Excellent research by Jason Mikula. Although this is not a cautionary tale about avoiding innovation and new revenue streams, it does provide a glimpse into the consequences of not fully understanding the risks involved.
Summary: BankProv, a $1.7 billion asset bank and a subsidiary of Provident Bancorp, is having to delay the filing of its third quarter earnings as it struggles to determine its losses due to the decline in the cryptocurrency mining industry. BankProv does not hold cryptocurrencies on its balance sheet, nor does it have exposure to BlockFi or FTX.
That said, BankProv has been diversifying its business, including serving digital asset companies, offering banking-as-a-service (including to crypto companies) and focusing on enterprise value. As of Q1 2022, 8% of BankProv’s loans and 12% of its deposits were from the crypto sector.
In Q2 2022, BankProv increased its exposure to the sector to $138.6 million in loans to digital asset companies. However, in Q3, the bank experienced a loss of $27.5 million, compared to a net income of $5.1 million in Q3 2021, due to increased allowances for loan losses and increased reserve requirements.
BankProv also experienced significant outflows of deposits, with total deposits dropping by $105 million in Q3. BankProv has not disclosed the names of the specific digital asset companies to which it has lent.