Market Overview

Blue Hills Bancorp, Inc. Reports Second Quarter Earnings

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NORWOOD, Mass., July 25, 2018 (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 $6.5 million, or $0.26 per diluted share, for the second quarter of 2018 compared to net income of $6.6 million, or $0.27 per diluted share, for the first quarter of 2018 and net income of $3.9 million, or $0.16 per diluted share, for the second quarter of 2017. Net income on a non-GAAP basis was $6.1 million, or $0.25 per diluted share, for the second quarter of 2018 compared to net income on a non-GAAP basis of $5.9 million, or $0.24 per diluted share, for the first quarter of 2018 and net income on a non-GAAP basis of $3.3 million, or $0.14 per diluted share, for the second quarter of 2017 (see page 14 for a reconciliation of GAAP to non-GAAP measures).

For the six months ended June 30, 2018, net income was $13.0 million, or $0.52 per diluted share, compared to net income of  $11.4 million, or $0.47 per diluted share for the six months ended June 30, 2017.  Net income on a non-GAAP basis was $12.1 million, or $0.48 per diluted share, for the first six months of 2018 compared to net income on a non-GAAP basis of $5.9 million, or $0.25 per diluted share for the first six months of 2017 (see page 15 for a reconciliation of GAAP to non-GAAP measures).

The Company also announced that its Board of Directors voted to increase the regular quarterly cash dividend to $0.20 per share from $0.15 per share. The dividend will be payable on August 22, 2018 to stockholders of record as of August 8, 2018.

Commenting on the Company's results, William Parent, President and Chief Executive Officer of Blue Hills Bancorp, said, "The second quarter results continue to demonstrate the significant and ongoing progress we have made as the Bank reaches its four year anniversary as a public company. Our asset sensitive interest rate risk position has allowed us to absorb increases in deposit costs and still grow net interest margin over 20 basis points from the second quarter of 2017. In addition, since the second quarter of last year our core return on assets has increased over 70% to above 90 basis points while our focus on expense management has contributed to further improvement in our efficiency ratio, which has fallen to 62% excluding nonrecurring gains. Our business units continue to perform well in a highly competitive marketplace. Mortgage banking generated originations higher than a year ago and mortgage banking revenue exceeded $1 million in the second quarter. Commercial business loans grew 8% from the end of the first quarter and 18% from a year ago as we strive to create more balance with our strong commercial real estate lending business, while on the consumer banking side we have positioned our core funding capabilities to meet our quality growth operating strategy."

Parent continued, "Our capital deployment efforts continued with today's announcement of another increase to our quarterly dividend. In the current environment, banks must be flexible and able to adjust to rapidly changing industry and economic conditions. We are all proud of the franchise we have built and as we move forward in this environment, we feel that our franchise will continue to create incremental value for our shareholders."

BALANCE SHEET
Compared to March 31, 2018, total assets grew $72 million, or 3%, to $2.7 billion at June 30, 2018. The increase was mainly driven by a $57 million, or 3%, increase in loans to $2.3 billion at June 30, 2018. By category, the growth was due to a $52 million, or 5%, increase in residential mortgage loans, a $20 million, or 8%, increase in commercial business loans, and a $15 million, or 21%, increase in construction loans. These increases were partially offset by a $24 million, or 3% decrease in commercial real estate loans reflecting paydowns and very competitive market conditions.

Compared to June 30, 2017, total assets increased $227 million, or 9%. Loans drove the growth in total assets from June 30, 2017, increasing $196 million, or 9%. By category, the increase from June 30, 2017 was due to residential mortgage loans, which were up $95 million, or 11%; commercial real estate loans, which were up $68 million, or 9%; and commercial business loans, which were up $41 million, or 18%. Residential mortgage originations were $167 million in the second quarter of 2018 compared to $139 million in the second quarter of 2017 while commercial loans (real estate and non-real estate combined) added to the balance sheet were $97 million in the second quarter of 2018 compared to $137 million in the second quarter of 2017. The decline is due to a lower level of commercial real estate originations, partially offset by an increase in commercial business loan originations. The commercial real estate decline reflects a noticeable pick-up in competition with respect to loan terms and pricing during the first half of 2018.

Compared to March 31, 2018, deposits grew $34 million, or 2%, to $2.1 billion at June 30, 2018. The growth from the end of the first quarter was driven by a $38 million increase in total brokered deposits and a $21 million increase in certificates of deposit. These increases were partially offset by small declines in the other deposit account categories. In addition to the growth in deposits, short-term borrowings were up $45 million, or 69%, from March 31, 2018 while long-term debt fell $15 million, or 14%.

Compared to June 30, 2017, deposits grew $147 million, or 7%, and included growth in all customer segments (consumer, small business, commercial and municipal). By category, the growth came from certificates of deposit, which were up $163 million, total brokered deposits, which were up $47 million, and NOW and demand deposits, which were up $16 million. These increases were partially offset by a $46 million decline in money market deposits and a $33 million decline in regular savings deposits. Short-term borrowings increased $110 million from a year ago while long-term debt declined $40 million.

Stockholders' equity was $400 million at June 30, 2018 compared to $395 million at March 31, 2018 and $397 million at June 30, 2017. The increases in both periods mainly reflect 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 $19.0 million in the second quarter of 2018, up $624,000, or 3%, from the first quarter of 2018 and up $2.6 million, or 16%, from the second quarter of 2017. Reported net interest margin was 2.98% in the second quarter of 2018, up from 2.91% in the first quarter of 2018 and from 2.75% in the second quarter of 2017.

Net interest and dividend income on a fully taxable equivalent basis (FTE), a Non-GAAP measure, was also $19.0 million in the second quarter of 2018, up $626,000, or 3%, from $18.4 million in the first quarter of 2018, and up $2.5 million, from $16.5 million or 15%, from the second quarter of 2017. Net interest margin on a fully taxable equivalent basis (FTE), a Non-GAAP measure, was 2.99% in the second quarter of 2018 compared to 2.92% in the first quarter of 2018 and 2.76% in the second quarter of 2017. Purchase accounting accretion added $171,000, $200,000 and $181,000 to net interest and dividend income in the second quarter of 2018, first quarter of 2018, and second quarter of 2017, respectively.  Purchase accounting accretion also added 3 basis points to net interest margin in all three quarters.

Net interest and dividend income (FTE) and net interest margin (FTE) benefited in both quarterly comparisons from higher floating rate loan yields related to the interest rate increases announced by the Federal Reserve Bank. There have been seven rate increases announced by the Fed since December 2015 totaling 175 basis points. The Company has maintained and continues to maintain an asset sensitive interest rate risk position, which has resulted in earning asset yields increasing at a faster pace than interest bearing liability costs. In addition, the improvement in net interest and dividend income (FTE) from the second quarter of 2017 was helped by loan growth.  Average loans increased $163 million, or 8%, from the second quarter of 2017 due to higher levels of commercial real estate loans and residential mortgages.

NONINTEREST INCOME
Noninterest income was $3.6 million in the second quarter of 2018, down 266,000, or 7%, from the first quarter of 2018. The decline was due to the absence of a first quarter securities gain of $653,000, the absence of a first quarter gain of $271,000 from the sale of premises and equipment and a decline of $169,000 in miscellaneous income mainly reflecting lower income on Small Business Investment Company ("SBIC") investments. Partially offsetting these declines in the second quarter was a $452,000 unrealized gain on equity securities compared to an unrealized loss of $69,000 recorded in the first quarter and a $293,000, or 40%, increase in mortgage banking income. The Company also had increases of $67,000, or 19%, in deposit account fees and $63,000, or 16%, in interchange and ATM fees reflecting higher transaction volumes and pricing changes.

Compared to the second quarter of 2017, noninterest income declined $878,000, or 19%. This was mainly due to a $1.2 million decline in loan level derivative income, which is related 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. Also contributing to the decline was the absence of a $928,000 gain recognized in the second quarter of last year on the sale of the Company's remaining available-for-sale debt securities portfolio. Partially offsetting the declines were an $866,000 increase in miscellaneous income due primarily to SBIC investments, a $452,000 unrealized gain on equity securities recognized in the second quarter of 2018, and increases of $81,000 in deposit account fees and $66,000 in interchange and ATM fees.

NONINTEREST EXPENSE
Noninterest expense was $13.7 million in the second quarter of 2018, down $180,000, or 1%, from the first quarter of 2018. Several categories of expenses had declines from last quarter and these declines were partially offset by an increase in advertising expense, which was at a low level in the first quarter. Compared to the second quarter of 2017, noninterest expense increased $325,000, or 2%. The increase was mainly driven by higher salaries and benefits expense which was up $600,000, or 8%. The growth in salaries and benefits expense was due, in part, to an increase in full time equivalent employees to 245 at June 30, 2018 from 230 at June 30, 2017 as well as merit increases.

INCOME TAXES
The effective income tax rate was 26.8% in the second quarter of 2018 and 25.6% in the first quarter of 2018. This is down from 39.9% in the second quarter of 2017. The lower effective tax rates in 2018 are mainly 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.

ASSET QUALITY
The provision for loan losses reflects management's assessment of risks inherent in the loan portfolio. The provision for loan losses was $101,000 in the second quarter of 2018 compared to a credit of $460,000 in the first quarter of 2018 and a provision of $1.1 million in the second quarter of 2017. The decline in the provision from 2017 reflects lower loan growth in 2018 coupled with 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 0.89% at June 30, 2018 compared to 0.92% at March 31, 2018 and 0.97% at June 30, 2017. The Company had net loan charge-offs of $161,000 in the second quarter of 2018 compared to $232,000 in the first quarter of 2018 and $76,000 in the second quarter of 2017.

Nonperforming assets were $13.9 million at June 30, 2018 compared to $13.3 million at March 31, 2018 and $12.8 million at June 30, 2017. Nonperforming assets as a percentage of total assets were 0.51% at June 30, 2018 compared to 0.50% at March 31, 2018 and 0.51% at June 30, 2017.

ABOUT BLUE HILLS BANCORP
Blue Hills Bancorp, Inc., with corporate headquarters in Norwood, MA, had assets of $2.7 billion at June 30, 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.  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. 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
  June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018
vs.
March 31, 2018
June 30, 2018
vs. 
June 30, 2017
Assets          
Cash and due from banks $ 17,566   $ 18,194   $ 17,292   (3.5 )% 1.6 %
Short term investments 34,383   26,878   33,819   27.9 % 1.7 %
Total cash and cash equivalents 51,949   45,072   51,111   15.3 % 1.6 %
Equity securities, at fair value 5,331   9,651     (44.8 )% %
Securities available-for-sale, at fair value     10,437   % (100.0 )%
Securities held-to-maturity, at amortized cost 303,137   304,036   283,672   (0.3 )% 6.9 %
Federal Home Loan Bank stock, at cost 14,375   10,730   11,943   34.0 % 20.4 %
Loans held for sale 10,005   5,865   6,789   70.6 % 47.4 %
Loans:              
1-4 family residential 989,598   938,030   895,015   5.5 % 10.6 %
Home equity 72,813   75,737   84,615   (3.9 )% (13.9 )%
Commercial real estate 824,541   849,040   756,093   (2.9 )% 9.1 %
Construction 88,132   73,113   78,062   20.5 % 12.9 %
  Total real estate loans 1,975,084   1,935,920   1,813,785   2.0 % 8.9 %
Commercial business 268,435   248,521   227,262   8.0 % 18.1 %
Consumer 18,352   20,034   25,047   (8.4 )% (26.7 )%
Total loans 2,261,871   2,204,475   2,066,094   2.6 % 9.5 %
Allowance for loan losses (20,125 ) (20,185 ) (19,917 ) (0.3 )% 1.0 %
Loans, net 2,241,746   2,184,290   2,046,177   2.6 % 9.6 %
Premises and equipment, net 20,192   20,685   22,004   (2.4 )% (8.2 )%
Other real estate owned 3,649   3,649   202   % NM  
Accrued interest receivable 6,531   6,120   5,362   6.7 % 21.8 %
Goodwill and core deposit intangible 9,438   9,566   10,091   (1.3 )% (6.5 )%
Net deferred tax asset 6,480   5,197   8,184   24.7 % (20.8 )%
Bank-owned life insurance 33,610   33,354   32,533   0.8 % 3.3 %
Other assets 34,719   30,936   25,404   12.2 % 36.7 %
Total assets $ 2,741,162   $ 2,669,151   $ 2,513,909   2.7 % 9.0 %
Liabilities and Stockholders' Equity              
Deposits:              
NOW and demand $ 375,934   $ 382,406   $ 359,877   (1.7 )% 4.5 %
Regular savings 213,205   216,894   246,484   (1.7 )% (13.5 )%
Money market 628,718   643,336   674,593   (2.3 )% (6.8 )%
Certificates of deposit 525,587   504,996   362,261   4.1 % 45.1 %
Brokered money market 85,951   90,369   44,728   (4.9 )% 92.2 %
Brokered certificates of deposit 282,672   239,837   277,320   17.9 % 1.9 %
  Total deposits 2,112,067   2,077,838   1,965,263   1.6 % 7.5 %
Short-term borrowings 110,000   65,000     69.2 % NM  
Long-term debt 90,000   105,000   130,000   (14.3 )% (30.8 )%
Other liabilities 28,850   25,869   21,328   11.5 % 35.3 %
Total liabilities 2,340,917   2,273,707   2,116,591   3.0 % 10.6 %
Common stock 268   268   268   % %
Additional paid-in capital 258,225   256,470   252,495   0.7 % 2.3 %
Unearned compensation- ESOP (19,357 ) (19,547 ) (20,117 ) (1.0 )% (3.8 )%
Retained earnings 162,948   160,124   166,033   1.8 % (1.9 )%
Accumulated other comprehensive loss (1,839 ) (1,871 ) (1,361 ) (1.7 )% 35.1 %
Total stockholders' equity 400,245   395,444   397,318   1.2 % 0.7 %
Total liabilities and stockholders' equity $ 2,741,162   $ 2,669,151   $ 2,513,909   2.7 % 9.0 %
                           


 
Blue Hills Bancorp, Inc.
Consolidated Balance Sheet Trend
 
                               
(Unaudited; dollars in thousands) June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017
Assets          
Cash and due from banks $ 17,566   $ 18,194   $ 16,149   $ 16,171   $ 17,292  
Short term investments 34,383   26,878   30,018   22,192   33,819  
Total cash and cash equivalents 51,949   45,072   46,167   38,363   51,111  
Equity securities, at fair value 5,331   9,651        
Securities available for sale, at fair value     9,720   9,943   10,437  
Securities held-to-maturity, at amortized cost 303,137   304,036   303,716   302,833   283,672  
Federal Home Loan Bank stock, at cost 14,375   10,730   12,105   9,410   11,943  
Loans held for sale 10,005   5,865   8,992   12,268   6,789  
Loans:          
1-4 family residential 989,598   938,030   926,117   905,585   895,015  
Home equity 72,813   75,737   81,358   77,819   84,615  
Commercial real estate 824,541   849,040   833,978   751,209   756,093  
Construction 88,132   73,113   90,712   88,979   78,062  
  Total real estate loans 1,975,084   1,935,920   1,932,165   1,823,592   1,813,785  
Commercial business 268,435   248,521   253,001   240,801   227,262  
Consumer 18,352   20,034   21,858   23,142   25,047  
Total loans 2,261,871   2,204,475   2,207,024   2,087,535   2,066,094  
Allowance for loan losses (20,125 ) (20,185 ) (20,877 ) (20,248 ) (19,917 )
Loans, net 2,241,746   2,184,290   2,186,147   2,067,287   2,046,177  
Premises and equipment, net 20,192   20,685   21,573   21,850   22,004  
Other real estate owned 3,649   3,649     202   202  
Accrued interest receivable 6,531   6,120   6,438   5,802   5,362  
Goodwill and core deposit intangible 9,438   9,566   9,717   9,892   10,091  
Net deferred tax asset 6,480   5,197   6,000   9,295   8,184  
Bank-owned life insurance 33,610   33,354   33,078   32,800   32,533  
Other assets 34,719   30,936   24,867   25,471   25,404  
Total assets $ 2,741,162   $ 2,669,151   $ 2,668,520   $ 2,545,416   $ 2,513,909  
Liabilities and Stockholders' Equity          
Deposits:          
NOW and demand $ 375,934   $ 382,406   $ 381,316   $ 376,864   $ 359,877  
Regular savings 213,205   216,894   221,004   244,662   246,484  
Money market 628,718   643,336   646,603   666,388   674,593  
Certificates of deposit 525,587   504,996   448,382   420,765   362,261  
Brokered money market 85,951   90,369   92,798   41,768   44,728  
Brokered certificates of deposit 282,672   239,837   249,766   235,106   277,320  
  Total deposits 2,112,067   2,077,838   2,039,869   1,985,553   1,965,263  
Short-term borrowings 110,000   65,000   100,000   20,000    
Long-term debt 90,000   105,000   105,000   110,000   130,000  
Other liabilities 28,850   25,869   25,845   30,829   21,328  
Total liabilities 2,340,917   2,273,707   2,270,714   2,146,382   2,116,591  
Common stock 268   268   268   268   268  
Additional paid-in capital 258,225   256,470   254,750   254,025   252,495  
Unearned compensation- ESOP (19,357 ) (19,547 ) (19,737 ) (19,927 ) (20,117 )
Retained earnings 162,948   160,124   163,978   166,282   166,033  
Accumulated other comprehensive loss (1,839 ) (1,871 ) (1,453 ) (1,614 ) (1,361 )
Total stockholders' equity 400,245   395,444   397,806   399,034   397,318  
  Total liabilities and stockholders' equity $ 2,741,162   $ 2,669,151   $ 2,668,520   $ 2,545,416   $ 2,513,909  


 
Blue Hills Bancorp, Inc.
Consolidated Statements of Net Income - Quarters
 
                           
(Unaudited; dollars in thousands, except share data) Quarters Ended % Change
  June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018
vs. 
March 31, 2018
June 30, 2018
vs.
June 30, 2017
Interest and fees on loans $ 23,081   $ 21,809   $ 18,715   5.8 % 23.3 %
Interest on securities 1,809   1,857   1,572   (2.6 )% 15.1 %
Dividends 195   204   193   (4.4 )% 1.0 %
Other 62   78   94   (20.5 )% (34.0 )%
Total interest and dividend income 25,147   23,948   20,574   5.0 % 22.2 %
Interest on deposits 5,252   4,775   3,523   10.0 % 49.1 %
Interest on borrowings 912   814   643   12.0 % 41.8 %
Total interest expense 6,164   5,589   4,166   10.3 % 48.0 %
Net interest and dividend income 18,983   18,359   16,408   3.4 % 15.7 %
Provision (credit) for loan losses 101   (460 ) 1,118   (122.0 )% (91.0 )%
Net interest and dividend income, after provision for loan losses 18,882   18,819   15,290   0.3 % 23.5 %
Deposit account fees 422   355   341   18.9 % 23.8 %
Interchange and ATM fees 454   391   388   16.1 % 17.0 %
Mortgage banking 1,033   740   1,219   39.6 % (15.3 )%
Loan level derivative fee income 143   240   1,367   (40.4 )% (89.5 )%
Unrealized gains (losses) on equity securities 452   (69 )   (755.1 )% NM  
Realized securities gains (losses), net     928   NM   (100.0 )%
Gain on exchange of investment in Northeast Retirement Services   653     (100.0 )% NM  
Bank-owned life insurance income 256   276   261   (7.2 )% (1.9 )%
Gain on sale of premises and equipment   271     (100.0 )% NM  
Miscellaneous 872   1,041   6   (16.2 )% 14,433.3 %
Total noninterest income 3,632   3,898   4,510   (6.8 )% (19.5 )%
Salaries and employee benefits 8,264   8,382   7,664   (1.4 )% 7.8 %
Occupancy and equipment 2,050   2,083   2,030   (1.6 )% 1.0 %
Data processing 1,054   1,044   1,022   1.0 % 3.1 %
Professional fees 450   453   526   (0.7 )% (14.4 )%
Advertising 499   304   489   64.1 % 2.0 %
FDIC deposit insurance 230   233   223   (1.3 )% 3.1 %
Directors' fees 362   409   428   (11.5 )% (15.4 )%
Amortization of core deposit intangible 127   151   222   (15.9 )% (42.8 )%
Other general and administrative 655   812   762   (19.3 )% (14.0 )%
Total noninterest expense 13,691   13,871   13,366   (1.3 )% 2.4 %
Income before income taxes 8,823   8,846   6,434   (0.3 )% 37.1 %
Provision for income taxes 2,366   2,263   2,566   4.6 % (7.8 )%
Net income $ 6,457   $ 6,583   $ 3,868   (1.9 )% 66.9 %
           
Earnings per common share:          
Basic $ 0.27   $ 0.27   $ 0.16      
Diluted $ 0.26   $ 0.27   $ 0.16      
Weighted average shares outstanding:          
Basic   24,230,098     24,172,237     23,952,443      
Diluted   24,991,958     24,827,850     24,346,553      
Regular dividends declared per share $ 0.15   $ 0.15   $ 0.05      
Special dividends declared per share $   $ 0.30   $ 0.20      


 
Blue Hills Bancorp, Inc.
Consolidated Statements of Net Income-Year to Date
                 
(Unaudited; dollars in thousands, except share data) Year to Date
  June 30, 2018 June 30, 2017 % Change
Interest and fees on loans $ 44,890   $ 36,097   24.4 %
Interest on securities 3,666   3,782   (3.1 )%
Dividends 399   350   14.0 %
Other 140   126   11.1 %
  Total interest and dividend income 49,095   40,355   21.7 %
Interest on deposits 10,027   6,777   48.0 %
Interest on borrowings 1,726   1,289   33.9 %
  Total interest expense 11,753   8,066   45.7 %
Net interest and dividend income 37,342   32,289   15.6 %
Provision (credit) for loan losses (359 ) 1,175   (130.6 )%
Net interest and dividend income, after provision for loan losses 37,701   31,114   21.2 %
Deposit account fees 777   661   17.5 %
Interchange and ATM fees 845   736   14.8 %
Mortgage banking 1,773   1,959   (9.5 )%
Loan level derivative fee income 383   1,531   (75.0 )%
Unrealized gains on equity securities 383     NM  
Realized securities gains (losses), net   (94 ) (100.0 )%
Gain on exchange of investment in Northeast Retirement Services 653   5,947   (89.0 )%
Bank-owned life insurance income 532   518   2.7 %
Gain on sale of premises and equipment 271     NM  
Miscellaneous 1,913   68   2,713.2 %
  Total noninterest income 7,530   11,326   (33.5 )%
Salaries and employee benefits 16,646   15,227   9.3 %
Occupancy and equipment 4,133   4,145   (0.3 )%
Data processing 2,098   2,066   1.5 %
Professional fees 903   1,395   (35.3 )%
Advertising 803   856   (6.2 )%
FDIC deposit insurance 463   435   6.4 %
Directors' fees 771   802   (3.9 )%
Amortization of core deposit intangible 278   469   (40.7 )%
Other general and administrative 1,467   1,371   7.0 %
Total noninterest expense 27,562   26,766   3.0 %
Income before income taxes 17,669   15,674   12.7 %
Provision for income taxes 4,629   4,319   7.2 %
Net income $ 13,040   $ 11,355   14.8 %
       
Earnings per common share:      
Basic $ 0.54   $ 0.47    
Diluted $ 0.52   $ 0.47    
Weighted average shares outstanding:      
Basic   24,201,328     23,932,044    
Diluted   24,910,065     24,311,222    
       
Regular dividends declared per share $ 0.30   $ 0.10    
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) June 30, March 31, December 31, September 30, June 30,
  2018 2018 2017 2017 2017
Interest and fees on loans $ 23,081   $ 21,809   $ 20,883   $ 19,721   $ 18,715  
Interest on securities 1,809   1,857   1,763   1,565   1,572  
Dividends 195   204   189   194   193  
Other 62   78   40   65   94  
  Total interest and dividend income 25,147   23,948   22,875   21,545   20,574  
Interest on deposits 5,252   4,775   4,349   4,089   3,523  
Interest on borrowings 912   814   732   502   643  
  Total interest expense 6,164   5,589   5,081   4,591   4,166  
Net interest and dividend income 18,983   18,359   17,794   16,954   16,408  
Provision (credit) for loan losses 101   (460 ) 681   242   1,118  
Net interest and dividend income, after provision for loan losses 18,882   18,819   17,113   16,712   15,290  
Deposit account fees 422   355   372   385   341  
Interchange and ATM fees 454   391   418   455   388  
Mortgage banking 1,033   740   552   1,146   1,219  
Loss on sale of purchased home equity portfolio       (118 )  
Loan level derivative fee income 143   240   1,105   156   1,367  
Unrealized gains (losses) on equity securities 452   (69 )      
Realized securities gains (losses), net         928  
Gain on exchange of investment in Northeast Retirement Services   653        
Bank-owned life insurance income 256   276   277   268   261  
Gain on sale of property plant and equipment   271        
Miscellaneous 872   1,041   206   534   6  
  Total noninterest income 3,632   3,898   2,930   2,826   4,510  
Salaries and employee benefits 8,264   8,382   7,755   7,979   7,664  
Pension settlement charges     317      
Occupancy and equipment 2,050   2,083   2,224   2,024   2,030  
Data processing 1,054   1,044   1,067   1,016   1,022  
Professional fees 450   453   540   340   526  
Advertising 499   304   503   563   489  
FDIC deposit insurance 230   233   220   226   223  
Directors' fees 362   409   382   382   428  
Amortization of core deposit intangible 127   151   175   199   222  
Other general and administrative 655   812   1,002   626   762  
  Total noninterest expense 13,691   13,871   14,185   13,355   13,366  
Income before income taxes 8,823   8,846   5,858   6,183   6,434  
Provision for income taxes 2,366   2,263   4,565   2,342   2,566  
Net income $ 6,457   $ 6,583   $ 1,293   $ 3,841   $ 3,868  
           
Earnings per common share:          
  Basic $ 0.27   $ 0.27   $ 0.05   $ 0.16   $ 0.16  
  Diluted $ 0.26   $ 0.27   $ 0.05   $ 0.16   $ 0.16  
Weighted average shares outstanding:          
  Basic   24,230,098     24,172,237     24,104,329     23,973,116     23,952,443  
  Diluted   24,991,958     24,827,850     24,795,366     24,510,092     24,346,553  
  Regular dividends declared per share $ 0.15   $ 0.15   $ 0.15   $ 0.15   $ 0.05  
  Special dividends declared per share $   $ 0.30   $   $   $ 0.20  


 
Blue Hills Bancorp Inc.
Average Balances/Yields
(Unaudited; dollars in thousands) Quarters Ended
  June 30, 2018   March 31, 2018   June 30, 2017
  Average
balance
Interest Yield/
Cost
  Average
balance
Interest Yield/
Cost
  Average
balance
Interest Yield/
Cost
Interest-earning assets                      
Total loans (1) $ 2,209,618   $ 23,115   4.20 %   $ 2,207,895   $ 21,841   4.01 %   $ 2,046,288   $ 18,770   3.68 %
Securities (1) 311,183   1,832   2.36     313,212   1,902   2.46     309,909   1,621   2.10  
Other interest earning assets and FHLB stock 28,181   234   3.33     33,533   237   2.87     36,768   243   2.65  
Total interest-earning assets 2,548,982   25,181   3.96 %   2,554,640   23,980   3.81 %   2,392,965   20,634   3.46 %
Non-interest-earning assets 103,295           96,629           102,750        
Total assets $ 2,652,277           $ 2,651,269           $ 2,495,715        
                             
Interest-bearing liabilities                            
NOW $ 160,194   $ 16   0.04 %   $ 157,582   $ 16   0.04 %   $ 150,711   $ 17   0.05 %
Regular savings 214,116   156   0.29     219,834   165   0.30     255,255   208   0.33  
Money market 721,329   2,066   1.15     742,035   1,972   1.08     688,600   1,669   0.97  
Certificates of deposit 725,904   3,014   1.67     694,526   2,622   1.53     573,997   1,629   1.14  
Total interest-bearing deposits 1,821,543   5,252   1.16     1,813,977   4,775   1.07     1,668,563   3,523   0.85  
Borrowings 197,429   912   1.85     202,944   814   1.63     204,786   643   1.26  
Total interest-bearing liabilities 2,018,972   6,164   1.22 %   2,016,921   5,589   1.12 %   1,873,349   4,166   0.89 %
Non-interest-bearing deposits 207,888           208,561           189,180        
Other non-interest-bearing liabilities 25,349           26,063           33,664        
Total liabilities 2,252,209           2,251,545           2,096,193        
Stockholders' equity 400,068           399,724           399,522        
Total liabilities and stockholders' equity $ 2,652,277           $ 2,651,269           $ 2,495,715        
                             
Net interest and dividend income (FTE)   19,017           18,391           16,468      
Less: FTE adjustment   (34 )         (32 )         (60 )    
Net interest and dividend income (GAAP)   $ 18,983           $ 18,359           $ 16,408      
                             
Net interest rate spread (FTE)     2.74 %       2.69 %       2.57 %
Net interest margin (FTE)     2.99 %       2.92 %       2.76 %
Total deposit cost     1.04 %       0.96 %       0.76 %

(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 June 30 and March 31, 2018. A statutory rate of 35% was used in the second quarter of 2017.

 

 
Blue Hills Bancorp Inc.
Average Balances/Yields
(Unaudited; dollars in thousands) Year to Date
  June 30, 2018   June 30, 2017
  Average
balance
Interest Yield/
Cost
  Average
balance
Interest Yield/
Cost
Interest-earning assets              
Total loans (1) $ 2,208,761   $ 44,956   4.10 %   $ 2,002,710   $ 36,206   3.65 %
Securities (1) 312,192   3,734   2.41     352,212   3,861   2.21  
Other interest earning assets and FHLB stock 30,842   471   3.08     34,318   414   2.43  
Total interest-earning assets 2,551,795   49,161   3.88 %   2,389,240   40,481   3.42 %
Non-interest-earning assets 99,981           99,698        
Total assets $ 2,651,776           $ 2,488,938        
                   
Interest-bearing liabilities                  
NOW $ 158,896   $ 32   0.04 %   $ 148,068   $ 33   0.04 %
Regular savings 216,959   321   0.30     258,896   426   0.33  
Money market 731,625   4,038   1.11     670,980   3,188   0.96  
Certificates of deposit 710,301   5,636   1.60     570,837   3,130   1.11  
Total interest-bearing deposits 1,817,781   10,027   1.11     1,648,781   6,777   0.83  
Borrowings 200,171   1,726   1.74     230,500   1,289   1.13  
Total interest-bearing liabilities 2,017,952   11,753   1.17 %   1,879,281   8,066   0.87 %
Non-interest-bearing deposits 208,223         186,366      
Other non-interest-bearing liabilities 25,704         27,385      
Total liabilities 2,251,879         2,093,032      
Stockholders' equity 399,897         395,906      
Total liabilities and stockholders' equity $ 2,651,776         $ 2,488,938      
               
Net interest and dividend income (FTE)   37,408         32,415    
Less: FTE adjustment   (66 )       (126 )  
Net interest and dividend income (GAAP)   $ 37,342         $ 32,289    
               
Net interest rate spread (FTE)     2.71 %       2.55 %
Net interest margin (FTE)     2.96 %       2.74 %
Total deposit cost     1.00 %       0.74 %

(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
  June 30, March 31, December 31, September 30, June 30,
  2018 2018 2017 2017 2017
Interest-earning assets          
Total loans $ 2,209,618   $ 2,207,895   $ 2,178,388   $ 2,096,034   $ 2,046,288  
Securities 311,183   313,212   312,313   301,484   309,909  
Other interest earning assets and FHLB stock 28,181   33,533   28,842   32,051   36,768  
Total interest-earning assets 2,548,982   2,554,640   2,519,543   2,429,569   2,392,965  
Non-interest-earning assets 103,295   96,629   96,781   101,188   102,750  
Total assets $ 2,652,277   $ 2,651,269   $ 2,616,324   $ 2,530,757   $ 2,495,715  
           
Interest-bearing liabilities          
NOW $ 160,194   $ 157,582   $ 160,371   $ 153,224   $ 150,711  
Regular savings 214,116   219,834   235,864   243,680   255,255  
Money market 721,329   742,035   718,489   708,748   688,600  
Certificates of deposit 725,904   694,526   653,573   653,339   573,997  
Total interest-bearing deposits 1,821,543   1,813,977   1,768,297   1,758,991   1,668,563  
Borrowings 197,429   202,944   202,255   133,788   204,786  
Total interest-bearing liabilities 2,018,972   2,016,921   1,970,552   1,892,779   1,873,349  
Non-interest-bearing deposits 207,888   208,561   220,167   213,459   189,180  
Other non-interest-bearing liabilities 25,349   26,063   23,602   23,603   33,664  
Total liabilities 2,252,209   2,251,545   2,214,321   2,129,841   2,096,193  
Stockholders' equity 400,068   399,724   402,003   400,916   399,522  
Total liabilities and stockholders' equity $ 2,652,277   $ 2,651,269   $ 2,616,324   $ 2,530,757   $ 2,495,715  
                               


 
Blue Hills Bancorp, Inc.
Yield Trend
(Unaudited) Quarters Ended
  June 30, March 31, December 31, September 30, June 30,
  2018  2018  2017  2017  2017 
Interest-earning assets          
Total loans (1) 4.20 % 4.01 % 3.81 % 3.74 % 3.68 %
Securities (1) 2.36 % 2.46 % 2.33 % 2.12 % 2.10 %
Other interest earning assets and FHLB stock 3.33 % 2.87 % 2.15 % 2.66 % 2.65 %
Total interest-earning assets 3.96 % 3.81 % 3.61 % 3.53 % 3.46 %
           
Interest-bearing liabilities          
NOW 0.04 % 0.04 % 0.04 % 0.04 % 0.05 %
Regular savings 0.29 % 0.30 % 0.31 % 0.31 % 0.33 %
Money market 1.15 % 1.08 % 1.01 % 0.99 % 0.97 %
Certificates of deposit 1.67 % 1.53 % 1.41 % 1.28 % 1.14 %
Total interest-bearing deposits 1.16 % 1.07 % 0.98 % 0.92 % 0.85 %
Borrowings 1.85 % 1.63 % 1.44 % 1.49 % 1.26 %
Total interest-bearing liabilities 1.22 % 1.12 % 1.02 % 0.96 % 0.89 %
           
Net interest rate spread (FTE) (1) 2.74 % 2.69 % 2.59 % 2.57 % 2.57 %
Net interest margin (FTE) (1) 2.99 % 2.92 % 2.81 % 2.78 % 2.76 %
Total deposit cost 1.04 % 0.96 % 0.87 % 0.82 % 0.76 %

(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 June 30, 2018 and March 31, 2018. A statutory rate of 35% was used in 2017.


 
Blue Hills Bancorp Inc.
Reconciliation of GAAP to Non-GAAP Net Income
(Unaudited; dollars in thousands, except share data) 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 securities 69     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 charges 317     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  
  Quarter Ended
  September 30, 2017
  Income Before
Income Taxes
  Provision for
Income Taxes
  Net Income   Earnings per
Common Share
(diluted)
GAAP basis $ 6,183     $ 2,342     $ 3,841     $ 0.16  
Add loss on sale of purchased home equity portfolio 118     45     73      
Non-GAAP basis $ 6,301     $ 2,387     $ 3,914     $ 0.16  
  Quarter Ended
  June 30, 2017
  Income Before
Income Taxes
  Provision for
Income Taxes
  Net Income   Earnings per
Common Share
(diluted)
GAAP basis $ 6,434     $ 2,566     $ 3,868     $ 0.16  
Less  realized gain on sale of remaining available-for-sale debt securities portfolio (928 )   (333 )   (595 )   (0.02 )
Non-GAAP basis $ 5,506     $ 2,233     $ 3,273     $ 0.14  

The Company's management believes that the presentation of net income on a non-GAAP basis, excluding 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
  June 30, 2018
  Income Before
Income Taxes
  Provision for
Income Taxes
  Net Income   Earnings per
Common Share
(diluted)
GAAP basis $ 17,669     $ 4,629     $ 13,040     $ 0.52  
Less unrealized gain on equity securities (383 )   (103 )   (280 )   (0.01 )
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 )
Non-GAAP basis $ 16,362     $ 4,287     $ 12,075     $ 0.48  
  Year to Date
  June 30, 2017
  Income Before
Income Taxes
  Provision for
Income Taxes
  Net Income   Earnings per
Common Share
(diluted)
GAAP basis $ 15,674     $ 4,319     $ 11,355     $ 0.47  
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 funds 1,054     378     676     0.03  
Add reversal of state tax valuation allowance     1,697     (1,697 )   (0.07 )
Non-GAAP basis $ 9,853     $ 3,928     $ 5,925     $ 0.25  

The Company's management believes that the presentation of net income on a non-GAAP basis, excluding 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
  June 30, March 31, December 31, September 30, June 30,
  2018 2018 2017 2017 2017
Performance Ratios (annualized)          
           
Diluted EPS:          
GAAP $ 0.26   $ 0.27   $ 0.05   $ 0.16   $ 0.16  
Non-GAAP $ 0.25   $ 0.24   $ 0.16   $ 0.16   $ 0.14  
                               
Return on average assets (ROAA):                              
GAAP 0.98 % 1.01 % 0.20 % 0.60 % 0.62 %
Non-GAAP 0.93 % 0.91 % 0.60 % 0.61 % 0.53 %
                               
Return on average equity (ROAE):                              
GAAP 6.47 % 6.68 % 1.28 % 3.80 % 3.88 %
Non-GAAP 6.14 % 6.04 % 3.93 % 3.87 % 3.29 %
                               
Return on average tangible common equity (ROATCE) (1) (3):                              
GAAP 6.63 % 6.84 % 1.31 % 3.90 % 3.99 %
Non-GAAP 6.29 % 6.19 % 4.03 % 3.97 % 3.37 %
                               
Efficiency ratio (2) (3):                              
GAAP 61 % 62 % 68 % 68 % 64 %
Non-GAAP 62 % 65 % 67 % 67 % 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 pages 14 for reconciliation of Non-GAAP financial measures.

 

 
Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited, dollars in thousands, except share data) Year to Date
  June 30, 2018 June 30, 2017
Performance Ratios (annualized)            
             
Diluted EPS            
GAAP $ 0.52   $ 0.47  
Non-GAAP 0.48   0.25  
             
Return on average assets (ROAA)            
GAAP 0.99 % 0.92 %
Non-GAAP 0.92 % 0.48 %
             
Return on average equity (ROAE)            
GAAP 6.58 % 5.78 %
Non-GAAP 6.09 % 3.02 %
             
Return on average tangible common equity (ROATCE) (1) (3)            
GAAP 6.74 % 5.94 %
Non-GAAP 6.24 % 3.10 %
             
Efficiency ratio (2) (3)            
GAAP 61 % 61 %
Non-GAAP 63 % 71 %

(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 Ended At or for the Year Ended
  June 30, March 31, June 30, June 30, June 30,
  2018 2018 2017 2018 2017
Asset Quality          
Non-performing Assets $ 13,898   $ 13,319   $ 12,779   $ 13,898   $ 12,779  
Non-performing Assets/ Total Assets 0.51 % 0.50 % 0.51 % 0.51 % 0.51 %
Allowance for Loan Losses/ Total Loans 0.89 % 0.92 % 0.97 % 0.89 % 0.97 %
Net Charge-offs (Recoveries) $ 161   $ 232   $ 76   $ 393   $ 8  
Annualized Net Charge-offs (Recoveries)/ Average Loans 0.03 % 0.04 % 0.01 % 0.04 % %
Allowance for Loan Losses/ Nonperforming Loans 196 % 209 % 158 % 196 % 158 %
                               
Capital/Other                              
Common shares outstanding 26,874,071   26,861,521   26,860,988      
Book value per share $ 14.90   $ 14.72   $ 14.79      
Tangible book value per share $ 14.54   $ 14.37   $ 14.42      
Tangible Common Equity/Tangible Assets (1) (2) 14.31 % 14.51 % 15.47 %    
Full-time Equivalent Employees 245   246   230      

(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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