Blue Hills Bancorp, Inc. Reports Second Quarter Earnings

NORWOOD, Mass., July 26, 2017 (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 $3.9 million, or $0.16 per diluted share, for the second quarter of 2017 compared to net income of $7.5 million, or $0.31 per diluted share, for the first quarter of 2017 and net income of $1.4 million, or $0.05 per diluted share, for the second quarter of 2016.

The second quarter of 2017 included a pre-tax gain of $928,000 ($595,000 after-tax, or $0.02 per diluted share) from the sale of the Company's remaining available-for-sale debt securities portfolio. Excluding this item, net income was $3.3 million, or $0.14 per diluted share, for the second quarter of 2017. As first disclosed in a Form 10-Q as filed with the Securities and Exchange Commission on May 5, 2017, the Company’s Management Investment Committee approved a change in strategy to liquidate its externally managed available-for-sale debt securities portfolio (which largely consisted of corporate debt securities) during the second quarter as continued rising interest rates would likely negatively impact the returns of this portfolio over time. This portfolio had a carrying value of $164.6 million at the end of the first quarter. The Company intends to ultimately invest approximately $100.0 million of the proceeds from the sale of these bonds in its internally managed fixed income securities portfolio, which is accounted for as held to maturity, and most of this liquidation and reinvestment had been accomplished by the end of the second quarter. The remaining proceeds were used to fund incremental loan growth.

The first quarter of 2017 included a pre-tax gain of $5.9 million ($3.8 million after-tax, or $0.16 per diluted share) from the Company's investment in Northeast Retirement Services, Inc., which was acquired by Community Bank System, Inc., a pre-tax loss of $1.1 million ($676,000 after-tax, or $0.03 per diluted share) from the sale of the Company's investments in mutual funds, and the reversal of a valuation allowance for state taxes of $1.7 million, or $0.07 per diluted share. Excluding these three items, net income was $2.7 million, or $0.11 per diluted share, for first quarter of 2017.

For the six months ended June 30, 2017, net income was $5.9 million, or $0.25 per diluted share, excluding the nonrecurring items discussed above, compared to net income of $3.0 million, or $0.12 per diluted share, for the six months ended June 30, 2016. On a GAAP basis, the Company had net income of $11.4 million, or $0.47 per diluted share for the six months ended June 30, 2017 (see page 15 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, "The first half of 2017 was an important period in the continued transformation of our bank. We took some key steps to restructure our securities portfolio by selling our portfolio of mutual fund investments in the first quarter and restructuring of the remaining portfolio of available-for-sale debt securities in the second quarter. These actions will reduce volatility in our quarterly financial statements and, together with the expansion of our loan portfolio over the past several years, have reduced the level of investment securities to just 12% of total assets at June 30, 2017. As recently as the end of 2013, investment securities comprised approximately one-third of the Company's total assets.

Parent continued, "All of our businesses have performed well in 2017 as earnings per share from core operations more than doubled in the first half of 2017 from the comparable period in 2016. Mortgage originations and revenues continued to climb, reflecting the successful and continued expansion of that business, our commercial lending teams have generated strong loan growth, and our retail banking team has done a great job bringing in deposits. The three branches we have opened since the fourth quarter of 2014 have a combined deposit total of $229 million at June 30, 2017 while our division in Nantucket, which was acquired in early 2014, ended the second quarter with $339 million in deposits. Revenues, excluding securities gains and nonrecurring items, grew 31% in the second quarter compared to the year ago period and, importantly, much of the investment spending that gave rise to the revenue improvement is behind us. The significant growth in revenue from the second quarter of last year was accompanied by a relatively modest 3% increase in noninterest expense and this has provided us with significant positive operating leverage while reducing our efficiency ratio to 67% in the second quarter from 80% a year ago. We just crossed the three year anniversary of our mutual to stock conversion and are proud of the progress the Company has made. We look forward to the future with enthusiasm and to creating value for our stakeholders."

BALANCE SHEET
Compared to March 31, 2017, total assets grew $17 million, or 1%, to $2.5 billion at June 30, 2017. The increase was driven by loan growth as total loans increased $79 million, or 4%, to $2.1 billion at June 30, 2017. By category, the increase was mainly driven by commercial real estate loans, which were up $55 million, or 8%, and commercial business loans, which were up $17 million, or 8%. Residential mortgage loans were little changed as growth from new originations was offset by loan sales. In addition to the increase in loans, short-term investments were up $14 million, or 73%. These increases were partially offset by an $81 million, or 22%, decline in the combination of securities available-for-sale and held to maturity, reflecting the aforementioned sale of the remaining available-for-sale debt securities portfolio and the partial reinvestment of those proceeds into securities classified as held to maturity. At June 30, 2017, 96% of all securities (and 100% of all debt securities) are classified as held to maturity.

Compared to June 30, 2016, total assets increased $273 million, or 12%. Loans also drove the growth in total assets in this comparison, increasing $381 million, or 23%. By category, the increase from June 30, 2016 was due to residential mortgage loans, which were up $219 million, or 32%, commercial real estate loans, which were up $147 million, or 24%, and commercial business loans, which were up $49 million, or 28%. Residential mortgage loan originations were $139 million in the second quarter of 2017 compared to $126 million in the second quarter of 2016 as the expanded origination team continued to grow the business and gain market share. In the second quarter of 2017, commercial loans (real estate and non-real estate combined) totaling $137 million were added to the balance sheet compared to $109 million in the second quarter of 2016. The growth in loans was partially offset by a $107 million, or 27%, decline in the combination of securities available-for-sale and held to maturity, due to the previously discussed sales of the mutual fund investment portfolio and the remaining available-for-sale debt securities portfolio.

Compared to March 31, 2017, deposits grew $109 million, or 6%, to $2.0 billion at June 30, 2017 mainly reflecting growth in municipal deposits and brokered certificates of deposit. Deposits at the Company's newest branch, which was opened in the fourth quarter of 2016 and is located in the Seaport District of Boston, grew $12 million during the second quarter to $63 million at June 30, 2017. The Company's branch in Westwood, which was opened in the fourth quarter of 2015, surpassed the $100 million mark in deposits during the second quarter. Borrowings declined to $130 million at June 30, 2017 from $223 million at March 31, 2017 due to the sale of the remaining available-for-sale debt securities portfolio and a shift in wholesale funding to a higher level of brokered certificates of deposit.

Compared to June 30, 2016, deposits grew $364 million, or 23%, and included growth in all customer segments (consumer, small business, commercial and municipal). By category, the most significant increases were seen in money market deposits, which were up $168 million, brokered certificates of deposit, which were up $140 million, and NOW and demand deposits, which were up $62 million. A $130 million decline in short-term borrowings was partially offset by a $45 million increase in long-term borrowings. All borrowings at June 30, 2017 are classified as long-term.

Stockholders’ equity was $397 million at June 30, 2017 and March 31, 2017 compared to $392 million at June 30, 2016. The increase from a year ago was mainly due to net income over the past four quarters, which added $17.0 million to stockholders' equity, partially offset by share repurchases that took place in the second half of 2016 and dividends, including a special dividend of $0.20 per common share in the second quarter of 2017. There were no share repurchases in the first half of 2017.

NET INTEREST AND DIVIDEND INCOME
Net interest and dividend income was $16.4 million in the second quarter of 2017, up $527,000, or 3%, from $15.9 million in the first quarter of 2017 and up $3.1 million, or 23%, from $13.3 million in the second quarter of 2016. Net interest margin was 2.75% in the second quarter of 2017, up from 2.70% in the first quarter of 2017 and from 2.56% in the second quarter of 2016.

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 $16.5 million in the second quarter of 2017, up $521,000, or 3%, from $15.9 million in the first quarter of 2017, and up $3.1 million, or 23%, from $13.4 million in the second quarter of 2016. Net interest margin on a fully taxable equivalent basis (referred to herein as "Reported net interest margin (FTE)", a Non-GAAP measure) improved to 2.76% in the second quarter of 2017 from 2.71% in the first quarter of 2017 and 2.58% in the second quarter of 2016.

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 will focus on changes in Adjusted net interest and dividend income and Adjusted net interest margin.

(Unaudited, dollars in thousands)June 30, 2017March 31, 2017December 31, 2016September 30, 2016June 30, 2016
Net Interest and Dividend Income
Reported net interest and dividend income$16,408 $15,881 $15,950 $14,495 $13,316
FTE adjustment60 66 78 65 77
Reported net interest and dividend income (FTE)16,468 15,947 16,028 14,560 13,393
Mutual fund dividends (2) (844)(96)
Purchase accounting accretion (2)(181)(107)(137)(115)(133)
Accelerated bond amortization/(accretion) on note redemptions (193)203
Adjusted net interest and dividend income (FTE) (1)$16,287 $15,840 $15,047 $14,156 $13,463
Net Interest Margin
Reported net interest margin2.75%2.70%2.81%2.67%2.56%
FTE adjustment0.01 0.01 0.01 0.01 0.02
Reported net interest margin (FTE)2.76 2.71 2.82 2.68 2.58
Mutual fund dividends (2) 0.03 (0.10)0.03 0.05
Purchase accounting accretion (2)(0.03)(0.02)(0.03)(0.02)(0.03)
Accelerated bond amortization/(accretion) on note redemptions (0.04)0.04
Adjusted net interest margin (FTE) (1)2.73%2.72%2.69%2.65%2.64%
(1) 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 a federal statutory tax rate of 35% (a statutory tax rate of 34% was used prior to the fourth quarter of 2016). Therefore, management believes, these measures provide useful information to investors by allowing them to make peer comparisons.
(2) Note: 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 quarters where mutual fund dividend income is low, the removal of the dividend and its related average balance has a positive impact on the adjusted net interest margin. Management believes this adjusted net interest margin is useful 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.

Adjusted net interest and dividend income on a fully tax equivalent basis increased $447,000, or 3%, to $16.3 million in the second quarter of 2017 from $15.8 million in the first quarter of 2017 and was up $2.8 million, or 21%, from $13.5 million in the second quarter of 2016. Adjusted net interest margin improved to 2.73% in the second quarter of 2017 from 2.72% in the first quarter of 2017 and 2.64% in the second quarter of 2016. Adjusted net interest income and net interest margin benefited in both comparisons from higher floating rate loan yields related to the interest rate increases announced by the Federal Reserve Bank in June 2017, March 2017, and December 2016. The Company maintains an asset sensitive interest rate risk position. In addition, adjusted net interest income was helped by loan growth as average loans increased $88 million, or 4%, from the first quarter of this year and $411 million, or 25%, from the second quarter of last year. In both comparisons, average loan growth was driven by higher levels of commercial real estate loans, residential mortgages and commercial business loans. Partially offsetting the improvement from loan growth was a decline in average securities which were down $88 million, or 22%, from the first quarter and $110 million, or 26%, from last year's second quarter. These declines reflected the sales of the mutual fund investment portfolio and the remaining portfolio of available-for-sale debt securities.

NONINTEREST INCOME
Noninterest income was $4.5 million in the second quarter of 2017, down from $6.8 million in the first quarter of 2017. The second quarter includes a $928,000 gain on the sale of the Company's remaining available-for-sale debt securities portfolio while the first quarter included a gain of $5.9 million from the Company's investment in Northeast Retirement Services, Inc., which was acquired by Community Bank System, Inc., and a $1.1 million loss from the sale of the Company's investments in mutual funds. Excluding these items, noninterest income was $3.6 million in the second quarter of 2017, up $1.7 million, or 86%, from the first quarter of 2017. The improvement is due to a $1.2 million increase in loan level derivative income related to the portfolio of commercial loan customer interest rate swap contracts. The amount of revenue in the loan level derivative income category can be volatile since it is a function of the amount of commercial loans that customers opt to convert from floating to fixed rate via interest rate swaps in any given quarter. Also contributing to the increase was a $479,000 improvement in mortgage banking income reflecting a higher level of loan sale gains.

Compared to the second quarter of 2016, noninterest income increased $1.7 million, or 60%. As noted previously, the second quarter of 2017 includes a $928,000 gain on the sale of the Company's remaining available-for-sale debt securities portfolio, however, the second quarter of 2016 also includes $664,000 of securities gains. Excluding securities gains, the improvement was driven by the same factors that caused the increase in the linked quarter comparison. Loan level derivative income was up $1.0 million and mortgage banking income grew $688,000.

NONINTEREST EXPENSE
Noninterest expense was $13.4 million in the second and first quarters of 2017 compared to $12.9 million in the second quarter of 2016. The $431,000, or 3%, increase from the second quarter of last year is mainly due to franchise growth and this can mainly be seen in the salaries and benefits as well as the occupancy and equipment expense categories. The new Seaport branch, as well as the opening of new loan and mortgage production offices, contributed to the growth in both salaries and benefits expense and occupancy and equipment expense.

ASSET QUALITY
The provision for loan losses, which in all quarters reflects management’s assessment of risks inherent in the loan portfolio, was $1.1 million in the second quarter of 2017 compared to $57,000 in the first quarter of 2017 and $1.1 million in the second quarter of 2016. Loan growth and loan mix impact the level of provision needed each quarter and the increase in the provision from the first quarter reflected both factors. Loan growth was higher in the second quarter than in the first quarter and there was a change in loan mix during the second quarter with commercial real estate loans becoming a higher percentage of the total loan portfolio and residential mortgages becoming a lower percentage.

The allowance for loan losses as a percentage of total loans was 0.97% at June 30, 2017 compared to 0.95% at March 31, 2017 and 1.07% June 30, 2016. The decline in the allowance for loan losses as a percentage of total loans from a year ago was impacted by the general improvement in historical loss rates from national FDIC data, as well as the planned migration of loss rates to those more reflective of the Company's own loan loss experience. The Company had net loan chargeoffs of $76,000 in the second quarter of 2017 compared to net loan recoveries of $68,000 in the first quarter of 2017 and net loan chargeoffs of $19,000 in the second quarter of 2016.

Nonperforming assets were $12.8 million at June 30, 2017 compared to $13.1 million at March 31, 2017 and $15.0 million at June 30, 2016. The decline from a year ago was mainly due to the chargeoff of one commercial credit in the third quarter of last year. Nonperforming assets as a percentage of total assets was 0.51% at June 30, 2017 compared to 0.53% at March 31, 2017 and 0.67% at June 30, 2016.

ABOUT BLUE HILLS BANCORP
Blue Hills Bancorp, Inc., with corporate headquarters in Norwood, MA, had assets of $2.5 billion at June 30, 2017 and operates 11 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 140 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.

Blue Hills Bancorp, Inc.
Consolidated Balance Sheets
(Unaudited, dollars in thousands) % Change
June 30, 2017 March 31, 2017 June 30, 2016 June 30, 2017 vs.
March 31, 2017
June 30, 2017 vs.
June 30, 2016
Assets
Cash and due from banks$17,292 $15,594 $13,710 10.9%26.1%
Short term investments33,819 19,555 29,485 72.9%14.7%
Total cash and cash equivalents51,111 35,149 43,195 45.4%18.3%
Securities available-for-sale, at fair value10,437 173,834 204,973 (94.0)%(94.9)%
Securities held-to-maturity, at amortized cost283,672 201,684 196,454 40.7%44.4%
Federal Home Loan Bank stock, at cost11,943 14,828 12,833 (19.5)%(6.9)%
Loans held for sale6,789 1,675 6,097 305.3%11.3%
Loans:
1-4 family residential895,015 896,951 675,952 (0.2)%32.4%
Home equity84,615 80,427 81,649 5.2%3.6%
Commercial real estate756,093 701,463 608,669 7.8%24.2%
Construction78,062 70,855 107,049 10.2%(27.1)%
Total real estate loans1,813,785 1,749,696 1,473,319 3.7%23.1%
Commercial business227,262 210,328 178,112 8.1%27.6%
Consumer25,047 27,325 33,707 (8.3)% (25.7)%
Total loans2,066,094 1,987,349 1,685,138 4.0%22.6%
Allowance for loan losses(19,917)(18,875)(18,079)5.5%10.2%
Loans, net2,046,177 1,968,474 1,667,059 3.9%22.7%
Premises and equipment, net22,004 21,858 20,136 0.7%9.3%
Accrued interest receivable5,362 5,994 5,640 (10.5)%(4.9)%
Goodwill and core deposit intangible10,091 10,313 11,125 (2.2)%(9.3)%
Net deferred tax asset8,184 8,751 8,958 (6.5)%(8.6)%
Bank-owned life insurance32,533 32,271 31,558 0.8%3.1%
Other assets25,606 21,779 32,733 17.6%(21.8)%
Total assets$2,513,909 $2,496,610 $2,240,761 0.7%12.2%
Liabilities and Stockholders' Equity
Deposits:
NOW and demand$359,877 $342,118 $298,178 5.2%20.7%
Regular savings246,484 265,116 274,866 (7.0)%(10.3)%
Money market674,593 622,852 506,251 8.3%33.3%
Certificates of deposit362,261 348,042 339,415 4.1%6.7%
Brokered money market44,728 50,129 45,231 (10.8)%(1.1)%
Brokered certificates of deposit277,320 228,465 136,965 21.4%102.5%
Total deposits1,965,263 1,856,722 1,600,906 5.8%22.8%
Short-term borrowings 118,000 130,000 NM NM
Long-term debt130,000 105,000 85,000 23.8%52.9%
Other liabilities21,328 19,944 32,903 6.9%(35.2)%
Total liabilities2,116,591 2,099,666 1,848,809 0.8%14.5%
Common stock259 259 265 %(2.3)%
Additional paid-in capital252,504 250,976 255,781 0.6%(1.3)%
Unearned compensation- ESOP(20,117)(20,306)(20,876)(0.9)%(3.6)%
Retained earnings166,033 168,160 157,714 (1.3)%5.3%
Accumulated other comprehensive loss(1,361)(2,145)(932)(36.6)%46.0%
Total stockholders' equity397,318 396,944 391,952 0.1%1.4%
Total liabilities and stockholders' equity$2,513,909 $2,496,610 $2,240,761 0.7%12.2%


Blue Hills Bancorp, Inc.
Consolidated Balance Sheet Trend
(Unaudited, dollars in thousands) June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016 June 30, 2016
Assets
Cash and due from banks$17,292 $15,594 $14,752 $15,490 $13,710
Short term investments33,819 19,555 15,744 21,512 29,485
Total cash and cash equivalents51,111 35,149 30,496 37,002 43,195
Securities available-for-sale, at fair value10,437 173,834 204,836 210,273 204,973
Securities held-to-maturity, at amortized cost283,672 201,684 201,027 197,863 196,454
Federal Home Loan Bank stock, at cost11,943 14,828 13,352 13,505 12,833
Loans held for sale6,789 1,675 2,761 2,134 6,097
Loans:
1-4 family residential895,015 896,951 854,478 746,366 675,952
Home equity84,615 80,427 79,132 80,604 81,649
Commercial real estate756,093 701,463 686,522 660,458 608,669
Construction78,062 70,855 75,950 71,281 107,049
Total real estate loans1,813,785 1,749,696 1,696,082 1,558,709 1,473,319
Commercial business227,262 210,328 205,832 169,076 178,112
Consumer25,047 27,325 29,707 31,435 33,707
Total loans2,066,094 1,987,349 1,931,621 1,759,220 1,685,138
Allowance for loan losses(19,917)(18,875)(18,750)(17,730)(18,079)
Loans, net2,046,177 1,968,474 1,912,871 1,741,490 1,667,059
Premises and equipment, net22,004 21,858 22,034 21,362 20,136
Accrued interest receivable5,362 5,994 6,057 5,388 5,640
Goodwill and core deposit intangible10,091 10,313 10,560 10,831 11,125
Net deferred tax asset8,184 8,751 10,146 8,780 8,958
Bank-owned life insurance32,533 32,271 32,015 31,743 31,558
Other assets25,606 21,779 23,537 33,295 32,733
Total assets$2,513,909 $2,496,610 $2,469,692 $2,313,666 $2,240,761
Liabilities and Stockholders' Equity
Deposits:
NOW and demand$359,877 $342,118 $331,508 $337,225 $298,178
Regular savings246,484 265,116 262,984 270,067 274,866
Money market674,593 622,852 573,204 518,360 506,251
Certificates of deposit362,261 348,042 340,114 339,064 339,415
Brokered money market44,728 50,129 53,357 46,235 45,231
Brokered certificates of deposit277,320 228,465 247,520 170,506 136,965
Total deposits1,965,263 1,856,722 1,808,687 1,681,457 1,600,906
Short-term borrowings 118,000 146,000 103,700 130,000
Long-term debt130,000 105,000 105,000 105,000 85,000
Other liabilities21,328 19,944 23,098 33,820 32,903
Total liabilities2,116,591 2,099,666 2,082,785 1,923,977 1,848,809
Common stock259 259 259 261 265
Additional paid-in capital252,504 250,976 249,317 251,341 255,781
Unearned compensation- ESOP(20,117)(20,306)(20,496)(20,686)(20,876)
Retained earnings166,033 168,160 161,896 158,620 157,714
Accumulated other comprehensive income (loss)(1,361)(2,145)(4,069)153 (932)
Total stockholders' equity397,318 396,944 386,907 389,689 391,952
Total liabilities and stockholders' equity$2,513,909 $2,496,610 $2,469,692 $2,313,666 $2,240,761


Blue Hills Bancorp, Inc.
Consolidated Statements of Net Income - Quarters
(Unaudited, dollars in thousands, except share data)Quarters Ended% Change
June 30, 2017 March 31, 2017 June 30, 2016 June 30, 2017 vs.
March 31, 2017
June 30, 2017 vs.
June 30, 2016
Interest and fees on loans$18,715 $17,382 $14,138 7.7%32.4%
Interest on securities1,572 2,210 2,037 (28.9)%(22.8)%
Dividends193 157 155 22.9%24.5%
Other94 32 26 193.8% 261.5%
Total interest and dividend income20,574 19,781 16,356 4.0%25.8%
Interest on deposits3,523 3,254 2,484 8.3%41.8%
Interest on borrowings643 646 556 (0.5)%15.6%
Total interest expense4,166 3,900 3,040 6.8%37.0%
Net interest and dividend income16,408 15,881 13,316 3.3%23.2%
Provision for loan losses1,118 57 1,113 1,861.4%0.4%
Net interest and dividend income, after provision for loan losses15,290 15,824 12,203 (3.4)%25.3%
Deposit account fees341 320 307 6.6%11.1%
Interchange and ATM fees388 348 393 11.5%(1.3)%
Mortgage banking1,219 740 531 64.7%129.6%
Loan level derivative fee income1,367 164 322 733.5%324.5%
Realized securities gains (losses), net928 (1,022)664 190.8%39.8%
Gain on exchange of investment in Northeast Retirement Services 5,947 NM NM
Bank-owned life insurance income261 257 257 1.6%1.6%
Bank-owned life insurance death benefit gains 209 NM NM
Miscellaneous6 62 128 (90.3)%(95.3)%
Total noninterest income4,510 6,816 2,811 (33.8)%60.4%
Salaries and employee benefits7,664 7,563 7,138 1.3%7.4%
Occupancy and equipment2,030 2,115 1,653 (4.0)%22.8%
Data processing1,022 1,044 803 (2.1)%27.3%
Professional fees526 869 678 (39.5)%(22.4)%
Advertising489 367 719 33.2%(32.0)%
FDIC deposit insurance223 212 352 5.2%(36.6)%
Directors' fees428 374 399 14.4%7.3%
Amortization of core deposit intangible222 247 318 (10.1)%(30.2)%
Other general and administrative762 609 875 25.1%(12.9)%
Total noninterest expense13,366 13,400 12,935 (0.3)%3.3%
Income before income taxes6,434 9,240 2,079 (30.4)%209.5%
Provision for income taxes2,566 1,753 721 46.4%255.9%
Net income$3,868 $7,487 $1,358 (48.3)%184.8%
Earnings per common share:
Basic$0.16 $0.31 $0.06
Diluted$0.16 $0.31 $0.05
Weighted average shares outstanding:
Basic23,952,44323,911,41924,575,211
Diluted24,346,55324,275,66524,699,794


Blue Hills Bancorp, Inc.
Consolidated Statements of Net Income-Year to Date
(Unaudited, dollars in thousands, except share data)Year to Date
June 30, 2017 June 30, 2016 % Change
Interest and fees on loans$36,097 $27,741 30.1%
Interest on securities3,782 4,332 (12.7)%
Dividends350 294 19.0%
Other126 52 142.3%
Total interest and dividend income40,355 32,419 24.5%
Interest on deposits6,777 4,776 41.9%
Interest on borrowings1,289 1,126 14.5%
Total interest expense8,066 5,902 36.7%
Net interest and dividend income32,289 26,517 21.8%
Provision for loan losses1,175 1,086 8.2%
Net interest and dividend income, after provision for loan losses31,114 25,431 22.3%
Deposit account fees661 624 5.9%
Interchange and ATM fees736 740 (0.5)%
Mortgage banking1,959 775 152.8%
Loan level derivative fee income1,531 961 59.3%
Realized securities gains (losses), net(94)420 (122.4)%
Gain on exchange of cost basis investment5,947 NM
Bank-owned life insurance income518 514 0.8%
Bank-owned life insurance death benefit gains 209 NM
Miscellaneous68 (55)(223.6)%
Total noninterest income11,326 4,188 170.4%
Salaries and employee benefits15,227 14,023 8.6%
Occupancy and equipment4,145 3,272 26.7%
Data processing2,066 1,564 32.1%
Professional fees1,395 1,159 20.4%
Advertising856 1,251 (31.6)%
FDIC deposit insurance435 698 (37.7)%
Directors' fees802 737 8.8%
Amortization of core deposit intangible469 660 (28.9)%
Other general and administrative1,371 1,639 (16.4)%
Total noninterest expense26,766 25,003 7.1%
Income before income taxes15,674 4,616 239.6%
Provision for income taxes4,319 1,591 171.5%
Net income$11,355 $3,025 275.4%
Earnings per common share:
Basic$0.47 $0.12
Diluted$0.47 $0.12
Weighted average shares outstanding:
Basic23,932,04424,817,260
Diluted24,311,22224,912,729


Blue Hills Bancorp Inc.
Consolidated Statements of Net Income - Trend
Quarters Ended
(Unaudited, dollars in thousands, except share data)June 30,March 31, December 31, September 30, June 30,
20172017201620162016
Interest and fees on loans$18,715 $17,382 $16,099 $15,113 $14,138
Interest on securities1,572 2,210 2,325 2,238 2,037
Dividends193 157 990 312 155
Other94 32 20 22 26
Total interest and dividend income20,574 19,781 19,434 17,685 16,356
Interest on deposits3,523 3,254 2,980 2,732 2,484
Interest on borrowings643 646 504 458 556
Total interest expense4,166 3,900 3,484 3,190 3,040
Net interest and dividend income16,408 15,881 15,950 14,495 13,316
Provision for loan losses1,118 57 927 2,872 1,113
Net interest and dividend income, after provision (credit) for loan losses15,290 15,824 15,023 11,623 12,203
Deposit account fees341 320 356 347 307
Interchange and ATM fees388 348 388 418 393
Mortgage banking1,219 740 436 1,262 531
Loan level derivative fee income1,367 164 640 770 322
Realized securities gains (losses), net928 (1,022)298 562 664
Gain on exchange of investment in Northeast Retirement Services 5,947
Bank-owned life insurance income261 257 272 262 257
Bank-owned life insurance death benefit gains 297 209
Miscellaneous6 62 1,417 214 128
Total noninterest income4,510 6,816 3,807 4,132 2,811
Salaries and employee benefits7,664 7,563 7,234 7,596 7,138
Occupancy and equipment2,030 2,115 2,291 1,807 1,653
Data processing1,022 1,044 988 908 803
Professional fees526 869 736 743 678
Advertising489 367 677 495 719
FDIC deposit insurance223 212 157 270 352
Directors' fees428 374 377 344 399
Amortization of core deposit intangible222 247 271 294 318
Other general and administrative762 609 778 777 875
Total noninterest expense13,366 13,400 13,509 13,234 12,935
Income before income taxes6,434 9,240 5,321 2,521 2,079
Provision for income taxes2,566 1,753 1,323 891 721
Net income$3,868 $7,487 $3,998 $1,630 $1,358
Earnings per common share:
Basic$0.16 $0.31 $0.17 $0.07 $0.06
Diluted$0.16 $0.31 $0.17 $0.07 $0.05
Weighted average shares outstanding:
Basic23,952,44323,911,41923,919,48324,129,51224,575,211
Diluted24,346,55324,275,66524,032,61324,307,54024,699,794


Blue Hills Bancorp Inc.
Average Balances/Yields
(Unaudited, dollars in thousands)Quarters Ended
June 30, 2017 March 31, 2017 June 30, 2016
Average
balance
InterestYield/
Cost
Average
balance
InterestYield/
Cost
Average
balance
InterestYield/
Cost
Interest-earning assets
Total loans (1)$2,046,288 $18,770 3.68% $1,958,647 $17,436 3.61% $1,635,256 $14,191 3.49%
Securities (1)309,909 1,621 2.10 398,201 2,240 2.28 419,685 2,080 1.99
Other interest earning assets and FHLB stock36,768 243 2.65 31,842 171 2.18 36,584 162 1.78
Total interest-earning assets2,392,965 20,634 3.46% 2,388,690 19,847 3.37% 2,091,525 16,433 3.16%
Non-interest-earning assets102,750 93,397 100,104
Total assets$2,495,715 $2,482,087 $2,191,629
Interest-bearing liabilities
NOW$150,711 $17 0.05% $145,396 $16 0.04% $139,100 $16 0.05%
Regular savings255,255 208 0.33 262,578 218 0.34 276,451 233 0.34
Money market688,600 1,669 0.97 653,165 1,519 0.94 479,564 983 0.82
Certificates of deposit573,997 1,629 1.14 567,642 1,501 1.07 458,328 1,252 1.10
Total interest-bearing deposits1,668,563 3,523 0.85 1,628,781 3,254 0.81 1,353,443 2,484 0.74
Borrowings204,786 643 1.26 256,500 646 1.02 271,242 556 0.82
Total interest-bearing liabilities1,873,349 4,166 0.89% 1,885,281 3,900 0.84% 1,624,685 3,040 0.75%
Non-interest-bearing deposits189,180 183,520 145,171
Other non-interest-bearing liabilities33,664 21,035 27,513
Total liabilities2,096,193 2,089,836 1,797,369
Stockholders' equity399,522 392,251 394,260
Total liabilities and stockholders' equity$2,495,715 $2,482,087 $2,191,629
Net interest and dividend income (FTE) 16,468 15,947 13,393
Less: FTE adjustment (60) (66) (77)
Net interest and dividend income (GAAP) $16,408 $15,881 $13,316
Net interest rate spread (FTE) 2.57% 2.53% 2.41%
Net interest margin (FTE) 2.76% 2.71% 2.58%
Total deposit cost 0.76% 0.73% 0.67%
(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 35%. A statutory tax rate of 34% was used prior to the fourth quarter of 2016.


Blue Hills Bancorp Inc.
Average Balances/Yields
(Unaudited, dollars in thousands)Year to Date
June 30, 2017 June 30, 2016
Average
balance
InterestYield/
Cost
Average
balance
InterestYield/
Cost
Interest-earning assets
Total loans (1)$2,002,710 $36,206 3.65% $1,602,248 $27,847 3.50%
Securities (1)352,212 3,861 2.21 424,850 4,448 2.11
Other interest earning assets and FHLB stock34,318 414 2.43 36,654 288 1.58
Total interest-earning assets2,389,240 40,481 3.42% 2,063,752 32,583 3.17%
Non-interest-earning assets99,698 100,319
Total assets$2,488,938 $2,164,071
Interest-bearing liabilities
NOW$148,068 $33 0.04% $137,234 $32 0.05%
Regular savings258,896 426 0.33 281,492 484 0.35
Money market670,980 3,188 0.96 455,276 1,829 0.81
Certificates of deposit570,837 3,130 1.11 446,951 2,431 1.09
Total interest-bearing deposits1,648,781 6,777 0.83 1,320,953 4,776 0.73
Borrowings230,500 1,289 1.13 274,549 1,126 0.82
Total interest-bearing liabilities1,879,281 8,066 0.87% 1,595,502 5,902 0.74%
Non-interest-bearing deposits186,366 146,566
Other non-interest-bearing liabilities27,385 26,993
Total liabilities2,093,032 1,769,061
Stockholders' equity395,906 395,010
Total liabilities and stockholders' equity$2,488,938 $2,164,071
Net interest and dividend income (FTE) 32,415 26,681
Less: FTE adjustment (126) (164)
Net interest and dividend income (GAAP) $32,289 $26,517
Net interest rate spread (FTE) 2.55% 2.43%
Net interest margin (FTE) 2.74% 2.60%
Total deposit cost 0.74% 0.65%
(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 35%. A statutory tax rate of 34% was used for 2016.


Blue Hills Bancorp, Inc.
Average Balances - Trend
(Unaudited, dollars in thousands)Quarters Ended
June 30,March 31, December 31, September 30, June 30,
20172017201620162016
Interest-earning assets
Total loans$2,046,288 $1,958,647 $1,823,046 $1,726,088 $1,635,256
Securities309,909 398,201 408,351 403,038 419,685
Other interest earning assets and FHLB stock36,768 31,842 29,235 31,236 36,584
Total interest-earning assets2,392,965 2,388,690 2,260,632 2,160,362 2,091,525
Non-interest-earning assets102,750 93,397 104,188 106,589 100,104
Total assets$2,495,715 $2,482,087 $2,364,820 $2,266,951 $2,191,629
Interest-bearing liabilities
NOW$150,711 $145,396 $144,520 $140,273 $139,100
Regular savings255,255 262,578 265,589 272,950 276,451
Money market688,600 653,165 597,891 560,098 479,564
Certificates of deposit573,997 567,642 526,433 471,040 458,328
Total interest-bearing deposits1,668,563 1,628,781 1,534,433 1,444,361 1,353,443
Borrowings204,786 256,500 223,693 224,660 271,242
Total interest-bearing liabilities1,873,349 1,885,281 1,758,126 1,669,021 1,624,685
Non-interest-bearing deposits189,180 183,520 188,797 171,317 145,171
Other non-interest-bearing liabilities33,664 21,035 29,861 33,936 27,513
Total liabilities2,096,193 2,089,836 1,976,784 1,874,274 1,797,369
Stockholders' equity399,522 392,251 388,036 392,677 394,260
Total liabilities and stockholders' equity$2,495,715 $2,482,087 $2,364,820 $2,266,951 $2,191,629


Blue Hills Bancorp, Inc.
Yield Trend
(Unaudited, dollars in thousands)Quarters Ended
June 30,March 31,December 31,September 30,June 30,
2017 2017 2016 2016 2016
Interest-earning assets
Total loans (1)3.68%3.61%3.53%3.50%3.49%
Securities (1)2.10%2.28%3.12%2.38%1.99%
Other interest earning assets and FHLB stock2.65%2.18%1.97%2.17%1.78%
Total interest-earning assets3.46%3.37%3.43%3.27%3.16%
Interest-bearing liabilities
NOW0.05%0.04%0.05%0.05%0.05%
Regular savings0.33%0.34%0.34%0.33%0.34%
Money market0.97%0.94%0.88%0.83%0.82%
Certificates of deposit1.14%1.07%1.07%1.11%1.10%
Total interest-bearing deposits0.85%0.81%0.77%0.75%0.74%
Borrowings1.26%1.02%0.90%0.81%0.82%
Total interest-bearing liabilities0.89%0.84%0.79%0.76%0.75%
Net interest rate spread (FTE) (1)2.57%2.53%2.64%2.51%2.41%
Net interest margin (FTE) (1)2.76%2.71%2.82%2.68%2.58%
Total deposit cost0.76%0.73%0.69%0.67%0.67%
(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 35%. A statutory tax rate of 34% was used prior to the fourth quarter of 2016.


Blue Hills Bancorp Inc.
Reconciliation of GAAP to Non-GAAP Net Income
(Unaudited, dollars in thousands, except share data)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 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 funds1,054 378 676 0.03
Add reversal of state tax valuation allowance 1,697 (1,697) (0.07)
Non-GAAP basis$4,347 $1,695 $2,652 $0.11
Year to Date
June 30, 2017
Income Before
Income Taxes
Provision for
Income Taxes
Net Income Earnings per
Common Share
(diluted)
GAAP basis$15,674 $4,319 $11,355 $0.47
Less gain on exchange of investment in Northeast Retirement Services(5,947) (2,133) (3,814) (0.16)
Less gain on sale of remaining available-for-sale debt securities portfolio(928) (333) (595) (0.02)
Add realized loss on sale of mutual funds1,054 378 676 0.03
Add reversal of state tax valuation allowance 1,697 (1,697) (0.07)
Non-GAAP basis$9,853 $3,928 $5,925 $0.25
The Company's management believes that the presentation of net income on a non-GAAP basis, excluding nonrecurring items, provides useful information for evaluating the Company's operating results and any related trends that may be affecting the Company's business. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP.


Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited, dollars in thousands, except share data)Quarters Ended
June 30, March 31, December 31, September 30, June 30,
20172017201620162016
Performance Ratios (annualized)
Diluted EPS
GAAP$0.16 $0.31 $0.17 $0.07 $0.06
Non-GAAP 0.14 0.11 n/a n/a n/a
Return on average assets (ROAA)
GAAP 0.62% 1.22% 0.67% 0.29% 0.25%
Non-GAAP 0.53% 0.43% n/a n/a n/a
Return on average equity (ROAE)
GAAP 3.88% 7.74% 4.10% 1.65% 1.39%
Non-GAAP 3.29% 2.74% n/a n/a n/a
Return on average tangible common equity (ROATCE) (1) (3)
GAAP 3.99% 7.95% 4.22% 1.70% 1.43%
Non-GAAP 3.37% 2.82% n/a n/a n/a
Efficiency ratio (2) (3)
GAAP 64% 59% 68% 71% 80%
Non-GAAP 67% 75% n/a n/a n/a


(1) Average tangible common equity equals average total equity less goodwill and intangibles.
(2)Efficiency ratio equals noninterest expense divided by net interest and dividend income and noninterest income
(3) ROATCE and the efficiency ratio are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. Management believes that these non-GAAP measures are meaningful because it is standard practice for companies in the banking industry to disclose these measures. Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons.
See page 15 for Non-GAAP financial measures.


Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited, dollars in thousands, except share data)Year to Date
June 30, 2017 June 30, 2016
Performance Ratios (annualized)
Diluted EPS
GAAP$0.47 $0.12
Non-GAAP 0.25 n/a
Return on average assets (ROAA)
GAAP 0.92% 0.39%
Non-GAAP 0.48% n/a
Return on average equity (ROAE)
GAAP 5.78% 2.20%
Non-GAAP 3.02% n/a
Return on average tangible common equity (ROATCE) (1) (3)
GAAP 5.94% 2.27%
Non-GAAP 3.10% n/a
Efficiency ratio (2) (3) 61% 75%
GAAP 71% n/a
Non-GAAP


(1) Average tangible common equity equals average total equity less goodwill and intangibles.
(2)Efficiency ratio equals noninterest expense divided by net interest and dividend income and noninterest income.
(3) ROATCE and the efficiency ratio are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. Management believes that these non-GAAP measures are meaningful because it is standard practice for companies in the banking industry to disclose these measures. Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons.
See page 15 for Non-GAAP financial measures.


Blue Hills Bancorp, Inc.
Selected Financial Highlights
(Unaudited, dollars in thousands, except share data) At or for the Quarters Ended At or for the Six Months Ended
June 30,March 31,June 30, June 30,June 30,
201720172016 20172016
Asset Quality
Non-performing Assets$12,779 $13,109 $14,983 $12,779 $14,983
Non-performing Assets/ Total Assets0.51%0.53%0.67% 0.51%0.67%
Allowance for Loan Losses/ Total Loans0.97%0.95%1.07% 0.97%1.07%
Net Charge-offs (Recoveries)$76 $(68)$19 $8 $109
Annualized Net Charge-offs (Recoveries)/ Average Loans0.01%(0.01)%% %0.01%
Allowance for Loan Losses/ Nonperforming Loans156%144%121% 156%121%
Capital/Other
Common shares outstanding26,860,988 26,858,328 27,397,842
Book value per share$14.79 $14.78 $14.31
Tangible book value per share$14.42 $14.40 $13.90
Tangible Common Equity/Tangible Assets (1) (2)15.47%15.55%17.08%
Full-time Equivalent Employees230 227 231
(1) Tangible common equity equals total equity less goodwill and intangibles, Tangible assets equals total assets less goodwill and 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.


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

Source:Blue Hills Bank