GlobeNewswire Inc | Jul 13, 2020 04:01PM EDT

July 13, 2020

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 Banks 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 Banks 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 Banks 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 Banks 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 Banks commercial real estate portfolio. The Bank participated in the Small Business Administrations 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 Reserves 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 Banks 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 Banks quarterly financial results are summarized in the earnings release, but shareholders are encouraged to read the Banks 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 Americas oldest banks. The Banks 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 Banks 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 Ended Six Months Ended June 30, 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 1.23 1.61 1.25 1.46 (1) (5)Core return on average equity 13.71 16.92 13.80 15.20 (1) (5)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 0.82 0.79 0.84 0.83 assets (1)Efficiency ratio (4) 31.10 25.28 31.47 27.61 Average equity to average 8.97 9.52 9.03 9.59 assetsAverage interest-earning assets to average interest- 119.92 122.79 120.22 122.09 bearing liabilities

June 30, December 31, June 30, 2019 2019 2020(Unaudited) Asset Quality Ratios Allowance for loan losses 0.68 % 0.69 % 0.69 /total loansAllowance for loan losses 2,130.47 274.57 615.21 /non-performing loans Non-performing loans/ 0.03 0.25 0.11 total loansNon-performing loans/ 0.02 0.22 0.10 total assetsNon-performing assets/ 0.02 0.22 0.24 total assets 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 2,133,750 2,135,750 2,136,900 of period

(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. The efficiency ratio represents total operating expenses, divided by the(4) 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

June 30, December 31, June 30,(In thousands, except share amounts) 2019 2019 2020(Unaudited) ASSETS Cash and due from banks $ 9,951 $ 9,057 $ 7,365Federal Reserve and other short-term 318,356 243,090 214,489investmentsCash and cash equivalents 328,307 252,147 221,854 CRA investment 7,888 7,910 8,604Debt securities available for sale 12 11 9Other marketable equity securities 36,960 39,265 46,191Securities, at fair value 44,860 47,186 54,804Federal Home Loan Bank stock, at cost 31,231 24,890 20,390Loans, net of allowance for loanlosses of $14,787 at June 30, 2019, $15,376 at December 31, 2019 2,171,130 2,227,062 2,381,780 and $16,458 at June 30, 2020Foreclosed assets ? ? 3,811Bank-owned life insurance 12,600 12,727 12,844Premises and equipment, net 14,410 14,548 15,358Accrued interest receivable 5,691 4,926 5,054Deferred income tax asset, net 1,368 1,213 1,729Other assets 4,874 5,647 6,215Total assets $ 2,614,471 $ 2,590,346 $ 2,723,839

LIABILITIES AND STOCKHOLDERS EQUITY

Interest-bearing deposits $ 1,429,998 $ 1,583,280 $ 1,764,714Non-interest-bearing deposits 228,306 237,554 289,574Total deposits 1,658,304 1,820,834 2,054,288Federal Home Loan Bank and Federal 710,300 505,200 385,431Reserve Bank advancesMortgage payable 720 687 ?Mortgagors? escrow accounts 7,274 7,815 8,185Accrued interest payable 1,991 960 282Other liabilities 6,302 7,627 11,605Total 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 issuedand outstanding at June 30, 2019, 2,135,750 shares issued and outstanding and 2,134 2,136 2,137 December 31, 2019 and 2,136,900shares issued and outstanding at June30, 2020Additional paid-in capital 11,980 12,234 12,352Undivided profits 215,466 232,853 249,559Accumulated other comprehensive income ? ? ?Total stockholders? equity 229,580 247,223 264,048Total liabilities and stockholders? $ 2,614,471 $ 2,590,346 $ 2,723,839equity

HINGHAM INSTITUTION FOR SAVINGSConsolidated Statements of Income

Three Months Ended Six Months Ended June 30, June 30,(In thousands, except per share 2019 2020 2019 2020 amounts)(Unaudited) Interest and dividend income: Loans $ 24,816 $ 25,856 $ 47,896 $ 51,566 Equity securities 496 463 985 961 Federal Reserve and other 1,629 56 3,189 797 short-term investmentsTotal 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 15,762 20,416 31,181 37,336 provision for loan lossesOther income (loss): Customer service fees on deposits 199 148 385 320 Increase in cash surrender value of 57 59 124 117 bank-owned life insuranceGain (loss) on equity securities, 1,170 6,930 4,039 (1,144 )netGain 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 SAVINGSNet Interest Income Analysis

Three Months Ended June 30, 2019 2020 YIELD YIELD AVERAGE / AVERAGE / BALANCE INTEREST RATE BALANCE INTEREST RATE (8) (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 andother short-term 272,453 1,629 2.39 222,960 56 0.10 investmentsTotalinterest-earning 2,492,042 26,941 4.32 2,671,993 26,375 3.95 assetsOther assets 41,700 44,066 Total assets $ 2,533,742 $ 2,716,059 Interest-bearing $ 1,543,247 7,074 1.83 $ 1,592,458 4,392 1.10 deposits (5)Borrowed funds 534,809 3,550 2.66 583,532 942 0.65 Totalinterest-bearing 2,078,056 10,624 2.04 2,175,990 5,334 0.98 liabilitiesNon-interest-bearing 221,051 272,418 depositsOther liabilities 7,271 9,107 Total liabilities 2,306,378 2,457,515 Stockholders? equity 227,364 258,544 Total liabilitiesand stockholders? $ 2,533,742 $ 2,716,059 equityNet interest income $ 16,317 $ 21,041 Weighted average 2.28 % 2.97 %spread Net interest margin 2.62 % 3.15 %(6) Averageinterest-earning assets to average interest-bearing 119.92 % 122.79 %liabilities (7)

(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

Six Months Ended June 30, 2019 2020 YIELD YIELD AVERAGE / AVERAGE / BALANCE INTEREST RATE BALANCE INTEREST RATE (8) (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 andother short-term 266,348 3,189 2.39 225,565 797 0.71 investmentsTotalinterest-earning 2,428,094 52,070 4.29 2,618,241 53,324 4.07 assetsOther assets 40,418 45,302 Total assets $ 2,468,512 $ 2,663,543 Interest-bearing $ 1,514,553 13,220 1.75 $ 1,552,901 10,333 1.33 deposits (5)Borrowed funds 505,176 6,689 2.65 591,596 3,892 1.32 Totalinterest-bearing 2,019,729 19,909 1.97 2,144,497 14,225 1.33 liabilitiesNon-interest-bearing 218,099 255,212 depositsOther liabilities 7,697 8,347 Total liabilities 2,245,525 2,408,056 Stockholders? equity 222,987 255,487 Total liabilitiesand stockholders? $ 2,468,512 $ 2,663,543 equityNet interest income $ 32,161 $ 39,099 Weighted average 2.32 % 2.74 %spread Net interest margin 2.65 % 2.99 %(6) Averageinterest-earning assets to average 120.22 % 122.09 % interest-bearingliabilities (7)

(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, 2019 2020 2019 2020 unaudited) Non-GAAP reconciliation:Net income $ 8,706 $ 16,338 $ 18,530 $ 18,523 Loss (gain) onequity (1,170 ) (6,930 ) (4,039 ) 1,144 securities, netIncome taxexpense (benefit) 258 1,528 890 (252 )(1)Core net income $ 7,794 $ 10,936 $ 15,381 $ 19,415

The equity securities are held in a tax-advantaged subsidiary(1) 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 Balance # of Balance # of Balance Loans (2) Loans Loans(In thousands, unaudited) Residential Real Estate 2,534 $ 706,733 35 $ 13,164 1.38 % 1.86 %(1)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