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Randolph Bancorp, Inc. Announces Second Quarter and Year-to-Date 2019 Financial Results

Randolph Bancorp, Inc. Announces Second Quarter and Year-to-Date 2019 Financial Results

STOUGHTON, Mass., July 23, 2019 (GLOBE NEWSWIRE) -- Randolph Bancorp, Inc. (the “Company”) (NASDAQ Global Market: RNDB), the holding company for Envision Bank (the “Bank”), today announced net income of $1,506,000, or $0.28 per share, for the three months ended June 30, 2019 compared to a net loss of $1,010,000, or $0.18 per share, for the three months ended June 30, 2018. Net income for the six months ended June 30, 2019 was $1,455,000, or $0.27 per share, compared to a net loss of $1,717,000, or $0.31 per share, for the six months ended June 30, 2018.  

At June 30, 2019, total assets amounted to $652.6 million compared to $614.3 million at March 31, 2019, an increase of $38.3 million, or 6.2%. During this quarterly period, loans held for sale increased by $60.9 million while portfolio loans decreased by $32.0 million. These changes were affected by management’s decision to transfer $28.6 million in residential mortgage portfolio loans to loans held for sale.

James P. McDonough, President and Chief Executive Officer, stated, “The decrease in mortgage rates over the past several months has provided homeowners the opportunity to realize a meaningful reduction in their monthly mortgage payments and has also provided home buyers increased opportunities to purchase a home. With our expanded team of loan originators, we were able to capitalize on the resulting market growth for residential mortgages. During the second quarter of 2019, we originated $226.2 million in residential mortgages compared to $145.9 million in the prior year quarter, an increase of 55%. Refinanced loans accounted for $60.8 million, or 75%, of this increase. The surge in residential mortgage loan production combined with the continuing flow of borrower applications resulted in a $3.2 million, or 173%, increase in the gain on loan origination and sales activities in the second quarter of 2019 compared to the prior year quarter. We are optimistic that this higher production level will continue in the third quarter.”

Mr. McDonough added, “With the decline in interest rates, we also saw an opportunity to reduce our portfolio of lower-yielding residential mortgage loans. With the transfer of $28.6 million of such loans from portfolio to loans held for sale, we positioned the portfolio for future growth of both commercial and residential real estate loans.”

Second Quarter Operating Results
Net interest income increased by $456,000, or 11.3%, to $4.5 million for the three months ended June 30, 2019 compared to the same period in the prior year. This increase was due to an increase in average interest-earning assets between periods of $100.9 million, or 19.5%, as the Company continued to leverage the capital raised in its 2016 initial public offering. The net interest margin decreased in the second quarter of 2019 to 2.91% from 3.12% in the second quarter of 2018 due primarily to greater utilization of wholesale funding to support loan growth, the rising cost of both deposits and borrowings due to a series of increases in the federal funds rate throughout 2018, and a continuing flattening of the yield curve.

The Company recognized a credit of $144,000 to the allowance for loan losses for the three months ended June 30, 2019 compared to a credit of $90,000 for the three months ended June 30, 2018. The credit to the allowance in the 2019 period was primarily due to decreases in the loan portfolio attributable to the transfer of residential mortgages loans to loans held for sale and the repayment of a large commercial and industrial loan. In the second quarter of 2018, management reduced the general component of the allowance for loan losses for both commercial real estate loans and home equity loans which lead to the credit to the provision of $90,000. The allowance for loan losses was 0.91% of total loans at June 30, 2019 and December 31, 2018 and was 179.4% of non-performing loans at June 30, 2019 compared to 121.1% at December 31, 2018.

Non-interest income increased $3.1 million to $5.9 million for the three months ended June 30, 2019 from $2.8 million for the three months ended June 30, 2018 due entirely to an increase of $3.2 million, or 173.4%, in the gain on loan origination and sale activities. This increase was volume related due to the addition of nearly 20 loan originators over the past twelve months and the favorable interest rate environment. Beginning in the first quarter of 2019, interest rates on mortgage loans began to decline which lead to the first significant increase in loan refinancing activity experienced in nearly three years. Together these factors resulted in a 77.7% increase in loans sold during the second quarter of 2019 as compared to the prior year period, and a fourfold increase in the pipeline of interest rate lock agreements with customers at June 30, 2019 as compared to June 30, 2018.  The increase in the gain on loan origination and sale activities was partially offset by a decrease in net loan servicing fees due to a fair value adjustment for mortgage servicing rights of $114,000 as loan prepayment speeds were adjusted higher to reflect lower interest rates.

Non-interest expenses increased $951,000, or 12.0%, to $8.9 million for the three months ended June 30, 2019 from $7.9 million for the three months ended June 30, 2018.  Salaries and employee benefits increased $1.1 million, or 22.4%, between periods due to an increase in loan originator commissions and other compensation of $568,000 attributable to Envision Mortgage’s increased loan production. Also contributing to the increase in salaries and employee benefits was $307,000 in additional incentive compensation and loan officer transition payments, and $366,000 in additional employee compensation largely related to Envision Mortgage’s increased loan production. These increases were partially offset by an increase in deferred loan origination costs and fees of $225,000.

Due to the sale of the Boston branch and the partial closure of the Andover operations center in the fourth quarter of 2018, occupancy and equipment costs declined by $86,000 for the three months ended June 30, 2019 compared to the same period in the prior year. In addition, spending on marketing and professional services were reduced by $141,000 and $33,000, respectively, between periods. The savings in marketing expenses was caused by advertising in the prior year associated with the re-branding to Envision Bank. The increase in other non-interest expenses was driven by the increase in Envision Mortgage’s loan production.

The provision for income taxes for the three months ended June 30, 2019 includes a state income tax provision of $82,000 and reversal of the federal tax benefit recognized in the first quarter of 2019. The state tax provision is based on the projected effective state tax rate for the year. The reversal of the federal tax benefit recognized was fully offset by a tax benefit included in other comprehensive income.

The Company has a net operating loss carryforward (“NOL”) for federal tax purposes of $13.6 million. Since 2014, the NOL as well as other deferred tax assets have been subject to a full valuation allowance, which totaled $2.7 million at June 30, 2019. The valuation allowance for net deferred tax assets was reduced in 2019 due to the impact of the Company’s earnings on the NOL. We evaluate the tax valuation allowance on a quarterly basis. Based on recent operating results, we concluded that the valuation allowance should be maintained at June 30, 2019.

Year-to-Date Operating Results
Net interest income increased by $853,000, or 10.6%, for the six months ended June 30, 2019 compared to the same period in the prior year. This increase was due to an increase in average interest-earning assets between periods of $88.8 million, or 17.5%, as the Company continued to leverage the capital raised in its 2016 initial public offering.  The net interest margin decreased in the first half of 2019 to 2.97% from 3.16% in the first half of 2018 due primarily to greater utilization of wholesale funding to support loan growth, the rising cost of both deposits and borrowings due to a series of increases in the federal funds rate throughout 2018 and a continuing flattening of the yield curve.

The Company recognized a credit of $144,000 to the allowance for loan losses for the six months ended June 30, 2019 compared to a provision of $5,000 for the six months ended June 30, 2018. The credit to the allowance in the 2019 period was primarily due to decreases in the loan portfolio attributable to the transfer of residential mortgages loans to loans held for sale and the repayment of a large commercial and industrial loan. In the second quarter of 2018, management reduced the unallocated portion of the allowance for loan losses for both commercial real estate loans and home equity loans. The unallocated reserve for consumer loans was increased slightly during the quarter. Together these changes reduced the amount that would have been provided based on growth in the loan portfolio by $265,000.

Non-interest income increased $4.1 million to $9.3 million for the six months ended June 30, 2019 from $5.2 million for the six months ended June 30, 2018 due entirely to an increase of $4.3 million, or 125.1%, in the gain on loan origination and sale activities. This increase was volume related due to the addition of nearly 20 loan originators over the past twelve months and the favorable interest rate environment. Beginning in the first quarter of 2019, interest rates on mortgage loans began to decline which lead to the first significant increase in loan refinancing activity experienced in nearly three years. Together these factors resulted in a 36.6% increase in loans sold during the first half of 2019 as compared to the prior year period, and a fourfold increase in the pipeline of interest rate lock agreements with customers at June 30, 2019 as compared to June 30, 2018. The increase in the gain on loan origination and sale activities was partially offset by a decrease in net loan servicing fees due to a fair value adjustment for mortgage servicing rights of $114,000 as loan prepayment speeds were adjusted higher to reflect lower interest rates.

Non-interest expenses increased $1.8 million, or 12.3%, to $16.7 million for the six months ended June 30, 2019 from $14.9 million for the six months ended June 30, 2018. Salaries and employee benefits increased $2.1 million, or 22.2%, between periods due to an increase in loan originator commissions and other compensation of $940,000 attributable to Envision Mortgage’s increased loan production. Also contributing to the increase in salaries and employee benefits was $617,000 in additional incentive compensation and loan officer transition payments, and $563,000 in additional employee compensation largely related to Envision Mortgage’s increased loan production. These increases were partially offset by an increase in deferred loan origination costs and fees of $357,000.

Due to the sale of the Boston branch and the partial closure of the Andover operations center in the fourth quarter of 2018, occupancy and equipment costs declined by $128,000 for the six months ended June 30, 2019 compared to the same period in the prior year. In addition, spending on marketing was reduced by $255,000 between periods. The savings in marketing expenses was caused by advertising in the prior year associated with the re-branding to Envision Bank. The increase in other non-interest expenses was driven by the increase in Envision Mortgage’s loan production.

State income taxes of $83,000 and $8,000 were provided during the six months ended June 30, 2019 and 2018, respectively.

Balance Sheet
Total assets were $652.6 million at June 30, 2019 compared to $614.3 million at December 31, 2018, an increase of $38.2 million, or 6.2%. This growth resulted from an increase of $64.3 million in loans held for sale, partially offset by a decrease of $32.0 million in portfolio loans. These changes were significantly impacted by management’s decision in the second quarter of 2019 to transfer $28.6 million in residential mortgage loans from portfolio to loans held for sale. All except $2.2 million of these loans are currently under agreement to be sold with an expected closing date in the first half of August. The decision to sell these loans was made in light of favorable market conditions caused by a reduction in long-term interest rates. The increase in loans held for sale was also affected by the $80.3 million, or 55.0%, increase in Envision Mortgage’s loan production in the second quarter of 2019 as compared to the prior year period. The increase in total assets was largely funded by an increase of $32.5 million in advances from the Federal Home Loan Bank of Boston.

Net loans totaled $451.9 million at June 30, 2019, a decrease of $32.0 million, or 6.6%, from December 31, 2018.  This decrease occurred across all categories of real estate secured loans and was primarily the result of the aforementioned transfer of residential mortgage loans to loans held for sale. Commercial and industrial loans decreased by $6.7 million during the first half of 2019 due in large part to a $4.7 million payoff of a loan participation with a super-regional bank. No new loan participations were purchased during the first half of 2019. Consumer loans, which consist primarily of purchased loans, decreased by a total of $1.9 million during the first half of 2019 as loan repayments exceeded loan purchases during the period. 

Deposits increased $4.5 million, or 1.0%, to $441.6 million at June 30, 2019 from $437.1 million at December 31, 2018. Included in this increase was $2.1 million of brokered deposits. Non-brokered deposits increased $2.4 million during the first half of 2019. In December 2018, we closed our Boston branch. During the first half of 2019, the Bank experienced $7.5 million of deposit run-off with customers associated with this former branch which has adversely affected deposit growth.

Total stockholders’ equity was $79.4 million at June 30, 2019 compared to $78.0 million at December 31, 2018. The increase of $1.4 million during the first half of 2019 was due to net income of $1.5 million, an increase in the fair value of available-for-sale securities of $1.4 million and equity adjustments of $598,000 related to the stock benefit plan and employee stock ownership plan. These increases were partially offset by stock repurchases of $2.0 million as the Company repurchased 136,923 of its shares during the first half of 2019. The Company’s tier one capital to average assets was 12.4% at June 30, 2019 compared to 14.1% at December 31, 2018. The Bank exceeded all regulatory capital requirements at June 30, 2019. 

About Randolph Bancorp, Inc.
Randolph Bancorp, Inc. is the holding company for Envision Bank and its Envision Mortgage Division. Envision Bank is a full-service community bank with five retail branch locations, loan operations centers in North Attleboro and Stoughton, Massachusetts, eight loan production offices located throughout Massachusetts and one loan production office in Southern New Hampshire.

Randolph Bancorp, Inc. is the sole member of Envision Bank Foundation, Inc. (the “Foundation”), a nonprofit corporation organized in 2016 to financially support community projects that improve the quality of life in markets served by Envision Bank. Since inception, the Foundation has funded projects focused on support of military veterans and their families, and education.

Forward Looking Statements
Certain statements contained in this press release that are not historical facts may constitute 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 involve risks and uncertainties. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among others, the risk factors described in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures, such as return on average assets, return on average equity, non-interest income to total income and the efficiency ratio, and, where applicable, as adjusted for non-recurring items. These non-GAAP financial measures provide information for investors to effectively analyze financial trends of on-going business activities, and to enhance comparability with peers across the financial services sector.


Randolph Bancorp, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)

    June 30,     December 31,  
    2019     2018  
             
Assets    
Cash and due from banks   $   3,614     $   3,451  
Interest-bearing deposits     7,561       3,667  
Total cash and cash equivalents     11,175       7,118  
             
Certificates of deposit     2,205       2,205  
Securities available for sale, at fair value     48,851       50,556  
Loans held for sale, at fair value     102,784       38,474  
Loans, net of allowance for loan losses of $4,154 in 2019 and $4,437 in 2018     451,870       483,846  
Federal Home Loan Bank of Boston stock, at cost     5,375       4,700  
Accrued interest receivable     1,665       1,504  
Mortgage servicing rights, net     8,201       7,786  
Premises and equipment, net      6,162       6,368  
Bank-owned life insurance     8,349       8,256  
Foreclosed real estate, net     90       65  
Other assets     5,842       3,462  
             
Total assets   $   652,569     $   614,340  
             
Liabilities and Stockholders' Equity    
Deposits:            
Non-interest bearing   $   65,420     $   64,229  
Interest bearing     313,584       312,321  
Brokered     62,649       60,580  
Total deposits     441,653       437,130  
             
Federal Home Loan Bank of Boston advances     121,553       89,036  
Mortgagors' escrow accounts     1,863       2,129  
Post-employment benefit obligations     2,424       2,551  
Other liabilities      5,723       5,533  
Total liabilities     573,216       536,379  
             
Stockholders' Equity:            
Common stock     58       60  
Additional paid-in capital     54,083       55,608  
Retained earnings      29,784       28,329  
ESOP-Unearned compensation     (4,038 )     (4,132 )
Accumulated other comprehensive loss, net of tax     (534 )     (1,904 )
Total stockholders' equity     79,353       77,961  
             
Total liabilities and stockholders' equity   $   652,569     $   614,340  


Randolph Bancorp, Inc.
Consolidated Statements of Operations
(Dollars in thousands except per share amounts)
(Unaudited)

    Three Months Ended
June 30, 
    Six Months Ended
June 30,
 
    2019     2018     2019     2018  
Interest and dividend income:                        
Loans   $   6,058     $   4,586     $   11,646     $   8,881  
Other interest and dividend income     396       453       824       885  
Total interest and dividend income     6,454       5,039       12,470       9,766  
                         
Interest expense     1,965     1,006       3,602     1,751  
                         
Net interest income     4,489       4,033       8,868       8,015  
Provision (credit) for loan losses      (144 )     (90 )     (144 )     5  
                         
Net interest income after provision (credit) for loan losses     4,633       4,123       9,012       8,010  
                         
Non-interest income:                        
Customer service fees     362     439       691     739  
Gain on loan origination and sale activities, net     5,068       1,854       7,656       3,401  
Mortgage servicing fees, net     224       291       543       625  
Gain on sales of securities     -       -       -       49  
Other     201       199       378       376  
Total non-interest income     5,855       2,783       9,268       5,190  
                         
Non-interest expenses:                        
Salaries and employee benefits      6,092       4,979       11,504       9,415  
Occupancy and equipment      643       729       1,299       1,427  
Professional fees     287       320       555       572  
Marketing     180       321       369       624  
Other non-interest expenses     1,661       1,563       3,015       2,871  
Total non-interest expenses     8,863       7,912       16,742       14,909  
                         
Income (loss) before income taxes     1,625       (1,006 )     1,538       (1,709 )
Income tax expense     119       4       83       8  
                         
Net income (loss)   $   1,506     $   (1,010 )   $   1,455     $   (1,717 )
                         
Net income (loss) per share (basic and diluted)   $   0.28     $   (0.18 )   $   0.27     $   (0.31 )
                         
Weighted average shares outstanding     5,455,679       5,577,683       5,467,057       5,592,809  


Randolph Bancorp, Inc.
Averages Balances/Yields
(Dollars in thousands)
(Unaudited)

  Average Balance and Yields
  For the Three Months Ended June 30,
  2019
  2018
  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) $   558,643     $   6,058   4.34 %   $   448,060     $   4,586   4.09 %
  Investment securities(2) (3)   53,947       373   2.77 %     60,290       425   2.82 %
  Interest-earning deposits   5,915       26   1.76 %     9,240       34   1.47 %
Total interest-earning assets   618,505       6,457   4.18 %     517,590       5,045   3.90 %
Noninterest-earning assets   23,820                 29,660            
Total assets $   642,325               $   547,250            
Interest-bearing liabilities:                              
  Savings accounts   103,849       106   0.41 %     104,470       45   0.17 %
  NOW accounts   39,130       49   0.50 %     43,113       58   0.54 %
  Money market accounts   61,361       232   1.51 %     69,626       161   0.92 %
  Term certificates   169,740       834   1.97 %     125,973       466   1.48 %
Total interest-bearing deposits   374,080       1,221   1.31 %     343,182       730   0.85 %
  FHLB advances   118,364       744   2.51 %     57,562       276   1.92 %
Total interest-bearing liabilities   492,444       1,965   1.60 %     400,744       1,006   1.00 %
Noninterest-bearing liabilities:                              
  Noninterest-bearing deposits   62,377                 60,524            
  Other noninterest-bearing liabilities   8,270                 6,340            
Total liabilities   563,091                 467,608            
Total stockholders' equity   79,234                 79,642            
Total liabilities and stockholders' equity $   642,325               $   547,250            
Net interest income       $   4,492               $   4,039      
Interest rate spread(4)           2.58 %             2.90 %
Net interest-earning assets(5) $   126,061               $   116,846            
Net interest margin(6)           2.91 %             3.12 %
                               
Ratio of interest-earning assets to interest-bearing liabilities 125.60 %             129.16 %          


(1) Includes nonaccruing loan balances and interest received on such loans.
(2) Includes carrying value of securities classified as available-for-sale and FHLB of Boston stock
(3) Includes tax equivalent adjustments for municipal securities, based on an effective tax rate of 21%, of $3,000 and $6,000 for the three months ended June 30, 2019 and 2018, 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. 


Randolph Bancorp, Inc.
Averages Balances/Yields
(Dollars in thousands)
(Unaudited)

null
  Average Balance and Yields
  For the Six Months Ended June 30,
  2019
  2018
  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) $   537,549     $   11,646   4.33 %   $   439,069     $   8,881   4.05 %
  Investment securities(2) (3)   54,551       777   2.85 %     60,906       844   2.77 %
  Interest-earning deposits   5,258       54   2.05 %     8,563       64   1.49 %
Total interest-earning assets   597,358       12,477   4.18 %     508,538       9,789   3.85 %
Noninterest-earning assets   24,462                 29,498            
Total assets $   621,820               $   538,036            
Interest-bearing liabilities:                              
  Savings accounts   102,912       188   0.37 %     104,305       87   0.17 %
  NOW accounts   39,851       97   0.49 %     43,666       111   0.51 %
  Money market accounts   66,384       461   1.39 %     68,670       276   0.80 %
  Term certificates   166,704       1,634   1.96 %     113,060       736   1.30 %
Total interest-bearing deposits   375,851       2,380   1.27 %     329,701       1,210   0.73 %
  FHLB advances   97,259       1,222   2.51 %     62,010       541   1.74 %
Total interest-bearing liabilities   473,110       3,602   1.52 %     391,711       1,751   0.89 %
Noninterest-bearing liabilities:                              
  Noninterest-bearing deposits   62,063                 59,809            
  Other noninterest-bearing liabilities   7,952                 6,049            
Total liabilities   543,125                 457,569            
Total stockholders' equity   78,695                 80,467            
Total liabilities and stockholders' equity $   621,820               $   538,036            
Net interest income       $   8,875               $   8,038      
Interest rate spread(4)           2.65 %             2.96 %
Net interest-earning assets(5) $   124,248               $   116,827