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Randolph Bancorp, Inc. Announces Third Quarter and Year-To-Date 2019 Financial Results

Randolph Bancorp, Inc. Announces Third Quarter and Year-To-Date 2019 Financial Results

STOUGHTON, Mass., Oct. 22, 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 $1,144,000, or $0.21 per  share, for the three months ended September 30, 2019 compared to a net loss of $142,000, or $0.03 per share, for the three months ended September 30, 2018. Net income for the nine months ended September 30, 2019 was $2,599,000, or $0.48 per share, compared to a net loss of $1,859,000, or $0.33 per share, for the nine months ended September 30, 2018. 

At September 30, 2019, total assets amounted to $641.4 million compared to $652.6 million at June 30, 2019, a decrease of $11.2 million, or 1.7%. This decrease was due to the sale during the quarter ended September 30, 2019 of $28.6 million in residential mortgage loans which had been transferred from portfolio to loans held for sale in June 2019.

James P. McDonough, President and Chief Executive Officer, stated “The continuation of the favorable trend in mortgage rates during most of the third quarter resulted in a record level of loan production for Envision Mortgage. During the quarter, we closed $325.2 million in residential mortgage loans of which 96% has been designated for sale to investors. This record production level was fueled by loan refinancing activity which made up $188.3 million, or 58% of total production. Weekly loan applications have recently come down from their third quarter peak levels but continue to exceed activity experienced in recent years. Together these factors contributed to a $3.8 million, or 196%, increase in the gain on loan origination and sales activities in the third quarter of 2019 compared to the prior year quarter. We are optimistic that this higher production level will continue in the fourth quarter.”

Mr. McDonough added, “We are extremely proud of our entire mortgage banking team for their spirit of teamwork and commitment in meeting the needs of our residential loan customers during this unprecedented period of activity. Our team has consistently stepped-up to help our customers meet their scheduled loan closing dates. While investments in technology have been of great assistance, it has been the “human touch” which has made all the difference in achieving this record performance.”

“We are also extremely pleased with the early results of our initiatives to increase deposit growth”, Mr. McDonough noted. “During the third quarter of 2019, our non-brokered deposits increased $15.6 million, or 4.1%. We believe that our core checking account acquisition efforts working with a nationally recognized organization specializing in such programs, combined with our focus on competitively priced products for both consumer and business customers, position us well to sustain the momentum created during the third quarter.”

Third Quarter Operating Results
Net interest income increased by $313,000, or 7.3%, to $4.6 million for the three months ended September 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 $86.9 million, or 15.9%, as the Company continued to leverage the capital raised in its 2016 initial public offering. The net interest margin decreased in the third quarter of 2019 to 2.89% from 3.13% in the third 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 made no provision for loan losses for the three months ended September 30, 2019 while a provision of $178,000 was recorded for the three months ended September 30, 2018. No provision was required in the 2019 quarter due to modest loan growth and a small shift in the loan portfolio mix towards residential mortgage loans which generally carry lower credit risk than commercial and consumer loans. The provision in the 2018 quarter was directly attributable to growth in the residential loan portfolio. The allowance for loan losses was 0.90% and 0.91% of total loans at September 30, 2019 and December 31, 2018, respectively, and was 120.2% and 121.2% of non-performing loans at September 30, 2019 and December 31, 2018, respectively.

Non-interest income increased $3.1 million to $6.3 million for the three months ended September 30, 2019 from $3.2 million for the three months ended September 30, 2018 due to an increase of $3.8 million, or 195.6%, 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 173.8% increase in loans sold during the third quarter of 2019 as compared to the prior year period. 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 $522,000 as loan prepayment speeds were adjusted higher to reflect lower interest rates. In addition, a gain of $230,000 on the sale of a former branch office was recognized in the third quarter of 2018.

Non-interest expenses increased $2.3 million, or 30.8%, to $9.7 million for the three months ended September 30, 2019 from $7.4 million for the three months ended September 30, 2018.  Salaries and employee benefits increased $2.2 million, or 46.4%, between periods due to an increase in loan originator and sales manager commissions of $1.8 million, or 136.2%, as well as other compensation and payroll taxes attributable to Envision Mortgage’s increased loan production. Also contributing to the increase in salaries and employee benefits was $369,000 in additional incentive compensation associated with the improvement in the Company’s operating results. These increases were partially offset by an increase in deferred loan origination costs of $503,000.

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 $55,000 for the three months ended September 30, 2019 compared to the same period in the prior year. Marketing expenses increased $70,000 in the 2019 quarter compared to the 2018 quarter due to additional internet advertising and promotion cost associated with the checking account acquisition program. The increase in other non-interest expenses was driven by the increase in Envision Mortgage’s loan production and the donation of unused land, which were partially offset by lower spending on software licenses and data communication costs.

Income tax expense of $14,000 for the three months ended September 30, 2019 consists solely of a state income tax provision which is based on the projected effective state tax rate for the year.

The Company has a net operating loss carryforward (“NOL”) for federal tax purposes of $13.7 million. Since 2014, the NOL as well as other deferred tax assets have been subject to a full valuation allowance, which totaled $2.4 million at September 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 primarily on an assessment of historical operating results, we concluded that the valuation allowance should be maintained at September 30, 2019.

Year-to-Date Operating Results
Net interest income increased by $1.2 million, or 9.5%, for the nine months ended September 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 $88.2 million, or 16.9%, as the Company continued to leverage the capital raised in its 2016 initial public offering.  The net interest margin decreased in the first nine months of 2019 to 2.94% from 3.15% in the first nine months 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 nine months ended September 30, 2019 compared to a provision of $183,000 for the nine months ended September 30, 2018. The credit to the allowance in the 2019 period was primarily due to decreases in the loan portfolio attributable to the sale of residential mortgages loans which had been transferred from portfolio to loans held for sale and the repayment of a large commercial and industrial loan. The provision in the 2018 period was primarily due to $68.7 million of growth in the loan portfolio, partially offset by a reduction of $265,000 in the general component of the allowance for loan losses related primarily to commercial real estate loans and home equity loans.

Non-interest income increased $7.2 million to $15.6 million for the nine months ended September 30, 2019 from $8.4 million for the nine months ended September 30, 2018 due primarily to an increase of $8.1 million, or 150.9%, 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 104.5% increase in loans sold during the first nine months of 2019 as compared to the prior year period, and a fifteenfold increase in the year-to-date growth of the pipeline of interest rate lock agreements with customers between periods. 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 $636,000 as loan prepayment speeds were adjusted higher to reflect lower interest rates. In addition, a gain of $230,000 on the sale of a former branch office was recognized in the 2018 period.

Non-interest expenses increased $4.1 million, or 18.5%, to $26.5 million for the nine months ended September 30, 2019 from $22.3 million for the nine months ended September 30, 2018. Salaries and employee benefits increased $4.3 million, or 30.7%, between periods due to an increase in loan originator commissions and other compensation of $2.7 million, or 75.4%, as well as other compensation and payroll taxes attributable to Envision Mortgage’s increased loan production. Also contributing to the increase in salaries and employee benefits was $986,000 in additional incentive compensation and loan officer transition payments and, to a lesser extent, increased costs for health insurance, unemployment taxes and the defined contribution plan aggregating $394,000. These increases were partially offset by an increase in deferred loan origination costs of $859,000.

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 $185,000 for the nine months ended September 30, 2019 compared to the same period in the prior year. In addition, spending on marketing was reduced by $223,000 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 of $190,000 in other non-interest expenses was driven by the increase in Envision Mortgage’s loan production and the donation of unused land, which were partially offset by lower spending on software licenses and data communication costs.

State income taxes of $97,000 and $14,000 were provided during the nine months ended September 30, 2019 and 2018, respectively, based on the projected effective state tax rate for the year.

Balance Sheet
Total assets were $641.4 million at September 30, 2019 compared to $614.3 million at December 31, 2018, an increase of $27.1 million, or 4.4%. This growth resulted from an increase of $55.9 million in loans held for sale, partially offset by a decrease of $26.6 million in portfolio loans. The increase in loans held for sale was a direct result of the 76.2% increase in residential loan production achieved in 2019. The decrease in portfolio loans occurred largely as a result of the third quarter sale of $28.6 million in residential mortgage loans which had been transferred from portfolio to loans held for sale earlier in the year. The increase in total assets was funded by deposit growth, including increases of $35.7 million and $18.0 million in brokered deposits and non-brokered deposits, respectively.

Net loans totaled $457.2 million at September 30, 2019, a decrease of $26.6 million, or 5.5%, 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 $7.3 million during the first nine months 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 have been purchased in 2019. Consumer loans, which consist primarily of purchased loans, decreased by a total of $2.8 million during the first nine months of 2019 as loan repayments exceeded loan purchases during the period. No purchases of student loans and unsecured consumer loans have been made in 2019.

Deposits increased $53.7 million, or 12.3%, to $490.8 million at September 30, 2019 from $437.1 million at December 31, 2018. Included in this increase was $35.7 million of brokered deposits. Non-brokered deposits increased $18.0 million, or 4.8%, during the first nine months of 2019 despite deposit run-off of $8.5 million following the December 2018 closing of the Boston branch. The growth in non-brokered deposits experienced to date in 2019 has occurred primarily in competitively priced savings and money market accounts.

Total stockholders’ equity was $79.6 million at September 30, 2019 compared to $78.0 million at December 31, 2018. The increase of $1.6 million during the first nine months of 2019 was due to net income of $2.6 million, an increase in the fair value of available-for-sale securities of $1.7 million and equity adjustments of $891,000 related to the stock benefit plan and employee stock ownership plan. These increases were partially offset by stock repurchases of $3.5 million as the Company repurchased 233,476 of its shares during the first nine months of 2019. The Company’s tier one capital to average assets was 12.3% at September 30, 2019 compared to 14.1% at December 31, 2018. The Bank exceeded all regulatory capital requirements at September 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, the efficiency ratio, tangible book value per share 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)

    September 30,     December 31,  
    2019     2018  
                 
Assets  
Cash and due from banks   $ 6,525     $ 3,451  
Interest-bearing deposits     2,701       3,667  
Total cash and cash equivalents     9,226       7,118  
                 
Certificates of deposit     490       2,205  
Securities available for sale, at fair value     47,187       50,556  
Loans held for sale, at fair value     94,372       38,474  
Loans, net of allowance for loan losses of $4,153 in 2019 and $4,437 in 2018     457,218       483,846  
Federal Home Loan Bank of Boston stock, at cost     2,985       4,700  
Accrued interest receivable     1,410       1,504  
Mortgage servicing rights, net     8,459       7,786  
Premises and equipment, net     5,911       6,368  
Bank-owned life insurance     8,395       8,256  
Foreclosed real estate, net     -       65  
Other assets     5,785       3,462  
                 
Total assets   $ 641,438     $ 614,340  
                 
Liabilities and Stockholders' Equity  
Deposits:                
Non-interest bearing   $ 65,250     $ 64,229  
Interest bearing     329,319       312,321  
Brokered     96,261       60,580  
Total deposits     490,830       437,130  
                 
Federal Home Loan Bank of Boston advances     57,668       89,036  
Mortgagors' escrow accounts     2,199       2,129  
Post-employment benefit obligations     2,385       2,551  
Other liabilities     8,765       5,533  
Total liabilities     561,847       536,379  
                 
Stockholders' Equity:                
Common stock     57       60  
Additional paid-in capital     52,884       55,608  
Retained earnings     30,928       28,329  
ESOP-Unearned compensation     (3,991 )     (4,132 )
Accumulated other comprehensive loss, net of tax     (287 )     (1,904 )
Total stockholders' equity     79,591       77,961  
                 
Total liabilities and stockholders' equity   $ 641,438     $ 614,340  
                 



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

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2019     2018     2019     2018  
Interest and dividend income:                                
Loans   $ 6,144     $ 5,036     $ 17,791     $ 13,917  
Other interest and dividend income     397       432       1,221       1,317  
Total interest and dividend income     6,541       5,468       19,012       15,234  
                                 
Interest expense     1,968       1,208       5,570       2,958  
                                 
Net interest income     4,573       4,260       13,442       12,276  
Provision (credit) for loan losses     -       178       (144 )     183  
Net interest income after provision (credit) for loan losses     4,573       4,082       13,586       12,093  
                                 
Non-interest income:                                
Customer service fees     363       357       1,053       1,096  
Gain on loan origination and sale activities, net     5,782       1,956       13,438       5,356  
Mortgage servicing fees, net     (181 )     310       362       935  
Gain on sale of building     -       230       -       230  
Gain on sales of securities     -       -       -       49  
Other     339       355       718       732  
Total non-interest income     6,303       3,208       15,571       8,398  
Non-interest expenses:                                
Salaries and employee benefits     7,010       4,788       18,514       14,166  
Occupancy and equipment     673       728       1,972       2,157  
Professional fees     264       252       819       824  
Marketing     275       205       644       867  
Other non-interest expenses     1,496       1,454       4,512       4,322  
Total non-interest expenses     9,718       7,427       26,461       22,336  
Income (loss) before income taxes     1,158       (137 )     2,696       (1,845 )
Income tax expense     14       5       97       14  
                                 
Net income (loss)   $ 1,144     $ (142 )   $ 2,599     $ (1,859 )
                                 
Net income (loss) per share (basic and diluted)   $ 0.21     $ (0.03 )   $ 0.48     $ (0.33 )
                                 
Weighted average shares outstanding     5,345,786       5,567,596       5,429,339       5,585,571  
                                 



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

  Average Balance and Yields  
  For the Three Months Ended September 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) $ 573,899     $ 6,144       4.28 %   $ 481,732     $ 5,036       4.18 %
  Investment securities(2) (3)   53,947       377       2.80 %     58,864       410       2.79 %
  Interest-earning deposits   4,881       23       1.88 %     5,201       27       2.08 %
Total interest-earning assets   632,727       6,544       4.14 %     545,797       5,473       4.01 %
Noninterest-earning assets   14,757                       27,994                  
Total assets $ 647,484                     $ 573,791                  
Interest-bearing liabilities:                                              
  Savings accounts   107,764       149       0.55 %     102,712       46       0.18 %
  NOW accounts   38,697       47       0.49 %     42,312       52       0.49 %
  Money market accounts   64,058       251       1.57 %     61,384       190       1.24 %
  Term certificates   182,073       918       2.02 %     153,239       577       1.51 %
Total interest-bearing deposits   392,592       1,365       1.39 %     359,647       865       0.96 %
  FHLBB advances   101,933       603       2.37 %     65,247       343       2.10 %
Total interest-bearing liabilities   494,525       1,968       1.59 %     424,894       1,208       1.14 %
Noninterest-bearing liabilities:                                              
  Noninterest-bearing deposits   62,456                       63,396                  
  Other noninterest-bearing liabilities   10,138                       6,231                  
Total liabilities   567,119                       494,521                  
Total stockholders' equity   80,365                       79,270                  
Total liabilities and stockholders' equity $ 647,484                     $ 573,791                  
Net interest income         $ 4,576                     $ 4,265          
Interest rate spread(4)                   2.55 %                     2.87 %
Net interest-earning assets(5) $ 138,202                     $ 120,903                  
Net interest margin(6)                   2.89 %                     3.13 %
                                               
Ratio of interest-earning assets to interest-bearing liabilities   127.95 %                     128.45 %                

                                               
(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 $5,000 for the three months ended September 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)

  Average Balance and Yields  
  For the Nine Months Ended September 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) $ 549,665     $ 17,791       4.32 %   $ 453,290     $ 13,917       4.09 %
  Investment securities(2) (3)   54,350       1,154       2.83 %     60,225       1,254       2.78 %
  Interest-earning deposits   5,132       77       2.00 %     7,442       91       1.63 %
Total interest-earning assets   609,147       19,022       4.16 %     520,957       15,262       3.91 %
Noninterest-earning assets   21,228                       28,997                  
Total assets $ 630,375                     $ 549,954                  
Interest-bearing liabilities:                                              
  Savings accounts   104,530       337       0.43 %     103,774       133       0.17 %
  NOW accounts   39,466       144       0.49 %     43,215       166       0.51 %
  Money market accounts   65,609       712       1.45 %     66,241       461       0.93 %
  Term certificates   171,827       2,552       1.98 %     126,452       1,314       1.39 %
Total interest-bearing deposits   381,432       3,745       1.31 %     339,682       2,074       0.81 %
  FHLBB advances   98,817       1,825       2.46 %     63,089       884       1.87 %
Total interest-bearing liabilities   480,249       5,570       1.55 %     402,771       2,958       0.98 %
Noninterest-bearing liabilities:                                              
  Noninterest-bearing deposits   62,194                       61,005                  
  Other noninterest-bearing liabilities   8,681                       6,110                  
Total liabilities   551,124                       469,886                  
Total stockholders' equity   79,251                       80,068                  
Total liabilities and stockholders' equity $ 630,375                     $ 549,954                  
Net interest income         $ 13,452                     $ 12,304          
Interest rate spread(4)                   2.61 %                     2.93 %
Net interest-earning assets(5) $ 128,898                     $ 118,186                  
Net interest margin(6)                   2.94 %                     3.15 %
                                               
Ratio of interest-earning assets to interest-bearing liabilities   126.84 %                     129.34 %                

(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 $10,000 and $28,000 for the nine months ended September 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.
Rate/Volume Analysis
(Dollars in thousands)
(Unaudited)

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  Three Months Ended  
  September 30, 2019 v. 2018  
  Increase (Decrease)     Total  
  Due to Changes in     Increase  
  Volume     Rate     (Decrease)  
Interest-earning assets:                      
  Loans $ 984     $ 124     $ 1,108  
  Investment securities   (34 )     1       (33 )
  Interest-earning deposits   (2 )     (2 )     (4 )
   Total interest-earning assets   948       123       1,071  
Interest-bearing liabilities:                      
Savings accounts   2       101