Randolph Bancorp, Inc. - Quarter Report: 2021 June (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 June 30, 2021

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.)

2 Batterymarch Park, Suite 301
Quincy, Massachusetts	02169
(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 July 31, 2021, there were 5,239,467 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 June 30, 2021 and December 31, 2020	1
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020	2
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020	3
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended June 30, 2021 and 2020	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2021 and 2020	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3. Quantitative and Qualitative Disclosures About Market Risk		45
Item 4. Controls and Procedures		45
PART II—OTHER INFORMATION		46
Item 1. Legal Proceedings		46
Item 1A. Risk Factors		46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 3. Defaults Upon Senior Securities		46
Item 4. Mine Safety Disclosures		46
Item 5. Other Information		46
Item 6. Exhibits		46
SIGNATURE		47

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets (Unaudited)

(In thousands except for share data)

	June 30,			December 31,
	2021			2020
Assets
Cash and due from banks	$	8,804		$	4,206
Interest-bearing deposits		26,072			9,568
Total cash and cash equivalents		34,876			13,774
Securities available for sale, at fair value		50,212			55,366
Loans held for sale, at fair value		74,277			119,112
Loans, net of allowance for loan losses of $6,523 in 2021 and $6,784 in 2020		540,660			483,644
Federal Home Loan Bank of Boston stock, at cost		2,855			3,576
Accrued interest receivable		1,523			1,562
Mortgage servicing rights, net		15,375			12,377
Premises and equipment, net		5,115			4,781
Bank-owned life insurance		8,703			8,622
Foreclosed real estate		—			132
Other assets		10,546			18,126
Total assets	$	744,142		$	721,072

Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing	$	124,683		$	96,731
Interest-bearing		447,300			431,576
Total deposits		571,983			528,307
Federal Reserve Bank advances		—			11,431
Federal Home Loan Bank of Boston advances		50,016			61,895
Mortgagors' escrow accounts		1,783			2,338
Post-employment benefit obligations		2,226			2,382
Other liabilities		17,424			14,900
Total liabilities		643,432			621,253

Commitments and contingencies (Note 14)
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: 5,254,522 shares at June 30, 2021 and 5,495,514 shares at December 31, 2020		52			54
Additional paid-in capital		46,740			50,937
Retained earnings		57,378			51,689
ESOP-Unearned compensation		(3,662	)		(3,756	)
Accumulated other comprehensive income, net of tax		202			895
Total stockholders' equity		100,710			99,819
Total liabilities and stockholders' equity	$	744,142		$	721,072

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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Interest and dividend income:
Loans	$	5,505		$	5,723		$	11,013		$	11,343
Securities-taxable		223			323			463			693
Securities-tax exempt		6			8			12			15
Interest-bearing deposits and certificates of deposit		8			5			15			61
Total interest and dividend income		5,742			6,059			11,503			12,112

Interest expense:
Deposits		345			1,082			783			2,508
Borrowings		198			244			430			447
Total interest expense		543			1,326			1,213			2,955

Net interest income		5,199			4,733			10,290			9,157
Provision (credit) for loan losses		(27	)		1,068			(240	)		1,792
Net interest income after provision (credit) for loan losses		5,226			3,665			10,530			7,365

Non-interest income:
Customer service fees		419			266			786			573
Gain on loan origination and sale activities, net		5,740			14,370			16,733			21,514
Mortgage servicing fees, net		381			(1,354	)		1,160			(2,608	)
Increase in cash surrender value of life insurance		41			45			81			91
Other		235			172			479			381
Total non-interest income		6,816			13,499			19,239			19,951
Non-interest expenses:
Salaries and employee benefits		7,310			8,402			15,747			16,527
Occupancy and equipment		621			838			1,365			1,537
Data processing		301			225			564			421
Professional fees		323			230			884			635
Marketing		200			152			370			304
FDIC insurance		54			39			108			96
Other		1,818			1,493			3,540			2,818
Total non-interest expenses		10,627			11,379			22,578			22,338
Income before income taxes		1,415			5,785			7,191			4,978
Income tax expense (benefit)		(162	)		594			1,502			605
Net income	$	1,577		$	5,191		$	5,689		$	4,373

Earnings per common share:
Basic	$	0.32		$	1.02		$	1.14		$	0.86
Diluted	$	0.31		$	1.02		$	1.10		$	0.86

Weighted average shares outstanding:
Basic		4,921,182			5,092,490			4,988,283			5,107,700
Diluted		5,135,582			5,092,490			5,193,643			5,107,700

See accompanying notes to unaudited consolidated financial statements.

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Net income	$	1,577		$	5,191		$	5,689		$	4,373

Other comprehensive income:
Securities available for sale:
Unrealized holding gains (losses)		125			157			(792	)		1,721
Related tax effects		(28	)		—			91			—
Net-of-tax amount		97			157			(701	)		1,721

Supplemental retirement plan:
Reclassification adjustments ⁽¹⁾:
Actuarial losses		12			9			24			18
Prior service credits		(8	)		(12	)		(16	)		(24	)
		4			(3	)		8			(6	)
Related tax effects		—			—			—			—
Net-of-tax amount		4			(3	)		8			(6	)

Total other comprehensive income (loss)		101			154			(693	)		1,715

Comprehensive income	$	1,678		$	5,345		$	4,996		$	6,088

(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 June 30, 2021 and 2020

															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 March 31, 2020		5,466,344		$	55		$	50,832		$	30,939	$	(3,897	)	$	1,027	$	78,956
Net income		—			—			—			5,191		—			—		5,191
Other comprehensive income		—			—			—			—		—			154		154
Stock repurchased		(707	)		—			(6	)		—		—			—		(6	)
Restricted stock awards granted		15,000			—			—			—		—			—		—
Share redemptions for tax withholdings
for restricted stock vesting		(753	)		—			(7	)		—		—			—		(7	)
Stock-based compensation		—			—			197			—		—			—		197
ESOP shares committed to be released		—			—			(3	)		—		47			—		44
Balance at June 30, 2020		5,479,884		$	55		$	51,013		$	36,130	$	(3,850	)	$	1,181	$	84,529

Balance at March 31, 2021		5,364,240		$	53		$	48,613		$	55,801	$	(3,709	)	$	101	$	100,859
Net income		—			—			—			1,577		—			—		1,577
Other comprehensive income		—			—			—			—		—			101		101
Stock repurchased		(108,691	)		(1	)		(2,177	)		—		—			—		(2,178	)
Restricted stock awards granted		—			—			—			—		—			—		—
Restricted stock awards forfeited		—			—			—			—		—			—		—
Share redemptions for tax withholdings
for restricted stock vesting		(1,027	)		—			(20	)		—		—			—		(20	)
Stock-based compensation		—			—			270			—		—			—		270
ESOP shares committed to be released		—			—			54			—		47			—		101
Balance at June 30, 2021		5,254,522		$	52		$	46,740		$	57,378	$	(3,662	)	$	202	$	100,710

See accompanying notes to unaudited consolidated financial statements.

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Six Months Ended June 30, 2021 and 2020

															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, 2019		5,576,855		$	56		$	51,127		$	31,757	$	(3,944	)	$	(534	)	$	78,462
Net income		—			—			—			4,373		—			—			4,373
Other comprehensive income		—			—			—			—		—			1,715			1,715
Stock repurchased		(99,507	)		(1	)		(1,200	)		—		—			—			(1,201	)
Restricted stock awards granted		15,000			—			—			—		—			—			—
Restricted stock awards forfeited		(7,251	)		—			—			—		—			—			—
Share redemption for tax withholdings
for restricted stock vesting		(5,213	)		—			(60	)		—		—			—			(60	)
Stock-based compensation		—			—			1,128			—		—			—			1,128
ESOP shares committed to be released		—			—			18			—		94			—			112
Balance at June 30, 2020		5,479,884		$	55		$	51,013		$	36,130	$	(3,850	)	$	1,181		$	84,529

Balance at December 31, 2020		5,495,514		$	54		$	50,937		$	51,689	$	(3,756	)	$	895		$	99,819
Net income		—			—			—			5,689		—			—			5,689
Other comprehensive loss		—			—			—			—		—			(693	)		(693	)
Stock repurchased		(239,792	)		(2	)		(4,812	)		—		—			—			(4,814	)
Restricted stock awards granted		—			—			—			—		—			—			—
Restricted stock awards forfeited		—			—			—			—		—			—			—
Share redemption for tax withholdings
for restricted stock vesting		(1,200	)		—			(23	)		—		—			—			(23	)
Stock-based compensation		—			—			537			—		—			—			537
ESOP shares committed to be released		—			—			101			—		94			—			195
Balance at June 30, 2021		5,254,522		$	52		$	46,740		$	57,378	$	(3,662	)	$	202		$	100,710

See accompanying notes to unaudited consolidated financial statements.

RANDOLPH BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net income	$	5,689		$	4,373
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision (credit) for loan losses		(240	)		1,792
Loans originated for sale		(815,453	)		(686,854	)
Net gain on sales of mortgage loans		(16,733	)		(22,528	)
Proceeds from sales of mortgage loans		864,851			705,825
Net amortization of securities		178			124
Net change in deferred loan costs and fees, and purchase premiums		339			445
Depreciation and amortization		353			539
Loss on sale of foreclosed assets		5			—
Stock-based compensation		537			1,128
ESOP expense		195			112
Increase in cash surrender value of life insurance		(81	)		(91	)
Net (increase) decrease in mortgage servicing rights		(2,998	)		462
Other, net		12,784			(5,324	)
Net cash provided by operating activities		49,426			3

Cash flows from investing activities:
Redemptions of certificates of deposit
Securities available for sale:
Purchases		(3,913	)		(4,319	)
Calls/maturities		500			3,000
Principal payments on mortgage-backed securities		7,597			5,957
Net loan repayments (originations)		(46,707	)		(16,658	)
Loan purchases		(959	)		(1,519	)
Redemptions (purchases) of Federal Home Loan Bank of Boston stock		721			(1,655	)
Purchases of premises and equipment		(708	)		(152	)
Proceeds from the sale of foreclosed real estate		127			—
Loss on disposal of assets		21			48
Net cash used in investing activities		(43,321	)		(15,298	)

Cash flows from financing activities:
Net increase in non-interest bearing deposits		27,952			27,411
Net increase in interest-bearing deposits		15,724			14,513
Net increase (decrease) in short-term Federal Reserve Bank borrowings		(11,431	)		15,010
Net increase (decrease) in short-term Federal Home Loan Bank of Boston borrowings		5,000			(19,822	)
Issuance of long-term Federal Home Loan Bank of Boston advances		—			47,363
Repayments of long-term Federal Home Loan Bank of Boston advances		(16,879	)		—
Net decrease in mortgagors' escrow accounts		(555	)		(228	)
Repurchases of common stock		(4,814	)		(1,201	)
Net cash provided by financing activities		14,997			83,046

Net change in cash and cash equivalents		21,102			67,751
Cash and cash equivalents at beginning of period		13,774			8,252
Cash and cash equivalents at end of period	$	34,876		$	76,003
Supplemental cash flow information:
Interest paid on deposits and borrowed funds	$	1,380		$	1,801
Income taxes paid	$	2,257		$	225
Non-cash item:
Transfer of held for sale loans to portfolio	$	9,449		$	5,999
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

June 30, 2021 and 2020

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 six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 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, 2020, as filed with the SEC.

2.	RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standards Board (“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 on 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, and the Company adopted the standard in the interim period ended March 31, 2021. As of March 31, 2021, the Company held right-of-use assets related to operating leases of $1.1 million, and recognized the right-of-use assets in the Company’s Consolidated Balance Sheet in other assets. The corresponding operating lease liability is recognized in the Company’s Consolidated Balance Sheet in other liabilities for $1.1 million.

In June 2016, 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 15, 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.

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 increased the allowance for loan losses during 2020 directly related to its estimate, based on available information, of probable incurred losses resulting from the impact of the COVID-19 pandemic. During the first and second quarter of 2021, the Company decreased part of the allowance for loan losses, based on available information, due to improving conditions related to 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 were immaterial for first six months of 2021 and were $207,000 during the first six 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. The table below summarizes the lending activity and outstanding balances of PPP loans and the associated pledges to the Federal Reserve Bank’s (“FRB”) Paycheck Protection Program Liquidity Facility (“PPPLF”):

			PPP Loan Balance				FRB Advances
	PPP Loans		Outstanding at		Amount Pledged		Outstanding at
	Originated		June 30, 2021		to PPPLF		June 30, 2021⁽¹⁾
	(In thousands)
2020 PPP loans	$	15,387	$	1,118	$	15,387	$	-
2021 PPP loans		10,934		10,659		-		-
Total Activity	$	26,321	$	11,777	$	15,387	$	-

(1)

FRB advances were fully repaid during the first quarter of 2021 and the associated PPP loans are no longer pledged.

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 and as modified by the Consolidated Appropriations Act, these short-term deferrals are not considered troubled debt restructurings, provided the loan modification is made between March 1, 2020 and as modified by the Consolidated Appropriations Act, the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration and the applicable loan was not more than 30 days past due as of December 31, 2019.

The Company has agreed to loan payment deferrals on commercial loans totaling $38.0 million, residential real estate loans in portfolio totaling $19.1 million and residential real estate loans serviced for others totaling $67.4 million as of June 30, 2021. 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 June 30, 2021:

			Status of Deferrals Granted
			Currently Outstanding				Paid Off
	Deferrals		Suspended/		Resumed		Full
	Granted ⁽¹⁾		Reduced Payment ⁽²⁾		Payment ^{(2) (4)}		Payoff ⁽³⁾
	(In thousands)
June 30, 2021
Real estate loans:
Residential:
One- to four-family	$	15,427	$	1,988	$	9,443	$	3,996
Home equity loans and lines of credit		3,251		183		1,722		1,346
Construction		350		-		350		-
Commercial		34,451		1,006		28,645		4,800
Total real estate loans		53,479		3,177		40,160		10,142

Commercial and industrial		3,509		-		1,499		2,010
Consumer		66		38		28		-
Total	$	57,054	$	3,215	$	41,687	$	12,152

December 31, 2020
Real estate loans:
Residential:
One- to four-family	$	15,514	$	12,974	$	2,109	$	431
Home equity loans and lines of credit		3,179		626		1,287		1,266
Construction		350		350		-		-
Commercial		34,754		6,544		25,406		2,804
Total real estate loans		53,797		20,494		28,802		4,501

Commercial and industrial		3,645		-		1,635		2,010
Consumer		68		68		-		-
Total	$	57,510	$	20,562	$	30,437	$	6,511

(1)

This column equals the current outstanding balance of loans that received a deferral, plus the balance of loans that were deferred and were paid off in full.

(2)

These two columns are the current balance of all loans that received a deferral. The Suspended/Reduced Payment columns represents loans currently in a deferral period and the Resumed Payment columns represents loans that are no longer in a deferral period and have resumed normal payment.

(3)

This column represents the balance of deferred loans that were paid off in full.

(4)

Includes a $621,000 commercial real estate loan that was paid off after June 30, 2021.

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 June 30, 2021:

	Pass Rated /		Special		Sub-		Non-
	Not Rated⁽¹⁾		Mention⁽¹⁾		standard ^{(1) (3)}		accrual ⁽¹⁾ ^{(2) (3)}
	(In thousands)
June 30, 2021
Real estate loans:
Residential:
One- to four-family	$	11,218	$	213	$	-	$	213
Home equity loans and lines of credit		1,905		-		-		-
Construction		350		-		-		-
Commercial		17,885		7,603		4,163		4,163
Total real estate loans		31,358		7,816		4,163		4,376

Commercial and industrial		1,113		386		-		-
Consumer		66		-		-		-
Total	$	32,537	$	8,202	$	4,163	$	4,376

December 31, 2020
Real estate loans:
Residential:
One- to four-family	$	14,887	$	196	$	-	$	196
Home equity loans and lines of credit		1,913		-		-		-
Construction		350		-		-		-
Commercial		19,020		8,748		4,182		4,182
Total real estate loans		36,170		8,944		4,182		4,378

Commercial and industrial		1,204		431		-		-
Consumer		68		-		-		-
Total	$	37,442	$	9,375	$	4,182	$	4,378

(1)

These three columns indicate the risk rating and subsequent outstanding balance of loans that have received a deferral. The Pass Rated/Not Rated, Special Mention and Substandard columns reconcile to the Suspended Payment/Reduced Payment and Resumed Payment columns in the preceding table.

(2)

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

(3)

Includes a $621,000 commercial real estate loan that was paid off after June 30, 2021.

4.	ACCUMULATED OTHER COMPREHENSIVE INCOME

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

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

	June 30,			December 31,
	2021			2020
	(In thousands)
Securities available for sale:
Net unrealized gain	$	920		$	1,712
Tax effect		(221	)		(312	)
Net-of-tax amount		699			1,400
Supplemental retirement plan
Unrecognized net actuarial loss		(688	)		(712	)
Unrecognized net prior service credit		238			254
		(450	)		(458	)
Tax effect		(47	)		(47	)
Net-of-tax amount		(497	)		(505	)
Accumulated other comprehensive income	$	202		$	895

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)
June 30, 2021
Debt securities:
U.S. Treasury		3,917		3		(43	)		3,877
U.S. Government-sponsored enterprises		1,994		—		(3	)		1,991
Corporate		3,770		31		—			3,801
Municipal		595		2		—			597
Residential mortgage-backed securities:
U.S. Government-sponsored enterprises		25,754		530		(164	)		26,120
Commercial mortgage-backed securities:
U.S. Government-sponsored enterprises		8,795		413		—			9,208
U.S. Government-guaranteed		532		9		—			541
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises		893		33		—			926
U.S. Government-guaranteed		3,042		109		—			3,151
Total securities available for sale	$	49,292	$	1,130	$	(210	)	$	50,212

December 31, 2020
Debt securities:
U.S. Government-sponsored enterprises	$	1,993	$	3	$	—		$	1,996
Corporate		4,300		56		—			4,356
Municipal		595		5		—			600
Residential mortgage-backed securities:
U.S. Government-sponsored enterprises		32,538		919		—			33,457
Commercial mortgage-backed securities:
U.S. Government-sponsored enterprises		8,857		525		—			9,382
U.S. Government-guaranteed		977		24		—			1,001
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises		996		52		—			1,048
U.S. Government-guaranteed		3,398		128		—			3,526
Total securities available for sale	$	53,654	$	1,712	$	—		$	55,366

There were no sales of securities during the six months ended June 30, 2021 and 2020.

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2021 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	$	500	$	506
After 1 year through 5 years		4,792		4,799
After 5 years through 10 years		4,984		4,961
		10,276		10,266
Mortgage-backed securities		39,016		39,946
	$	49,292	$	50,212

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
June 30, 2021
Debt securities:
U.S. Treasury		(43	)		2,430		—		—
U.S. Government-sponsored enterprises		(3	)		1,991		—		—
Residential mortgage-backed securities
U.S. Government-sponsored enterprises		(164	)		9,739		—		—
Total	$	(210	)	$	14,160	$	—	$	—

At June 30, 2021, eight debt securities had unrealized losses with aggregate depreciation of 1.46% from the Company’s amortized cost basis. The unrealized losses at June 30, 2021 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 June 30, 2021.

6.	LOANS AND ALLOWANCE FOR LOAN LOSSES

A summary of the loan portfolio is as follows:

	June 30, 2021			December 31, 2020
	(In thousands)
Real estate loans:
Residential:
One- to four-family	$	263,992		$	235,648
Home equity loans and lines of credit		50,555			48,166
Commercial		167,691			143,893
Construction		29,140			31,050
Total real estate loans		511,378			458,757
Commercial and industrial		25,826			20,259
Consumer		9,194			10,289
Total loans		546,398			489,305
Allowance for loan losses		(6,523	)		(6,784	)
Net deferred loan costs and fees, and purchase premiums		785			1,123
Loans, net	$	540,660		$	483,644

The following tables present activity in the allowance for loan losses by loan category for the three and six months ended June 30, 2021 and 2020, and allocation of the allowance to each category as of June 30, 2021 and December 31, 2020:

	Residential 1-4 Family			Second Mortgages and HELOC			Commercial Real Estate		Construction			Commercial and Industrial		Consumer			Total
	(In thousands)
Three Months Ended June 30, 2021

Allowance at March 31, 2021	$	1,522		$	425		$	3,390	$	720		$	401	$	105		$	6,563
Provision (credit) for loan losses		(251	)		(21	)		169		(106	)		166		16			(27	)
Loans charged-off		—			—			—		—			—		(16	)		(16	)
Recoveries		1			—			—		—			2		—			3
Balance at June 30, 2021	$	1,272		$	404		$	3,559	$	614		$	569	$	105		$	6,523

Three Months Ended June 30, 2020

Allowance at March 31, 2020	$	1,223		$	343		$	2,241	$	772		$	280	$	137		$	4,996
Provision for loan losses		327			35			525		125			39		17			1,068
Loans charged-off		—			—			—		—			—		(13	)		(13	)
Recoveries		3			—			—		—			—		5			8
Balance at June 30, 2020	$	1,553		$	378		$	2,766	$	897		$	319	$	146		$	6,059

Six Months Ended June 30, 2021

Allowance at December 31, 2020	$	1,646		$	442		$	3,402	$	751		$	416	$	127		$	6,784
Provision (credit) for loan losses		(377	)		(38	)		157		(137	)		151		4			(240	)
Loans charged-off		—			—			—		—			—		(26	)		(26	)
Recoveries		3			—			—		—			2		—			5
Balance at June 30, 2021	$	1,272		$	404		$	3,559	$	614		$	569	$	105		$	6,523

Six Months Ended June 30, 2020

Allowance at December 31, 2019	$	1,096		$	289		$	1,840	$	692		$	235	$	128		$	4,280
Provision for loan losses		450			89			926		205			84		38			1,792
Loans charged-off		—			—			—		—			—		(27	)		(27	)
Recoveries		7			—			—		—			—		7			14
Balance at June 30, 2020	$	1,553		$	378		$	2,766	$	897		$	319	$	146		$	6,059

Additional information pertaining to the allowance for loan losses at June 30, 2021 and December 31, 2020 is as follows:

	Residential 1-4 Family		Second Mortgages and HELOC		Commercial Real Estate		Construction		Commercial and Industrial		Consumer		Total
June 30, 2021	(In thousands)
Allowance for impaired loans	$	131	$	17	$	15	$	—	$	—	$	—	$	163
Allowance for non-impaired loans		1,141		387		3,544		614		569		105		6,360
Total allowance for loan losses	$	1,272	$	404	$	3,559	$	614	$	569	$	105	$	6,523

Impaired loans	$	3,305	$	647	$	4,178	$	—	$	—	$	—	$	8,130
Non-impaired loans		260,687		49,908		163,513		29,140		25,826		9,194		538,268
Total loans	$	263,992	$	50,555	$	167,691	$	29,140	$	25,826	$	9,194	$	546,398

December 31, 2020

Allowance for impaired loans	$	133	$	—	$	—	$	—	$	—	$	—	$	133
Allowance for non-impaired loans		1,513		442		3,402		751		416		127		6,651
Total allowance for loan losses	$	1,646	$	442	$	3,402	$	751	$	416	$	127	$	6,784

Impaired loans	$	3,575	$	623	$	4,751	$	—	$	—	$	—	$	8,949
Non-impaired loans		232,073		47,543		139,142		31,050		20,259		10,289		480,356
Total loans	$	235,648	$	48,166	$	143,893	$	31,050	$	20,259	$	10,289	$	489,305

As described in Note 3 – “Global Pandemic Affecting Randolph Bancorp, Inc.,” the COVID-19 pandemic has affected the Company’s operations starting in the first quarter of 2020. This pandemic 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 June 30, 2021 and December 31, 2020:

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Non-accrual Loans ⁽¹⁾
	(In thousands)
June 30, 2021
Residential one- to four-family	$	264	$	57	$	248	$	569	$	1,854
Home equity loans and lines of credit		117		284		—		401		383
Commercial real estate		—		—		—		—		4,165
Construction		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
Consumer		10		3		—		13		—
Total	$	391	$	344	$	248	$	983	$	6,402

December 31, 2020
Residential one- to four-family	$	—	$	—	$	—	$	—	$	1,876
Home equity loans and lines of credit		95		—		317		412		584
Commercial real estate		—		—		26		26		4,713
Construction		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
Consumer		38		64		—		102		—
Total	$	133	$	64	$	343	$	540	$	7,173

(1)

Includes a $621,000 commercial real estate loan which was paid off after June 30, 2021.

The following is a summary of impaired loans at June 30, 2021 and December 31, 2020:

	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
June 30, 2021
Impaired loans without a valuation allowance:
Residential one- to four-family	$	1,852	$	1,863
Home equity loans and lines of credit		524		530
Commercial real estate		4,165		4,163
Total		6,541		6,556

Impaired loans with a valuation allowance:
Residential one- to four-family		1,437		1,442	$	131
Home equity loans and lines of credit		108		117		17
Commercial real estate		15		15		15
Total		1,560		1,574		163
Total impaired loans	$	8,101	$	8,130	$	163

December 31, 2020
Impaired loans without a valuation allowance:
Residential one- to four-family	$	2,160	$	2,181
Home equity loans and lines of credit		626		623
Commercial real estate		4,753		4,751
Total		7,539		7,555

Impaired loans with a valuation allowance:
Residential one- to four-family		1,382		1,394	$	133
Total		1,382		1,394		133
Total impaired loans	$	8,921	$	8,949	$	133

Additional information pertaining to impaired loans follows:

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
	(In thousands)
Three Months Ended June 30, 2021
Residential one- to four-family	$	3,542	$	18	$	39
Home equity loans and lines of credit		423		1		—
Commercial real estate		4,182		—		—
Total	$	8,147	$	19	$	39

Three Months Ended June 30, 2020
Residential one- to four-family	$	4,941	$	75	$	41
Home equity loans and lines of credit		404		1		—
Total	$	5,345	$	76	$	41
Six Months Ended June 30, 2021
Residential one- to four-family	$	3,548	$	36	$	78
Home equity loans and lines of credit		423		1		—
Commercial real estate		4,191		—		—
Total	$	8,162	$	37	$	78

Six Months Ended June 30, 2020
Residential one- to four-family	$	5,138	$	133	$	70
Home equity loans and lines of credit		405		1		—
Total	$	5,543	$	134	$	70

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.

	Number of Contracts		TDRs Listed as Accrual		Number of Contracts		TDRs Listed as Non-accrual		Total Number of Contracts		Total TDRs
	(In thousands)
June 30, 2021
Residential one- to four-family		12	$	1,643		4	$	1,162		16	$	2,805
Home equity loans and lines of credit		1		41		—		—		1		41
Commercial real estate		1		15		—		—		1		15
Total		14	$	1,699		4	$	1,162		18	$	2,861

December 31, 2020
Residential one- to four-family	$	12	$	1,666	$	4	$	1,167		16	$	2,833
Home equity loans and lines of credit		1		42		—		—		1		42
Commercial real estate		1		40		—		—		1		40
Total		14		1,748		4	$	1,167		18	$	2,915

For the six months ended June 30, 2021 and 2020, the Company did not enter into any loan modifications meeting the criteria of a troubled debt restructuring.

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 six months

ended June 30, 2021 and 2020, 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. Subsequent to June 30, 2021, there was one residential one- to four-family loan for $57,000 that was committed to be a troubled debt restructuring. The troubled debt restructuring decreased the interest rate on the loan and extended the maturity.

During the three and six months ended June 30, 2021 and 2020, there were no troubled debt restructurings that defaulted (over 30 days past due) within twelve months of the restructure date.

At June 30, 2021, there were two residential real estate loans that were modified under a troubled debt restructuring prior to the pandemic that were granted payment deferral plans. One loan, totaling $292,000, was performing in accordance with its modified terms and is currently in repayment, and one loan, for $214,000, 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:

	Residential 1-4 Family		Second Mortgages and HELOC		Commercial Real Estate		Construction		Commercial and Industrial		Consumer		Total
	(In thousands)
June 30, 2021
Not Rated	$	262,236	$	50,057	$	—	$	—	$	—	$	9,194	$	321,487
Loans rated 1 - 3B (Pass rated)		—		—		155,732		29,140		25,440		—		210,312
Loans rated 4		697		381		7,796		—		386		—		9,260
Loans rated 5		1,059		117		4,163		—		—		—		5,339
	$	263,992	$	50,555	$	167,691	$	29,140	$	25,826	$	9,194	$	546,398

December 31, 2020
Not Rated	$	233,773	$	47,582	$	—	$	—	$	—	$	10,289	$	291,644
Loans rated 1 - 3B (Pass rated)		—		—		129,925		31,050		19,828		—		180,803
Loans rated 4		803		584		9,257		—		431		—		11,075
Loans rated 5		1,072		—		4,711		—		—		—		5,783
	$	235,648	$	48,166	$	143,893	$	31,050	$	20,259	$	10,289	$	489,305

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 $1.99 billion and $1.76 billion at June 30, 2021 and December 31, 2020, respectively.

The following table summarizes the activity relating to mortgage servicing rights (“MSRs”) for the three and six months ended June 30, 2021 and 2020:

	For the Three Months Ended						For the Six Months Ended
	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
	(In thousands)
Mortgage servicing rights:
Balance at beginning of period	$	17,318		$	9,978		$	15,372		$	9,484
Additions through originations		1,455			2,685			4,241			3,562
Amortization		(759	)		(572	)		(1,599	)		(955	)
Balance at end of period	$	18,014		$	12,091		$	18,014		$	12,091

Valuation allowance:
Balance at beginning of period	$	2,574		$	2,490		$	2,995		$	928
Provision (release)		65			1,507			(356	)		3,069
Balance at end of period	$	2,639		$	3,997		$	2,639		$	3,997
Amortized cost, net	$	15,375		$	8,094		$	15,375		$	8,094
Fair value	$	15,673		$	8,294		$	15,673		$	8,294

During the three months ended June 30, 2021 and 2020, the Company increased the valuation allowance for its MSRs by $65,000 and $1,507,000, 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.

During the six months ended June 30, 2021 the Company decreased the valuation allowance for its MSRs by $356,000 and for the six months ended June 30, 2020, the Company increased the valuation allowance for its MSRs by $3,069,000. 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.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 $139,748,000 and $396,551,000 at June 30, 2021 and December 31, 2020, respectively. The fair value of such commitments at June 30, 2021 and December 31, 2020 was $2,676,000 and $11,821,000, 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 $153,860,000 and $390,248,000 at June 30, 2021 and December 31, 2020, respectively. The fair value of such commitments consisted of liabilities of $289,000 and $2,180,000 at June 30, 2021 and December 31, 2020, respectively, included in other liabilities in the consolidated balance sheets and assets of $61,000 and $44,000 at June 30, 2021 and December 31, 2020, respectively, included in other assets in the consolidated balance sheets.

9.	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 six months ended June 30, 2021, the Company recognized compensation expense for the ESOP of $99,000 and $195,000, respectively, compared to $44,000 and $112,000, for the same periods last year, respectively. The fair value of the 366,285 unallocated ESOP shares at June 30, 2021 was $7,584,000.

10.	SHARE REPURCHASE PROGRAM

In October 2020, the Company’s Board of Directors adopted a share repurchase program under which the Company may repurchase up to 552,000 shares, or 10%, 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 may be suspended or terminated at any time without prior notice and is currently set to expire on October 29, 2021. As of June 30, 2021, the Company had repurchased 266,846 shares at a cost of $5,360,000 in connection with the program.

11.	EARNINGS 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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Average number of common shares outstanding		5,289,782			5,479,826			5,359,198			5,497,383
Less: Average unallocated ESOP shares		(368,600	)		(387,336	)		(370,915	)		(389,683	)
Average number of common shares outstanding used to calculate basic earnings per share		4,921,182			5,092,490			4,988,283			5,107,700
Effect of dilutive stock options		214,400			—			205,360			—
Average number of common shares outstanding used to calculate dilutive earnings per share		5,135,582			5,092,490			5,193,643			5,107,700

12.	STOCK-BASED COMPENSATION

Under the Randolph Bancorp, Inc. 2017 Stock Option and Incentive Plan (the “2017 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 2017 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 2017 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.

In addition, the Company granted 15,000 shares of restricted stock and 44,118 options in 2020 as an inducement for senior executives to accept employment (the “2020 Inducement Plan”). The inducement awards and options vest ratably over five years. The fair value of shares awarded is based on the market price at the date of grant.

At the 2021 Annual Meeting of Shareholders held on May 24, 2021, the Company’s shareholders approved the 2021 Equity Incentive Plan (the “2021 Equity Plan”). The 2021 Equity Plan permits equity awards to employees and directors in the form of stock options, restricted stock units and other forms of compensation. The maximum number of shares of common stock to be issued under the 2021 Equity Plan is 100,000. No awards have been granted as of June 30, 2021.

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 six months ended June 30, 2021 and 2020, 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:

	2021			2020
Options granted		40,491			123,118
Vesting period (years)		5		3-5
Expiration period (years)		10			10
Expected volatility		30.98	%		26.71	%
Expected life (years)		6.2			6.2
Expected dividend yield		—			—
Risk free interest rate		0.64	%	0.45% - 1.10%
Option fair value	$6.20			$2.69 - $4.32

A summary of stock option activity for the six months ended June 30, 2021 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, 2021		587,168	$	13.32		8.40
Granted		40,491		20.06
Forfeited		—		—
Expired		—		—
Balance at June 30, 2021		627,659	$	13.75		8.02	$	4,363,807
Exercisable at June 30, 2021		192,030	$	14.74		6.92	$	1,145,387
Unrecognized compensation cost (inclusive of directors' options)	$	1,421,212
Weighted average remaining recognition period (years)		2.60

For the six months ended June 30, 2021 and 2020, stock-based compensation expense applicable to stock options was $286,000 and $428,000, respectively. For the three months ended June 30, 2021 and 2020, stock-based compensation expense applicable to stock options was $144,000 and $99,000, respectively.

Included in expense for the six months ended June 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 2017 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 2017 Equity Plan and the 2020 Inducement Plan for the six months ended June 30, 2021:

	Restricted Stock Awards			Weighted Average Grant Price
Restricted stock awards at January 1, 2021		122,012		$	12.72
Granted		—			—
Vested		(7,667	)		12.62
Forfeited		—			—
Restricted stock awards at June 30, 2021		114,345		$	12.73
Unrecognized compensation cost	$	1,093,291
Weighted average remaining recognition period (years)		2.91

For the six months ended June 30, 2021 and 2020 stock-based compensation expense applicable to restricted stock was $251,000 and $700,000, respectively. For the three months ended June 30, 2021 and 2020, stock-based compensation expense applicable to restricted stock was $126,000 and $98,000, respectively.

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

13.	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 June 30, 2021 and December 31, 2020) 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)
June 30, 2021
Assets:
Securities available for sale	$	—	$	50,212	$	—	$	50,212
Portfolio loans (fair value option)		—		18,892		—		18,892
Loans held for sale (fair value option)		—		74,277		—		74,277
Derivative loan commitments		—		2,676		—		2,676
Forward loan sale commitments		—		61		—		61

Liabilities:
Forward loan sale commitments, including TBAs		—		289		—		289

December 31, 2020
Assets:
Securities available for sale	$	—	$	55,366	$	—	$	55,366
Portfolio loans (fair value option)		—		13,780		—		13,780
Loans held for sale (fair value option)		—		119,112		—		119,112
Derivative loan commitments		—		11,821		—		11,821
Forward loan sale commitments		—		44		—		44

Liabilities:
Forward loan sale commitments, including TBAs		—		2,180		—		2,180

There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the six months ended June 30, 2021 and 2020.

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 June 30, 2021 and December 31, 2020.

							Period Ended
	June 30, 2021						June 30, 2021
	Level 1		Level 2		Level 3		Total Gains (Losses)
	(In thousands)
Collateral dependent
impaired loans	$	—	$	—	$	5,549	$	—
Mortgage servicing rights		—		15,375		—		356
Foreclosed real estate		—		—		—		—
	$	—	$	15,375	$	5,549	$	356

	December 31, 2020
	Level 1		Level 2		Level 3
	(In thousands)
Collateral dependent
impaired loans	$	—	$	—	$	6,318
Mortgage servicing rights		—		12,377		—
Foreclosed real estate		—		—		132
	$	—	$	12,377	$	6,450

The Company recorded a net decrease in the valuation allowance for its MSRs of $356,000 during the six months ended June 30, 2021. 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 decrease in the valuation allowance during the six months ended June 30, 2021 was caused by slower loan prepayment speeds attributable to the increase 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 June 30, 2021 and December 31, 2020.

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.

	June 30, 2021
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Securities available for sale		50,212		50,212		—		50,212		—
Loans held for sale		74,277		74,277		—		74,277		—
Loans, net		540,660		545,062		—		—		545,062
Derivative assets		2,737		2,737		—		2,737		—

Financial liabilities:
Deposits	$	571,983	$	572,028	$	—	$	572,028	$	—
FRB advances		—		—		—		—		—
FHLBB advances		50,016		50,531		—		50,531		—
Derivative liabilities		289		289		—		289		—

	December 31, 2020
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Securities available for sale		55,366		55,366		—		55,366		—
Loans held for sale		119,112		119,112		—		119,112		—
Loans, net		483,644		490,914		—		—		490,914
Derivative assets		11,865		11,865		—		11,865		—

Financial liabilities:
Deposits	$	528,307		528,786	$	—	$	528,786	$	—
FRB Advances		11,431		11,431		—		11,431		—
FHLBB advances		61,895		63,071		—		63,071		—
Derivative liabilities		2,180		2,180		—		2,180		—

14.	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:

	June 30, 2021		December 31, 2020
	(In thousands)
Commitments to originate loans	$	167,111	$	411,401
Unused lines and letters of credit		86,223		71,458
Unadvanced funds on construction loans		15,894		9,110
Overdraft lines of credit		7,988		7,969

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.

15.	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 six months ended June 30, 2021 follows:

	For the Three Months Ended June 30, 2021
	Envision Bank			Envision Mortgage		Consolidated Total
	(in thousands)
Net interest income	$	4,535		$	664	$	5,199
Provision (credit) for loan losses		(27	)		—		(27	)
Net interest income after provision (credit) for loan losses		4,562			664		5,226

Non-interest income:
Customer service fees		393			26		419
Gain on loan origination and sale activities, net ⁽¹⁾		—			6,558		6,558
Mortgage servicing fees, net		(94	)		475		381
Other		158			118		276
Total non-interest income		457			7,177		7,634

Non-interest expenses:
Salaries and employee benefits		1,746			5,564		7,310
Occupancy and equipment		407			214		621
Other non-interest expenses		1,265			1,431		2,696
Total non-interest expenses		3,418			7,209		10,627
Income before income taxes and elimination of inter-segment profit	$	1,601		$	632		2,233
Elimination of inter-segment profit							(818	)
Income before income taxes							1,415

Income tax expense (benefit)							(162	)
Net income						$	1,577

Total assets, June 30, 2021	$	608,686		$	135,456	$	744,142

	For the Six Months Ended June 30, 2021
	Envision Bank			Envision Mortgage		Consolidated Total
	(in thousands)
Net interest income	$	8,736		$	1,554	$	10,290
Provision (credit) for loan losses		(240	)		—		(240	)
Net interest income after provision (credit) for loan losses		8,976			1,554		10,530

Non-interest income:
Customer service fees		733			53		786
Gain on loan origination and sale activities, net ⁽¹⁾		—			18,232		18,232
Mortgage servicing fees, net		(189	)		1,349		1,160
Other		309			251		560
Total non-interest income		853			19,885		20,738

Non-interest expenses:
Salaries and employee benefits		3,548			12,199		15,747
Occupancy and equipment		851			514		1,365
Other non-interest expenses		2,349			3,117		5,466
Total non-interest expenses		6,748			15,830		22,578
Income before income taxes and elimination of inter-segment profit	$	3,081		$	5,609		8,690
Elimination of inter-segment profit							(1,499	)
Income before income taxes							7,191

Income tax expense							1,502
Net income						$	5,689

(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 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 six months ended June 30, 2021 totaled $818,000 and $1,499,000, 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 $94,000 and $189,000 for the three and six months ended June 30, 2021, 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 six months ended June 30, 2020 follows:

	For the Three Months Ended June 30, 2020
	Envision Bank			Envision Mortgage			Consolidated Total
	(in thousands)
Net interest income	$	3,944		$	789		$	4,733
Provision for loan losses		1,068			—			1,068
Net interest income after provision for loan losses		2,876			789			3,665

Non-interest income:
Customer service fees		245			21			266
Gain on loan origination and sale activities, net ⁽¹⁾		—			14,736			14,736
Mortgage servicing fees, net		(95	)		(1,259	)		(1,354	)
Other		85			132			217
Total non-interest income		235			13,630			13,865

Non-interest expenses:
Salaries and employee benefits		1,925			6,477			8,402
Occupancy and equipment		465			373			838
Other non-interest expenses		1,057			1,082			2,139
Total non-interest expenses		3,447			7,932			11,379

Income (loss) before income taxes and elimination of inter-segment profit	$	(336	)	$	6,487			6,151
Elimination of inter-segment profit								(366	)
Income before income taxes								5,785
Income tax expense								594
Net income							$	5,191

Total assets, June 30, 2020	$	601,313		$	122,728		$	724,041

	For the Six Months Ended June 30, 2020
	Envision Bank			Envision Mortgage			Consolidated Total
	(in thousands)
Net interest income	$	7,937		$	1,220		$	9,157
Provision		1,792			—			1,792
Net interest income after credit for loan losses		6,145			1,220			7,365

Non-interest income:
Customer service fees		518			55			573
Gain on loan origination and sale activities, net ⁽¹⁾		—			22,209			22,209
Mortgage servicing fees, net		(182	)		(2,426	)		(2,608	)
Other		225			247			472
Total non-interest income		561			20,085			20,646

Non-interest expenses:
Salaries and employee benefits ⁽²⁾		5,023			11,504			16,527
Occupancy and equipment		869			668			1,537
Other non-interest expenses		2,203			2,071			4,274
Total non-interest expenses		8,095			14,243			22,338
Income (loss) before income taxes and elimination of inter-segment profit	$	(1,389	)	$	7,062			5,673
Elimination of inter-segment profit								(695	)
Income before income taxes								4,978

Income tax expense								605
Net income							$	4,373

(1)

Before elimination of inter-segment profit.

(2) Salaries and benefits for the six months ended June 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 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 six months ended June 30, 2020 totaled $366,000 and $695,000, 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 $95,000 and $182,000 for the three and six months ended June 30, 2020, respectively.

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 June 30, 2021 and December 31, 2020, and its results of operations for the three and six month periods ended June 30, 2021 and 2020. 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; changes in 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; continued turbulence in the capital and debt markets; changes in interest rates; increases in loan defaults and charge-off rates; 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 Small Business Administration’s (“SBA’s”) Paycheck Protection Program (“PPP”) and other pandemic-related legislative and regulatory initiatives and programs; changes in accounting standards and practices; the risk that goodwill and intangibles recorded in our financial statements will become impaired; 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 statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Regulatory Developments

The CARES Act

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 PPP. The amount appropriated was subsequently increased to $659 billion. Additionally, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was enacted on December 27, 2020, providing for a second round of PPP loans (“PPP-2”). The Bank has participated in both the PPP and PPP-2. As of June 30, 2021, the Bank had originated 384 PPP loans totaling approximately $26.3 million. On May 5, 2021, the SBA stopped accepting PPP loan applications from most lenders, including the Company, because PPP funding has been exhausted. PPP loans that meet SBA requirements may be forgiven in certain circumstances, are fully guaranteed by the U.S. government, have an initial term of up to five years, and

earn interest at rate of 1%. We currently expect a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of June 30, 2021, there were $1.3 million in origination fees associated with the PPP loans. The average authorized loan size is $69,000 and the aggregate number of jobs positively impacted is approximately 2,800. In conjunction with the PPP, the Federal Reserve Bank (“FRB”) has created a lending facility for qualified financial institutions, the Paycheck Protection Program Liquidity Facility (“PPPLF”). The PPPLF will extend credit to depository institutions with a term equal to the term of the pledged collateral at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility. Draws on the PPPLF expired on July 30, 2021.

•

Troubled Debt Restructuring Relief. From March 1, 2020 through the earlier of January 1, 2022 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the COVID–19 outbreak, 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 TDR, including impairment accounting. This TDR relief is applicable 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.

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 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 mortgage servicing rights (“MSRs”).

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, 2020, as filed with the Securities and Exchange Commission.

The Tax Cuts and Jobs Act of 2017 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 June 30, 2021 and December 31, 2020

Total Assets. Total assets increased $23.1 million to $744.1 million at June 30, 2021 from $721.1 million at December 31, 2020. Contributing to asset growth was a $57.0 million increase in net loans, including an increase of $28.3 million in 1-4 family residential loans and $23.8 million in commercial real estate loans. In addition, cash and cash equivalents increased by $21.1 million in the six months ended June 30, 2021, mainly as a result of strong growth in core deposits and the timing of cash proceeds from loan sales. Loans held for sale decreased by $44.8 million to $74.3 million at June 30, 2021 from $119.1 million at December 31, 2020.

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 June 30, 2021, loans held for sale totaled $74.3 million compared to $119.1 million at December 31, 2020, and proceeds from sales of mortgage loans totaled $864.9 million in the six months ended June 30, 2021. Lower mortgage rates available during the first six months of 2021 favorably impacted loan refinancing activity, which comprised 72% of residential mortgage loan originations in the first six months of 2021.

Net Loans. Net loans increased $57.0 million to $540.7 million at June 30, 2021 from $483.6 million at December 31, 2020, primarily as a result of the origination of 1-4 family residential and commercial real estate loans. These increases were partially offset by decreases in construction and consumer 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 $5.2 million to $50.2 million at June 30, 2021 from $55.4 million at December 31, 2020, primarily due to principal payments on mortgage-backed securities and a decrease in the market value attributable to an increase in longer-term interest rates, partially offset by securities purchases during the first six months of 2021. At June 30, 2021, investment securities and cash and cash equivalents, primary sources of on-balance sheet liquidity, totaled $85.1 million, or 11.4% of total assets.

Mortgage Servicing Rights. MSRs increased $3.0 million to $15.4 million at June 30, 2021 from $12.4 million at December 31, 2020. The principal reason for the increase was the origination of new MSRs, net of amortization, in addition to a reversal of previous impairment charges of $356,000 recognized through a valuation allowance, reflecting the higher interest rate environment. At June 30, 2021, the Company serviced $1.99 billion of mortgage loans for others, an increase of $0.23 billion from $1.76 billion at December 31, 2020. The average value of MSRs at June 30, 2021 stood at 77 basis points, an increase of 6 basis points from the average value of 71 basis points at December 31, 2020.

Deposits. Deposits increased $43.7 million, or 8.3%, to $572.0 million at June 30, 2021 from $528.3 million at December 31, 2020. During this period, customer deposits and non-interest bearing brokered deposits increased by $18.3 million, or 3.7%. The growth in these deposits was directly driven by customers’ receipt of government stimulus payments, PPP loan proceeds which were deposited with us, and our focus on deposit gathering. Interest-bearing brokered deposits, which management considers to be a source of wholesale funding, increased by $25.3 million to $57.1 million at June 30, 2021, from $31.7 million at December 31, 2020.

FHLBB Advances and FRB Advances. FHLBB advances, which consist of term advances, decreased by $11.9 million to $50.0 million at June 30, 2021, from $61.9 million at December 31, 2020. The Company’s deposit gathering activities have reduced the reliance on advances. FRB advances, which consisted of PPPLF advances of $11.4 million at December 31, 2020, were paid off during the six months ended June 30, 2021.

Interest-bearing 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 June 30, 2021, wholesale funding amounted to $107.1 million, or 14.4% of total assets.

Stockholders’ Equity. Stockholders’ equity increased $891,000 to $100.7 million at June 30, 2021 compared to $99.8 million at December 31, 2020. The increase was mainly attributed to net income of $5.7 million in the six months ended June 30, 2021, and $705,000 of equity adjustments related to the stock benefit plan and employee stock ownership plan. These increases were partially offset by a decrease in the fair value of available-for sale securities of $701,000, net of taxes, driven by an increase in longer-term interest rates, and the Company repurchasing $4.8 million of shares during the first six months of 2021.

Comparison of Operating Results for the Three Months Ended June 30, 2021 and 2020

General. The Company recognized net income of $1.6 million, or $0.31 per diluted share, for the three months ended June 30, 2021 compared to net income of $5.2 million, or $1.02 per diluted share, for the three months ended June 30, 2020, a decrease of $3.6 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 June 30,
	2021								2020
	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⁾	$	592,750		$	5,505		3.71	%	$	576,964		$	5,723		3.97	%
Investment securities ^{(2) (3)}		55,376			229		1.65	%		58,119			332		2.28	%
Interest-earning deposits		43,888			8		0.07	%		22,918			5		0.09	%
Total interest-earning assets		692,014			5,742		3.32	%		658,001			6,060		3.68	%
Noninterest-earning assets		40,257								40,156
Total assets	$	732,271							$	698,157
Interest-bearing liabilities:
Savings accounts		192,434			89		0.18	%		158,427			233		0.59	%
NOW accounts		69,730			38		0.22	%		46,593			50		0.43	%
Money market accounts		72,469			43		0.24	%		71,396			122		0.68	%
Term certificates		104,604			176		0.67	%		159,224			677		1.70	%
Total interest-bearing deposits		439,237			346		0.32	%		435,640			1,082		0.99	%
FHLBB and FRB advances		51,502			198		1.54	%		79,133			244		1.23	%
Total interest-bearing liabilities		490,739			544		0.44	%		514,773			1,326		1.03	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		124,656								77,947
Other noninterest-bearing liabilities		13,606								22,893
Total liabilities		629,001								615,613
Total stockholders' equity		103,270								82,544
Total liabilities and stockholders' equity	$	732,271							$	698,157
Net interest income				$	5,198							$	4,734
Interest rate spread⁽⁴⁾							2.88	%							2.65	%
Net interest-earning assets⁽⁵⁾	$	201,275							$	143,228
Net interest margin⁽⁶⁾							3.00	%							2.88	%

Ratio of interest-earning assets to interest- bearing liabilities		141.01	%							127.82	%

(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 $1,000 for the three months ended June 30, 2021 and 2020, 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 June 30, 2021
	Compared to
	Three Months Ended June 30, 2020
	Increase (Decrease)						Total
	Due to Changes in						Increase
(In thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Loans	$	157		$	(375	)	$	(218	)
Investment securities		(15	)		(88	)		(103	)
Interest-earning deposits		4			—			4
Total interest-earning assets		146			(463	)		(317	)
Interest-bearing liabilities:
Savings accounts		43			(187	)		(144	)
NOW accounts		19			(31	)		(12	)
Money market accounts		2			(81	)		(79	)
Term certificates		(181	)		(320	)		(501	)
Total interest-bearing deposits		(117	)		(619	)		(736	)
FHLBB and FRB advances		(98	)		51			(47	)
Total interest-bearing liabilities		(215	)		(568	)		(783	)
Change in net interest income	$	361		$	105		$	466

Interest and Dividend Income. Interest and dividend income, inclusive of tax equivalent adjustments on municipal securities, decreased $318,000, or 5.2%, to $5.7 million for the three months ended June 30, 2021 compared to $6.1 million for the three months ended June 30, 2020. The yield on interest-earning assets decreased 36 basis points to 3.32% in the second quarter of 2021 from 3.68% 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 $34.0 million, or 5.2%, as the Company continued to leverage its capital base.

Interest Expense. Interest expense decreased $782,000, or 59.0%, to $544,000 for the three months ended June 30, 2021 compared to $1.3 million for the three months ended June 30, 2020. This decrease resulted in a 59 basis point decrease in the cost of interest-bearing liabilities to 0.44%. The decrease in cost of funds was principally due to a declining interest rate environment and the change in composition of interest-bearing liabilities.

Net Interest Income. Net interest income, inclusive of tax equivalent adjustments on municipal securities, increased $464,000, or 9.8%, to $5.2 million for the three months ended June 30, 2021 compared to $4.7 million for the three months ended June 30, 2020. This increase resulted in a 12 basis point improvement in the net interest margin, to 3.00%, in the second quarter of 2021. The improvement in net interest margin was primarily the result of a favorable change in the composition of our funding and a 103 basis point decline in the cost of term certificates.

Provision for Loan Losses. The Company recognized a credit for loan losses of $27,000 for the quarter ended June 30, 2021 compared to a provision of $1.1 million in the prior year quarter. The credit in the second quarter of 2021 was driven by improvement in the qualitative factors related to the impact of the COVID-19 pandemic and the economic outlook used in the Company’s calculation, along with improvements in credit quality trends, which were partially offset by loan growth. The allowance for loan losses was 1.19%, 1.32% and 1.22% of total loans at June 30, 2021, March 31, 2021 and June 30, 2020, respectively, and was 101.9%, 79.0% and 179.3% of non-performing assets at June 30, 2021, March 31, 2021 and June 30, 2020, respectively.

Net Gain on Loan Origination and Sale Activities. The net gain on loan origination and sale activities decreased $8.6 million, or 60.1%, to $5.7 million for the three months ended June 30, 2021 compared to $14.4 million for the three months ended June 30, 2020. The lower mortgage sales and margins earned on the sale of loans during the second quarter of 2021 was responsible for the decline between the periods.

Other Non-interest Income (Losses). Other non-interest income was $1.1 million in the three months ended June 30, 2021 compared to other non-interest losses of $871,000 during the three months ended June 30, 2020. The $1.9 million increase between periods is mainly attributed to the absence of a $1.5 million impairment charge to MSRs which was recognized in the quarter ended June 30, 2020 as loan prepayment speeds were adjusted to reflect declining interest rates. In addition, customer service fees increased by $153,000 between periods, as customers increased spending activity with the re-opening of the economy, resulting in interchange, overdraft and other fees.

Non-interest Expenses. Non-interest expense decreased $752,000, or 6.6%, to $10.6 million for the three months ended June 30, 2021, from $11.4 million for the three months ended June 30, 2020.

Salaries and employee benefits decreased $1.1 million to $7.3 million in the second quarter of 2021 from $8.4 million in the second quarter of 2020. This decrease was primarily due to lower commissions, incentives, overtime and temporary assistance associated with lower residential loan production during the second quarter of 2021.

Occupancy and equipment expenses decreased $217,000 in the quarter ended June 30, 2021 over the prior year period. This decrease was a result of the consolidation of administrative office space in light of prolonged remote working arrangements and an effort to reduce mortgage banking operating costs in a normalized production environment.

Other non-interest expenses comprising data processing, professional fees, marketing, FDIC insurance and other non-interest expenses increased by $557,000 in the quarter ended June 30, 2021 compared to the prior year period as a result of a $169,000 increase in the provision for unfunded commitments to account for increases to unfunded commercial real estate and construction commitments at the end of the second quarter of 2021, in addition to one-time expenses related to the outsourcing of the Company’s residential loan servicing.

Income Tax Expense (Benefit). An income tax benefit of $162,000 for the three months ended June 30, 2021 consisted of a federal and state income tax provision, based on the projected effective tax rate for the year, offset by the reversal of a valuation allowance on the Company’s charitable contribution carryforward during the quarter of $531,000. Income tax expense for the three months ended June 30, 2020 was $594,000, and consisted of a federal and state income tax provision, which was based on the projected effective tax rate for the year. Partially offsetting the expense was the absorption of previous net operating loss carryforwards.

Comparison of Operating Results for the Six Months Ended June 30, 2021 and 2020

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 Six Months Ended June 30,
	2021								2020
	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⁾	$	593,382		$	11,013		3.71	%	$	554,053		$	11,343		4.09	%
Investment securities ^{(2) (3)}		56,590			476		1.68	%		58,459			711		2.43	%
Interest-earning deposits		39,713			15		0.08	%		20,688			61		0.59	%
Total interest-earning assets		689,685			11,504		3.34	%		633,200			12,115		3.83	%
Noninterest-earning assets		41,146								35,965
Total assets	$	730,831							$	669,165
Interest-bearing liabilities:
Savings accounts		191,379			187		0.20	%		146,635			516		0.70	%
NOW accounts		69,621			86		0.25	%		42,821			101		0.47	%
Money market accounts		74,222			97		0.26	%		74,895			321		0.86	%
Term certificates		100,812			414		0.82	%		173,939			1,570		1.81	%
Total interest-bearing deposits		436,034			784		0.36	%		438,290			2,508		1.14	%
FHLBB and FRB advances		61,126			430		1.41	%		63,118			447		1.42	%
Total interest-bearing liabilities		497,160			1,214		0.49	%		501,408			2,955		1.18	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		115,841								70,332
Other noninterest-bearing liabilities		14,486								16,221
Total liabilities		627,487								587,961
Total stockholders' equity		103,344								81,204
Total liabilities and stockholders' equity	$	730,831							$	669,165
Net interest income				$	10,290							$	9,160
Interest rate spread⁽⁴⁾							2.85	%							2.65	%
Net interest-earning assets⁽⁵⁾	$	192,525							$	131,792
Net interest margin⁽⁶⁾							2.98	%							2.89	%

Ratio of interest-earning assets to interest- bearing liabilities		138.72	%							126.28	%

(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 $2,000 and $3,000 for the six months ended June 30, 2021 and 2020, 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.

	Six Months Ended June 30, 2021
	Compared to
	Six Months Ended June 30, 2020
	Increase (Decrease)						Total
	Due to Changes in						Increase
(In thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Loans	$	313		$	(643	)	$	(330	)
Investment securities		(22	)		(213	)		(235	)
Interest-earning deposits		3			(47	)		(44	)
Total interest-earning assets		294			(903	)		(609	)
Interest-bearing liabilities:
Savings accounts		11			(340	)		(329	)
NOW accounts		18			(33	)		(15	)
Money market accounts		(3	)		(221	)		(224	)
Term certificates		(502	)		(654	)		(1,156	)
Total interest-bearing deposits		(476	)		(1,248	)		(1,724	)
FHLBB and FRB advances		(14	)		(4	)		(18	)
Total interest-bearing liabilities		(490	)		(1,252	)		(1,742	)
Change in net interest income	$	784		$	349		$	1,133

Interest and Dividend Income. Interest and dividend income, inclusive of tax equivalent adjustments on municipal securities, decreased $611,000, or 5.0%, to $11.5 million for the six months ended June 30, 2021 compared to $12.1 million for the six months ended June 30, 2020. The yield on interest-earning assets decreased 49 basis points to 3.34% in the first six months of 2021 from 3.83% in the first six 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 $56.5 million, or 8.9%, as the Company increased lending and continued to leverage its capital base.

Interest Expense. Interest expense decreased $1.7 million, or 58.9%, to $1.2 million for the six months ended June 30, 2021 compared to $3.0 million for the six months ended June 30, 2020. This decrease resulted from a 69 basis point decrease in the cost of funds to 0.49%, in addition to a decrease in average interest-bearing liabilities of $4.3 million. The decrease in cost of funds was principally due to a declining interest rate environment and the repricing and runoff of term funding, especially term certificates.

Net Interest Income. Net interest income, inclusive of tax equivalent adjustments on municipal securities, increased $1.1 million, or 12.3%, to $10.3 million for the six months ended June 30, 2021 compared to $9.2 million for the six months ended June 30, 2020. This improvement resulted principally from loan growth and improved interest rate spread mainly reflecting decreased wholesale funding utilization and cost. The net interest margin increased 9 basis points to 2.98% in the first six months of 2021 from 2.89% in the first six months of 2020.

Provision for Loan Losses. The Company recognized a credit for loan losses of $240,000 for the six months ended June 30, 2021, compared to a provision for loan losses of $1.8 million in the prior year period. At June 30, 2021, improvements to qualitative factors related to the impact of the COVID-19 pandemic, the economic outlook, and credit quality trends all helped to generate the credit for loan losses, partially offset by provisions for loan growth.

Net Gain on Loan Origination and Sale Activities. The net gain on loan origination and sale activities decreased $4.8 million, or 22.2%, to $16.7 million for the six months ended June 30, 2021 compared to $21.5 million for the six months ended June 30, 2020. The lower mortgage origination and sale levels and compressed margins on the sale of loans were the contributing factors as market conditions and activity returned to pre-pandemic levels during the second quarter of 2021.

Other Non-interest Income (Losses). Other non-interest income was $2.5 million in the six months ended June 30, 2021, compared to non-interest losses of $1.6 million during the six months ended June 30, 2020. The $4.1 million increase between periods

is mainly attributed to a net provision of $3.1 million to the valuation allowance for MSRs which was recognized in the first six 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 $240,000, or 1.1%, to $22.6 million for the six months ended June 30, 2021, from $22.3 million for the six months ended June 30, 2020. Non-interest expenses in the first six months of 2021 included $254,000 in accrued severance expenses and $71,000 of outsourcing expenses related to the Company’s outsourcing of its residential loans servicing functions. Non-interest expenses in the first six months of 2020 included one-time charges of $1,375,000 related to the retirement of senior executives as well as $207,000 of COVID-19 pandemic-related expenses, principally related to cleaning and employee compensation.

Salaries and employee benefits decreased $780,000 to $15.7 million in the first six months of 2021 from $16.5 million in the first six months of 2020. This decrease was mainly the result of one-time charges of $1.4 million for the retirement of senior executives and COVID-19 pandemic-related compensation of $101,000 for front-line and quarantined employees in the first six months of 2020.

Occupancy and equipment expenses decreased $172,000, or 11.2%, to $1.4 million in the first six months of 2021 compared to $1.5 million in the first six months of 2020. This decrease was driven by spending on cleaning and supplies related to the COVID-19 pandemic of $106,000 in the first six months of 2020, as well as decreased depreciation of office lease-related assets as a result of consolidating 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 $1.2 million in the six months ended June 30, 2021 versus the prior year period as a result of a combination of factors. Data processing expenses have increased from the prior year period as a result of the large increase in the Company’s mortgage banking customers from the prior year. Higher costs related to elevated mortgage loan production levels during the first six months of 2021 also contributed to the increase in other non-interest expenses. In addition, other non-interest expenses in the first six months of 2021 include an increase in the provision for unfunded commitments of $155,000, related to new commercial real estate and commercial construction commitments.

Income Tax Expense. Income tax expense of $1.5 million for the six months ended June 30, 2021 consisted of a federal and state income tax provision, which was based on the projected effective tax rate for the year, partially offset by the reversal of the valuation allowance on the Company’s charitable contribution carryforwards of $531,000.

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 June 30, 2021 and 2020

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 June 30, 2021 and 2020.

	Envision Bank												Envision Mortgage
	Three Months Ended June 30,						Increase (Decrease)						Three Months Ended June 30,						Increase (Decrease)
	2021			2020			Dollars			Percent			2021			2020			Dollars			Percent
	(in thousands)
Net interest income	$	4,535		$	3,944		$	591			15.0	%	$	664		$	789		$	(125	)		-15.8	%
Provision (credit) for loan losses		(27	)		1,068			(1,095	)		(102.5	)		—			—			—			—
Net interest income after provision (credit) for loan losses		4,562			2,876			1,686			58.6			664			789			(125	)		(15.8	)

Non-interest income:
Customer service fees		393			245			148			60.4			26			21			5			23.8
Gain on loan origination and sale activities, net ⁽¹⁾		—			—			—			—			6,558			14,736			(8,178	)		(55.5	)
Mortgage servicing fees, net		(94	)		(95	)		1			1.1			475			(1,259	)		1,734			(137.7	)
Other		158			85			73			85.9			118			132			(14	)		(10.6	)
Total non-interest income		457			235			222			94.5			7,177			13,630			(6,453	)		(47.3	)

Non-interest expenses:
Salaries and employee benefits		1,746			1,925			(179	)		(9.3	)		5,564			6,477			(913	)		(14.1	)
Occupancy and equipment		407			465			(58	)		(12.5	)		214			373			(159	)		(42.6	)
Other non-interest expenses		1,265			1,057			208			19.7			1,431			1,082			349			32.3
Total non-interest expenses		3,418			3,447			(29	)		(0.8	)		7,209			7,932			(723	)		(9.1	)
Income (loss) before income taxes and elimination of inter-segment profit	$	1,601		$	(336	)	$	1,937			(576.5	)%	$	632		$	6,487		$	(5,855	)		(90.3	)%

Total Assets at June 30, 2021	$	608,686											$	135,456
Total Assets at December 31, 2020		537,722												183,350
Increase (decrease)	$	70,964											$	(47,894	)

(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 $1.6 million for the three months ended June 30, 2021 compared to a loss of $336,000 for the three months ended June 30, 2020. The increase in operating results between periods of $1.9 million was driven by a number of factors as explained below.

Net interest income increased $591,000, or 15.0%, primarily as a result of a decrease in deposit costs, partially offset by a decrease in earning asset yields. The Company recognized a credit for loan losses of $27,000 for the quarter ended June 30, 2021 compared to a provision of $1.1 million in the prior year quarter.

Non-interest income increased by $222,000 between periods, driven by increased customer service fees, as customer activity increased with improved economic conditions in the three months ended June 30, 2021.

Non-interest expense decreased by $29,000 in the quarter ended June 30, 2021 as compared to the prior year period as a result of a combination of factors. Salaries and employee benefits decreased by $179,000, or 9.3%, between periods as a result of a slight decrease in headcount. Occupancy and equipment expenses decreased $58,000 in the quarter ended June 30, 2021 over the prior year period, partly as a result of increased spending on cleaning and supplies related to the COVID-19 pandemic during the three months ended June 30, 2020. Other non-interest expenses increased by $208,000 between periods, due to a $169,000 increase in the provision for unfunded commitments for the three months ended June 30, 2021.

Total assets attributable to the Envision Bank segment increased $71.0 million, or 13.2%, to $608.7 million at June 30, 2021 from $537.7 million at December 31, 2020. This increase was principally due to loan growth.

Envision Mortgage Segment

The Envision Mortgage segment had income before income taxes and elimination of inter-segment profit of $632,000 for the three months ended June 30, 2021 compared to $6.5 million for the three months ended June 30, 2020. The decline of $5.9 million in operating results occurred as a result of a decrease of $8.2 million, or 55.5%, in net gains on loan origination and sale activities.

The net gain on loan origination and sale activities, the principal source of revenue for Envision Mortgage, decreased $8.2 million to $6.6 million in the second quarter of 2021 from $14.7 million in the second quarter of 2020, driven by mortgage loan refinancing in a declining rate environment and higher sale margins in the three months ended June 30, 2020, compared to the three months ended June 30, 2021. Additionally, the impact of a declining mortgage banking pipeline in the three months ended June 30, 2021 also contributed to a decrease in the gain on loan origination and sales activities.

Net interest income decreased $125,000, or 15.8%, to $664,000 in the second quarter of 2021 compared to $789,000 in the second quarter of 2020. 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 2021 period.

Mortgage servicing fee income increased $1.7 million between periods largely due to a $1.5 million impairment charge in the valuation allowance for MSRs in the 2020 period due to a decrease in interest rates and an acceleration of mortgage prepayments, versus an impairment charge of $65,000 in the 2021 period.

Non-interest expenses of Envision Mortgage decreased $723,000, or 9.1%, to $7.2 million in the second quarter of 2021 from $7.9 million in the second quarter of 2020. This decrease is primarily due to a decrease of $913,000, or 14.1%, in salaries and employee benefits, largely related to decreased loan production volume.

The decrease of $159,000 in occupancy and equipment costs in the second quarter of 2021 compared to the prior year period was related to office closures that took place throughout 2020 and 2021.

Other non-interest expenses increased $349,000 or 32.3% from the prior year period, as marketing expenses were elevated in a return to a more normalized environment from the prior year.

Total assets attributable to the Envision Mortgage segment were $135.5 million at June 30, 2021, compared to $183.4 million at December 31, 2020.

Comparison of Segment Results for the Six Months Ended June 30, 2021 and 2020

	Envision Bank												Envision Mortgage
	Six Months Ended June 30,						Increase (Decrease)						Six Months Ended June 30,					Increase (Decrease)
	2021			2020			Dollars			Percent			2021		2020			Dollars			Percent
	(in thousands)
Net interest income	$	8,736		$	7,937		$	799			10.1	%	$	1,554	$	1,220		$	334			27.4	%
Provision (credit) for loan losses		(240	)		1,792			(2,032	)		(113.4	)		—		—			—			—
Net interest income after provision (credit) for loan losses		8,976			6,145			2,831			46.1			1,554		1,220			334			27.4

Non-interest income:
Customer service fees		733			518			215			41.5			53		55			(2	)		(3.6	)
Gain on loan origination and sale activities, net ⁽¹⁾		—			—			—			—			18,232		22,209			(3,977	)		(17.9	)
Mortgage servicing fees, net		(189	)		(182	)		(7	)		(3.8	)		1,349		(2,426	)		3,775			155.6
Other		309			225			84			37.3			251		247			4			1.6
Total non-interest income		853			561			292			52.0			19,885		20,085			(200	)		(1.0	)

Non-interest expenses:
Salaries and employee benefits ⁽²⁾		3,548			5,023			(1,475	)		(29.4	)		12,199		11,504			695			6.0
Occupancy and equipment		851			869			(18	)		(2.1	)		514		668			(154	)		(23.1	)
Other non-interest expenses		2,349			2,203			146			6.6			3,117		2,071			1,046			50.5
Total non-interest expenses		6,748			8,095			(1,347	)		(16.6	)		15,830		14,243			1,587			11.1
Income (loss) before income taxes and elimination of inter-segment profit	$	3,081		$	(1,389	)	$	4,470			321.8	%	$	5,609	$	7,062		$	(1,453	)		20.6	%

(1)

Before elimination of inter-segment profit.

(2)

Salaries and employee benefits for the six months ended June 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 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 income before income taxes and elimination of inter-segment profit of $3.1 million for the six months ended June 30, 2021 compared to losses of $1.4 million for the six months ended June 30, 2020. The increase in operating results between periods of $4.5 million was driven by a number of factors as explained below.

Net interest income increased by $799,000, or 10.1%, as a result of increases in interest-earning assets and a decline in the cost of funds. The Company recognized a credit for loan losses of $240,000 for the six months ended June 30, 2021 compared to a provision for loan losses of $1.8 million in the prior year period.

Non-interest income increased between periods by $292,000, driven by higher customer service fees in the six months ended June 30, 2021, given increased economic activity.

Non-interest expense decreased by $1.4 million in the six months ended June 30, 2021 as compared to the prior year period, primarily driven by the absence of $1.0 million of senior management retirement costs allocated to the Envision Bank segment, as well as COVID-19 pandemic-related compensation for front-line and quarantined staff, which were recorded in the six months ended June 30, 2020.

Envision Mortgage Segment

The Envision Mortgage segment had income before income taxes and elimination of inter-segment profit of $5.6 million for the six months ended June 30, 2021 compared to income of $7.1 million for the six months ended June 30, 2020. The decline of $1.5 million in operating results occurred as a result of a decrease of $4.0 million, or 17.9%, in net gains on loan origination and sale activities. Partially offsetting this decrease was an absence of an increase in the valuation allowance for MSRs that occurred during the six months ended June 30, 2020, as a result of a decline in mortgage rates and an increase in mortgage loan prepayments.

The net gain on loan origination and sale activities, the principal source of revenue for Envision Mortgage, decreased $4.0 million to $18.2 million in the six months ended June 30, 2021 from $22.2 million in the six months ended June 30, 2020, driven by lower origination levels as compared to the historic mortgage loan refinancing activity during the first six months of 2020.

Net interest income increased $334,000, or 27.4%, to $1.6 million in the first six months of 2021 compared to $1.2 million in the first six months of 2020. This was primarily due to an increase in the average balance of loans held for sale and residential construction loans in the 2021 period.

Mortgage servicing fee income increased $3.8 million between periods largely due to the absence of a $3.1 million impairment charge to 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 $1.6 million, or 11.1%, to $15.8 million in the second quarter of 2021 from $14.2 million in the second quarter of 2020. This increase is primarily due to an increase of $695,000, or 6.0%, in salaries and employee benefits, and an increase of $1.0 million, or 50.5% in other non-interest expenses largely related to increased closed loan production volume.

The decrease of $154,000 in occupancy and equipment costs in the first six months of 2021 compared to the prior year period was related to office closures that occurred throughout 2020 and 2021, as well as the absence of spending on cleaning and supplies related to the COVID-19 pandemic.

Asset Quality

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

	June 30, 2021			December 31, 2020
Nonaccrual loans:	(In thousands)
Real estate loans:
One- to four-family residential	$	1,854		$	1,876
Commercial ⁽¹⁾		4,165			4,713
Home equity loans and lines of credit		383			584
Construction		—			—
Commercial and industrial loans		—			—
Consumer loans		—			—
Total nonaccrual loans		6,402			7,173
Other real estate owned		—			132
Total nonperforming assets	$	6,402		$	7,305
Performing troubled debt restructurings		1,699			1,749
Total nonperforming assets and performing troubled debt restructurings	$	8,101		$	9,054

Total nonperforming loans to total loans⁽²⁾		1.17	%		1.46	%
Total nonperforming assets to total assets		0.86	%		1.01	%
Total nonperforming assets and performing troubled debt restructurings to total assets		1.09	%		1.26	%

(1)

Includes a $621,000 loan which was paid off after June 30, 2021.

(2)

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

Interest income that would have been recorded for the six months ended June 30, 2021 had nonaccruing loans been current according to their original terms amounted to $144,000. Income related to nonaccrual loans included in interest income for the six months ended June 30, 2021 amounted to $39,000.

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

	June 30, 2021		December 31, 2020
	(In thousands)
Classified assets:
Substandard ⁽¹⁾	$	5,339	$	5,783
Doubtful		—		—
Loss		—		—
Total classified assets	$	5,339	$	5,783
Special mention	$	9,260	$	11,075

(1)

Includes a $621,000 commercial real estate loan which was fully paid off after June 30, 2021.

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 June 30, 2021, there were $9.3 million of assets designated as special mention compared to $11.1 million at December 31, 2020.

Included in the above table are $8.2 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 $8.2 million in special mention loans primarily 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.

	June 30, 2021								December 31, 2020
			% 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	$	1,272		19.51	%		48.31	%	$	1,646		24.26	%		48.16	%
Commercial		3,559		54.56	%		30.69	%		3,402		50.15	%		29.41	%
Home equity loans and lines of credit		404		6.19	%		9.25	%		442		6.52	%		9.84	%
Construction		614		9.41	%		5.33	%		751		11.07	%		6.35	%
Commercial and industrial loans		569		8.72	%		4.73	%		416		6.13	%		4.14	%
Consumer loans		105		1.61	%		1.68	%		127		1.87	%		2.10	%
Total	$	6,523		100.00	%		100.00	%	$	6,784		100.00	%		100.00	%

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

	Six Months Ended June 30,
	2021			2020
	(In thousands)
Allowance at beginning of period	$	6,784		$	4,280
Provision (credit) for loan losses		(240	)		1,792
Charge offs:
Consumer		(26	)		(27	)
Total charge-offs		(26	)		(27	)
Recoveries:
One- to four-family residential		3			7
Commercial and industrial		2			-
Consumer		—			7
Total recoveries		5			14
Net charge-offs		(21	)		(13	)
Allowance at end of period	$	6,523		$	6,059
Total loans outstanding⁽¹⁾	$	547,183		$	496,997
Average loans outstanding	$	593,382		$	554,053
Allowance for loan losses as a percent of total loans outstanding⁽¹⁾		1.19	%		1.22	%
Net loans charged off as a percent of average loans outstanding⁽²⁾		0.01	%		0.00	%
Allowance for loan losses to nonperforming loans		101.89	%		158.24	%

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

(2)	Annualized.

Liquidity and Capital Resources

At June 30, 2021, we had $50.0 million of FHLBB advances and no FRB advances outstanding. At that date, we had the ability to borrow up to an additional $98.3 million from the FHLBB, $2.0 million under a line of credit from the Federal Reserve Bank of Boston 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 June 30, 2021, cash and cash equivalents totaled $34.9 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 $43.7 million, or 8.3%, to $572.0 million at June 30, 2021 from $528.3 million at December 31, 2020. During this period, interest-bearing brokered deposits, which management considers to be a source of wholesale funding and an alternative to FHLBB advances, increased $25.3 million. FHLBB advances decreased $11.9 million to $50.0 million at June 30, 2021 from $61.9 million at December 31, 2020.

Interest-bearing 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 June 30, 2021, wholesale funding amounted to $107.1 million, or 14.4% of total assets.

At June 30, 2021, we had $167.1 million in loan commitments outstanding, including $139.7 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 $86.2 million in unused lines of credit to borrowers and letters of credit and $15.9 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 June 30, 2021 totaled $94.8 million, including $40.0 million of brokered certificates of deposit. 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 June 30, 2021, the Bank’s Tier 1 capital to average assets ratio was 12.63%. The Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines as of June 30, 2021.

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 June 30, 2021. 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 June 30, 2021, 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.

There have been no material changes to the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

(a)

None

(b)

None

(c)

In October 2020, the Company’s Board of Directors adopted a stock repurchase program pursuant to which the Company would purchase up to 10%, or 552,000 shares, of its then outstanding common shares. This program may be suspended or terminated at any time without prior notice and is currently set to expire on October 29, 2021. Repurchased shares are returned to the status of authorized but unissued shares. The following table sets forth information with respect to any purchases made by or on behalf of the Company during the indicated periods under the repurchase plan:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May be Purchased Under the Plans or Programs
April 1, 2021 - April 30, 2021		67,642	$	20.15		67,642		324,718
May 1, 2021 - May 31, 2021		23,001		20.80		23,001		301,717
June 1, 2021 - June 30, 2021		16,563		21.57		16,563		285,154
		107,206	$	20.53		107,206		285,154

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		Inline XBRL Instance Document - The following materials from Randolph Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the three and six months ended June 30, 2021 and 2020 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: August 5, 2021	By:	/s/ William M. Parent
		William M. Parent
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 5, 2021	By:	/s/ Lauren B. Messmore
		Lauren B. Messmore
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)