Press Release

Blue Hills Bancorp, Inc. Reports Fourth Quarter and Annual Earnings

Company Release - 1/23/2019 7:00 AM ET

NORWOOD, Mass., Jan. 23, 2019 (GLOBE NEWSWIRE) -- Blue Hills Bancorp, Inc. (the “Company” or "Blue Hills Bancorp") (NASDAQ: BHBK), the parent of Blue Hills Bank (the "Bank"), today announced net income of $5.7 million, or $0.23 per diluted share, for the fourth quarter of 2018 compared to net income of $5.8 million, or $0.23 per diluted share, for the third quarter of 2018 and net income of $1.3 million, or $0.05 per diluted share, for the fourth quarter of 2017.  Net income on a non-GAAP basis, excluding unrealized loss on equity securities and certain nonrecurring items, was $7.1 million or $0.28 per diluted share for the fourth quarter of 2018 compared to net income on a non-GAAP basis, excluding unrealized loss on equity securities and certain nonrecurring items, of $6.8 million, or $0.27 per diluted share for the third quarter of 2018 and net income on a non-GAAP basis, excluding certain nonrecurring items, of $4.0 million, or $0.16 per diluted share for the fourth quarter of 2017 (see page 14 for a reconciliation of GAAP to non-GAAP measures).

For the year ended December 31, 2018, net income was $24.6 million, or $0.98 per diluted share, compared to net income of $16.5 million, or $0.67 per diluted share for the year ended December 31, 2017. Net income on a non-GAAP basis, excluding unrealized gain on equity securities and certain nonrecurring items, was $26.0 million, or $1.03 per diluted share, for the year ended December 31, 2018 compared to net income on a non-GAAP basis, excluding certain nonrecurring items, of $13.8 million, or $0.56 per diluted share for the year ended December 31, 2017 (see page 15 for a reconciliation of GAAP to non-GAAP measures).

On September 20, 2018, Blue Hills Bancorp announced it reached a definitive Agreement and Plan of Merger with Independent Bank Corp. ("Independent"), pursuant to which Blue Hills Bancorp will merge into Independent ("Merger"). Blue Hills Bancorp's shareholders approved the merger at a meeting held on January 16, 2019.  Completion of the transaction is subject to other customary closing conditions, including receipt of regulatory approvals and the approval of Independent's shareholders. The transaction is expected to close later in the first quarter of 2019 or early in the second quarter of 2019.

Commenting on the Company's results, William Parent, President and Chief Executive Officer of Blue Hills Bancorp, said, "We finished the year with another solid quarter that included loan growth, net interest margin expansion and continued cost control. Earnings per share for the year on an operating (non-GAAP) basis improved 84% from 2017, reflecting the success of our various businesses, continued positive operating leverage, and the ongoing transformation of the Company into a full service community bank.  We are excited to be joining Independent and becoming part of a larger organization, which will benefit all of our stakeholders.  I want to thank our employees for their dedication and hard work during this time of transition.  In addition to operating Blue Hills Bank in a business-as-usual manner for our customers, employees from around the bank have also been working hard to ensure that we have a seamless transition into Independent's organization."

BALANCE SHEET
Compared to September 30, 2018, total assets grew $23 million, or 1%, to $2.8 billion at December 31, 2018. The increase was mainly driven by a $29 million, or 1%, increase in loans to $2.3 billion at December 31, 2018. Quarterly growth was impacted by seasonality, lower residential lending demand due to the higher interest rate environment, and the announced merger with Independent.  By category, the growth was due to a $17 million, or 2%, increase in residential mortgage loans and a $13 million, or 2%, increase in commercial real estate loans.  Other loan categories had smaller changes.

Compared to December 31, 2017, total assets increased $137 million, or 5%. Loans drove the growth in total assets from December 31, 2017, increasing $128 million, or 6%. By category, the increase from December 31, 2017 was due to residential mortgage loans, which were up $98 million, or 11%; commercial business loans, which were up $34 million, or 14%; and commercial real estate loans, which were up $32 million, or 4%.  These increases were partially offset by declines in home equity, construction and consumer loans.  Residential mortgage originations were $98 million in the fourth quarter of 2018 compared to $112 million in the fourth quarter of 2017 with the decline reflecting the impact of higher interest rates.  Commercial loans (real estate and non-real estate combined) added to the balance sheet were $49 million in the fourth quarter of 2018 compared to $156 million in the fourth quarter of 2017.

Deposit and borrowing activities reflect seasonality and a changing funding strategy to shorten duration and migrate away from certain types of high cost consumer deposits to borrowings.  Compared to September 30, 2018, deposits declined $28 million, or 1%, to $2.1 billion at December 31, 2018. The decrease from the end of the third quarter was driven by a $51 million, or 8%, decline in money market deposits and a $16 million, or 4%, decline in NOW and demand accounts.  These declines were partially offset by a $43 million, or 15%, increase in brokered certificates of deposit.  The drop in deposits resulted in an increase in short-term borrowings, which were up $55 million, or 56%, to $153 million at December 31, 2018.

Compared to December 31, 2017, deposits grew $98 million, or 5%. By category, the growth mainly came from certificates of deposit, which were up $116 million, or 26%, and brokered certificates of deposit which increased $73 million, or 29%. These increases were partially offset by a $77 million, or 12%, decline in money market deposits. Short-term borrowings increased $53 million from a year ago while long-term debt declined $25 million.

Stockholders’ equity was $404 million at December 31, 2018, compared to $403 million at September 30, 2018 and $398 million at December 31, 2017. The increase from the end of 2017 mainly reflects net income and share-based compensation, partially offset by the payment of dividends.

NET INTEREST AND DIVIDEND INCOME
Reported net interest and dividend income was $20.0 million in the fourth quarter of 2018, up $488,000, or 3%, from the third quarter of 2018 and up $2.2 million, or 12%, from the fourth quarter of 2017. Reported net interest margin was 2.97% in the fourth quarter of 2018, up from 2.92% in the third quarter of 2018 and 2.80% in the fourth quarter of 2017.

Net interest and dividend income on a fully taxable equivalent basis (FTE), a non-GAAP measure, was also $20.0 million in the fourth quarter of 2018, up $488,000, or 3%, from $19.5 million in the third quarter of 2018, and up $2.1 million, or 12%, from $17.9 million in the fourth quarter of 2017. Net interest margin on a fully taxable equivalent basis (FTE), a non-GAAP measure, was 2.98% in the fourth quarter of 2018 compared to 2.93% in the third quarter of 2018 and 2.81% in the fourth quarter of 2017. Purchase accounting accretion added $38,000, $74,000, and $100,000 to net interest and dividend income in the fourth quarter of 2018, third quarter of 2018, and fourth quarter of 2017, respectively. Purchase accounting accretion also added one basis point to net interest margin in the fourth quarter of 2018 and 2 basis points to net interest margin in the third quarter of 2018 and fourth quarter of 2017.

The improvement in net interest and dividend income (FTE) from the third quarter of 2018 was mainly due to the 5 basis point improvement in net interest margin discussed above.  The margin expansion was due, in part, to higher floating rate loan yields related to the interest rate increases announced by the Federal Reserve Bank.  The company has maintained an asset sensitive interest rate risk position throughout this interest rate hike cycle, which has generally resulted in earning asset yields increasing at a faster pace than interest-bearing liability costs. There have been nine rate increases announced by the Fed since December 2015 totaling 225 basis points. To a lesser extent, the linked-quarter improvement in net interest and dividend income (FTE) was helped by an increase in average loans, which were up 0.4% from the third quarter.

The increase in net interest and dividend income (FTE) over the fourth quarter of 2017 was helped by net interest margin expansion as well as loan growth. Average loans increased $133 million, or 6%, from the fourth quarter of 2017 driven by higher levels of residential mortgages, commercial real estate loans, and commercial business loans, partially offset by declines in construction, home equity and consumer loans.

NONINTEREST INCOME
Noninterest income was $2.2 million in the fourth quarter of 2018, down $1.6 million, or 42%, from the third quarter of 2018. The decline includes lower loan level derivative income, which dropped $849,000 from the third quarter due to a lower volume of new commercial loan customer back-to-back interest rate swap contracts. The amount of revenue in the loan level derivative income category can be volatile since it is a function of the amount of commercial loans that customers opt to convert from floating to fixed rate via interest rate swaps in any given quarter. In addition, there was a $360,000, or 53%, drop in miscellaneous income due mainly to lower income on Small Business Investment Community ("SBIC") investments, a $268,000, or 28%, decline in mortgage banking income due to seasonality and the impact of higher interest rates on loan originations and sales volume, and a $127,000 increase in unrealized losses on equity securities.

Compared to the fourth quarter of 2017, noninterest income declined $686,000, or 23%, mainly due to a $910,000 drop in loan level derivative income and a $188,000 unrealized loss on equity securities recognized in the fourth quarter of 2018.  These declines were partially offset by increases in all other account categories, including mortgage banking income (up $154,000, or 28%), miscellaneous income (up $109,000, or 53%, mainly to higher income on SBIC investments), deposit account fees (up $100,000, or 27%) and interchange and ATM fees (up $36,000, or 9%).

NONINTEREST EXPENSE
Noninterest expense was $15.0 million in the fourth quarter of 2018, down $512,000, or 3%, from the third quarter of 2018 and up $826,000, or 6%, from the fourth quarter of 2017.  The fourth quarter of 2018 and the third quarter of 2018 included charges of $1.7 million and $1.3 million, respectively, associated with the pending merger with Independent Bank Corp. as well as charges of $207,000 and $720,000, respectively, for a supplemental executive retirement agreement as previously disclosed in the Company's Form 10-Q for the quarter ended June 30, 2018 as filed with the Securities and Exchange Commission. In addition, the fourth quarter of 2017 included a $317,000 charge related to pension settlements. Excluding these items, adjusted noninterest expense was $13.1 million in the fourth quarter of 2018, down $333,000, or 2%, from the third quarter of 2018 due mainly to a $204,000, or 40%, drop in advertising expense.

Compared to the fourth quarter of last year, adjusted noninterest expense declined $719,000, or 5%.  The decline reflects lower levels of advertising, professional fees, and occupancy and equipment expense, as well as the absence of a charge for a settlement agreement that was reached a year ago between the Company and a former employee. These declines were partially offset by higher employee costs due, in part, to merit increases and higher benefits expenses.

INCOME TAXES
The effective income tax rate was 26% in the fourth quarter of 2018 compared to 27% in the third quarter of 2018 and 78% in the fourth quarter of 2017. The effective tax rates in 2018 were lower than historical rates due to the Tax Act, which was enacted on December 22, 2017 and provided for a reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018.  The Tax Act also resulted in a downward revaluation of approximately $2.5 million in the Company's net deferred tax asset in the fourth quarter of 2017.  Excluding that charge, the Company's effective tax rate was 35% in the fourth quarter of 2017.

ASSET QUALITY
The provision for loan losses reflects management’s assessment of risks inherent in the loan portfolio. The provision for loan losses was a credit of $577,000 in the fourth quarter of 2018 compared to a credit of $182,000 in the third quarter of 2018 and a provision of $681,000 in the fourth quarter of 2017.  The level of the provision in all three quarters reflects the impact of the Company's continued migration from the use of historical loss rates based on national FDIC data to loss rates based on the Company's own experience.

The allowance for loan losses as a percentage of total loans was 0.83% at December 31, 2018 compared to 0.86% at September 30, 2018 and 0.95% at December 31, 2017. The Company had net loan charge-offs of $8,000 in the fourth quarter of 2018 compared to net loan charge-offs of $23,000 in the third quarter of 2018 and net loan chargeoffs of $52,000 in the fourth quarter of 2017.

Nonperforming assets were $14.2 million at December 31, 2018 compared to $15.4 million at September 30, 2018 and $11.5 million at December 31, 2017. The linked quarter decline in nonperforming assets reflects decreases in nonperforming residential mortgages and home equity loans. The increase in nonperforming assets from the end of 2017 is mainly due to the placement of loans to one commercial real estate customer on nonaccrual in 2018.  Nonperforming assets as a percentage of total assets were 0.51% at December 31, 2018 compared to 0.55% at September 30, 2018 and 0.43% at December 31, 2017.

ABOUT BLUE HILLS BANCORP
Blue Hills Bancorp, Inc., with corporate headquarters in Norwood, MA, had assets of $2.8 billion at December 31, 2018 and operates 11 retail branch offices in Boston, Dedham, Hyde Park, Milton, Nantucket, Norwood, West Roxbury, and Westwood, Massachusetts. Blue Hills Bank is a full service, community bank with its main office in Hyde Park, Massachusetts. The Bank's three branches in Nantucket, Massachusetts operate under the name, Nantucket Bank, a division of Blue Hills Bank. The Bank provides consumer, commercial and municipal deposit and loan products in Eastern Massachusetts through its branch network, loan production offices and eCommerce channels. The Bank offers commercial business and commercial real estate loans in addition to cash management services and commercial deposit accounts. The Bank also serves consumers through a full suite of consumer banking products including checking accounts, mortgage loans, equity lines of credit and traditional savings and certificate of deposit accounts. The Bank has invested substantially in online technology including online account opening and funding, online mortgage applications, online banking, mobile banking, bill pay and mobile deposits. Blue Hills Bank has been serving area residents for over 145 years. For more information about Blue Hills Bank, visit www.bluehillsbank.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release, as well as other written communications made from time to time by the Company and its subsidiaries and oral communications made from time to time by authorized officers of the Company, may contain statements relating to the future results of the Company (including certain projections and business trends) that are considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the PSLRA). Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "intend" and "potential." For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

The Company cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: our ability to implement successfully our business strategy, which includes significant asset and liability growth; changes that could adversely affect the business in which the Company and the Bank are engaged; prevailing economic and geopolitical conditions; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting the Company's operations, pricing, products and services.  Additional factors relating to the Company’s proposed merger with Independent Bank Corp (“Independent”), include the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the risk that the necessary regulatory approvals may not be obtained, may be delayed, or may be obtained subject to conditions that are not anticipated; the risk that Independent is required to issue debt on terms that are less than attractive in order to raise cash to complete the merger; delays in closing the merger or other risks that any of the closing conditions to the merger may not be satisfied in a timely manner or at all; the diversion of management’s time from existing business operations due to time spent related to the merger or integration efforts; the risk that the businesses of Independent and the Company will not be integrated successfully or such integration may be more difficult, time consuming or costly than expected; expected revenue and other synergies and cost savings from the merger may not be fully realized or realized within the expected time frame; revenues following the merger may be lower than expected; and expenses related to the merger and costs following the merger that are higher than expected.

For additional information on some of the risks and important factors that could affect the Company’s future results and financial condition, see “Risk Factors” in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”), and “Risk Factors - Risks Related to the Merger” in the proxy statement/prospectus in the Company’s
DEFM14A relating to the merger as filed with the SEC. The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Media and Investor Contact:
William Parent, 617-360-6520

Blue Hills Bancorp, Inc.
Consolidated Balance Sheets

(Unaudited; dollars in thousands)   % Change
 December 31, 2018September 30, 2018December 31, 2017December 31, 2018
vs.
September 30, 2018
December 31, 2018
vs. 
December 31, 2017
Assets     
Cash and due from banks$15,170 $15,459 $16,149 (1.9)%(6.1)%
Short-term investments29,135 32,290 30,018 (9.8)%(2.9)%
Total cash and cash equivalents44,305 47,749 46,167 (7.2)%(4.0)%
Equity securities, at fair value5,082 5,270  (3.6)%NM 
Securities available-for-sale, at fair value  9,720 %NM 
Securities held-to-maturity, at amortized cost307,763 305,935 303,716 0.6%1.3%
Federal Home Loan Bank stock, at cost13,565 11,815 12,105 14.8%12.1%
Loans held for sale4,368 5,035 8,992 (13.2)%(51.4)%
Loans:       
1-4 family residential1,024,025 1,007,411 926,117 1.6%10.6%
Home equity67,844 70,955 81,358 (4.4)%(16.6)%
Commercial real estate866,254 853,679 833,978 1.5%3.9%
Construction74,533 75,037 90,712 (0.7)%(17.8)%
Total real estate loans2,032,656 2,007,082 1,932,165 1.3%5.2%
Commercial business287,352 282,680 253,001 1.7%13.6%
Consumer15,501 16,954 21,858 (8.6)%(29.1)%
Total loans2,335,509 2,306,716 2,207,024 1.2%5.8%
Allowance for loan losses(19,335)(19,920)(20,877)(2.9)%(7.4)%
Loans, net2,316,174 2,286,796 2,186,147 1.3%5.9%
Premises and equipment, net19,512 19,882 21,573 (1.9)%(9.6)%
Other real estate owned3,649 3,649  %NM 
Accrued interest receivable7,187 7,143 6,438 0.6%11.6%
Goodwill and core deposit intangible9,255 9,335 9,717 (0.9)%(4.8)%
Net deferred tax asset7,119 6,995 6,000 1.8%18.7%
Bank-owned life insurance34,179 33,889 33,078 0.9%3.3%
Other assets33,417 39,061 24,867 (14.4)%34.4%
Total assets$2,805,575 $2,782,554 $2,668,520 0.8%5.1%
Liabilities and Stockholders' Equity       
Deposits:       
NOW and demand$400,361 $415,993 $381,316 (3.8)%5.0%
Regular savings198,871 206,726 221,004 (3.8)%(10.0)%
Money market569,433 620,529 646,603 (8.2)%(11.9)%
Certificates of deposit564,455 562,610 448,382 0.3%25.9%
Brokered money market81,366 80,143 92,798 1.5%(12.3)%
Brokered certificates of deposit323,071 280,006 249,766 15.4%29.3%
Total deposits2,137,557 2,166,007 2,039,869 (1.3)%4.8%
Short-term borrowings153,000 98,000 100,000 56.1%53.0%
Long-term debt80,000 80,000 105,000 %(23.8)%
Other liabilities30,897 35,471 25,845 (12.9)%19.5%
Total liabilities2,401,454 2,379,478 2,270,714 0.9%5.8%
Common stock269 269 268 %0.4%
Additional paid-in capital261,063 259,892 254,750 0.5%2.5%
Unearned compensation- ESOP(18,978)(19,168)(19,737)(1.0)%(3.8)%
Retained earnings164,364 163,892 163,978 0.3%0.2%
Accumulated other comprehensive loss(2,597)(1,809)(1,453)43.6%78.7%
Total stockholders' equity404,121 403,076 397,806 0.3%1.6%
Total liabilities and stockholders' equity$2,805,575 $2,782,554 $2,668,520 0.8%5.1%
              


Blue Hills Bancorp, Inc.
Consolidated Balance Sheet Trend

(Unaudited; dollars in thousands)December 31, 2018September 30, 2018June 30, 2018March 31, 2018December 31, 2017
Assets     
Cash and due from banks$15,170 $15,459 $17,566 $18,194 $16,149 
Short-term investments29,135 32,290 34,383 26,878 30,018 
Total cash and cash equivalents44,305 47,749 51,949 45,072 46,167 
Equity securities, at fair value5,082 5,270 5,331 9,651  
Securities available for sale, at fair value    9,720 
Securities held-to-maturity, at amortized cost307,763 305,935 303,137 304,036 303,716 
Federal Home Loan Bank stock, at cost13,565 11,815 14,375 10,730 12,105 
Loans held for sale4,368 5,035 10,005 5,865 8,992 
Loans:     
1-4 family residential1,024,025 1,007,411 989,598 938,030 926,117 
Home equity67,844 70,955 72,813 75,737 81,358 
Commercial real estate866,254 853,679 824,541 849,040 833,978 
Construction74,533 75,037 88,132 73,113 90,712 
Total real estate loans2,032,656 2,007,082 1,975,084 1,935,920 1,932,165 
Commercial business287,352 282,680 268,435 248,521 253,001 
Consumer15,501 16,954 18,352 20,034 21,858 
Total loans2,335,509 2,306,716 2,261,871 2,204,475 2,207,024 
Allowance for loan losses(19,335)(19,920)(20,125)(20,185)(20,877)
Loans, net2,316,174 2,286,796 2,241,746 2,184,290 2,186,147 
Premises and equipment, net19,512 19,882 20,192 20,685 21,573 
Other real estate owned3,649 3,649 3,649 3,649  
Accrued interest receivable7,187 7,143 6,531 6,120 6,438 
Goodwill and core deposit intangible9,255 9,335 9,438 9,566 9,717 
Net deferred tax asset7,119 6,995 6,480 5,197 6,000 
Bank-owned life insurance34,179 33,889 33,610 33,354 33,078 
Other assets33,417 39,061 34,719 30,936 24,867 
Total assets$2,805,575 $2,782,554 $2,741,162 $2,669,151 $2,668,520 
Liabilities and Stockholders' Equity     
Deposits:     
NOW and demand$400,361 $415,993 $375,934 $382,406 $381,316 
Regular savings198,871 206,726 213,205 216,894 221,004 
Money market569,433 620,529 628,718 643,336 646,603 
Certificates of deposit564,455 562,610 525,587 504,996 448,382 
Brokered money market81,366 80,143 85,951 90,369 92,798 
Brokered certificates of deposit323,071 280,006 282,672 239,837 249,766 
Total deposits2,137,557 2,166,007 2,112,067 2,077,838 2,039,869 
Short-term borrowings153,000 98,000 110,000 65,000 100,000 
Long-term debt80,000 80,000 90,000 105,000 105,000 
Other liabilities30,897 35,471 28,850 25,869 25,845 
Total liabilities2,401,454 2,379,478 2,340,917 2,273,707 2,270,714 
Common stock269 269 268 268 268 
Additional paid-in capital261,063 259,892 258,225 256,470 254,750 
Unearned compensation- ESOP(18,978)(19,168)(19,357)(19,547)(19,737)
Retained earnings164,364 163,892 162,948 160,124 163,978 
Accumulated other comprehensive loss(2,597)(1,809)(1,839)(1,871)(1,453)
Total stockholders' equity404,121 403,076 400,245 395,444 397,806 
Total liabilities and stockholders' equity$2,805,575 $2,782,554 $2,741,162 $2,669,151 $2,668,520 
                

Blue Hills Bancorp, Inc.
Consolidated Statements of Net Income - Quarters

(Unaudited; dollars in thousands, except share data)Quarters Ended% Change
 December 31, 2018September 30, 2018December 31, 2017December 31, 2018
vs. 
September 30, 2018
December 31, 2018
vs. 
December 31, 2017
Interest and fees on loans$25,309 $24,455 $20,883 3.5%21.2%
Interest on securities2,089 1,854 1,763 12.7%18.5%
Dividends194 210 189 (7.6)%2.6%
Other125 92 40 35.9%212.5%
Total interest and dividend income27,717 26,611 22,875 4.2%21.2%
Interest on deposits6,846 6,357 4,349 7.7%57.4%
Interest on borrowings920 791 732 16.3%25.7%
Total interest expense7,766 7,148 5,081 8.6%52.8%
Net interest and dividend income19,951 19,463 17,794 2.5%12.1%
Provision (credit) for loan losses(577)(182)681 217.0%(184.7)%
Net interest and dividend income, after provision for loan losses20,528 19,645 17,113 4.5%20.0%
Deposit account fees472 473 372 (0.2)%26.9%
Interchange and ATM fees454 471 418 (3.6)%8.6%
Mortgage banking706 974 552 (27.5)%27.9%
Loan level derivative fee income195 1,044 1,105 (81.3)%(82.4)%
Unrealized losses on equity securities(188)(61) 208.2%NM 
Bank-owned life insurance income290 279 277 3.9%4.7%
Miscellaneous315 675 206 (53.3)%52.9%
Total noninterest income2,244 3,855 2,930 (41.8)%(23.4)%
Salaries and employee benefits8,353 8,874 7,755 (5.9)%7.7%
Pension settlement charges  317 %NM 
Occupancy and equipment2,047 2,071 2,224 (1.2)%(8.0)%
Data processing1,023 1,062 1,067 (3.7)%(4.1)%
Professional fees354 302 540 17.2%(34.4)%
Advertising305 509 503 (40.1)%(39.4)%
FDIC deposit insurance230 221 220 4.1%4.5%
Directors' fees373 383 382 (2.6)%(2.4)%
Amortization of core deposit intangible81 103 175 (21.4)%(53.7)%
Merger expenses1,655 1,321  25.3%NM 
Other general and administrative590 677 1,002 (12.9)%(41.1)%
Total noninterest expense15,011 15,523 14,185 (3.3)%5.8%
Income before income taxes7,761 7,977 5,858 (2.7)%32.5%
Provision for income taxes2,034 2,188 4,565 (7.0)%(55.4)%
Net income$5,727 $5,789 $1,293 (1.1)%342.9%
      
Earnings per common share:     
Basic$0.23 $0.24 $0.05   
Diluted$0.23 $0.23 $0.05   
Weighted average shares outstanding:     
Basic24,395,005 24,256,902 24,104,329   
Diluted25,308,794 25,242,737 24,795,366   
      
Regular dividends declared per share$0.20 $0.20 $0.15   
Special dividends declared per share$ $ $   


Blue Hills Bancorp, Inc.
Consolidated Statements of Net Income-Year to Date

(Unaudited; dollars in thousands, except share data)Year to Date
 December 31, 2018December 31, 2017% Change
Interest and fees on loans$94,654 $76,701 23.4%
Interest on securities7,609 7,110 7.0%
Dividends803 733 9.5%
Other357 231 54.5%
Total interest and dividend income103,423 84,775 22.0%
Interest on deposits23,230 15,215 52.7%
Interest on borrowings3,437 2,523 36.2%
Total interest expense26,667 17,738 50.3%
Net interest and dividend income76,756 67,037 14.5%
Provision (credit) for loan losses(1,118)2,098 (153.3)%
Net interest and dividend income, after provision for loan losses77,874 64,939 19.9%
Deposit account fees1,722 1,418 21.4%
Interchange and ATM fees1,770 1,609 10.0%
Mortgage banking3,453 3,657 (5.6)%
Loss on sale of purchased home equity portfolio (118)NM 
Loan level derivative fee income1,622 2,792 (41.9)%
Unrealized gains on equity securities134  NM 
Realized securities losses, net (94)NM 
Gain on exchange of investment in Northeast Retirement Services653 5,947 (89.0)%
Bank-owned life insurance income1,101 1,063 3.6%
Gain on sale of premises and equipment271  NM 
Miscellaneous2,903 808 259.3%
Total noninterest income13,629 17,082 (20.2)%
Salaries and employee benefits33,873 30,961 9.4%
Pension settlement charges 317 NM 
Occupancy and equipment8,251 8,393 (1.7)%
Data processing4,183 4,149 0.8%
Professional fees1,559 2,275 (31.5)%
Advertising1,617 1,922 (15.9)%
FDIC deposit insurance914 881 3.7%
Directors' fees1,527 1,566 (2.5)%
Amortization of core deposit intangible462 843 (45.2)%
Merger expenses2,976  NM 
Other general and administrative2,734 2,999 (8.8)%
Total noninterest expense58,096 54,306 7.0%
Income before income taxes33,407 27,715 20.5%
Provision for income taxes8,851 11,226 (21.2)%
Net income$24,556 $16,489 48.9%
    
Earnings per common share:   
Basic$1.01 $0.69  
Diluted$0.98 $0.67  
Weighted average shares outstanding:   
Basic24,264,204 23,985,822  
Diluted25,093,479 24,482,414  
    
Regular dividends declared per share$0.70 $0.40  
Special dividends declared per share$0.30 $0.20  


Blue Hills Bancorp Inc.
Consolidated Statements of Net Income - Trend
 Quarters Ended
(Unaudited; dollars in thousands, except share data)December 31,September 30,June 30,March 31,December 31,
 20182018201820182017
Interest and fees on loans$25,309 $24,455 $23,081 $21,809 $20,883 
Interest on securities2,089 1,854 1,809 1,857 1,763 
Dividends194 210 195 204 189 
Other125 92 62 78 40 
Total interest and dividend income27,717 26,611 25,147 23,948 22,875 
Interest on deposits6,846 6,357 5,252 4,775 4,349 
Interest on borrowings920 791 912 814 732 
Total interest expense7,766 7,148 6,164 5,589 5,081 
Net interest and dividend income19,951 19,463 18,983 18,359 17,794 
Provision (credit) for loan losses(577)(182)101 (460)681 
Net interest and dividend income, after provision for loan losses20,528 19,645 18,882 18,819 17,113 
Deposit account fees472 473 422 355 372 
Interchange and ATM fees454 471 454 391 418 
Mortgage banking706 974 1,033 740 552 
Loan level derivative fee income195 1,044 143 240 1,105 
Unrealized gains (losses) on equity securities(188)(61)452 (69) 
Gain on exchange of investment in Northeast Retirement Services   653  
Bank-owned life insurance income290 279 256 276 277 
Gain on sale of property plant and equipment   271  
Miscellaneous315 675 872 1,041 206 
Total noninterest income2,244 3,855 3,632 3,898 2,930 
Salaries and employee benefits8,353 8,874 8,264 8,382 7,755 
Pension settlement charges    317 
Occupancy and equipment2,047 2,071 2,050 2,083 2,224 
Data processing1,023 1,062 1,054 1,044 1,067 
Professional fees354 302 450 453 540 
Advertising305 509 499 304 503 
FDIC deposit insurance230 221 230 233 220 
Directors' fees373 383 362 409 382 
Amortization of core deposit intangible81 103 127 151 175 
Merger expenses1,655 1,321    
Other general and administrative590 677 655 812 1,002 
Total noninterest expense15,011 15,523 13,691 13,871 14,185 
Income before income taxes7,761 7,977 8,823 8,846 5,858 
Provision for income taxes2,034 2,188 2,366 2,263 4,565 
Net income$5,727 $5,789 $6,457 $6,583 $1,293 
      
Earnings per common share:     
Basic$0.23 $0.24 $0.27 $0.27 $0.05 
Diluted$0.23 $0.23 $0.26 $0.27 $0.05 
Weighted average shares outstanding:     
Basic 24,395,005  24,256,902  24,230,098  24,172,237  24,104,329 
Diluted 25,308,794  25,242,737  24,991,958  24,827,850  24,795,366 
      
Regular dividends declared per share$0.20 $0.20 $0.15 $0.15 $0.15 
Special dividends declared per share$ $ $ $0.30 $ 


Blue Hills Bancorp Inc.
Average Balances/Yields
(Unaudited; dollars in thousands)Quarters Ended
 December 31, 2018 September 30, 2018 December 31, 2017
 Average
balance
InterestYield/
Cost
 Average
balance
InterestYield/
Cost
 Average
balance
InterestYield/
Cost
Interest-earning assets           
Total loans (1)$2,311,424 $25,344 4.35% $2,301,946 $24,490 4.22% $2,178,388 $20,947 3.81%
Securities (1)311,024 2,108 2.69  310,557 1,873 2.39  312,313 1,836 2.33 
Other interest earning assets and FHLB stock38,717 300 3.07  30,522 283 3.68  28,842 156 2.15 
Total interest-earning assets2,661,165 27,752 4.14% 2,643,025 26,646 4.00% 2,519,543 22,939 3.61%
Non-interest-earning assets112,819     109,429     96,781    
Total assets$2,773,984     $2,752,454     $2,616,324    
               
Interest-bearing liabilities              
NOW$168,594 $23 0.05% $166,144 $21 0.05% $160,371 $17 0.04%
Regular savings202,123 140 0.27  209,797 152 0.29  235,864 183 0.31 
Money market688,701 2,310 1.33  714,539 2,244 1.25  718,489 1,823 1.01 
Certificates of deposit868,883 4,373 2.00  836,584 3,940 1.87  653,573 2,326 1.41 
Total interest-bearing deposits1,928,301 6,846 1.41  1,927,064 6,357 1.31  1,768,297 4,349 0.98 
Borrowings171,283 920 2.13  162,641 791 1.93  202,255 732 1.44 
Total interest-bearing liabilities2,099,584 7,766 1.47% 2,089,705 7,148 1.36% 1,970,552 5,081 1.02%
Non-interest-bearing deposits234,535    229,293    220,167   
Other non-interest-bearing liabilities33,310    30,545    23,602   
Total liabilities2,367,429    2,349,543    2,214,321   
Stockholders' equity406,555    402,911    402,003   
Total liabilities and stockholders' equity$2,773,984    $2,752,454    $2,616,324   
            
Net interest and dividend income (FTE) 19,986    19,498    17,858  
Less: FTE adjustment (35)   (35)   (64) 
Net interest and dividend income (GAAP) $19,951    $19,463    $17,794  
            
Net interest rate spread (FTE)  2.67%   2.64%   2.59%
Net interest margin (FTE)  2.98%   2.93%   2.81%
Total deposit cost  1.26%   1.17%   0.87%

(1) Interest income on tax-exempt securities and loans was adjusted to a fully taxable-equivalent (FTE) basis using a federal statutory tax rate of 21% for the three months ended December 31, and  September 30, 2018. A statutory rate of 35% was used in the fourth quarter of 2017.


Blue Hills Bancorp Inc.
Average Balances/Yields
(Unaudited; dollars in thousands)Year to Date
 December 31, 2018 December 31, 2017
 Average
balance
InterestYield/
Cost
 Average
balance
InterestYield/
Cost
Interest-earning assets       
Total loans (1)$2,258,126 $94,790 4.20% $2,070,513 $76,932 3.72%
Securities (1)311,485 7,715 2.48  329,369 7,306 2.22 
Other interest earning assets and FHLB stock32,746 1,054 3.22  32,345 785 2.43 
Total interest-earning assets2,602,357 103,559 3.98% 2,432,227 85,023 3.50%
Non-interest-earning assets105,598     99,333    
Total assets$2,707,955     $2,531,560    
          
Interest-bearing liabilities         
NOW$163,167 $76 0.05% $152,469 $67 0.04%
Regular savings211,414 613 0.29  249,256 800 0.32 
Money market716,499 8,592 1.20  692,474 6,780 0.98 
Certificates of deposit782,103 13,949 1.78  612,486 7,568 1.24 
Total interest-bearing deposits1,873,183 23,230 1.24  1,706,685 15,215 0.89 
Borrowings183,430 3,437 1.87  199,004 2,523 1.27 
Total interest-bearing liabilities2,056,613 26,667 1.30% 1,905,689 17,738 0.93%
Non-interest-bearing deposits220,166    201,715   
Other non-interest-bearing liabilities28,841    25,477   
Total liabilities2,305,620    2,132,881   
Stockholders' equity402,335    398,679   
Total liabilities and stockholders' equity$2,707,955    $2,531,560   
        
Net interest and dividend income (FTE) 76,892    67,285  
Less: FTE adjustment (136)   (248) 
Net interest and dividend income (GAAP) $76,756    $67,037  
        
Net interest rate spread (FTE)  2.68%   2.57%
Net interest margin (FTE)  2.95%   2.77%
Total deposit cost  1.11%   0.80%

(1) Interest income on tax-exempt securities and loans was adjusted to a fully taxable-equivalent (FTE) basis using a federal statutory tax rate of 21% in 2018. A statutory rate of 35% was used in 2017.


Blue Hills Bancorp, Inc.
Average Balances - Trend
(Unaudited; dollars in thousands)Quarters Ended
 December 31,September 30,June 30,March 31,December 31,
 20182018201820182017
Interest-earning assets     
Total loans$2,311,424 $2,301,946 $2,209,618 $2,207,895 $2,178,388 
Securities311,024 310,557 311,183 313,212 312,313 
Other interest earning assets and FHLB stock38,717 30,522 28,181 33,533 28,842 
Total interest-earning assets2,661,165 2,643,025 2,548,982 2,554,640 2,519,543 
Non-interest-earning assets112,819 109,429 103,295 96,629 96,781 
Total assets$2,773,984 $2,752,454 $2,652,277 $2,651,269 $2,616,324 
      
Interest-bearing liabilities     
NOW$168,594 $166,144 $160,194 $157,582 $160,371 
Regular savings202,123 209,797 214,116 219,834 235,864 
Money market688,701 714,539 721,329 742,035 718,489 
Certificates of deposit868,883 836,584 725,904 694,526 653,573 
Total interest-bearing deposits1,928,301 1,927,064 1,821,543 1,813,977 1,768,297 
Borrowings171,283 162,641 197,429 202,944 202,255 
Total interest-bearing liabilities2,099,584 2,089,705 2,018,972 2,016,921 1,970,552 
Non-interest-bearing deposits234,535 229,293 207,888 208,561 220,167 
Other non-interest-bearing liabilities33,310 30,545 25,349 26,063 23,602 
Total liabilities2,367,429 2,349,543 2,252,209 2,251,545 2,214,321 
Stockholders' equity406,555 402,911 400,068 399,724 402,003 
Total liabilities and stockholders' equity$2,773,984 $2,752,454 $2,652,277 $2,651,269 $2,616,324 
                


Blue Hills Bancorp, Inc.
Yield Trend
(Unaudited)Quarters Ended
 December 31,September 30,June 30,March 31,December 31,
 20182018201820182017
Interest-earning assets     
Total loans (1)4.35%4.22%4.20%4.01%3.81%
Securities (1)2.69%2.39%2.36%2.46%2.33%
Other interest earning assets and FHLB stock3.07%3.68%3.33%2.87%2.15%
Total interest-earning assets4.14%4.00%3.96%3.81%3.61%
      
Interest-bearing liabilities     
NOW0.05%0.05%0.04%0.04%0.04%
Regular savings0.27%0.29%0.29%0.30%0.31%
Money market1.33%1.25%1.15%1.08%1.01%
Certificates of deposit2.00%1.87%1.67%1.53%1.41%
Total interest-bearing deposits1.41%1.31%1.16%1.07%0.98%
Borrowings2.13%1.93%1.85%1.63%1.44%
Total interest-bearing liabilities1.47%1.36%1.22%1.12%1.02%
      
Net interest rate spread (FTE) (1)2.67%2.64%2.74%2.69%2.59%
Net interest margin (FTE) (1)2.98%2.93%2.99%2.92%2.81%
Total deposit cost1.26%1.17%1.04%0.96%0.87%

(1) Interest income on tax-exempt securities and loans was adjusted to a fully taxable-equivalent (FTE) basis using a federal statutory tax rate of 21% for the three months ended December 31, September 30, June 30, and March 31, 2018. A statutory rate of 35% was used for the three months ended December 31, 2017.


Blue Hills Bancorp Inc.
Reconciliation of GAAP to Non-GAAP Net Income
(Unaudited; dollars in thousands, except share data)Quarter Ended
 December 31, 2018
 Income Before
Income Taxes
 Provision for
Income Taxes
 Net Income Earnings per
Common Share
(diluted)
GAAP basis$7,761  $2,034  $5,727  $0.23 
Add unrealized loss on equity securities188  49  139  0.01 
Add merger expenses1,655  434  1,221  0.04 
Non-GAAP basis$9,604  $2,517  $7,087  $0.28 
  
 Quarter Ended
 September 30, 2018
 Income Before
Income Taxes
 Provision for
Income Taxes
 Net Income Earnings per
Common Share
(diluted)
GAAP basis$7,977  $2,188  $5,789  $0.23 
Add unrealized loss on equity securities61  17  44   
Add merger expenses1,321  362  959  0.04 
Non-GAAP basis$9,359  $2,567  $6,792  $0.27 
  
 Quarter Ended
 June 30, 2018
 Income Before
Income Taxes
 Provision for
Income Taxes
 Net Income Earnings per
Common Share
(diluted)
GAAP basis$8,823  $2,366  $6,457  $0.26 
Less unrealized gain on equity securities(452) (121) (331) (0.01)
Non-GAAP basis$8,371  $2,245  $6,126  $0.25 
  
 Quarter Ended
 March 31, 2018
 Income Before
Income Taxes
 Provision for
Income Taxes
 Net Income Earnings per
Common Share
(diluted)
GAAP basis$8,846  $2,263  $6,583  $0.27 
Add unrealized loss on equity securities69  18  51   
Less gain on exchange of investment in Northeast Retirement Service(653) (169) (484) (0.02)
Less gain on sale of premises and equipment(271) (70) (201) (0.01)
Non-GAAP basis$7,991  $2,042  $5,949  $0.24 
  
 Quarter Ended
 December 31, 2017
 Income Before
Income Taxes
 Provision for
Income Taxes
 Net Income Earnings per
Common Share
(diluted)
GAAP basis$5,858  $4,565  $1,293  $0.05 
Add pension settlement charges317  129  188  0.01 
Add impact of tax reform on deferred tax asset valuation  (2,500) 2,500  0.10 
Non-GAAP basis$6,175  $2,194  $3,981  $0.16 
                

The Company's management believes that the presentation of net income on a non-GAAP basis, excluding unrealized gains and losses on equity securities and nonrecurring items, provides useful information for evaluating the Company's operating results and any related trends that may be affecting the Company's business. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP.

Blue Hills Bancorp Inc.
Reconciliation of GAAP to Non-GAAP Net Income
(Unaudited; dollars in thousands, except share data)Year to Date
 December 31, 2018
 Income Before
Income Taxes
 Provision for
Income Taxes
 Net Income Earnings per
Common Share
(diluted)
GAAP basis$33,407  $8,851  $24,556  $0.98 
Less unrealized gain on equity securities(134) (37) (97)  
Less gain on exchange of investment in Northeast Retirement Service(653) (169) (484) (0.02)
Less gain on sale of property, plant and equipment(271) (70) (201) (0.01)
Add merger expenses2,976  796  2,180  0.08 
Non-GAAP basis$35,325  $9,371  $25,954  $1.03 
  
 Year to Date
 December 31, 2017
 Income Before
Income Taxes
 Provision for
Income Taxes
 Net Income Earnings per
Common Share
(diluted)
GAAP basis$27,715  $11,226  $16,489  $0.67 
Less gain on exchange of investment in Northeast Retirement Services(5,947) (2,133) (3,814) (0.16)
Less gain on sale of remaining available-for-sale debt securities portfolio(928) (333) (595) (0.02)
Add realized loss on sale of mutual funds1,054  378  676  0.03 
Add loss on sale of purchased home equity portfolio118  45  73   
Add pension settlement charges317  129  188  0.01 
Less reversal of state tax valuation allowance  1,697  (1,697) (0.07)
Add impact of tax reform on DTA valuation  (2,500) 2,500  0.10 
Non-GAAP basis$22,329  $8,509  $13,820  $0.56 
                

The Company's management believes that the presentation of net income on a non-GAAP basis, excluding unrealized gains and losses on equity securities and nonrecurring items, provides useful information for evaluating the Company's operating results and any related trends that may be affecting the Company's business. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP.


Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited)Quarters Ended
 December 31,September 30,June 30,March 31,December 31,
 20182018201820182017
Performance Ratios (annualized)     
      
Diluted EPS:     
GAAP$0.23 $0.23 $0.26 $0.27 $0.05 
Non-GAAP$0.28 $0.27 $0.25 $0.24 $0.16 
                
Return on average assets (ROAA):               
GAAP0.82%0.83%0.98%1.01%0.20%
Non-GAAP1.01%0.98%0.93%0.91%0.60%
                
Return on average equity (ROAE):               
GAAP5.59%5.70%6.47%6.68%1.28%
Non-GAAP6.92%6.69%6.14%6.04%3.93%
                
Return on average tangible common equity (ROATCE) (1) (3):               
GAAP5.72%5.84%6.63%6.84%1.31%
Non-GAAP7.08%6.85%6.29%6.19%4.03%
                
Efficiency ratio (2) (3):               
GAAP68%67%61%62%68%
Non-GAAP60%61%62%65%67%

(1) Average tangible common equity equals average total equity less goodwill and intangibles.

(2) Efficiency ratio equals noninterest expense divided by net interest and dividend income and noninterest income.

(3) ROATCE and the efficiency ratio are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. Management believes that these non-GAAP measures are meaningful because it is standard practice for companies in the banking industry to disclose these measures. Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons.

See page 14 for reconciliation of Non-GAAP financial measures.

Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited)Year to Date
 December 31, 2018December 31, 2017
Performance Ratios (annualized)  
   
Diluted EPS  
GAAP$0.98 $0.67 
Non-GAAP1.03 0.56 
       
Return on average assets (ROAA)      
GAAP0.91%0.65%
Non-GAAP0.96%0.55%
       
Return on average equity (ROAE)      
GAAP6.10%4.14%
Non-GAAP6.45%3.47%
       
Return on average tangible common equity (ROATCE) (1) (3)      
GAAP6.25%4.24%
Non-GAAP6.61%3.56%
       
Efficiency ratio (2) (3)      
GAAP64%65%
Non-GAAP62%69%

(1) Average tangible common equity equals average total equity less goodwill and intangibles.

(2)Efficiency ratio equals noninterest expense divided by net interest and dividend income and noninterest income

(3) ROATCE and the efficiency ratio are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. Management believes that these non-GAAP measures are meaningful because it is standard practice for companies in the banking industry to disclose these measures. Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons.

See page 15 for Non-GAAP financial measures.

Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited; dollars in thousands, except share data)At or for the Quarters EndedAt or for the Year Ended
 December 31,September 30,December 31,December 31,December 31,
 20182018201720182017
Asset Quality     
Non-performing Assets$14,243 $15,433 $11,523 $14,243 $11,523 
Non-performing Assets/ Total Assets0.51%0.55%0.43%0.51%0.43%
Allowance for Loan Losses/ Total Loans0.83%0.86%0.95%0.83%0.95%
Net Charge-offs (Recoveries)$8 $23 $52 $424 $(81)
Annualized Net Charge-offs (Recoveries)/ Average Loans%%0.01%0.02%%
Allowance for Loan Losses/ Nonperforming Loans183%169%181%183%181%
            
Capital/Other           
Common shares outstanding26,920,613 26,899,594 26,827,660   
Book value per share$15.01 $14.98 $14.83   
Tangible book value per share$14.67 $14.64 $14.47   
Tangible Common Equity/Tangible Assets (1) (2)14.12%14.20%14.60%  
Full-time Equivalent Employees236 239 237   

(1) Tangible common equity equals total equity less goodwill and core deposit intangibles. Tangible assets equals total assets less goodwill and core deposit intangibles.

(2)  Tangible common equity/tangible assets is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. Management believes that this non-GAAP measure is meaningful because it is standard practice for companies in the banking industry to disclose this measure. Therefore, management believes this measure provides useful information to investors by allowing them to make peer comparisons.

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Source: Blue Hills Bank