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

October 13, 2020

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 Banks 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 Banks 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 Banks 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 Banks 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 Banks 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 Banks 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 Banks 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 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 September 30, 2020 with the FDIC on or about November 4, 2020.

Incorporated in 1834, Hingham Institution for Savings is one of Americas oldest banks. The Bank maintains offices in Boston, Nantucket, and 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 Nine Months Ended September 30, September 30, 2019 2020 2019 2020(Unaudited) Key Performance Ratios Return on average assets 1.40 % 2.26 % 1.47 % 1.68 %(1)Return on average equity 15.33 22.23 16.17 17.19 (1)Core return on average 1.37 1.84 1.29 1.59 assets (1) (5)Core return on average 14.94 18.12 14.19 16.21 equity (1) (5)Interest rate spread (1) 2.42 3.31 2.36 2.93 (2)Net interest margin (1) 2.77 3.46 2.69 3.15 (3)Operating expenses to 0.81 0.81 0.83 0.82 average assets (1)Efficiency ratio (4) 29.28 23.50 30.70 26.10 Average equity to 9.16 10.18 9.08 9.79 average assetsAverage interest-earningassets to average interest-bearing liabilities 120.49 124.72 120.31 122.96

September 30, December 31, September 30, 2019 2019 2020(Unaudited) Asset Quality RatiosAllowance forloan losses/ 0.70 % 0.69 % 0.71 %total loansAllowance forloan losses/ 1,138.01 274.57 699.75 non-performingloans Non-performingloans/total 0.06 0.25 0.10 loansNon-performingloans/total 0.05 0.22 0.09 assetsNon-performingassets/total 0.05 0.22 0.23 assets Share Related Book value per $ 111.47 $ 115.75 $ share 130.24Market value per $ 189.00 $ 210.20 $ share 184.00Sharesoutstanding at 2,133,750 2,135,750 2,136,900 end 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.

(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 SAVINGSConsolidated Balance Sheets

September December September(In thousands, except share amounts) 30, 31, 30, 2019 2019 2020(Unaudited) ASSETS Cash and due from banks $ 10,233 $ 9,057 $ 9,816Federal Reserve and other short-term 221,022 243,090 229,555investmentsCash and cash equivalents 231,255 252,147 239,371 CRA investment 7,948 7,910 8,604Debt securities available for sale 11 11 6Other marketable equity securities 38,981 39,265 48,744Securities, at fair value 46,940 47,186 57,354Federal Home Loan Bank stock, at cost 23,615 24,890 18,985Loans, net of allowance for loan losses of $15,090at September 30, 2019, $15,376 at December 31, 2019and $16,780 at September 30, 2020 2,140,514 2,227,062 2,358,983Foreclosed assets ? ? 3,926Bank-owned life insurance 12,661 12,727 12,895Premises and equipment, net 14,339 14,548 15,294Accrued interest receivable 4,912 4,926 5,116Deferred income tax asset, net 1,303 1,213 1,176Other assets 4,833 5,647 6,045Total assets $ 2,480,372 $ 2,590,346 $ 2,719,145

LIABILITIES AND STOCKHOLDERS EQUITY

Interest-bearing deposits $ 1,474,113 $ 1,583,280 $ 1,722,970Non-interest-bearing deposits 231,616 237,554 303,774Total deposits 1,705,729 1,820,834 2,026,744Federal Home Loan Bank advances 519,900 505,200 399,031Mortgage payable 703 687 ?Mortgagors? escrow accounts 7,544 7,815 8,105Accrued interest payable 2,198 960 274Other liabilities 6,445 7,627 6,679Total liabilities 2,242,519 2,343,123 2,440,833 Stockholders? equity: Preferred stock, $1.00 par value, 2,500,000 shares authorized, none ? ? ?issuedCommon stock, $1.00 par value, 5,000,000 sharesauthorized; 2,133,750 shares issued and outstanding atSeptember 30, 2019, 2,135,750 shares issued and outstandingand December 31, 2019 and 2,136,900 shares issued andoutstanding at September 30, 2020 2,134 2,136 2,137Additional paid-in capital 12,073 12,234 12,371Undivided profits 223,646 232,853 263,804Accumulated other comprehensive income ? ? ?Total stockholders? equity 237,853 247,223 278,312Total liabilities and stockholders? $ 2,480,372 $ 2,590,346 $ 2,719,145equity

HINGHAM INSTITUTION FOR SAVINGSConsolidated Statements of Income

Three Months Ended Nine Months Ended September 30, September 30,(In thousands, except per share 2019 2020 2019 2020amounts)(Unaudited) Interest and dividend income: Loans $ 26,153 $ 26,193 $ 74,049 $ 77,759Equity securities 518 441 1,503 1,402Federal Reserve and other short-term 1,527 47 4,716 844investmentsTotal interest and dividend income 28,198 26,681 80,268 80,005Interest expense: Deposits 7,585 3,285 20,805 13,618Federal Home Loan Bank and Federal 3,099 567 9,766 4,456Reserve Bank advancesMortgage payable 11 ? 33 3Total interest expense 10,695 3,852 30,604 18,077Net interest income 17,503 22,829 49,664 61,928Provision for loan losses 302 350 1,282 2,113Net interest income, after provision 17,201 22,479 48,382 59,815for loan lossesOther income: Customer service fees on deposits 213 181 598 501Increase in cash surrender value of 61 51 185 168bank-owned life insuranceGain on equity securities, net 298 3,607 4,337 2,463Gain on disposal of fixed assets ? ? ? 218Miscellaneous 42 33 125 114Total other income 614 3,872 5,245 3,464Operating expenses: Salaries and employee benefits 3,290 3,210 9,614 9,877Occupancy and equipment 453 503 1,354 1,432Data processing 419 502 1,154 1,466Deposit insurance 22 212 530 649Foreclosure 34 167 101 321Marketing 188 116 497 400Other general and administrative 811 718 2,276 2,281Total operating expenses 5,217 5,428 15,526 16,426Income before income taxes 12,598 20,923 38,101 46,853Income tax provision 3,565 5,717 10,538 13,124Net 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 2,137Diluted 2,183 2,183 2,182 2,181 Earnings per share: Basic $ 4.23 $ 7.12 $ 12.92 $ 15.79Diluted $ 4.14 $ 6.96 $ 12.63 $ 15.46

HINGHAM INSTITUTION FOR SAVINGSNet Interest Income Analysis

Three Months Ended September 30, 2019 2020 YIELD YIELD AVERAGE INTEREST / AVERAGE INTEREST / BALANCE RATE BALANCE RATE (8) (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 andother short-term 279,802 1,527 2.18 184,710 47 0.10 investmentsTotalinterest-earning 2,529,259 28,198 4.46 2,639,622 26,681 4.04 assetsOther assets 43,578 48,456 Total assets $ 2,572,837 $ 2,688,078 Interest-bearing $ 1,616,151 7,585 1.88 $ 1,756,238 3,285 0.75 deposits (5)Borrowed funds 482,975 3,110 2.58 360,271 567 0.63 Totalinterest-bearing 2,099,126 10,695 2.04 2,116,509 3,852 0.73 liabilitiesNon-interest-bearing 230,505 290,803 depositsOther liabilities 7,514 7,156 Total liabilities 2,337,145 2,414,468 Stockholders? equity 235,692 273,610 Total liabilitiesand stockholders? $ 2,572,837 $ 2,688,078 equityNet interest income $ 17,503 $ 22,829 Weighted average 2.42 % 3.31 %spread Net interest margin 2.77 % 3.46 %(6) Averageinterest-earning assets to averageinterest-bearing 120.49 % 124.72 % 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

Nine Months Ended September 30, 2019 2020 YIELD YIELD AVERAGE INTEREST / AVERAGE INTEREST / BALANCE RATE BALANCE RATE (8) (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 andother short-term 270,882 4,716 2.32 211,847 844 0.53 investmentsTotalinterest-earning 2,462,186 80,268 4.35 2,625,420 80,005 4.06 assetsOther assets 41,483 46,361 Total assets $ 2,503,669 $ 2,671,781 Interest-bearing $ 1,548,791 20,805 1.79 $ 1,621,175 13,618 1.12 deposits (5)Borrowed funds 497,694 9,799 2.63 513,925 4,459 1.16 Totalinterest-bearing 2,046,485 30,604 1.99 2,135,100 18,077 1.13 liabilitiesNon-interest-bearing 222,280 267,162 depositsOther liabilities 7,635 7,947 Total liabilities 2,276,400 2,410,209 Stockholders? equity 227,269 261,572 Total liabilitiesand stockholders? $ 2,503,669 $ 2,671,781 equityNet interest income $ 49,664 $ 61,928 Weighted average 2.36 % 2.93 %spread Net interest margin 2.69 % 3.15 %(6) Averageinterest-earning assets to averageinterest-bearing 120.31 % 122.96 % 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 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 on equity securities, net.

Three Months Ended Nine Months Ended September 30, September 30,(In thousands, 2019 2020 2019 2020unaudited) Non-GAAP reconciliation:Net income $ 9,033 $ 15,206 $ 27,563 $ 33,729 Gain on equity (298 ) (3,607 ) (4,337 ) (2,463 )securities, netIncome tax expense 66 795 956 543 (1)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 Balance # of Balance # of Balance Loans (2) Loans Loans(In thousands, unaudited) Residential Real Estate 2,473 $ 688,008 24 $ 7,815 0.97 % 1.14 %(1)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