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Blue Hills Bancorp, Inc. Announces Third Quarter 2014 Earnings

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Blue Hills Bancorp, Inc. (the “Company” or “Blue Hills Bancorp”) (NASDAQ:BHBK) , the parent of Blue Hills Bank (the “Bank”), today announced net income, excluding certain nonrecurring items, of $836,000 for the third quarter of 2014 compared to net income of $761,000 for the second quarter of 2014 and net income of $372,000 for the third quarter of 2013. Net income, excluding certain nonrecurring items, was $2,032,000 for the first nine months of 2014 versus net income of $1,560,000 for the first nine months of 2013.

The following nonrecurring items were excluded from the results discussed above:

  • A pre-tax expense of $7,000,000 recorded in the third quarter of 2014 related to the Company’s funding of a new charitable foundation at the time of the mutual to stock conversion that was completed on July 21, 2014 and was previously disclosed. The Foundation was funded with 694,113 shares of Blue Hills Bancorp, Inc. stock and $57,000 in cash.
  • A pre-tax pension curtailment gain of $1,304,000 recorded in the third quarter of 2014 related to the Company’s decision to freeze its defined benefit pension plan as of October 31, 2014.
  • Pre-tax expenses of $51,000 in the third quarter of 2014, $330,000 in the second quarter of 2014, and $869,000 for the first nine months of 2014 related to the Company’s mutual to stock conversion.
  • Pre-tax expenses of $2,000 in the third quarter of 2014, $173,000 in the second quarter of 2014, and $950,000 for the first nine months of 2014 related to the January 2014 Nantucket Bank acquisition. The Company also incurred expenses related to this acquisition of $233,000 in the third quarter of 2013.
  • Pre-tax gains of $401,000 in the third quarter of 2013 and $1,872,000 in the first nine months of 2013 related to death benefits received on bank-owned life insurance.

On a GAAP basis, which includes the nonrecurring items discussed above, the Company reported a net loss of $2,958,000 for the third quarter of 2014 compared to net income of $429,000 for the second quarter of 2014 and net income of $619,000 for the third quarter of 2013. The Company also reported a net loss of $2,928,000 for the first nine months of 2014 compared to net income of $3,278,000 for the first nine months of 2013.

“We were energized by the strong reception our stock received from depositors during the initial public offering that was completed in late July”, said William Parent, President and Chief Executive Officer of Blue Hills Bancorp. “The stock’s performance has been strong since the IPO and we were pleased to be added to the Russell 2000 index at the end of September. As we go forward, we will be carefully assessing our options for deploying the new capital as we continue to work towards transforming the Company into a diversified, full-service community bank. In addition, we are committed to remaining very active in the communities we serve and the large contribution made to our Foundation in July will help us meet this commitment.”

Mr. Parent continued, “Our third quarter financial statements reflect the progress we continue to make in executing our strategy. Loans and deposits are up 65% and 25%, respectively, over the past year and net interest and dividend income for the first nine months of 2014 is up 75% from the comparable period in 2013. Our January 2014 Nantucket Bank acquisition has gone well as deposit levels there were higher at the end of September than they were on the acquisition date and the Nantucket business has helped boost core fee income categories. We are also very excited by the opening of our new Milton branch in October, which brings our total branch count to ten.”

BALANCE SHEET

Total assets at September 30, 2014 were $1.7 billion compared to $1.8 billion at June 30, 2014. As previously announced, the subscription offering period related to the Company’s mutual-to-stock conversion ended on June 19, 2014 and the funds were held in escrow until the closing of the conversion and offering in late July. This resulted in a temporary increase in short-term investments on the June 30, 2014 balance sheet which declined to a more normal level during the third quarter. As a result, short-term investments dropped $242 million from the end of the second quarter and this decline was partially offset by a $124 million, or 12%, increase in loans due, in part, to an increase in loans with floating interest rates. By category, the bulk of the increase in loans was driven by higher levels of residential mortgage and commercial real estate loans. There were also increases in commercial business and construction loans.

Compared to September 30, 2013, total assets increased $467 million, or 38%. Loans accounted for $445 million of the growth in total assets reflecting a combination of originations, purchases and participations as the Company continues to execute on its strategy to diversify its balance sheet, particularly through an expansion of the residential mortgage, commercial real estate and commercial business loan portfolios. In addition, the January 2014 Nantucket Bank acquisition added approximately $100 million of primarily commercial real estate and home equity loans. By category, approximately two-thirds of the growth in loans over the past twelve months came from the residential mortgage and commercial real estate categories.

Total deposits were $1.2 billion at both September 30, 2014 and June 30, 2014. An increase in core deposits, mainly driven by a higher level of money market deposits, was offset by a decline in brokered deposits. Compared with September 30, 2013, deposits increased $231 million, or 25%. The increase was primarily due to deposits assumed in the Nantucket Bank acquisition, which totaled $275 million as of the acquisition date in January 2014 and have grown slightly since then. Approximately 10% of the deposits assumed in the Nantucket Bank acquisition were certificates of deposit and the remainder was demand, savings and money market deposits. In addition, the growth in deposits from a year ago reflects a higher level of commercial deposits due to the Company’s increased emphasis on leveraging commercial lending relationships, including those in Nantucket. The increase in deposits from the factors discussed above was partially offset by declines in brokered CDs and in the higher-yielding categories of consumer deposits, reflecting the Company’s strategy of reducing its reliance on higher priced deposits as evidenced by the yield on interest bearing deposits declining to 0.54% for the first nine months of 2014 compared to 0.85% for the comparable period in 2013.

Stockholders’ equity was $410 million at September 30, 2014 compared to $176 million at June 30, 2014 and $172 million at September 30, 2013. The increases from both prior periods reflect the Company’s mutual to stock conversion that was completed in July 2014. Proceeds from the stock offering were used to fund asset growth and to pay down debt during the third quarter. As a result, short-term borrowings declined to $75 million at September 30, 2014 from $160 million at June 30, 2014. As part of the conversion, the Company also (1) redeemed $18.7 million of preferred stock that had been issued to the U. S. Treasury as part of the Small Business Lending Fund Program and (2) established an employee stock ownership plan (“ESOP”) which acquired 8% of the shares issued in the conversion, including shares contributed to the Foundation. The $22.4 million related to the ESOP is shown as a reduction to stockholders’ equity in the balance sheet. The tangible common equity to tangible assets ratio increased to 23.69% at September 30, 2014 from 7.91% at June 30, 2014 as a result of the additional capital received from the mutual to stock conversion.

NET INTEREST INCOME

Net interest and dividend income was $11.4 million in the third quarter of 2014, up $1.5 million, or 15.6%, from $9.9 million in the second quarter of 2014. Net interest margin improved to 2.81% in the third quarter of 2014 from 2.67% in the second quarter of 2014. Net interest income and margin in both quarters were impacted by purchase accounting accretion related to the January 2014 Nantucket Bank acquisition. Accretion in the third quarter contributed $179,000 to net interest income and 4 basis points to net interest margin compared to $779,000 and 21 basis points, respectively, in the second quarter. The reduced impact from purchase accounting accretion in the third quarter was due to fewer loan paydowns. The approximately $3.8 million remaining balance of accretable yield at June 30, 2014 is expected to be recorded to net interest income in future quarters. More than offsetting the negative impact on net interest income and margin from the decline in accretable yield was a $1.2 million increase in dividends from mutual fund investments. The growth in net interest income from the second quarter was also helped by a $117 million, or 12%, increase in average loans. Loan yield fell 34 basis points to 3.55% in the third quarter of 2014 as LIBOR-based floating rate loans grew in proportion to the rest of the portfolio and the contribution to loan yield from purchase accounting accretion declined 25 basis points.

Compared to the third quarter of 2013, net interest and dividend income increased $5.4 million, or 90%, while net interest margin improved 77 basis points. The improvement in both net interest income and margin reflects:

  • The transformation of the Company’s consumer deposits, including the impact of the January 2014 Nantucket Bank acquisition, which reduced the yield on interest bearing deposits to 0.54% in the third quarter of 2014 from 0.78% in the prior year period. In addition, the average balance of noninterest bearing deposits increased to $117 million in the third quarter of 2014 from $30 million in the prior year period.
  • Average equity, another source of noninterest bearing funds, grew $188 million, or 110%, from the third quarter of 2013 as a result of the Company’s mutual to stock conversion.
  • Purchase accounting accretion in the third quarter of 2014 contributed $179,000 to net interest income and 4 basis points to net interest margin.
  • Dividends from mutual fund investments increased $1.1 million compared to the third quarter of 2013.

Net interest income was also helped by a $459 million, or 73%, increase in average loans driven by higher levels of loans in all categories, mainly residential mortgages and commercial real estate. A portion of the loan growth from a year ago was in LIBOR-based floating rate loans.

NONINTEREST INCOME

Noninterest income, excluding a $1.3 million pension curtailment gain, was $2.1 million in the third quarter of 2014 compared to $2.3 million in the second quarter of 2014. The decline of $240,000, or 10%, was mainly due to a drop of $842,000 in gains from sales of securities. This was partially offset by a third quarter gain of $240,000 related to a bulk sale of jumbo residential mortgage loans and a $239,000 increase in loan level derivative income as a higher level of commercial customers were interested in converting floating rate loans to fixed rate via interest rate swaps.

Compared to the third quarter of 2013, noninterest income, excluding a $1.3 million pension curtailment gain recognized in the third quarter of 2014 and a $401,000 bank-owned life insurance death benefit recognized in the third quarter of 2013, declined $675,000, or 25%. The decline was driven by a $904,000 drop in gains from sales of securities, the absence of $283,000 of gains on trading assets recognized in the third quarter of 2013 as the trading operation was discontinued, and a $319,000 decline in loan level derivative income from fewer conversions of commercial loans from floating to fixed rate. These declines were partially offset by increases of $189,000 in deposit account fees and $176,000 in interchange and ATM fees primarily driven by the Nantucket Bank acquisition. In addition and as noted above there was a $240,000 gain on a bulk loan sale in the third quarter of 2014.

NONINTEREST EXPENSE

Noninterest expense was $17.7 million in the third quarter of 2014 vs. $10.7 million in the second quarter of 2014. The third quarter included a $7.0 million expense related to the Company’s funding of a new charitable foundation that was set up at the time of the mutual-to-stock conversion that was completed on July 21, 2014. The third quarter also included $51,000 related to costs associated with the Company’s mutual-to-stock conversion and $2,000 related to one-time costs associated with the Nantucket Bank acquisition, compared to $330,000 and $173,000, respectively in the second quarter. Excluding the items described above, noninterest expense increased $536,000 from the second quarter. The increase was mainly due to the implementation of the employee stock ownership program which added nearly $500,000 to third quarter expenses. Both the ESOP as well as the decision to freeze the Company’s pension plan as of October 31, 2014 were done in connection with the mutual to stock conversion as part of an overall realignment of compensation and benefit programs.

Compared to the third quarter of 2013, noninterest expense increased $10.1 million. The third quarter of 2014 included the $7.0 million expense related to the charitable foundation, $51,000 of expenses associated with the mutual-to-stock conversion, and nearly $500,000 related to the employee stock ownership program. The noninterest expense comparison with the prior year quarter was also heavily impacted by the January 2014 Nantucket Bank acquisition, which caused noninterest expense to increase approximately $1.4 million compared to the third quarter of 2013 taking into account operating expenses, core deposit intangible amortization, and one-time acquisition costs. In addition, operating expenses were boosted by higher costs associated with becoming a diversified community bank, including a continued expansion of the management team and other infrastructure to meet the needs associated with the current business plan as well as increased advertising. On a full time equivalent basis, total employees were 198 at September 30, 2014 compared to 146 at September 30, 2013.

ASSET QUALITY

The provision for loan losses was $1.4 million in the third quarter of 2014 compared to $959,000 in the second quarter of 2014 and $1.1 million in the third quarter of 2013. The provisions in all quarters reflect management’s assessment of the risks inherent in the loan portfolio.

The allowance for loan losses as a percentage of total loans was 1.13% at both September 30, 2014 and June 30, 2014, compared to 1.27% at September 30, 2013. The decline in the allowance coverage ratio from a year ago is due, in part, to placing the loans obtained in the Nantucket Bank acquisition on the balance sheet at estimated fair value. As a result, there was no associated allowance for loan losses established on the Nantucket Bank loans which resulted in an overall lower allowance coverage ratio for the Company.

The Company had net loan chargeoffs of $9,000 in the third quarter of 2014 compared to net chargeoffs of $13,000 in the second quarter of 2014 and net chargeoffs of $77,000 in the third quarter of 2013.

Nonperforming assets were $4.6 million at September 30, 2014 compared to $4.8 million at June 30, 2014 and $3.0 million at September 30, 2013. Nonperforming assets as a percentage of total assets were 0.27% at September 30, 2014, 0.26% at June 30, 2014, and 0.24% at September 30, 2013.

ABOUT BLUE HILLS BANCORP

Blue Hills Bancorp, Inc. had assets of $1.7 billion at September 30, 2014 and operates 10 branch offices in Brookline, Dedham, Hyde Park, Milton, Nantucket, Norwood and West Roxbury, Massachusetts. Blue Hills Bank is a full service, community bank with its main office in Hyde Park, MA. The three branches in Nantucket, Massachusetts operate under the name, Nantucket Bank, a division of Blue Hills Bank. The Bank provides consumer and commercial deposit and loan products to Eastern Massachusetts through a growing branch network and eCommerce channels. The Bank offers commercial and industrial 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. Previously known as Hyde Park Savings Bank, Blue Hills Bank has been serving area residents for over 140 years. For more information about Blue Hills Bank, visit the Blue Hills web site at 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 new 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 prospectus dated May 14, 2014, as filed with the Securities and Exchange Commission on May 23, 2014. 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.

Blue Hills Bancorp, Inc.
Consolidated Balance Sheets
(Dollars in thousands) % Change
September 30, 2014 June 30, 2014 September 30, 2013 September 14 vs. June 14 September 14 vs. September 13
Assets
Cash and due from banks $ 14,632 $ 15,308 $ 9,721 (4.4 )% 50.5 %
Short term investments 39,229 281,618 34,088 (86.1 )% 15.1 %
Total cash and cash equivalents 53,861 296,926 43,809 (81.9 )% 22.9 %
Trading assets 829 %

(100.0 )%
Securities available for sale, at fair value 417,164 417,581 438,184 (0.1 )% (4.8 )%
Federal Home Loan Bank stock, at cost 11,702 11,702 9,466 %

23.6 %
Loans held for sale 2,465 22,398 468 (89.0 )% 426.7 %
Loans 1,125,496 1,001,645 680,621 12.4 % 65.4 %
Allowance for loan losses (12,721 ) (11,292 ) (8,681 ) 12.7 % 46.5 %
Loans, net of allowance for loan losses 1,112,775 990,353 671,940 12.4 % 65.6 %
Premises and equipment, net 18,616 18,209 7,437 2.2 % 150.3 %
Accrued interest receivable 4,367 4,127 3,376 5.8 % 29.4 %
Goodwill 9,160 9,182 (0.2 )% %
Core deposit intangible 4,694 5,179 (9.4 )% %
Net deferred tax asset 4,456 1,020 2,677 336.9 % 66.5 %
Bank-owned life insurance 30,576 30,326 29,571 0.8 % 3.4 %
Other assets 16,775 16,102 12,100 4.2 % 38.6 %
Total assets $ 1,686,611 $ 1,823,105 $ 1,219,857 (7.5 )% 38.3 %
Liabilities and Stockholders’ Equity
NOW and demand $ 252,439 $ 237,586 $ 104,665 6.3 % 141.2 %
Regular savings 318,557 343,697 344,293 (7.3 )% (7.5 )%
Money market 233,392 195,264 81,982 19.5 % 184.7 %
Certificates of deposit 289,384 293,516 309,800 (1.4 )% (6.6 )%
Brokered deposits 58,705 81,205 80,670 (27.7 )% (27.2 )%
Total deposits 1,152,477 1,151,268 921,410 0.1 % 25.1 %
Stock subscriptions 283,958 % %
Short-term borrowings 75,000 160,000 65,000 (53.1 )% 15.4 %
Long-term debt 35,000 35,000 45,000 % (22.2 )%
Other liabilities 14,068 16,724 16,378 (15.9 )% (14.1 )%
Total liabilities 1,276,545 1,646,950 1,047,788 (22.5 )% 21.8 %
Preferred stock 18,724 18,724 (100.0 )% (100.0 )%
Common stock 285 % %
Additional paid-in capital 280,926 % %
Unearned compensation- ESOP (22,393 ) % %
Retained earnings 146,979 149,959 151,049 (2.0 )% (2.7 )%
Accumulated other comprehensive income 4,269 7,472 2,296 (42.9 )% 85.9 %
Total stockholders’ equity 410,066 176,155 172,069 132.8 % 138.3 %
Total liabilities and stockholders’ equity $ 1,686,611 $ 1,823,105 $ 1,219,857 (7.49 )% 38.3 %
Blue Hills Bancorp, Inc.
Consolidated Balance Sheet Trend
(Dollars in thousands) September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
Assets
Cash and due from banks $ 14,632 $ 15,308 $ 17,811 $ 8,151 $ 9,721
Short term investments 39,229 281,618 29,402 32,165 34,088
Total cash and cash equivalents 53,861 296,926 47,213 40,316 43,809
Trading assets 750 829
Securities available for sale, at fair value 417,164 417,581 444,959 441,306 438,184
Federal Home Loan Bank stock, at cost 11,702 11,702 11,246 10,766 9,466
Loans held for sale 2,465 22,398 874 765 468
Loans 1,125,496 1,001,645 923,769 774,253 680,621
Allowance for loan losses (12,721 ) (11,292 ) (10,346 ) (9,671 ) (8,681 )
Loans, net of allowance for loan losses 1,112,775 990,353 913,423 764,582 671,940
Premises and equipment, net 18,616 18,209 18,281 7,478 7,437
Accrued interest receivable 4,367 4,127 3,906 4,290 3,376
Goodwill 9,160 9,182 9,182
Core deposit intangible 4,694 5,179 5,688
Net deferred tax asset 4,456 1,020 1,859 2,831 2,677
Bank-owned life insurance 30,576 30,326 30,080 29,831 29,571
Other assets 16,775 16,102 12,816 11,372 12,100
Total assets $ 1,686,611 $ 1,823,105 $ 1,499,527 $ 1,314,287 $ 1,219,857
Liabilities and Stockholders’ Equity
NOW and demand $ 252,439 $ 237,586 $ 242,544 $ 118,648 $ 104,665
Regular savings 318,557 343,697 351,040 332,518 344,293
Money market 233,392 195,264 195,713 75,716 81,982
Certificates of deposit 289,384 293,516 306,759 296,718 309,800
Brokered deposits 58,705 81,205 20,705 91,623 80,670
Total deposits 1,152,477 1,151,268 1,116,761 915,223 921,410
Stock subscriptions 283,958
Short-term borrowings 75,000 160,000 150,000 170,000 65,000
Long-term debt 35,000 35,000 45,000 45,000 45,000
Other liabilities 14,068 16,724 14,601 12,530 16,378
Total liabilities 1,276,545 1,646,950 1,326,362 1,142,753 1,047,788
Preferred stock 18,724 18,724 18,724 18,724
Common stock 285
Additional paid-in capital 280,926
Unearned compensation- ESOP (22,393 )
Retained earnings 146,979 149,959 149,742 150,345 151,049
Accumulated other comprehensive income 4,269 7,472 4,699 2,465 2,296
Total liabilities and stockholders’ equity 410,066 176,155 173,165 171,534 172,069
Total liabilities and stockholders’ equity $ 1,686,611 $ 1,823,105 $ 1,499,527 $ 1,314,287 $ 1,219,857
Blue Hills Bancorp, Inc.
Consolidated Statements of Operations – Quarters
(Dollars in thousands) Quarters Ended % Change
September 30, 2014 June 30, 2014 September 30, 2013 September 14 vs.

June 14

September 14 vs. September 13
Interest and fees on loans $ 9,725 $ 9,399 $ 5,663 3.5 % 71.7 %
Interest on securities 1,892 2,003 2,081 (5.5 )% (9.1 )%
Dividends 1,388 119 230 1,066.4 % 503.5 %
Other 65 30 10 116.7 % 550.0 %
Total interest and dividend income 13,070 11,551 7,984 13.2 % 63.7 %
Interest on deposits 1,376 1,348 1,674 2.1 % (17.8 )%
Interest on borrowings 275 326 305 (15.6 )% (9.8 )%
Total interest expense 1,651 1,674 1,979 (1.4 )% (16.6 )%
Net interest and dividend income 11,419 9,877 6,005 15.6 % 90.2 %
Provision for loan losses 1,438 959 1,136 49.9 % 26.6 %
Net interest and dividend income, after provision for loan losses 9,981 8,918 4,869 11.9 % 105.0 %
Deposit account fees 337 343 148 (1.7 )% 127.7 %
Interchange and ATM fees 390 371 214 5.1 % 82.2 %
Mortgage banking 101 75 87 34.7 % 16.1 %
Gain (loss) on sale of jumbo residential mortgage portfolio loans 240 (81 ) % (396.3 )%
Loan level derivative income 296 57 615 419.3 % (51.9 )%
Realized securities gains and impairment losses, net 349 1,191 1,253 (70.7 )% (72.1 )%
Gains on trading assets, net 283 % (100.0 )%
Bank-owned life insurance income 250 246 247 1.6 % 1.2 %
Bank-owned life insurance death benefit gains 401 % (100.0 )%
Pension curtailment gain 1,304 % %
Miscellaneous 107 27 (21 ) 296.3 % (609.5 )%
Total noninterest income 3,374 2,310 3,146 46.1 % 7.2 %
Salaries and employee benefits 5,424 5,212 3,949 4.1 % 37.4 %
Occupancy and equipment 1,150 1,298 948 (11.4 )% 21.3 %
Data processing 805 701 466 14.8 % 72.7 %
Professional fees 694 1,123 1,298 (38.2 )% (46.5 )%
Advertising 815 658 342 23.9 % 138.3 %
FDIC deposit insurance 360 196 128 83.7 % 181.3 %
Directors’ fees 150 156 125 (3.8 )% 20.0 %
Amortization of core deposit intangible 485 509 (4.7 )% %
Charitable Foundation contributions 7,000 % %
Other general and administrative 865 809 354 6.9 % 144.4 %
Total noninterest expense 17,748 10,662 7,610 66.5 % 133.2 %
Income (loss) before income taxes (4,393 ) 566 405 876.1 % (1,184.7 )%
Provision (benefit) for income taxes (1,435 ) 137 (214 ) 1,147.4 % (570.6 )%
Net income (loss) $ (2,958 ) $ 429 $ 619 789.5 % (577.9 )%
Earnings (loss) per share is not presented herein as common stock has not been outstanding during the entire three months ended September 30, 2014. At September 30, 2014, there are no common stock equivalents.
Blue Hills Bancorp, Inc.
Consolidated Statements of Operations – Year to Date
(Dollars in thousands) Year to Date
September 30, 2014 September 30, 2013 % Change
Interest and fees on loans $ 27,175 $ 15,423 76.2 %
Interest on securities 5,832 6,827 (14.6 )%
Dividends 1,673 879 90.3 %
Other 110 56 96.4 %
Total interest and dividend income 34,790 23,185 50.1 %
Interest on deposits 4,075 5,313 (23.3 )%
Interest on borrowings 905 863 4.9 %
Total interest expense 4,980 6,176 (19.4 )%
Net interest and dividend income 29,810 17,009 75.3 %
Provision for loan losses 3,111 3,093 0.6 %
Net interest and dividend income, after provision for loan losses 26,699 13,916 91.9 %
Deposit account fees 971 415 134.0 %
Interchange and ATM fees 1,046 612 70.9 %
Mortgage banking 244 668 (63.5 )%
Gain on sale of jumbo residential mortgage portfolio loans 240 535 (55.1 )%
Loan level derivative income 503 885 (43.2 )%
Realized securities gains and impairment losses, net 2,081 5,632 (63.1 )%
Gains on trading assets, net 25 560 (95.5 )%
Bank-owned life insurance income 745 763 (2.4 )%
Bank-owned life insurance death benefit gains 1,872 (100.0 )%
Pension curtailment gain 1,304 %
Miscellaneous 154 308 (50.0 )%
Total noninterest income 7,313 12,250 (40.3 )%
Salaries and employee benefits 15,765 11,744 34.2 %
Occupancy and equipment 4,049 2,886 40.3 %
Data processing 2,111 1,288 63.9 %
Professional fees 2,976 2,648 12.4 %
Advertising 1,774 1,554 14.2 %
FDIC deposit insurance 734 425 72.7 %
Directors’ fees 456 376 21.3 %
Amortization of core deposit intangible 1,347 %
Charitable Foundation contributions 7,000 %
Other general and administrative 2,454 1,783 37.6 %
Total noninterest expense 38,666 22,704 70.3 %
Income (loss) before income taxes (4,654 ) 3,462 (234.4 )%
Provision (benefit) for income taxes (1,726 ) 184 (1,038.0 )%
Net income (loss) $ (2,928 ) $ 3,278 (189.3 )%
Blue Hills Bancorp Inc.
Consolidated Statements of Operations – Trend
Quarters Ended
(Dollars in thousands) September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
Interest and fees on loans $ 9,725 $ 9,399 $ 8,051 $ 6,453 $ 5,663
Interest on securities 1,892 2,003 1,937 1,994 2,081
Dividends 1,388 119 166 1,450 230
Other 65 30 15 10 10
Total interest and dividend income 13,070 11,551 10,169 9,907 7,984
Interest on deposits 1,376 1,348 1,351 1,490 1,674
Interest on borrowings 275 326 304 305 305
Total interest expense 1,651 1,674 1,655 1,795 1,979
Net interest and dividend income 11,419 9,877 8,514 8,112 6,005
Provision for loan losses 1,438 959 714 1,001 1,136
Net interest and dividend income, after provision for loan losses 9,981 8,918 7,800 7,111 4,869
Deposit account fees 337 343 291 164 148
Interchange and ATM fees 390 371 285 209 214
Mortgage banking 101 75 68 86 87
Gain (loss) on sale of jumbo residential mortgage portfolio loans 240 (81 )
Loan level derivative income 296 57 150 507 615
Realized securities gains and impairment losses, net 349 1,191 541 (633 ) 1,253
Gains (losses) on trading assets, net 25 (55 ) 283
Bank-owned life insurance income 250 246 249 260 247
Bank-owned life insurance death benefit gains 401
Pension curtailment gain 1,304
Miscellaneous 107 27 20 223 (21 )
Total noninterest income 3,374 2,310 1,629 761 3,146
Salaries and employee benefits 5,424 5,212 5,129 5,159 3,949
Occupancy and equipment 1,150 1,298 1,601 1,110 948
Data processing 805 701 605 646 466
Professional fees 694 1,123 1,159 700 1,298
Advertising 815 658 301 269 342
FDIC deposit insurance 360 196 178 95 128
Directors’ fees 150 156 150 312 125
Amortization of core deposit intangible 485 509 353
Charitable Foundation contributions 7,000
Other general and administrative 865 809 780 664 354
Total noninterest expense 17,748 10,662 10,256 8,955 7,610
Income (loss) before income taxes (4,393 ) 566 (827 ) (1,083 ) 405
Provision (benefit) for income taxes (1,435 ) 137 (428 ) (468 ) (214 )
Net income (loss) $ (2,958 ) $ 429 $ (399 ) $ (615 ) $ 619
Blue Hills Bancorp Inc.
Average Balances/Yields
(Dollars in thousands) Quarters Ended
September 30, 2014 June 30, 2014 September 30, 2013
Average balance Interest Yield/Cost Average balance Interest Yield/Cost Average balance Interest Yield/Cost
Interest-earning assets
Total loans $ 1,085,951 $ 9,725 3.55 % $ 969,417 $ 9,399 3.89 % $ 626,905 $ 5,663 3.58 %
Securities 414,864 3,237 3.10 422,335 2,081 1.98 510,972 2,302 1.79
Other interest earning assets and FHLB stock 113,163 108 0.38 94,149 71 0.30 29,586 19 0.25
Total interest-earning assets 1,613,978 13,070 3.21 % 1,485,901 11,551 3.12 % 1,167,463 7,984 2.71 %
Non-interest-earning assets 91,717 90,026 51,344
Total assets $ 1,705,695 $ 1,575,927 $ 1,218,807
Interest-bearing liabilities
NOW $ 124,846 $ 19 0.06 % $ 121,263 $ 19 0.06 % $ 64,322 $ 19 0.12 %
Regular savings 336,151 360 0.42 345,837 329 0.38 353,231 576 0.65
Money market 197,500 270 0.54 191,972 251 0.52 80,925 126 0.62
Certificates of deposit 346,807 727 0.83 359,668 749 0.84 353,171 953 1.07
Total interest-bearing deposits 1,005,304 1,376 0.54 % 1,018,740 1,348 0.53 % 851,649 1,674 0.78 %
Borrowings 145,848 275 0.75 206,077 326 0.63 149,602 305 0.81
Total interest-bearing liabilities 1,151,152 1,651 0.57 % 1,224,817 1,674 0.55 % 1,001,251 1,979 0.78 %
Non-interest-bearing deposits 117,393 112,849 29,629
Other non-interest-bearing liabilities 78,377 63,496 16,831
Total liabilities 1,346,922 1,401,162 1,047,711
Stockholders’ Equity 358,773 174,765 171,096
Total liabilities and stockholders’ equity $ 1,705,695 $ 1,575,927 $ 1,218,807
Net interest and dividend income $ 11,419 $ 9,877 $ 6,005
Net interest rate spread 2.64 % 2.57 % 1.93 %
Net interest margin 2.81 % 2.67 % 2.04 %
Total deposit cost 0.49 % 0.48 % 0.75 %

No tax equivalent yield adjustments have been made as the effect of such adjustments would not be material.

Blue Hills Bancorp Inc.
Average Balances/Yields
(Dollars in thousands) Year to Date
September 30, 2014 September 30, 2013
Average balance Interest Yield/ Cost Average balance Interest Yield/ Cost
Interest-earning assets
Total loans $ 979,459 $ 27,175 3.71 % $ 548,644 $ 15,423 3.76 %
Securities 426,658 7,384 2.31 519,028 7,678 1.98
Other interest earning assets and FHLB stock 84,741 231 0.36 48,402 84 0.23
Total interest-earning assets 1,490,858 34,790 3.12 % 1,116,074 23,185 2.78 %
Non-interest-earning assets 85,450 59,311
Total assets $ 1,576,308 $ 1,175,385
Interest-bearing liabilities
NOW $ 120,382 $ 59 0.07 % $ 63,817 $ 53 0.11 %
Regular savings 344,069 1,043 0.41 347,300 1,970 0.76
Money market 186,685 730 0.52 81,840 435 0.71
Certificates of deposit 353,947 2,243 0.85 339,128 2,855 1.13
Total interest-bearing deposits 1,005,083 4,075 0.54 % 832,085 5,313 0.85 %
Borrowings 172,348 905 0.70 118,662 863 0.97
Total interest-bearing liabilities 1,177,431 4,980 0.57 % 950,747 6,176 0.87 %
Non-interest-bearing deposits 108,889 27,707
Other non-interest-bearing liabilities 53,648 21,056
Total liabilities 1,339,968 999,510
Stockholders’ equity 236,340 175,875
Total liabilities and stockholders’ equity $ 1,576,308 $ 1,175,385
Net interest and dividend income $ 29,810 $ 17,009
Net interest rate spread 2.55 % 1.91 %
Net interest margin 2.67 % 2.04 %
Total deposit cost 0.49 % 0.83 %

No tax equivalent yield adjustments have been made as the effect of such adjustments would not be material.

Blue Hills Bancorp, Inc.
Average Balances – Trend
Quarters ended
(Dollars in thousands) September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
Interest-earning assets
Total loans $ 1,085,951 $ 969,417 $ 880,754 $ 720,615 $ 626,905
Securities 414,864 422,335 443,084 445,584 510,972
Other interest earning assets and FHLB stock 113,163 94,149 46,176 38,191 29,586
Total interest-earning assets 1,613,978 1,485,901 1,370,014 1,204,390 1,167,463
Non-interest-earning assets 91,717 90,026 71,684 49,358 51,344
Total assets $ 1,705,695 $ 1,575,927 $ 1,441,698 $ 1,253,748 $ 1,218,807
Interest-bearing liabilities
NOW $ 124,846 $ 121,263 $ 114,927 $ 74,777 $ 64,322
Regular savings 336,151 345,837 350,377 337,315 353,231
Money market 197,500 191,972 170,283 79,398 80,925
Certificates of deposit 346,807 359,668 355,463 385,674 353,171
Total interest-bearing deposits 1,005,304 1,018,740 991,050 877,164 851,649
Borrowings 145,848 206,077 165,333 153,728 149,602
Total interest-bearing liabilities 1,151,152 1,224,817 1,156,383 1,030,892 1,001,251
Non-interest-bearing deposits 117,393 112,849 96,193 36,980 29,629
Other non-interest-bearing liabilities 78,377 63,496 15,682 12,162 16,831
Total liabilities 1,346,922 1,401,162 1,268,258 1,080,034 1,047,711
Stockholders’ Equity 358,773 174,765 173,440 173,714 171,096
Total liabilities and stockholders’ equity $ 1,705,695 $ 1,575,927 $ 1,441,698 $ 1,253,748 $ 1,218,807
Blue Hills Bancorp, Inc.
Yield Trend
Quarters Ended
September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
Interest-earning assets
Total loans 3.55% 3.89% 3.71% 3.55% 3.58%
Securities 3.10% 1.98% 1.89% 3.06% 1.79%
Other interest earning assets and FHLB stock 0.38% 0.30% 0.46% 0.19% 0.25%
Total interest-earning assets 3.21% 3.12% 3.01% 3.26% 2.71%
Interest-bearing liabilities
NOW 0.06% 0.06% 0.07% 0.08% 0.12%
Regular savings 0.42% 0.38% 0.41% 0.53% 0.65%
Money market 0.54% 0.52% 0.50% 0.49% 0.62%
Certificates of deposit 0.83% 0.84% 0.88% 0.96% 1.07%
Total interest-bearing deposits 0.54% 0.53% 0.55% 0.67% 0.78%
Borrowings 0.75% 0.63% 0.75% 0.79% 0.81%
Total interest-bearing liabilities 0.57% 0.55% 0.58% 0.69% 0.78%
Net interest rate spread 2.64% 2.57% 2.43% 2.57% 1.93%
Net interest margin 2.81% 2.67% 2.52% 2.67% 2.04%
Total deposit cost 0.49% 0.48% 0.50% 0.65% 0.75%
No tax equivalent yield adjustments have been made as the effect of such adjustments would not be material.

Blue Hills Bancorp Inc.

Reconciliation of GAAP to Non-GAAP Net Income (Loss)

Quarters Ended
(Dollars in thousands) September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
Net income (loss)-GAAP basis $ (2,958 ) $ 429 $ (399 ) $ (615 ) $ 619
Noninterest income adjustments:
Less gain on bank-owned life insurance death benefits (401 )
Less pension curtailment gain (1,304 )
Noninterest expense adjustments:
Add Nantucket Bank acquisition expenses 2 173 775 350 233
Add expenses related to mutual to stock conversion 51 330 488 184
Add Charitable Foundation contribution 7,000
Income tax effects (1,955 ) (171 ) (429 ) (182 ) (79 )
Net income (loss)-Non-GAAP basis $ 836 $ 761 $ 435 $ (263 ) $ 372

Blue Hills Bancorp Inc.

Reconciliation of GAAP to Non-GAAP Net Income (Loss)

Year to Date
September 30, 2014 September 30, 2013
Net income (loss)-GAAP basis $ (2,928 ) $ 3,278
Noninterest income adjustments:
Less gain on bank-owned life insurance death benefits (1,872 )
Less pension curtailment gain (1,304 )
Noninterest expense adjustments:
Add Nantucket Bank acquisition expenses 950 233
Add expenses related to mutual to stock conversion 869
Add Charitable Foundation contribution 7,000
Income tax effects (2,555 ) (79 )
Net income Non-GAAP basis $ 2,032 $ 1,560

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
Quarters Ended
September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
Performance Ratios (annualized)
Return (loss) on average assets (ROAA):
GAAP (0.69 )% 0.11 % (0.11 )% (0.19 )% 0.20 %
Non-GAAP(1) 0.19 % 0.19 % 0.12 % (0.08 )% 0.12 %
Return (loss) on average equity (ROAE):
GAAP (3.27 )% 0.98 % (0.93 )% (1.40 )% 1.44 %
Non-GAAP(1) 0.92 % 1.75 % 1.02 % (0.60 )% 0.86 %
Return (loss) on average tangible common equity (ROATCE):
GAAP (3.53 )% 1.21 % (1.12 )% (1.57 )% 1.61 %
Non-GAAP(1) 1.00 % 2.14 % 1.22 % (0.67 )% 0.97 %
Efficiency Ratio:
GAAP 120 % 87 % 101 % 101 % 83 %
Non-GAAP(1) 79 % 83 % 89 % 95 % 84 %
Year to Date
September 30, 2014 September 30, 2013
Performance Ratios (annualized)
Return (loss) on average assets (ROAA):
GAAP (0.25 )% 0.37 %
Non-GAAP(1) 0.17 % 0.18 %
Return (loss) on average equity (ROAE):
GAAP (1.66 )% 2.49 %
Non-GAAP(1) 1.15 % 1.19 %
Return (loss) on average tangible common equity (ROATCE):
GAAP (1.86 )% 2.79 %
Non-GAAP(1) 1.29 % 1.33 %
Efficiency Ratio:
GAAP 104% 78 %
Non-GAAP(1) 83 % 82 %

(1) See page 14 for a reconciliation of Non-GAAP financial measures

Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Dollars in thousands, except share data) At or for the Quarters Ended At or for the Nine Months ended
September 30, June 30, September 30, September 30, September 30,
2014 2014 2013 2014 2013
Asset Quality
Nonperforming Assets $ 4,566 $ 4,766 $ 2,985 $ 4,566 $ 2,985
Nonperforming Assets/Total Assets 0.27 % 0.26 % 0.24 % 0.27 % 0.24 %
Allowance for Loan Losses/Total Loans 1.13 % 1.13 % 1.27 % 1.13 % 1.27 %
Net Chargeoffs (Recoveries) $ 9 $ 13 $ 77 $ 60 $ (39 )
Annualized Chargeoffs (Recoveries)/Average Loans % 0.01 % 0.05 % 0.01 % (0.01 )%
Capital/Other
Common shares outstanding 28,466,813 n/a n/a 28,466,813 n/a
Book value per share $ 14.41 n/a n/a $ 14.41 n/a
Tangible book value per share $ 13.92 n/a n/a $ 13.92 n/a
Tangible Common Equity/Tangible Assets 23.69 % 7.91 % 12.57 % 23.69 % 12.57 %
Full-time Equivalent Employees 198 202 146 198 146

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