Press Release

Blue Hills Bancorp, Inc. Reports Third Quarter Earnings

Company Release - 10/24/2018 7:00 AM ET

NORWOOD, Mass., Oct. 24, 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 $5.8 million, or $0.23 per diluted share, for the third quarter of 2018 compared to net income of $6.5 million, or $0.26 per diluted share, for the second quarter of 2018 and net income of $3.8 million, or $0.16 per diluted share, for the third quarter of 2017. Net income on a non-GAAP basis, excluding certain nonrecurring items, was $6.8 million, or $0.27 per diluted share, for the third quarter of 2018 compared to net income on a non-GAAP basis, excluding certain nonrecurring items, of $6.1 million, or $0.25 per diluted share, for the second quarter of 2018 and net income on a non-GAAP basis, excluding certain nonrecurring items, of $3.9 million, or $0.16 per diluted share for the third quarter of 2017 (see page 15 for a reconciliation of GAAP to non-GAAP measures).

For the nine months ended September 30, 2018, net income was $18.8 million, or $0.75 per diluted share, compared to net income of $15.2 million, or $0.62 per diluted share for the nine months ended September 30, 2017. Net income on a non-GAAP basis, excluding certain nonrecurring items, was $18.9 million, or $0.75 per diluted share, for the first nine months of 2018 compared to net income on a non-GAAP basis, excluding certain nonrecurring items, of $9.8 million, or $0.40 per diluted share for the first nine months of 2017 (see page 16 for a reconciliation of GAAP to non-GAAP measures).

On September 20, 2018, Blue Hills Bancorp announced its entry into a definitive Agreement and Plan of Merger with Independent Bank Corp. ("Independent"), pursuant to which Blue Hills Bancorp will merge into Independent ("Merger"). Completion of the transaction is subject to customary closing conditions, including receipt of regulatory approvals and the approvals of Blue Hills Bancorp's and Independent's shareholders. The transaction is expected to close in the first half of 2019.

Commenting on the Company's results, William Parent, President and Chief Executive Officer of Blue Hills Bancorp, said, "Our results for the third quarter and first nine months of the year continue to reflect strong contributions across all business lines.  Growth in customer deposits from our retail banking group allowed us to reduce the level of wholesale funding, while deposit-related fee categories were at record quarterly levels. Mortgage banking revenues continued to make a significant contribution to earnings despite lower overall market volumes as in-house originations totaled $375 million for the first nine months of the year. On the commercial lending side, commercial business and real estate loans grew 5% and 4%, respectively, from the end of the second quarter and are up 17% and 14%, respectively, from a year ago. I want to thank all of our employees who continue to contribute to the ongoing improvement in our financial performance. We are excited by our recently announced merger with Independent Bank Corp. and look forward to the closing of that transaction in the first half of 2019."

BALANCE SHEET
Compared to June 30, 2018, total assets grew $41 million, or 2%, to $2.8 billion at September 30, 2018. The increase was mainly driven by a $45 million, or 2%, increase in loans to $2.3 billion at September 30, 2018. By category, the growth was due to a $29 million, or 4% increase in commercial real estate loans, an $18 million, or 2%, increase in residential mortgage loans, and a $14 million, or 5%, increase in commercial business loans. These increases were partially offset by a $13 million, or 15%, decline in construction loans as well as smaller declines in home equity and consumer loans.

Compared to September 30, 2017, total assets increased $237 million, or 9%. Loans drove the growth in total assets from September 30, 2017, increasing $219 million, or 10%. By category, the increase from September 30, 2017 was due to residential mortgage loans, which were up $102 million, or 11%; commercial real estate loans, which were up $102 million, or 14%; and commercial business loans, which were up $42 million, or 17%. Residential mortgage originations were $136 million in the third quarter of 2018 compared to $152 million in the third quarter of 2017 while commercial loans (real estate and non-real estate combined) added to the balance sheet were $90 million in the third quarter of 2018 compared to $64 million in the third quarter of 2017.

Compared to June 30, 2018, deposits grew $54 million, or 3%, to $2.2 billion at September 30, 2018. The growth from the end of the second quarter was driven by a $40 million, or 11%, increase in NOW and demand accounts as well as a $37 million, or 7%, increase in certificates of deposit.  These increases were partially offset by small declines in regular savings, money market deposits and total brokered deposits.  The growth in deposits allowed for a reduction in borrowings as short-term borrowings declined $12 million, or 11%, to $98 million at September 30, 2018 and long-term borrowings dropped $10 million, or 11%, to $80 million at September 30, 2018.

Compared to September 30, 2017, deposits grew $180 million, or 9%, and included growth in consumer, small business, and commercial segments. By category, the growth mainly came from certificates of deposit, which were up $142 million, or 34%.  In addition, total brokered deposits were up $83 million, or 30%, and NOW and demand deposits increased $39 million, or 10%.  These increases were partially offset by a $46 million, or 7%, decline in money market deposits and a $38 million, or 16%, decline in regular savings deposits. Short-term borrowings increased $78 million from a year ago while long-term debt declined $30 million.

Stockholders’ equity was $403 million at September 30, 2018 compared to $400 million at June 30, 2018 and $399 million at September 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 $19.5 million in the third quarter of 2018, up $480,000, or 3%, from the second quarter of 2018 and up $2.5 million, or 15%, from the third quarter of 2017. Reported net interest margin was 2.92% in the third quarter of 2018, down from 2.98% in the second quarter of 2018, but up from 2.77% in the third quarter of 2017.

Net interest and dividend income on a fully taxable equivalent basis (FTE), a Non-GAAP measure, was also $19.5 million in the third quarter of 2018, up $481,000, or 3%, from $19.0 million in the second quarter of 2018, and up $2.5 million, or 15%, from $17.0 million in the third quarter of 2017. Net interest margin on a fully taxable equivalent basis (FTE), a Non-GAAP measure, was 2.93% in the third quarter of 2018 compared to 2.99% in the second quarter of 2018 and 2.78% in the third quarter of 2017. Purchase accounting accretion added $74,000, $171,000, and $103,000 to net interest and dividend income in the third quarter of 2018, second quarter of 2018, and third quarter of 2017, respectively. Purchase accounting accretion also added 2 basis points to net interest margin in the third quarter of 2018 and third quarter of 2017 and 3 basis points to net interest margin in the second quarter of 2018.  In addition, net interest income in the second quarter of 2018 included $285,000 of fees related to loans that were paid off, which added 4 basis points to net interest margin in that quarter.

The improvement in net interest and dividend income (FTE) in both comparisons was helped by loan growth. Average loans increased $92 million, or 4%, from the second quarter of 2018 and were up $206 million, or 10%, from the third quarter of 2017.  In both comparisons, the increase was driven by higher levels of commercial real estate loans, residential mortgages, and commercial business loans, partially offset by declines in construction, home equity and consumer loans.

The improvement in net interest margin (FTE) from the third quarter of 2017 was mainly due to higher floating rate loan yields related to the interest rate increases announced by the Federal Reserve Bank. There have been eight rate increases announced by the Fed since December 2015 totaling 200 basis points. The Company has maintained and continues to maintain an asset sensitive interest rate risk position, which has generally resulted in earning asset yields increasing at a faster pace than interest bearing liability costs. In the third quarter of 2018, however, the increase to net interest income from repricing floating rate loans tied to LIBOR was much lower than in the second quarter and this, along with higher funding costs, a lower contribution from purchase accounting accretion, and the absence of the aforementioned fees related to loans that were paid off contributed to the linked quarter decline in net interest margin (FTE).

NONINTEREST INCOME
Noninterest income was $3.9 million in the third quarter of 2018, up $223,000, or 6%, from the second quarter of 2018. The increase reflects higher loan level derivative income, which was up $901,000 from the second quarter due to a higher 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, the Company also had increases of $51,000, or 12%, in deposit account fees and $17,000, or 4%, in interchange and ATM fees reflecting higher transaction volumes and pricing changes. Both categories posted record quarterly highs in the third quarter.  Partially offsetting these improvements was a $61,000 unrealized loss on equity securities in the third quarter compared to an unrealized gain of $452,000 recorded in the second quarter, a $197,000, or 23%, drop in miscellaneous income due mainly to lower commercial loan fees and lower income on Small Business Investment Community ("SBIC") investments, and a $59,000, or 6%, decline in mortgage banking income.

Compared to the third quarter of 2017, noninterest income increased $1.0 million, or 36%, mainly due to an $888,000 increase in loan level derivative income.  Also contributing to the increase were higher levels of deposit account fees, interchange and ATM fees, and miscellaneous income.  Partially offsetting the increases were a $172,000, or 15%, decline in mortgage banking income and a $61,000 unrealized loss on equity securities recognized in the third quarter of 2018.

NONINTEREST EXPENSE
Noninterest expense was $15.5 million in the third quarter of 2018, up $1.8 million, or 13%, from the second quarter of 2018 and up $2.2 million, or 16%, from the third quarter of 2017.  The third quarter of 2018 included $1.3 million of charges related to the pending merger with Independent Bank Corp. as well as a $720,000 charge for a supplemental executive retirement agreement as previously disclosed in the Company's second quarter 2018 report on Form 10-Q as filed with the Securities and Exchange Commission.  Excluding these two items, noninterest expense was $13.5 million in the third quarter of 2018, down $209,000, or 2%, from the second quarter of 2018 and up $127,000, or 1%, from the third quarter of 2017.  The linked quarter decline was mainly due to a $148,000, or 33%, drop in professional fees due to lower legal and consulting fees and a $110,000, or 1%, decline in salaries and benefits expense, excluding the aforementioned charge for a supplemental executive retirement agreement.  Compared to the third quarter of 2017, salaries and benefits expense increased $175,000, or 2%, excluding the aforementioned charge for a supplemental executive retirement agreement.

INCOME TAXES
The effective income tax rate was 27.4% in the third quarter of 2018 compared to 26.8% in the second quarter of 2018 and 37.9% in the third 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 a credit of $182,000 in the third quarter of 2018 compared to provisions of $101,000 in the second quarter of 2018 and $242,000 in the third quarter of 2017.  The level of the provision in all three quarters reflects 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 0.86% at September 30, 2018 compared to 0.89% at June 30, 2018 and 0.97% at September 30, 2017. The Company had net loan charge-offs of $23,000 in the third quarter of 2018 compared to net loan charge-offs of $161,000 in the second quarter of 2018 and net loan recoveries of $89,000 in the third quarter of 2017.

Nonperforming assets were $15.4 million at September 30, 2018 compared to $13.9 million at June 30, 2018 and $11.5 million at September 30, 2017. The linked quarter growth in nonperforming assets reflects increases in nonperforming commercial real estate loans and residential mortgages, partially offset by a decline in nonperforming home equity loans. Nonperforming assets as a percentage of total assets were 0.55% at September 30, 2018 compared to 0.51% at June 30, 2018 and 0.45% at September 30, 2017.

ABOUT BLUE HILLS BANCORP
Blue Hills Bancorp, Inc., with corporate headquarters in Norwood, MA, had assets of $2.8 billion at September 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.

ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed Merger with Independent Bank Corp. (“Independent”), Independent intends to file with the SEC a Registration Statement on Form S-4 that will include a joint proxy statement of Blue Hills Bancorp and Independent and a prospectus of Independent. Investors and security holders are advised to read the Registration Statement and the joint proxy statement/prospectus when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information.  Investors and security holders may obtain a free copy of the Registration Statement (when available), including the joint proxy statement/prospectus and other documents filed by Blue Hills Bancorp and Independent with the SEC at the SEC’s website at www.sec.gov. These documents may be accessed and downloaded, free of charge, at Blue Hills Bancorp’s website at www.bluehillsbancorp.com under the section “SEC Filings-Documents” or by directing a request to the Corporate Secretary, Blue Hills Bancorp, Inc., 500 River Ridge Drive, Norwood, Massachusetts 02062, telephone (617) 361-6900. You will also be able to obtain these documents free of charge at Independent’s website at www.rocklandtrust.com under the tab “Investor Relations” and then under the heading “SEC Filings” or by directing a request to Investor Relations, Independent Bank Corp., 288 Union Street, Rockland, Massachusetts 02370, telephone (781) 982-6737.

PARTICIPANTS IN THE SOLICITATION

This filing is not a solicitation of a proxy from any security holder of Blue Hills Bancorp or Independent.  However, Blue Hills Bancorp, Independent, their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies from stockholders of Blue Hills Bancorp and Independent with respect to the proposed Merger.  Information regarding the directors and executive officers of Blue Hills Bancorp may be found in its definitive proxy statement relating to its 2018 Annual Meeting of Stockholders, which was filed with the SEC on April 11, 2018. Information regarding the directors and executive officers of Independent may be found in its definitive proxy statement relating to its 2018 Annual Meeting of Shareholders, which was filed with the SEC on March 29, 2018, and its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 27, 2018.  Additional information regarding the participants in the proxy solicitation and a description of their direct and indirect interests in the Merger will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available. You may obtain free copies of the documents described in this paragraph in the manner described in the preceding paragraph.

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

     
Blue Hills Bancorp, Inc.
Consolidated Balance Sheets
     
(Unaudited; dollars in thousands)   % Change
 September 30, 2018June 30, 2018September 30, 2017September 30, 2018
vs.
June 30, 2018
September 30, 2018
vs.
September 30, 2017
Assets     
Cash and due from banks$15,459 $17,566 $16,171 (12.0)%(4.4)%
Short term investments32,290 34,383 22,192 (6.1)%45.5%
Total cash and cash equivalents47,749 51,949 38,363 (8.1)%24.5%
Equity securities, at fair value5,270 5,331  (1.1)%%
Securities available-for-sale, at fair value  9,943 %(100.0)%
Securities held-to-maturity, at amortized cost305,935 303,137 302,833 0.9%1.0%
Federal Home Loan Bank stock, at cost11,815 14,375 9,410 (17.8)%25.6%
Loans held for sale5,035 10,005 12,268 (49.7)%(59.0)%
Loans:     
1-4 family residential1,007,411 989,598 905,585 1.8%11.2%
Home equity70,955 72,813 77,819 (2.6)%(8.8)%
Commercial real estate853,679 824,541 751,209 3.5%13.6%
Construction75,037 88,132 88,979 (14.9)%(15.7)%
Total real estate loans2,007,082 1,975,084 1,823,592 1.6%10.1%
Commercial business282,680 268,435 240,801 5.3%17.4%
Consumer16,954 18,352 23,142 (7.6)%(26.7)%
Total loans2,306,716 2,261,871 2,087,535 2.0%10.5%
Allowance for loan losses(19,920)(20,125)(20,248)(1.0)%(1.6)%
Loans, net2,286,796 2,241,746 2,067,287 2.0%10.6%
Premises and equipment, net19,882 20,192 21,850 (1.5)%(9.0)%
Other real estate owned3,649 3,649 202 %NM 
Accrued interest receivable7,143 6,531 5,802 9.4%23.1%
Goodwill and core deposit intangible9,335 9,438 9,892 (1.1)%(5.6)%
Net deferred tax asset6,995 6,480 9,295 7.9%(24.7)%
Bank-owned life insurance33,889 33,610 32,800 0.8%3.3%
Other assets39,061 34,719 25,471 12.5%53.4%
Total assets$2,782,554 $2,741,162 $2,545,416 1.5%9.3%
Liabilities and Stockholders' Equity     
Deposits:     
NOW and demand$415,993 $375,934 $376,864 10.7%10.4%
Regular savings206,726 213,205 244,662 (3.0)%(15.5)%
Money market620,529 628,718 666,388 (1.3)%(6.9)%
Certificates of deposit562,610 525,587 420,765 7.0%33.7%
Brokered money market80,143 85,951 41,768 (6.8)%91.9%
Brokered certificates of deposit280,006 282,672 235,106 (0.9)%19.1%
Total deposits2,166,007 2,112,067 1,985,553 2.6%9.1%
Short-term borrowings98,000 110,000 20,000 (10.9)%390.0%
Long-term debt80,000 90,000 110,000 (11.1)%(27.3)%
Other liabilities35,471 28,850 30,829 22.9%15.1%
Total liabilities2,379,478 2,340,917 2,146,382 1.6%10.9%
Common stock269 268 268 0.4%0.4%
Additional paid-in capital259,892 258,225 254,025 0.6%2.3%
Unearned compensation- ESOP(19,168)(19,357)(19,927)(1.0)%(3.8)%
Retained earnings163,892 162,948 166,282 0.6%(1.4)%
Accumulated other comprehensive loss(1,809)(1,839)(1,614)(1.6)%12.1%
Total stockholders' equity403,076 400,245 399,034 0.7%1.0%
Total liabilities and stockholders' equity$2,782,554 $2,741,162 $2,545,416 1.5%9.3%
              


      
Blue Hills Bancorp, Inc.
Consolidated Balance Sheet Trend
      
(Unaudited; dollars in thousands)September 30, 2018June 30, 2018March 31, 2018December 31, 2017September 30, 2017
Assets     
Cash and due from banks$15,459 $17,566 $18,194 $16,149 $16,171 
Short term investments32,290 34,383 26,878 30,018 22,192 
Total cash and cash equivalents47,749 51,949 45,072 46,167 38,363 
Equity securities, at fair value5,270 5,331 9,651   
Securities available for sale, at fair value   9,720 9,943 
Securities held-to-maturity, at amortized cost305,935 303,137 304,036 303,716 302,833 
Federal Home Loan Bank stock, at cost11,815 14,375 10,730 12,105 9,410 
Loans held for sale5,035 10,005 5,865 8,992 12,268 
Loans:     
1-4 family residential1,007,411 989,598 938,030 926,117 905,585 
Home equity70,955 72,813 75,737 81,358 77,819 
Commercial real estate853,679 824,541 849,040 833,978 751,209 
Construction75,037 88,132 73,113 90,712 88,979 
Total real estate loans2,007,082 1,975,084 1,935,920 1,932,165 1,823,592 
Commercial business282,680 268,435 248,521 253,001 240,801 
Consumer16,954 18,352 20,034 21,858 23,142 
Total loans2,306,716 2,261,871 2,204,475 2,207,024 2,087,535 
Allowance for loan losses(19,920)(20,125)(20,185)(20,877)(20,248)
Loans, net2,286,796 2,241,746 2,184,290 2,186,147 2,067,287 
Premises and equipment, net19,882 20,192 20,685 21,573 21,850 
Other real estate owned3,649 3,649 3,649  202 
Accrued interest receivable7,143 6,531 6,120 6,438 5,802 
Goodwill and core deposit intangible9,335 9,438 9,566 9,717 9,892 
Net deferred tax asset6,995 6,480 5,197 6,000 9,295 
Bank-owned life insurance33,889 33,610 33,354 33,078 32,800 
Other assets39,061 34,719 30,936 24,867 25,471 
Total assets$2,782,554 $2,741,162 $2,669,151 $2,668,520 $2,545,416 
Liabilities and Stockholders' Equity     
Deposits:     
NOW and demand$415,993 $375,934 $382,406 $381,316 $376,864 
Regular savings206,726 213,205 216,894 221,004 244,662 
Money market620,529 628,718 643,336 646,603 666,388 
Certificates of deposit562,610 525,587 504,996 448,382 420,765 
Brokered money market80,143 85,951 90,369 92,798 41,768 
Brokered certificates of deposit280,006 282,672 239,837 249,766 235,106 
Total deposits2,166,007 2,112,067 2,077,838 2,039,869 1,985,553 
Short-term borrowings98,000 110,000 65,000 100,000 20,000 
Long-term debt80,000 90,000 105,000 105,000 110,000 
Other liabilities35,471 28,850 25,869 25,845 30,829 
Total liabilities2,379,478 2,340,917 2,273,707 2,270,714 2,146,382 
Common stock269 268 268 268 268 
Additional paid-in capital259,892 258,225 256,470 254,750 254,025 
Unearned compensation- ESOP(19,168)(19,357)(19,547)(19,737)(19,927)
Retained earnings163,892 162,948 160,124 163,978 166,282 
Accumulated other comprehensive loss(1,809)(1,839)(1,871)(1,453)(1,614)
Total stockholders' equity403,076 400,245 395,444 397,806 399,034 
Total liabilities and stockholders' equity$2,782,554 $2,741,162 $2,669,151 $2,668,520 $2,545,416 
                

 

   
Blue Hills Bancorp, Inc.
Consolidated Statements of Net Income - Quarters
   
(Unaudited; dollars in thousands, except share data)Quarters Ended% Change
 September 30, 2018June 30, 2018September 30, 2017September 30, 2018
vs. 
June 30, 2018
September 30, 2018
vs. 
September 30, 2017
Interest and fees on loans$24,455 $23,081 $19,721 6.0%24.0%
Interest on securities1,854 1,809 1,565 2.5%18.5%
Dividends210 195 194 7.7%8.2%
Other92 62 65 48.4%41.5%
Total interest and dividend income26,611 25,147 21,545 5.8%23.5%
Interest on deposits6,357 5,252 4,089 21.0%55.5%
Interest on borrowings791 912 502 (13.3)%57.6%
Total interest expense7,148 6,164 4,591 16.0%55.7%
Net interest and dividend income19,463 18,983 16,954 2.5%14.8%
Provision (credit) for loan losses(182)101 242 (280.2)%(175.2)%
Net interest and dividend income, after provision for loan losses19,645 18,882 16,712 4.0%17.6%
Deposit account fees473 422 385 12.1%22.9%
Interchange and ATM fees471 454 455 3.7%3.5%
Mortgage banking974 1,033 1,146 (5.7)%(15.0)%
Loss on sale of purchased home equity portfolio  (118)NM NM 
Loan level derivative fee income1,044 143 156 630.1%569.2%
Unrealized gains (losses) on equity securities(61)452  (113.5)%NM 
Bank-owned life insurance income279 256 268 9.0%4.1%
Miscellaneous675 872 534 (22.6)%26.4%
Total noninterest income3,855 3,632 2,826 6.1%36.4%
Salaries and employee benefits8,874 8,264 7,979 7.4%11.2%
Occupancy and equipment2,071 2,050 2,024 1.0%2.3%
Data processing1,062 1,054 1,016 0.8%4.5%
Professional fees302 450 340 (32.9)%(11.2)%
Advertising509 499 563 2.0%(9.6)%
FDIC deposit insurance221 230 226 (3.9)%(2.2)%
Directors' fees383 362 382 5.8%0.3%
Amortization of core deposit intangible103 127 199 (18.9)%(48.2)%
Merger expenses1,321   NM NM 
Other general and administrative677 655 626 3.4%8.1%
Total noninterest expense15,523 13,691 13,355 13.4%16.2%
Income before income taxes7,977 8,823 6,183 (9.6)%29.0%
Provision for income taxes2,188 2,366 2,342 (7.5)%(6.6)%
Net income$5,789 $6,457 $3,841 (10.3)%50.7%
      
Earnings per common share:     
Basic$0.24 $0.27 $0.16   
Diluted$0.23 $0.26 $0.16   
Weighted average shares outstanding:     
Basic 24,256,902  24,230,098  23,973,116   
Diluted 25,242,737  24,991,958  24,510,092   
      
Regular dividends declared per share$0.20 $0.15 $0.15   
Special dividends declared per share$ $ $   
            


  
Blue Hills Bancorp, Inc.
Consolidated Statements of Net Income-Year to Date
  
(Unaudited; dollars in thousands, except share data)Year to Date
 September 30, 2018September 30, 2017% Change
Interest and fees on loans$69,345 $55,818 24.2%
Interest on securities5,520 5,347 3.2%
Dividends609 544 11.9%
Other232 191 21.5%
Total interest and dividend income75,706 61,900 22.3%
Interest on deposits16,384 10,866 50.8%
Interest on borrowings2,517 1,791 40.5%
Total interest expense18,901 12,657 49.3%
Net interest and dividend income56,805 49,243 15.4%
Provision (credit) for loan losses(541)1,417 (138.2)%
Net interest and dividend income, after provision for loan losses57,346 47,826 19.9%
Deposit account fees1,250 1,046 19.5%
Interchange and ATM fees1,316 1,191 10.5%
Mortgage banking2,747 3,105 (11.5)%
Loss on sale of purchased home equity portfolio (118)NM 
Loan level derivative fee income1,427 1,687 (15.4)%
Unrealized gains on equity securities322  NM 
Realized securities gains (losses), net (94)(100.0)%
Gain on exchange of investment in Northeast Retirement Services653 5,947 (89.0)%
Bank-owned life insurance income811 786 3.2%
Gain on sale of premises and equipment271  NM 
Miscellaneous2,588 602 329.9%
Total noninterest income11,385 14,152 (19.6)%
Salaries and employee benefits25,520 23,206 10.0%
Occupancy and equipment6,204 6,169 0.6%
Data processing3,160 3,082 2.5%
Professional fees1,205 1,735 (30.5)%
Advertising1,312 1,419 (7.5)%
FDIC deposit insurance684 661 3.5%
Directors' fees1,154 1,184 (2.5)%
Amortization of core deposit intangible381 668 (43.0)%
Merger expenses1,321  NM 
Other general and administrative2,144 1,997 7.4%
Total noninterest expense43,085 40,121 7.4%
Income before income taxes25,646 21,857 17.3%
Provision for income taxes6,817 6,661 2.3%
Net income$18,829 $15,196 23.9%
    
Earnings per common share:   
Basic$0.78 $0.63  
Diluted$0.75 $0.62  
Weighted average shares outstanding:   
Basic 24,220,055  23,945,885  
Diluted 25,021,158  24,377,662  
    
Regular dividends declared per share$0.50 $0.25  
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)September 30,June 30,March 31,December 31,September 30,
 20182018201820172017
Interest and fees on loans$24,455 $23,081 $21,809 $20,883 $19,721 
Interest on securities1,854 1,809 1,857 1,763 1,565 
Dividends210 195 204 189 194 
Other92 62 78 40 65 
Total interest and dividend income26,611 25,147 23,948 22,875 21,545 
Interest on deposits6,357 5,252 4,775 4,349 4,089 
Interest on borrowings791 912 814 732 502 
Total interest expense7,148 6,164 5,589 5,081 4,591 
Net interest and dividend income19,463 18,983 18,359 17,794 16,954 
Provision (credit) for loan losses(182)101 (460)681 242 
Net interest and dividend income, after provision for loan losses19,645 18,882 18,819 17,113 16,712 
Deposit account fees473 422 355 372 385 
Interchange and ATM fees471 454 391 418 455 
Mortgage banking974 1,033 740 552 1,146 
Loss on sale of purchased home equity portfolio    (118)
Loan level derivative fee income1,044 143 240 1,105 156 
Unrealized gains (losses) on equity securities(61)452 (69)  
Gain on exchange of investment in Northeast Retirement Services  653   
Bank-owned life insurance income279 256 276 277 268 
Gain on sale of property plant and equipment  271   
Miscellaneous675 872 1,041 206 534 
Total noninterest income3,855 3,632 3,898 2,930 2,826 
Salaries and employee benefits8,874 8,264 8,382 7,755 7,979 
Pension settlement charges   317  
Occupancy and equipment2,071 2,050 2,083 2,224 2,024 
Data processing1,062 1,054 1,044 1,067 1,016 
Professional fees302 450 453 540 340 
Advertising509 499 304 503 563 
FDIC deposit insurance221 230 233 220 226 
Directors' fees383 362 409 382 382 
Amortization of core deposit intangible103 127 151 175 199 
Merger expenses1,321     
Other general and administrative677 655 812 1,002 626 
Total noninterest expense15,523 13,691 13,871 14,185 13,355 
Income before income taxes7,977 8,823 8,846 5,858 6,183 
Provision for income taxes2,188 2,366 2,263 4,565 2,342 
Net income$5,789 $6,457 $6,583 $1,293 $3,841 
      
Earnings per common share:     
Basic$0.24 $0.27 $0.27 $0.05 $0.16 
Diluted$0.23 $0.26 $0.27 $0.05 $0.16 
Weighted average shares outstanding:     
Basic 24,256,902  24,230,098  24,172,237  24,104,329  23,973,116 
Diluted 25,242,737  24,991,958  24,827,850  24,795,366  24,510,092 
      
Regular dividends declared per share$0.20 $0.15 $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
 September 30, 2018 June 30, 2018 September 30, 2017
 Average
balance
InterestYield/
Cost
 Average
balance
InterestYield/
Cost
 Average
balance
InterestYield/
Cost
Interest-earning assets           
Total loans (1)$2,301,946 $24,490 4.22% $2,209,618 $23,115 4.20% $2,096,034 $19,779 3.74%
Securities (1)310,557 1,873 2.39  311,183 1,832 2.36  301,484 1,609 2.12 
Other interest earning assets and FHLB stock30,522 283 3.68  28,181 234 3.33  32,051 215 2.66 
Total interest-earning assets2,643,025 26,646 4.00% 2,548,982 25,181 3.96% 2,429,569 21,603 3.53%
Non-interest-earning assets109,429    103,295    101,188   
Total assets$2,752,454    $2,652,277    $2,530,757   
            
Interest-bearing liabilities           
NOW$166,144 $21 0.05% $160,194 $16 0.04% $153,224 $17 0.04%
Regular savings209,797 152 0.29  214,116 156 0.29  243,680 191 0.31 
Money market714,539 2,244 1.25  721,329 2,066 1.15  708,748 1,769 0.99 
Certificates of deposit836,584 3,940 1.87  725,904 3,014 1.67  653,339 2,112 1.28 
Total interest-bearing deposits1,927,064 6,357 1.31  1,821,543 5,252 1.16  1,758,991 4,089 0.92 
Borrowings162,641 791 1.93  197,429 912 1.85  133,788 502 1.49 
Total interest-bearing liabilities2,089,705 7,148 1.36% 2,018,972 6,164 1.22% 1,892,779 4,591 0.96%
Non-interest-bearing deposits229,293    207,888    213,459   
Other non-interest-bearing liabilities30,545    25,349    23,603   
Total liabilities2,349,543    2,252,209    2,129,841   
Stockholders' equity402,911    400,068    400,916   
Total liabilities and stockholders' equity$2,752,454    $2,652,277    $2,530,757   
            
Net interest and dividend income (FTE) 19,498    19,017    17,012  
Less: FTE adjustment (35)   (34)   (58) 
Net interest and dividend income (GAAP) $19,463    $18,983    $16,954  
            
Net interest rate spread (FTE)  2.64%   2.74%   2.57%
Net interest margin (FTE)  2.93%   2.99%   2.78%
Total deposit cost  1.17%   1.04%   0.82%

(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 September 30 and June 30, 2018. A statutory rate of 35% was used in the third quarter of 2017.

 
Blue Hills Bancorp Inc.
Average Balances/Yields
(Unaudited; dollars in thousands)Year to Date
 September 30, 2018 September 30, 2017
 Average
balance
InterestYield/
Cost
 Average
balance
InterestYield/
Cost
Interest-earning assets       
Total loans (1)$2,240,164 $69,446 4.14% $2,034,160 $55,985 3.68%
Securities (1)311,641 5,607 2.41  335,117 5,470 2.18 
Other interest earning assets and FHLB stock30,734 754 3.28  33,554 629 2.51 
Total interest-earning assets2,582,539 75,807 3.92% 2,402,831 62,084 3.45%
Non-interest-earning assets103,165    100,200   
Total assets$2,685,704    $2,503,031   
        
Interest-bearing liabilities       
NOW$161,338 $53 0.04% $149,806 $50 0.04%
Regular savings214,546 473 0.29  253,768 617 0.33 
Money market725,867 6,282 1.16  683,708 4,957 0.97 
Certificates of deposit752,858 9,576 1.70  598,640 5,242 1.17 
Total interest-bearing deposits1,854,609 16,384 1.18  1,685,922 10,866 0.86 
Borrowings187,524 2,517 1.79  197,908 1,791 1.21 
Total interest-bearing liabilities2,042,133 18,901 1.24% 1,883,830 12,657 0.90%
Non-interest-bearing deposits215,323    195,496   
Other non-interest-bearing liabilities27,335    26,110   
Total liabilities2,284,791    2,105,436   
Stockholders' equity400,913    397,595   
Total liabilities and stockholders' equity$2,685,704    $2,503,031   
        
Net interest and dividend income (FTE) 56,906    49,427  
Less: FTE adjustment (101)   (184) 
Net interest and dividend income (GAAP) $56,805    $49,243  
        
Net interest rate spread (FTE)  2.68%   2.55%
Net interest margin (FTE)  2.95%   2.75%
Total deposit cost  1.06%   0.77%

(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
 September 30,June 30,March 31,December 31,September 30,
 20182018201820172017
Interest-earning assets     
Total loans$2,301,946 $2,209,618 $2,207,895 $2,178,388 $2,096,034 
Securities310,557 311,183 313,212 312,313 301,484 
Other interest earning assets and FHLB stock30,522 28,181 33,533 28,842 32,051 
Total interest-earning assets2,643,025 2,548,982 2,554,640 2,519,543 2,429,569 
Non-interest-earning assets109,429 103,295 96,629 96,781 101,188 
Total assets$2,752,454 $2,652,277 $2,651,269 $2,616,324 $2,530,757 
      
Interest-bearing liabilities     
NOW$166,144 $160,194 $157,582 $160,371 $153,224 
Regular savings209,797 214,116 219,834 235,864 243,680 
Money market714,539 721,329 742,035 718,489 708,748 
Certificates of deposit836,584 725,904 694,526 653,573 653,339 
Total interest-bearing deposits1,927,064 1,821,543 1,813,977 1,768,297 1,758,991 
Borrowings162,641 197,429 202,944 202,255 133,788 
Total interest-bearing liabilities2,089,705 2,018,972 2,016,921 1,970,552 1,892,779 
Non-interest-bearing deposits229,293 207,888 208,561 220,167 213,459 
Other non-interest-bearing liabilities30,545 25,349 26,063 23,602 23,603 
Total liabilities2,349,543 2,252,209 2,251,545 2,214,321 2,129,841 
Stockholders' equity402,911 400,068 399,724 402,003 400,916 
Total liabilities and stockholders' equity$2,752,454 $2,652,277 $2,651,269 $2,616,324 $2,530,757 
                


 
Blue Hills Bancorp, Inc.
Yield Trend
(Unaudited)Quarters Ended
 September 30,June 30,March 31,December 31,September 30,
 20182018201820172017
Interest-earning assets     
Total loans (1)4.22%4.20%4.01%3.81%3.74%
Securities (1)2.39%2.36%2.46%2.33%2.12%
Other interest earning assets and FHLB stock3.68%3.33%2.87%2.15%2.66%
Total interest-earning assets4.00%3.96%3.81%3.61%3.53%
      
Interest-bearing liabilities     
NOW0.05%0.04%0.04%0.04%0.04%
Regular savings0.29%0.29%0.30%0.31%0.31%
Money market1.25%1.15%1.08%1.01%0.99%
Certificates of deposit1.87%1.67%1.53%1.41%1.28%
Total interest-bearing deposits1.31%1.16%1.07%0.98%0.92%
Borrowings1.93%1.85%1.63%1.44%1.49%
Total interest-bearing liabilities1.36%1.22%1.12%1.02%0.96%
      
Net interest rate spread (FTE) (1)2.64%2.74%2.69%2.59%2.57%
Net interest margin (FTE) (1)2.93%2.99%2.92%2.81%2.78%
Total deposit cost1.17%1.04%0.96%0.87%0.82%

(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 September 30, 2018, 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
 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 
  
 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 portfolio118  45  73   
Non-GAAP basis$6,301  $2,387  $3,914  $0.16 

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
 September 30, 2018
 Income Before
Income Taxes
 Provision for
Income Taxes
 Net Income Earnings per
Common Share
(diluted)
GAAP basis$25,646  $6,817  $18,829  $0.75 
Less unrealized gain on equity securities(322) (86) (236) (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)
Add merger expenses1,321  362  959  0.04 
Non-GAAP basis$25,721  $6,854  $18,867  $0.75