Hingham Savings Reports Second Quarter 2021 Results

Hingham, Massachusetts, UNITED STATES


HINGHAM, Mass., July 13, 2021 (GLOBE NEWSWIRE) -- HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced second quarter results for 2021.

Earnings

Net income for the quarter ended June 30, 2021 was $20,422,000 or $9.54 per share basic and $9.28 per share diluted, as compared to $16,338,000 or $7.65 per share basic and $7.50 per share diluted for the same period last year. The Bank’s annualized return on average equity for the second quarter of 2021 was 25.51%, and the annualized return on average assets was 2.83%, as compared to 25.28% and 2.41% for the same period in 2020. Net income per share (diluted) for the second quarter of 2021 increased by 24% over the same period in 2020.

Core net income for the quarter ended June 30, 2021, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, and the after-tax gains on the disposal of fixed assets, was $13,795,000 or $6.44 per share basic and $6.27 per share diluted, as compared to $10,936,000 or $5.12 per share basic and $5.03 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the second quarter of 2021 was 17.24%, and the annualized core return on average assets was 1.91%, as compared to 16.92% and 1.61% for the same period in 2020. Core net income per share (diluted) for the second quarter of 2021 increased by 25% over the same period in 2020.

Net income for the six months ended June 30, 2021 was $36,772,000 or $17.18 per share basic and $16.73 per share diluted, as compared to $18,523,000 or $8.67 per share basic and $8.50 per share diluted for the same period last year. The Bank’s annualized return on average equity for the first six months of 2021 was 23.67%, and the annualized return on average assets was 2.58%, as compared to 14.50% and 1.39% for the same period in 2020.   Net income per share (diluted) for the first six months of 2021 increased by 97% over the same period in 2020.

Core net income for the six months ended June 30, 2021, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, and the after-tax gains on the disposal of fixed assets, was $27,520,000 or $12.86 per share basic and $12.52 per share diluted, as compared to $19,258,000 or $9.01 per share basic and $8.83 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the first six months of 2021 was 17.72%, and the annualized core return on average assets was 1.93%, as compared to 15.08% and 1.45% for the same period in 2020. Core net income per share (diluted) for the first six months of 2021 increased by 42% over the same period in 2020.

In calculating core net income, the Bank has not traditionally made any adjustments other than those relating to after-tax gains and losses on securities, both realized and unrealized. However, net income for the three and six months ended June 30, 2021 included a $2.3 million pre-tax gain on the sale of the Bank’s former branch properties located in Weymouth and South Hingham, included in gain on disposal of fixed assets. This compares to a $218,000 pre-tax gain recorded in the first six months of 2020, related to the sale of the Bank’s former branch property in Scituate. Given the significant gains on disposal of fixed assets, the Bank has excluded these gains from the calculation of core net income. The prior year core net income, core net income per share basic and diluted, core return on average assets and core return on average equity figures have been adjusted accordingly to exclude such gains. See Page 10 for a Non-GAAP reconciliation between net income and core net income.

The Bank continues to optimize its branch footprint and has recently announced its intention to close its Norwell branch in September 2021, subject to regulatory approvals.

Balance Sheet

Balance sheet growth was satisfactory, as total assets increased to $2.974 billion at June 30, 2021, representing 8% annualized growth year-to-date and 9% growth from June 30, 2020. Asset growth, as a percentage, was below loan growth in both periods as the Bank continued to manage the balance sheet to minimize the carrying cost of its on-balance sheet liquidity.

Net loans increased to $2.630 billion at June 30, 2021, representing 11% annualized growth year-to-date and 10% growth from June 30, 2020. Growth was concentrated in the Bank’s commercial real estate portfolio.

Total deposits, including wholesale deposits, increased to $2.344 billion at June 30, 2021, representing 19% annualized growth year-to-date and 14% growth from June 30, 2020. Total retail and business deposits increased to $1.640 billion at June 30, 2021, representing 6% annualized growth year-to-date and 4% growth from June 30, 2020. Retail and business deposit growth was partially offset by a continuous decline in retail time deposits, as the Bank allowed higher rate maturing time deposits to roll off. Non-interest-bearing deposits, included in retail and business deposits, increased to $358.2 million at June 30, 2021, representing 29% annualized growth year-to-date and 24% growth from June 30, 2020. During the first half of 2021, the Bank continued to manage 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 $153.02 as of June 30, 2021, representing 23% annualized growth year-to-date and 24% growth from June 30, 2020. In addition to the increase in book value per share, the Bank has declared $2.62 in dividends per share since June 30, 2020, including a special dividend of $0.70 per share declared during the fourth quarter of 2020. The Bank increased its regular quarterly dividend in each of the last four quarters.

On June 23, 2021, the Bank’s Board of Directors declared a regular cash dividend of $0.51 per share. This represents an increase of 4% over the previous regular quarterly dividend of $0.49 per share. The dividend will be paid on August 11, 2021 to stockholders of record as of August 2, 2021. This will be the Bank’s 110th consecutive quarterly dividend and the Bank has consistently increased regular quarterly cash dividends over the last twenty-six years. The Bank has also declared special cash dividends in each of the last twenty-six years, typically in the fourth quarter.

The Bank sets the level of the special dividend based on the Bank’s capital requirements and the prospective return on other capital allocation options. This may result in special dividends, if any, significantly above or below the regular quarterly dividend. Future regular and special dividends will be considered by the Board of Directors on a quarterly basis.

Operational Performance Metrics

The net interest margin for the quarter ended June 30, 2021 increased 31 basis points to 3.46%, as compared to 3.15% for the same period last year. The net interest margin for the six months ended June 30, 2021 increased 51 basis points to 3.50%, as compared to 2.99% 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 period.

Key credit and operational metrics remained strong in the second quarter. At June 30, 2021, non-performing assets totaled 0.01% of total assets, compared to 0.27% at December 31, 2020 and 0.24% at June 30, 2020. Non-performing loans as a percentage of the total loan portfolio totaled 0.01% at June 30, 2021, compared to 0.16% at December 31, 2020 and 0.11% at June 30, 2020.

The Bank recorded $1,000 in net charge-offs in the first six months of 2021, as compared to $681,000 in net charge-offs for the same period last year. The prior year charge-off related exclusively to the foreclosed property discussed below.

At June 30, 2021, the Bank did not own any foreclosed property, as compared to $3.8 million at both June 30, 2020 and December 31, 2020. The property was sold during the first quarter of 2021.

The efficiency ratio fell to 21.37% for the second quarter of 2021, as compared to 25.28% for the same period last year. Operating expenses as a percentage of average assets fell to 0.74% in the second quarter of 2021, as compared to 0.79% for the same period last year. The Bank remains focused on reducing waste through an ongoing process of continuous improvement.

These operational 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 strong in the second quarter of 2021, although such performance should always be viewed cautiously, especially when tailwinds are blowing strongly in our favor. 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 quarterly financial results are summarized in the earnings release, but shareholders are encouraged to read the Bank’s quarterly reports on Form 10-Q, which are generally available several weeks after the earnings release. The Bank expects to file Form 10-Q for the quarter ended June 30, 2021 with the FDIC on or about August 4, 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., and provides commercial mortgage and banking services in the San Francisco Bay 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
June 30,
 Six Months Ended
June 30,
 2020 2021 2020 2021
(Unaudited)           
            
Key Performance Ratios           
Return on average assets (1)2.41% 2.83% 1.39% 2.58%
Return on average equity (1)25.28  25.51  14.50  23.67 
Core return on average assets (1) (5)1.61  1.91  1.45  1.93 
Core return on average equity (1) (5)16.92  17.24  15.08  17.72 
Interest rate spread (1) (2)2.97  3.39  2.74  3.42 
Net interest margin (1) (3)3.15  3.46  2.99  3.50 
Operating expenses to average assets (1)0.79  0.74  0.83  0.75 
Efficiency ratio (4)25.28  21.37  27.76  21.70 
Average equity to average assets9.52  11.08  9.59  10.89 
Average interest-earning assets to average interest- bearing liabilities122.79  127.44  122.09  126.78 


 June 30,
2020
  December 31,
2020

  June 30,
2021
 
(Unaudited)           
            
Asset Quality Ratios           
Allowance for loan losses/total loans 0.69%  0.69%  0.69%
Allowance for loan losses/non-performing loans 615.21   438.28   6,159.12 
            
Non-performing loans/total loans 0.11   0.16   0.01 
Non-performing loans/total assets 0.10   0.14   0.01 
Non-performing assets/total assets 0.24   0.27   0.01 
            
Share Related           
Book value per share$123.57  $137.02  $ 153.02 
Market value per share$167.78  $216.00  $ 290.50 
Shares outstanding at end of period 2,136,900   2,137,900   2,142,400 

(1) Annualized.

(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 and gain on disposal of fixed assets. Prior to the first quarter of 2021, the Bank’s calculation of the efficiency ratio included gains on disposal of fixed assets. This had the impact of slightly improving the efficiency ratio in periods in which the Bank recognized gains on the sale of former branch locations. The Bank believes it is more conservative to exclude such transactions. The efficiency ratio for the six months ended June 30, 2020 stated above has been recalculated using this method.

(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, and the after-tax gain on disposal of fixed assets. Core return on average assets and core return on average equity for the six months ended June 30, 2020 have been recalculated accordingly.

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Balance Sheets

(In thousands, except share amounts)June 30,
2020
 December 31,
2020
 June 30,
2021
(Unaudited)        
ASSETS        
         
Cash and due from banks$7,365 $6,798 $7,734
Federal Reserve and other short-term investments 214,489  227,188  198,590
Cash and cash equivalents 221,854  233,986  206,324
         
CRA investment 8,604  9,580  9,439
Other marketable equity securities 46,191  56,282  69,311
Equity securities, at fair value 54,795  65,862  78,750
Securities available for sale, at fair value 9  6  5
Securities held to maturity, at amortized cost     3,500
Federal Home Loan Bank stock, at cost 20,390  19,345  14,732
Loans, net of allowance for loan losses of $16,458 at June 30, 2020, $17,404 at December 31, 2020 and $18,231 at June 30, 2021 2,381,780  2,495,331  2,630,332
Foreclosed assets 3,811  3,826  
Bank-owned life insurance 12,844  12,657  12,822
Premises and equipment, net 15,358  15,248  15,103
Accrued interest receivable 5,054  5,267  5,158
Deferred income tax asset, net 1,729  763  
Other assets 6,215  4,802  7,039
Total assets$2,723,839 $2,857,093 $2,973,765

LIABILITIES AND STOCKHOLDERS’ EQUITY

         
Interest-bearing deposits$1,764,714 $1,825,700 $1,985,442
Non-interest-bearing deposits 289,574  313,497  358,195
Total deposits 2,054,288  2,139,197  2,343,637
Federal Home Loan Bank and Federal Reserve Bank advances 385,431  408,031  285,600
Mortgagors’ escrow accounts 8,185  8,770  8,321
Accrued interest payable 282  252  158
Deferred income tax liability, net     1,201
Other liabilities 11,605  7,900  7,014
Total liabilities 2,459,791  2,564,150  2,645,931
         
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; 2,136,900 shares issued and outstanding at June 30, 2020, 2,137,900 shares issued and outstanding at December 31, 2020 and 2,142,400 shares issued and outstanding at June 30, 2021 2,137  2,138  2,142
Additional paid-in capital 12,352  12,460  12,715
Undivided profits 249,559  278,345  312,977
Accumulated other comprehensive income     
Total stockholders’ equity 264,048  292,943  327,834
Total liabilities and stockholders’ equity$2,723,839 $2,857,093 $2,973,765

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Income

 Three Months Ended Six Months Ended
 June 30, June 30,
(In thousands, except per share amounts) 2020  2021 2020  2021 
(Unaudited)           
Interest and dividend income:            
Loans$25,856 $26,215 $51,566  $52,964 
Debt securities   18     18 
Equity securities 463  173  961   391 
Federal Reserve and other short-term investments 56  54  797   106 
Total interest and dividend income 26,375  26,460  53,324   53,479 
Interest expense:           
Deposits 4,392  1,692  10,333   3,799 
Federal Home Loan Bank and Federal Reserve Bank advances 942  212  3,889   656 
Mortgage payable     3    
Total interest expense 5,334  1,904  14,225   4,455 
Net interest income 21,041  24,556  39,099   49,024 
Provision for loan losses 625  550  1,763   828 
Net interest income, after provision for loan losses 20,416  24,006  37,336   48,196 
Other income (loss):           
Customer service fees on deposits 148  192  320   373 
Increase in cash surrender value of bank-owned life insurance 59  84  117   165 
Gain (loss) on equity securities, net 6,930  6,346  (1,144)  9,713 
Gain on disposal of fixed assets   2,337  218   2,337 
Miscellaneous 28  21  81   36 
Total other income (loss) 7,165  8,980  (408)  12,624 
Operating expenses:           
Salaries and employee benefits 3,287  3,459  6,667   6,985 
Occupancy and equipment 474  325  929   731 
Data processing 475  482  964   943 
Deposit insurance 254  227  437   450 
Foreclosure and related 28  7  154   (75)
Marketing 104  104  284   228 
Other general and administrative 756  708  1,563   1,500 
Total operating expenses 5,378  5,312  10,998   10,762 
Income before income taxes 22,203  27,674  25,930   50,058 
Income tax provision 5,865  7,252  7,407   13,286 
Net income$16,338 $20,422 $18,523  $36,772 
            
Cash dividends declared per share$0.43 $0.51 $0.85  $1.00 
            
Weighted average shares outstanding:           
Basic 2,137  2,142  2,137   2,140 
Diluted 2,176  2,200  2,180   2,198 
            
Earnings per share:           
Basic$7.65 $9.54 $8.67  $17.18 
Diluted$7.50 $9.28 $8.50  $16.73 

HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis

 Three Months Ended June 30,  
 2020  2021 
 AVERAGE
BALANCE
 
INTEREST
 YIELD/
RATE (8)
  AVERAGE
BALANCE
 
INTEREST
 YIELD/
RATE (8)
 
(Dollars in thousands)                 
(Unaudited)                 
                  
Loans (1) (2)$2,379,132 $25,856 4.35% $2,567,437 $26,215 4.08%
Securities (3) (4) 69,901  463 2.65   65,463  191 1.17 
Federal Reserve and other short-term investments 222,960  56 0.10   205,636  54 0.11 
Total interest-earning assets 2,671,993  26,375 3.95   2,838,536  26,460 3.73 
Other assets 44,066        51,008      
Total assets$2,716,059       $2,889,544      
                  
Interest-bearing deposits (5)$1,592,458  4,392 1.10  $1,970,226  1,692 0.34 
Borrowed funds 583,532  942 0.65   257,117  212 0.33 
Total interest-bearing liabilities 2,175,990  5,334 0.98   2,227,343  1,904 0.34 
Non-interest-bearing deposits 272,418        335,541      
Other liabilities 9,107        6,503      
Total liabilities 2,457,515        2,569,387      
Stockholders’ equity 258,544        320,157      
Total liabilities and stockholders’ equity$2,716,059       $2,889,544      
Net interest income   $21,041       $24,556   
                  
Weighted average spread      2.97%       3.39%
                  
Net interest margin (6)      3.15%       3.46%
                  
Average interest-earning assets to average interest-bearing liabilities (7) 122.79%       127.44%     


(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

 Six Months Ended June 30,  
 2020  2021 
 AVERAGE
BALANCE
 
INTEREST
 YIELD/
RATE (8)
  AVERAGE
BALANCE
 
INTEREST
 YIELD/
RATE (8)
 
(Dollars in thousands)                 
(Unaudited)                 
                  
Loans (1) (2)$2,325,075 $51,566 4.44% $2,532,473 $52,964 4.18%
Securities (3) (4) 67,601  961 2.84   64,699  409 1.26 
Federal Reserve and other short-term investments 225,565  797 0.71   205,263  106 0.10 
Total interest-earning assets 2,618,241  53,324 4.07   2,802,435  53,479 3.82 
Other assets 45,302        49,366      
Total assets$2,663,543       $2,851,801      
                  
Interest-bearing deposits (5)$1,552,901  10,333 1.33  $1,926,769  3,799 0.39 
Borrowed funds 591,596  3,892 1.32   283,752  656 0.46 
Total interest-bearing liabilities 2,144,497  14,225 1.33   2,210,521  4,455 0.40 
Non-interest-bearing deposits 255,212        323,736      
Other liabilities 8,347        6,873      
Total liabilities 2,408,056        2,541,130      
Stockholders’ equity 255,487        310,671      
Total liabilities and stockholders’ equity$2,663,543       $2,851,801      
Net interest income   $39,099       $49,024   
                  
Weighted average spread      2.74%       3.42%
                  
Net interest margin (6)      2.99%       3.50%
                  
Average interest-earning assets to average interest-bearing liabilities (7) 122.09%       126.78%     


(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

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 (loss) on equity securities, net, and after-tax gain on disposal of fixed assets.

  Three Months Ended
 Six Months Ended
  June 30,
 June 30,
(In thousands, unaudited)  2020   2021  2020  2021 
                 
Non-GAAP reconciliation:                
Net income $16,338  $20,422  $18,523  $36,772 
(Gain) loss on equity securities, net  (6,930)  (6,346)  1,144   (9,713)
Income tax expense (benefit) (1)  1,528   1,399   (252)  2,141 
Gain on disposal of fixed assets     (2,337)  (218)  (2,337)
Income tax expense     657   61   657 
Core net income $10,936  $13,795  $19,258  $27,520 

(1) The equity securities are held in a tax-advantaged subsidiary corporation. The income tax effect of the (gain) loss on equity securities, net, was calculated using the effective tax rate applicable to the subsidiary.



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