Hingham Savings Reports First Quarter 2018 Results

HINGHAM, Mass., April 12, 2018 (GLOBE NEWSWIRE) -- HINGHAM INSTITUTION FOR SAVINGS (NASDAQ:HIFS), Hingham, Massachusetts announced earnings for the first quarter ended March 31, 2018.

Net income for the quarter ended March 31, 2018 was $8,912,000 or $4.18 per share basic and $4.08 per share diluted, as compared to $6,112,000 or $2.87 per share basic and $2.80 per share diluted for the same period last year. For the first quarter of 2018, the Bank’s annualized return on average equity was 18.56% and the annualized return on average assets was 1.56%, as compared to 14.77% and 1.21%, respectively, for the same period in 2017. This represents a 46% increase in diluted earnings per share over the same period last year.

Effective January 1, 2018, the Bank adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2016-01, Financial Instruments – Overall, (Subtopic 825-10), which requires changes in the unrealized gains on certain equity securities, net of deferred taxes, to be recognized through the income statement. Prior to the adoption of ASU 2016-01, these changes were recorded in stockholders’ equity through accumulated other comprehensive income, and only realized gains on sale of securities were recognized through the income statement. Excluding the after-tax gains on securities, both realized and unrealized, net income for the first quarter of 2018 was $8,159,000 or $3.83 per share basic and $3.73 per share diluted, representing a core return on average equity of 16.99% and a core return on average assets of 1.43%. This represents a 33% increase in diluted earnings per share over the same period last year.

Growth in the first quarter of 2018 was modest, as deposits increased to $1.532 billion at March 31, 2018, representing 7% annualized growth year-to-date and 9% growth from March 31, 2017. Net loans increased to $1.872 billion, representing 8% annualized growth year-to-date and 15% growth from March 31, 2017. Total assets decreased to $2.240 billion, representing a 2% decline from December 31, 2017. During the first quarter of 2018, the Bank used a portion of its cash balances to reduce outstanding Federal Home Loan Bank advances and listing services time deposits, in order to minimize the carrying cost of its on-balance sheet liquidity. Total assets have increased 10% from March 31, 2017. Book value per share was $91.14 as of March 31, 2018, representing 18% annualized growth year-to-date and 16% growth from March 31, 2017. In addition to the increase in book value per share, the Bank declared $1.68 in dividends per share since March 31, 2017, including a special dividend of $0.34 per share declared during the fourth quarter of 2017.

Key credit and operational metrics remained strong in the first quarter. At March 31, 2018, non-performing assets totaled 0.08% of total assets, compared to 0.07% at December 31, 2017 and 0.09% at March 31, 2017. Non-performing loans as a percentage of the total loan portfolio totaled 0.10% at March 31, 2018, compared to 0.09% at December 31, 2017 and 0.08% at March 31, 2017. The Bank recorded $1,000 of net recoveries for the first three months of 2018, as compared to zero net charge-offs for the same period last year. At March 31, 2018 and December 31, 2017, the Bank did not own any foreclosed property and at March 31, 2017, the Bank owned only one piece of foreclosed property valued at $563,000. The efficiency ratio improved to 30.41% for the first quarter of 2018, as compared to 32.45% for the same period last year. Non-interest expense as a percentage of average assets fell to 0.89% in the first quarter of 2018, as compared to 1.02% for the same period last year.

President Robert H. Gaughen Jr. stated, “We are pleased to report that returns on equity and assets remained satisfactory in the first quarter of 2018. At Hingham, we take seriously our role as stewards of shareholders’ capital. Our emphasis on careful capital allocation, defensive underwriting, process improvement, and disciplined cost control continues to serve our owners well. Performance in any one period should be viewed cautiously. The real test of performance in banking is a company’s record of compounding shareholder capital through all stages of the credit cycle. On this measure, our team strives to set a high bar.

Beginning this quarter, we are confronted by a communication challenge because of the new accounting standard impacting our equity investments. The Bank views its equity investments as long-term partnership interests in operating companies and consequently does not view short-term fluctuation in market value, whether positive as it was this quarter, or negative as it surely will be at some point in the future, as indicative of the change in the intrinsic value of the portfolio holdings. The performance of these holdings should be evaluated on the basis of their contribution to growth in book value per share over time, not via quarterly adjustments to net income. We have historically avoided reporting adjustments to our GAAP income, as such adjustments are often used by management teams to obscure rather than clarify the real economic performance of a company. We believe that in this instance, however, it is important that our owners understand that quarterly changes in the value of the equity portfolio, whether gains or losses, are impostors just the same.”

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 is also an active commercial real estate lender 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
March 31,
2017 2018
(Unaudited)
Key Performance Ratios
Return on average assets (1)1.21% 1.56%
Return on average equity (1)14.77 18.56
Core return on average assets (1) (5)1.21 1.43
Core return on average equity (1) (5)14.77 16.99
Interest rate spread (1) (2)3.00 2.75
Net interest margin (1) (3)3.12 2.93
Non-interest expense to average assets (1)1.02 0.89
Efficiency ratio (4)32.45 30.41
Average equity to average assets8.21 8.41
Average interest-earning assets to average interest bearing liabilities116.78 117.83


March 31,
2017
December 31,
2017
March 31,
2018
(Unaudited)
Asset Quality Ratios
Allowance for loan losses/total loans 0.69%0.68% 0.68%
Allowance for loan losses/non-performing loans 846.59 735.74 691.27
Non-performing loans/total loans 0.08 0.09 0.10
Non-performing loans/total assets 0.07 0.07 0.08
Non-performing assets/total assets 0.09 0.07 0.08
Share Related
Book value per share$78.29 $87.29 $91.14
Market value per share$176.85 $207.00 $206.00
Shares outstanding at end of period 2,132,750 2,132,750 2,132,750

(1) Annualized.

(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 non-interest expense, divided by the sum of net interest income and non-interest income, excluding gain on equity securities.

(5) Non-GAAP measurements that represent return on average assets and return on average equity, excluding the after-tax gain on equity securities.

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Balance Sheets
(In thousands, except share amounts)March 31,
2017
December 31,
2017

March 31,
2018
(Unaudited)
ASSETS
Cash and due from banks$6,548 $10,852 $8,901
Federal Reserve and other short-term investments 310,130 344,377 262,367
Cash and cash equivalents 316,678 355,229 271,268
CRA investment 7,341 7,341 7,724
Debt securities available for sale 26 17 17
Other equity securities 21,343 26,946 30,089
Securities, at fair value 28,710 34,304 37,830
Federal Home Loan Bank stock, at cost 24,920 27,102 24,530
Loans, net of allowance for loan losses of $11,285 at March 31, 2017, $12,537 at December 31, 2017 and $12,823 at March 31, 2018 1,634,263 1,833,987 1,872,114
Foreclosed assets 563
Bank-owned life insurance 12,029 12,221 12,289
Premises and equipment, net 14,314 14,068 13,947
Accrued interest receivable 3,576 4,398 4,240
Deferred income tax asset, net 2,226 1,301 1,103
Other assets 2,217 1,989 2,816
Total assets$2,039,496 $2,284,599 $2,240,137
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits$1,248,381 $1,320,487 $1,345,639
Non-interest-bearing deposits 154,622 185,375 186,169
Total deposits 1,403,003 1,505,862 1,531,808
Federal Home Loan Bank advances 455,281 579,164 499,124
Mortgage payable 855 812 797
Mortgagors’ escrow accounts 5,787 6,424 6,551
Accrued interest payable 396 575 774
Other liabilities 7,207 5,604 6,695
Total liabilities 1,872,529 2,098,441 2,045,749
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 2,133
Additional paid-in capital 11,619 11,750 11,794
Undivided profits 150,008 165,596 180,461
Accumulated other comprehensive income 3,207 6,679
Total stockholders’ equity 166,967 186,158 194,388
Total liabilities and stockholders’ equity$2,039,496 $2,284,599 $2,240,137


HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Income
Three Months Ended
March 31,
(In thousands, except per share amounts)2017 2018
(Unaudited)
Interest and dividend income:
Loans$17,968 $20,417
Debt securities
Equity securities 353 479
Federal Reserve and other short-term investments 609 1,241
Total interest and dividend income 18,930 22,137
Interest expense:
Deposits 2,518 3,567
Federal Home Loan Bank advances 960 2,093
Mortgage payable 13 12
Total interest expense 3,491 5,672
Net interest income 15,439 16,465
Provision for loan losses 255 285
Net interest income, after provision for loan losses 15,184 16,180
Other income:
Customer service fees on deposits 219 206
Increase in cash surrender value of bank-owned life insurance 67 68
Gain on equity securities 966
Miscellaneous 45 44
Total other income 331 1,284
Operating expenses:
Salaries and employee benefits 3,146 3,212
Occupancy and equipment 464 466
Data processing 297 341
Deposit insurance 258 273
Foreclosure 43 5
Marketing 124 138
Other general and administrative 786 668
Total operating expenses 5,118 5,103
Income before income taxes 10,397 12,361
Income tax provision 4,285 3,449
Net income$6,112 $8,912
Cash dividends declared per common share$0.32 $0.34
Weighted average shares outstanding:
Basic 2,133 2,133
Diluted 2,181 2,186
Earnings per share:
Basic$2.87 $4.18
Diluted$2.80 $4.08


HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis
Three Months Ended March 31,
2017 2018
AVERAGE
BALANCE
INTEREST YIELD/
RATE (8)
AVERAGE
BALANCE
INTEREST YIELD/
RATE (8)
(Dollars in thousands)
(Unaudited)
Loans (1) (2)$1,625,525 $17,968 4.42% $1,866,138 $20,417 4.38%
Securities (3) (4) 47,643 353 2.96 53,517 479 3.58
Federal Reserve and other short-term investments 309,143 609 0.79 326,375 1,241 1.52
Total interest-earning assets 1,982,311 18,930 3.82 2,246,030 22,137 3.94
Other assets 34,405 38,003
Total assets$2,016,716 $2,284,033
Interest-bearing deposits (5)$1,229,476 2,518 0.82 $1,362,569 3,567 1.05
Borrowed funds 467,988 973 0.83 543,607 2,105 1.55
Total interest-bearing liabilities 1,697,464 3,491 0.82 1,906,176 5,672 1.19
Demand deposits 148,841 180,375
Other liabilities 4,849 5,381
Total liabilities 1,851,154 2,091,932
Stockholders’ equity 165,562 192,101
Total liabilities and stockholders’ equity$2,016,716 $2,284,033
Net interest income $15,439 $16,465
Weighted average spread 3.00% 2.75%
Net interest margin (6) 3.12% 2.93%
Average interest-earning assets to average interest-bearing liabilities (7) 116.78% 117.83%


(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 available for sale.
(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.

CONTACT: Patrick R. Gaughen, Executive Vice President (781) 783-1761

Source:Hingham Institution for Savings