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, 2019.

Net income for the year ended December 31, 2019 was $38,927,000 or $18.24 per share basic and $17.83 per share diluted, as compared to $30,399,000 or $14.25 per share basic and $13.90 per share diluted for the same period last year.  The Bank’s return on average equity for the year ended December 31, 2019 was 16.82%, and the return on average assets was 1.55%, as compared to 14.97% and 1.32% for the same period in 2018.  Net income per share (diluted) for 2019 increased 28% over the same period in 2018.

Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the year ended December 31, 2019 was $32,996,000 or $15.46 per share basic and $15.12 per share diluted, as compared to $32,776,000 or $15.37 per share basic and $14.99 per share diluted for the same period last year.  The Bank’s core return on average equity for the year ended December 31, 2019 was 14.26%, and the core return on average assets was 1.32%, as compared to 16.14% and 1.42% for the same period in 2018.  Core net income per share (diluted) for 2019 increased by 1% over the same period in 2018.

Net income for the quarter ended December 31, 2019 was $11,364,000 or $5.32 per share basic and $5.20 per share diluted, as compared to $4,664,000 or $2.18 per share basic and $2.13 per share diluted for the same period last year.  The Bank’s annualized return on average equity for the fourth quarter of 2019 was 18.64%, and the annualized return on average assets was 1.81%, as compared to 8.78% and 0.80% for the same period last year.  Net income per share (diluted) for the fourth quarter of 2019 increased by 144% compared to the same period in 2018.

Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the quarter ended December 31, 2019 was $8,814,000 or $4.13 per share basic and $4.04 per share diluted, as compared to $8,046,000 or $3.77 per share basic and $3.68 per share diluted for the same period last year.  The Bank’s annualized core return on average equity for the fourth quarter of 2019 was 14.46% and the annualized core return on average assets was 1.40%, as compared to 15.14% and 1.38% for the same period last year.  Core net income per share (diluted) for the fourth quarter of 2019 increased by 10% over the same period in 2018.

Balance sheet growth in 2019 was strong, as deposits increased to $1.821 billion at December 31, 2019, representing 16% growth from 2018.  This reflected strong growth in retail and business deposits of $173.3 million, as well $74.4 million growth in wholesale deposits.  Net loans increased to $2.227 billion, representing 11% growth from 2018.  Total assets increased to $2.590 billion, representing 8% growth from 2018.  During 2019, the Bank used a portion of its cash balances to reduce outstanding Federal Home Loan Bank advances, in order to minimize the carrying cost of its on-balance sheet liquidity.  Book value per share was $115.75 as of December 31, 2019, representing 16% growth from December 31, 2018.  In addition to the increase in book value per share, the Bank declared $2.18 in dividends per share in 2019, including a special dividend of $0.60 per share declared during the fourth quarter of 2019.  The Bank announced increases in its regular quarterly dividend in March, June, September and November of 2019.  The trailing five year compound annual growth rate in book value per share, an important measure of long-term value creation, was 15.2%.

Key credit and operational metrics remained strong in 2019.  At December 31, 2019, non-performing assets totaled 0.22% of total assets, compared to 0.02% at December 31, 2018.  Non-performing loans as a percentage of the total loan portfolio totaled 0.25% at December 31, 2019, compared to 0.02% at December 31, 2018.  A single non-performing residential loan on Nantucket comprised the substantial majority of non-performing assets at year-end and the Bank is actively exercising its full range of remedies, including foreclosure proceedings against the collateral as well as direct litigation against each of the borrowers individually.  The Bank recorded $1,000 in net recoveries in both 2019 and 2018.  At December 31, 2019 and 2018, the Bank did not own any foreclosed property.  The efficiency ratio increased slightly to 30.26% in 2019, as compared to 29.89% in 2018.  Operating expenses as a percentage of average assets improved to 0.82% in 2019, as compared to 0.87% in 2018.  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 2019, although competitive pressures remain acute.  Performance in any one period, especially a period in which tailwinds are blowing strongly in our favor, should be viewed cautiously.  As always, we remain focused on careful capital allocation, defensive underwriting, and disciplined cost control - the keys to compounding shareholder capital through all stages of the credit cycle.”

The Bank’s annual and quarterly financial results are summarized in this 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, 2019 with the FDIC on or about March 4, 2020.

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 maintains a commercial banking 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 SAVINGSSelected Financial Ratios

	Three Months EndedDecember 31,						Twelve Months EndedDecember 31,
	2018			2019			2018			2019
(Unaudited)
Key Performance Ratios
Return on average assets (1)	0.80	%		1.81	%		1.32	%		1.55	%
Return on average equity (1)	8.78			18.64			14.97			16.82
Core return on average assets (1) (5)	1.38			1.40			1.42			1.32
Core return on average equity (1) (5)	15.14			14.46			16.14			14.26
Interest rate spread (1) (2)	2.48			2.45			2.66			2.38
Net interest margin (1) (3)	2.79			2.79			2.90			2.72
Operating expenses to average assets (1)	0.84			0.81			0.87			0.82
Efficiency ratio (4)	30.07			29.00			29.89			30.26
Average equity to average assets	9.09			9.70			8.80			9.24
Average interest-earning assets to average interest-   bearing liabilities	121.08			122.02			119.23			120.74

	December 31, 2018					December 31, 2019
(Unaudited)
Asset Quality Ratios
Allowance for loan losses/total loans		0.68	%			0.69		%
Allowance for loan losses/non-performing loans		2,852.89				274.57
Non-performing loans/total loans		0.02				0.25
Non-performing loans/total assets		0.02				0.22
Non-performing assets/total assets		0.02				0.22
Share Related
Book value per share	$	99.67				$	115.75
Market value per share	$	197.74				$	210.20
Shares outstanding at end of period		2,132,750					2,135,750

1. Annualized for the three months ended December 31, 2018 and 2019. 
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 SAVINGSConsolidated Balance Sheets

(Dollars in thousands, except share amounts)		December 31, 2018				December 31, 2019
(Unaudited)
ASSETS
Cash and due from banks		$	8,004			$	9,057
Federal Reserve and other short-term investments			287,971				243,090
Cash and cash equivalents			295,975				252,147
CRA investment			7,680				7,910
Debt securities available for sale			14				11
Other marketable equity securities			30,766				39,265
Securities, at fair value			38,460				47,186
Federal Home Loan Bank stock, at cost			28,696				24,890
Loans, net of allowance for loan losses of $13,808 at December 31,    2018 and $15,376 at December 31, 2019			2,009,288				2,227,062
Foreclosed assets			—				—
Bank-owned life insurance			12,476				12,727
Premises and equipment, net			14,553				14,548
Accrued interest receivable			4,581				4,926
Deferred income tax asset, net			2,258				1,213
Other assets			2,300				5,647
Total assets		$	2,408,587			$	2,590,346

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing deposits		$	1,359,581		$	1,583,280
Non-interest-bearing deposits			213,573			237,554
Total deposits			1,573,154			1,820,834
Federal Home Loan Bank advances			606,600			505,200
Mortgage payable			751			687
Mortgagors’ escrow accounts			7,402			7,815
Accrued interest payable			2,187			960
Other liabilities			5,917			7,627
Total liabilities			2,196,011			2,343,123
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 at December 31, 2018 and 2,135,750 shares issued and outstanding at December 31, 2019			2,133			2,136
Additional paid-in capital			11,863			12,234
Undivided profits			198,580			232,853
Accumulated other comprehensive income			—			—
Total stockholders’ equity			212,576			247,223
Total liabilities and stockholders’ equity		$	2,408,587		$	2,590,346

HINGHAM INSTITUTION FOR SAVINGSConsolidated Statements of Income

							Three Months Ended							Twelve Months Ended
							December 31,							December 31,
(In thousands, except per share amounts)								2018				2019		2018					2019
(Unaudited)
Interest and dividend income:
	Loans						$	22,716			$	25,330		$	87,022				$	99,379
	Debt securities							1				1			1					1
	Equity securities							498				493			1,985					1,996
	Federal Reserve and other short-term investments							1,347				860			5,161					5,576
		Total interest and dividend income						24,562				26,684			94,169					106,952
Interest expense:
	Deposits							5,777				6,014			18,979					26,819
	Federal Home Loan Bank advances							2,705				3,422			9,358					13,188
	Mortgage payable							11				10			47					43
		Total interest expense						8,493				9,446			28,384					40,050
		Net interest income						16,069				17,238			65,785					66,902
Provision for loan losses								220				285			1,270					1,567
Net interest income, after provision for loan losses								15,849				16,953			64,515					65,335
Other income (loss):
	Customer service fees on deposits							222				205			860					803
	Increase in bank-owned life insurance							62				66			255					251
	Gain (loss) on equity securities, net							(4,313	)			3,271			(3,023	)				7,608
	Miscellaneous							44				41			173					166
		Total other income (loss)						(3,985	)			3,583			(1,735	)				8,828
Operating expenses:
	Salaries and employee benefits							3,124				3,212			12,658					12,826
	Occupancy and equipment							461				459			1,774					1,813
	Data processing							360				432			1,402					1,586
	Deposit insurance							220				4			977					534
	Foreclosure							9				16			(32	)				117
	Marketing							137				198			625					695
	Other general and administrative							619				768			2,647					3,044
		Total operating expenses						4,930				5,089			20,051					20,615
Income before income taxes								6,934				15,447			42,729					53,548
Income tax provision								2,270				4,083			12,330					14,621
		Net income					$	4,664			$	11,364		$	30,399				$	38,927
Cash dividends declared per share							$	0.87			$	1.01		$	1.92				$	2.18
Weighted average shares outstanding:
	Basic							2,133				2,134			2,133					2,134
	Diluted							2,186				2,183			2,187					2,183
Earnings per share:
	Basic						$	2.18			$	5.32		$	14.25				$	18.24
	Diluted						$	2.13			$	5.20		$	13.90				$	17.83

HINGHAM INSTITUTION FOR SAVINGSNet Interest Income Analysis

	Three Months Ended December 31,
	2018									2019
	AVERAGE BALANCE			INTEREST			YIELD/ RATE (8)			AVERAGE BALANCE			INTEREST			YIELD/ RATE (8)
(Dollars in thousands)
(Unaudited)
Loans (1) (2)	$	2,009,174		$	22,716		4.52	%		$	2,198,689		$	25,330		4.61	%
Securities (3) (4)		53,603			499		3.72				62,938			494		3.14
Federal Reserve and other short-term investments		237,371			1,347		2.27				208,197			860		1.65
Total interest-earning assets		2,300,148			24,562		4.27				2,469,824			26,684		4.32
Other assets		37,433									42,766
Total assets	$	2,337,581								$	2,512,590
Interest-bearing deposits (5)	$	1,469,637			5,777		1.57			$	1,425,114			6,014		1.69
Borrowed funds		430,121			2,716		2.53				599,025			3,432		2.29
Total interest-bearing liabilities		1,899,758			8,493		1.79				2,024,139			9,446		1.87
Non-interest-bearing deposits		218,621									237,039
Other liabilities		6,606									7,594
Total liabilities		2,124,985									2,268,772
Stockholders’ equity		212,596									243,818
Total liabilities and stockholders’ equity	$	2,337,581								$	2,512,590
Net interest income				$	16,069								$	17,238
Weighted average spread							2.48	%								2.45	%
Net interest margin (6)							2.79	%								2.79	%
Average interest-earning assets to average  interest-bearing liabilities (7)		121.08	%								122.02	%

(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,
	2018									2019
	AVERAGE BALANCE			INTEREST			YIELD/ RATE			AVERAGE BALANCE			INTEREST			YIELD/ RATE
(Dollars in thousands)
(Unaudited)
Loans (1) (2)	$	1,941,159		$	87,022		4.48	%		$	2,150,445		$	99,379		4.62	%
Securities (3) (4)		53,055			1,986		3.74				58,585			1,997		3.41
Federal Reserve and other short-term investments		276,000			5,161		1.87				255,082			5,576		2.19
Total interest-earning assets		2,270,214			94,169		4.15				2,464,112			106,952		4.34
Other assets		38,357									41,806
Total assets	$	2,308,571								$	2,505,918
Interest-bearing deposits (5)	$	1,440,383			18,979		1.32			$	1,517,625			26,819		1.77
Borrowed funds		463,726			9,405		2.03				523,235			13,231		2.53
Total interest-bearing liabilities		1,904,109			28,384		1.49				2,040,860			40,050		1.96
Non-interest-bearing deposits		196,048									225,999
Other liabilities		5,369									7,619
Total liabilities		2,105,526									2,274,478
Stockholders’ equity		203,045									231,440
Total liabilities and stockholders’ equity	$	2,308,571								$	2,505,918
Net interest income				$	65,785								$	66,902
Weighted average spread							2.66	%								2.38	%
Net interest margin (6)							2.90	%								2.72	%
Average interest-earning assets to average  interest-bearing liabilities (7)		119.23	%								120.74	%

(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