Hingham Savings Reports Third Quarter 2018 Results

HINGHAM, Mass., Oct. 12, 2018 — HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced third quarter results for 2018.

Net income for the quarter ended September 30, 2018 was $8,848,000 or $4.15 per share basic and $4.05 per share diluted, as compared to $6,484,000 or $3.04 per share basic and $2.97 per share diluted for the same period last year.  The Bank’s annualized return on average equity for the third quarter of 2018 was 17.06%, and the annualized return on average assets was 1.52%, as compared to 14.60% and 1.21% for the same period in 2017.  Net income per share (diluted) for the third quarter of 2018 increased 36% over the same period of 2017. 

Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the third quarter of 2018 was $8,424,000 or $3.95 per share basic and $3.85 per share diluted, as compared to $6,484,000 or $3.04 per share basic and $2.97 per share diluted for the same period last year.  The Bank’s annualized core return on average equity for the third quarter of 2018 was 16.24%, and the annualized core return on average assets was 1.45%, as compared to 14.60% and 1.21% for the same period in 2017.  Core net income per share (diluted) for the third quarter of 2018 increased by 30% over the same period in 2017.

Net income for the nine months ended September 30, 2018 was $25,735,000 or $12.07 per share basic and $11.77 per share diluted, as compared to $19,066,000 or $8.94 per share basic and $8.75 per share diluted for the same period last year.  The Bank’s annualized return on average equity for the first nine months of 2018 was 17.17%, and the annualized return on average assets was 1.49%, as compared to 14.81% and 1.22% for the same period last year.  Net income per share (diluted) for the first nine months of 2018 increased 35% over the same period in 2017.

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Excluding the after-tax gains and losses on securities, both realized and unrealized, core net income for the nine months ended September 30, 2018 was $24,729,000 or $11.60 per share basic and $11.31 per share diluted, as compared to $19,017,000 or $8.92 per share basic and $8.72 per share diluted for the same period last year.  The Bank’s annualized core return on average equity for the first nine months of 2018 was 16.50% and the annualized core return on average assets was 1.43%, as compared to 14.77% and 1.22% for the same period last year.  Core net income per share (diluted) for the first nine months of 2018 increased by 30% over the same period in 2017.

Growth in the first nine months of 2018 was generally satisfactory, as deposits increased to $1.715 billion at September 30, 2018, representing 19% annualized growth year-to-date and 18% growth from September 30, 2017.  This growth reflected modest growth in retail and business deposits as well as the increasing use of more attractively priced wholesale deposits in lieu of comparable Federal Home Loan Bank advances.  Net loans increased to $1.976 billion, representing 10% annualized growth year-to-date and 12% growth from September 30, 2017.  Total assets increased to $2.370 billion, representing 5% annualized growth year-to-date and 7% growth from September 30, 2017.  During the first nine months 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.  Book value per share was $98.35 as of September 30, 2018, representing 17% annualized growth year-to-date and 17% growth from September 30, 2017.  In addition to the increase in book value per share, the Bank declared $1.73 in dividends per share since September 30, 2017, including a special dividend of $0.34 per share declared during the fourth quarter of 2017.  The Bank announced increases in its regular quarterly dividend in both June and September 2018.

Key credit and operational metrics remained strong in the third quarter of 2018.  At September 30, 2018, non-performing assets totaled 0.02% of total assets, compared to 0.07% at December 31, 2017 and 0.05% at September 30, 2017.  Non-performing loans as a percentage of the total loan portfolio totaled 0.02% at September 30, 2018, compared to 0.09% at December 31, 2017 and 0.06% at September 30, 2017.  The Bank recorded $1,000 in net recoveries for the first nine months of 2018 and 2017.  At September 30, 2018, December 31 and September 30, 2017, the Bank did not own any foreclosed property.  The efficiency ratio was 29.17% for the third quarter of 2018, as compared to 29.37% for the same period last year.  Non-interest expense as a percentage of average assets fell to 0.86% in the third quarter of 2018, as compared to 0.90% for the same period last year.   

Chairman Robert H. Gaughen, Jr. stated, “We are pleased to report that returns on equity and assets remained satisfactory in the third quarter of 2018, although balance sheet growth was modest relative to capital generation.  We remain focused on careful capital allocation, defensive underwriting and disciplined cost control – we believe these are the keys to generating sustained value for our ownership.”

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  Nine Months Ended
  September 30,    September 30,
 2017 2018 2017 2018
(Unaudited)           
            
Key Performance Ratios           
Return on average assets (1)1.21% 1.52% 1.22% 1.49%
Return on average equity (1)14.60  17.06  14.81  17.17 
Core return on average assets (1) (5)1.21  1.45  1.22  1.43 
Core return on average equity (1) (5)14.60  16.24  14.77  16.50 
Interest rate spread (1) (2)2.89  2.67  2.93  2.72 
Net interest margin (1) (3)3.04  2.93  3.08  2.93 
Non-interest expense to average assets (1)0.90  0.86  0.94  0.88 
Efficiency ratio (4)29.37  29.17  30.58  29.84 
Average equity to average assets8.26  8.91  8.25  8.69 
Average interest-earning assets to average interest-bearing liabilities117.69  119.39  117.32  118.61 
            
 September 30, 2017   December 31, 2017  September 30, 2018
(Unaudited)       
        
Asset Quality Ratios       
Allowance for loan losses/total loans 0.68% 0.68% 0.68%
Allowance for loan losses/non-performing loans1,078.04 735.74 2,807.44
      
Non-performing loans/total loans0.06 0.09 0.02
Non-performing loans/total assets0.05 0.07 0.02
Non-performing assets/total assets0.05 0.07 0.02
      
Share Related     
Book value per share$84.27 $87.29 $ 98.35 
Market value per share$190.27 $207.00 $ 219.81
Shares outstanding at end of period2,132,750 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, 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

  (Dollars in thousands, except per share data)September 30,  2017 December 31, 2017September 30,  2018
(Unaudited)          
ASSETS          
         
Cash and due from banks $9,792 $10,852 $10,043
Federal Reserve and other short-term investments 341,294  344,377  286,449
  Cash and cash equivalents  351,086  355,229  296,492
         
CRA investment 7,390  7,341  7,605
Debt securities available for sale 19  17  15
Other marketable equity securities 24,892  26,946  32,099
Securities, at fair value 32,301  34,304  39,719
Federal Home Loan Bank stock, at cost 26,863  27,102  21,682
Loans, net of allowance for loan losses of $12,128 at September 30, 2017, $12,537 at December 31, 2017 and $13,588 at September 30, 2018   1,769,830    1,833,987    1,976,422
Foreclosed assets     
Bank-owned life insurance  12,158  12,221  12,414
Premises and equipment, net  14,049  14,068  14,458
Accrued interest receivable 4,079  4,398  5,066
Deferred income tax asset, net 1,601  1,301  1,128
Other assets 2,973  1,989  2,981
  Total assets$2,214,940 $2,284,599 $2,370,362
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing deposits$1,277,157 $1,320,487 $1,494,193
Non-interest-bearing deposits171,382 185,375 220,943
Total deposits1,448,539 1,505,862 1,715,136
Federal Home Loan Bank advances574,395 579,164 431,242
Mortgage payable826 812 766
Mortgagors’ escrow accounts6,228 6,424 6,901
Accrued interest payable457 575 1,687
Other liabilities4,777 5,604 4,883
Total liabilities2,035,222 2,098,441 2,160,615
      
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 outstanding2,133 2,133 2,133
Additional paid-in capital11,706 11,750 11,843
Undivided profits161,554 165,596 195,771
Accumulated other comprehensive income4,325 6,679 
Total stockholders’ equity179,718 186,158 209,747
Total liabilities and stockholders’ equity$2,214,940 $2,284,599 $2,370,362
      

HINGHAM INSTITUTION FOR SAVINGS Consolidated Statements of Income

 Three Months Ended Nine Months Ended
 September 30, September 30,
(In thousands, except per share amounts) 2017  2018 2017 2018
          
(Unaudited) 
Interest and dividend income:          
Loans$19,211 $22,523 $55,663 $64,306
Equity securities 396  503  1,116  1,487
Federal Reserve and other short-term investments 1,079  1,317  2,515  3,814
Total interest and dividend income 20,686  24,343  59,294  69,607
Interest expense:           
Deposits 2,854  5,291  8,084  13,202
Federal Home Loan Bank advances 1,742  2,294  3,979  6,653
Mortgage payable 12  12  38  36
Total interest expense 4,608  7,597  12,101  19,891
Net interest income 16,078  16,746  47,193  49,716
Provision for loan losses 558  350  1,098  1,050
  Net interest income, after provision for loan losses 15,520  16,396  46,095  48,666
Other income:           
Customer service fees on deposits 216  216  662  638
Increase in bank-owned life insurance 67  65  196  193
Gain on equity securities, net   544  77  1,290
Miscellaneous 44  42  136  129
Total other income 327  867  1,071  2,250
Operating expenses:           
Salaries and employee benefits 3,008  3,146  9,245  9,534
Occupancy and equipment 422  421  1,305  1,313
Data processing 321  353  929  1,042
Deposit insurance 279  258  795  757
Foreclosure 11  (33)  14  (41)
Marketing 85  136  325  428
Other general and administrative 692  698  2,121  2,088
Total operating expenses 4,818  4,979  14,734  15,121
Income before income taxes 11,029  12,284  32,432  35,795
Income tax provision 4,545  3,436  13,366  10,060
Net income$6,484 $8,848 $19,066 $25,735
            
Cash dividends declared per share$0.34 $0.36 $0.98 $1.05
            
Weighted average shares outstanding:           
Basic 2,133  2,133  2,133  2,133
Diluted 2,180  2,188  2,180  2,187
            
Earnings per share:           
Basic$3.04 $4.15 $8.94 $12.07
Diluted$2.97 $4.05 $8.75 $11.77

HINGHAM INSTITUTION FOR SAVINGS Net Interest Income Analysis

 Three Months Ended September 30,
 2017  2018 
 AVERAGE BALANCE INTEREST  YIELD/ RATE (8)   AVERAGE BALANCE INTEREST YIELD/ RATE (8) 
(Dollars in thousands)              
(Unaudited)              
               
Loans (1) (2)$1,733,650 $19,211 4.43%  $1,973,987 $22,523 4.56%
Securities (3) (4)50,696 396 3.12   52,166 503 3.86 
Federal Reserve and other short-term investments332,367 1,079 1.30   262,943 1,317 2.00 
Total interest-earning assets2,116,713 20,686 3.91   2,289,096 24,343 4.25 
Other assets35,471       38,380     
Total assets$2,152,184       $2,327,476     
               
Interest-bearing deposits (5)$1,265,731 2,854 0.90   $1,503,771 5,291 1.41 
Borrowed funds532,836 1,754 1.32   413,497 2,306 2.23 
Total interest-bearing liabilities1,798,567 4,608 1.02   1,917,268 7,597 1.58 
Demand deposits171,680       197,838     
Other liabilities4,242       4,927     
Total liabilities1,974,489       2,120,033     
               
Stockholders’ equity177,695       207,443     
Total liabilities and stockholders’ equity$2,152,184       $2,327,476     
Net interest income  $16,078       $16,746   
               
Weighted average spread    2.89%      2.67%
               
Net interest margin (6)    3.04%      2.93%
               
Average interest-earning assets to average interest-bearing liabilities (7)    117.69%      119.39%

(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

 Nine Months Ended September 30,  
 2017 2018 
 AVERAGE BALANCE INTEREST YIELD/ RATE (8)  AVERAGE BALANCE INTEREST YIELD/ RATE (8) 
(Dollars in thousands)             
(Unaudited)             
              
Loans (1) (2)$1,675,563 $55,663 4.43% $1,918,239 $64,306 4.47%
Securities (3) (4)49,202 1,116 3.02  52,870 1,487 3.75 
Federal Reserve and other short-term investments321,335 2,515 1.04  289,018 3,814 1.76 
Total interest-earning assets2,046,100 59,294 3.86  2,260,127 69,607 4.11 
Other assets35,261      38,668     
Total assets$2,081,361      $2,298,795     
              
Interest-bearing deposits (5)$1,252,938 8,084 0.86  $1,430,524 13,202 1.23 
Borrowed funds491,114 4,017 1.09  475,050 6,689 1.88 
Total interest-bearing liabilities1,744,052 12,101 0.93  1,905,574 19,891 1.39 
Demand deposits161,037      188,441     
Other liabilities4,613      4,954     
Total liabilities1,909,702      2,098,969     
Stockholders’ equity171,659      199,826     
Total liabilities and stockholders’ equity$2,081,361      $2,298,795     
Net interest income  $47,193      $49,716   
              
Weighted average spread    2.93%     2.72%
              
Net interest margin (6)    3.08%     2.93%
              
Average interest-earning assets to average  interest-bearing liabilities (7)    117.32%     118.61%

(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.

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