RANDOLPH BANCORP, INC. This section is intended to help investors understand the financial performance ofRandolph Bancorp, Inc. and its subsidiary,Envision Bank , through a discussion of the factors affecting its financial condition atMarch 31, 2022 andDecember 31, 2021 , and its results of operations for the three month periods endedMarch 31, 2022 and 2021. This section should be read in conjunction with the unaudited consolidated financial statements ofRandolph 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 toRandolph Bancorp, Inc. and its subsidiary unless the context indicates another meaning.
Proposed Transaction with
OnMarch 28, 2022 , the Company entered into an Agreement and Plan of Merger (the "merger agreement") withHometown Financial Group , MHC (the "MHC"),Hometown Financial Group, Inc. ("Hometown"), andHometown Financial Acquisition Corp. ("Merger Sub"). Pursuant to the merger agreement, Merger Sub will be merged with and into the Company, with the Company as the surviving corporation (the "merger"). Immediately after the Merger, the Company will be merged with and into Hometown as the surviving corporation (the "second step merger"). Immediately following the second step merger, the Bank will merge with and intoAbington Bank , the wholly-owned subsidiary of Hometown, withAbington Bank as the surviving entity. The consummation of the merger is subject to customary closing conditions, including receipt of regulatory approvals and approval by shareholders. The merger is expected to be completed in the fourth quarter of 2022.
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. These statements, which are based on certain current assumptions, 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. The Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with these safe harbor provisions. You should read statements that contain these words carefully because they discuss the relevant company's future expectations, contain projections of the relevant company's future results of operations or financial condition, or state other "forward-looking" information. 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"; failure of the parties to satisfy the conditions to complete the proposed merger in a timely manner or at all; failure of the shareholders of the Company to approve the merger agreement; the risk that the merger agreement may be terminated in certain circumstances; the outcome of any legal proceedings that may be instituted against the Company and/or others related to the merger agreement or the merger; failure to obtain government approvals or the imposition of adverse regulatory conditions in connection with such approvals; disruptions to the parties' businesses as a result of the announcement and pendency of the merger; changes in general national or regional economic conditions; changes in loan default and charge-off rates; changes in the financial performance and/or condition of borrowers; changes in customer borrowing and savings habits; changes in interest rates; changes in regulations applicable to the financial services industry; changes in accounting or regulatory guidance applicable to banks 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 theSecurities 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.
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 theFederal 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 27 --------------------------------------------------------------------------------
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 endedDecember 31, 2021 , as filed with theSecurities and Exchange Commission . Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover incurred losses inherent in the loan portfolio at the balance sheet date. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance for loan losses when management believes the loan is uncollectable. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis and is based upon management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as either additional information becomes available or circumstances change. The allowance for loan losses is allocated to loan types using both a formula-based approach applied to groups of loans (general component) and an analysis of certain individual loans for impairment (allocated component). Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, theFDIC and theMassachusetts Commissioner of Banks, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments using information available to them at the time of their examination. Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. A valuation allowance is established against deferred tax assets when, based upon available evidence including historical and projected taxable income, it is more likely than not that some or all of the deferred tax assets will not be realized. In 2014, we established a 100% valuation allowance for our net deferred tax assets after completing an assessment of our recent operating results, including significant non-recurring items, and projected operating results. This assessment led us to conclude that it was more likely than not that we would be unable to realize our deferred tax assets. In performing subsequent assessments through 2019, management concluded that no significant changes in the key factors affecting the realizability of our deferred tax assets had occurred and that a valuation allowance for all deferred tax assets should be maintained. After incurring losses in four of the seven previous years, the Company had net income of$9.6 million and$19.9 million in 2021 and 2020, respectively. During 2021, management concluded that the previous 100% valuation allowance for deferred tax assets was no longer needed. There was no valuation allowance as ofMarch 31, 2022 andDecember 31, 2021 . We do not have any uncertain tax positions atMarch 31, 2022 andDecember 31, 2021 which require accrual or disclosure. We record interest and penalties as part of income tax expense. Interest and penalties recorded for the three months endedMarch 31, 2022 and 2021 were not significant.
Comparison of Financial Condition at
Total Assets. Total assets decreased$33.0 million to$770.3 million atMarch 31, 2022 from$803.3 million atDecember 31, 2021 , primarily as a result of a decrease in loans held for sale of$22.1 million and a decrease in cash and cash equivalents of$44.4 million , partially offset by net loan growth of$35.0 million . The decrease in loans held for sale is the result of declining mortgage banking activity during the first quarter of 2022. The decrease in cash and cash equivalents was the result of an$11.2 million dividend paid during the quarter and decreases in brokered deposits and FHLBB advances of$17.0 million , and$5.0 million , respectively. Net loan growth was mainly the result of one-to four-family residential loan growth of$35.4 million . Loans Held for Sale. We are actively involved in the secondary mortgage market and historically sell most of our residential first mortgage loan production to investors. AtMarch 31, 2022 , loans held for sale totaled$22.7 million compared to$44.8 million atDecember 31, 2021 . Proceeds from sales of mortgage loans totaled$131.6 million in the three months endedMarch 31, 2022 . Increasing mortgage rates available during the first three months of 2022 negatively impacted loan refinancing activity, which comprised 51% of residential mortgage loan originations in the first quarter of 2022 compared to 80% in the first quarter of 2021. 28 -------------------------------------------------------------------------------- Net Loans. Net loans increased$35.0 million to$579.6 million atMarch 31, 2022 from$544.6 million atDecember 31, 2021 , primarily as a result of increases in residential and commercial real estate loans, where we have focused our originations in the first quarter of 2022, partially offset by decreases in commercial and industrial, consumer and construction loans, where loan repayments have not been offset by increased loan originations or purchases.Investment Securities . Investment securities, all of which are classified as available for sale, decreased$2.8 million to$48.8 million atMarch 31, 2022 from$51.7 million atDecember 31, 2021 , primarily due to principal payments on mortgage-backed securities and a decline in the fair value of securities attributable to an increase in longer-term interest rates, partially offset by purchases ofU.S. Treasury securities in first quarter of 2022. AtMarch 31, 2022 , investments, a primary source of liquidity, represented 6.3% of total assets. Mortgage Servicing Rights. MSRs decreased$238,000 to$15.4 million atMarch 31, 2022 from$15.6 million atDecember 31, 2021 . The principal reason for the decrease was amortization in excess of the pace of the origination of new MSRs, partially offset by the recognition of a positive valuation adjustment of$135,000 , given expectations of lower mortgage loan prepayments in the rising interest rate environment. AtMarch 31, 2022 , the Company serviced$1.95 billion of mortgage loans for others, a decrease of$23.7 million from$1.98 billion atDecember 31, 2021 . The average value of MSRs atMarch 31, 2022 was 82 basis points, a decrease of 1 basis point from the average value of 83 basis points atDecember 31, 2021 . Deposits. Deposits decreased$13.5 million , or 2.1%, to$624.7 million atMarch 31, 2022 from$638.1 million atDecember 31, 2021 . During this period, brokered deposits decreased by$17.0 million , or 33.9%, which was partially offset by growth in savings and money market accounts of$4.4 million and$2.2 million , respectively. Driving the decrease in brokered deposits was scheduled maturities of time deposits.
FHLBB Advances. FHLBB advances decreased by
Stockholders' Equity. Stockholders' equity decreased$12.4 million to$88.5 million atMarch 31, 2022 compared to$100.9 million atDecember 31, 2021 . The decrease reflects a net loss of$235,000 during the quarter, dividends of$11.2 million ,$1.8 million in accumulated other comprehensive loss, net of taxes, as a result of increasing interest rates on available for sale securities, and share repurchases of$1.3 million , partially offset by proceeds from the exercise of options of$1.8 million and stock-based compensation of$284,000 .
Comparison of Operating Results for the Three Months Ended
General. The Company recognized a net loss of$235,000 , or$0.05 per diluted share, for the three months endedMarch 31, 2022 compared to net income of$4.1 million , or$0.78 per diluted share, for the three months endedMarch 31, 2021 . The worsening in operating results in the first quarter of 2022 compared to the prior year period was primarily attributable to a decline in net gain on loan origination and sale activities and the absence of a credit for loan losses, partially offset by decreases in non-interest expenses and the recognition of an income tax benefit in the first quarter of 2022.
Analysis of Net Interest Income
Net interest income represents the difference between income earned on
interest-earning assets and the expense 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.
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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 March 31,
2022 2021
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
(Dollars in thousands) Balance Paid Rate(7) Balance Paid Rate(7)
Interest-earning assets:
Loans (1) $ 586,241 $ 5,467 3.78 % $ 594,021 $ 5,508 3.76 %
Investment securities (2) (3) 52,930 221 1.69 % 57,818 247 1.73 %
Interest-earning deposits 107,866 42 0.16 % 35,492 7 0.08 %
Total interest-earning assets 747,037 5,730 3.11 % 687,331 5,762 3.40 %
Noninterest-earning assets 41,939 42,045
Total assets $ 788,976 $ 729,376
Interest-bearing liabilities:
Savings accounts 194,120 72 0.15 % 190,313 98 0.21 %
NOW accounts 62,039 43 0.28 % 69,511 48 0.28 %
Money market accounts 93,174 36 0.16 % 75,994 54 0.29 %
Term certificates 143,320 164 0.46 % 96,978 238 1.00 %
Total interest-bearing deposits 492,653 315 0.26 % 432,796 438 0.41 %
FHLBB and FRB advances 48,333 147 1.23 % 70,857 232 1.33 %
Total interest-bearing liabilities 540,986 462 0.35 % 503,653 670 0.54 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits 140,454 106,929
Other noninterest-bearing 11,559 15,375
liabilities
Total liabilities 692,999 625,957
Total stockholders' equity 95,977 103,419
Total liabilities and stockholders' $ 788,976 $ 729,376
equity
Net interest income $ 5,268 $ 5,092
Interest rate spread(4) 2.76 % 2.86 %
Net interest-earning assets(5) $ 206,051 $ 183,678
Net interest margin(6) 2.86 % 3.00 %
Ratio of interest-earning assets to
interest-
bearing liabilities 138.09 % 136.47 %
(1) Includes nonaccruing loan balances and interest received on such loans as
well as loans held for sale.
(2) Includes carrying value of securities classified as available for sale, FHLBB
stock and investment in a correspondent bank.
(3) Includes tax equivalent adjustments for municipal securities, based on an
effective tax rate of 21% of
(4) 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.
(7) During the fourth quarter of 2021, the Company changed the yield calculation method from "30/360" to the "Actual/Actual" method. Management believes that the "Actual/Actual" method provides a more consistent and relevant metric for yield performance comparisons.
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
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(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 March 31, 2022
Compared to
Three Months Ended March 31, 2021
Increase (Decrease) Total
Due to Changes in Increase
(In thousands) Volume Rate (Decrease)
Interest-earning assets:
Loans $ (31 ) $ (10 ) $ (41 )
Investment securities (17 ) (9 ) (26 )
Interest-earning deposits 5 30 35
Total interest-earning assets (43 ) 11 (32 )
Interest-bearing liabilities:
Savings accounts 2 (28 ) (26 )
NOW accounts (4 ) (1 ) (5 )
Money market accounts 10 (28 ) (18 )
Term certificates 86 (160 ) (74 )
Total interest-bearing deposits 94 (217 ) (123 )
FHLBB and FRB advances (66 ) (19 ) (85 )
Total interest-bearing liabilities 28 (236 ) (208 )
Change in net interest income $ (71 ) $ 247 $ 176
Interest and Dividend Income. Interest and dividend income, inclusive of tax equivalent adjustments on municipal securities, decreased$32,000 , or 0.6%, to$5.7 million for the three months endedMarch 31, 2022 compared to$5.8 million for the three months endedMarch 31, 2021 . This decrease was due to a decrease in the average balance of loans and investment securities, partially offset by the interest rate paid on interest-earning deposits. The yield on interest-earning assets decreased 29 basis points to 3.11% in the first quarter of 2022 from 3.40% in the same quarter of the prior year due principally to a declining contribution from residential mortgages. Interest Expense. Interest expense decreased$208,000 , or 31.0%, to$462,000 for the three months endedMarch 31, 2022 compared to$670,000 for the three months endedMarch 31, 2021 . This decrease resulted from a 19 basis point decrease in the cost of funds to 0.35%, which was partially offset by an increase in the average balance of term certificates. The decrease in cost of funds was principally due to a downward pricing of deposits and a change in composition of interest bearing liabilities, with more deposits and fewer borrowings during the quarter. Net Interest Income. Net interest income, inclusive of tax equivalent adjustments on municipal securities, increased$176,000 , or 3.5%, to$5.3 million for the three months endedMarch 31, 2022 compared to$5.1 million for the three months endedMarch 31, 2021 . This increase was primarily due to a decrease in deposit costs, complemented by a decline in the balance of FHLBB and FRB advances. The average balance of FHLBB and FRB advances in the first quarter of 2022 decreased$22.5 million , or 31.8%, from the prior year quarter and the average balance of lower cost interest bearing deposits increased$55.9 million , or 13.8%, from the prior year quarter, contributing to a 19 basis point decrease in the cost of interest-bearing liabilities. Provision for Loan Losses. The Company recognized a provision for loan losses of$71,000 for the quarter endedMarch 31, 2022 compared to a credit for loan losses of$213,000 for the quarter endedMarch 31, 2021 . The provision in the quarter endedMarch 31, 2022 was driven by loan growth. The credit in the quarter endedMarch 31, 2021 was driven by changes in the qualitative factors related to the impact of the COVID-19 pandemic and the economic environment used in the Company's calculation of the allowance for loan losses.Net Gain on Loan Origination and Sale Activities. The net gain on loan origination and sale activities decreased$9.7 million , or 88.5%, to$1.3 million for the three months endedMarch 31, 2022 compared to$11.0 million for the three months endedMarch 31, 2021 . The higher mortgage rates offered during the first quarter of 2022 negatively impacted loan refinancing activity, which comprised 51% of loan production of$109.3 million in the first quarter of 2022, compared to 80% in the prior year quarter. Accordingly, loan sales proceeds decreased by 74.5% to$131.6 million in the first quarter of 2022 compared to$515.4 million in the prior year period. 31 -------------------------------------------------------------------------------- Other Non-interest Income. Excluding the net gain on loan origination and sale activities, non-interest income was$928,000 in the three months endedMarch 31, 2022 , compared to non-interest income of$1.4 million during the three months endedMarch 31, 2021 . The$502,000 decrease between periods was mainly attributed to a positive adjustment of$135,000 to the valuation allowance for MSRs which was recognized in the quarter endedMarch 31, 2022 as loan prepayment speeds were adjusted lower to reflect the impact of higher interest rates, compared to a$421,000 positive adjustment to the valuation allowance recognized in the prior year quarter. Non-interest Expenses. Non-interest expenses decreased$3.2 million , or 27.2%, to$8.7 million for the three months endedMarch 31, 2022 , from$12.0 million for the three months endedMarch 31, 2021 .
Salaries and employee benefits decreased
Occupancy and equipment expenses decreased$379,000 , or 50.9%, to$365,000 in the first quarter of 2022 compared to$744,000 in the first quarter of 2021. This decrease was related to a$290,000 cease use liability reversal during the first quarter of 2022 and due to the decreases in the Company's overall space footprint. Professional fees increased$464,000 in the first quarter of 2022 over the prior year period, primarily related to legal fees and merger and acquisition related expenses. Other non-interest expenses decreased$120,000 , or 7.0% to$1.6 million for the first quarter of 2022 from$1.7 million in the first quarter of 2021, because of lower costs related to declining levels of mortgage loan production.
Income Tax Expense (Benefit). An income tax benefit of
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Comparison of Segment Results for the Three Months Ended
The following table presents a comparison of the results of operations for each segment before income taxes and elimination of inter-segment profit, and the changes in those results, for the three months endedMarch 31, 2022 and 2021. Envision Bank Envision Mortgage Three Months Ended March 31, Increase (Decrease) Three Months Ended March 31, Increase (Decrease) 2022 2021 Dollars Percent 2022 2021 Dollars Percent (in thousands) Net interest income$ 5,011 $ 4,201 $ 810 19.3 % $ 256 $ 890$ (634 ) (71.2 )% Provision (credit) for loan losses 71 (213 ) 284 (133.3 ) - - - - Net interest income after provision for loan losses 4,940 4,414 526 11.9 256 890 (634 ) (71.2 ) Non-interest income: Customer service fees 355 340 15 4.4 10 27 (17 ) (63.0 ) Gain on loan origination and sale activities, net (1) - - - - 1,991 11,674 (9,683 ) (82.9 ) Mortgage servicing fees, net (205 ) (94 ) (111 ) 118.1 553 873 (320 ) (36.7 ) Other 99 151 (52 ) (34.4 ) 116 133 (17 ) (12.8 ) Total non-interest income 249 397 (148
) (37.3 ) 2,670 12,707 (10,037 ) (79.0 ) Non-interest expenses: Salaries and employee benefits 1,935 1,802 133 7.4 3,219 6,635 (3,416 ) (51.5 ) Occupancy and equipment 512 443 69 15.6 (147 ) 301 (448 ) (148.8 ) Other non-interest expenses 1,911 1,087 824 75.8 1,276 1,683 (407 ) (24.2 ) Total non-interest expenses 4,358 3,332 1,026 30.8 4,348 8,619 (4,271 ) (49.6 ) Income (loss) before income taxes and elimination of inter-segment profit$ 831 $ 1,479 $ (648 ) (43.8 )%$ (1,422 ) $ 4,978 $ (6,400 ) (128.6 )% Total Assets at March 31, 2022$ 702,326 $ 67,958 Total Assets at December 31, 2021 708,631 94,647 Increase (decrease)$ (6,305 ) $ (26,689 ) (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$831,000 for the three months endedMarch 31, 2022 compared to$1.5 million for the three months endedMarch 31, 2021 . The decrease in operating results between periods of$648,000 was mainly driven by merger expenses of$588,000 during the first quarter of 2022 and a$284,000 variation in the provision for loan losses. Net interest income increased by$810,000 , or 19.3%, as a result of a decrease in deposit rates that generated a 19 basis point decrease in the cost of funds in the first quarter of 2022, compared to the first quarter of 2021. The Company recognized a provision for loan losses of$71,000 for the quarter endedMarch 31, 2022 compared to a credit for loan losses of$213,000 in the prior year quarter. Total assets attributable to theEnvision Bank segment decreased$6.3 million , or 0.9%, to$702.3 million atMarch 31, 2022 from$708.6 million atDecember 31, 2021 . This decrease was principally due to decreases in cash and cash equivalents, partially offset by loan growth.
Envision Mortgage Segment
The Envision Mortgage segment had a loss before income taxes and elimination of inter-segment profit of$1.4 million for the three months endedMarch 31, 2022 compared to income of$5.0 million for the three months endedMarch 31, 2021 . This decrease of$6.4 million in operating results occurred as a result of a decrease of$9.7 million , or 82.9%, in net gains on loan origination and sale activities. 33 -------------------------------------------------------------------------------- The net gain on loan origination and sale activities, the principal source of revenue for Envision Mortgage, decreased$9.7 million to$2.0 million in the first quarter of 2022 from$11.7 million in the first quarter of 2021, driven by declines in overall mortgage loan production, primarily related to refinancing activity due to the rising rate environment.
Net interest income decreased
Mortgage servicing fee income decreased$320,000 between periods largely due to a$286,000 decrease in the positive adjustment to the valuation allowance for MSRs in the 2022 period, as compared to the 2021 period. Non-interest expenses of Envision Mortgage decreased$4.3 million , or 49.6%, to$4.3 million in the first quarter of 2022 from$8.6 million in the first quarter of 2021. This decrease is primarily due to a decline of$3.4 million , or 51.5%, in salaries and employee benefits, largely related to decreased loan production volume and staffing reductions completed during the first quarter of 2022, partially offset by severance expenses. Occupancy and equipment decreased$448,000 as a result of a decrease in the residential lending footprint and a$290,000 reversal of a cease use liability during the first quarter of 2022. Other non-interest expenses decreased$407,000 , or 24.2%, to$1.3 million in the first quarter of 2022 from$1.7 million in the first quarter of 2021. This decrease is mainly due to volume-related cost decreases associated with declining residential mortgage loan production. Total assets attributable to the Envision Mortgage segment were$68.0 million atMarch 31, 2022 , compared to total assets of$94.6 million atDecember 31, 2021 . This decrease is primarily related to a decrease in loans held for sale.
Asset Quality
Nonperforming Assets. The following table provides information with respect to
our nonperforming assets, including troubled debt restructurings, at the dates
indicated.
March 31, 2022 December 31, 2021
Nonaccrual loans: (In thousands)
Real estate loans:
One- to four-family residential $ 2,299 $ 2,133
Home equity loans and lines of credit 382 491
Total nonaccrual loans 2,681 2,624
Delinquent loans (>90 days) accruing interest - -
Total non-performing loans 2,681 2,624
Other real estate owned - -
Total nonperforming assets $ 2,681 $ 2,624
Performing troubled debt restructurings 1,193 1,200
Total nonperforming assets and performing troubled
debt restructurings $ 3,874 $ 3,824 Total nonperforming loans to total loans(1) 0.46 % 0.48 % Total nonperforming assets to total assets 0.35 % 0.33 %
Total nonperforming assets and performing
troubled debt restructurings to total assets 0.50 % 0.48 %
(1)Total loans exclude loans held for sale but include net deferred loan costs and fees.
Interest income that would have been recorded for the three months ended
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--------------------------------------------------------------------------------Classified Loans. The following table shows the aggregate amounts of our regulatory classified loans at the dates indicated.
March 31, 2022 December 31, 2021
(In thousands)
Classified assets:
Substandard $ 5,492 $ 5,438
Doubtful - -
Loss - -
Total classified assets $ 5,492 $ 5,438
Special mention $ 9,007 $ 8,180
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 March 31, 2022 , there were
$9.0 million of assets designated as special mention compared to $8.2 million at
December 31, 2021 .
Allowance for Loan Losses. The following table sets forth the breakdown of the allowance loan losses by loan category at the dates indicated.
March 31, 2022 December 31, 2021
% 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
19.44 % 46.47 % $ 1,093 17.38 % 42.99 %
Commercial 3,402 53.52 % 34.07 % 3,451 54.87 % 35.91 %
Home equity loans and lines of credit 451 7.09 % 10.00 % 462 7.35 % 10.42 %
Construction 716 11.26 % 5.56 % 697 11.08 % 6.18 %
Commercial and industrial loans 476 7.49 % 2.65 % 499 7.93 % 3.14 %
Consumer loans 76 1.20 % 1.25 % 87 1.39 % 1.36 %
Total $ 6,357 100.00 % 100.00 % $ 6,289 100.00 % 100.00 %
The following table sets forth an analysis of the allowance for loan losses for
the periods indicated.
March 31,
2022 2021
(In thousands)
Allowance at beginning of period $ 6,289 $ 6,784
Provision (credit) for loan losses 71 (213 ) Charge offs: Consumer loans (4 ) (10 ) Total charge-offs (4 ) (10 ) Recoveries: Real estate loans: One- to four-family residential 1 2 Total recoveries 1 2 Net charge-offs (3 ) (8 ) Allowance at end of period$ 6,357 $ 6,563 Total loans outstanding(1)$ 584,800 $ 489,546 Average loans outstanding$ 586,241 $ 516,330
Allowance for loan losses as a percent of total loans 1.09 % 1.32 %
outstanding(1)
Net loans charged off as a percent of average loans 0.00 % 0.01 %
outstanding(2)
Allowance for loan losses to nonperforming loans 237.11 %
78.99 %
(1) Total loans exclude loans held for sale.
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--------------------------------------------------------------------------------(2) Annualized.
Liquidity and Capital Resources
AtMarch 31, 2022 , we had$45.0 million of FHLBB advances outstanding. At that date, we had the ability to borrow up to an additional$98.8 million from the FHLBB under a blanket pledge agreement,$4.2 million and$2.0 million under available lines of credit with theFHLBB andFederal Reserve Bank of Boston , respectively, and$12.5 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. AtMarch 31, 2022 , cash and cash equivalents totaled$71.1 million . Financing activities consist primarily of activity in deposit accounts and borrowings. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors. Deposits decreased$13.5 million , or 2.1%, to$624.7 million atMarch 31, 2022 from$638.1 million atDecember 31, 2021 . During this period, brokered deposits, which management considers to be a source of wholesale funding and an alternative to FHLBB advances, decreased$17.0 million . FHLBB advances decreased$5.0 million to$45.0 million atMarch 31, 2022 from$50.0 million atDecember 31, 2021 . Brokered deposits, FHLBB advances and listing service deposits make up the Bank's wholesale funding which management targets at a limit of 25% of assets. AtMarch 31, 2022 , wholesale funding amounted to$107.5 million , or 14.0% of total assets. AtMarch 31, 2022 , we had$85.5 million in loan commitments outstanding, including$42.7 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$75.8 million in unused lines and letters of credit to borrowers and$13.9 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 fromMarch 31, 2022 totaled$92.2 million , including$7.0 million of brokered deposits. Management expects, based on historical experience, that a substantial portion of the maturing certificates of deposit will be renewed or retained in other deposit products.
The Bank is subject to various regulatory capital requirements, including a
risk-based capital measure. At
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