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Hingham Savings Reports Second Quarter 2020 Results

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HINGHAM, Mass., July 13, 2020 (GLOBE NEWSWIRE) -- HINGHAM INSTITUTION FOR SAVINGS (NASDAQ:HIFS), Hingham, Massachusetts announced second quarter results for 2020.

Earnings

Net income for the quarter ended June 30, 2020 was $16,338,000 or $7.65 per share basic and $7.50 per share diluted, as compared to $8,706,000 or $4.08 per share basic and $3.99 per share diluted for the same period last year.  The Bank's annualized return on average equity for the second quarter of 2020 was 25.28%, and the annualized return on average assets was 2.41%, as compared to 15.32% and 1.37% for the same period in 2019.  Net income per share (diluted) for the second quarter of 2020 increased by 88% over the same period in 2019. 

Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the second quarter of 2020 was $10,936,000 or $5.12 per share basic and $5.03 per share diluted, as compared to $7,794,000 or $3.65 per share basic and $3.57 per share diluted for the same period last year.  The Bank's annualized core return on average equity for the second quarter of 2020 was 16.92%, and the annualized core return on average assets was 1.61%, as compared to 13.71% and 1.23% for the same period in 2019.  Core net income per share (diluted) for the second quarter of 2020 increased by 41% over the same period in 2019.

Net income for the six months ended June 30, 2020 was $18,523,000 or $8.67 per share basic and $8.50 per share diluted, as compared to $18,530,000 or $8.69 per share basic and $8.49 per share diluted for the same period last year.  The Bank's annualized return on average equity for the first six months of 2020 was 14.50%, and the annualized return on average assets was 1.39%, as compared to 16.62% and 1.50% for the same period in 2019.  Net income per share (diluted) for the first six months of 2020 was stable when compared to the same period in 2019.

Excluding the after-tax gains on securities, both realized and unrealized, core net income for the six months ended June 30, 2020 was $19,415,000 or $9.09 per share basic and $8.91 per share diluted, as compared to $15,381,000 or $7.21 per share basic and $7.05 per share diluted for the same period last year.  The Bank's annualized core return on average equity for the first six months of 2020 was 15.20%, and the annualized core return on average assets was 1.46%, as compared to 13.80% and 1.25% for the same period in 2019.  Core net income per share (diluted) for the first six months of 2020 increased by 26% over the same period in 2019.

See page 10 for a Non-GAAP reconciliation between net income and core net income.  In calculating core net income, the Bank does not make any adjustments other than those relating to after-tax gains and losses on securities, realized and unrealized.

Balance Sheet

Balance sheet growth was strong, as total assets increased to $2.724 billion, representing 10% annualized growth year-to-date and 4% growth from June 30, 2019.  Asset growth was below loan growth in both periods as the Bank continued to manage the balance sheet to minimize the carrying cost of its on-balance sheet liquidity.

Net loans increased to $2.382 billion, representing 14% annualized growth year-to-date and 10% growth from June 30, 2019.  Growth was concentrated in the Bank's commercial real estate portfolio.  The Bank participated in the Small Business Administration's Paycheck Protection Program during the quarter and originated 48 loans to a mix of new and existing customers for a total of $9.3 million.  The Bank does not anticipate any additional originations under the Paycheck Protection Program and does not plan to participate in the Federal Reserve's Main Street Lending Program.  

Total deposits, including wholesale deposits, increased to $2.054 billion at June 30, 2020, representing 26% annualized growth year-to-date and 24% growth from June 30, 2019.  Total retail and business deposits increased to $1.571 billion at June 30, 2020, representing 20% annualized growth year-date and 21% growth from June 30, 2019.  Non-interest bearing deposits, included in retail and business deposits, increased to $289.6 million at June 30, 2020, representing 44% annualized growth year-to-date and 27% growth from June 30, 2019.  During the first six months of 2020, the Bank reallocated its wholesale funding mix between wholesale time deposits and Federal Home Loan Bank advances in order to reduce the cost of funds.

Book value per share was $123.57 as of June 30, 2020, representing 14% annualized growth year-to-date and 15% growth from June 30, 2019.  In addition to the increase in book value per share, the Bank has declared $2.26 in dividends per share since June 30, 2019, including a special dividend of $0.60 per share declared during the fourth quarter of 2019. 

Operational Performance Metrics

The net interest margin for the quarter ended June 30, 2020 increased 53 basis points to 3.15%, as compared to 2.62% for the same period last year.  The Bank has benefited from a sharp decline in the cost of interest-bearing liabilities, including both interest-bearing retail and commercial deposits, as well as wholesale funding from the Federal Home Loan Bank, brokered time deposits and listing services time deposits.  This benefit was partially offset by a decline in the yield on interest-earning assets, driven primarily by the decline in the interest on excess reserves held at the Federal Reserve Bank of Boston and a lower yield on loans during the same period.

Key credit and operational metrics remained strong in the second quarter. At June 30, 2020, non-performing assets totaled 0.24% of total assets, compared to 0.22% at December 31, 2019 and 0.02% at June 30, 2019.  Non-performing loans as a percentage of the total loan portfolio totaled 0.11% at June 30, 2020, compared to 0.25% at December 31, 2019 and 0.03% at June 30, 2019. 

In the first quarter of 2020, the Bank foreclosed on a residential property on Nantucket and purchased it at auction for $3.6 million. This collateral secured a non-performing loan which comprised the substantial majority of non-performing assets at December 31, 2019.  At June 30, 2020, the Bank owned $3.8 million in foreclosed property, consisting entirely of this property, including repairs and improvements completed by the Bank following acquisition.  The Bank has listed the property located at 14 Orange Street for sale. Potential buyers are encouraged to contact our broker Ms. Gloria Grimshaw of Jordan Real Estate at 508-228-4449 (extension 109) or at gloria@jordanre.com directly.  At December 31, 2019 and June 30, 2019, the Bank did not own any foreclosed property. 

The Bank recorded $681,000 of net charge-offs for the first six months of 2020, composed entirely of the charge-off related to the Nantucket property mentioned above, as compared to $1,000 in net charge-offs for the same period last year.  The Bank is pursuing litigation against the borrowers for breach of contract and bank fraud in an attempt to collect on the deficiency owed.  The Bank has litigation pending in state court with respect to this matter, including a motion for summary judgement, but the Massachusetts Supreme Judicial Court has imposed certain tolling periods as a result of COVID-19 which have delayed our recovery efforts. 

At June 30, 2020, the Bank had modified 1% of the Bank's total loan portfolio by number and less than 3% by dollar in response to COVID-19. The table presented on page 10 categorizes these modifications, by number and dollar volume, with respect to the residential real estate, commercial real estate and construction loan portfolios.  With respect to the commercial real estate portfolio, the Bank has modified a limited number of loans from amortizing to interest-only for a limited period and has generally required the borrowers to pre-fund all interest payments for the period of modification.  The Bank has not deferred interest payments on any commercial mortgages.  The Bank has not modified any construction loans as a result of COVID-19.  To the extent required by law in the Commonwealth of Massachusetts, the Bank has granted short-term interest-only modifications to a limited number of residential mortgage customers that have been impacted by COVID-19.  The Bank has also deferred the collection of interest on 4 residential loans, with total outstanding loan balances of $504,000.  One of these loans has subsequently resumed full contractual payments.

The efficiency ratio was 25.28% for the second quarter of 2020, as compared to 31.10% for the same period last year. Operating expenses as a percentage of average assets fell to 0.79% in the second quarter of 2020, as compared to 0.82% for the same period last year.  The Bank remains focused on reducing waste through an ongoing process of continuous improvement.

Chairman Robert H. Gaughen Jr. stated, "During this rapidly developing period of economic uncertainty, there may be unusual opportunities - to deploy capital on attractive terms, to develop new relationships with strong customers, to recruit talented staff, and to invest in digital tools to reduce costs and deliver more value for our customers.  We plan to capitalize on these opportunities.  In doing so, we remain focused on careful capital allocation, defensive underwriting and disciplined cost control - the building blocks for compounding shareholder capital through all stages of the economic cycle.  These remain constant, regardless of the macroeconomic environment in which we operate."

The Bank's quarterly financial results are summarized in the earnings release, but shareholders are encouraged to read the Bank's quarterly reports on Form 10-Q, which are generally available several weeks after the earnings release.  The Bank expects to file Form 10-Q for the quarter ended June 30, 2020 with the FDIC on or about August 5th, 2020.

Hingham Institution for Savings is a Massachusetts-chartered savings bank headquartered in Hingham, Massachusetts.  Incorporated in 1834, it is one of America's oldest banks.  The Bank's Main Office is located in Hingham and the Bank maintains offices on the South Shore, in Boston (South End and Beacon Hill), and on the island of Nantucket.  The Bank also maintains a commercial lending office in Washington, D.C. 

The Bank's shares of common stock are listed and traded on The NASDAQ Stock Market under the symbol HIFS.

 
HINGHAM INSTITUTION FOR SAVINGS
Selected Financial Ratios
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2019   2020   2019   2020
(Unaudited)                      
                       
Key Performance Ratios                      
Return on average assets (1) 1.37 %   2.41 %   1.50 %   1.39 %
Return on average equity (1) 15.32     25.28     16.62     14.50  
Core return on average assets (1) (5) 1.23     1.61     1.25     1.46  
Core return on average equity (1) (5) 13.71     16.92     13.80     15.20  
Interest rate spread (1) (2) 2.28     2.97     2.32     2.74  
Net interest margin (1) (3) 2.62     3.15     2.65     2.99  
Operating expenses to average assets (1) 0.82     0.79     0.84     0.83  
Efficiency ratio (4) 31.10     25.28     31.47     27.61  
Average equity to average assets 8.97     9.52     9.03     9.59  
Average interest-earning assets to average interest-
  bearing liabilities
 
119.92
     
122.79
     
120.22
     
122.09
 
                       


  June 30,
2019
  December 31,
2019
  June 30,
2020
(Unaudited)                      
                       
Asset Quality Ratios                      
Allowance for loan losses/total loans   0.68 %     0.69 %     0.69  
Allowance for loan losses/non-performing loans   2,130.47       274.57       615.21  
                       
Non-performing loans/total loans   0.03       0.25       0.11  
Non-performing loans/total assets   0.02       0.22       0.10  
Non-performing assets/total assets   0.02       0.22       0.24  
                       
Share Related                      
Book value per share $   107.59     $ 115.75     $   123.57  
Market value per share $ 198.01     $ 210.20     $   167.78  
Shares outstanding at end of period   2,133,750       2,135,750       2,136,900  


(1) Annualized.
(2) Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest-earning assets.
(4) The efficiency ratio represents total operating expenses, divided by the sum of net interest income and total other income (loss), excluding gain (loss) on equity securities, net.
(5)  Non-GAAP measurements that represent return on average assets and return on average equity, excluding the after-tax gain (loss) on equity securities, net.


 
HINGHAM INSTITUTION FOR SAVINGS
Consolidated Balance Sheets
 
 
(In thousands, except share amounts)
June 30,
2019
  December 31,
2019
  June 30,
2020
(Unaudited)                 
ASSETS  
                 
Cash and due from banks $ 9,951   $ 9,057   $ 7,365
Federal Reserve and other short-term investments   318,356     243,090     214,489
Cash and cash equivalents   328,307     252,147     221,854
                 
CRA investment   7,888     7,910     8,604
Debt securities available for sale   12     11     9
Other marketable equity securities   36,960     39,265     46,191
Securities, at fair value   44,860     47,186     54,804
Federal Home Loan Bank stock, at cost   31,231     24,890     20,390
Loans, net of allowance for loan losses of $14,787
  at June 30, 2019, $15,376 at December 31, 2019
  and $16,458 at June 30, 2020
 

 2,171,130
   

 2,227,062
     

 2,381,780
Foreclosed assets           3,811
Bank-owned life insurance   12,600     12,727     12,844
Premises and equipment, net   14,410     14,548     15,358
Accrued interest receivable   5,691     4,926     5,054
Deferred income tax asset, net   1,368     1,213     1,729
Other assets   4,874     5,647     6,215
Total assets $ 2,614,471   $ 2,590,346   $ 2,723,839
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

                 
Interest-bearing deposits $ 1,429,998   $ 1,583,280   $ 1,764,714
Non-interest-bearing deposits   228,306     237,554     289,574
Total deposits   1,658,304     1,820,834     2,054,288
Federal Home Loan Bank and Federal Reserve Bank advances   710,300     505,200     385,431
Mortgage payable   720     687    
Mortgagors' escrow accounts   7,274     7,815     8,185
Accrued interest payable   1,991     960     282
Other liabilities   6,302     7,627     11,605
Total liabilities   2,384,891     2,343,123     2,459,791
                 
Stockholders' equity:                
Preferred stock, $1.00 par value,
  2,500,000 shares authorized, none issued
 

   

     

Common stock, $1.00 par value, 5,000,000 shares
  authorized; 2,133,750 shares issued and outstanding at June 30, 2019, 2,135,750 shares issued and outstanding and
  December 31, 2019 and 2,136,900 shares issued and outstanding at June 30, 2020
 

2,134
   

2,136
     

2,137
Additional paid-in capital   11,980     12,234     12,352
Undivided profits   215,466     232,853     249,559
Accumulated other comprehensive income          
Total stockholders' equity   229,580     247,223     264,048
Total liabilities and stockholders' equity $ 2,614,471   $ 2,590,346   $ 2,723,839
                 


 
HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Income
 
  Three Months Ended   Six Months Ended
  June 30,   June 30,
(In thousands, except per share amounts)   2019     2020   2019   2020  
(Unaudited)                  
Interest and dividend income:                      
Loans $ 24,816   $ 25,856   $ 47,896   $ 51,566  
Equity securities   496     463     985     961  
Federal Reserve and other short-term investments   1,629     56     3,189     797  
Total interest and dividend income   26,941     26,375     52,070     53,324  
Interest expense:                      
Deposits   7,074     4,392     13,220     10,333  
Federal Home Loan Bank advances   3,539     942     6,667     3,889  
Mortgage payable   11         22     3  
Total interest expense   10,624     5,334     19,909     14,225  
Net interest income   16,317     21,041     32,161     39,099  
Provision for loan losses   555     625     980     1,763  
Net interest income, after provision for loan losses   15,762     20,416     31,181     37,336  
Other income (loss):                      
Customer service fees on deposits   199     148     385     320  
Increase in cash surrender value of bank-owned life insurance   57     59     124     117  
Gain (loss) on equity securities, net   1,170     6,930     4,039     (1,144 )
Gain on disposal of fixed assets               218  
Miscellaneous   43     28     83     81  
Total other income (loss)   1,469     7,165     4,631     (408 )
Operating expenses:                      
Salaries and employee benefits   3,177     3,287     6,324     6,667  
Occupancy and equipment   447     474     901     929  
Data processing   301     475     735     964  
Deposit insurance   265     254     508     437  
Foreclosure   44     28     67     154  
Marketing   177     104     309     284  
Other general and administrative   756     756     1,465     1,563  
Total operating expenses   5,167     5,378     10,309     10,998  
Income before income taxes   12,064     22,203     25,503     25,930  
Income tax provision   3,358     5,865     6,973     7,407  
Net income $ 8,706   $ 16,338   $ 18,530   $ 18,523  
                       
Cash dividends declared per share $ 0.39   $ 0.43   $ 0.77   $ 0.85  
                       
Weighted average shares outstanding:                      
Basic   2,134     2,137     2,133     2,137  
Diluted   2,182     2,176     2,182     2,180  
                       
Earnings per share:                      
Basic $ 4.08   $ 7.65   $ 8.69   $ 8.67  
Diluted $ 3.99   $ 7.50   $ 8.49   $ 8.50  
                         


 
HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis
 
  Three Months Ended June 30,  
  2019     2020  
  AVERAGE
BALANCE
 
INTEREST
  YIELD/
RATE (8)
    AVERAGE
BALANCE
   
INTEREST
  YIELD/
RATE (8)
 
(Dollars in thousands)                                  
(Unaudited)                                  
                                   
Loans (1) (2) $ 2,161,278   $ 24,816   4.59 %   $ 2,379,132   $ 25,856   4.35 %
Securities (3) (4)   58,311     496   3.40       69,901     463   2.65  
Federal Reserve and other short-term investments   272,453     1,629   2.39       222,960     56   0.10  
Total interest-earning assets   2,492,042     26,941   4.32       2,671,993     26,375   3.95  
Other assets   41,700                 44,066            
Total assets $ 2,533,742               $ 2,716,059            
                                   
Interest-bearing deposits (5) $ 1,543,247     7,074   1.83     $ 1,592,458     4,392   1.10  
Borrowed funds   534,809     3,550   2.66       583,532     942   0.65  
Total interest-bearing liabilities   2,078,056     10,624   2.04       2,175,990     5,334   0.98  
Non-interest-bearing deposits   221,051                 272,418            
Other liabilities   7,271                 9,107            
Total liabilities   2,306,378                 2,457,515            
Stockholders' equity   227,364                 258,544            
Total liabilities and stockholders' equity $ 2,533,742               $ 2,716,059            
Net interest income       $ 16,317               $ 21,041      
                                   
Weighted average spread             2.28 %               2.97 %
                                   
Net interest margin (6)             2.62 %               3.15 %
                                   
Average interest-earning assets to average
  interest-bearing liabilities (7)
 

119.92


%
               

122.79


%
         


(1) Before allowance for loan losses.
(2) Includes non-accrual loans.
(3) Excludes the impact of the average net unrealized gain or loss on securities.
(4) Includes Federal Home Loan Bank stock.
(5) Includes mortgagors' escrow accounts.
(6) Net interest income divided by average total interest-earning assets.
(7) Total interest-earning assets divided by total interest-bearing liabilities.
(8) Annualized.



 
HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis
 
  Six Months Ended June 30,  
  2019     2020  
  AVERAGE
BALANCE
 
INTEREST
  YIELD/
RATE (8)
    AVERAGE
BALANCE
   
INTEREST
  YIELD/
RATE (8)
 
(Dollars in thousands)                                  
(Unaudited)                                  
                                   
Loans (1) (2) $ 2,105,144   $ 47,896   4.55 %   $ 2,325,075   $ 51,566   4.44 %
Securities (3) (4)   56,602     985   3.48       67,601     961   2.84  
Federal Reserve and other short-term investments   266,348     3,189   2.39       225,565     797   0.71  
Total interest-earning assets   2,428,094     52,070   4.29       2,618,241     53,324   4.07  
Other assets   40,418                 45,302            
Total assets $ 2,468,512               $ 2,663,543            
                                   
Interest-bearing deposits (5) $ 1,514,553     13,220   1.75     $ 1,552,901     10,333   1.33  
Borrowed funds   505,176     6,689   2.65       591,596     3,892   1.32  
Total interest-bearing liabilities   2,019,729     19,909   1.97       2,144,497     14,225   1.33  
Non-interest-bearing deposits   218,099                 255,212            
Other liabilities   7,697                 8,347            
Total liabilities   2,245,525                 2,408,056            
Stockholders' equity   222,987                 255,487            
Total liabilities and stockholders' equity $ 2,468,512               $ 2,663,543            
Net interest income       $ 32,161               $ 39,099      
                                   
Weighted average spread             2.32 %               2.74 %
                                   
Net interest margin (6)             2.65 %               2.99 %
                                   
Average interest-earning assets to average
  interest-bearing liabilities (7)
 
120.22

%
               
122.09

%
         


(1) Before allowance for loan losses.
(2) Includes non-accrual loans.
(3) Excludes the impact of the average net unrealized gain or loss on securities.
(4) Includes Federal Home Loan Bank stock.
(5) Includes mortgagors' escrow accounts.
(6) Net interest income divided by average total interest-earning assets.
(7) Total interest-earning assets divided by total interest-bearing liabilities.
(8) Annualized.


HINGHAM INSTITUTION FOR SAVINGS

Non-GAAP Reconciliation

The table below presents the reconciliation between net income and core net income, a non-GAAP measurement that represents net income excluding the after-tax gain (loss) on equity securities, net.
          

  Three Months Ended   Six Months Ended
  June 30,   June 30,
(In thousands, unaudited)
  2019       2020     2019     2020  
 
                 
Non-GAAP reconciliation:                      
Net income $ 8,706     $ 16,338     $ 18,530     $ 18,523  
Loss (gain) on equity securities, net   (1,170 )     (6,930 )     (4,039 )     1,144  
Income tax expense (benefit) (1)   258       1,528       890       (252 )
Core net income $ 7,794     $ 10,936     $ 15,381     $ 19,415  


(1) The equity securities are held in a tax-advantaged subsidiary corporation.  The income tax effect of the loss (gain) on equity securities, net, was calculated using the effective tax rate applicable to the subsidiary.

COVID-19 Modifications Table

The table below presents the number and outstanding balances of loans that the Bank has modified as a result of COVID-19 compared as a percentage of the total number and outstanding balances of the Bank's loan portfolio as of June 30, 2020, by loan category.  This table reflects all modifications in effect as of June 30, 2020 and as loans return to the original contractual terms, they will no longer be reflected on this table.

  Outstanding   Modified   % Modified  
  # of
Loans
  Balance
(2)
  # of
Loans
  Balance   # of
Loans
  Balance
(In thousands, unaudited)                          
                             
Residential Real Estate (1) 2,534 $ 706,733   35   $ 13,164   1.38 %   1.86 %
Commercial Real Estate 1,422   1,519,304   17     55,538   1.20     3.66  
Construction 67   159,677              
Commercial and Consumer 573   9,749              
Total Loans 4,596 $ 2,395,463   52   $ 68,702   1.13 %   2.87 %


(1) Includes Home Equity lines of credit
(2) Gross loans, before net deferred loan origination costs and the allowance for loan losses.
   

CONTACT:    Patrick R. Gaughen, President and Chief Operating Officer (781) 783-1761

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