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Section 1: 8-K (8-K EANINGS RELEASE Q1 2018)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 24, 2018

BLUE HILLS BANCORP, INC.
(Exact name of registrant as specified in its charter)

Maryland
 
001-36551
 
46-5429062
(State or Other Jurisdiction of Incorporation)
 
(Commission File No.)
 
(I.R.S. Employer
Identification No.)

500 River Ridge Drive, Norwood, Massachusetts
 
02062
(Address of Principal Executive Offices)
 
(Zip Code)


Registrant’s telephone number, including area code: (617) 361-6900

Not Applicable
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 


Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934. [X]

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]








Item 2.02     Results of Operations and Financial Condition

On April 24, 2018, Blue Hills Bancorp, Inc. (the “Company”), the holding company for Blue Hills Bank, issued a press release announcing its financial results for the quarter ended March 31, 2018. The Company’s press release is included as Exhibit 99.1 to this report. The information included in Exhibit 99.1 to this report is considered to be “furnished” under the Securities Exchange Act of 1934.

Item 9.01     Financial Statements and Exhibits
Exhibit
 
Description
 
 
 
 
 
 
 
 
 
 
 








SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
 
BLUE HILLS BANCORP, INC.
DATE: April 24, 2018
By:
/s/ William M. Parent
 
 
William M. Parent
 
 
President and Chief Executive Officer




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1 PRESS RELEASE 04242018)

Exhibit
EXHIBIT 99.1
Blue Hills Bancorp, Inc. Reports First Quarter Earnings

NORWOOD, Mass., April 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 $6.6 million, or $0.27 per diluted share, for the first quarter of 2018 compared to net income of $1.3 million, or $0.05 per diluted share, for the fourth quarter of 2017 and net income of $7.5 million, or $0.31 per diluted share, for the first quarter of 2017.

The first quarter of 2018 included pre-tax net gains of $855,000 ($634,000 after-tax or $0.03 per diluted share) from gains on the exchange of an investment and the sale of property, partially offset by unrealized losses on equity securities.  This compares to the first quarter of 2017 which included pre-tax net gains of $4.9 million ($3.1 million after-tax, or $0.13 per diluted share) from the sale of investments and the reversal of a valuation allowance for state income taxes of $1.7 million, or $0.07 per diluted share.

The fourth quarter of 2017 included an additional income tax expense of approximately $2.5 million, or $0.10 per diluted share, related to the Tax Cuts and Jobs Act (the “Tax Act”) which was enacted on December 22, 2017. The Tax Act provides for a reduction in the corporate income tax rate from 35% to 21% effective January 1, 2018 and this reduction in the corporate tax rate resulted in a downward revaluation to the Company's net deferred tax asset (DTA). The fourth quarter of 2017 also included a pre-tax charge of $317,000 ($188,000 after tax, or $0.01 per diluted share) related to pension settlements.

Excluding the items discussed above, net income on a non-GAAP basis was $5.9 million, or $0.24 per diluted share, for the first quarter of 2018 compared to $4.0 million, or $0.16 per diluted share, for the fourth quarter of 2017 and $2.7 million, or $0.11 per diluted share for the first quarter of 2017 (see pages 12 and 13 for a reconciliation of GAAP to non-GAAP measures).

Commenting on the Company's results, William Parent, President and Chief Executive Officer of Blue Hills Bancorp, said, "As our Company's transformative journey enters its next chapter, the first quarter of 2018 demonstrated our continued progress on several key financial ratios, most notably return on assets, return on equity and efficiency ratio. During the quarter, our asset sensitive interest rate risk strategy contributed to our net interest margin improvement as the Federal Reserve continues its tightening cycle, overcoming strong competitive pressures on both the loan and deposit side. We also continue to focus on expense discipline with total noninterest expense remaining flat on a linked quarter basis, excluding a fourth quarter nonrecurring charge. Our capital deployment activities continued in the first quarter as well, with a special dividend of $0.30 per common share paid in March. We feel 2018 is off to a very good start and look forward to further progress over the rest of the year."

BALANCE SHEET
Compared to December 31, 2017, total assets grew $631,000 to $2.7 billion at March 31, 2018. Individual asset categories had small changes across the board, including loans which were down $3 million to $2.2 billion at March 31, 2018. By category, declines in construction, home equity, commercial business and consumer loans were partially offset by increases in commercial real estate loans and residential mortgage loans. Commercial loan growth was impacted by seasonality, an exceptionally strong prior quarter, some loan run-off and a noticeable pick-up in competition with respect to loan terms and pricing compared to the fourth quarter.

Compared to March 31, 2017, total assets increased $173 million, or 7%. Loans drove the growth in total assets in this comparison, increasing $217 million, or 11%. By category, the increase from March 31, 2017 was due to commercial real estate loans, which were up $148 million, or 21%; residential mortgage loans, which were up $41 million, or 5%; and commercial business loans, which were up $38 million, or 18%. Residential mortgage originations were $72 million in the first quarter of 2018 compared to $91 million in the first quarter of 2017 while commercial loans (real estate and non-real estate combined) added to the balance sheet were $59 million in the first quarter of 2018 compared to $55 million in the first quarter of 2017. The growth in assets from loans compared to March 31, 2017 was partially offset by a $62 million, or 16%, decline in securities, primarily due to the repositioning of the securities portfolio during the second and third quarters of 2017.

Compared to December 31, 2017, deposits grew $38 million, or 2%, to $2.1 billion at March 31, 2018. The growth from the end of 2017 was driven by a $57 million increase in certificates of deposit reflecting the Company's strategy to lengthen the duration of its funding base. As part of this strategy, short-term borrowings declined $35 million, or 35% from the end of 2017.

Compared to March 31, 2017, deposits grew $221 million, or 12%, 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 $157 million, total

1



brokered deposits, which were up $52 million, NOW and demand deposits, which were up $40 million, and money market deposits, which were up $20 million. These increases were partially offset by a $48 million decline in regular savings deposits. Short-term borrowings declined $53 million, or 45%, from a year ago.

Stockholders’ equity was $395 million at March 31, 2018 compared to $398 million at December 31, 2017 and $397 million at March 31, 2017. The declines in both periods mainly reflect the payment of regular quarterly and special dividends, which more than offset the increases related to net income and other factors.

NET INTEREST AND DIVIDEND INCOME
Reported net interest and dividend income was $18.4 million in the first quarter of 2018, up $565,000, or 3%, from the fourth quarter of 2017, and up $2.5 million, or 16%, from the first quarter of 2017. Reported net interest margin was 2.91% in the first quarter of 2018, up from 2.80% in the fourth quarter of 2017 and from 2.70% in the first quarter of 2017.

Net interest and dividend income on a fully taxable equivalent basis (referred to herein as "Reported net interest and dividend income (FTE)", a Non-GAAP measure) was $18.4 million in the first quarter of 2018, up $533,000, or 3%, from $17.9 million in the fourth quarter of 2017, and up $2.4 million, or 15%, from the first quarter of 2017. Net interest margin on a fully taxable equivalent basis (referred to herein as "Reported net interest margin (FTE)", a Non-GAAP measure) was 2.92% in the first quarter of 2018 compared to 2.81% in the fourth quarter of 2017 and 2.71% in the first quarter of 2017.

The table shown below provides a reconciliation of reported to adjusted net interest and dividend income and margin for the last five quarters (referred to herein as "adjusted net interest and dividend income (FTE)" and "adjusted net interest margin (FTE)", which are Non-GAAP measures). Commentary which follows the table focuses on changes in adjusted net interest and dividend income (FTE) and adjusted net interest margin (FTE).
 
Quarters Ended
(Unaudited, dollars in thousands)
March 31, 2018
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
Net Interest and Dividend Income
 
 
 
 
 
Reported net interest and dividend income
$
18,359

$
17,794

$
16,954

$
16,408

$
15,881

FTE adjustment
32

64

58

60

66

Reported net interest and dividend income (FTE)
18,391

17,858

17,012

16,468

15,947

Purchase accounting accretion (1)
(200
)
(100
)
(103
)
(181
)
(107
)
Adjusted net interest and dividend income (FTE) (2)
$
18,191

$
17,758

$
16,909

$
16,287

$
15,840

 
 
 
 
 
 
Net Interest Margin
 
 
 
 
 
Reported net interest margin
2.91
 %
2.80
 %
2.77
 %
2.75
 %
2.70
 %
FTE adjustment
0.01

0.01

0.01

0.01

0.01

Reported net interest margin (FTE)
2.92

2.81

2.78

2.76

2.71

Mutual fund dividends (1)




0.03

Purchase accounting accretion (1)
(0.03
)
(0.02
)
(0.02
)
(0.03
)
(0.02
)
Adjusted net interest margin (FTE) (2)
2.89
 %
2.79
 %
2.76
 %
2.73
 %
2.72
 %
 
 
 
 
 
 
(1) In calculating the net interest margin impact of mutual fund dividends and purchase accounting accretion, average earning assets were adjusted to remove the average balances associated with each item. In the first quarter of 2017 when the mutual fund dividend income was zero, the removal of the average balance had a positive impact on the adjusted net interest margin. Management believes this adjusted net interest margin is useful to investors because of the volatility or non-recurring nature of certain items from quarter to quarter. The Company sold its investments in mutual funds during the first quarter of 2017.

(2) Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis (FTE), using the federal statutory tax rate. The rate used for the first quarter of 2018 was 21%, while 35% was used for all prior periods. Management believes these measures provide useful information to investors by allowing them to make peer comparisons.
Adjusted net interest and dividend income (FTE) increased $433,000, or 2%, to $18.2 million in the first quarter of 2018 from $17.8 million in the fourth quarter of 2017 and was up $2.4 million, or 15%, from $15.8 million in the first quarter of 2017. Adjusted net interest margin (FTE) improved to 2.89% in the first quarter of 2018 from 2.79% in the fourth quarter of 2017 and 2.72% in the first quarter of 2017. Adjusted net interest and dividend income (FTE) and adjusted net interest margin (FTE) benefited in both comparisons from higher floating rate loan yields related to the interest rate increases announced by the Federal Reserve Bank in December 2017, June 2017, March 2017, December 2016 and, to a lesser extent, the rate hike that was announced in March 2018. The

2



Company maintains 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 adjusted net interest and dividend income (FTE) in both comparisons was helped by loan growth. Average loans increased $30 million, or 1%, from the fourth quarter of 2017 and were up $249 million, or 13%, from the first quarter of 2017. The increase in average loans from the fourth quarter was mostly due to a higher level of commercial real estate loans while the increase from a year ago was driven by higher levels of commercial real estate loans, residential mortgages, and commercial business loans. Partially offsetting the improvement in adjusted net interest and dividend income (FTE) from the first quarter of 2017, was an $85 million, or 21%, decline in average securities reflecting the sales of the mutual fund portfolio during the first quarter of 2017 and the remaining available for sale corporate debt securities portfolio in the second quarter of 2017.

NONINTEREST INCOME
Noninterest income was $3.9 million in the first quarter of 2018, up $968,000, or 33%, from the fourth quarter of 2017. The improvement was due to an increase in miscellaneous income of $835,000 mainly reflecting higher income on Small Business Investment Company ("SBIC") investments. In addition, during the first quarter of 2018, the Company recorded a gain of $653,000, which was previously deferred due to escrow restrictions on the transaction, from an investment in Northeast Retirement Services, Inc., which was acquired by Community Bank System, Inc. in the first quarter of 2017, and a gain of $271,000 from the sale of property, plant and equipment. Mortgage banking income also improved $188,000. These increases were partially offset by an $865,000 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.

Compared to the first quarter of 2017, noninterest income declined $2.9 million, or 43%. This was mainly due to a decline in the gain recognized on the Company's investment in Northeast Retirement Services, Inc., which was acquired by Community Bank System, Inc. in the first quarter of 2017. The Company recognized a gain of $653,000, which was previously deferred due to escrow restrictions of the transaction, in the first quarter of 2018 compared to a gain of $5.9 million in the first quarter of 2017. This decline was partially offset by (1) the absence of a $1.0 million loss recorded in the first quarter of 2017 from the sale of the Company's investments in mutual funds, (2) an increase in miscellaneous income of $979,000 reflecting higher income on SBIC investments, and (3) a gain of $271,000 from the sale of property, plant and equipment in the first quarter of 2018.

NONINTEREST EXPENSE
Noninterest expense was $13.9 million in the first quarter of 2018, down $314,000, or 2%, from the fourth quarter of 2017. The fourth quarter of 2017 included a $317,000 charge related to pension settlements. Aside from that item, salaries and benefits expense increased $627,000, or 8% from the fourth quarter of 2017 due, in part, to merit increases, a higher number of employees, and an increase related to the impact of the recent $0.30 special dividend on unvested restricted stock. Several categories of expenses had linked-quarter declines including occupancy and equipment, data processing, professional fees and advertising.

Compared to the first quarter of 2017, noninterest expense increased $471,000, or 4%. The increase was mainly driven by higher salaries and benefits expense which was up $819,000, or 11%. This increase was mainly due to the same factors that caused the linked-quarter increase discussed above. The growth in salaries and benefits expense was partially offset by declines in professional fees, advertising and occupancy and equipment expense.

INCOME TAXES
The Tax Act was enacted on December 22, 2017 and provided for a reduction in the corporate income tax rate from 35% to 21% effective January 1, 2018. This reduction in the corporate tax rate also resulted in a fourth quarter charge of $2.5 million related to the downward revaluation of the Company's net deferred tax asset. As a result of the new tax law, the Company's effective tax rate declined from 35% in the fourth quarter of 2017, excluding the aforementioned $2.5 million charge, to 26% in the first quarter of 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 $460,000 in the first quarter of 2018 compared to charges of $681,000 in the fourth quarter of 2017 and $57,000 in the first quarter of 2017. The credit balance in the provision for the first quarter of 2018 reflects a decline in loans from the end of 2017 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.


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The allowance for loan losses as a percentage of total loans was 0.92% at March 31, 2018 compared to 0.95% at both December 31, 2017 and March 31, 2017. The Company had net loan charge-offs of $232,000 in the first quarter of 2018 compared to net loan charge-offs $52,000 in the fourth quarter of 2017 and net loan recoveries of $68,000 in the first quarter of 2017.

Nonperforming assets were $13.3 million at March 31, 2018 compared to $11.5 million at December 31, 2017 and $13.1 million at March 31, 2017. The increase in nonperforming assets from December 31, 2017 is mainly due to the placement of one commercial real estate loan on nonaccrual during the first quarter. Nonperforming assets as a percentage of total assets were 0.50% at March 31, 2018 compared to 0.43% at December 31, 2017 and 0.53% at March 31, 2017.

ABOUT BLUE HILLS BANCORP
Blue Hills Bancorp, Inc., with corporate headquarters in Norwood, MA, had assets of $2.7 billion at March 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. 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

4


Blue Hills Bancorp, Inc.
Consolidated Balance Sheets

(Unaudited; dollars in thousands)
 
 
 
% Change
 
March 31, 2018
December 31, 2017
March 31, 2017
March 31, 2018 vs. December 31, 2017
March 31, 2018 vs. March 31, 2017
Assets
 
 
 
 
 
Cash and due from banks
$
18,194

$
16,149

$
15,594

12.7
 %
16.7
 %
Short term investments
26,878

30,018

19,555

(10.5
)%
37.4
 %
Total cash and cash equivalents
45,072

46,167

35,149

(2.4
)%
28.2
 %
Equity securities, at fair value
9,651



NM

NM

Securities available-for-sale, at fair value

9,720

173,834

(100.0
)%
(100.0
)%
Securities held-to-maturity, at amortized cost
304,036

303,716

201,684

0.1
 %
50.7
 %
Federal Home Loan Bank stock, at cost
10,730

12,105

14,828

(11.4
)%
(27.6
)%
Loans held for sale
5,865

8,992

1,675

(34.8
)%
250.1
 %
Loans:
 
 
 




1-4 family residential
938,030

926,117

896,951

1.3
 %
4.6
 %
Home equity
75,737

81,358

80,427

(6.9
)%
(5.8
)%
Commercial real estate
849,040

833,978

701,463

1.8
 %
21.0
 %
Construction
73,113

90,712

70,855

(19.4
)%
3.2
 %
Total real estate loans
1,935,920

1,932,165

1,749,696

0.2
 %
10.6
 %
Commercial business
248,521

253,001

210,328

(1.8
)%
18.2
 %
Consumer
20,034

21,858

27,325

(8.3
)%
(26.7
)%
Total loans
2,204,475

2,207,024

1,987,349

(0.1
)%
10.9
 %
Allowance for loan losses
(20,185
)
(20,877
)
(18,875
)
(3.3
)%
6.9
 %
Loans, net
2,184,290

2,186,147

1,968,474

(0.1
)%
11.0
 %
Premises and equipment, net
20,685

21,573

21,858

(4.1
)%
(5.4
)%
Other real estate owned
3,649



NM

NM

Accrued interest receivable
6,120

6,438

5,994

(4.9
)%
2.1
 %
Goodwill and core deposit intangible
9,566

9,717

10,313

(1.6
)%
(7.2
)%
Net deferred tax asset
5,197

6,000

8,751

(13.4
)%
(40.6
)%
Bank-owned life insurance
33,354

33,078

32,271

0.8
 %
3.4
 %
Other assets
30,936

24,867

21,779

24.4
 %
42.0
 %
Total assets
$
2,669,151

$
2,668,520

$
2,496,610

 %
6.9
 %
Liabilities and Stockholders' Equity
 
 
 




Deposits:
 
 
 
 
 
NOW and demand
$
382,406

$
381,316

$
342,118

0.3
 %
11.8
 %
Regular savings
216,894

221,004

265,116

(1.9
)%
(18.2
)%
Money market
643,336

646,603

622,852

(0.5
)%
3.3
 %
Certificates of deposit
504,996

448,382

348,042

12.6
 %
45.1
 %
Brokered money market
90,369

92,798

50,129

(2.6
)%
80.3
 %
Brokered certificates of deposit
239,837

249,766

228,465

(4.0
)%
5.0
 %
Total deposits
2,077,838

2,039,869

1,856,722

1.9
 %
11.9
 %
Short-term borrowings
65,000

100,000

118,000

(35.0
)%
(44.9
)%
Long-term debt
105,000

105,000

105,000

 %
 %
Other liabilities
25,869

25,845

19,944

0.1
 %
29.7
 %
Total liabilities
2,273,707

2,270,714

2,099,666

0.1
 %
8.3
 %
Common stock
268

268

268

 %
 %
Additional paid-in capital
256,470

254,750

250,967

0.7
 %
2.2
 %
Unearned compensation- ESOP
(19,547
)
(19,737
)
(20,306
)
(1.0
)%
(3.7
)%
Retained earnings
160,124

163,978

168,160

(2.4
)%
(4.8
)%
Accumulated other comprehensive loss
(1,871
)
(1,453
)
(2,145
)
28.8
 %
(12.8
)%
Total stockholders' equity
395,444

397,806

396,944

(0.6
)%
(0.4
)%
Total liabilities and stockholders' equity
$
2,669,151

$
2,668,520

$
2,496,610

 %
6.9
 %

5


Blue Hills Bancorp, Inc.
Consolidated Balance Sheet Trend

(Unaudited; dollars in thousands)
March 31, 2018
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
Assets
 
 
 
 
 
Cash and due from banks
$
18,194

$
16,149

$
16,171

$
17,292

$
15,594

Short term investments
26,878

30,018

22,192

33,819

19,555

Total cash and cash equivalents
45,072

46,167

38,363

51,111

35,149

Equity securities, at fair value
9,651





Securities available for sale, at fair value

9,720

9,943

10,437

173,834

Securities held-to-maturity, at amortized cost
304,036

303,716

302,833

283,672

201,684

Federal Home Loan Bank stock, at cost
10,730

12,105

9,410

11,943

14,828

Loans held for sale
5,865

8,992

12,268

6,789

1,675

Loans:
 
 
 
 
 
1-4 family residential
938,030

926,117

905,585

895,015

896,951

Home equity
75,737

81,358

77,819

84,615

80,427

Commercial real estate
849,040

833,978

751,209

756,093

701,463

Construction
73,113

90,712

88,979

78,062

70,855

Total real estate loans
1,935,920

1,932,165

1,823,592

1,813,785

1,749,696

Commercial business
248,521

253,001

240,801

227,262

210,328

Consumer
20,034

21,858

23,142

25,047

27,325

Total loans
2,204,475

2,207,024

2,087,535

2,066,094

1,987,349

Allowance for loan losses
(20,185
)
(20,877
)
(20,248
)
(19,917
)
(18,875
)
Loans, net
2,184,290

2,186,147

2,067,287

2,046,177

1,968,474

Premises and equipment, net
20,685

21,573

21,850

22,004

21,858

Other real estate owned
3,649





Accrued interest receivable
6,120

6,438

5,802

5,362

5,994

Goodwill and core deposit intangible
9,566

9,717

9,892

10,091

10,313

Net deferred tax asset
5,197

6,000

9,295

8,184

8,751

Bank-owned life insurance
33,354

33,078

32,800

32,533

32,271

Other assets
30,936

24,867

25,673

25,606

21,779

Total assets
$
2,669,151

$
2,668,520

$
2,545,416

$
2,513,909

$
2,496,610

Liabilities and Stockholders' Equity
 
 
 
 
 
Deposits:
 
 
 
 
 
NOW and demand
$
382,406

$
381,316

$
376,864

$
359,877

$
342,118

Regular savings
216,894

221,004

244,662

246,484

265,116

Money market
643,336

646,603

666,388

674,593

622,852

Certificates of deposit
504,996

448,382

420,765

362,261

348,042

Brokered money market
90,369

92,798

41,768

44,728

50,129

Brokered certificates of deposit
239,837

249,766

235,106

277,320

228,465

Total deposits
2,077,838

2,039,869

1,985,553

1,965,263

1,856,722

Short-term borrowings
65,000

100,000

20,000


118,000

Long-term debt
105,000

105,000

110,000

130,000

105,000

Other liabilities
25,869

25,845

30,829

21,328

19,944

Total liabilities
2,273,707

2,270,714

2,146,382

2,116,591

2,099,666

Common stock
268

268

268

268

268

Additional paid-in capital
256,470

254,750

254,025

252,495

250,967

Unearned compensation- ESOP
(19,547
)
(19,737
)
(19,927
)
(20,117
)
(20,306
)
Retained earnings
160,124

163,978

166,282

166,033

168,160

Accumulated other comprehensive loss
(1,871
)
(1,453
)
(1,614
)
(1,361
)
(2,145
)
Total stockholders' equity
395,444

397,806

399,034

397,318

396,944

Total liabilities and stockholders' equity
$
2,669,151

$
2,668,520

$
2,545,416

$
2,513,909

$
2,496,610


6


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



(Unaudited; dollars in thousands, except share data)
Quarters Ended
% Change
 
March 31, 2018
December 31, 2017
March 31, 2017
March 31, 2018 vs. December 31, 2017
March 31, 2018 vs. March 31, 2017
Interest and fees on loans
$
21,809

$
20,883

$
17,382

4.4
 %
25.5
 %
Interest on securities
1,857

1,763

2,210

5.3
 %
(16.0
)%
Dividends
204

189

157

7.9
 %
29.9
 %
Other
78

40

32

95.0
 %
143.8
 %
Total interest and dividend income
23,948

22,875

19,781

4.7
 %
21.1
 %
Interest on deposits
4,775

4,349

3,254

9.8
 %
46.7
 %
Interest on borrowings
814

732

646

11.2
 %
26.0
 %
Total interest expense
5,589

5,081

3,900

10.0
 %
43.3
 %
Net interest and dividend income
18,359

17,794

15,881

3.2
 %
15.6
 %
Provision (credit) for loan losses
(460
)
681

57

NM

NM

Net interest and dividend income, after provision for loan losses
18,819

17,113

15,824

10.0
 %
18.9
 %
Deposit account fees
355

372

320

(4.6
)%
10.9
 %
Interchange and ATM fees
391

418

348

(6.5
)%
12.4
 %
Mortgage banking
740

552

740

34.1
 %
 %
Loan level derivative fee income
240

1,105

164

(78.3
)%
46.3
 %
Unrealized losses on equity securities
(69
)


NM

NM

Realized securities gains (losses), net


(1,022
)
NM

NM

Gain on exchange of investment in Northeast Retirement Services
653


5,947

NM

(89.0
)%
Bank-owned life insurance income
276

277

257

(0.4
)%
7.4
 %
Gain on sale of property plant and equipment
271



NM

NM

Miscellaneous
1,041

206

62

405.3
 %
1,579.0
 %
Total noninterest income
3,898

2,930

6,816

33.0
 %
(42.8
)%
Salaries and employee benefits
8,382

7,755

7,563

8.1
 %
10.8
 %
Pension settlement charges

317


NM

NM

Occupancy and equipment
2,083

2,224

2,115

(6.3
)%
(1.5
)%
Data processing
1,044

1,067

1,044

(2.2
)%
 %
Professional fees
453

540

869

(16.1
)%
(47.9
)%
Advertising
304

503

367

(39.6
)%
(17.2
)%
FDIC deposit insurance
233

220

212

5.9
 %
9.9
 %
Directors' fees
409

382

374

7.1
 %
9.4
 %
Amortization of core deposit intangible
151

175

247

(13.7
)%
(38.9
)%
Other general and administrative
812

1,002

609

(19.0
)%
33.3
 %
Total noninterest expense
13,871

14,185

13,400

(2.2
)%
3.5
 %
Income before income taxes
8,846

5,858

9,240

51.0
 %
(4.3
)%
Provision for income taxes
2,263

4,565

1,753

(50.4
)%
29.1
 %
Net income
$
6,583

$
1,293

$
7,487

409.1
 %
(12.1
)%
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
Basic
$
0.27

$
0.05

$
0.31

 
 
Diluted
$
0.27

$
0.05

$
0.31

 
 
Weighted average shares outstanding:
 
 
 
 
 
Basic
24,172,237

24,104,329

23,911,419

 
 
Diluted
24,827,850

24,795,366

24,275,665

 
 
Regular dividends declared per share
$
0.15

$
0.15

$
0.05

 
 
Special dividends declared per share
$
0.30

$

$

 
 

7



Blue Hills Bancorp Inc.
Consolidated Statements of Net Income - Trend
 
Quarters Ended
(Unaudited; dollars in thousands, except share data)
March 31,
December 31,
September 30,
June 30,
March 31,
 
2018
2017
2017
2017
2017
Interest and fees on loans
$
21,809

$
20,883

$
19,721

$
18,715

$
17,382

Interest on securities
1,857

1,763

1,565

1,572

2,210

Dividends
204

189

194

193

157

Other
78

40

65

94

32

Total interest and dividend income
23,948

22,875

21,545

20,574

19,781

Interest on deposits
4,775

4,349

4,089

3,523

3,254

Interest on borrowings
814

732

502

643

646

Total interest expense
5,589

5,081

4,591

4,166

3,900

Net interest and dividend income
18,359

17,794

16,954

16,408

15,881

Provision (credit) for loan losses
(460
)
681

242

1,118

57

Net interest and dividend income, after provision for loan losses
18,819

17,113

16,712

15,290

15,824

Deposit account fees
355

372

385

341

320

Interchange and ATM fees
391

418

455

388

348

Mortgage banking
740

552

1,146

1,219

740

Loss on sale of purchased home equity portfolio


(118
)


Loan level derivative fee income
240

1,105

156

1,367

164

Unrealized losses on equity securities
(69
)




Realized securities gains (losses), net



928

(1,022
)
Gain on exchange of investment in Northeast Retirement Services
653




5,947

Bank-owned life insurance income
276

277

268

261

257

Gain on sale of property plant and equipment
271





Miscellaneous
1,041

206

534

6

62

Total noninterest income
3,898

2,930

2,826

4,510

6,816

Salaries and employee benefits
8,382

7,755

7,979

7,664

7,563

Pension settlement charges

317




Occupancy and equipment
2,083

2,224

2,024

2,030

2,115

Data processing
1,044

1,067

1,016

1,022

1,044

Professional fees
453

540

340

526

869

Advertising
304

503

563

489

367

FDIC deposit insurance
233

220

226

223

212

Directors' fees
409

382

382

428

374

Amortization of core deposit intangible
151

175

199

222

247

Other general and administrative
812

1,002

626

762

609

Total noninterest expense
13,871

14,185

13,355

13,366

13,400

Income before income taxes
8,846

5,858

6,183

6,434

9,240

Provision for income taxes
2,263

4,565

2,342

2,566

1,753

Net income
$
6,583

$
1,293

$
3,841

$
3,868

$
7,487

 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
Basic
$
0.27

$
0.05

$
0.16

$
0.16

$
0.31

Diluted
$
0.27

$
0.05

$
0.16

$
0.16

$
0.31

Weighted average shares outstanding:
 
 
 
 
 
Basic
24,172,237

24,104,329

23,973,116

23,952,443

23,911,419

Diluted
24,827,850

24,795,366

24,510,092

24,346,553

24,275,665

Regular dividends declared per share
$
0.15

$
0.15

$
0.15

$
0.05

$
0.05

Special dividends declared per share
$
0.30

$

$

$
0.20

$


8



Blue Hills Bancorp Inc.
Average Balances/Yields
(Unaudited; dollars in thousands)
Quarters Ended
 
March 31, 2018
 
December 31, 2017
 
March 31, 2017
 
Average balance
Interest
Yield/Cost
 
Average balance
Interest
Yield/Cost
 
Average balance
Interest
Yield/Cost
Interest-earning assets
 
 
 
 
 
 
 
 
 
 
 
Total loans (1)
$
2,207,895

$
21,841

4.01
%
 
$
2,178,388

$
20,947

3.81
%
 
$
1,958,647

$
17,436

3.61
%
Securities (1)
313,212

1,902

2.46

 
312,313

1,836

2.33

 
398,201

2,240

2.28

Other interest earning assets and FHLB stock
33,533

237

2.87

 
28,842

156

2.15

 
31,842

171

2.18

Total interest-earning assets
2,554,640

23,980

3.81
%
 
2,519,543

22,939

3.61
%
 
2,388,690

19,847

3.37
%
Non-interest-earning assets
96,629

 
 
 
96,781

 
 
 
93,397

 
 
Total assets
$
2,651,269

 
 
 
$
2,616,324

 
 
 
$
2,482,087

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
NOW
$
157,582

$
16

0.04
%
 
$
160,371

$
17

0.04
%
 
$
145,396

$
16

0.04
%
Regular savings
219,834

165

0.30

 
235,864

183

0.31

 
262,578

218

0.34

Money market
742,035

1,972

1.08

 
718,489

1,823

1.01

 
653,165

1,519

0.94

Certificates of deposit
694,526

2,622

1.53

 
653,573

2,326

1.41

 
567,642

1,501

1.07

Total interest-bearing deposits
1,813,977

4,775

1.07

 
1,768,297

4,349

0.98

 
1,628,781

3,254

0.81

Borrowings
202,944

814

1.63

 
202,255

732

1.44

 
256,500

646

1.02

Total interest-bearing liabilities
2,016,921

5,589

1.12
%
 
1,970,552

5,081

1.02
%
 
1,885,281

3,900

0.84
%
Non-interest-bearing deposits
208,561

 
 
 
220,167

 
 
 
183,520

 
 
Other non-interest-bearing liabilities
26,063

 
 
 
23,602

 
 
 
21,035

 
 
Total liabilities
2,251,545

 
 
 
2,214,321

 
 
 
2,089,836

 
 
Stockholders' equity
399,724

 
 
 
402,003

 
 
 
392,251

 
 
Total liabilities and stockholders' equity
$
2,651,269

 
 
 
$
2,616,324

 
 
 
$
2,482,087

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest and dividend income (FTE)
 
18,391

 
 
 
17,858

 
 
 
15,947

 
Less: FTE adjustment
 
(32
)
 
 
 
(64
)
 
 
 
(66
)
 
Net interest and dividend income (GAAP)
 
$
18,359

 
 
 
$
17,794

 
 
 
$
15,881

 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest rate spread (FTE)
 
 
2.69
%
 
 
 
2.59
%
 
 
 
2.53
%
Net interest margin (FTE)
 
 
2.92
%
 
 
 
2.81
%
 
 
 
2.71
%
Total deposit cost
 
 
0.96
%
 
 
 
0.87
%
 
 
 
0.73
%

(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 March 31, 2018. A statutory rate of 35% was used prior to the first quarter of 2018.


9



Blue Hills Bancorp, Inc.
Average Balances - Trend
(Unaudited; dollars in thousands)
Quarters Ended
 
March 31,
December 31,
September 30,
June 30,
March 31,
 
2018
2017
2017
2017
2017
Interest-earning assets
 
 
 
 
 
Total loans
$
2,207,895

$
2,178,388

$
2,096,034

$
2,046,288

$
1,958,647

Securities
313,212

312,313

301,484

309,909

398,201

Other interest earning assets and FHLB stock
33,533

28,842

32,051

36,768

31,842

Total interest-earning assets
2,554,640

2,519,543

2,429,569

2,392,965

2,388,690

Non-interest-earning assets
96,629

96,781

101,188

102,750

93,397

Total assets
$
2,651,269

$
2,616,324

$
2,530,757

$
2,495,715

$
2,482,087

 
 
 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
NOW
$
157,582

$
160,371

$
153,224

$
150,711

$
145,396

Regular savings
219,834

235,864

243,680

255,255

262,578

Money market
742,035

718,489

708,748

688,600

653,165

Certificates of deposit
694,526

653,573

653,339

573,997

567,642

Total interest-bearing deposits
1,813,977

1,768,297

1,758,991

1,668,563

1,628,781

Borrowings
202,944

202,255

133,788

204,786

256,500

Total interest-bearing liabilities
2,016,921

1,970,552

1,892,779

1,873,349

1,885,281

Non-interest-bearing deposits
208,561

220,167

213,459

189,180

183,520

Other non-interest-bearing liabilities
26,063

23,602

23,603

33,664

21,035

Total liabilities
2,251,545

2,214,321

2,129,841

2,096,193

2,089,836

Stockholders' equity
399,724

402,003

400,916

399,522

392,251

Total liabilities and stockholders' equity
$
2,651,269

$
2,616,324

$
2,530,757

$
2,495,715

$
2,482,087



10



Blue Hills Bancorp, Inc.
Yield Trend
(Unaudited)
Quarters Ended
 
March 31,
December 31,
September 30,
June 30,
March 31,
 
2018
2017
2017
2017
2017
Interest-earning assets
 
 
 
 
 
Total loans (1)
4.01%
3.81%
3.74%
3.68%
3.61%
Securities (1)
2.46%
2.33%
2.12%
2.10%
2.28%
Other interest earning assets and FHLB stock
2.87%
2.15%
2.66%
2.65%
2.18%
Total interest-earning assets
3.81%
3.61%
3.53%
3.46%
3.37%
 
 
 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
NOW
0.04%
0.04%
0.04%
0.05%
0.04%
Regular savings
0.30%
0.31%
0.31%
0.33%
0.34%
Money market
1.08%
1.01%
0.99%
0.97%
0.94%
Certificates of deposit
1.53%
1.41%
1.28%
1.14%
1.07%
Total interest-bearing deposits
1.07%
0.98%
0.92%
0.85%
0.81%
Borrowings
1.63%
1.44%
1.49%
1.26%
1.02%
Total interest-bearing liabilities
1.12%
1.02%
0.96%
0.89%
0.84%
 
 
 
 
 
 
Net interest rate spread (FTE) (1)
2.69%
2.59%
2.57%
2.57%
2.53%
Net interest margin (FTE) (1)
2.92%
2.81%
2.78%
2.76%
2.71%
Total deposit cost
0.96%
0.87%
0.82%
0.76%
0.73%
(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 March 31, 2018. A statutory rate of 35% was used prior to the first quarter of 2018.
 


11



Blue Hills Bancorp Inc.
Reconciliation of GAAP to Non-GAAP Net Income
(Unaudited; dollars in thousands, except share data)
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 property, plant 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 DTA 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

 
 

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.


12



Blue Hills Bancorp Inc.
Reconciliation of GAAP to Non-GAAP Net Income (continued)
 
 
 
 
 
 
 
 
 
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

 
Quarter Ended
 
March 31, 2017
 
Income Before Income Taxes
 
Provision for Income Taxes
 
Net Income
 
Earnings per Common Share (diluted)
GAAP basis
$
9,240

 
$
1,753

 
$
7,487

 
$
0.31

Less gain on exchange of investment in Northeast Retirement Services
(5,947
)
 
(2,133
)
 
(3,814
)
 
(0.16
)
Add realized loss on sale of mutual funds
1,054

 
378

 
676

 
0.03

Less reversal of state tax valuation allowance

 
1,697

 
(1,697
)
 
(0.07
)
Non-GAAP basis
$
4,347

 
$
1,695

 
$
2,652

 
$
0.11




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.




13



Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited)
Quarters Ended
 
March 31,
December 31,
September 30,
June 30,
March 31,
 
2018
2017
2017
2017
2017
Performance Ratios (annualized)
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS:
 
 
 
 
 
GAAP
$
0.27

$
0.05

$
0.16

$
0.16

$
0.31

Non-GAAP
$
0.24

$
0.16

$
0.16

$
0.14

$
0.11

 
 
 
 
 
 
Return on average assets (ROAA):
 
 
 
 
 
GAAP
1.01
%
0.20
%
0.60
%
0.62
%
1.22
%
Non-GAAP
0.91
%
0.60
%
0.61
%
0.53
%
0.43
%
 
 
 
 
 
 
Return on average equity (ROAE):
 
 
 
 
 
GAAP
6.68
%
1.28
%
3.80
%
3.88
%
7.74
%
Non-GAAP
6.04
%
3.93
%
3.87
%
3.29
%
2.74
%
 
 
 
 
 
 
Return on average tangible common equity (ROATCE) (1) (3):
 
 
 
 
 
GAAP
6.84
%
1.31
%
3.90
%
3.99
%
7.95
%
Non-GAAP
6.19
%
4.03
%
3.97
%
3.37
%
2.82
%
 
 
 
 
 
 
Efficiency ratio (2) (3):
 
 
 
 
 
GAAP
62
%
68
%
68
%
64
%
59
%
Non-GAAP
65
%
67
%
67
%
67
%
75
%

(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 12 and 13 for reconciliation of Non-GAAP financial measures.


14



Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited; dollars in thousands, except share data)
 At or for the Quarters Ended
 
March 31,
December 31,
March 31,
 
2018
2017
2017
Asset Quality
 
 
 
Non-performing Assets
$
13,319

$
11,523

$
13,109

Non-performing Assets/ Total Assets
0.50
%
0.43
%
0.53
 %
Allowance for Loan Losses/ Total Loans
0.92
%
0.95
%
0.95
 %
Net Charge-offs (Recoveries)
$
232

$
52

$
(68
)
Annualized Net Charge-offs (Recoveries)/ Average Loans
0.04
%
0.01
%
(0.01
)%
Allowance for Loan Losses/ Nonperforming Loans
209
%
181
%
144
 %
 
 
 
 
Capital/Other
 
 
 
Common shares outstanding
26,861,521

26,827,660

26,858,328

Book value per share
$
14.72

$
14.83

$
14.78

Tangible book value per share
$
14.37

$
14.47

$
14.40

Tangible Common Equity/Tangible Assets (1) (2)
14.51
%
14.60
%
15.55
 %
Full-time Equivalent Employees
246

237

227

(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.


15

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