Randolph Bancorp, Inc. - Quarter Report: 2020 September (Form 10-Q)

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

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: none		—			—
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.

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.

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		—			—			—			—
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		—			—			—			—
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.

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.

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.

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		$	—

See accompanying notes to unaudited consolidated financial statements.

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

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:

	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	)

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 no 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

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, one 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

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

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.

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

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

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 sixteen residential real estate loans, one consumer loan and one 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 nineteen residential real estate loans and one 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 not 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 five loan modifications meeting the criteria of a troubled debt restructuring in which a loan term concession was granted to a borrower.

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 no material changes to the allowance for loan losses as a result of loan modifications made which were considered a troubled debt restructuring.

No 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 no 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.

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 no 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.

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.

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

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	$	—
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 two 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 two 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.

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 no 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.

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 no liabilities measured at fair value on a non-recurring basis at September 30, 2020 and December 31, 2019.

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.

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 two 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 five 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.

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

	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:

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.

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

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.

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.

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

	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:

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

	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.

	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.

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.

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.

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.

Comparison of Segment 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		864			1,139			(275	)		(24.1	)		40,011			15,037			24,974			166.1

Non-interest expenses:
Salaries and employee benefits ⁽²⁾		6,983			5,292			1,691			32.0			17,456			13,222			4,234			32.0
Occupancy and equipment		1,305			1,137			168			14.8			1,090			835			255			30.5
Other non-interest expenses		3,286			3,434			(148	)		(4.3	)		3,269			2,539			730			28.8
Total non-interest expenses		11,574			9,863			1,711			17.3			21,815			16,596			5,219			31.4
Income (loss) before income taxes and elimination of inter-segment profit	$	(1,078	)	$	3,541		$	(4,619	)		(130.4	)%	$	20,053		$	(240	)	$	20,293			8455.4	%

(1)

Before elimination of inter-segment profit.

(2)

Salaries and employee benefits include the severance and vested stock acceleration costs related to the retirement of the Chief Executive Officer and Chief Financial Officer of the Company. The total cost of this event was $1.38 million, of which $1.03 million was allocated to the Envision Bank segment and the remainder, $344,000, was allocated to the Envision Mortgage segment.

Envision Bank Segment

The Envision Bank segment had losses before income taxes and elimination of inter-segment profit of $1.1 million for the three months ended September 30, 2020 compared to income of $3.5 million for the three months ended September 30, 2019. The decrease in operating results between periods of $4.6 million was driven by a number of factors as explained below.

Net interest income decreased by $151,000, or 1.2%, as a result of deposit repricing which lagged the decreasing earning-asset yields in a declining interest rate environment. 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 loan portfolio.

Non-interest income declined between periods by $275,000, driven by a lower level of fees while stay-at-home orders were in effect.

Non-interest expense increased by $1.7 million in the nine months ended September 30, 2020 as compared to the prior year period, primarily driven by higher salaries and benefits, of which $1.0 million of the increase related to senior management retirement costs allocated to the Envision Bank segment, and other increases related to annual salary adjustments and the hire of new banking staff, as well as COVID-19 pandemic-related compensation for front-line and quarantined staff. Other non-interest expenses increased by $20,000 between periods.

Envision Mortgage Segment

The Envision Mortgage segment had income before income taxes and elimination of inter-segment profit of $20.1 million for the nine months ended September 30, 2020 compared to a loss of $240,000 for the nine months ended September 30, 2019. The improvement of $20.3 million in operating results occurred as a result of an increase of $26.6 million, or 189.6%, in net gains on loan origination and sale activities. Partially offsetting this increase were an increase in the valuation allowance for MSRs, higher salaries and employee benefits associated with the increase in closed loan production and increased other non-interest expenses related to loan production.

The net gain on loan origination and sale activities, the principal source of revenue for Envision Mortgage, increased $26.6 million to $40.7 million in the nine months ended September 30, 2020 from $14.0 million in the nine months ended September 30, 2019, driven by mortgage loan refinancing in a declining rate environment.

Net interest income increased $538,000, or 40.8%, to $1.9 million in the first nine months of 2020 compared to $1.3 million in the first nine months of 2019. This was primarily due to an increase in the average balance of loans held for sale and residential construction loans in the 2020 period.

Mortgage servicing fee income decreased $1.8 million between periods largely due to a $2.0 million increase in the valuation allowance for MSRs in the 2020 period given an increase in expected loan prepayment speeds caused by a reduction in interest rates.

Non-interest expenses of Envision Mortgage increased $5.2 million, or 31.4%, to $21.8 million in the first nine months of 2020 from $16.6 million in the first nine months of 2019. This increase is primarily due to an increase of $4.2 million, or 32.0%, in salaries and employee benefits, largely related to increased loan production volume.

The increase of $255,000 in occupancy and equipment costs in the first nine months of 2020 compared to the prior year period was related to increased spending on cleaning and supplies related to the COVID-19 pandemic, as well as increased depreciation of furniture, fixtures and equipment that are expected to be retired as we consolidate our administrative office space.

Other non-interest expenses increased $730,000, or 28.8%, to $3.3 million in the first nine months of 2020 from $2.5 million in the first nine months of 2019. This increase is mainly due to volume-related cost increases associated with higher residential mortgage loan production.

Asset Quality

Nonperforming Assets. The following table provides information with respect to our nonperforming assets, including troubled debt restructurings, at the dates indicated.

	September 30, 2020			December 31, 2019
Nonaccrual loans:	(In thousands)
Real estate loans:
One- to four-family residential	$	2,215		$	2,922
Commercial		6,986			—
Home equity loans and lines of credit		582			336
Construction		—			—
Commercial and industrial loans		33			—
Consumer loans		—			—
Total nonaccrual loans		9,816			3,258
Delinquent loans (>90 days) accruing interest		828			—
Total non-performing loans		10,644			3,258
Other real estate owned		132			—
Total nonperforming assets	$	10,776		$	3,258
Performing troubled debt restructurings		1,437			2,149
Total nonperforming assets and performing troubled debt restructurings	$	12,213		$	5,407

Total nonperforming loans to total loans⁽¹⁾		2.17	%		0.69	%
Total nonperforming assets to total assets		1.49	%		0.52	%
Total nonperforming assets and performing troubled debt restructurings to total assets		1.69	%		0.86	%

(1)	Total loans exclude loans held for sale but include net deferred loan costs and fees.

Interest income that would have been recorded for the nine months ended September 30, 2020 had nonaccruing loans been current according to their original terms amounted to $194,000. Income related to nonaccrual loans included in interest income for the nine months ended September 30, 2019 amounted to $109,000.

Classified Loans. The following table shows the aggregate amounts of our regulatory classified loans at the dates indicated.

	September 30, 2020		December 31, 2019
	(In thousands)
Classified assets:
Substandard	$	10,017	$	3,678
Doubtful		—		—
Loss		—		—
Total classified assets	$	10,017	$	3,678
Special mention	$	8,657	$	5,537

Assets that do not expose the Company to risk sufficient to warrant classified loan status, but which possess potential weaknesses that deserve close attention, are designated as special mention. As of September 30, 2020, there were $8.7 million of assets designated as special mention compared to $5.5 million at December 31, 2019.

Included in the above table are $7.0 million in special mention loans which have been granted short-term loan payment deferrals for customers experiencing a hardship due to the COVID-19 pandemic. The $7.0 million in special mention loans relate to commercial real estate loans in the hospitality industry where full repayment of the loan was in question beyond the initial deferral period.

Allowance for Loan Losses. The following table sets forth the breakdown for loan losses by loan category at the dates indicated.

	September 30, 2020								December 31, 2019
			% of Allowance			% of Loans					% of Allowance			% of Loans
			Amount to Total			in Category					Amount to Total			in Category
(Dollars in thousands)	Amount		Allowance			to Total Loans			Amount		Allowance			to Total Loans
Real estate loans:
One- to four-family residential	$	1,583		24.00	%		48.15	%	$	1,096		25.61	%		51.85	%
Commercial		3,355		50.86	%		28.95	%		1,840		42.99	%		26.57	%
Home equity loans and lines of credit		452		6.85	%		9.81	%		289		6.75	%		8.83	%
Construction		807		12.23	%		6.54	%		692		16.17	%		7.52	%
Commercial and industrial loans		246		3.73	%		4.16	%		235		5.49	%		1.93	%
Consumer loans		154		2.33	%		2.39	%		128		2.99	%		3.30	%
Total	$	6,597		100.00	%		100.00	%	$	4,280		100.00	%		100.00	%

The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

	Nine Months Ended September 30,
	2020			2019
	(In thousands)
Allowance at beginning of period	$	4,280		$	4,437
Provision (credit) for loan losses		2,338			(144	)
Charge offs:
Consumer loans		(40	)		(171	)
Total charge-offs		(40	)		(171	)

Recoveries:
One- to four-family residential		7			23
Commercial and industrial		2			-
Consumer loans		10			8
Total recoveries		19			31
Net charge-offs		(21	)		(140	)
Allowance at end of period	$	6,597		$	4,153
Total loans outstanding⁽¹⁾	$	491,145		$	461,371
Average loans outstanding	$	555,838		$	473,301
Allowance for loan losses as a percent of total loans outstanding⁽¹⁾		1.34	%		0.90	%
Net loans charged off as a percent of average loans outstanding⁽²⁾		0.01	%		0.04	%
Allowance for loan losses to nonperforming loans		67.21	%		120.20	%

(1)	Total loans exclude loans held for sale but include net deferred loan costs and fees.

(2)	Annualized.

Liquidity and Capital Resources

At September 30, 2020, we had $66.9 million of FHLBB advances and $15.3 million of FRB advances outstanding, respectively. At that date, we had the ability to borrow up to an additional $92.2 million from the FHLBB and $7.5 million under an unsecured line of credit with a correspondent bank.

Our most liquid assets are cash and cash equivalents. The level of these assets is dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2020, cash and cash equivalents totaled $49.1 million.

Financing activities consist primarily of activity in deposit accounts and borrowings. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors. 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, brokered deposits, which management considers to be a source of wholesale funding and an alternative to FHLBB advances, decreased $53.6 million. FHLBB advances increased $22.5 million to $66.9 million at September 30, 2020 from $44.4 million at December 31, 2019. The Bank pledged PPP loans as collateral to the Federal Reserve’s Paycheck Protection Program Liquidity Facility and received advances of $15.3 million.

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

At September 30, 2020, we had $439.5 million in loan commitments outstanding, including $418.9 million related to loans to be sold in the secondary mortgage market and to other financial institutions. In addition to commitments to originate loans, we had $67.0 million in unused lines of credit to borrowers and letters of credit and $7.2 million in undisbursed construction loans. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2020 totaled $97.7 million, including $20.2 million of brokered deposits. Management expects, based on historical experience, that a substantial portion of the maturing non-brokered certificates of deposit will be renewed.

The Bank is subject to various regulatory capital requirements, including a risk-based capital measure. At September 30, 2020, the Bank’s Tier 1 capital to average assets ratio was 12.17%. The Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines as of September 30, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is not required to disclose quantitative and qualitative information about market risk as it qualifies as a smaller reporting company.

Item 4. Controls and Procedures.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2020. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2020, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not involved in any material pending litigation.

Item 1A. Risk Factors.

This section supplements and updates certain of the information found under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 12, 2020 (“Annual Report”), and Part II. Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, as filed with the SEC on August 7, 2020 (the “Second Quarter 10-Q”) based on information currently known to us and recent developments since the date of the Second Quarter 10-Q filing. The matters discussed below should be read in conjunction with the risks described in Part I. Item 1A. “Risk Factors” of our Annual Report and Part II. Item 1A. “Risk Factors” of our Second Quarter 10-Q. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report and the Second Quarter 10-Q. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment measures and the related impacts to economic and operating conditions.

The COVID-19 pandemic, and the measures taken to control its spread, will continue to adversely impact our employees, customers, business operations and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has impacted and is likely to continue to impact the national economy and the regional and local markets in which we operate, lower equity market valuations, create significant volatility and disruption in capital and debt markets, and increase unemployment levels. Our business operations may be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. We are subject to heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements that we have put in place for our employees. Federal Reserve actions to combat the economic contraction caused by the COVID-19 pandemic, including the reduction of the target federal funds rate and quantitative easing programs, could, if prolonged, adversely affect our net interest income and margins, and our profitability. The continued closures of many businesses and the institution of social distancing, shelter in place and stay home orders in the states and communities we serve, have reduced business activity and financial transactions. Government policies and directives relating to the pandemic response are subject to change as the effects and spread of the COVID-19 pandemic continue to evolve. It is unclear whether any COVID-19 pandemic-related businesses losses that we or our customers may suffer will be recovered by existing insurance policies. Changes in customer behavior due to worsening business and economic conditions or legislative or regulatory initiatives may impact the demand for our products and services, which could adversely affect our revenue, increase the recognition of credit losses in our loan portfolios and increase our allowance for credit losses. Increases in deposit balances due, among other things, to government stimulus and relief programs could adversely affect our financial performance if we are unable to successfully lend or invest those funds. The measures we have taken to aid our customers, including short-term loan payment deferments, may be insufficient to help our customers who have been negatively impacted by the economic fallout from the COVID-19 pandemic. Loans that are currently in deferral status may become nonperforming loans. Because of adverse economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold as well as reductions in other comprehensive income. While the COVID-19 pandemic negatively impacted our results of operations for the first nine months of 2020, the extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions we may take as may be required by government authorities or that we determine is in the best interests of our employees and customers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.

Our participation in the SBA’s PPP may expose us to reputational harm, increased litigation risk, as well as the risk that the SBA may not fund some or all of the guarantees associated with PPP loans.

As of September 30, 2020, we have originated 194 loans aggregating $15.4 million through the PPP. Lenders participating in the PPP have faced increased public scrutiny about their loan application process and procedures, and the nature and type of the borrowers receiving PPP loans. We depend on our reputation as a trusted and responsible financial services company to compete effectively in the communities that we serve, and any negative public or customer response to, or any litigation or claims that might arise out of, our participation in the PPP and any other legislative or regulatory initiatives and programs that may be enacted in response to the COVID-19 pandemic, could adversely impact our business. Other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP, and we may be subject to the same or similar litigation, in addition to litigation in connection with our processing of PPP loan forgiveness applications. In addition, if the SBA determines that there is a deficiency in the manner in which a PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits listed in the Exhibit Index (following the signatures section of this report) are included in, or incorporated by reference into, this Quarterly Report on Form 10-Q.


31.1		Certification of Chief Executive Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act

31.2		Certification of Chief Financial Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act

32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from Randolph Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019, (v) Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2020 and 2019 and (vi) Notes to Unaudited Consolidated Financial Statements.

104		Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Randolph Bancorp, Inc.


Date: November 5, 2020	By:	/s/ William M. Parent
		William M. Parent
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November 5, 2020	By:	/s/ Lauren B. Messmore
		Lauren B. Messmore
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)