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Hingham Savings Reports Third Quarter 2020 Results

Hingham Institution for Savings
·18 mins read

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

Earnings

Net income for the quarter ended September 30, 2020 was $15,206,000 or $7.12 per share basic and $6.96 per share diluted, as compared to $9,033,000 or $4.23 per share basic and $4.14 per share diluted for the same period last year. The Bank’s annualized return on average equity for the third quarter of 2020 was 22.23%, and the annualized return on average assets was 2.26%, as compared to 15.33% and 1.40% for the same period in 2019. Net income per share (diluted) for the third quarter of 2020 increased by 68% over the same period in 2019.

Core net income for the third quarter of 2020, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, was $12,394,000 or $5.80 per share basic and $5.68 per share diluted, as compared to $8,801,000 or $4.12 per share basic and $4.03 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the third quarter of 2020 was 18.12%, and the annualized core return on average assets was 1.84%, as compared to 14.94% and 1.37% for the same period in 2019. Core net income per share (diluted) for the third quarter of 2020 increased by 41% over the same period in 2019.

Net income for the nine months ended September 30, 2020 was $33,729,000 or $15.79 per share basic and $15.46 per share diluted, as compared to $27,563,000 or $12.92 per share basic and $12.63 per share diluted for the same period last year. The Bank’s annualized return on average equity for the first nine months of 2020 was 17.19%, and the annualized return on average assets was 1.68%, as compared to 16.17% and 1.47% for the same period in 2019. Net income per share (diluted) for the first nine months of 2020 increased by 22% over the same period in 2019.

Core net income for the nine months ended September 30, 2020 was $31,809,000 or $14.89 per share basic and $14.58 per share diluted, as compared to $24,182,000 or $11.33 per share basic and $11.08 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the first nine months of 2020 was 16.21%, and the annualized core return on average assets was 1.59%, as compared to 14.19% and 1.29% for the same period in 2019. Core net income per share (diluted) for the first nine months of 2020 increased by 32% over the same period in 2019.

See page 9 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

Total assets increased to $2.719 billion at September 30, 2020, representing 7% annualized growth year-to-date and 10% growth from September 30, 2019.

Net loans totaled $2.359 billion at September 30, 2020, representing 8% annualized growth year-to-date and 10% growth from September 30, 2019. Growth was concentrated in the Bank’s commercial real estate portfolio.

Total deposits, including wholesale deposits, increased to $2.027 billion at September 30, 2020, representing 15% annualized growth year-to-date and 19% growth from September 30, 2019. Total retail and business deposits increased to $1.532 billion at September 30, 2020, representing 10% annualized growth year-date and 8% growth from September 30, 2019. Non-interest bearing deposits, included in retail and business deposits, increased to $303.8 million at September 30, 2020, representing 37% annualized growth year-to-date and 31% growth from September 30, 2019. During the first nine months of 2020, the Bank continued to reduce the balance of excess reserves held at the Federal Reserve Bank and 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 $130.24 as of September 30, 2020, representing 17% annualized growth year-to-date and 17% growth from September 30, 2019. In addition to the increase in book value per share, the Bank has declared $2.31 in dividends per share since September 30, 2019, including a special dividend of $0.60 per share declared during the fourth quarter of 2019. The Bank increased its regular dividend per share in each of the last four quarters.

Operational Performance Metrics

The net interest margin for the quarter ended September 30, 2020 increased 69 basis points to 3.46%, as compared to 2.77% 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 third quarter. At September 30, 2020, non-performing assets totaled 0.23% of total assets, compared to 0.22% at December 31, 2019 and 0.05% at September 30, 2019. Non-performing loans as a percentage of the total loan portfolio totaled 0.10% at September 30, 2020, compared to 0.25% at December 31, 2019 and 0.06% at September 30, 2019.

At September 30, 2020, the Bank owned $3.9 million in foreclosed property, consisting exclusively of a residential property on Nantucket that was purchased at auction in January 2020 for $3.6 million. This balance includes the capitalization of repairs and improvements completed by the Bank following acquisition. This collateral secured a non-performing loan which comprised the substantial majority of non-performing assets at December 31, 2019. The Bank listed the property located at 14 Orange Street for sale in July 2020. 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 September 30, 2019, the Bank did not own any foreclosed property.

The Bank recorded $709,000 of net charge-offs for the first nine months of 2020, composed of four charge-offs offset by minor recoveries, as compared to $1,000 in net recoveries for the same period last year. These charge-offs were primarily associated with residential mortgage loans subject to foreclosure. The Bank continues to pursue recovery of these deficiencies via litigation.

At September 30, 2020, the Bank had modified less than 1% of the Bank’s total loan portfolio by number and less than 3% by dollar in response to COVID-19. The nature of these modifications was described in the Bank’s Form 10-Q for the second quarter of 2020 and, with de minimis exceptions, all such modifications were completed in the first and second quarters. All such modifications are performing in accordance with their modified terms or have returned to their original contractual terms. The Bank has not extended and does not plan to extend further forbearance other than as may be required by law. As previously noted, the Bank did not defer the collection of interest on any commercial mortgages.

The efficiency ratio, as defined on page 4 below, was 23.50% for the third quarter of 2020, as compared to 29.28% for the same period last year. Operating expenses as a percentage of average assets remained stable at 0.81% in the third quarter of 2020, the same as the comparable 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 are capitalizing 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 September 30, 2020 with the FDIC on or about November 4, 2020.

Incorporated in 1834, Hingham Institution for Savings is one of America’s oldest banks. The Bank maintains offices in Boston, Nantucket, and 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
September 30,

Nine Months Ended
September 30,

2019

2020

2019

2020

(Unaudited)

Key Performance Ratios

Return on average assets (1)

1.40

%

2.26

%

1.47

%

1.68

%

Return on average equity (1)

15.33

22.23

16.17

17.19

Core return on average assets (1) (5)

1.37

1.84

1.29

1.59

Core return on average equity (1) (5)

14.94

18.12

14.19

16.21

Interest rate spread (1) (2)

2.42

3.31

2.36

2.93

Net interest margin (1) (3)

2.77

3.46

2.69

3.15

Operating expenses to average assets (1)

0.81

0.81

0.83

0.82

Efficiency ratio (4)

29.28

23.50

30.70

26.10

Average equity to average assets

9.16

10.18

9.08

9.79

Average interest-earning assets to average interest-

bearing liabilities

120.49

124.72

120.31

122.96


September 30,
2019

December 31,
2019

September 30,
2020

(Unaudited)

Asset Quality Ratios

Allowance for loan losses/total loans

0.70

%

0.69

%

0.71

%

Allowance for loan losses/non-performing loans

1,138.01

274.57

699.75

Non-performing loans/total loans

0.06

0.25

0.10

Non-performing loans/total assets

0.05

0.22

0.09

Non-performing assets/total assets

0.05

0.22

0.23

Share Related

Book value per share

$

111.47

$

115.75

$

130.24

Market value per share

$

189.00

$

210.20

$

184.00

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, excluding gain on equity securities, net.

(5) Non-GAAP measurements that represent return on average assets and return on average equity, excluding the after-tax gain on equity securities, net.

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Balance Sheets

(In thousands, except share amounts)

September 30,
2019

December 31,
2019

September 30,
2020

(Unaudited)

ASSETS

Cash and due from banks

$

10,233

$

9,057

$

9,816

Federal Reserve and other short-term investments

221,022

243,090

229,555

Cash and cash equivalents

231,255

252,147

239,371

CRA investment

7,948

7,910

8,604

Debt securities available for sale

11

11

6

Other marketable equity securities

38,981

39,265

48,744

Securities, at fair value

46,940

47,186

57,354

Federal Home Loan Bank stock, at cost

23,615

24,890

18,985

Loans, net of allowance for loan losses of $15,090

at September 30, 2019, $15,376 at December 31, 2019

and $16,780 at September 30, 2020

2,140,514

2,227,062

2,358,983

Foreclosed assets

3,926

Bank-owned life insurance

12,661

12,727

12,895

Premises and equipment, net

14,339

14,548

15,294

Accrued interest receivable

4,912

4,926

5,116

Deferred income tax asset, net

1,303

1,213

1,176

Other assets

4,833

5,647

6,045

Total assets

$

2,480,372

$

2,590,346

$

2,719,145

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing deposits

$

1,474,113

$

1,583,280

$

1,722,970

Non-interest-bearing deposits

231,616

237,554

303,774

Total deposits

1,705,729

1,820,834

2,026,744

Federal Home Loan Bank advances

519,900

505,200

399,031

Mortgage payable

703

687

Mortgagors’ escrow accounts

7,544

7,815

8,105

Accrued interest payable

2,198

960

274

Other liabilities

6,445

7,627

6,679

Total liabilities

2,242,519

2,343,123

2,440,833

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

September 30, 2019, 2,135,750 shares issued and outstanding

and December 31, 2019 and 2,136,900 shares issued and

outstanding at September 30, 2020

2,134

2,136

2,137

Additional paid-in capital

12,073

12,234

12,371

Undivided profits

223,646

232,853

263,804

Accumulated other comprehensive income

Total stockholders’ equity

237,853

247,223

278,312

Total liabilities and stockholders’ equity

$

2,480,372

$

2,590,346

$

2,719,145

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Income

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands, except per share amounts)

2019

2020

2019

2020

(Unaudited)

Interest and dividend income:

Loans

$

26,153

$

26,193

$

74,049

$

77,759

Equity securities

518

441

1,503

1,402

Federal Reserve and other short-term investments

1,527

47

4,716

844

Total interest and dividend income

28,198

26,681

80,268

80,005

Interest expense:

Deposits

7,585

3,285

20,805

13,618

Federal Home Loan Bank and Federal Reserve Bank advances

3,099

567

9,766

4,456

Mortgage payable

11

33

3

Total interest expense

10,695

3,852

30,604

18,077

Net interest income

17,503

22,829

49,664

61,928

Provision for loan losses

302

350

1,282

2,113

Net interest income, after provision for loan losses

17,201

22,479

48,382

59,815

Other income:

Customer service fees on deposits

213

181

598

501

Increase in cash surrender value of bank-owned life insurance

61

51

185

168

Gain on equity securities, net

298

3,607

4,337

2,463

Gain on disposal of fixed assets

218

Miscellaneous

42

33

125

114

Total other income

614

3,872

5,245

3,464

Operating expenses:

Salaries and employee benefits

3,290

3,210

9,614

9,877

Occupancy and equipment

453

503

1,354

1,432

Data processing

419

502

1,154

1,466

Deposit insurance

22

212

530

649

Foreclosure

34

167

101

321

Marketing

188

116

497

400

Other general and administrative

811

718

2,276

2,281

Total operating expenses

5,217

5,428

15,526

16,426

Income before income taxes

12,598

20,923

38,101

46,853

Income tax provision

3,565

5,717

10,538

13,124

Net income

$

9,033

$

15,206

$

27,563

$

33,729

Cash dividends declared per share

$

0.40

$

0.45

$

1.17

$

1.30

Weighted average shares outstanding:

Basic

2,134

2,137

2,133

2,137

Diluted

2,183

2,183

2,182

2,181

Earnings per share:

Basic

$

4.23

$

7.12

$

12.92

$

15.79

Diluted

$

4.14

$

6.96

$

12.63

$

15.46

HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis

Three Months Ended September 30,

2019

2020

AVERAGE
BALANCE

INTEREST

YIELD/
RATE (8)

AVERAGE
BALANCE

INTEREST

YIELD/
RATE (8)

(Dollars in thousands)

(Unaudited)

Loans (1) (2)

$

2,191,324

$

26,153

4.77

%

$

2,391,761

$

26,193

4.38

%

Securities (3) (4)

58,133

518

3.56

63,151

441

2.79

Federal Reserve and other short-term investments

279,802

1,527

2.18

184,710

47

0.10

Total interest-earning assets

2,529,259

28,198

4.46

2,639,622

26,681

4.04

Other assets

43,578

48,456

Total assets

$

2,572,837

$

2,688,078

Interest-bearing deposits (5)

$

1,616,151

7,585

1.88

$

1,756,238

3,285

0.75

Borrowed funds

482,975

3,110

2.58

360,271

567

0.63

Total interest-bearing liabilities

2,099,126

10,695

2.04

2,116,509

3,852

0.73

Non-interest-bearing deposits

230,505

290,803

Other liabilities

7,514

7,156

Total liabilities

2,337,145

2,414,468

Stockholders’ equity

235,692

273,610

Total liabilities and stockholders’ equity

$

2,572,837

$

2,688,078

Net interest income

$

17,503

$

22,829

Weighted average spread

2.42

%

3.31

%

Net interest margin (6)

2.77

%

3.46

%

Average interest-earning assets to average

interest-bearing liabilities (7)

120.49

%

124.72

%

(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

Nine Months Ended September 30,

2019

2020

AVERAGE
BALANCE

INTEREST

YIELD/
RATE (8)

AVERAGE
BALANCE

INTEREST

YIELD/
RATE (8)

(Dollars in thousands)

(Unaudited)

Loans (1) (2)

$

2,134,186

$

74,049

4.63

%

$

2,347,466

$

77,759

4.42

%

Securities (3) (4)

57,118

1,503

3.51

66,107

1,402

2.83

Federal Reserve and other short-term investments

270,882

4,716

2.32

211,847

844

0.53

Total interest-earning assets

2,462,186

80,268

4.35

2,625,420

80,005

4.06

Other assets

41,483

46,361

Total assets

$

2,503,669

$

2,671,781

Interest-bearing deposits (5)

$

1,548,791

20,805

1.79

$

1,621,175

13,618

1.12

Borrowed funds

497,694

9,799

2.63

513,925

4,459

1.16

Total interest-bearing liabilities

2,046,485

30,604

1.99

2,135,100

18,077

1.13

Non-interest-bearing deposits

222,280

267,162

Other liabilities

7,635

7,947

Total liabilities

2,276,400

2,410,209

Stockholders’ equity

227,269

261,572

Total liabilities and stockholders’ equity

$

2,503,669

$

2,671,781

Net interest income

$

49,664

$

61,928

Weighted average spread

2.36

%

2.93

%

Net interest margin (6)

2.69

%

3.15

%

Average interest-earning assets to average

interest-bearing liabilities (7)

120.31

%

122.96

%

(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 on equity securities, net.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands, unaudited)

2019

2020

2019

2020

Non-GAAP reconciliation:

Net income

$

9,033

$

15,206

$

27,563

$

33,729

Gain on equity securities, net

(298

)

(3,607

)

(4,337

)

(2,463

)

Income tax expense (1)

66

795

956

543

Core net income

$

8,801

$

12,394

$

24,182

$

31,809

(1) The equity securities are held in a tax-advantaged subsidiary corporation. The income tax effect of the 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 September 30, 2020, by loan category. This table reflects all modifications in effect as of September 30, 2020 and as loans return to the original contractual terms, they are no longer reflected on this table.

Outstanding

Modified

% Modified

# of
Loans

Balance
(2)

# of
Loans

Balance

# of
Loans

Balance

(In thousands, unaudited)

Residential Real Estate (1)

2,473

$

688,008

24

$

7,815

0.97

%

1.14

%

Commercial Real Estate

1,396

1,517,821

10

48,841

0.72

3.22

Construction

64

157,333

Commercial and Consumer

551

9,729

Total Loans

4,484

$

2,372,891

34

$

56,656

0.76

%

2.39

%

(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