, you need not close and transfer your IRA account.
Please call our Stock Information Center if you need additional information.
|
|
|
Q.
|
Can I subscribe for shares and add someone else who is not on my account to my stock registration?
|
|
|
A.
|
No. Applicable regulations prohibit the transfer of subscription rights.
|
|
|
Q.
|
Can I subscribe for shares in my name alone if I have a joint account?
|
|
|
A.
|
No. With the exception of certain orders placed through an IRA, Keogh, 401(k) or similar plan,
a name can be deleted only in the event of the death of a named eligible depositor.
|
|
|
Q.
|
I have custodial accounts at The Provident Bank with my minor children. May I use these accounts
to purchase stock in the subscription offering?
|
|
|
A.
|
Yes. However, the stock must be registered in the custodian’s name for the benefit of the
minor child. A custodial account does not entitle the custodian to purchase stock in his or her own name. If the child has reached
the age of majority, the child must subscribe for the shares in his or her own name.
|
|
|
Q.
|
I have a business or trust account at The Provident Bank. May I use these accounts to purchase
stock in the subscription offering?
|
|
|
A.
|
Yes. However, the stock must be purchased in the name of the business or trust. A business or trust
account does not entitle the owner of or signatory for the business or the trustee to purchase stock in his or her own name.
|
|
|
Q.
|
Will payments for common stock earn interest until the offering closes?
|
|
|
A.
|
Yes. Any payment made by check or money
order will earn interest at [interest rate]%
from the date the
order is processed to the completion or termination of the offering. Depositors who pay for their stock by withdrawal authorization
will receive interest at the contractual rate on the account until the completion or termination of the offering.
|
|
|
Q.
|
Will dividends be paid on the stock?
|
|
|
A.
|
Following the completion of the stock offering, our board of directors will have the authority to declare dividends on the
common stock. However, due to regulatory restrictions applicable to mutual holding companies, we do not currently anticipate paying
cash dividends on our common stock.
|
|
|
Q.
|
Will my stock be covered by deposit insurance?
|
|
|
Q.
|
Where will the stock be traded?
|
|
|
A.
|
Upon completion of the stock offering, our shares of common stock are expected to trade on the
Nasdaq Capital Market under the symbol “PVBC.”
|
|
|
Q.
|
Can I change my mind after I place an order to subscribe for stock?
|
|
|
A.
|
No. After receipt, your order may not be modified or withdrawn.
|
|
|
Q.
|
If I purchase shares of common stock during the offering, when will I receive my stock?
|
|
|
A.
|
Physical stock certificates will not be issued. Our transfer agent will send you a stock ownership
statement, via the Direct Registration System (DRS), by first class mail as soon as possible after the completion of the offering.
Although the shares of Provident Bancorp, Inc. common stock will have begun trading, brokerage firms may require that you have
received your stock ownership statement prior to selling your shares.
Your ability to sell the shares of common stock prior
to your receipt of the statement will depend on arrangements you may make with a brokerage firm.
|
|
|
Q.
|
What is direct registration and DRS?
|
|
|
A.
|
Direct registration is the ownership of stock registered in your own name on the books of the Company,
without taking possession of a printed stock certificate. Instead,
your ownership is recorded and tracked as an accounting entry
(“book entry”) on the books of Provident Bancorp, Inc.
DRS is a system that electronically moves investors’
positions between brokers and transfer agents for issuers that offer direct registration.
|
About The Foundation
|
|
Q.
|
What is The Provident Community Charitable Organization, Inc. and why is it being established?
|
|
|
A.
|
In keeping with our long standing commitment to the communities we serve, the plan of stock issuance
provides for the establishment and funding of a charitable foundation to be known as The Provident Community Charitable Organization,
Inc. Provident Bancorp, Inc. intends to contribute 2.0% of its outstanding shares of common stock and $250,000 in cash to fund
the foundation. The purpose of the charitable foundation is to provide financial support to charitable organizations in our market
area and to enable the communities that we serve to share in our long-term growth.
|
Additional
Information
|
|
Q.
|
What if I have additional questions or require more information?
|
|
|
A.
|
Provident Bancorp, Inc.’s prospectus
that accompanies this brochure describes the stock offering in detail.
Please read the prospectus carefully before
making an investment decision.
If you have any questions after
reading the enclosed material, you may call our Stock Information Center at (___) ___-____, Monday through Friday, between the
hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon Friday,
May 22, through 12:00 noon Tuesday, May 26, in observance of the Memorial Day holiday. Additional material may only be obtained
from the stock information center.
|
To ensure that each purchaser in the subscription
and community offering receives a prospectus at least 48 hours before the applicable expiration date, in accordance with Rule 15c2-8
of the Securities Exchange Act of 1934, as amended, no prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date.
The shares of common stock being offered are not savings accounts
or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. This
is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
|
Item (6) Purchaser Information continued:
|
|
Bank
Use
|
Account
Number(s)
|
Account
Title (Name(s) on Account)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
(10) Associates/Acting In Concert continued:
If you checked the box in
item #10 on the reverse side of this form, list below all other orders submitted by you or associates (as defined below)
or by persons acting in concert with you (also defined below).
|
|
Name(s)
listed on
other stock order forms
|
Number
of shares ordered
|
|
Name(s)
listed on
other stock order forms
|
Number
of shares ordered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.
Associate
- The term “associate” of a particular person means:
(1) any corporation
or organization (other than The Provident Bank, Provident Bancorp, Inc. or Provident Bancorp or a majority-owned subsidiary
of any of those entities) of which the person is a senior officer, partner or, directly or indirectly, 10% beneficial
shareholder;
(2) any trust or
other estate in which a person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity; and
(3) any relative
or spouse of such person, or any relative of such spouse, who either has the same home as the person or who is a director,
trustee or officer of the Provident Bank, Provident Bancorp, Inc. or the Provident Bancorp.
Acting in concert
– The term “acting in concert” means:
(1) knowing participation
in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express
agreement or understanding; or
(2) a combination
or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or
other
arrangement, whether written or otherwise.
In general, a person
who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting
in concert with that other party. We may presume that certain persons are acting in concert based upon various facts,
among other things, joint account relationships and the fact that such persons may have
filed
joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies.
|
|
CERTIFICATION
FORM
I
ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, AND IS NOT INSURED OR GUARANTEED BY PROVIDENT BANCORP, PROVIDENT BANCORP, INC., THE PROVIDENT
BANK, THE FEDERAL GOVERNMENT OR BY ANY GOVERNMENT AGENCY, OR THE DEPOSITORS INSURANCE FUND. THE ENTIRE AMOUNT OF AN INVESTOR’S
PRINCIPAL IS SUBJECT TO LOSS.
I further certify that, before
purchasing the common stock of Provident Bancorp, Inc. (the “Company”), I received a prospectus of the Company
dated _____, 2015 relating to such offer of common stock. The prospectus that I received contains disclosure concerning
the nature of the common stock being offered by the Company and describes in the “Risk Factors” section, the
risks involved in the investment in this common stock, including but not limited to the following:
Risks
Related to Our Business
1. A
worsening of economic conditions could result in increases in our level of non-performing loans and/or reduce demand for
our products and services, which could have an adverse effect on our results of operations.
2. Our
emphasis on commercial real estate, multi-family real estate, construction and land development and commercial business
lending involves risks that could adversely affect our financial condition and results of operations.
3. Our
portfolio of loans with a higher risk of loss is increasing and the unseasoned nature of our commercial loan portfolio
may result in errors in judging its collectability, which may lead to additional provisions for loan losses or charge-offs,
which would hurt our profits.
4. Our
business strategy includes the continuation of significant growth plans, and our financial condition and results of operations
could be negatively affected if we fail to grow or fail to manage our growth effectively.
5. If
our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
6. Historically
low interest rates may adversely affect our net interest income and profitability.
7. Changes
in interest rates could hurt our profits.
8. Changes
in the valuation of our securities portfolio could hurt our profits.
9. The
financial services sector represents a significant concentration within our investment portfolio.
10. The
building of market share through de novo branching and expansion of our commercial real estate and commercial business
lending capacity could cause our expenses to increase faster than revenues.
11. Our
funding sources may prove insufficient to replace deposits at maturity and support our future growth.
12. We
have become subject to more stringent capital requirements, which may adversely impact our return on equity, require us
to raise additional capital, or constrain us from paying dividends or repurchasing shares.
13. The
level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.
14. Changes
in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations,
increase our costs of operations and decrease our efficiency.
15. Non-compliance
with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
16. Legal
and regulatory proceedings and related matters could adversely affect us or the financial services industry in general.
17. Strong
competition within our market area could hurt our profits and slow growth.
18. Our
success depends on hiring and retaining certain key personnel.
19. Our
business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
20. Managing
reputational risk is important to attracting and maintaining customers, investors and employees.
21. System
failure or breaches of our network security could subject us to increased operating costs as well as litigation and other
liabilities.
22. Our
risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.
23.
We
are subject to environmental liability risk associated with lending activities.
24. The
dividend rate on our SBLF preferred stock will increase to 9.0% during the first quarter of 2016 if we have not redeemed
the SBLF preferred stock, which would impact the net income available to holders of our common stock and earnings per
share of our common stock.
Risks Related to the Offering
1. The
future price of the shares of common stock may be less than the $10.00 purchase price per share in the offering.
2. Our
failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.
3. Our
return on equity will be low following the stock offering. This could negatively affect the trading price of our shares
of common stock.
4. The
contribution to the charitable foundation will dilute your ownership interest and adversely affect net income in 2015.
5. Our
contribution to the charitable foundation may not be tax deductible, which could reduce our profits.
6. We
are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure
requirements applicable to emerging growth companies could make our common stock less attractive to investors.
7. We
will need to implement additional financial and accounting systems, procedures and controls in order to satisfy our new
public company reporting requirements.
8. Our
stock-based benefit plans will increase our expenses and reduce our income.
9. The
implementation of stock-based benefit plans may dilute your ownership interest. Historically, shareholders have approved
these stock-based benefit plans.
10. We
have not determined when we will adopt one or more new stock-based benefit plans. Stock-based benefit plans adopted more
than 12 months following the completion of the stock offering may exceed regulatory restrictions on the size of stock-based
benefit plans adopted within 12 months, which would further increase our costs.
11. Various
factors may make takeover attempts more difficult to achieve.
12. Our
stock value may be negatively affected by applicable regulations that restrict stock repurchases.
13. If
we declare dividends on our common stock, Provident Bancorp will be prohibited from waiving the receipt of dividends.
14. Failure
to pay dividends on our SBLF preferred stock may have negative consequences, including limiting our ability to pay dividends
in the future.
15. We
have never issued common stock and there is no guarantee that a liquid market will develop.
16. You
may not revoke your decision to purchase Provident Bancorp, Inc. common stock in the subscription or community offerings
after you send us your order.
17. The
distribution of subscription rights could have adverse income tax consequences.
(By
Signing the Front of this Form the Investor is Not Waiving Any Rights Under the Federal Securities Laws,
Including
the Securities Act of 1933 and the Securities Exchange Act of 1934)
|
|
Provident Bancorp, Inc.
|
|
Stock
Ownership Guide
|
|
Individual
Include
the first name, middle initial and last name of the shareholder. Avoid the use of two initials. Please
omit words that do not affect ownership rights, such as "Mrs.", "Mr.", "Dr.", "special
account", "single person", etc.
|
|
Joint
Tenants
Joint
tenants with right of survivorship may be specified to identify two or more owners. When stock is held by joint
tenants with right of survivorship, ownership is intended to pass automatically to the surviving joint tenant(s) upon
the death of any joint tenant. All parties must agree to the transfer or sale of shares held by joint tenants.
|
|
Tenants
in Common
Tenants
in common may also be specified to identify two or more owners. When stock is held by tenants in common, upon
the death of one co-tenant, ownership of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares held by tenants in common.
|
|
Uniform
Transfers to Minors Act ("UTMA")
Stock
may be held in the name of a custodian for a minor under the Uniform Transfers to Minors Act of each state. There
may be only one custodian and one minor designated on a stock certificate. The standard abbreviation for Custodian
is "CUST", while the Uniform Transfers to Minors Act is "UTMA". Standard U.S. Postal Service
state abbreviations should be used to describe the appropriate state. For example, stock held by John Doe as
custodian for Susan Doe under the MA Uniform Transfers to Minors Act will be abbreviated John Doe, CUST Susan Doe UTMA
MA (use minor's social security number).
|
|
Fiduciaries
Information provided with
respect to stock to be held in a fiduciary capacity must contain the following:
·
The
name(s) of the fiduciary. If an individual, list the first name, middle initial and last name. If
a corporation, list the full corporate title (name). If an individual and a corporation, list the corporation's
title before the individual.
·
The
fiduciary capacity, such as administrator, executor, personal representative, conservator, trustee, committee, etc.
·
A
description of the document governing the fiduciary relationship, such as a trust agreement or court order. Documentation
establishing a fiduciary relationship may be required to register your stock in a fiduciary capacity.
·
The
date of the document governing the relationship, except that the date of a trust created by a will need not be included
in the description.
·
The
name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership
of stock in the case of a trust is: John Doe, Trustee Under Agreement Dated 10-1-93 for Susan Doe.
|
|
Stock
Order Form Instructions
|
|
Items
1 and 2 - Number of Shares and Total Payment Due
Fill in the number of shares
that you wish to purchase and the total payment due. The amount due is determined by multiplying the number
of shares by the subscription price of $10.00 per share. The minimum purchase is 25 shares ($250) of common
stock. As more fully described in the plan of stock issuance outlined in the prospectus, the maximum purchase
in all categories of the offering is 15,000 shares ($150,000) of common stock. No person, together with associates
and persons acting in concert with such person, may purchase in the aggregate more than 25,000 shares ($250,000) of common
stock.
|
|
Item
3 - Employee/Officer/Director/Trustee/Corporator Information
Check
this box to indicate whether you are an employee, officer, director, trustee, or corporator of The Provident Bank or Provident
Bancorp or a member of such person's immediate family.
The
term “immediate family” means: any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and includes adoptive
relationships.
|
|
Item
4 - Payment by Check
If you pay for your stock
by check, bank draft or money order, indicate the total amount in this box. Payment for shares may be made by check, bank
draft or money order
payable to Provident Bancorp, Inc.
Your funds will earn interest at The Provident Bank’s
_________ rate until the stock offering is completed.
|
|
Item
5 - Payment by Withdrawal
If you pay for your stock
by a withdrawal from a deposit account at The Provident Bank, indicate the account number(s) and the amount of your withdrawal
authorization for each account. The total amount withdrawn should equal the amount of your stock purchase. There
will be no penalty assessed for early withdrawals from certificate accounts used for stock purchases.
This
form of payment may not be used if your account is an Individual Retirement Account or a home equity line of credit.
|
|
Item
6 – Purchaser Information
Subscription Offering
a. Check
this box if the purchaser had a deposit account(s) at The Provident Bank totaling $50.00 or more on February 28, 2014
(“Eligible Account Holder”).
b. Check
this box if the purchaser is an employee, officer, director, trustee or corporator of The Provident Bank or Provident
Bancorp who is
not
an Eligible Account Holder.
Please list all account numbers
and all names on accounts you had on these dates in order to insure proper identification of your purchase rights.
Note: Failure
to list all your eligible accounts, or providing incorrect information, may result in the loss of part or all of your
subscription rights.
Community
Offering
c. Check
this box if you are a community member that resides in one of the preferred cities and towns (Indicate city or town of
residence).
d. Check
this box if you are a community member that
does not
reside in one of the preferred cities and towns.
|
|
Items
7 and 8 - Form of Stock Ownership, SS# or Tax ID#, Stock Registration and Mailing Address
Check the box that applies
to your requested form of stock ownership and indicate your social security or tax ID number(s) in item 7. Complete
the requested stock registration and mailing address in item 8. The stock transfer industry has developed a
uniform system of shareholder registrations that will be used in the issuance of your common stock. If you
have any questions regarding the registration of your stock, please consult your legal advisor. Stock ownership
must be registered in one of the ways described above under "Stock Ownership Guide."
Adding or
deleting a name or otherwise altering the form of beneficial ownership of a qualifying account will result in a loss of
your subscription rights (with certain exceptions for IRA and Keogh purchases).
|
|
Item
9 – Telephone Number(s)
Indicate your daytime and
evening telephone number(s). We may need to call you if we have any questions regarding your order or we cannot
execute your order as given.
|
|
Item
10 – Associates/Acting in Concert
Check this box and complete
the reverse side of the stock order form if you or any associates or persons acting in concert with you (as defined on
the reverse side of the stock order form) have submitted other orders for shares.
|
|
Item
11– Acknowledgement
Please review the prospectus
carefully before making an investment decision. Sign and date the stock order form where indicated. Before
you sign, review the stock order form, including the acknowledgement and certification. Normally, one signature
is required. An additional signature is required only when payment is to be made by withdrawal from a deposit
account that requires multiple signatures to withdraw funds.
|
|
Your
properly completed signed stock order form and payment in full (or withdrawal authorization)
at the subscription price must be physically received (not postmarked) by Provident Bancorp,
Inc. no later than _:00 p.m., Eastern Time, on ___day, _____ __, 2015
or it will
become void.
Delivery Instructions
: You
may deliver your stock order form
by mail
using the enclosed stock order return envelope, or by
hand delivery
or
overnight delivery service
to our Stock Information Center.
Hand delivered stock order forms
will only be accepted at this location.
We will not accept stock order forms at our other banking offices
.
If you have any additional
questions, or if you would like assistance in completing your stock order form, please call our Stock Information Center,
Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time.
Provident
Bancorp, Inc. Stock Information Center
: [Center Address]
(___)
___-____,
|
Provident Bancorp,
Inc.
|
|
|
|
|
|
An
Invitation
***********
|
Community Meetings
***********
|
|
|
We cordially invite you to attend
one of our community meetings to learn more about the opportunity to purchase newly issued shares of common stock of our holding
company, Provident Bancorp, Inc.
v
Members
of senior management will discuss The Provident Bank’s operations, past performance and financial history.
v
Officers
of The Provident Bank will be available to respond to questions.
v
There
will be no sales pressure. You will receive Provident Bancorp, Inc. stock offering materials. Then you decide if the stock purchase
matches your investment objectives.
Community meetings have been scheduled
in _______. For meeting locations and to make a reservation, or to receive a prospectus and a stock order form, please call our
Stock Information Center at (___) ___-____ Monday through Friday, 10:00 a.m. to 4:00 p.m., Eastern Time.
Provident Bancorp, Inc. (logo)
Holding Company for
The Provident Bank
|
Day, Month __
Location
Address
City, State Zip Code
v
Day, Month __
Location
Address
City, State Zip Code
Provident Bancorp, Inc.
(logo)
Holding Company for
The Provident Bank
The shares of common stock being
offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any
other government agency or the Depositors Insurance Fund.
This is not an offer
to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus
.
|
|
The shares of common
stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation,
any other government agency or the Depositors Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy
common stock. The offer is made only by the prospectus.
Provident Bancorp,
Inc.
_______ __, 2015
Dear Subscriber:
We hereby acknowledge receipt of your order
and payment for Provident Bancorp, Inc. common stock at $10.00 per share. If you are issued shares, the shares will be registered
as indicated above.
At this time, we cannot confirm the number
of shares of Provident Bancorp, Inc. common stock that will be issued to you. Following completion of the stock offering, shares
will be allocated in accordance with the plan of stock issuance. Once the offering has been completed, you will receive by mail
from our transfer agent, [transfer agent name], confirmation indicating your ownership of Provident Bancorp, Inc. common stock.
Please retain this letter and refer to the
batch and item number indicated below for any future inquiries you may have regarding this order.
If you have any questions, please call our
Stock Information Center at (___) ___-____, Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time.
Provident Bancorp, Inc.
Stock Information Center
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock.
The offer is made only by the prospectus.
Provident Bancorp,
Inc.
_______ __, 2015
Dear Interested Investor:
We recently completed our subscription offering.
Unfortunately, due to the demand for shares from persons with priority rights, stock was not available for our [Employees, Officers,
Directors, Trustees and Corporators or community friends]. If your subscription was paid for by check, bank draft or money order,
a refund of your funds with interest will be mailed promptly.
We appreciate your interest in Provident Bancorp,
Inc. and hope you become an owner of our stock in the future. Our stock has commenced trading on the Nasdaq Capital Market under
the symbol “PVBC.”
Provident Bancorp, Inc.
Stock Information Center
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund.
Provident Bancorp,
Inc.
_______ __, 2015
Welcome Stockholder:
We are pleased to enclose a statement from
our transfer agent reflecting the number of shares of common stock of Provident Bancorp, Inc. (the “Company”) purchased
by you at a price of $10.00 per share. The transaction closed on [Month day, 2015]. All stock sold in the subscription and community
offering has been issued in book entry form through the direct registration system (“DRS”). No physical stock certificates
will be issued.
Please examine this statement carefully to
be certain that it properly reflects the number of shares you purchased and the names in which the ownership of the shares is to
be shown on the books of the Company.
If you have any questions about your statement,
please contact our transfer agent (by mail, telephone, or via the internet) as follows:
[Transfer Agent Name]
Attention: Investor Relations Department
Street
City, State Zipcode
1 (xxx) xxx-xxxx
email: xxxx.com
A short question and answer sheet regarding
your DRS statement is enclosed for your information. If your subscription was paid for by check, bank draft or money order, interest
and any refund due will be mailed promptly. Trading commenced on the Nasdaq Capital Market under the symbol “PVBC”
on _______ __, 2015.
On behalf of the Board of Directors, Officers
and employees of Provident Bancorp, Inc., I thank you for supporting our offering.
Sincerely,
David P. Mansfield
President and Chief Executive Officer
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund.
Provident Bancorp,
Inc.
_______ __, 2015
Dear Interested Subscriber:
We regret to inform you that Provident Bancorp,
Inc., the holding company for The Provident Bank, did not accept your order for shares of Provident Bancorp, Inc. common stock
in its community offering. This action is in accordance with our plan of stock issuance, which gives Provident Bancorp, Inc. the
absolute right to reject the order of any person, in whole or in part, in the community offering.
If your order was paid for by check, enclosed
is your original check.
Provident Bancorp, Inc.
Stock Information Center
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund.
Sandler O’Neill
+ Partners, L.P.
_______ __, 2015
To Our Friends:
We are enclosing material in connection with
the stock offering by Provident Bancorp, Inc.
Sandler O’Neill & Partners, L.P.
is acting as marketing agent in connection with the subscription and community offering, which will conclude at _:00 p.m., Eastern
Time, on __________, 2015.
Members of the general public are eligible
to participate. If you have any questions about this transaction, please call the Stock Information Center at (___) ___-____, Monday
through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will
be closed from 12:00 noon Friday, May 22, through 12:00 noon Tuesday, May 26, in observance of the Memorial Day holiday.
Sandler O’Neill & Partners, L.P.
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund.
This is not an offer to sell or a solicitation
of an offer to buy common stock. The offer is made only by the prospectus.
Provident
Bancorp, Inc. [LOGO]
DIRECT REGISTRATION:
Holding Your Shares in Book Entry
Provident Bancorp, Inc. (the “Company”)
has elected to require stockholders of Provident Bancorp, Inc. to use the Direct Registration System (“DRS”) as a means
of recording and maintaining the registered shares they will receive as a result of the Company’s offering. This flyer outlines
what DRS is and what it means to you as a registered stockholder.
What is DRS?
DRS is the system that
electronically moves investors’ positions between brokers and transfer agents for issuers that offer direct registration.
Direct registration is the ownership of stock registered in your own name on the books of the Company, without taking possession
of a printed stock certificate. Instead,
your ownership is recorded and tracked as an accounting entry on the books of the Company.
Why is the Company
offering DRS?
DRS gives our stockholders
several advantages:
|
|
➣
|
It eliminates the risk of loss or theft of your stock
certificate and the potential cost and inconvenience of having to obtain a surety bond to replace a lost certificate; and
|
|
|
➣
|
It eliminates the need for you to store your certificates
and retrieve them should you wish to transfer or sell your shares.
|
How will I know how many
shares I own?
The Company’s transfer
agent, Transfer Agent Name, will periodically send you an account statement showing you how many shares are held by you in book-entry.
What happens if I lose a
DRS account statement?
If you need a duplicate statement
of ownership, contact [Transfer Agent Name] and they will mail you a new one.
How can I transfer shares
to my broker?
To transfer your shares to
your brokerage account, provide your broker with:
➣ The most recent copy of your
transfer agent account statement;
➣ The Social Security number on
your account;
➣ Your transfer agent account
number (which is on the statement);
➣ [Transfer Agent Name] DTC number,
which is ____; and
➣ The
number of whole shares held in book-entry that you wish to transfer to your brokerage account.
Your broker will request that
your shares be delivered to your brokerage account through the Depository Trust Company’s Profile System.
If I have more questions, how can I get answers?
You can go on-line to the [Transfer Agent Name]
website, www.___________.com, or call their Investor Relations Department at ____________ to speak to a representative.
Provident Bancorp,
Inc.
_______ __, 2015
Dear __________:
Provident Bancorp, Inc., the holding company
for The Provident Bancorp, is offering common stock in a minority stock offering. We are raising capital to support The Provident
Bank’s future growth.
To learn more about the stock offering, you
are cordially invited to join members of our senior management team at [an informational meeting][a reception] to be held at _______on___
at _:00 _._, Eastern Time. A member of our staff will be calling to confirm your interest in attending the meeting.
If you would like additional information regarding
the meeting or our stock offering, please call our Stock Information Center at (___) ___-____, Monday through Friday between the
hours of 10:00 a.m. to 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon Friday,
May 22, through 12:00 noon Tuesday, May 26, in observance of the Memorial Day holiday.
Sincerely,
David P. Mansfield
President and Chief Executive Officer
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund.
This is not an offer to sell or a solicitation
of an offer to buy common stock. The offer is made only by the prospectus.
|
Provident Bancorp,
Inc.
(logo)
An Invitation
To Attend
a Community Meeting
Provident Bancorp, Inc., the holding company
for The Provident Bancorp, is offering common stock in a minority stock offering. We are raising capital to support The Provident
Bank’s future growth.
Up to 4,222,800 shares of Provident Bancorp,
Inc. are being offered at a price of $10.00 per share.
If you would
like to learn more about our stock offering, or would like to attend a community meeting, we invite you to obtain a prospectus
and offering material by calling our Stock Information Center at (___) ___-___, Monday through Friday between the hours of 10:00
a.m. and 4:00 p.m. Eastern Time.
Please note that the Stock Information Center will be closed from 12:00 noon Friday, May
22, through 12:00 noon Tuesday, May 26, in observance of the Memorial Day holiday.
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund.
This is not an offer to sell or a solicitation
of an offer to buy common stock. The offer is made only by the prospectus
.
|
|
|
Provident Bancorp, Inc.
(logo)
Provident
Bancorp, Inc.
Commences Stock Offering
Provident Bancorp, Inc., the holding company
for The Provident Bancorp, is offering common stock in a minority stock offering. We are raising capital to support The Provident
Bank’s future growth.
Up to 4,222,800 shares of Provident Bancorp,
Inc. are being offered at a price of $10.00 per share. As a member of the community served by The Provident Bank, you may have
the opportunity to purchase shares in the offering.
If you would like to learn more about our stock
offering, we invite you to obtain a prospectus and offering material by calling our Stock Information Center at (___) ___-___,
Monday through Friday between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center
will be closed from 12:00 noon Friday, May 22, through 12:00 noon Tuesday, May 26, in observance of the Memorial Day holiday.
The shares of common stock being offered
are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other
government agency or the Depositors Insurance Fund.
This is not an offer to sell or a solicitation
of an offer to buy common stock. The offer is made only by the prospectus
.
|
|
Exhibit 99.5
|
Item (6) Purchaser Information continued:
|
|
Bank
Use
|
Account
Number(s)
|
Account
Title (Name(s) on Account)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
(10) Associates/Acting In Concert continued:
If you checked the box in
item #10 on the reverse side of this form, list below all other orders submitted by you or associates (as defined below)
or by persons acting in concert with you (also defined below).
|
|
Name(s)
listed on
other stock order forms
|
Number
of shares ordered
|
|
Name(s)
listed on
other stock order forms
|
Number
of shares ordered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.
Associate
- The term “associate” of a particular person means:
(1) any corporation
or organization (other than The Provident Bank, Provident Bancorp, Inc. or Provident Bancorp or a majority-owned subsidiary
of any of those entities) of which the person is a senior officer, partner or, directly or indirectly, 10% beneficial
shareholder;
(2) any trust or
other estate in which a person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity; and
(3) any relative
or spouse of such person, or any relative of such spouse, who either has the same home as the person or who is a director,
trustee or officer of the Provident Bank, Provident Bancorp, Inc. or the Provident Bancorp.
Acting in concert
– The term “acting in concert” means:
(1) knowing participation
in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express
agreement or understanding; or
(2) a combination
or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or
other
arrangement, whether written or otherwise.
In general, a person
who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting
in concert with that other party. We may presume that certain persons are acting in concert based upon various facts,
among other things, joint account relationships and the fact that such persons may have
filed
joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies.
|
|
CERTIFICATION
FORM
I
ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, AND IS NOT INSURED OR GUARANTEED BY PROVIDENT BANCORP, PROVIDENT BANCORP, INC., THE PROVIDENT
BANK, THE FEDERAL GOVERNMENT OR BY ANY GOVERNMENT AGENCY, OR THE DEPOSITORS INSURANCE FUND. THE ENTIRE AMOUNT OF AN INVESTOR’S
PRINCIPAL IS SUBJECT TO LOSS.
I further certify that, before
purchasing the common stock of Provident Bancorp, Inc. (the “Company”), I received a prospectus of the Company
dated _____, 2015 relating to such offer of common stock. The prospectus that I received contains disclosure concerning
the nature of the common stock being offered by the Company and describes in the “Risk Factors” section, the
risks involved in the investment in this common stock, including but not limited to the following:
Risks
Related to Our Business
1. A
worsening of economic conditions could result in increases in our level of non-performing loans and/or reduce demand for
our products and services, which could have an adverse effect on our results of operations.
2. Our
emphasis on commercial real estate, multi-family real estate, construction and land development and commercial business
lending involves risks that could adversely affect our financial condition and results of operations.
3. Our
portfolio of loans with a higher risk of loss is increasing and the unseasoned nature of our commercial loan portfolio
may result in errors in judging its collectability, which may lead to additional provisions for loan losses or charge-offs,
which would hurt our profits.
4. Our
business strategy includes the continuation of significant growth plans, and our financial condition and results of operations
could be negatively affected if we fail to grow or fail to manage our growth effectively.
5. If
our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
6. Historically
low interest rates may adversely affect our net interest income and profitability.
7. Changes
in interest rates could hurt our profits.
8. Changes
in the valuation of our securities portfolio could hurt our profits.
9. The
financial services sector represents a significant concentration within our investment portfolio.
10. The
building of market share through de novo branching and expansion of our commercial real estate and commercial business
lending capacity could cause our expenses to increase faster than revenues.
11. Our
funding sources may prove insufficient to replace deposits at maturity and support our future growth.
12. We
have become subject to more stringent capital requirements, which may adversely impact our return on equity, require us
to raise additional capital, or constrain us from paying dividends or repurchasing shares.
13. The
level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.
14. Changes
in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations,
increase our costs of operations and decrease our efficiency.
15. Non-compliance
with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
16. Legal
and regulatory proceedings and related matters could adversely affect us or the financial services industry in general.
17. Strong
competition within our market area could hurt our profits and slow growth.
18. Our
success depends on hiring and retaining certain key personnel.
19. Our
business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
20. Managing
reputational risk is important to attracting and maintaining customers, investors and employees.
21. System
failure or breaches of our network security could subject us to increased operating costs as well as litigation and other
liabilities.
22. Our
risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.
23.
We
are subject to environmental liability risk associated with lending activities.
24. The
dividend rate on our SBLF preferred stock will increase to 9.0% during the first quarter of 2016 if we have not redeemed
the SBLF preferred stock, which would impact the net income available to holders of our common stock and earnings per
share of our common stock.
Risks Related to the Offering
1. The
future price of the shares of common stock may be less than the $10.00 purchase price per share in the offering.
2. Our
failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.
3. Our
return on equity will be low following the stock offering. This could negatively affect the trading price of our shares
of common stock.
4. The
contribution to the charitable foundation will dilute your ownership interest and adversely affect net income in 2015.
5. Our
contribution to the charitable foundation may not be tax deductible, which could reduce our profits.
6. We
are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure
requirements applicable to emerging growth companies could make our common stock less attractive to investors.
7. We
will need to implement additional financial and accounting systems, procedures and controls in order to satisfy our new
public company reporting requirements.
8. Our
stock-based benefit plans will increase our expenses and reduce our income.
9. The
implementation of stock-based benefit plans may dilute your ownership interest. Historically, shareholders have approved
these stock-based benefit plans.
10. We
have not determined when we will adopt one or more new stock-based benefit plans. Stock-based benefit plans adopted more
than 12 months following the completion of the stock offering may exceed regulatory restrictions on the size of stock-based
benefit plans adopted within 12 months, which would further increase our costs.
11. Various
factors may make takeover attempts more difficult to achieve.
12. Our
stock value may be negatively affected by applicable regulations that restrict stock repurchases.
13. If
we declare dividends on our common stock, Provident Bancorp will be prohibited from waiving the receipt of dividends.
14. Failure
to pay dividends on our SBLF preferred stock may have negative consequences, including limiting our ability to pay dividends
in the future.
15. We
have never issued common stock and there is no guarantee that a liquid market will develop.
16. You
may not revoke your decision to purchase Provident Bancorp, Inc. common stock in the subscription or community offerings
after you send us your order.
17. The
distribution of subscription rights could have adverse income tax consequences.
(By
Signing the Front of this Form the Investor is Not Waiving Any Rights Under the Federal Securities Laws,
Including
the Securities Act of 1933 and the Securities Exchange Act of 1934)
|
|
Provident Bancorp, Inc.
|
|
Stock
Ownership Guide
|
|
Individual
Include
the first name, middle initial and last name of the shareholder. Avoid the use of two initials. Please
omit words that do not affect ownership rights, such as "Mrs.", "Mr.", "Dr.", "special
account", "single person", etc.
|
|
Joint
Tenants
Joint
tenants with right of survivorship may be specified to identify two or more owners. When stock is held by joint
tenants with right of survivorship, ownership is intended to pass automatically to the surviving joint tenant(s) upon
the death of any joint tenant. All parties must agree to the transfer or sale of shares held by joint tenants.
|
|
Tenants
in Common
Tenants
in common may also be specified to identify two or more owners. When stock is held by tenants in common, upon
the death of one co-tenant, ownership of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares held by tenants in common.
|
|
Uniform
Transfers to Minors Act ("UTMA")
Stock
may be held in the name of a custodian for a minor under the Uniform Transfers to Minors Act of each state. There
may be only one custodian and one minor designated on a stock certificate. The standard abbreviation for Custodian
is "CUST", while the Uniform Transfers to Minors Act is "UTMA". Standard U.S. Postal Service
state abbreviations should be used to describe the appropriate state. For example, stock held by John Doe as
custodian for Susan Doe under the MA Uniform Transfers to Minors Act will be abbreviated John Doe, CUST Susan Doe UTMA
MA (use minor's social security number).
|
|
Fiduciaries
Information provided with
respect to stock to be held in a fiduciary capacity must contain the following:
·
The
name(s) of the fiduciary. If an individual, list the first name, middle initial and last name. If
a corporation, list the full corporate title (name). If an individual and a corporation, list the corporation's
title before the individual.
·
The
fiduciary capacity, such as administrator, executor, personal representative, conservator, trustee, committee, etc.
·
A
description of the document governing the fiduciary relationship, such as a trust agreement or court order. Documentation
establishing a fiduciary relationship may be required to register your stock in a fiduciary capacity.
·
The
date of the document governing the relationship, except that the date of a trust created by a will need not be included
in the description.
·
The
name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership
of stock in the case of a trust is: John Doe, Trustee Under Agreement Dated 10-1-93 for Susan Doe.
|
|
Stock
Order Form Instructions
|
|
Items
1 and 2 - Number of Shares and Total Payment Due
Fill in the number of shares
that you wish to purchase and the total payment due. The amount due is determined by multiplying the number
of shares by the subscription price of $10.00 per share. The minimum purchase is 25 shares ($250) of common
stock. As more fully described in the plan of stock issuance outlined in the prospectus, the maximum purchase
in all categories of the offering is 15,000 shares ($150,000) of common stock. No person, together with associates
and persons acting in concert with such person, may purchase in the aggregate more than 25,000 shares ($250,000) of common
stock.
|
|
Item
3 - Employee/Officer/Director/Trustee/Corporator Information
Check
this box to indicate whether you are an employee, officer, director, trustee, or corporator of The Provident Bank or Provident
Bancorp or a member of such person's immediate family.
The
term “immediate family” means: any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and includes adoptive
relationships.
|
|
Item
4 - Payment by Check
If you pay for your stock
by check, bank draft or money order, indicate the total amount in this box. Payment for shares may be made by check, bank
draft or money order
payable to Provident Bancorp, Inc.
Your funds will earn interest at The Provident Bank’s
_________ rate until the stock offering is completed.
|
|
Item
5 - Payment by Withdrawal
If you pay for your stock
by a withdrawal from a deposit account at The Provident Bank, indicate the account number(s) and the amount of your withdrawal
authorization for each account. The total amount withdrawn should equal the amount of your stock purchase. There
will be no penalty assessed for early withdrawals from certificate accounts used for stock purchases.
This
form of payment may not be used if your account is an Individual Retirement Account or a home equity line of credit.
|
|
Item
6 – Purchaser Information
Subscription Offering
a. Check
this box if the purchaser had a deposit account(s) at The Provident Bank totaling $50.00 or more on February 28, 2014
(“Eligible Account Holder”).
b. Check
this box if the purchaser is an employee, officer, director, trustee or corporator of The Provident Bank or Provident
Bancorp who is
not
an Eligible Account Holder.
Please list all account numbers
and all names on accounts you had on these dates in order to insure proper identification of your purchase rights.
Note: Failure
to list all your eligible accounts, or providing incorrect information, may result in the loss of part or all of your
subscription rights.
Community
Offering
c. Check
this box if you are a community member that resides in one of the preferred cities and towns (Indicate city or town of
residence).
d. Check
this box if you are a community member that
does not
reside in one of the preferred cities and towns.
|
|
Items
7 and 8 - Form of Stock Ownership, SS# or Tax ID#, Stock Registration and Mailing Address
Check the box that applies
to your requested form of stock ownership and indicate your social security or tax ID number(s) in item 7. Complete
the requested stock registration and mailing address in item 8. The stock transfer industry has developed a
uniform system of shareholder registrations that will be used in the issuance of your common stock. If you
have any questions regarding the registration of your stock, please consult your legal advisor. Stock ownership
must be registered in one of the ways described above under "Stock Ownership Guide."
Adding or
deleting a name or otherwise altering the form of beneficial ownership of a qualifying account will result in a loss of
your subscription rights (with certain exceptions for IRA and Keogh purchases).
|
|
Item
9 – Telephone Number(s)
Indicate your daytime and
evening telephone number(s). We may need to call you if we have any questions regarding your order or we cannot
execute your order as given.
|
|
Item
10 – Associates/Acting in Concert
Check this box and complete
the reverse side of the stock order form if you or any associates or persons acting in concert with you (as defined on
the reverse side of the stock order form) have submitted other orders for shares.
|
|
Item
11– Acknowledgement
Please review the prospectus
carefully before making an investment decision. Sign and date the stock order form where indicated. Before
you sign, review the stock order form, including the acknowledgement and certification. Normally, one signature
is required. An additional signature is required only when payment is to be made by withdrawal from a deposit
account that requires multiple signatures to withdraw funds.
|
|
Your
properly completed signed stock order form and payment in full (or withdrawal authorization)
at the subscription price must be physically received (not postmarked) by Provident Bancorp,
Inc. no later than _:00 p.m., Eastern Time, on ___day, _____ __, 2015
or it will
become void.
Delivery Instructions
: You
may deliver your stock order form
by mail
using the enclosed stock order return envelope, or by
hand delivery
or
overnight delivery service
to our Stock Information Center.
Hand delivered stock order forms
will only be accepted at this location.
We will not accept stock order forms at our other banking offices
.
If you have any additional
questions, or if you would like assistance in completing your stock order form, please call our Stock Information Center,
Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time.
Provident
Bancorp, Inc. Stock Information Center
: [Center Address]
(___)
___-____,
|
Exhibit 99.6
Board of Trustees
Provident Bancorp
Boards of Directors
Provident Bancorp, Inc.
The Provident Bank
5 Market Street
Amesbury, Massachusetts 01913
|
|
Re:
|
Plan of Stock Issuance
|
Provident Bancorp
Provident Bancorp, Inc.
Members of the Boards of Trustees and Directors:
All capitalized terms not
otherwise defined in this letter have the meanings given such terms in the Plan of Stock Issuance (the “Plan”) adopted
by the Board of Trustees of Provident Bancorp, a Massachusetts chartered mutual holding company (the “MHC”), and Provident
Bancorp, Inc., a Massachusetts corporation (the “Company”). Pursuant to the Plan, when the stock offering is completed
purchasers in the stock offering will own 45.0% of the Company’s outstanding shares of common stock, the MHC will 53.0% of
the Company’s outstanding shares of common stock and The Provident Community Charitable Organization, Inc. will own 2.0%
of the Company’s outstanding shares of common stock.
We understand that in accordance
with the Plan, depositors will receive rights in a liquidation account maintained by the Company. The Company shall continue to
hold the liquidation account for the benefit of Eligible Account Holders who continue to maintain deposits in The Provident Bank.
The liquidation account is designed to provide payments to depositors of their liquidation interests in the event of liquidation
of (i) The Provident Bank or (ii) the Company and The Provident Bank.
In the unlikely event that
either The Provident Bank or the Company and The Provident Bank were to liquidate after the issuance of stock, all claims of creditors,
including those of depositors, would be paid first, followed by distribution to depositors who had a deposit account balance of
at least $50 as of February 28, 2014.
Based upon our review of
the Plan and our observations that the liquidation rights are non-transferable and become payable only upon the unlikely event
of the liquidation of The Provident Bank or the Company and The Provident Bank at a time when the Company is solvent, the amounts
credited under the liquidation account will be subject to downward adjustment as an applicable depositor’s deposit balance
is reduced, but will not be increased when such depositor’s account balance increases, and that after two years from the
date of stock issuance and upon written request of the Federal Reserve Board, the Company will transfer the liquidation account
and depositors’ interest in such account to The Provident Bank and the liquidation account shall thereupon become the liquidation
account of The Provident Bank no longer subject to the Company’s creditors, we are of the belief that: the benefit provided
by the liquidation account does not have any economic value at the time of the transaction contemplated in the first paragraph
above. We note that we have not undertaken any independent investigation of state or federal law or the position
|
|
|
|
|
|
|
Washington Headquarters
|
|
|
Three Ballston Plaza
|
Telephone: (703) 528-1700
|
|
1100 North Glebe Road, Suite 600
|
Fax No.: (703) 528-1788
|
|
Arlington, VA 22201
|
Toll Free No.: (866) 723-0594
|
|
www.rpfinancial.com
|
E-Mail: mail@rpfinancial.com
|
RP
®
Financial, LC.
Board of Trustees
Boards of Directors
March 10, 2015
Page 2
of the Internal Revenue Service with respect
to this issue.
|
|
Sincerely,
|
|
|
|
|
|
|
|
|
RP
®
Financial, LC.
|