HIFS Hingham Institution for Savings

HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced earnings for the fourth quarter and the year ended December 31, 2018.

Net income for the year ended December 31, 2018 was $30,399,000 or $14.25 per share basic and $13.90 per share diluted, as compared to $25,757,000 or $12.08 per share basic and $11.81 per share diluted for the same period last year.  The Bank’s return on average equity for the year ended December 31, 2018 was 14.97%, and the return on average assets was 1.32%, as compared to 14.73% and 1.21% for the same period in 2017.  Net income per share (diluted) for 2018 increased 18% over the same period in 2017.  Net income for the year ended December 31, 2017 included an additional $218,000 in income tax provision as a result of the Tax Cut and Jobs Act enacted in December 2017, which required the Bank to remeasure its deferred tax assets and liabilities.

Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the year ended December 31, 2018 was $32,776,000 or $15.37 per share basic and $14.99 per share diluted, as compared to $25,708,000 or $12.05 per share basic and $11.79 per share diluted for the same period last year.  The Bank’s core return on average equity for the year ended December 31, 2018 was 16.14%, and the core return on average assets was 1.42%, as compared to 14.70% and 1.21% for the same period in 2017.  Core net income per share (diluted) for 2018 increased by 27% over the same period in 2017.

Net income for the quarter ended December 31, 2018 was $4,664,000 or $2.18 per share basic and $2.13 per share diluted, as compared to $6,691,000 or $3.14 per share basic and $3.06 per share diluted for the same period last year.  The Bank’s annualized return on average equity for the fourth quarter of 2018 was 8.78%, and the annualized return on average assets was 0.80%, as compared to 14.51% and 1.18% for the same period last year.  Net income per share (diluted) for the fourth quarter of 2018 decreased 30% compared to the same period in 2017.

Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the quarter ended December 31, 2018 was $8,046,000 or $3.77 per share basic and $3.68 per share diluted, as compared to $6,691,000 or $3.14 per share basic and $3.06 per share diluted for the same period last year.  The Bank’s annualized core return on average equity for the fourth quarter of 2018 was 15.14% and the annualized core return on average assets was 1.38%, as compared to 14.51% and 1.18% for the same period last year.  Core net income per share (diluted) for the fourth quarter of 2018 increased by 20% over the same period in 2017.

Growth in 2018 was modest, as deposits increased to $1.573 billion at December 31, 2018, representing 4% growth from 2017.  This growth reflected modest growth in retail and business deposits.  Net loans increased to $2.009 billion, representing 10% growth from 2017.  Total assets increased to $2.409 billion, representing 5% growth from 2017.  During 2018, the Bank reduced the balance of excess reserves held at the Federal Reserve Bank, in order to minimize the carrying cost of its on-balance sheet liquidity.  Book value per share was $99.67 as of December 31, 2018, representing 14% growth from December 31, 2017.  In addition to the increase in book value per share, the Bank declared $1.92 in dividends per share in 2018, including a special dividend of $0.50 per share declared during the fourth quarter of 2018.  The Bank announced increases in its regular quarterly dividend in June, September and November of 2018.  The trailing five year compound annual growth rate in book value per share, an important measure of long-term value creation, rose to 15.5%.

Key credit and operational metrics remained strong in 2018.  At December 31, 2018, non-performing assets totaled 0.02% of total assets, compared to 0.07% at December 31, 2017.  Non-performing loans as a percentage of the total loan portfolio totaled 0.02% at December 31, 2018, compared to 0.09% at December 31, 2017.  The Bank recorded $1,000 in net recoveries in 2018 and $2,000 in net recoveries in 2017.  At December 31, 2018 and 2017, the Bank did not own any foreclosed property.  The efficiency ratio fell slightly to 29.89% in 2018, as compared to 30.06% in 2017.  Operating expenses as a percentage of average assets improved to 0.87% in 2018, as compared to 0.92% in 2017.  These metrics reflect the Bank’s disciplined focus on credit quality and expense management.

Chairman Robert H. Gaughen, Jr. stated, “Returns on equity and assets were adequate in 2018, although competitive pressure remains acute.  The real test of performance in banking is a company’s record of compounding shareholder capital over time through the disciplined management of credit risk and operational expense.  On this measure, our team strives to set a high bar.

In 2018, the decline in the market value of our equity investments, concentrated in financial services, ratings, and payments companies, was decremental to our book value per share, as opposed to prior years in which these investments were accretive to our core business.  As noted before, the Bank views these equity investments as long-term partnership interests in operating companies and consequently does not view short-term fluctuation in market value, whether positive or negative, as necessarily indicative of the change in the intrinsic value of the businesses in which we invest.”

Hingham Institution for Savings is a Massachusetts-chartered savings bank located 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 provides commercial mortgage lending and private banking services in the Greater Washington D.C. metropolitan area.

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

HINGHAM INSTITUTION FOR SAVINGSSelected Financial Ratios

	Three Months EndedDecember 31,						Twelve Months EndedDecember 31,
	2017			2018			2017			2018
(Unaudited)
Key Performance Ratios
Return on average assets (1)	1.18	%		0.80	%		1.21	%		1.32	%
Return on average equity (1)	14.51			8.78			14.73			14.97
Core return on average assets (1) (5)	1.18			1.38			1.21			1.42
Core return on average equity (1) (5)	14.51			15.14			14.70			16.14
Interest rate spread (1) (2)	2.83			2.48			2.91			2.66
Net interest margin (1) (3)	2.99			2.79			3.05			2.90
Operating expenses to average assets (1)	0.86			0.84			0.92			0.87
Efficiency ratio (4)	28.58			30.07			30.06			29.89
Average equity to average assets	8.16			9.09			8.22			8.80
Average interest-earning assets to average interest-bearing liabilities	117.59			121.08			117.39			119.23

	December 31, 2017					December 31, 2018
(Unaudited)
Asset Quality Ratios
Allowance for loan losses/total loans		0.68	%			0.68		%
Allowance for loan losses/non-performing loans		735.74				2,852.89
Non-performing loans/total loans		0.09				0.02
Non-performing loans/total assets		0.07				0.02
Non-performing assets/total assets		0.07				0.02
Share Related
Book value per share	$	87.29				$	99.67
Market value per share	$	207.00				$	197.74
Shares outstanding at end of period		2,132,750					2,132,750

(1) Annualized for the three months ended December 31, 2017 and 2018.

(2) Interest rate spread represents the difference between the yield on interest-earning assets and 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 SAVINGSConsolidated Balance Sheets

(Dollars in thousands, except per share data)		December 31, 2017				December 31, 2018
(Unaudited)
ASSETS
Cash and due from banks		$	10,852			$	8,004
Federal Reserve and other short-term investments			344,377				287,971
Cash and cash equivalents			355,229				295,975
CRA investment			7,341				7,680
Debt securities available for sale			17				14
Other marketable equity securities			26,946				30,766
Securities, at fair value			34,304				38,460
Federal Home Loan Bank stock, at cost			27,102				28,696
Loans, net of allowance for loan losses of $12,537 at December 31, 2017 and $13,808 at December 31, 2018			1,833,987				2,009,288
Foreclosed assets			—				—
Bank-owned life insurance			12,221				12,476
Premises and equipment, net			14,068				14,553
Accrued interest receivable			4,398				4,581
Deferred income tax asset, net			1,301				2,258
Other assets			1,989				2,300
Total assets		$	2,284,599			$	2,408,587
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits		$	1,320,487			$	1,359,581
Non-interest-bearing deposits			185,375				213,573
Total deposits			1,505,862				1,573,154
Federal Home Loan Bank advances			579,164				606,600
Mortgage payable			812				751
Mortgagors’ escrow accounts			6,424				7,402
Accrued interest payable			575				2,187
Other liabilities			5,604				5,917
Total liabilities			2,098,441				2,196,011
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; 2,132,750 shares issued and outstanding			2,133				2,133
Additional paid-in capital			11,750				11,863
Undivided profits			165,596				198,580
Accumulated other comprehensive income			6,679				—
Total stockholders’ equity			186,158				212,576
Total liabilities and stockholders’ equity		$	2,284,599			$	2,408,587

HINGHAM INSTITUTION FOR SAVINGSConsolidated Statements of Income

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
(In thousands, except per share amounts)			2017				2018			2017				2018
(Unaudited)
Interest and dividend income:
Loans		$	20,180			$	22,716			$	75,843			$	87,022
Debt securities			1				1				1				1
Equity securities			414				498				1,530				1,985
Federal Reserve and other short-term investments			1,170				1,347				3,685				5,161
Total interest and dividend income			21,765				24,562				81,059				94,169
Interest expense:
Deposits			3,282				5,777				11,366				18,979
Federal Home Loan Bank advances			1,866				2,705				5,845				9,358
Mortgage payable			12				11				50				47
Total interest expense			5,160				8,493				17,261				28,384
Net interest income			16,605				16,069				63,798				65,785
Provision for loan losses			407				220				1,505				1,270
Net interest income, after provision for loan losses			16,198				15,849				62,293				64,515
Other income (loss):
Customer service fees on deposits			227				222				889				860
Increase in bank-owned life insurance			63				62				259				255
Gain (loss) on equity securities, net			—				(4,313	)			77				(3,023	)
Miscellaneous			49				44				185				173
Total other income (loss)			339				(3,985	)			1,410				(1,735	)
Operating expenses:
Salaries and employee benefits			3,055				3,124				12,300				12,658
Occupancy and equipment			460				461				1,765				1,774
Data processing			341				360				1,270				1,402
Deposit insurance			285				220				1,080				977
Foreclosure			(27	)			9				(13	)			(32	)
Marketing			73				142				398				570
Other general and administrative			655				614				2,776				2,702
Total operating expenses			4,842				4,930				19,576				20,051
Income before income taxes			11,695				6,934				44,127				42,729
Income tax provision			5,004				2,270				18,370				12,330
Net income		$	6,691			$	4,664			$	25,757			$	30,399
Cash dividends declared per share		$	0.68			$	0.87			$	1.66			$	1.92
Weighted average shares outstanding:
Basic			2,133				2,133				2,133				2,133
Diluted			2,184				2,186				2,181				2,187
Earnings per share:
Basic		$	3.14			$	2.18			$	12.08			$	14.25
Diluted		$	3.06			$	2.13			$	11.81			$	13.90

HINGHAM INSTITUTION FOR SAVINGSNet Interest Income Analysis

	Three Months Ended December 31,
	2017									2018
	AVERAGE BALANCE			INTEREST			YIELD/ RATE (8)			AVERAGE BALANCE		INTEREST			YIELD/ RATE (8)
(Dollars in thousands)
(Unaudited)
Loans (1) (2)	$	1,816,754		$	20,180		4.44	%		$	2,009,174		$	22,716		4.52	%
Securities (3) (4)		52,513			415		3.16				53,603			499		3.72
Federal Reserve and other short-term investments		353,393			1,170		1.32				237,371			1,347		2.27
Total interest-earning assets		2,222,660			21,765		3.92				2,300,148			24,562		4.27
Other assets		36,854									37,433
Total assets	$	2,259,514								$	2,337,581
Interest-bearing deposits (5)	$	1,334,198			3,282		0.98			$	1,469,637			5,777		1.57
Borrowed funds		555,953			1,878		1.35				430,121			2,716		2.53
Total interest-bearing liabilities		1,890,151			5,160		1.09				1,899,758			8,493		1.79
Demand deposits		180,088									218,621
Other liabilities		4,819									6,606
Total liabilities		2,075,058									2,124,985
Stockholders’ equity		184,456									212,596
Total liabilities and stockholders’ equity	$	2,259,514								$	2,337,581
Net interest income				$	16,605								$	16,069
Weighted average spread							2.83	%								2.48	%
Net interest margin (6)							2.99	%								2.79	%
Average interest-earning assets to average interest-bearing liabilities (7)							117.59	%								121.08	%

(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 SAVINGSNet Interest Income Analysis

	Twelve Months Ended December 31,
	2017									2018
	AVERAGE BALANCE			INTEREST			YIELD/ RATE			AVERAGE BALANCE			INTEREST			YIELD/ RATE
(Dollars in thousands)
(Unaudited)
Loans (1) (2)	$	1,711,152		$	75,843		4.43	%		$	1,941,159		$	87,022		4.48	%
Securities (3) (4)		50,036			1,531		3.06				53,055			1,986		3.74
Federal Reserve and other short-term investments		329,415			3,685		1.12				276,000			5,161		1.87
Total interest-earning assets		2,090,603			81,059		3.88				2,270,214			94,169		4.15
Other assets		35,662									38,357
Total assets	$	2,126,265								$	2,308,571
Interest-bearing deposits (5)	$	1,273,420			11,366		0.89			$	1,440,383			18,979		1.32
Borrowed funds		507,457			5,895		1.16				463,726			9,405		2.03
Total interest-bearing liabilities		1,780,877			17,261		0.97				1,904,109			28,384		1.49
Demand deposits		165,839									196,048
Other liabilities		4,665									5,369
Total liabilities		1,951,381									2,105,526
Stockholders’ equity		174,884									203,045
Total liabilities and stockholders’ equity	$	2,126,265								$	2,308,571
Net interest income				$	63,798								$	65,785
Weighted average spread							2.91	%								2.66	%
Net interest margin (6)							3.05	%								2.90	%
Average interest-earning assets to average interest-bearing liabilities (7)							117.39	%								119.23	%

(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.

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