Hingham Savings Reports 2018 Results

Bay Street

6 years ago

HINGHAM, Mass., Jan. 17, 2019 (GLOBE NEWSWIRE) — HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced earnings for the fourth quarter and the year ended December 31, 2018.

Net income for the year ended December 31, 2018 was $30,399,000 or $14.25 per share basic and $13.90 per share diluted, as compared to $25,757,000 or $12.08 per share basic and $11.81 per share diluted for the same period last year. The Bank’s return on average equity for the year ended December 31, 2018 was 14.97%, and the return on average assets was 1.32%, as compared to 14.73% and 1.21% for the same period in 2017. Net income per share (diluted) for 2018 increased 18% over the same period in 2017. Net income for the year ended December 31, 2017 included an additional $218,000 in income tax provision as a result of the Tax Cut and Jobs Act enacted in December 2017, which required the Bank to remeasure its deferred tax assets and liabilities.

Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the year ended December 31, 2018 was $32,776,000 or $15.37 per share basic and $14.99 per share diluted, as compared to $25,708,000 or $12.05 per share basic and $11.79 per share diluted for the same period last year. The Bank’s core return on average equity for the year ended December 31, 2018 was 16.14%, and the core return on average assets was 1.42%, as compared to 14.70% and 1.21% for the same period in 2017. Core net income per share (diluted) for 2018 increased by 27% over the same period in 2017.

Net income for the quarter ended December 31, 2018 was $4,664,000 or $2.18 per share basic and $2.13 per share diluted, as compared to $6,691,000 or $3.14 per share basic and $3.06 per share diluted for the same period last year. The Bank’s annualized return on average equity for the fourth quarter of 2018 was 8.78%, and the annualized return on average assets was 0.80%, as compared to 14.51% and 1.18% for the same period last year. Net income per share (diluted) for the fourth quarter of 2018 decreased 30% compared to the same period in 2017.

Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the quarter ended December 31, 2018 was $8,046,000 or $3.77 per share basic and $3.68 per share diluted, as compared to $6,691,000 or $3.14 per share basic and $3.06 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the fourth quarter of 2018 was 15.14% and the annualized core return on average assets was 1.38%, as compared to 14.51% and 1.18% for the same period last year. Core net income per share (diluted) for the fourth quarter of 2018 increased by 20% over the same period in 2017.

Growth in 2018 was modest, as deposits increased to $1.573 billion at December 31, 2018, representing 4% growth from 2017. This growth reflected modest growth in retail and business deposits. Net loans increased to $2.009 billion, representing 10% growth from 2017. Total assets increased to $2.409 billion, representing 5% growth from 2017. During 2018, the Bank reduced the balance of excess reserves held at the Federal Reserve Bank, in order to minimize the carrying cost of its on-balance sheet liquidity. Book value per share was $99.67 as of December 31, 2018, representing 14% growth from December 31, 2017. In addition to the increase in book value per share, the Bank declared $1.92 in dividends per share in 2018, including a special dividend of $0.50 per share declared during the fourth quarter of 2018. The Bank announced increases in its regular quarterly dividend in June, September and November of 2018. The trailing five year compound annual growth rate in book value per share, an important measure of long-term value creation, rose to 15.5%.

Key credit and operational metrics remained strong in 2018. At December 31, 2018, non-performing assets totaled 0.02% of total assets, compared to 0.07% at December 31, 2017. Non-performing loans as a percentage of the total loan portfolio totaled 0.02% at December 31, 2018, compared to 0.09% at December 31, 2017. The Bank recorded $1,000 in net recoveries in 2018 and $2,000 in net recoveries in 2017. At December 31, 2018 and 2017, the Bank did not own any foreclosed property. The efficiency ratio fell slightly to 29.89% in 2018, as compared to 30.06% in 2017. Operating expenses as a percentage of average assets improved to 0.87% in 2018, as compared to 0.92% in 2017. 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 2018, although competitive pressure remains acute. The real test of performance in banking is a company’s record of compounding shareholder capital over time through the disciplined management of credit risk and operational expense. On this measure, our team strives to set a high bar.

In 2018, the decline in the market value of our equity investments, concentrated in financial services, ratings, and payments companies, was decremental to our book value per share, as opposed to prior years in which these investments were accretive to our core business. As noted before, the Bank views these equity investments as long-term partnership interests in operating companies and consequently does not view short-term fluctuation in market value, whether positive or negative, as necessarily indicative of the change in the intrinsic value of the businesses in which we invest.”

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 provides commercial mortgage lending and private banking services in the Greater Washington D.C. metropolitan area.

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,
	2017		2018		2017		2018
(Unaudited)

Key Performance Ratios
Return on average assets (1)	1.18	%	0.80	%	1.21	%	1.32	%
Return on average equity (1)	14.51		8.78		14.73		14.97
Core return on average assets (1) (5)	1.18		1.38		1.21		1.42
Core return on average equity (1) (5)	14.51		15.14		14.70		16.14
Interest rate spread (1) (2)	2.83		2.48		2.91		2.66
Net interest margin (1) (3)	2.99		2.79		3.05		2.90
Operating expenses to average assets (1)	0.86		0.84		0.92		0.87
Efficiency ratio (4)	28.58		30.07		30.06		29.89
Average equity to average assets	8.16		9.09		8.22		8.80
Average interest-earning assets to average interest-bearing liabilities	117.59		121.08		117.39		119.23

	December 31, 2017			December 31, 2018
(Unaudited)

Asset Quality Ratios
Allowance for loan losses/total loans		0.68	%	0.68		%
Allowance for loan losses/non-performing loans		735.74		2,852.89

Non-performing loans/total loans		0.09		0.02
Non-performing loans/total assets		0.07		0.02
Non-performing assets/total assets		0.07		0.02

Share Related
Book value per share	$	87.29		$	99.67
Market value per share	$	207.00		$	197.74
Shares outstanding at end of period		2,132,750			2,132,750

(1) Annualized for the three months ended December 31, 2017 and 2018.

(2) Interest rate spread represents the difference between the yield on interest-earning assets and 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

(Dollars in thousands, except per share data)	December 31, 2017		December 31, 2018
(Unaudited)
ASSETS

Cash and due from banks	$	10,852	$	8,004
Federal Reserve and other short-term investments		344,377		287,971
Cash and cash equivalents		355,229		295,975

CRA investment		7,341		7,680
Debt securities available for sale		17		14
Other marketable equity securities		26,946		30,766
Securities, at fair value		34,304		38,460
Federal Home Loan Bank stock, at cost		27,102		28,696
Loans, net of allowance for loan losses of $12,537 at December 31, 2017 and $13,808 at December 31, 2018		1,833,987		2,009,288
Foreclosed assets		—		—
Bank-owned life insurance		12,221		12,476
Premises and equipment, net		14,068		14,553
Accrued interest receivable		4,398		4,581
Deferred income tax asset, net		1,301		2,258
Other assets		1,989		2,300
Total assets	$	2,284,599	$	2,408,587

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing deposits	$	1,320,487	$	1,359,581
Non-interest-bearing deposits		185,375		213,573
Total deposits		1,505,862		1,573,154
Federal Home Loan Bank advances		579,164		606,600
Mortgage payable		812		751
Mortgagors’ escrow accounts		6,424		7,402
Accrued interest payable		575		2,187
Other liabilities		5,604		5,917
Total liabilities		2,098,441		2,196,011

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		2,133		2,133
Additional paid-in capital		11,750		11,863
Undivided profits		165,596		198,580
Accumulated other comprehensive income		6,679		—
Total stockholders’ equity		186,158		212,576
Total liabilities and stockholders’ equity	$	2,284,599	$	2,408,587

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Income

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
(In thousands, except per share amounts)		2017			2018		2017			2018
(Unaudited)
Interest and dividend income:
Loans	$	20,180		$	22,716		$	75,843		$	87,022
Debt securities		1			1			1			1
Equity securities		414			498			1,530			1,985
Federal Reserve and other short-term investments		1,170			1,347			3,685			5,161
Total interest and dividend income		21,765			24,562			81,059			94,169
Interest expense:
Deposits		3,282			5,777			11,366			18,979
Federal Home Loan Bank advances		1,866			2,705			5,845			9,358
Mortgage payable		12			11			50			47
Total interest expense		5,160			8,493			17,261			28,384
Net interest income		16,605			16,069			63,798			65,785
Provision for loan losses		407			220			1,505			1,270
Net interest income, after provision for loan losses		16,198			15,849			62,293			64,515
Other income (loss):
Customer service fees on deposits		227			222			889			860
Increase in bank-owned life insurance		63			62			259			255
Gain (loss) on equity securities, net		—			(4,313	)		77			(3,023	)
Miscellaneous		49			44			185			173
Total other income (loss)		339			(3,985	)		1,410			(1,735	)
Operating expenses:
Salaries and employee benefits		3,055			3,124			12,300			12,658
Occupancy and equipment		460			461			1,765			1,774
Data processing		341			360			1,270			1,402
Deposit insurance		285			220			1,080			977
Foreclosure		(27	)		9			(13	)		(32	)
Marketing		73			142			398			570
Other general and administrative		655			614			2,776			2,702
Total operating expenses		4,842			4,930			19,576			20,051
Income before income taxes		11,695			6,934			44,127			42,729
Income tax provision		5,004			2,270			18,370			12,330
Net income	$	6,691		$	4,664		$	25,757		$	30,399

Cash dividends declared per share	$	0.68		$	0.87		$	1.66		$	1.92

Weighted average shares outstanding:
Basic		2,133			2,133			2,133			2,133
Diluted		2,184			2,186			2,181			2,187

Earnings per share:
Basic	$	3.14		$	2.18		$	12.08		$	14.25
Diluted	$	3.06		$	2.13		$	11.81		$	13.90

HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis

	Three Months Ended December 31,
	2017						2018
	AVERAGE BALANCE		INTEREST		YIELD/ RATE (8)		AVERAGE BALANCE		INTEREST		YIELD/ RATE (8)
(Dollars in thousands)
(Unaudited)

Loans (1) (2)	$	1,816,754	$	20,180	4.44	%	$	2,009,174	$	22,716	4.52	%
Securities (3) (4)		52,513		415	3.16			53,603		499	3.72
Federal Reserve and other short-term investments		353,393		1,170	1.32			237,371		1,347	2.27
Total interest-earning assets		2,222,660		21,765	3.92			2,300,148		24,562	4.27
Other assets		36,854						37,433
Total assets	$	2,259,514					$	2,337,581

Interest-bearing deposits (5)	$	1,334,198		3,282	0.98		$	1,469,637		5,777	1.57
Borrowed funds		555,953		1,878	1.35			430,121		2,716	2.53
Total interest-bearing liabilities		1,890,151		5,160	1.09			1,899,758		8,493	1.79
Demand deposits		180,088						218,621
Other liabilities		4,819						6,606
Total liabilities		2,075,058						2,124,985
Stockholders’ equity		184,456						212,596
Total liabilities and stockholders’ equity	$	2,259,514					$	2,337,581
Net interest income			$	16,605					$	16,069

Weighted average spread					2.83	%					2.48	%

Net interest margin (6)					2.99	%					2.79	%

Average interest-earning assets to average interest-bearing liabilities (7)					117.59	%					121.08	%

(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,
	2017						2018
	AVERAGE BALANCE		INTEREST		YIELD/ RATE		AVERAGE BALANCE		INTEREST		YIELD/ RATE
(Dollars in thousands)
(Unaudited)

Loans (1) (2)	$	1,711,152	$	75,843	4.43	%	$	1,941,159	$	87,022	4.48	%
Securities (3) (4)		50,036		1,531	3.06			53,055		1,986	3.74
Federal Reserve and other short-term investments		329,415		3,685	1.12			276,000		5,161	1.87
Total interest-earning assets		2,090,603		81,059	3.88			2,270,214		94,169	4.15
Other assets		35,662						38,357
Total assets	$	2,126,265					$	2,308,571

Interest-bearing deposits (5)	$	1,273,420		11,366	0.89		$	1,440,383		18,979	1.32
Borrowed funds		507,457		5,895	1.16			463,726		9,405	2.03
Total interest-bearing liabilities		1,780,877		17,261	0.97			1,904,109		28,384	1.49
Demand deposits		165,839						196,048
Other liabilities		4,665						5,369
Total liabilities		1,951,381						2,105,526
Stockholders’ equity		174,884						203,045
Total liabilities and stockholders’ equity	$	2,126,265					$	2,308,571
Net interest income			$	63,798					$	65,785

Weighted average spread					2.91	%					2.66	%

Net interest margin (6)					3.05	%					2.90	%

Average interest-earning assets to average interest-bearing liabilities (7)					117.39	%					119.23	%

(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