HIFS Hingham Institution for Savings

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 EndedJune 30,						Six Months EndedJune 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
	AVERAGEBALANCE			INTEREST			YIELD/RATE (8)			AVERAGEBALANCE			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
	AVERAGEBALANCE			INTEREST			YIELD/RATE (8)			AVERAGEBALANCE			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 SAVINGSNon-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