Market Overview

Blue Hills Bancorp, Inc. Reports First Quarter Earnings

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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 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 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.

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

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 %
                           

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  
                               

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   $   $      
                       

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   $  

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.

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  
                               

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.

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.

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.

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.

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.

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