Docoh
Loading...

RNDB Randolph Bancorp

Filed: 5 Nov 20, 7:00pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

 

Commission File Number: 001-37780

 

Randolph Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

Massachusetts

81-1844402

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

10 Cabot Place

 

Stoughton, Massachusetts

02072

(Address of principal executive offices)

(Zip Code)

 

(781) 963-2100

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

RNDB

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial account standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of October 31, 2020, there were 5,523,522 shares of the registrant’s common stock outstanding.

 

 

 

 


Table of Contents

 

 

Page

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

 

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

1

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

2

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019

3

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended September 30, 2020 and 2019

4

 

Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2020 and 2019

5

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

6

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

Item 3. Quantitative and Qualitative Disclosures About Market Risk

47

Item 4. Controls and Procedures

47

PART II—OTHER INFORMATION

48

Item 1. Legal Proceedings

48

Item 1A. Risk Factors

48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3. Defaults Upon Senior Securities

49

Item 4. Mine Safety Disclosures

49

Item 5. Other Information

49

Item 6. Exhibits

49

SIGNATURE

50

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets (Unaudited)

(In thousands except for share data)

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

5,335

 

 

$

4,371

 

Interest-bearing deposits

 

 

43,756

 

 

 

3,881

 

Total cash and cash equivalents

 

 

49,091

 

 

 

8,252

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

 

 

 

490

 

Securities available for sale, at fair value

 

 

55,551

 

 

 

57,503

 

Loans held for sale, at fair value

 

 

87,805

 

 

 

62,792

 

Loans, net of allowance for loan losses of $6,597 in 2020 and $4,280 in 2019

 

 

484,548

 

 

 

469,131

 

Federal Home Loan Bank of Boston stock, at cost

 

 

3,797

 

 

 

2,417

 

Accrued interest receivable

 

 

1,654

 

 

 

1,393

 

Mortgage servicing rights, net

 

 

10,944

 

 

 

8,556

 

Premises and equipment, net

 

 

5,133

 

 

 

5,748

 

Bank-owned life insurance

 

 

8,577

 

 

 

8,441

 

Foreclosed real estate

 

 

132

 

 

 

 

Other assets

 

 

15,736

 

 

 

6,281

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

722,968

 

 

$

631,004

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest bearing

 

$

93,352

 

 

$

61,603

 

Interest bearing

 

 

391,660

 

 

 

344,581

 

Brokered

 

 

37,273

 

 

 

90,858

 

Total deposits

 

 

522,285

 

 

 

497,042

 

 

 

 

 

 

 

 

 

 

Federal Reserve Bank advances

 

 

15,318

 

 

 

 

Federal Home Loan Bank of Boston advances

 

 

66,903

 

 

 

44,403

 

Mortgagors' escrow accounts

 

 

1,959

 

 

 

2,052

 

Post-employment benefit obligations

 

 

2,289

 

 

 

2,464

 

Other liabilities

 

 

19,276

 

 

 

6,581

 

Total liabilities

 

 

628,030

 

 

 

552,542

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; authorized: 1,000,000 shares; issued: NaN

 

 

 

 

 

 

Common stock, $.01 par value; authorized: 15,000,000 shares; issued and

      outstanding: 5,524,390 shares at September 30, 2020 and 5,576,855 shares

      at December 31, 2019

 

 

55

 

 

 

56

 

Additional paid-in capital

 

 

51,201

 

 

 

51,127

 

Retained earnings

 

 

46,415

 

 

 

31,757

 

ESOP-Unearned compensation

 

 

(3,803

)

 

 

(3,944

)

Accumulated other comprehensive income (loss), net of tax

 

 

1,070

 

 

 

(534

)

Total stockholders' equity

 

 

94,938

 

 

 

78,462

 

Total liabilities and stockholders' equity

 

$

722,968

 

 

$

631,004

 

See accompanying notes to unaudited consolidated financial statements.

1


 

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands except per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

5,337

 

 

$

6,144

 

 

$

16,680

 

 

$

17,790

 

Securities-taxable

 

 

297

 

 

 

366

 

 

 

990

 

 

 

1,108

 

Securities-tax exempt

 

 

7

 

 

 

8

 

 

 

22

 

 

 

36

 

Interest-bearing deposits and certificates of deposit

 

 

7

 

 

 

23

 

 

 

68

 

 

 

77

 

Total interest and dividend income

 

 

5,648

 

 

 

6,541

 

 

 

17,760

 

 

 

19,011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

730

 

 

 

1,365

 

 

 

3,237

 

 

 

3,746

 

Borrowings

 

 

249

 

 

 

603

 

 

 

696

 

 

 

1,825

 

Total interest expense

 

 

979

 

 

 

1,968

 

 

 

3,933

 

 

 

5,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

4,669

 

 

 

4,573

 

 

 

13,827

 

 

 

13,440

 

Provision (credit) for loan losses

 

 

546

 

 

 

 

 

 

2,338

 

 

 

(144

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision (credit) for loan losses

 

 

4,123

 

 

 

4,573

 

 

 

11,489

 

 

 

13,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

330

 

 

 

363

 

 

 

902

 

 

 

1,054

 

Gain on loan origination and sale activities, net

 

 

18,102

 

 

 

5,782

 

 

 

39,616

 

 

 

13,438

 

Mortgage servicing fees, net

 

 

1,180

 

 

 

(181

)

 

 

(1,428

)

 

 

362

 

Increase in cash surrender value of life insurance

 

 

46

 

 

 

45

 

 

 

136

 

 

 

139

 

Other

 

 

216

 

 

 

294

 

 

 

598

 

 

 

578

 

Total non-interest income

 

 

19,874

 

 

 

6,303

 

 

 

39,824

 

 

 

15,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,911

 

 

 

7,010

 

 

 

24,439

 

 

 

18,514

 

Occupancy and equipment

 

 

859

 

 

 

673

 

 

 

2,395

 

 

 

1,972

 

Data processing

 

 

242

 

 

 

179

 

 

 

663

 

 

 

570

 

Professional fees

 

 

253

 

 

 

264

 

 

 

888

 

 

 

819

 

Marketing

 

 

154

 

 

 

275

 

 

 

458

 

 

 

643

 

FDIC insurance

 

 

41

 

 

 

(55

)

 

 

136

 

 

 

91

 

Other

 

 

1,591

 

 

 

1,372

 

 

 

4,410

 

 

 

3,850

 

Total non-interest expenses

 

 

11,051

 

 

 

9,718

 

 

 

33,389

 

 

 

26,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

12,946

 

 

 

1,158

 

 

 

17,924

 

 

 

2,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

2,661

 

 

 

14

 

 

 

3,266

 

 

 

97

 

Net income

 

$

10,285

 

 

$

1,144

 

 

$

14,658

 

 

$

2,599

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.01

 

 

$

0.21

 

 

$

2.86

 

 

$

0.48

 

Diluted

 

$

2.01

 

 

$

0.21

 

 

$

2.86

 

 

$

0.48

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

5,120,367

 

 

 

5,345,786

 

 

 

5,123,705

 

 

 

5,429,339

 

Diluted

 

 

5,120,367

 

 

 

5,345,786

 

 

 

5,126,077

 

 

 

5,429,339

 

 

See accompanying notes to unaudited consolidated financial statements.

2


 

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

10,285

 

 

$

1,144

 

 

$

14,658

 

 

$

2,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses)

 

 

(108

)

 

 

259

 

 

 

1,613

 

 

 

1,653

 

Reclassification adjustment for net gains realized in income

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Net unrealized gains (losses)

 

 

(108

)

 

 

259

 

 

 

1,613

 

 

 

1,653

 

Related tax effects

 

 

 

 

 

 

 

 

 

 

 

 

Net-of-tax amount

 

 

(108

)

 

 

259

 

 

 

1,613

 

 

 

1,653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental retirement plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustments (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial losses

 

 

9

 

 

 

9

 

 

 

27

 

 

 

27

 

Prior service credits

 

 

(12

)

 

 

(21

)

 

 

(36

)

 

 

(63

)

 

 

 

(3

)

 

 

(12

)

 

 

(9

)

 

 

(36

)

Related tax effects

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Net-of-tax amount

 

 

(3

)

 

 

(12

)

 

 

(9

)

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

(111

)

 

 

247

 

 

 

1,604

 

 

 

1,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

10,174

 

 

$

1,391

 

 

$

16,262

 

 

$

4,216

 

 

(1)

Amounts are included in other non-interest expenses in the consolidated statements of operations.

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

3


 

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Three Months Ended September 30, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Unearned

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Compensation

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

ESOP

 

 

Income (Loss)

 

 

Equity

 

 

 

(Dollars in thousands)

 

Balance at June 30, 2019

 

 

5,797,705

 

 

$

58

 

 

$

54,083

 

 

$

29,784

 

 

$

(4,038

)

 

$

(534

)

 

$

79,353

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,144

 

 

 

 

 

 

 

 

 

1,144

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

247

 

 

 

247

 

Stock repurchased

 

 

(96,553

)

 

 

(1

)

 

 

(1,440

)

 

 

 

 

 

 

 

 

 

 

 

(1,441

)

Stock-based compensation

 

 

 

 

 

 

 

 

223

 

 

 

 

 

 

 

 

 

 

 

 

223

 

ESOP shares committed to be released

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

47

 

 

 

 

 

 

65

 

Balance at September 30, 2019

 

 

5,701,152

 

 

$

57

 

 

$

52,884

 

 

$

30,928

 

 

$

(3,991

)

 

$

(287

)

 

$

79,591

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

5,479,884

 

 

$

55

 

 

$

51,013

 

 

$

36,130

 

 

$

(3,850

)

 

$

1,181

 

 

$

84,529

 

Net income

 

 

 

 

 

 

 

 

 

 

 

10,285

 

 

 

 

 

 

 

 

 

10,285

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(111

)

 

 

(111

)

Stock repurchased

 

 

(1,624

)

 

 

 

 

 

(16

)

 

 

 

 

 

 

 

 

 

 

 

(16

)

Restricted stock awards granted

 

 

48,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards forfeited

 

 

(2,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

199

 

 

 

 

 

 

 

 

 

 

 

 

199

 

ESOP shares committed to be released

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

47

 

 

 

 

 

 

52

 

Balance at September 30, 2020

 

 

5,524,390

 

 

$

55

 

 

$

51,201

 

 

$

46,415

 

 

$

(3,803

)

 

$

1,070

 

 

$

94,938

 

 

See accompanying notes to unaudited consolidated financial statements.


4


 

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Nine Months Ended September 30, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Unearned

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Compensation

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

ESOP

 

 

Income (Loss)

 

 

Equity

 

 

 

(Dollars in thousands)

 

Balance at December 31, 2018

 

 

5,903,793

 

 

$

60

 

 

$

55,608

 

 

$

28,329

 

 

$

(4,132

)

 

$

(1,904

)

 

$

77,961

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,599

 

 

 

 

 

 

 

 

 

2,599

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,617

 

 

 

1,617

 

Stock repurchased

 

 

(233,476

)

 

 

(3

)

 

 

(3,467

)

 

 

 

 

 

 

 

 

 

 

 

(3,470

)

Restricted stock awards granted

 

 

33,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards forfeited

 

 

(2,500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

681

 

 

 

 

 

 

 

 

 

 

 

 

681

 

ESOP shares committed to be released

 

 

 

 

 

 

 

 

62

 

 

 

 

 

 

141

 

 

 

 

 

 

203

 

Balance at September 30, 2019

 

 

5,701,152

 

 

$

57

 

 

$

52,884

 

 

$

30,928

 

 

$

(3,991

)

 

$

(287

)

 

$

79,591

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

5,576,855

 

 

$

56

 

 

$

51,127

 

 

$

31,757

 

 

$

(3,944

)

 

$

(534

)

 

$

78,462

 

Net income

 

 

 

 

 

 

 

 

 

 

 

14,658

 

 

 

 

 

 

 

 

 

14,658

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,604

 

 

 

1,604

 

Stock repurchased

 

 

(101,131

)

 

 

(1

)

 

 

(1,216

)

 

 

 

 

 

 

 

 

 

 

 

(1,217

)

Restricted stock awards granted

 

 

63,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards forfeited

 

 

(9,251

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share redemption for tax withholdings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for restricted stock vesting

 

 

(5,213

)

 

 

 

 

 

(60

)

 

 

 

 

 

 

 

 

 

 

 

(60

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,327

 

 

 

 

 

 

 

 

 

 

 

 

1,327

 

ESOP shares committed to be released

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

141

 

 

 

 

 

 

164

 

Balance at September 30, 2020

 

 

5,524,390

 

 

$

55

 

 

$

51,201

 

 

$

46,415

 

 

$

(3,803

)

 

$

1,070

 

 

$

94,938

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

5


 

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

14,658

 

 

$

2,599

 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Provision (credit) for loan losses

 

 

2,338

 

 

 

(144

)

Loans originated for sale

 

 

(1,144,058

)

 

 

(616,301

)

Net gain on sales of mortgage loans

 

 

(43,539

)

 

 

(13,590

)

Proceeds from sales of mortgage loans

 

 

1,158,237

 

 

 

579,990

 

Net amortization of securities

 

 

218

 

 

 

92

 

Net change in deferred loan costs and fees, and purchase premiums

 

 

324

 

 

 

(43

)

Depreciation and amortization

 

 

1,028

 

 

 

643

 

Stock-based compensation

 

 

1,327

 

 

 

681

 

ESOP expense

 

 

164

 

 

 

203

 

Increase in cash surrender value of life insurance

 

 

(136

)

 

 

(139

)

Net (increase) decrease in mortgage servicing rights

 

 

(2,388

)

 

 

(673

)

Other, net

 

 

545

 

 

 

(196

)

Net cash provided by (used in) operating activities

 

 

(11,282

)

 

 

(46,878

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Redemptions of certificates of deposit

 

 

490

 

 

 

1,715

 

Securities available for sale:

 

 

 

 

 

 

 

 

Purchases

 

 

(11,543

)

 

 

 

Calls/maturities

 

 

4,500

 

 

 

500

 

Principal payments on mortgage-backed securities

 

 

10,390

 

 

 

4,430

 

Net loan originations (repayments)

 

 

(10,155

)

 

 

891

 

Loan purchases

 

 

(1,519

)

 

 

(2,684

)

Proceeds from residential portfolio sales

 

 

 

 

 

23,689

 

Redemptions (purchases) of Federal Home Loan Bank of Boston stock

 

 

(1,380

)

 

 

1,715

 

Purchases of premises and equipment

 

 

(503

)

 

 

(259

)

Loss on disposal of assets

 

 

90

 

 

 

 

Proceeds from sale of foreclosed real estate

 

 

 

 

 

61

 

Net cash (used in) provided by investing activities

 

 

(9,630

)

 

 

30,058

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase in non-brokered deposits

 

 

78,828

 

 

 

18,019

 

Net increase (decrease) in brokered deposits

 

 

(53,585

)

 

 

35,681

 

Net increase in short-term Federal Reserve Bank borrowings

 

 

15,318

 

 

 

 

Net increase (decrease) in short-term Federal Home Loan Bank of Boston borrowings

 

 

(14,822

)

 

 

(49,665

)

Issuance of long-term Federal Home Loan Bank of Boston advances

 

 

40,000

 

 

 

20,000

 

Repayments of long-term Federal Home Loan Bank of Boston advances

 

 

(2,678

)

 

 

(1,703

)

Net increase (decrease) in mortgagors' escrow accounts

 

 

(93

)

 

 

70

 

Repurchases of common stock

 

 

(1,217

)

 

 

(3,470

)

Net cash provided by financing activities

 

 

61,751

 

 

 

18,932

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

40,839

 

 

 

2,112

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

8,252

 

 

 

7,118

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

49,091

 

 

$

9,230

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid on deposits and borrowed funds

 

$

4,225

 

 

$

5,328

 

Income taxes paid

 

$

1,025

 

 

$

15

 

Non-cash item:

 

 

 

 

 

 

 

 

Transfer of held for sale loans to portfolio

 

$

6,537

 

 

$

6,553

 

Transfer of portfolio loan to held for sale

 

$

 

 

$

28,608

 

Donation of land, net

 

$

 

 

$

73

 

Transfer of portfolio loan to foreclosed real estate

 

$

132

 

 

$

 

6


 

 

See accompanying notes to unaudited consolidated financial statements.

 

7


 

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

September 30, 2020 and 2019

 

1.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The unaudited consolidated financial statements include the accounts of Randolph Bancorp, Inc. (“Bancorp”) and its wholly-owned subsidiary, Envision Bank (the “Bank”, together with Bancorp, the “Company”). The Bank has subsidiaries involved in owning investment securities and foreclosed real estate properties and a subsidiary which provides loan closing services. All intercompany accounts and transactions have been eliminated in consolidation. When necessary, certain amounts in prior year financial statements have been reclassified to conform to the current year’s presentation.

These unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying interim financial statements do not include all information required under GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. The operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or any other interim period.

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.

 

2.

RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, FASB issued ASU 2016-02, Leases. This ASU requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting requirements. In May 2020, FASB amended the effective date of the new guidance on leases. Previously, the amendments and related new guidance on leases were effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021 for private companies. The new guidance on leases is now effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is still permitted. Due to the Company’s Emerging Growth Company status expiring on December 31, 2021, this pronouncement will be effective for the fiscal period ending December 31, 2021 and for interim reporting periods thereafter. The Company’s assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the time of adoption. The Company is currently assessing the impact of the adoption of this ASU on its consolidated balance sheet.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. The ASU sets forth a “current expected credit loss” (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This replaces the existing probable incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgements used in determining the allowance for loan losses, as well as the credit quality and underwriting standards of an organization’s loan portfolio. In addition, the ASU amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. In November 2019, FASB issued ASU 2019-10 which extended the effective date for adoption of ASU 2016-13 for smaller reporting companies to fiscal years beginning after December 31, 2022, including interim periods therein. Early adoption is permitted. The Company has formed a working group consisting of accounting, credit and data systems personnel to lead our implementation of this ASU. The working group is evaluating the alternative methodologies which are available and has engaged professional advisors to assist in implementation.

 

3.

GLOBAL PANDEMIC AFFECTING RANDOLPH BANCORP, INC. IN 2020

 

On March 13, 2020, the United States Government declared a national emergency in response to the coronavirus (“COVID-19”) outbreak. This outbreak has caused, among other things, widespread shutdowns of businesses and volatile markets and has severely disrupted normal economic activity in the region the Company serves as well as across the nation.

 

The following summarizes the more significant financial repercussions of this national emergency for the Company.

 

Credit Quality and Allowance for Loan Losses

 

The Company established a $558,000 allowance for loan losses during the first nine months of 2020 directly related to its estimate, based on available information, of probable incurred losses resulting from the impact of the COVID-19 pandemic. As the Company acquires additional information on overall economic prospects together with further assessments of the impact on individual

8


 

borrowers, the loss estimated will be revised as needed, and these revisions could be material. The Company’s approach to estimating the impact of this pandemic on credit quality is presented in Note 6 – “Loans and Allowance for Loan Losses.”

 

Disaster Response Plan Costs

 

The Company implemented its disaster response plans when the national emergency was declared and a stay at home order was issued in the Commonwealth of Massachusetts. To operate in this mode the Company incurred expenses for, among other things, compensation for front-line and quarantined employees, buying equipment for a remote workforce, cleaning of office and branch buildings, and communications with customers regarding the status of the Company’s operations. These plan costs amounted to $229,000 through the first nine months of 2020.

 

Loan Payment Deferral and Paycheck Protection Program

 

In response to the pandemic’s effect on our customers, the Company implemented a series of measures through the date of this report, including participation in the Small Business Administration’s (“SBA”) Paycheck Protection Program (the “PPP”) and granting payment deferrals for residential mortgage, home equity and certain commercial borrowers who were current in their payments. As of September 30, 2020, the Company had a balance of $15.4 million loans as part of the PPP. These loans are included with commercial and industrial loans, are pledged to the Federal Reserve’s Paycheck Protection Program Liquidity Facility and have no direct effect on the Company’s capital ratios.

 

The Company has granted short-term loan payment deferrals for residential mortgage, home equity and certain commercial borrowers who were current on their payment and experiencing a hardship due to the COVID-19 pandemic. In accordance with interagency guidance issued in March 2020 and/or the CARES Act enacted in March 2020, these short-term deferrals are not considered troubled debt restructurings, provided the loan was current as of the date the deferral program was implemented, or December 31, 2019 for deferrals made under the CARES Act.

 

The Company has agreed to loan payment deferrals on commercial loans totaling $37.0 million, residential real estate loans in portfolio totaling $17.9 million and residential real estate loans serviced for others totaling $66.8 million as of September 30, 2020.    The commercial loan payment deferrals are concentrated in the hotel and hospitality, restaurant and retail service industries. The qualifying residential real estate and commercial loan borrowers were required to contact the Company to receive loan payment deferrals.

 

The table below summarizes the status of the bank’s loan deferral activity at September 30, 2020:

 

 

Deferrals

 

 

Suspended/

 

 

Resumed

 

 

Full

 

 

Granted

 

 

Reduced Payment

 

 

Payment

 

 

Payoff

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

$

14,902

 

 

$

5,270

 

 

$

8,825

 

 

$

807

 

Home equity loans and lines of credit

 

2,984

 

 

 

1,314

 

 

 

1,670

 

 

 

-

 

Commercial

 

33,286

 

 

 

19,287

 

 

 

13,999

 

 

 

-

 

Total real estate loans

 

51,172

 

 

 

25,871

 

 

 

24,494

 

 

 

807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

3,710

 

 

 

33

 

 

 

1,830

 

 

 

1,847

 

Consumer

 

20

 

 

 

-

 

 

 

20

 

 

 

-

 

Total

$

54,902

 

 

$

25,904

 

 

$

26,344

 

 

$

2,654

 

 

The payment deferral programs were applied prospectively from the respective dates of the events and did not change the delinquency status of the loans as of such dates. Accordingly, if all payments were current at the date of the event, the loan will not be reported as past due during the deferral period.  Furthermore, for loans subject to the deferral programs on which payments were past due prior to the event, the delinquency status of such loans was frozen to the status that existed at the date of the event until the end of the deferral period. Accordingly, the table below summarizes the risk rating and for all loans that were granted deferral, and any loans that were listed in nonaccrual status at September 30, 2020:

 

9


 

 

Pass Rated /

 

 

Special

 

 

Sub-

 

 

Non-

 

 

Not Rated

 

 

Mention

 

 

standard (1)

 

 

accrual (1) (2)

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

$

13,071

 

 

$

778

 

 

$

246

 

 

$

196

 

Home equity loans and lines of credit

 

2,984

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

19,451

 

 

 

5,378

 

 

 

8,457

 

 

 

6,986

 

Total real estate loans

 

35,506

 

 

 

6,156

 

 

 

8,703

 

 

 

7,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

1,378

 

 

 

452

 

 

 

33

 

 

 

33

 

Consumer

 

20

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

$

36,904

 

 

$

6,608

 

 

$

8,736

 

 

$

7,215

 

 

(1)

Includes one commercial real estate relationship for which a $2.8 million full repayment was made in early October 2020.

 

(2)

Nonaccrual loans are risk rated as either special mention or substandard and are included as a balance in those columns.

 

4.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income (loss). Although certain changes in assets and liabilities are reported as a separate component of stockholders’ equity, such items, along with net income (loss), are components of comprehensive income (loss).

The components of accumulated other comprehensive income (loss), included in total stockholders’ equity, are as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Securities available for sale:

 

 

 

 

 

 

 

 

Net unrealized gain

 

$

1,780

 

 

$

167

 

Tax effect

 

 

(313

)

 

 

(313

)

Net-of-tax amount

 

 

1,467

 

 

 

(146

)

 

 

 

 

 

 

 

 

 

Supplemental retirement plan

 

 

 

 

 

 

 

 

Unrecognized net actuarial loss

 

 

(625

)

 

 

(652

)

Unrecognized net prior service credit

 

 

275

 

 

 

311

 

 

 

 

(350

)

 

 

(341

)

Tax effect

 

 

(47

)

 

 

(47

)

Net-of-tax amount

 

 

(397

)

 

 

(388

)

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

$

1,070

 

 

$

(534

)

 

10


 

5.

SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of securities available for sale, including gross unrealized gains and losses, are as follows:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

4,319

 

 

 

24

 

 

 

(7

)

 

 

4,336

 

Municipal

 

 

744

 

 

 

6

 

 

 

 

 

 

750

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

 

34,190

 

 

 

974

 

 

 

 

 

 

35,164

 

Commercial mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

 

8,887

 

 

 

551

 

 

 

 

 

 

9,438

 

U.S. Government-guaranteed

 

 

1,023

 

 

 

24

 

 

 

 

 

 

1,047

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

 

1,049

 

 

 

58

 

 

 

 

 

 

1,107

 

U.S. Government-guaranteed

 

 

3,559

 

 

 

150

 

 

 

 

 

 

3,709

 

Total securities available for sale

 

$

53,771

 

 

$

1,787

 

 

$

(7

)

 

$

55,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

$

4,000

 

 

$

13

 

 

$

(1

)

 

$

4,012

 

Corporate

 

 

1,513

 

 

 

15

 

 

 

 

 

 

1,528

 

Municipal

 

 

744

 

 

 

9

 

 

 

 

 

 

753

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

 

35,238

 

 

 

458

 

 

 

(286

)

 

 

35,410

 

Commercial mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

 

8,977

 

 

 

 

 

 

(53

)

 

 

8,924

 

U.S. Government-guaranteed

 

 

1,363

 

 

 

7

 

 

 

 

 

 

1,370

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

 

1,395

 

 

 

23

 

 

 

 

 

 

1,418

 

U.S. Government-guaranteed

 

 

4,106

 

 

 

10

 

 

 

(28

)

 

 

4,088

 

Total securities available for sale

 

$

57,336

 

 

$

535

 

 

$

(368

)

 

$

57,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were 0 sales of securities during the nine months ended September 30, 2020 and 2019.

 

The amortized cost and fair value of debt securities by contractual maturity at September 30, 2020 are presented below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

 

 

(In thousands)

 

Within 1 year

 

$

505

 

 

$

510

 

After 1 year through 5 years

 

 

3,486

 

 

 

3,511

 

After 5 years through 10 years

 

 

1,072

 

 

 

1,065

 

 

 

 

5,063

 

 

 

5,086

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

48,708

 

 

 

50,465

 

 

 

 

 

 

 

 

 

 

 

 

$

53,771

 

 

$

55,551

 

 

11


 

Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

 

 

Less Than Twelve Months

 

 

Over Twelve Months

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

September 30, 2020

 

(In thousands)

 

Corporate

 

$

(7

)

 

$

1,065

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

$

 

 

$

 

 

$

(1

)

 

$

1,999

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

 

(123

)

 

 

11,256

 

 

 

(163

)

 

 

9,632

 

Commercial mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises

 

 

(53

)

 

 

8,924

 

 

 

 

 

 

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-guaranteed

 

 

(15

)

 

 

1,891

 

 

 

(13

)

 

 

883

 

Total

 

$

(191

)

 

$

22,071

 

 

$

(177

)

 

$

12,514

 

 

At September 30, 2020,  1 debt security had unrealized losses with aggregate depreciation of 0.65% from the Company’s amortized cost basis. The unrealized losses at September 30, 2020 were due to securities price fluctuations since the time they were purchased. The Company currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of these investments. Therefore, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the Company does not intend to sell any debt securities and it is more likely than not that the Company will not be required to sell any debt securities before recovery of its amortized cost basis, it does not consider these investments to be other-than-temporarily impaired at September 30, 2020.

6.

LOANS AND ALLOWANCE FOR LOAN LOSSES

A summary of the loan portfolio is as follows:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Real estate loans:

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

One-to-four family

 

$

235,955

 

 

$

244,711

 

Home equity loans and lines of credit

 

 

48,097

 

 

 

41,669

 

Commercial

 

 

141,862

 

 

 

125,405

 

Construction

 

 

32,064

 

 

 

35,485

 

 

 

 

457,978

 

 

 

447,270

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

20,388

 

 

 

9,093

 

Consumer

 

 

11,696

 

 

 

15,641

 

 

 

 

 

 

 

 

 

 

Total loans

 

 

490,062

 

 

 

472,004

 

Allowance for loan losses

 

 

(6,597

)

 

 

(4,280

)

Net deferred loan costs and fees, and purchase premiums

 

 

1,083

 

 

 

1,407

 

 

 

 

 

 

 

 

 

 

 

 

$

484,548

 

 

$

469,131

 

 

12


 

The following tables present activity in the allowance for loan losses by loan category for the three and nine months ended September 30, 2020 and 2019, and allocation of the allowance to each category as of September 30, 2020 and December 31, 2019:

 

 

 

Residential

1-4 Family

 

 

Second

Mortgages

and HELOC

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

and Industrial

 

 

Consumer

 

 

Total

 

 

 

(In thousands)

 

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance at June 30, 2020

 

$

1,553

 

 

$

378

 

 

$

2,766

 

 

$

897

 

 

$

319

 

 

$

146

 

 

$

6,059

 

Provision (credit) for loan losses

 

 

30

 

 

 

77

 

 

 

589

 

 

 

(90

)

 

 

(75

)

 

 

15

 

 

 

546

 

Loans charged-off

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

(11

)

Recoveries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

1

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

$

1,583

 

 

$

452

 

 

$

3,355

 

 

$

807

 

 

$

246

 

 

$

154

 

 

$

6,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance at June 30, 2019

 

$

1,018

 

 

$

297

 

 

$

1,625

 

 

$

755

 

 

$

264

 

 

$

195

 

 

$

4,154

 

Provision (credit) for loan losses

 

 

43

 

 

 

(6

)

 

 

22

 

 

 

(30

)

 

 

6

 

 

 

(35

)

 

 

 

Loans charged-off

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Recoveries

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

$

1,063

 

 

$

291

 

 

$

1,647

 

 

$

725

 

 

$

270

 

 

$

157

 

 

$

4,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance at December 31, 2019

 

$

1,096

 

 

$

289

 

 

$

1,840

 

 

$

692

 

 

$

235

 

 

$

128

 

 

$

4,280

 

Provision for loan losses

 

 

480

 

 

 

166

 

 

 

1,515

 

 

 

115

 

 

 

9

 

 

 

53

 

 

 

2,338

 

Loans charged-off

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

(40

)

Recoveries

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

10

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

$

1,583

 

 

$

452

 

 

$

3,355

 

 

$

807

 

 

$

246

 

 

$

154

 

 

$

6,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance at December 31, 2018

 

$

1,092

 

 

$

292

 

 

$

1,648

 

 

$

765

 

 

$

265

 

 

$

375

 

 

$

4,437

 

Provision (credit) for loan losses

 

 

(52

)

 

 

(1

)

 

 

(1

)

 

 

(40

)

 

 

5

 

 

 

(55

)

 

 

(144

)

Loans charged-off

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(171

)

 

 

(171

)

Recoveries

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

$

1,063

 

 

$

291

 

 

$

1,647

 

 

$

725

 

 

$

270

 

 

$

157

 

 

$

4,153

 

 

13


 

Additional information pertaining to the allowance for loan losses at September 30, 2020 and December 31, 2019 is as follows:

 

 

 

Residential

1-4 Family

 

 

Second

Mortgages

and HELOC

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

and Industrial

 

 

Consumer

 

 

Total

 

September 30, 2020

 

(In thousands)

 

Allowance for impaired loans

 

$

79

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

79

 

Allowance for non-impaired loans

 

 

1,504

 

 

 

452

 

 

 

3,355

 

 

 

807

 

 

 

246

 

 

 

154

 

 

 

6,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for loan losses

 

$

1,583

 

 

$

452

 

 

$

3,355

 

 

$

807

 

 

$

246

 

 

$

154

 

 

$

6,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

4,581

 

 

$

607

 

 

$

7,028

 

 

$

 

 

$

33

 

 

$

 

 

$

12,249

 

Non-impaired loans

 

 

231,374

 

 

 

47,490

 

 

 

134,834

 

 

 

32,064

 

 

 

20,355

 

 

 

11,696

 

 

 

477,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

235,955

 

 

$

48,097

 

 

$

141,862

 

 

$

32,064

 

 

$

20,388

 

 

$

11,696

 

 

$

490,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for impaired loans

 

$

116

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

116

 

Allowance for non-impaired loans

 

 

980

 

 

 

289

 

 

 

1,840

 

 

 

692

 

 

 

235

 

 

 

128

 

 

 

4,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for loan losses

 

$

1,096

 

 

$

289

 

 

$

1,840

 

 

$

692

 

 

$

235

 

 

$

128

 

 

$

4,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

5,640

 

 

$

407

 

 

$

46

 

 

$

 

 

$

 

 

$

 

 

$

6,093

 

Non-impaired loans

 

 

239,071

 

 

 

41,262

 

 

 

125,359

 

 

 

35,485

 

 

 

9,093

 

 

 

15,641

 

 

 

465,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

244,711

 

 

$

41,669

 

 

$

125,405

 

 

$

35,485

 

 

$

9,093

 

 

$

15,641

 

 

$

472,004

 

 

As described in Note 3 – “Global Pandemic Affecting Randolph Bancorp, Inc. in 2020,” the COVID-19 pandemic has affected the Company’s operations in the first nine months of 2020.  This pandemic has severely disrupted normal economic activity in the communities the Company serves along with the rest of the nation. It is impossible to know the full extent of the impact of the COVID-19 pandemic and the continued effects it may have on the Company’s operations.

 

Management has determined a separate element of the allowance to represent the estimate of probable incurred losses associated with the impact of the pandemic events on the Company’s loan portfolios. This estimate is judgmental and subject to changes as conditions evolve. This qualitative element of the allowance was determined based on the impact the pandemic has had on current employment levels, economic activity in the Company’s geographic regions, and the time it could take for the affected regions to return to a more normalized operating environment.

 

14


 

The following is a summary of past due and non-accrual loans at September 30, 2020 and December 31, 2019:

 

 

 

30 - 59 Days

Past Due

 

 

60 - 89 Days

Past Due

 

 

90 Days or

More Past

Due

 

 

Total Past

Due

 

 

Non-accrual

Loans

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

$

267

 

 

$

246

 

 

$

582

 

 

$

1,095

 

 

$

2,215

 

Home equity loans and lines of credit

 

 

 

 

 

66

 

 

 

 

 

 

66

 

 

 

582

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,986

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

267

 

 

$

312

 

 

$

582

 

 

$

1,161

 

 

$

9,816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

$

215

 

 

$

587

 

 

$

 

 

$

802

 

 

$

2,922

 

Home equity loans and lines of credit

 

 

188

 

 

 

244

 

 

 

 

 

 

432

 

 

 

336

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

76

 

 

 

11

 

 

 

 

 

 

87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

479

 

 

$

842

 

 

$

 

 

$

1,321

 

 

$

3,258

 

 

15


 

The following is a summary of impaired loans at September 30, 2020 and December 31, 2019:

 

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans without a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

$

3,636

 

 

$

3,660

 

 

 

 

 

Home equity loans and lines of credit

 

 

607

 

 

 

607

 

 

 

 

 

Commercial real estate

 

 

7,028

 

 

 

7,028

 

 

 

 

 

Commercial  and industrial

 

 

33

 

 

 

33

 

 

 

 

 

Total

 

 

11,304

 

 

 

11,328

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

 

945

 

 

 

959

 

 

$

79

 

 

 

 

945

 

 

 

959

 

 

 

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired loans

 

$

12,249

 

 

$

12,287

 

 

$

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans without a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

$

3,322

 

 

$

3,322

 

 

 

 

 

Home equity loans and lines of credit

 

 

407

 

 

 

407

 

 

 

 

 

Commercial real estate

 

 

46

 

 

 

46

 

 

 

 

 

Total

 

 

3,775

 

 

 

3,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

 

2,318

 

 

 

2,318

 

 

$

116

 

Total

 

 

2,318

 

 

 

2,318

 

 

 

116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired loans

 

$

6,093

 

 

$

6,093

 

 

$

116

 

 

16


 

Additional information pertaining to impaired loans follows:

 

 

 

Average

 

 

Interest

 

 

Cash Basis

 

 

 

Recorded

 

 

Income

 

 

Interest

 

 

 

Investment

 

 

Recognized

 

 

Recognized

 

 

 

(In thousands)

 

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

$

4,630

 

 

$

144

 

 

$

61

 

Home equity loans and lines of credit

 

 

607

 

 

 

25

 

 

 

 

Commercial real estate

 

 

7,028

 

 

 

 

 

 

 

Consumer

 

 

33

 

 

 

 

 

 

 

Total

 

$

12,298

 

 

$

169

 

 

$

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

$

5,497

 

 

$

49

 

 

$

12

 

Home equity loans and lines of credit

 

 

369

 

 

 

1

 

 

 

 

Commercial real estate

 

 

84

 

 

 

2

 

 

 

 

Consumer

 

 

33

 

 

 

 

 

 

 

Total

 

$

5,983

 

 

$

52

 

 

$

12

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

$

4,563

 

 

$

277

 

 

$

131

 

Home equity loans and lines of credit

 

 

559

 

 

 

27

 

 

 

 

Commercial real estate

 

 

4,713

 

 

 

 

 

 

 

Consumer

 

 

15

 

 

 

 

 

 

 

Total

 

$

9,850

 

 

$

304

 

 

$

131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

 

$

5,586

 

 

$

175

 

 

$

63

 

Home equity loans and lines of credit

 

 

414

 

 

 

10

 

 

 

10

 

Commercial real estate

 

 

153

 

 

 

4

 

 

 

 

Consumer

 

 

43

 

 

 

1

 

 

 

 

Total

 

$

6,196

 

 

$

190

 

 

$

73

 

 

Troubled Debt Restructurings

The Company periodically grants concessions to borrowers experiencing financial difficulties. The Company’s troubled debt restructurings consist primarily of interest rate concessions for periods of three months to thirty years for residential real estate loans, and for periods up to one year for commercial real estate loans.

At September 30, 2020, the Company had 16 residential real estate loans, 1 consumer loan and 1 commercial real estate loan aggregating $2,780,000, $49,000 and $42,000, respectively, which were subject to troubled debt restructuring agreements.

At September 30, 2019, the Company had 19  residential real estate loans and 1 commercial real estate loan aggregating $3,679,000 and $48,000, respectively, which were subject to troubled debt restructuring agreements.

As of September 30, 2020 and 2019, $2,875,000 and $3,727,000, respectively, in troubled debt restructurings were performing in accordance with the terms of the modified loan agreements. Included in such amounts are $1,437,000 and $1,563,000, respectively, that are being accounted for as non-accrual loans as they have not yet had six consecutive months of performance.

 

For the nine months ended September 30, 2020, the Company did  0t enter into any loan modifications meeting the criteria of a troubled debt restructuring. For the nine months ended September 30, 2019, the Company entered into 5 loan modifications meeting the criteria of a troubled debt restructuring in which a loan term concession was granted to a borrower.

17


 

Management performs a discounted cash flow calculation to determine the amount of valuation reserve required on each of the troubled debt restructurings. Any reserve required is recorded as part of the allowance for loan losses.    During the three and nine months ended September 30, 2020 and 2019, there were 0 material changes to the allowance for loan losses as a result of loan modifications made which were considered a troubled debt restructuring.

NaN additional funds are committed to be advanced in connection with trouble debt restructurings.

During the three and nine months ended September 30, 2020 and 2019, there were 0 troubled debt restructurings that defaulted (over 30 days past due) within twelve months of the restructure date.

At September 30, 2020, there were two residential real estate troubled debt restructurings that were granted payment deferral plans. One loan, totaling $300,000, was performing in accordance with its modified terms and is currently in repayment, and one loan, for $196,000, was not performing in accordance with its modified terms and is currently still in payment suspension.

Credit Quality Information

The Company utilizes an eight-grade internal loan rating system for commercial real estate, construction and commercial and industrial loans, as follows:

Loans rated 1 – 3B are considered “pass” rated loans with low to average risk.

Loans rated 4 are considered “special mention.”  These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5 are considered “substandard” and are 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 are considered “doubtful” and 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 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 commercial and industrial loans.  Annually, the Company engages an independent third party to review a significant portion of loans within these segments.  Management uses the results of these reviews as part of its annual review process.

The following table presents the Company’s loans by risk rating at the dates indicated:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

and Industrial

 

 

Commercial

Real Estate

 

 

Construction

 

 

Commercial

and Industrial

 

 

 

(In thousands)

 

Loans rated 1 - 3B (Pass rated)

 

$

127,298

 

 

$

32,064

 

 

$

19,903

 

 

$

121,703

 

 

$

35,485

 

 

$

8,134

 

Loans rated 4

 

 

6,107

 

 

 

 

 

 

452

 

 

 

3,702

 

 

 

 

 

 

206

 

Loans rated 5

 

 

8,457

 

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

141,862

 

 

$

32,064

 

 

$

20,388

 

 

$

125,405

 

 

$

35,485

 

 

$

9,093

 

 

Residential mortgages, home equity loans and lines of credit, and consumer loans are monitored for credit quality based primarily on their payment status. When one of these loans becomes more than 90 days delinquent, it is assigned an internal loan rating. At September 30, 2020, $1,329,000 and $198,000 in residential mortgages and home equity loans were rated as substandard, respectively, and $1,715,000 and $383,000 in residential mortgage and home equity loans were rated as substandard, respectively. At December 31, 2019,   $2,925,000 in residential mortgages were rated as substandard, and $1,293,000 in residential mortgages and $336,000 in home equity loans were rated as special mention, respectively.

 

 

 

18


 

7.

LOAN SERVICING

Mortgage loans serviced for others are not included in the accompanying unaudited consolidated balance sheets. The unpaid principal balances of residential mortgage loans serviced for others were $1.59 billion and $1.05 billion at September 30, 2020 and December 31, 2019, respectively.

The following table summarizes the activity relating to mortgage servicing rights (“MSRs”) for the three and nine months ended September 30, 2020 and 2019:

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

 

(In thousands)

 

Mortgage servicing rights:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$

12,090

 

 

$

8,322

 

 

$

9,484

 

 

$

7,794

 

Additions through originations

 

2,570

 

 

 

1,115

 

 

 

6,131

 

 

 

2,215

 

Amortization

 

(807

)

 

 

(334

)

 

 

(1,762

)

 

 

(906

)

Balance at end of period

$

13,853

 

 

$

9,103

 

 

$

13,853

 

 

$

9,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$

3,996

 

 

$

121

 

 

$

928

 

 

$

8

 

Provision (release)

 

(1,087

)

 

 

523

 

 

 

1,981

 

 

 

636

 

Balance at end of period

$

2,909

 

 

$

644

 

 

$

2,909

 

 

$

644

 

Amortized cost, net

$

10,944

 

 

$

8,459

 

 

$

10,944

 

 

$

8,459

 

Fair value

$

11,014

 

 

$

8,549

 

 

$

11,014

 

 

$

8,549

 

 

During the nine months ended September 30, 2020 and 2019, the Company increased the valuation allowance for its MSRs by $1,981,000 and $636,000, respectively. Such adjustments to the valuation allowance were due primarily to changes in fair value caused by the impact of changes in interest rates on expected loan prepayments.

 

 

8.

INCOME TAXES

Income tax expense for the three months ended September 30, 2020 represents federal and state tax expense of $2,661,000. Income tax expense for the three months ended September 30, 2019 represents $14,000 of state income tax expense. The federal and state tax expense is based on the projected tax rates for the year.

 

Income tax expense for the nine months ended September 30, 2020 represents federal and state tax expense of $3,266,000. Income tax expense for the nine months ended September 30, 2019 represents $97,000 of state income tax expense. The federal and state tax expense is based on the projected tax rates for the year. The Company currently has a deferred tax liability position of $2,273,000 at September 30, 2020. There was 0 deferred tax liability position at December 31, 2019.

From 2014 to June 30, 2020, the Company has maintained a valuation allowance on its net deferred tax asset based on a determination that it was more likely than not that such assets would not be realized. This determination was based on the Company’s net operating loss carryforward position, its current period operating results exclusive of non-recurring items and its expectations for the upcoming year. As a result, the 100% valuation allowance for deferred tax assets relating to net operating loss carryforwards was maintained. Due to the level of income earned during the first nine months of 2020 and the Company being in a net deferred tax liability position at September 30, 2020, the full amount of the Company’s net operating loss carryforwards was absorbed and the previously held valuation allowance was reversed.

9.ON-BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

Derivative Loan Commitments

 

Mortgage loan interest rate lock commitments qualify as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that these loans will subsequently be sold either in the secondary market, to large aggregators of loans or to other financial institutions.

 

19


 

Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to an increase in mortgage interest rates.  If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases.  The notional amount of derivative loan commitments was $418,903,000 and $89,925,000 at September 30, 2020 and December 31, 2019, respectively. The fair value of such commitments at September 30, 2020 and December 31, 2019 was $11,967,000 and $1,472,000, respectively, and is included in other assets in the consolidated balance sheets.

 

Forward Loan Sale Commitments

 

The Company utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments and To Be Announced (“TBA”) securities to mitigate the risk of potential decreases in the value of loans that would result from the exercise of the derivative loan commitments as well as for loans held for sale.

 

With a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.

 

With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower).

 

The Company expects that these forward loan sale commitments and TBA securities will experience changes in fair value that serve to offset the change in fair value of loans held for sale and derivative loan commitments the degree to which depends on the notional amount of such sale commitments.  The notional amount of forward loan sale commitments and TBA securities was $372,429,000 and $85,401,000 at September 30, 2020 and December 31, 2019, respectively. The fair value of such commitments consisted of liabilities of $924,000 and $140,000 at September 30, 2020 and December 31, 2019, respectively, included in other liabilities in the consolidated balance sheets and assets of $121,000 and $11,000 are included in other assets in the consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively.

 

10.

EMPLOYEE STOCK OWNERSHIP PLAN

The Company maintains an Employee Stock Ownership Plan (“ESOP”), which is a tax-qualified retirement plan providing eligible employees the opportunity to own Bancorp stock. Bancorp made a loan to the ESOP for the purchase of 469,498 shares of its common stock at $10.00 per share in connection with its initial public offering in July 2016. The loan is payable annually over 25 years with interest at the prime rate to be reset each January 1. The loan is secured by the shares which have not yet been allocated to participants. Loan payments are funded by cash contributions from the Bank. Such contributions are allocated to eligible participants based on their compensation, subject to federal tax limits.

Shares are committed to be released on a monthly basis and allocated as of December 31 of each year. The number of shares to be allocated annually is 18,780 through the year 2040. For the three and nine months ended September 30, 2020, the Company recognized compensation expense for the ESOP of $52,000 and $164,000, respectively, while for the three and nine months ended September 30, 2019, the Company recognized compensation expense for the ESOP of $65,000 and $203,000, respectively. The fair value of the 380,319 unallocated ESOP shares at September 30, 2020 was $4,727,000.

 

11.

SHARE REPURCHASE PROGRAM

In September 2017, the Company’s Board of Directors adopted a share repurchase program under which the Company may repurchase up to 10%, or 586,854 shares, of its then outstanding common shares. Repurchases under the program may be made in open market or in privately negotiated transactions and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the SEC. Any repurchased shares will be held by the Company as authorized but unissued shares. The repurchase program   expired on September 14, 2020.

 

On October 27, 2020, the Company announced a new stock repurchase program. See Note 17, Subsequent Events, for additional information.

 

20


 

12.

EARNINGS (LOSS) PER SHARE

Basic earnings per share represents net income divided by the weighted average of common shares outstanding during the period. Diluted earnings per share represents net income divided by the weighted average of common shares and all potentially dilutive common shares outstanding during the period. Unvested restricted shares of common stock having dividend rights are treated as “participating securities” and, accordingly, are considered outstanding in computing basic and diluted earnings per share. Unallocated ESOP shares are not considered to be outstanding for purposes of computing basic or diluted earnings per share.

The following table sets forth the calculation of the average number of shares outstanding used to calculate the basic and diluted earnings per share for the periods indicated:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Average number of common shares outstanding

 

 

5,503,020

 

 

 

5,747,207

 

 

 

5,511,028

 

 

 

5,835,455

 

Less: Average unallocated ESOP shares

 

 

(382,653

)

 

 

(401,421

)

 

 

(387,323

)

 

 

(406,116

)

Average number of common shares outstanding used to calculate basic earnings per share

 

 

5,120,367

 

 

 

5,345,786

 

 

 

5,123,705

 

 

 

5,429,339

 

Effect of dilutive stock options

 

 

 

 

 

 

 

 

2,372

 

 

 

 

Average number of common shares outstanding used to calculate dilutive earnings per share

 

 

5,120,367

 

 

 

5,345,786

 

 

 

5,126,077

 

 

 

5,429,339

 

 

13.

STOCK-BASED COMPENSATION

Under the Randolph Bancorp, Inc. 2017 Stock Option and Incentive Plan (the “Equity Plan”), the Company may grant options, restricted stock, restricted units or performance awards to its directors, officers and employees. Both incentive stock options and nonqualified stock options may be granted under the Equity Plan with 586,872 shares initially reserved for options. Any options forfeited because vesting requirements are not met or expired will become available for re-issuance under the Equity Plan. The exercise price of each option equals the market price of the Company’s stock on the date of the grant and the maximum term of each option is 10 years. The total number of shares initially reserved for restricted stock is 234,749. Options and awards generally vest ratably over three to five years. The fair value of shares awarded is based on the market price at the date of grant.

Stock Options

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

 

Volatility is based on peer group volatility because the Company does not have a sufficient trading history.

 

Expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term, and the vesting period.

 

Expected dividend yield is based on the Company's history and expectation of dividend payouts.

 

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option.

During the nine months ended September 30, 2020 and 2019, the Company made the following grants of options to purchase shares of common stock and used the following assumptions in measuring the fair value of such grants:

 

 

 

2020

 

 

2019

 

Options granted

 

 

330,118

 

 

 

57,252

 

Vesting period (years)

 

3-5

 

 

1-5

 

Expiration period (years)

 

 

10

 

 

 

10

 

Expected volatility

 

 

27.65

%

 

 

29.87

%

Expected life (years)

 

 

6.2

 

 

 

6.5

 

Expected dividend yield

 

 

 

 

 

 

Risk free interest rate

 

0.45% - 1.10%

 

 

2.37% - 2.61%

 

Option fair value

 

$2.69 - $4.32

 

 

$2.99 - $5.83

 

 

21


 

A summary of stock option activity for the nine months ended September 30, 2020 is presented in the table below:

 

Options

 

Stock Option Grants

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Remaining

Contractual Term

 

 

Aggregate Intrinsic

Value

 

Balance at January 1, 2020

 

 

360,207

 

 

$

14.82

 

 

 

7.26

 

 

$

 

Granted

 

 

330,118

 

 

 

12.14

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(14,543

)

 

 

15.34

 

 

 

 

 

 

 

 

 

Expired

 

 

(91,614

)

 

 

14.67

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

 

584,168

 

 

$

13.32

 

 

 

8.65

 

 

$

357,681

 

Exercisable at September 30, 2020

 

 

101,993

 

 

$

14.92

 

 

 

7.27

 

 

$

0

 

Unrecognized compensation cost (inclusive of

   directors' options)

 

$

1,533,857

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining recognition period

   (years)

 

 

3.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2020 and 2019, stock-based compensation expense applicable to stock options was $545,000 and $271,000, respectively. For the three months ended September 30, 2020 and 2019, stock-based compensation expense applicable to stock options was $138,000 and $79,000, respectively.

 

Included in expense for the nine months ended September 30, 2020 is $233,000 attributable to accelerated vesting of options upon the retirement of 2 executive officers.

Restricted Stock

Shares issued may be either authorized but unissued shares or reacquired shares held by the Company. Any shares forfeited because vesting requirements are not met will become available for reissuance under the Equity Plan. The fair market value of shares awarded, based on the market price at the date of grant, is amortized over the applicable vesting period. Restricted stock awarded to date has been at no cost to the awardee. The following table presents the activity in restricted stock awards under the Equity Plan for the nine months ended September 30, 2020:

 

 

 

Restricted

Stock Awards

 

 

Weighted Average

Grant Price

 

Restricted stock awards at January 1, 2020

 

 

125,861

 

 

$

14.76

 

Granted

 

 

63,130

 

 

 

10.84

 

Vested

 

 

(41,380

)

 

 

14.72

 

Forfeited

 

 

(9,251

)

 

 

14.88

 

Restricted stock awards at September 30, 2020

 

 

138,360

 

 

$

12.97

 

Unrecognized compensation cost

 

$

1,421,896

 

 

 

 

 

Weighted average remaining recognition period (years)

 

 

3.40

 

 

 

 

 

 

For the nine months ended September 30, 2020 and 2019 stock-based compensation expense applicable to restricted stock was $781,000 and $410,000, respectively. For the three months ended September 30, 2020 and 2019, stock-based compensation expense applicable to restricted stock was $115,000 and $144,000, respectively.

 

Included in expense for the nine months ended September 30, 2020 is $450,000 attributable to accelerated vesting of restricted stock awards upon the retirement of 2 executive officers.

 

14.

FAIR VALUE OF ASSETS AND LIABILITIES

Determination of fair value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.

22


 

The following methods and assumptions were used by the Company in estimating fair value disclosures:

Securities – All fair value measurements are obtained from a third-party pricing service and are not adjusted by management.  The securities measured at fair value in Level 1 (none at September 30, 2020 and December 31, 2019) are based on quoted market prices in an active exchange market. Securities measured at fair value in Level 2 are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

Loans held for sale – Fair values are based on commitments in effect from investors or prevailing market prices and include the servicing value of the loans.

Loans – Fair values for mortgage loans and other loans are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Mortgage servicing rights – Fair value is based on a valuation model that calculates the present value of estimated future net servicing income, using various assumptions related to fees, discount rates and prepayment speeds.

On-balance-sheet derivatives - Fair values of forward loan sale commitments and derivative loan commitments are based on fair values of the underlying mortgage loans using current market prices for similar assets in the secondary market. For derivative loan commitments, fair values also consider the value of servicing, costs to be incurred to close loans and the probability of such commitments being exercised.

Off-balance sheet credit-related instruments - Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.  The fair values of these instruments are not material.

Assets and liabilities recorded at fair value on a recurring basis

Assets and liabilities recorded at fair value on a recurring basis are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

$

 

 

$

55,551

 

 

$

 

 

$

55,551

 

Portfolio loans (fair value option)

 

 

 

 

 

14,384

 

 

 

 

 

 

14,384

 

Loans held for sale (fair value option)

 

 

 

 

 

87,805

 

 

 

 

 

 

87,805

 

Derivative loan commitments

 

 

 

 

 

11,967

 

 

 

 

 

 

11,967

 

Forward loan sale commitments

 

 

 

 

 

121

 

 

 

 

 

 

121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward loan sale commitments, including TBAs

 

 

 

 

 

924

 

 

 

 

 

 

924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

$

 

 

$

57,503

 

 

$

 

 

$

57,503

 

Portfolio loans (fair value option)

 

 

 

 

 

9,826

 

 

 

 

 

 

9,826

 

Loans held for sale (fair value option)

 

 

 

 

 

62,792

 

 

 

 

 

 

62,792

 

Derivative loan commitments

 

 

 

 

 

1,472

 

 

 

 

 

 

1,472

 

Forward loan sale commitments

 

 

 

 

 

11

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward loan sale commitments, including TBAs

 

 

 

 

 

140

 

 

 

 

 

 

140

 

 

There were 0 transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the nine months ended September 30, 2020 and 2019.

23


 

Assets recorded at fair value on a non-recurring basis

The Company may also be required, from time to time, to record certain other assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related assets as of September 30, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period Ended

 

 

 

September 30, 2020

 

 

September 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total Gains (Losses)

 

 

 

(In thousands)

 

 

 

 

 

Collateral dependent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

impaired loans

 

$

 

 

$

 

 

$

9,993

 

 

$

 

Mortgage servicing rights

 

 

 

 

 

 

 

 

10,944

 

 

 

(1,981

)

Foreclosed real estate

 

 

 

 

 

 

 

 

132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

$

 

 

$

21,069

 

 

$

(1,981

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Collateral dependent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

impaired loans

 

$

 

 

$

 

 

$

2,250

 

 

 

 

 

Mortgage servicing rights

 

 

 

 

 

 

 

 

8,556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

$

 

 

$

10,806

 

 

 

 

 

 

The Company recorded a net increase in the valuation allowance for its MSRs of $1,981,000 during the nine months ended September 30, 2020. The Company utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of MSRs. The model uses loan prepayment assumptions based on current market conditions and applies a discount rate based on indicated rates of return required by market participants. The increase in the valuation allowance during the nine months ended September 30, 2020 was caused by faster loan prepayment speeds attributable to the drop in interest rates on residential mortgage loans during the period.

 

Losses applicable to write-downs of impaired loans and foreclosed real estate are based on the appraised value of the underlying collateral less estimated costs to sell. The losses on impaired loans are not recorded directly as an adjustment to current earnings, but rather as a component in determining the allowance for loan losses. The losses on foreclosed real estate represent adjustments in valuation recorded during the time period indicated and not for losses incurred on sales. Appraised values are typically based on a blend of (a) an income approach using observable cash flows to measure fair value, and (b) a market approach using observable market comparisons. These appraised values may be discounted based on management’s historical knowledge, expertise or changes in market conditions from time of valuation.

There were 0 liabilities measured at fair value on a non-recurring basis at September 30, 2020 and December 31, 2019.

 

24


 

Summary of fair values of financial instruments

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are presented below.  Certain financial instruments and all non-financial instruments are exempt from disclosure requirements.  Accordingly, the aggregate fair value amounts presented herein do not represent the underlying fair value of the Company. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include mortgagors’ escrow accounts and accrued interest payable.

 

 

 

September 30, 2020

 

 

 

Carrying

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

55,551

 

 

 

55,551

 

 

 

 

 

 

55,551

 

 

 

 

Loans held for sale

 

 

87,805

 

 

 

87,805

 

 

 

 

 

 

87,805

 

 

 

 

Loans, net

 

 

484,548

 

 

 

483,956

 

 

 

 

 

 

 

 

 

483,956

 

Derivative assets

 

 

12,088

 

 

 

12,088

 

 

 

 

 

 

12,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

522,285

 

 

$

522,970

 

 

$

 

 

$

522,970

 

 

$

 

FRB advances

 

 

15,318

 

 

 

15,318

 

 

 

 

 

 

15,318

 

 

 

 

FHLBB advances

 

 

66,903

 

 

 

68,204

 

 

 

 

 

 

68,204

 

 

 

 

Derivative liabilities

 

 

924

 

 

 

924

 

 

 

 

 

 

924

 

 

 

 

 

 

 

December 31, 2019

 

 

 

Carrying

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

490

 

 

$

492

 

 

$

 

 

$

492

 

 

$

 

Securities available for sale

 

 

57,503

 

 

 

57,503

 

 

 

 

 

 

57,503

 

 

 

 

Loans held for sale

 

 

62,792

 

 

 

62,792

 

 

 

 

 

 

62,792

 

 

 

 

Loans, net

 

 

469,131

 

 

 

469,416

 

 

 

 

 

 

 

 

 

469,416

 

Derivative assets

 

 

1,483

 

 

 

1,483

 

 

 

 

 

 

1,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

497,042

 

 

 

496,979

 

 

$

 

 

$

496,979

 

 

$

 

FRB Advances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLBB advances

 

 

44,403

 

 

 

44,433

 

 

 

 

 

 

44,433

 

 

 

 

Derivative liabilities

 

 

140

 

 

 

140

 

 

 

 

 

 

140

 

 

 

 

 

15.

COMMITMENTS AND CONTINGENCIES

Loan commitments

The Company is a 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 extend credit. These instruments involve, to varying degrees, elements of market, credit and interest rate risk which are not recognized in the unaudited consolidated financial statements.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

25


 

The following financial instruments were outstanding, at the dates indicated, whose contract amounts represent credit risk:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Commitments to originate loans

 

$

439,452

 

 

$

117,086

 

Unused lines and letters of credit

 

 

66,997

 

 

 

52,721

 

Unadvanced funds on construction loans

 

 

7,192

 

 

 

11,029

 

Overdraft lines of credit

 

 

8,004

 

 

 

8,178

 

 

Commitments to extend credit are agreements to lend to a customer as long as 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. The commitments for lines of credit may expire without being drawn upon. Therefore, 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 majority of these financial instruments are collateralized by real estate.

Other contingencies

The Company is not currently a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, results of operations or cash flows.

 

16.

SEGMENT INFORMATION

The Company reports its activities in one of 2 business segments, namely Envision Bank (“EB”) and Envision Mortgage (“EM”). Envision Bank operations primarily consist of accepting deposits from customers within the communities surrounding the Bank’s 5 full-service branch offices and investing those funds in residential and commercial real estate loans, home equity lines of credit, construction loans, commercial and industrial loans, and consumer loans. Envision Mortgage’s operations primarily consist of the origination and sale of residential mortgage loans and the servicing of loans sold to government-sponsored entities. A portion of the loans originated by Envision Mortgage are held in the loan portfolio of Envision Bank.

 

26


 

Segment information as of and for the three and nine months ended September 30, 2020 follows:

 

 

 

For the Three Months Ended September 30, 2020

 

 

 

Envision Bank

 

 

Envision

Mortgage

 

 

Consolidated

Total

 

 

 

(in thousands)

 

Net interest income

 

$

4,032

 

 

$

637

 

 

$

4,669

 

Provision for loan losses

 

 

546

 

 

 

 

 

 

546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

3,486

 

 

 

637

 

 

 

4,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

309

 

 

 

21

 

 

 

330

 

Gain on loan origination and sale activities, net (1)

 

 

 

 

 

18,459

 

 

 

18,459

 

Mortgage servicing fees, net

 

 

(98

)

 

 

1,278

 

 

 

1,180

 

Other

 

 

93

 

 

 

169

 

 

 

262

 

Total non-interest income

 

 

304

 

 

 

19,927

 

 

 

20,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,959

 

 

 

5,952

 

 

 

7,911

 

Occupancy and equipment

 

 

437

 

 

 

422

 

 

 

859

 

Other non-interest expenses

 

 

1,084

 

 

 

1,197

 

 

 

2,281

 

Total non-interest expenses

 

 

3,480

 

 

 

7,571

 

 

 

11,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and elimination of inter-segment profit

 

$

310

 

 

$

12,993

 

 

 

13,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elimination of inter-segment profit

 

 

 

 

 

 

 

 

 

 

(357

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

12,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

2,661

 

Net income

 

 

 

 

 

 

 

 

 

$

10,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets, September 30, 2020

 

$

573,003

 

 

$

149,965

 

 

$

722,968

 

27


 

 

 

 

 

For the Nine Months Ended September 30, 2020

 

 

 

Envision Bank

 

 

Envision

Mortgage

 

 

Consolidated

Total

 

 

 

(in thousands)

 

Net interest income

 

$

11,970

 

 

$

1,857

 

 

$

13,827

 

Provision for loan losses

 

 

2,338

 

 

 

 

 

 

2,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

9,632

 

 

 

1,857

 

 

 

11,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

827

 

 

 

75

 

 

 

902

 

Gain on loan origination and sale activities, net (1)

 

 

 

 

 

40,667

 

 

 

40,667

 

Mortgage servicing fees, net

 

 

(281

)

 

 

(1,147

)

 

 

(1,428

)

Other

 

 

318

 

 

 

416

 

 

 

734

 

Total non-interest income

 

 

864

 

 

 

40,011

 

 

 

40,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits (2)

 

 

6,983

 

 

 

17,456

 

 

 

24,439

 

Occupancy and equipment

 

 

1,305

 

 

 

1,090

 

 

 

2,395

 

Other non-interest expenses

 

 

3,286

 

 

 

3,269

 

 

 

6,555

 

Total non-interest expenses

 

 

11,574

 

 

 

21,815

 

 

 

33,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and elimination of inter-segment profit

 

$

(1,078

)

 

$

20,053

 

 

 

18,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elimination of inter-segment profit

 

 

 

 

 

 

 

 

 

 

(1,051

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

17,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

3,266

 

Net income

 

 

 

 

 

 

 

 

 

$

14,658

 

 

 

(3)

Before elimination of inter-segment profit.

 

(4)

Salaries and benefits for the nine months ended September 30, 2020, include the severance and vested stock acceleration costs related to the retirement of the Chief Executive Officer and Chief Financial Officer of the Bank. Total cost of this event was $1.38 million, of which $1.03 million was allocated to the Bank segment and the remainder, $344,000, was allocated to the mortgage segment.

The information above was derived from the internal management reporting system used by management to measure performance of the segments.

The Company’s internal transfer pricing arrangements determined by management primarily consist of the following:

 

1.

EM’s cost of funds is based on the weighted average rate of overnight advances from the Federal Home Loan Bank of Boston (“FHLBB”) for the period.

 

2.

EM is credited with service released premiums and a sales premium totaling 1.50% for new loans transferred to EB’s loans held for investment, and a 1.00% fee for Home Equity Line of Credit (“HELOC”) originations. This income for the three and nine months ended September 30, 2020 totaled $357,000 and $1,052,000, respectively

 

3.

Loan servicing fees are charged to EB by EM based on the number of residential mortgage loans held in portfolio at a rate of 0.14% per annum and amounted to $98,000 and $281,000 for the three and nine months ended September 30, 2020, respectively.

 

4.

Certain cost centers provide services to both business segments. The cost centers include Finance, Marketing, IT and Administration. Costs which are common to both business segments are referred to as “indirect costs” and are allocated using relevant benchmarks, e.g. headcount, number of accounts, etc.


28


 

Segment information as of and for the three and nine months ended September 30, 2019 follows:

 

 

 

For the Three Months Ended September 30, 2019

 

 

 

Envision Bank

 

 

Envision

Mortgage

 

 

Consolidated

Total

 

 

 

(in thousands)

 

Net interest income

 

$

3,781

 

 

$

792

 

 

$

4,573

 

Provision for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

3,781

 

 

 

792

 

 

 

4,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

331

 

 

 

32

 

 

 

363

 

Gain on loan origination and sale activities, net (1)

 

 

 

 

 

6,010

 

 

 

6,010

 

Mortgage servicing fees, net

 

 

(93

)

 

 

(88

)

 

 

(181

)

Other

 

 

242

 

 

 

97

 

 

 

339

 

Total non-interest income

 

 

480

 

 

 

6,051

 

 

 

6,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,966

 

 

 

5,044

 

 

 

7,010

 

Occupancy and equipment

 

 

367

 

 

 

306

 

 

 

673

 

Other non-interest expenses

 

 

1,184

 

 

 

851

 

 

 

2,035

 

Total non-interest expenses

 

 

3,517

 

 

 

6,201

 

 

 

9,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and elimination of inter-segment profit

 

$

744

 

 

$

642

 

 

 

1,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elimination of inter-segment profit

 

 

 

 

 

 

 

 

 

 

(228

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

1,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

14

 

Net income

 

 

 

 

 

 

 

 

 

$

1,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets, September 30, 2019

 

$

509,021

 

 

$

132,417

 

 

$

641,438

 

 


29


 

 

 

 

For the Nine Months Ended September 30, 2019

 

 

 

Envision Bank

 

 

Envision

Mortgage

 

 

Consolidated

Total

 

 

 

(in thousands)

 

Net interest income

 

$

12,121

 

 

$

1,319

 

 

$

13,440

 

Credit for loan losses

 

 

(144

)

 

 

 

 

 

(144

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after credit for loan losses

 

 

12,265

 

 

 

1,319

 

 

 

13,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

948

 

 

 

106

 

 

 

1,054

 

Gain on loan origination and sale activities, net (1)

 

 

 

 

 

14,043

 

 

 

14,043

 

Mortgage servicing fees, net

 

 

(273

)

 

 

635

 

 

 

362

 

Other

 

 

464

 

 

 

253

 

 

 

717

 

Total non-interest income

 

 

1,139

 

 

 

15,037

 

 

 

16,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,292

 

 

 

13,222

 

 

 

18,514

 

Occupancy and equipment

 

 

1,137

 

 

 

835

 

 

 

1,972

 

Other non-interest expenses

 

 

3,434

 

 

 

2,539

 

 

 

5,973

 

Total non-interest expenses

 

 

9,863

 

 

 

16,596

 

 

 

26,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and elimination of inter-segment profit

 

$

3,541

 

 

$

(240

)

 

 

3,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elimination of inter-segment profit

 

 

 

 

 

 

 

 

 

 

(605

)

Income before income taxes

 

 

 

 

 

 

 

 

 

 

2,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

97

 

Net income

 

 

 

 

 

 

 

 

 

$

2,599

 

 

 

 

(1)

Before elimination of inter-segment profit.

 

The information above was derived from the internal management reporting system used by management to measure performance of the segments.

The Company’s internal transfer pricing arrangements determined by management primarily consist of the following:

 

1.

EM’s cost of funds is based on the weighted average rate of overnight advances from the FHLBB for the period.

 

2.

EM is credited with service released premiums and a sales premium totaling 1.50% for new loans transferred to EB’s loans held for investment, and a 1.00% fee for HELOC originations. This income for the three and nine months ended September 30, 2019 totaled $228,000 and $605,000, respectively.

 

3.

Loan servicing fees are charged to EB by EM based on the number of residential mortgage loans held in portfolio at a rate of 0.14% per annum and amounted to $93,000 and $273,000 for the three and nine months ended September 30, 2019, respectively.

 

4.

Certain cost centers provide services to both business segments. The cost centers include Finance, Marketing, IT and Administration. Costs which are common to both business segments are referred to as “indirect costs” and are allocated using relevant benchmarks, e.g. headcount, number of accounts, etc.

 

30


 

17.

SUBSEQUENT EVENTS

On October 27, 2020, the Company announced that its Board of Directors has approved a share repurchase program to purchase up to 552,000 shares of its common stock, representing approximately 10.0% of the Company’s outstanding common stock.

 

Repurchases under this program may be made in open market transactions. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The repurchase program does not obligate the Company to purchase any particular number of shares. The repurchase program will expire on October 29, 2021, and may be suspended or terminated at any time.

 


31


 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This section is intended to help investors understand the financial performance of Randolph Bancorp, Inc. and its subsidiary, Envision Bank, through a discussion of the factors affecting its financial condition at September 30, 2020 and December 31, 2019, and its results of operations for the three and nine month periods ended September 30, 2020 and 2019. This section should be read in conjunction with the unaudited consolidated financial statements of Randolph Bancorp, Inc. and notes thereto that appear elsewhere in this Quarterly Report. For the purpose of this Quarterly Report, the terms the “Company” “we,” “our,” and “us” refer to Randolph Bancorp, Inc. and its subsidiary unless the context indicates another meaning. When necessary, certain amounts in prior year financial statements have been reclassified to conform to the current year’s presentation.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These statements include, among others, statements regarding the impact of the COVID-19 pandemic; our strategy, goals and expectations; evaluations of future interest rate trends and liquidity; expectations as to growth in assets, deposits and results of operations, future operations, market position and financial position; and prospects, plans and objectives of management. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond our control.

 

Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. Our actual results could differ materially from those projected in the forward-looking statements as a result of, among others, factors referenced herein under the section captioned “Risk Factors”; the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; the length and extent of the economic contraction as a result of the COVID-19 pandemic; continued deterioration in employment levels, general business and economic conditions on a national basis and in the local markets in which we operate; changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives leading to changes in demand for loans in our market area; turbulence in the capital and debt markets; changes in interest rates; increases in loan defaults and charge-off rates; the possibility that future credits losses are higher than currently expected due to changes in economic assumptions or adverse economic developments; decreases in the value of securities and other assets; decreases in deposit levels necessitating increased borrowing to fund loans and investments; competitive pressures from other financial institutions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in regulation; reputational risk relating to our participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; risks that goodwill and intangibles recorded in our financial statements will become impaired; changes in accounting standards and practices; risks related to the implementation of acquisitions, dispositions, and restructurings, including the risk that acquisitions may not produce results at levels or within time frames originally anticipated; the risk that we may not be successful in the implementation of our business strategy; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in our Annual Report on Form 10-K and updated in this Quarterly Report on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. We do not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Overview

Our results of operations depend primarily on net interest income and net gains on loan origination and sale activities. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on interest-bearing liabilities. Our interest-earning assets consist primarily of residential mortgage loans (including loans held for sale), commercial real estate loans, commercial and industrial loans, home equity loans and lines of credit, construction loans, consumer loans and investment securities. Interest-bearing liabilities consist primarily of deposit accounts (including brokered deposits) and borrowings from the Federal Home Loan Bank of Boston (“FHLBB”) and the Federal Reserve Bank (“FRB”). Net gains on loan origination and sale activities result from the origination and sale of such loans to investors including Fannie Mae, Freddie Mac and other financial institutions. The amount of these gains is dependent on the volume of our loan originations, profit margins earned upon sale and the prevailing fair value of MSRs.

32


 

On March 27, 2020, Congress passed, and the President signed, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to address the economic effects of the COVID-19 pandemic.

 

Paycheck Protection Program. The CARES Act appropriated $349 billion for “paycheck protection loans” through the U.S. Small Business Administration’s (“SBA”) 7(a) Loan Guaranty Program (the “PPP”).  The amount appropriated was subsequently increased to $659 billion.  Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by the SBA.  As of September 30, 2020, the Bank had originated PPP loans totaling $15.4 million. In conjunction with the PPP, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) has created a lending facility for qualified financial institutions. The Paycheck Protection Program Liquidity Facility (the “PPPLF”) will extend credit to depository institutions with a term of up to five years at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility.

 

Troubled Debt Restructuring Relief. From March 1, 2020 through the earlier of December 31, 2020 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the COVID–19 outbreak (the “national emergency”), a financial institution may elect to suspend the requirements under accounting principles generally accepted in the U.S. for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a troubled debt restructured, including impairment accounting. This troubled debt restructuring relief applies for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019.  Financial institutions are required to maintain records of the volume of loans involved in modifications to which TDR relief is applicable.

Critical Accounting Policies

Certain of our accounting policies are important to the presentation of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Our significant accounting policies are discussed in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission.

The Jumpstart our Business Startups Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company”, we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our unaudited consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

Comparison of Financial Condition at September 30, 2020 and December 31, 2019

Total Assets. Total assets increased $92.0 million to $723.0 million at September 30, 2020 from $631.0 million at December 31, 2019. Contributing to asset growth was a $15.4 million increase in net loans, mainly driven by the origination of $15.4 million of Paycheck Protection Program loans. In addition, cash and cash equivalents increased by $40.8 million in the nine months ended September 30, 2020, mainly as a result of strong growth in core deposits and the timing of cash proceeds from loan sales. Loans held for sale increased by $25.0 million to $87.8 million at September 30, 2020 from $62.8 million at December 31, 2019. 

Loans Held for Sale. We are actively involved in the secondary mortgage market and sell most of our residential first mortgage loan production to investors. At September 30, 2020, loans held for sale totaled $87.8 million compared to $62.8 million at December 31, 2019, and proceeds from sales of mortgage loans totaled $1.2 billion in the nine months ended September 30, 2020. Lower mortgage rates available during the first nine months of 2020 favorably impacted loan refinancing activity, which comprised 74% of residential mortgage loan originations in the first nine months of 2020. With $418.9 million of outstanding customer interest rate lock agreements at September 30, 2020, the balance of loans held for sale is expected to remain at an elevated level throughout the fourth quarter of 2020.

Net Loans. Net loans increased $15.4 million to $484.5 million at September 30, 2020 from $469.1 million at December 31, 2019, primarily as a result of the origination of Paycheck Protection Program loans, as well as increases in residential and commercial real estate loans. These increases were partially offset by decreases in consumer and other commercial and industrial loans, where loan repayments have not been offset by increased loan originations or purchases.

33


 

Investment Securities. Investment securities, all of which are classified as available for sale, decreased $2.0 million to $55.6 million at September 30, 2020 from $57.5 million at December 31, 2019, primarily due to principal payments on mortgage-backed securities, partially offset by securities purchases and an increase in market values attributable to the decline in longer-term interest rates during the first nine months of 2020. At September 30, 2020, investment securities and cash and cash equivalents, primary sources of on-balance sheet liquidity, totaled $104.6 million, or 14.5% of total assets.

Mortgage Servicing Rights. MSRs increased $2.4 million to $10.9 million at September 30, 2020 from $8.6 million at December 31, 2019. The principal reason for the increase was an increase in the origination of new mortgage servicing rights, net of amortization. That was partially offset by impairment charges of $2.0 million recognized through a valuation allowance, given expectations of higher mortgage loan prepayments in the low interest rate environment. At September 30, 2020, the Company serviced $1.59 billion of mortgage loans for others, an increase of $0.54 billion from $1.05 billion at December 31, 2019. Accordingly, the average value of MSRs at September 30, 2020 stood at 69 basis points, a decrease of 12 basis points from the average value of 81 basis points at December 31, 2019.

Deposits. Deposits increased $25.2 million, or 5.1%, to $522.3 million at September 30, 2020 from $497.0 million at December 31, 2019. During this period, non-brokered deposits increased by $78.8 million, or 19.4%. The growth in non-brokered deposits was directly driven by customers’ receipt of government stimulus payments, Paycheck Protection Program loan proceeds which were deposited with us, and our focus on deposit gathering prior to the onset of the COVID-19 pandemic. Brokered deposits, which management considers to be a source of wholesale funding, declined by $53.6 million to $37.3 million at September 30, 2020, from $90.9 million at December 31, 2019.

FRB Advances. FRB Advances consist of term advances under the Paycheck Protection Program Liquidity Facility which fund Paycheck Protection Program loans and amounted to $15.3 million at September 30, 2020. There were no FRB Advances at December 31, 2019.

FHLBB Advances. FHLBB advances, which consist of term advances, increased by $22.5 million to $66.9 million at September 30, 2020, from $44.4 million at December 31, 2019. Management elected to increase FHLBB advances because they were a relatively cheaper source of wholesale funding than brokered deposits.

Brokered deposits, FRB advances and FHLBB advances make up the Bank’s wholesale funding which management targets at a limit of 25% of total assets. At September 30, 2020, wholesale funding amounted to $119.5 million, or 16.5% of total assets.

Stockholders’ Equity. Stockholders’ equity increased $16.5 million to $94.9 million at September 30, 2020 compared to $78.5 million at December 31, 2019. The increase was mainly attributed to net income of $10.3 million in the nine months ended September 30, 2020, an increase in the fair value of available-for sale securities of $1.6 million, driven by a decline in longer-term interest rates, and  $1.3 million of equity adjustments related to the stock benefit plan and employee stock ownership plan.  These increases were partially offset by the Company repurchasing $1.2 million of shares during the first nine months of 2020, for a total of 101,131 shares repurchased at an average cost of $12.08 per share.

Comparison of Operating Results for the Three Months Ended September 30, 2020 and 2019

General. The Company recognized net income of $10.3 million, or $2.01 per diluted share, for the three months ended September 30, 2020 compared to net income of $1.1 million, or $0.21 per diluted share, for the three months ended September 30, 2019, an increase of $9.1 million.

Analysis of Net Interest Income

Net interest income represents the difference between income earned on interest-earning assets and the expenses paid on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities.

34


 

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of acquisition accounting adjustments as well as deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

 

 

 

 

For the Three Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Average

 

 

Interest

 

 

Average

 

 

 

Outstanding

 

 

Earned/

 

 

Yield/

 

 

Outstanding

 

 

Earned/

 

 

Yield/

 

(Dollars in thousands)

 

Balance

 

 

Paid

 

 

Rate

 

 

Balance

 

 

Paid

 

 

Rate

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

559,370

 

 

$

5,337

 

 

 

3.82

%

 

$

573,899

 

 

$

6,144

 

 

 

4.28

%

Investment securities (2) (3)

 

 

57,211

 

 

 

305

 

 

 

2.13

%

 

 

53,947

 

 

 

377

 

 

 

2.80

%

Interest-earning deposits

 

 

48,949

 

 

 

7

 

 

 

0.06

%

 

 

4,881

 

 

 

23

 

 

 

1.88

%

Total interest-earning assets

 

 

665,530

 

 

 

5,649

 

 

 

3.40

%

 

 

632,727

 

 

 

6,544

 

 

 

4.14

%

Noninterest-earning assets

 

 

41,037

 

 

 

 

 

 

 

 

 

 

 

14,757

 

 

 

 

 

 

 

 

 

Total assets

 

$

706,567

 

 

 

 

 

 

 

 

 

 

$

647,484

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

 

170,762

 

 

 

172

 

 

 

0.40

%

 

 

107,764

 

 

 

149

 

 

 

0.55

%

NOW accounts

 

 

57,646

 

 

 

41

 

 

 

0.28

%

 

 

38,697

 

 

 

47

 

 

 

0.49

%

Money market accounts

 

 

72,369

 

 

 

75

 

 

 

0.41

%

 

 

64,058

 

 

 

251

 

 

 

1.57

%

Term certificates

 

 

131,053

 

 

 

442

 

 

 

1.35

%

 

 

182,073

 

 

 

918

 

 

 

2.02

%

Total interest-bearing deposits

 

 

431,830

 

 

 

730

 

 

 

0.68

%

 

 

392,592

 

 

 

1,365

 

 

 

1.39

%

FHLBB and FRB advances

 

 

82,639

 

 

 

249

 

 

 

1.21

%

 

 

101,933

 

 

 

603

 

 

 

2.37

%

Total interest-bearing liabilities

 

 

514,469

 

 

 

979

 

 

 

0.76

%

 

 

494,525

 

 

 

1,968

 

 

 

1.59

%

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

88,394

 

 

 

 

 

 

 

 

 

 

 

62,456

 

 

 

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

12,724

 

 

 

 

 

 

 

 

 

 

 

10,138

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

615,587

 

 

 

 

 

 

 

 

 

 

 

567,119

 

 

 

 

 

 

 

 

 

Total stockholders' equity

 

 

90,980

 

 

 

 

 

 

 

 

 

 

 

80,365

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

706,567

 

 

 

 

 

 

 

 

 

 

$

647,484

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

4,670

 

 

 

 

 

 

 

 

 

 

$

4,576

 

 

 

 

 

Interest rate spread(4)

 

 

 

 

 

 

 

 

 

 

2.64

%

 

 

 

 

 

 

 

 

 

 

2.55

%

Net interest-earning assets(5)

 

$

151,061

 

 

 

 

 

 

 

 

 

 

$

138,202

 

 

 

 

 

 

 

 

 

Net interest margin(6)

 

 

 

 

 

 

 

 

 

 

2.81

%

 

 

 

 

 

 

 

 

 

 

2.89

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of interest-earning assets to interest-

   bearing liabilities

 

 

129.36

%

 

 

 

 

 

 

 

 

 

 

127.95

%

 

 

 

 

 

 

 

 

 

 

(1)

Includes nonaccruing loan balances and interest received on such loans as well as loans held for sale.

 

(2)

Includes carrying value of securities classified as available for sale, FHLBB stock and investment in a correspondent bank.

 

(3)

Includes tax equivalent adjustments for municipal securities, based on an effective tax rate of 21% of $1,000 and $3,000 for the three months ended September 30, 2020 and 2019, respectively.

 

(4)

Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

 

(5)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

 

(6)

Net interest margin represents net interest income divided by average total interest-earning assets.

35


 

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income, presented on a tax equivalent basis, for the periods indicated. 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 both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

 

 

 

Three Months Ended September 30, 2020

 

 

 

Compared to

 

 

 

Three Months Ended September 30, 2019

 

 

 

Increase (Decrease)

 

 

Total

 

 

 

Due to Changes in

 

 

Increase

 

 (In thousands)

 

Volume

 

 

Rate

 

 

(Decrease)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

(154

)

 

$

(653

)

 

$

(807

)

Investment securities

 

 

22

 

 

 

(94

)

 

 

(72

)

Interest-earning deposits

 

 

27

 

 

 

(41

)

 

 

(14

)

Total interest-earning assets

 

 

(105

)

 

 

(788

)

 

 

(893

)

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

 

71

 

 

 

(48

)

 

 

23

 

NOW accounts

 

 

18

 

 

 

(24

)

 

 

(6

)

Money market accounts

 

 

29

 

 

 

(205

)

 

 

(176

)

Term certificates

 

 

(218

)

 

 

(258

)

 

 

(476

)

Total interest-bearing deposits

 

 

(100

)

 

 

(535

)

 

 

(635

)

FHLBB and FRB advances

 

 

(99

)

 

 

(255

)

 

 

(354

)

Total interest-bearing liabilities

 

 

(199

)

 

 

(790

)

 

 

(989

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net interest income

 

$

94

 

 

$

2

 

 

$

96

 

 

Interest and Dividend Income. Interest and dividend income, inclusive of tax equivalent adjustments on municipal securities, decreased $895,000, or 13.7%, to $5.6 million for the three months ended September 30, 2020 compared to $6.5 million for the three months ended September 30, 2019. The yield on interest-earning assets decreased 74 basis points to 3.40% in the third quarter of 2020 from 4.14% in the same quarter of the prior year, given decreasing earning-asset yields in a declining interest rate environment. Partially offsetting the rate impact was an increase in average interest-earning assets between periods of $32.8 million, or 5.2%, as the Company continued to leverage its capital base.

Interest Expense. Interest expense decreased $989,000, or 50.3%, to $979,000 for the three months ended September 30, 2020 compared to $2.0 million for the three months ended September 30, 2019. This decrease resulted in an 83 basis point decrease in the cost of funds to 0.76%, which was partially offset by an increase in average interest-bearing liabilities of $19.9 million. The decrease in cost of funds was principally due to a declining interest rate environment which lowered the cost of money market accounts, term deposits and FHLBB advances.

Net Interest Income. Net interest income, inclusive of tax equivalent adjustments on municipal securities, increased $94,000, or 2.1%, to $4.7 million for the three months ended September 30, 2020 compared to $4.6 million for the three months ended September 30, 2019. This increase was primarily due to an increase in the proportion of non-maturity deposits and a decline in the proportion of term certificates from the same period in the prior year. The average balance of savings accounts at the Company increased $63.0 million, or 58.5%, from September 30, 2019 and the average balance of term certificates decreased $51.0 million, or 28.0%, from September 2019.

Provision for Loan Losses. The Company recognized a provision for loan losses of $546,000 for the quarter ended September 30, 2020 compared to no provision in the prior year quarter. The allowance for loan losses was 1.34% and 0.90% of total loans at September 30, 2020 and December 31, 2019, respectively, and was 67.2% and 131.4% of non-performing loans at September 30, 2020 and December 31, 2019, respectively.

36


 

Net Gain on Loan Origination and Sale Activities. The net gain on loan origination and sale activities increased $12.3 million, or 213.1%, to $18.1 million for the three months ended September 30, 2020 compared to $5.8 million for the three months ended September 30, 2019. The lower mortgage rates available during the third quarter of 2020 favorably impacted loan refinancing activity, which comprised 69% of loan sales of $410.4 million in the third quarter of 2020.

Other Non-interest Income. Other non-interest income was $1.8 million in the three months ended September 30, 2020 compared to other non-interest income of $521,000 during the three months ended September 30, 2019. The $1.3 million increase between periods is mainly attributed to a positive valuation increase for MSRs which was recognized in the quarter ended September 30, 2020 as loan prepayment speeds were adjusted to reflect more stable interest rates.

Non-interest Expenses. Non-interest expense increased $1.3 million, or 13.7%, to $11.1 million for the three months ended September 30, 2020, from $9.7 million for the three months ended September 30, 2019.

Salaries and employee benefits increased $901,000 to $7.9 million in the third quarter of 2020 from $7.0 million in the third quarter of 2019. This increase was primarily due to higher commissions and incentives associated with increased residential loan production.

Occupancy and equipment expenses increased $186,000 in the quarter ended September 30, 2020 over the prior year period. This increase resulted from increased depreciation of furniture, fixtures and equipment that are expected to be retired as we consolidate administrative office space in light of prolonged remote working arrangements.

Other non-interest expenses comprising data processing, professional fees, marketing, FDIC insurance and other non-interest expenses increased by $246,000 in the quarter ended September 30, 2020 compared to the prior year period as a result of a combination of factors. FDIC insurance increased during the period as result of an insurance credit expiring in the third quarter of 2019. Other increases were related to higher costs related to elevated mortgage loan production.

Income Tax Expense. Income tax expense of $2.6 million for the three months ended September 30, 2020 consisted of a federal and state income tax provision, which was based on the projected effective tax rate for the year. The Company had a net operating loss carryforward (“NOL”) for federal tax purposes of $10.8 million at June 30, 2020. During the quarter ended September 30, 2020, the Company fully absorbed the NOL as a result of the Company’s increased income.

 

Comparison of Operating Results for the Nine Months Ended September 30, 2020 and 2019

 

General.

 

Analysis of Net Interest Income

 

Net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities.

 

37


 

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of acquisition accounting adjustments as well as deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Average

 

 

Interest

 

 

Average

 

 

 

Outstanding

 

 

Earned/

 

 

Yield/

 

 

Outstanding

 

 

Earned/

 

 

Yield/

 

(Dollars in thousands)

 

Balance

 

 

Paid

 

 

Rate

 

 

Balance

 

 

Paid

 

 

Rate

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

555,838

 

 

$

16,680

 

 

 

4.00

%

 

$

549,665

 

 

$

17,791

 

 

 

4.32

%

Investment securities (2) (3)

 

 

58,201

 

 

 

1,016

 

 

 

2.33

%

 

 

54,350

 

 

 

1,154

 

 

 

2.83

%

Interest-earning deposits

 

 

30,177

 

 

 

68

 

 

 

0.30

%

 

 

5,132

 

 

 

77

 

 

 

2.00

%

Total interest-earning assets

 

 

644,216

 

 

 

17,764

 

 

 

3.68

%

 

 

609,147

 

 

 

19,022

 

 

 

4.16

%

Noninterest-earning assets

 

 

37,509

 

 

 

 

 

 

 

 

 

 

 

21,228

 

 

 

 

 

 

 

 

 

Total assets

 

$

681,725

 

 

 

 

 

 

 

 

 

 

$

630,375

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

 

154,736

 

 

 

689

 

 

 

0.59

%

 

 

104,530

 

 

 

337

 

 

 

0.43

%

NOW accounts

 

 

54,185

 

 

 

142

 

 

 

0.35

%

 

 

39,466

 

 

 

144

 

 

 

0.49

%

Money market accounts

 

 

70,712

 

 

 

394

 

 

 

0.74

%

 

 

65,609

 

 

 

712

 

 

 

1.45

%

Term certificates

 

 

159,540

 

 

 

2,012

 

 

 

1.68

%

 

 

171,827

 

 

 

2,552

 

 

 

1.98

%

Total interest-bearing deposits

 

 

439,173

 

 

 

3,237

 

 

 

0.98

%

 

 

381,432

 

 

 

3,745

 

 

 

1.31

%

FHLBB and FRB advances

 

 

69,672

 

 

 

696

 

 

 

1.33

%

 

 

98,817

 

 

 

1,825

 

 

 

2.46

%

Total interest-bearing liabilities

 

 

508,845

 

 

 

3,933

 

 

 

1.03

%

 

 

480,249

 

 

 

5,570

 

 

 

1.55

%

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

76,397

 

 

 

 

 

 

 

 

 

 

 

62,194

 

 

 

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

11,996

 

 

 

 

 

 

 

 

 

 

 

8,681

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

597,238

 

 

 

 

 

 

 

 

 

 

 

551,124

 

 

 

 

 

 

 

 

 

Total stockholders' equity

 

 

84,487

 

 

 

 

 

 

 

 

 

 

 

79,251

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

681,725

 

 

 

 

 

 

 

 

 

 

$

630,375

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

13,831

 

 

 

 

 

 

 

 

 

 

$

13,452

 

 

 

 

 

Interest rate spread(4)

 

 

 

 

 

 

 

 

 

 

2.65

%

 

 

 

 

 

 

 

 

 

 

2.61

%

Net interest-earning assets(5)

 

$

135,371

 

 

 

 

 

 

 

 

 

 

$

128,898

 

 

 

 

 

 

 

 

 

Net interest margin(6)

 

 

 

 

 

 

 

 

 

 

2.86

%

 

 

 

 

 

 

 

 

 

 

2.94

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of interest-earning assets to interest-

   bearing liabilities

 

 

126.60

%

 

 

 

 

 

 

 

 

 

 

126.84

%

 

 

 

 

 

 

 

 

 

 

(1)

Includes nonaccruing loan balances and interest received on such loans as well as loans held for sale.

 

(2)

Includes carrying value of securities classified as available for sale, FHLBB stock and investment in a correspondent bank.

 

(3)

Includes tax equivalent adjustments for municipal securities, based on an effective tax rate of 21% of $4,000 and $10,000 for the nine months ended September 30, 2020 and 2019, respectively.

 

(4)

Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

 

(5)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

 

(6)

Net interest margin represents net interest income divided by average total interest-earning assets.

 

 

 

38


 

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income, presented on a tax equivalent basis, for the periods indicated. 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 both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

 

 

 

Nine Months Ended September 30, 2020

 

 

 

Compared to

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Increase (Decrease)

 

 

Total

 

 

 

Due to Changes in

 

 

Increase

 

 (In thousands)

 

Volume

 

 

Rate

 

 

(Decrease)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

(29

)

 

$

(1,080

)

 

$

(1,109

)

Investment securities

 

 

(1

)

 

 

(136

)

 

 

(137

)

Interest-earning deposits

 

 

30

 

 

 

(37

)

 

 

(7

)

Total interest-earning assets

 

 

 

 

 

(1,253

)

 

 

(1,253

)

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

 

197

 

 

 

154

 

 

 

351

 

NOW accounts

 

 

15

 

 

 

(17

)

 

 

(2

)

Money market accounts

 

 

(12

)

 

 

(306

)

 

 

(318

)

Term certificates

 

 

(173

)

 

 

(367

)

 

 

(540

)

Total interest-bearing deposits

 

 

27

 

 

 

(536

)

 

 

(509

)

FHLBB and FRB advances

 

 

(441

)

 

 

(688

)

 

 

(1,129

)

Total interest-bearing liabilities

 

 

(414

)

 

 

(1,224

)

 

 

(1,638

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net interest income

 

$

414

 

 

$

(29

)

 

$

385

 

 

 

Interest and Dividend Income. Interest and dividend income, inclusive of tax equivalent adjustments on municipal securities, decreased $1.3 million, or 6.6%, to $17.8 million for the nine months ended September 30, 2020 compared to $19.0 million for the nine months ended September 30, 2019. The yield on interest-earning assets decreased 48 basis points to 3.68% in the first nine months of 2020 from 4.16% in the first nine months of the prior year, given decreasing earning-asset yields in a declining interest rate environment. Partially offsetting the rate impact was an increase in average interest-earning assets between periods of $35.1 million, or 5.8%, as the Company continued to leverage its capital base.

Interest Expense. Interest expense decreased $1.6 million, or 29.4%, to $3.9 million for the nine months ended September 30, 2020 compared to $5.6 million for the nine months ended September 30, 2019. This decrease resulted from a 52 basis point decrease in the cost of funds to 1.03%, which was partially offset by an increase in average interest-bearing liabilities of $28.6 million. The decrease in cost of funds was principally due to a declining interest rate environment which lowered the cost of money market accounts, term deposits and FHLBB advances, while the cost of interest-bearing deposits did not adjust downward in all categories given an emphasis on increasing local market share.

Net Interest Income. Net interest income, inclusive of tax equivalent adjustments on municipal securities, increased $379,000, or 2.8%, to $13.8 million for the nine months ended September 30, 2020 compared to $13.5 million for the nine months ended September 30, 2019. This improvement resulted principally from loan growth and improved interest rate spread mainly reflecting decreased wholesale funding utilization and cost. The net interest margin decreased 8 basis points to 2.86% in the first nine months of 2020 from 2.94% in the first nine months of 2019, primarily due to deposit repricing lagging the decreasing interest-earning asset yields in a declining interest rate environment.

Provision for Loan Losses. The Company recognized a provision for loan losses of $2.3 million for the nine months ended September 30, 2020, compared to a credit for loan losses of $144,000 in the prior year period. The provision in the first nine months of 2020 included $558,000, representing the estimate of probable incurred losses associated with the impact of the COVID-19 pandemic on the Company’s loan portfolio.

39


 

Net Gain on Loan Origination and Sale Activities. The net gain on loan origination and sale activities increased $26.2 million, or 194.8%, to $39.6 million for the nine months ended September 30, 2020 compared to $13.4 million for the nine months ended September 30, 2019. The lower mortgage rates available during the first nine months of 2020 favorably impacted loan refinancing activity, which comprised 74% of loan sales of $1.1 billion in the first nine months of 2020.

Other Non-interest Income. Non-interest income was $208,000 in the nine months ended September 30, 2020, compared to non-interest income of $2.1 million during the nine months ended September 30, 2019. The $1.9 million decrease between periods is mainly attributed to a net provision of $2.0 million to the valuation allowance for MSRs which was recognized in the first nine months of 2020 as loan prepayment speeds were adjusted higher to reflect the impact of lower interest rates.

Non-interest Expenses. Non-interest expenses increased $6.9 million, or 26.2%, to $33.4 million for the nine months ended September 30, 2020, from $26.5 million for the nine months ended September 30, 2019. Non-interest expenses in the first nine months of 2020 included one-time charges of $1,375,000 related to the retirement of senior executives as well as $229,000 of COVID-19 pandemic-related expenses, principally related to cleaning.

Salaries and employee benefits increased $5.9 million to $24.4 million in the first nine months of 2020 from $18.5 million in the first nine months of 2019. This increase included one-time charges of $1.4 million for the retirement of senior executives, higher commissions and incentives associated with higher residential loan production, and COVID-19 pandemic-related compensation of $101,000 for front-line and quarantined employees.

Occupancy and equipment expenses increased $423,000, or 21.5%, to $2.4 million in the first nine months of 2020 compared to $2.0 million in the first nine months of 2019. This increase included spending on cleaning and supplies related to the COVID-19 pandemic of $106,000, as well as increased depreciation of furniture, fixtures and equipment that are expected to be retired as we consolidate our administrative office space in light of prolonged remote working arrangements.

Other non-interest expenses comprising data processing, professional fees, marketing, FDIC insurance and other non-interest expenses increased by $582,000 in the nine months ended September 30, 2020 versus the prior year period as a result of a combination of factors. Marketing and certain operating expenses declined as a result of lower deposit customer activity while stay-at-home orders were in effect. Those reductions were offset by higher costs related to elevated mortgage loan production and management succession planning costs.

Income Tax Expense. Income tax expense of $3.3 million for the nine months ended September 30, 2020 consisted solely of a federal and state income tax provision, which was based on the projected effective tax rate for the year.

 

Segments. The Company has two reportable segments: Envision Bank and Envision Mortgage. Revenue from Envision Bank consists primarily of interest earned on loans and investment securities and customer service fees on deposit accounts. Revenue from Envision Mortgage consists primarily of gains on loan origination and sales activities, loan servicing income and interest income on loans held for sale and residential construction loans. Also included in Envision Mortgage’s revenues is income on loan originations that are retained in Envision Bank’s loan portfolio and loan servicing fees on these loans. This inter-segment profit is eliminated in consolidation.


40


 

Comparison of Segment Results for the Three Months Ended September 30, 2020 and 2019

The following table presents a comparison of the results of operations for each segment before incomes taxes and elimination of inter-segment profit, and the changes in those results, for the three months ended September 30, 2020 and 2019.

 

 

 

Envision Bank

 

 

Envision Mortgage

 

 

 

Three Months Ended September 30,

 

 

Increase (Decrease)

 

 

Three Months Ended September 30,

 

 

Increase (Decrease)

 

 

 

2020

 

 

2019

 

 

Dollars

 

 

Percent

 

��

2020

 

 

2019

 

 

Dollars

 

 

Percent

 

 

 

(in thousands)

 

Net interest income

 

$

4,032

 

 

$

3,781

 

 

$

251

 

 

 

6.6

%

 

$

637

 

 

$

792

 

 

$

(155

)

 

 

-19.6

%

Provision (credit) for loan

   losses

 

 

546

 

 

 

 

 

 

546

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after

   provision (credit) for loan

   losses

 

 

3,486

 

 

 

3,781

 

 

 

(295

)

 

 

(7.8

)

 

 

637

 

 

 

792

 

 

 

(155

)

 

 

(19.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

309

 

 

 

331

 

 

 

(22

)

 

 

(6.6

)

 

 

21

 

 

 

32

 

 

 

(11

)

 

 

(34.4

)

Gain on loan origination

   and sale activities, net (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,459

 

 

 

6,010

 

 

 

12,449

 

 

 

207.1

 

Mortgage servicing fees,

   net

 

 

(98

)

 

 

(93

)

 

 

(5

)

 

 

(5.4

)

 

 

1,278

 

 

 

(88

)

 

 

1,366

 

 

 

(1,552.3

)

Other

 

 

93

 

 

 

242

 

 

 

(149

)

 

 

(61.6

)

 

 

169

 

 

 

97

 

 

 

72

 

 

 

74.2

 

Total non-interest

   income

 

 

304

 

 

 

480

 

 

 

(176

)

 

 

(36.7

)

 

 

19,927

 

 

 

6,051

 

 

 

13,876

 

 

 

229.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee

   benefits

 

 

1,959

 

 

 

1,966

 

 

 

(7

)

 

 

(0.4

)

 

 

5,952

 

 

 

5,044

 

 

 

908

 

 

 

18.0

 

Occupancy and equipment

 

 

437

 

 

 

367

 

 

 

70

 

 

 

19.1

 

 

 

422

 

 

 

306

 

 

 

116

 

 

 

37.9

 

Other non-interest

   expenses

 

 

1,084

 

 

 

1,184

 

 

 

(100

)

 

 

(8.4

)

 

 

1,197

 

 

 

851

 

 

 

346

 

 

 

40.7

 

Total non-interest

   expenses

 

 

3,480

 

 

 

3,517

 

 

 

(37

)

 

 

(1.1

)

 

 

7,571

 

 

 

6,201

 

 

 

1,370

 

 

 

22.1

 

Income (loss) before income

   taxes and elimination of inter

   -segment profit

 

$

310

 

 

$

744

 

 

$

(434

)

 

 

(58.3

)%

 

$

12,993

 

 

$

642

 

 

$

12,351

 

 

 

1923.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets at September 30,

   2020

 

$

573,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

149,965

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease)

 

$

51,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

40,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Before elimination of inter-segment profit.

Envision Bank Segment

The Envision Bank segment had income before income taxes and elimination of inter-segment profit of $310,000 for the three months ended September 30, 2020 compared to income of $744,000 for the three months ended September 30, 2019. The decrease in operating results between periods of $434,000 was driven by a number of factors as explained below.

Net interest income increased $251,000, or 6.6%, as a result of an increase in interest-earning assets, partially offset by deposit repricing lagging the decreasing earning-asset yields in a declining interest rate environment. The Company recognized a provision for loan losses of $546,000 for the quarter ended September 30, 2020 compared to no provision in the prior year quarter.

Non-interest income declined by $176,000 between periods, driven by a lower level of fees related to decreased economic activity.

41


 

Non-interest expense decreased by $37,000 in the quarter ended September 30, 2020 as compared to the prior year period as a result of a combination of factors. Salaries and employee benefits decreased by $7,000, or 0.4%, between periods as a result of a slight decrease in headcount. Occupancy and equipment expenses increased $70,000 in the quarter ended September 30, 2020 over the prior year period, partly as a result of increased spending on cleaning and supplies related to the COVID-19 pandemic. Other non-interest expenses decreased by $100,000 between periods, given that marketing and certain operating expenses declined as a result of lower deposit customer activity.

Total assets attributable to the Envision Bank segment increased $51.9 million, or 10.0%, to $573.0 million at September 30, 2020 from $521.1 million at December 31, 2019. This increase was principally due to growth in cash and portfolio loans.

Envision Mortgage Segment

The Envision Mortgage segment had income before income taxes and elimination of inter-segment profit of $13.0 million for the three months ended September 30, 2020 compared to $642,000 for the three months ended September 20, 2019. The improvement of $12.4 million in operating results occurred as a result of an increase of $12.4 million, or 207.1%, in net gains on loan origination and sale activities. In addition, there were increases in the mortgage servicing fees, as a result of increases in loan production and a more stable interest rate environment.

The net gain on loan origination and sale activities, the principal source of revenue for Envision Mortgage, increased $12.4 million to $18.5 million in the third quarter of 2020 from $6.0 million in the third quarter of 2019, driven by mortgage loan refinancing in a declining rate environment and higher sale margins.

Net interest income decreased $155,000, or 19.6%, to $637,000 in the third quarter of 2020 compared to $792,000 in the third quarter of 2019. This was primarily due to a decrease in loan yields, partially offset by an increase in the average balance of loans held for sale and residential construction loans in the 2020 period.

Mortgage servicing fee income increased $1.4 million between periods largely due to a $1.1 million positive adjustment in the valuation allowance for MSRs in the 2020 period due to an increase in the volume of mortgage loans serviced and an expected stabilization in interest rates, versus a negative adjustment of $522,000 in the 2019 period.

Non-interest expenses of Envision Mortgage increased $1.4 million, or 22.1%, to $7.6 million in the third quarter of 2020 from $6.2 million in the third quarter of 2019. This increase is primarily due to an increase of $908,000, or 18.0%, in salaries and employee benefits, largely related to increased loan production volume.

The increase of $116,000 in occupancy and equipment costs in the third quarter of 2020 compared to the prior year period was related to fixtures and equipment that are expected to be retired as we consolidate our administrative office space.

Other non-interest expenses increased $346,000, or 40.7%, to $1.2 million in the third quarter of 2020 from $851,000 in the third quarter of 2019. This increase is mainly due to volume-related cost increases associated with higher residential mortgage loan production, partially offset by reductions in the allocation of certain indirect costs incurred by the Marketing, Finance and Administration cost centers.

Total assets attributable to the Envision Mortgage segment were $150.0 million at September 30, 2020, compared to $109.9 million at December 31, 2019.

42


 

Comparison of Segment Results for the Nine Months Ended September 30, 2020 and 2019

The following table presents a comparison of the results of operations for each segment before incomes taxes and elimination of inter-segment profit, and the changes in those results, for the nine months ended September 30, 2020 and 2019.

 

 

 

Envision Bank

 

 

Envision Mortgage

 

 

 

Nine Months Ended September 30,

 

 

Increase (Decrease)

 

 

Nine Months Ended September 30,

 

 

Increase (Decrease)

 

 

 

2020

 

 

2019

 

 

Dollars

 

 

Percent

 

 

2020

 

 

2019

 

 

Dollars

 

 

Percent

 

 

 

(in thousands)

 

Net interest income

 

$

11,970

 

 

$

12,121

 

 

$

(151

)

 

 

(1.2

)%

 

$

1,857

 

 

$

1,319

 

 

$

538

 

 

 

40.8

%

Provision (credit) for loan losses

 

 

2,338

 

 

 

(144

)

 

 

2,482

 

 

 

1,723.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision

   (credit) for loan losses

 

 

9,632

 

 

 

12,265

 

 

 

(2,633

)

 

 

(21.5

)

 

 

1,857

 

 

 

1,319

 

 

 

538

 

 

 

40.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

827

 

 

 

948

 

 

 

(121

)

 

 

(12.8

)

 

 

75

 

 

 

106

 

 

 

(31

)

 

 

(29.2

)

Gain on loan origination and

   sale activities, net (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,667

 

 

 

14,043

 

 

 

26,624

 

 

 

189.6

 

Mortgage servicing fees, net

 

 

(281

)

 

 

(273

)

 

 

(8

)

 

 

(2.9

)

 

 

(1,147

)

 

 

635

 

 

 

(1,782

)

 

 

(280.6

)

Other

 

 

318

 

 

 

464

 

 

 

(146

)

 

 

(31.5

)

 

 

416

 

 

 

253

 

 

 

163

 

 

 

64.4

 

Total non-interest income