Hingham Savings Reports 2020 Results


HINGHAM, Mass., Jan. 19, 2021 (GLOBE NEWSWIRE) -- HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced earnings for the fourth quarter and the year ended December 31, 2020.

Earnings

Net income for the year ended December 31, 2020 was $50,771,000 or $23.76 per share basic and $23.25 per share diluted, as compared to $38,927,000 or $18.24 per share basic and $17.83 per share diluted for the same period last year.  The Bank’s return on average equity for the year ended December 31, 2020 was 18.96%, and the return on average assets was 1.88%, as compared to 16.82% and 1.55% for the same period in 2019.  Net income per share (diluted) for 2020 increased by 30% over the same period in 2019.

Core net income for the year ended December 31, 2020, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, was $44,600,000 or $20.87 per share basic and $20.43 per share diluted, as compared to $32,996,000 or $15.46 per share basic and $15.12 per share diluted for the same period last year.  The Bank’s core return on average equity for the year ended December 31, 2020 was 16.66%, and the core return on average assets was 1.65%, as compared to 14.26% and 1.32% for the same period in 2019.  Core net income per share (diluted) for 2020 increased by 35% over the same period in 2019.

Net income for the quarter ended December 31, 2020 was $17,042,000 or $7.97 per share basic and $7.78 per share diluted, as compared to $11,364,000 or $5.32 per share basic and $5.20 per share diluted for the same period last year.  The Bank’s annualized return on average equity for the fourth quarter of 2020 was 23.83%, and the annualized return on average assets was 2.46%, as compared to 18.64% and 1.81% for the same period in 2019.  Net income per share (diluted) for the fourth quarter of 2020 increased by 50% over the same period in 2019. 

Core net income for the quarter ended December 31, 2020, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, was $12,791,000 or $5.99 per share basic and $5.84 per share diluted, as compared to $8,814,000 or $4.13 per share basic and $4.04 per share diluted for the same period last year.  The Bank’s annualized core return on average equity for the fourth quarter of 2020 was 17.89%, and the annualized core return on average assets was 1.85%, as compared to 14.46% and 1.40% for the same period in 2019.  Core net income per share (diluted) for the fourth quarter of 2020 increased by 45% 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 $2.857 billion at December 31, 2020, representing 10% growth from December 31, 2019.

Net loans totaled $2.495 billion at December 31, 2020, representing 12% growth from December 31, 2019.  Growth was concentrated in the Bank’s commercial real estate portfolio. 

Total deposits, including wholesale deposits, increased to $2.139 billion at December 31, 2020, representing 17% growth from December 31, 2019.  Total retail and business deposits increased to $1.592 billion at December 31, 2020, representing 11% growth from December 31, 2019.  Non-interest bearing deposits, included in retail and business deposits, increased to $313.5 million at December 31, 2020, representing 32% growth from December 31, 2019.  During 2020, the Bank continued to reduce the balance of excess reserves held at the Federal Reserve Bank and managed 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 $137.02 as of December 31, 2020, representing 18.4% growth from December 31, 2019.  In addition to the increase in book value per share, the Bank has declared $2.47 in dividends per share since December 31, 2019, including a special dividend of $0.70 per share declared during the fourth quarter of 2020.  The Bank increased its regular dividend per share in each of the last four quarters.  The trailing five year compound annual growth rate in book value per share, an important measure of long-term value creation, was 16.1%.

Operational Performance Metrics

The net interest margin for the year ended December 31, 2020 increased 50 basis points to 3.22%, as compared to 2.72% in the prior year.  The net interest margin for the quarter ended December 31, 2020 increased 64 basis points to 3.43%, as compared to 2.79% for the same period last year.  The Bank has benefited from a sharp decline in the cost of interest-bearing liabilities, including retail and commercial deposits and wholesale funding. The Bank has also benefited from continued growth in non-interest bearing deposit balances. These benefits were 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 periods.

Key credit and operational metrics remained strong in the fourth quarter. At December 31, 2020, non-performing assets totaled 0.27% of total assets, as compared to 0.22% at December 31, 2019.  Non-performing loans as a percentage of the total loan portfolio totaled 0.16% at December 31, 2020, as compared to 0.25% at December 31, 2019.  At December 31, 2020, the Bank did not have any material exposure to loans modified as a result of the COVID-19 pandemic.  As indicated in prior quarters, the Bank did not defer the collection of interest due on any commercial loans in response to COVID-19.  See “COVID-19 Modifications Table” in Page 9 for a summary of modified loans still outstanding at December 31, 2020. Although the Bank’s litigation activities were slowed by pandemic-related operational challenges in both state and federal courts early in 2020, we continue to pursue delinquencies vigorously. 

At December 31, 2020, the Bank owned $3.8 million in foreclosed property, consisting exclusively of a residential property on Nantucket that was purchased at auction in January 2020.  This balance includes the capitalization of repairs and improvements completed by the Bank following acquisition, net of a valuation allowance of $100,000 recorded in the fourth quarter of 2020 to reflect the property’s fair value. This property had originally secured a non-performing loan which comprised the substantial majority of non-performing assets at December 31, 2019.  This property is currently under contract pending closing in the first quarter of 2021.  At December 31, 2019, the Bank did not own any foreclosed property. 

The Bank recorded $260,000 of net charge-offs in 2020, as compared to $1,000 in net recoveries in 2019. This was the product of $712,000 in gross charge-offs, primarily associated with two residential mortgage loans subject to foreclosure, partially offset by $452,000 in recoveries from ongoing litigation and insurance claims related to the same residential loans.  The Bank continues to pursue remaining deficiencies via litigation.

The efficiency ratio, as defined on page 4 below, fell to 25.41% in 2020, as compared to 30.26% in 2019.  Operating expenses as a percentage of average assets were 0.82% in both 2020 and 2019.  The Bank remains focused on reducing waste through an ongoing process of continuous improvement.

Chairman and Chief Executive Officer Robert H. Gaughen Jr. stated, “Returns on equity and assets were satisfactory in 2020, although performance in any one period should always be viewed cautiously, especially when tailwinds are blowing strongly in our favor.  These tailwinds will not blow forever and we must be prepared for environments in which headwinds prevail.  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 annual financial results are summarized in the earnings release, but shareholders are encouraged to read the Bank’s annual report on Form 10-K, which is generally available several weeks after the earnings release.  The Bank expects to file Form 10-K for the year ended December 31, 2020 with the Federal Deposit Insurance Corporation (FDIC) on or about March 3, 2021.

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
December 31,
 Twelve Months Ended
December 31,
 2019 2020 2019 2020
(Unaudited)           
            
Key Performance Ratios           
Return on average assets (1)1.81% 2.46% 1.55% 1.88%
Return on average equity (1)18.64  23.83  16.82  18.96 
Core return on average assets (1) (5)1.40  1.85  1.32  1.65 
Core return on average equity (1) (5)14.46  17.89  14.26  16.66 
Interest rate spread (1) (2)2.45  3.31  2.38  3.03 
Net interest margin (1) (3)2.79  3.43  2.72  3.22 
Operating expenses to average assets (1)0.81  0.80  0.82  0.82 
Efficiency ratio (4)29.00  23.57  30.26  25.41 
Average equity to average assets9.70  10.34  9.24  9.93 
Average interest-earning assets to average interest-            
bearing liabilities122.02  125.62  120.74  123.64 
            


 December 31, 2019 December 31, 2020
(Unaudited)       
      
Asset Quality Ratios     
Allowance for loan losses/total loans 0.69% 0.69%
Allowance for loan losses/non-performing loans 274.57  438.28 
       
Non-performing loans/total loans 0.25  0.16 
Non-performing loans/total assets 0.22  0.14 
Non-performing assets/total assets 0.22  0.27 
       
Share Related      
Book value per share$115.75  $137.02 
Market value per share$210.20  $216.00 
Shares outstanding at end of period 2,135,750   2,137,900 


(1)Annualized for the three months ended December 31, 2019 and 2020.

(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)
 December 31, 2019
 December 31, 2020
(Unaudited) 
ASSETS 
       
Cash and due from banks $9,057 $6,798
Federal Reserve and other short-term investments  243,090  227,188
Cash and cash equivalents  252,147  233,986
       
CRA investment  7,910  9,580
Debt securities available for sale  11  6
Other marketable equity securities  39,265  56,282
Securities, at fair value  47,186  65,868
Federal Home Loan Bank stock, at cost  24,890  19,345
Loans, net of allowance for loan losses of $15,376 at December 31,      
2019 and $17,404 at December 31, 2020  2,227,062  2,495,331
Foreclosed assets    3,826
Bank-owned life insurance  12,727  12,657
Premises and equipment, net  14,548  15,248
Accrued interest receivable  4,926  5,267
Deferred income tax asset, net  1,213  763
Other assets  5,647  4,802
Total assets $2,590,346 $2,857,093

LIABILITIES AND STOCKHOLDERS’ EQUITY

       
Interest-bearing deposits $1,583,280 $1,825,700
Non-interest-bearing deposits  237,554  313,497
Total deposits  1,820,834  2,139,197
Federal Home Loan Bank advances  505,200  408,031
Mortgage payable  687  
Mortgagors’ escrow accounts  7,815  8,770
Accrued interest payable  960  252
Other liabilities  7,627  7,900
Total liabilities  2,343,123  2,564,150
       
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;      
2,135,750 shares issued and outstanding at December 31,      
2019 and 2,137,900 shares issued and outstanding at      
December 31, 2020  2,136  2,138
Additional paid-in capital  12,234  12,460
Undivided profits  232,853  278,345
Accumulated other comprehensive income    
Total stockholders’ equity  247,223  292,943
Total liabilities and stockholders’ equity $2,590,346 $2,857,093


HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Income

  Three Months Ended Twelve Months Ended
  December 31, December 31,
(In thousands, except per share amounts)  2019  2020 2019 2020
(Unaudited)          
Interest and dividend income:            
Loans $25,330 $26,038 $99,379 $103,797
Debt securities  1    1  
Equity securities  493  264  1,996  1,666
Federal Reserve and other short-term investments 860  55  5,576  899
Total interest and dividend income  26,684  26,357  106,952  106,362
Interest expense:            
Deposits  6,014  2,568  26,819  16,186
Federal Home Loan Bank and Federal Reserve Bank advances  3,422  513  13,188  4,969
Mortgage payable  10    43  3
Total interest expense  9,446  3,081  40,050  21,158
Net interest income  17,238  23,276  66,902  85,204
Provision for loan losses  285  175  1,567  2,288
Net interest income, after provision for loan losses 16,953  23,101  65,335  82,916
Other income:            
Customer service fees on deposits  205  177  803  678
Increase in cash surrender value of bank-owned life insurance  66  51  251  219
Gain on equity securities, net  3,271  5,453  7,608  7,916
Gain on disposal of fixed assets        218
Miscellaneous  41  47  166  161
Total other income  3,583  5,728  8,828  9,192
Operating expenses:            
Salaries and employee benefits  3,212  3,278  12,826  13,155
Occupancy and equipment  459  422  1,813  1,854
Data processing  432  443  1,586  1,909
Deposit insurance  4  211  534  860
Foreclosure and related  16  207  117  528
Marketing  198  145  695  545
Other general and administrative  768  846  3,044  3,127
Total operating expenses  5,089  5,552  20,615  21,978
Income before income taxes  15,447  23,277  53,548  70,130
Income tax provision  4,083  6,235  14,621  19,359
Net income $11,364 $17,042 $38,927 $50,771
             
Cash dividends declared per share $1.01 $1.17 $2.18 $2.47
             
Weighted average shares outstanding:            
Basic  2,134  2,137  2,134  2,137
Diluted  2,183  2,189  2,183  2,183
             
Earnings per share:            
Basic $5.32 $7.97 $18.24 $23.76
Diluted $5.20 $7.78 $17.83 $23.25


HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis

 Three Months Ended December 31,  
 2019  2020 
 AVERAGE BALANCE INTEREST YIELD/ RATE (8)  AVERAGE BALANCE INTEREST YIELD/ RATE (8) 
(Dollars in thousands)                 
(Unaudited)                 
                  
Loans (1) (2)$2,198,689 $25,330 4.61% $2,440,571 $26,038 4.27%
Securities (3) (4) 62,938  494 3.14   62,966  264 1.68 
Federal Reserve and other short-term investments 208,197  860 1.65   214,403  55 0.10 
Total interest-earning assets 2,469,824  26,684 4.32   2,717,940  26,357 3.88 
Other assets 42,766        48,848      
Total assets$2,512,590       $2,766,788      
                  
Interest-bearing deposits (5)$1,425,114  6,014 1.69  $1,843,689  2,568 0.56 
Borrowed funds 599,025  3,432 2.29   319,931  513 0.64 
Total interest-bearing liabilities 2,024,139  9,446 1.87   2,163,620  3,081 0.57 
Non-interest-bearing deposits 237,039        309,975      
Other liabilities 7,594        7,153      
Total liabilities 2,268,772        2,480,748      
Stockholders’ equity 243,818        286,040      
Total liabilities and stockholders’ equity$2,512,590       $2,766,788      
Net interest income   $17,238       $23,276   
                  
Weighted average spread      2.45%       3.31%
                  
Net interest margin (6)      2.79%       3.43%
                  
Average interest-earning assets to average                 
interest-bearing liabilities (7) 122.02%       125.62%     


(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

 Twelve Months Ended December 31,  
 2019  2020 
 AVERAGE BALANCE 
INTEREST
 YIELD/ RATE  AVERAGE BALANCE INTEREST YIELD/ RATE 
(Dollars in thousands)                 
(Unaudited)                 
                  
Loans (1) (2)$2,150,445 $99,379 4.62% $2,370,869 $103,797 4.38%
Securities (3) (4) 58,585  1,997 3.41   65,318  1,666 2.55 
Federal Reserve and other short-term investments 255,082  5,576 2.19   212,490  899 0.42 
Total interest-earning assets 2,464,112  106,952 4.34   2,648,677  106,362 4.02 
Other assets 41,806        46,986      
Total assets$2,505,918       $2,695,663      
                  
Interest-bearing deposits (5)$1,517,625  26,819 1.77  $1,677,107  16,186 0.97 
Borrowed funds 523,235  13,231 2.53   465,161  4,972 1.07 
Total interest-bearing liabilities 2,040,860  40,050 1.96   2,142,268  21,158 0.99 
Non-interest-bearing deposits 225,999        277,924      
Other liabilities 7,619        7,748      
Total liabilities 2,274,478        2,427,940      
Stockholders’ equity 231,440        267,723      
Total liabilities and stockholders’ equity$2,505,918       $2,695,663      
Net interest income   $66,902       $85,204   
                  
Weighted average spread      2.38%       3.03%
                  
Net interest margin (6)      2.72%       3.22%
                  
Average interest-earning assets to average                 
interest-bearing liabilities (7) 120.74%       123.64%     

 

(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.

 

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 Twelve Months Ended
  December 31, December 31,
(In thousands, unaudited)  2019   2020  2019  2020 
           
Non-GAAP reconciliation:             
Net income $11,364  $17,042  $38,927  $50,771 
Gain on equity securities, net  (3,271)  (5,453)  (7,608)  (7,916)
Income tax expense (1)  721   1,202   1,677   1,745 
Core net income $8,814  $12,791  $32,996  $44,600 

 

(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 December 31, 2020, by loan category. This table reflects all modifications in effect as of December 31, 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
(Balances in thousands, unaudited)             
                 
Residential Real Estate (1)2,392 $656,220  5 $1,394 0.21% 0.21%
Commercial Real Estate1,380  1,693,215  7  21,236 0.51  1.25 
Construction65  153,020        
Commercial and Consumer529  7,438        
Total Loans 4,366 $2,509,893  12 $22,630 0.27% 0.90%

 

(1)Includes Home Equity lines of credit.
(2)Gross loans, before net deferred loan origination costs and the allowance for loan losses.




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