Hingham Savings Reports 2021 Results

Hingham, Massachusetts, UNITED STATES


HINGHAM, Mass., Jan. 20, 2022 (GLOBE NEWSWIRE) -- HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced earnings for the fourth quarter and the year ended December 31, 2021.

Earnings

Net income for the year ended December 31, 2021 was $67,458,000 or $31.50 per share basic and $30.65 per share diluted, as compared to $50,771,000 or $23.76 per share basic and $23.25 per share diluted for the same period last year. The Bank’s return on average equity for the year ended December 31, 2021 was 20.62%, and the return on average assets was 2.25%, as compared to 18.96% and 1.88% for the same period in 2020. Net income per share (diluted) for 2021 increased by 32% over the same period in 2020.

Core net income for the year ended December 31, 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 $56,563,000 or $26.42 per share basic and $25.70 per share diluted, as compared to $44,443,000 or $20.80 per share basic and $20.36 per share diluted for the same period last year. The Bank’s core return on average equity for the year ended December 31, 2021 was 17.29%, and the core return on average assets was 1.89%, as compared to 16.60% and 1.65% for the same period in 2020. Core net income per share (diluted) for 2021 increased by 26% over the same period in 2020.

Net income for the quarter ended December 31, 2021 was $16,674,000 or $7.78 per share basic and $7.56 per share diluted, as compared to $17,042,000 or $7.97 per share basic and $7.78 per share diluted for the same period last year. The Bank’s annualized return on average equity for the fourth quarter of 2021 was 19.14%, and the annualized return on average assets was 2.05%, as compared to 23.83% and 2.46% for the same period in 2020. Net income per share (diluted) for the fourth quarter of 2021 decreased by 3% over the same period in 2020.

Core net income for the quarter ended December 31, 2021, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, was $15,033,000 or $7.02 per share basic and $6.81 per share diluted, as compared to $12,791,000 or $5.99 per share basic and $5.84 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the fourth quarter of 2021 was 17.26%, and the annualized core return on average assets was 1.85%, as compared to 17.89% and 1.85% for the same period in 2020. Core net income per share (diluted) for the fourth quarter of 2021 increased by 17% 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 year ended December 31, 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 year ended December 31, 2020, related to the sale of the Bank’s former branch property in Scituate. Given the significant gains on disposal of fixed assets recorded in the current year, the Bank has also 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 9 for a Non-GAAP reconciliation between net income and core net income.

Balance Sheet

Total assets increased to $3.431 billion at December 31, 2021, representing 20% growth from December 31, 2020.

Net loans totaled $2.999 billion at December 31, 2021, representing 20% growth from December 31, 2020. Growth was concentrated in the Bank’s commercial real estate portfolio.

Total deposits, including wholesale deposits, increased to $2.393 billion at December 31, 2021, representing 12% growth from December 31, 2020. Total retail and business deposits increased to $1.709 billion at December 31, 2021, representing 7% growth from December 31, 2020. Non-interest bearing deposits, included in retail and business deposits, increased to $389.1 million at December 31, 2021, representing 24% growth from December 31, 2020. This growth was offset by a significant decline in retail time deposits, as the Bank allowed higher rate maturing time deposits to roll off. In 2021, the Bank continued to reduce the balance of excess reserves held at the Federal Reserve Bank as a percentage of assets and managed 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 $165.52 as of December 31, 2021, representing 21% growth from December 31, 2020. In addition to the increase in book value per share, the Bank has declared $2.83 in dividends per share since December 31, 2020, including a special dividend of $0.75 per share declared during the fourth quarter of 2021. The Bank increased its regular dividend per share in each of the last four quarters. The trailing five year compound annual growth rate in book value per share, an important measure of long-term value creation, was 17%.

Operational Performance Metrics

The net interest margin for the year ended December 31, 2021 increased 26 basis points to 3.48%, as compared to 3.22% in the prior year. The net interest margin for the quarter ended December 31, 2021 increased 3 basis points to 3.46%, as compared to 3.43% for the same period last year. In the year ended December 31, 2021, and to a lesser extent, in the quarter ended December 31, 2021, the Bank benefited from a decline in the cost of interest-bearing liabilities, including retail and commercial deposits and wholesale funding, when compared to the same periods in the prior year. The Bank also benefited from consistent 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 a lower yield on loans and a decrease in Federal Home Loan Bank stock dividends declared during the same periods.

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

At December 31, 2021, the Bank did not own any foreclosed property, as compared to $3.8 million at December 31, 2020. This balance consisted of a single residential property which was sold during the first quarter of 2021.

The Bank recorded $1,000 of net charge-offs in 2021, as compared to $260,000 in 2020. The prior year net charge-off related primarily to the foreclosed property discussed above.

The efficiency ratio, as defined on page 4 below, fell to 21.31% in 2021, as compared to 25.48% in 2020. Operating expenses as a percentage of average assets fell to 0.74% in 2021, as compared to 0.82% in 2020. The Bank remains focused on reducing waste through an ongoing process of continuous improvement.

Chairman and Chief Executive Officer Robert H. Gaughen Jr. stated, “Returns on equity and assets were strong in 2021, although such performance must be viewed cautiously, especially when tailwinds have blown strongly in our favor. We must be prepared for considerably more adverse conditions in the future. 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 annual financial results are summarized in the 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, 2021 with the Federal Deposit Insurance Corporation (FDIC) on or about March 9, 2022.

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
December 31,
 Twelve Months Ended
December 31,
 2020 2021 2020 2021
(Unaudited)           
            
Key Performance Ratios           
Return on average assets (1)2.46% 2.05% 1.88% 2.25%
Return on average equity (1)23.83  19.14  18.96  20.62 
Core return on average assets (1) (5)1.85  1.85  1.65  1.89 
Core return on average equity (1) (5)17.89  17.26  16.60  17.29 
Interest rate spread (1) (2)3.31  3.39  3.03  3.40 
Net interest margin (1) (3)3.43  3.46  3.22  3.48 
Operating expenses to average assets (1)0.80  0.71  0.82  0.74 
Efficiency ratio (4)23.57  20.62  25.48  21.31 
Average equity to average assets10.34  10.73  9.93  10.93 
Average interest-earning assets to average interest-bearing liabilities125.62  127.01  123.64  127.22 
            


 December 31, 2020   December 31, 2021     
(Unaudited)           
            
Asset Quality Ratios           
Allowance for loan losses/total loans 0.69%  0.68%    
Allowance for loan losses/non-performing loans 438.28   4,784.78     
            
Non-performing loans/total loans 0.16   0.01     
Non-performing loans/total assets 0.14   0.01     
Non-performing assets/total assets 0.27   0.01     
            
Share Related           
Book value per share$137.02  $165.52     
Market value per share$216.00  $419.88     
Shares outstanding at end of period 2,137,900   2,142,400     

(1) Annualized for the three months ended December 31, 2020 and 2021.

(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, excluding gain 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 twelve months ended December 31, 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 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 twelve months ended December 31, 2020 have been recalculated accordingly.

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Balance Sheets

(In thousands, except share amounts) December 31,
2020
 December 31,
2021
(Unaudited)      
ASSETS      
       
Cash and due from banks $6,798 $5,428
Federal Reserve and other short-term investments  227,188  265,733
Cash and cash equivalents  233,986  271,161
       
CRA investment  9,580  9,306
Other marketable equity securities  56,282  79,167
Securities, at fair value  65,862  88,473
Securities available for sale, at fair value  6  
Securities held to maturity, at amortized cost    3,500
Federal Home Loan Bank stock, at cost  19,345  29,908
Loans, net of allowance for loan losses of $17,404 at December 31, 2020 and $20,431 at December 31, 2021  2,495,331  2,999,096
Foreclosed assets  3,826  
Bank-owned life insurance  12,657  12,980
Premises and equipment, net  15,248  15,825
Accrued interest receivable  5,267  5,467
Deferred income tax asset, net  763  
Other assets  4,802  4,755
Total assets $2,857,093 $3,431,165

LIABILITIES AND STOCKHOLDERS’ EQUITY

       
Interest-bearing deposits $1,825,700 $2,003,717
Non-interest-bearing deposits  313,497  389,148
Total deposits  2,139,197  2,392,865
Federal Home Loan Bank advances  408,031  665,000
Mortgagors’ escrow accounts  8,770  9,183
Accrued interest payable  252  198
Deferred income tax liability, net    536
Other liabilities  7,900  8,771
Total liabilities  2,564,150  3,076,553
       
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; 2,137,900 shares issued and outstanding at December 31, 2020 and 2,142,400 shares issued and outstanding at December 31, 2021  2,138  2,142
Additional paid-in capital  12,460  12,728
Undivided profits  278,345  339,742
Total stockholders’ equity  292,943  354,612
Total liabilities and stockholders’ equity $2,857,093 $3,431,165

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Net Income

      Three Months Ended Twelve Months Ended
      December 31, December 31,
(In thousands, except per share amounts)  2020  2021 2020 2021 
(Unaudited)          
Interest and dividend income:             
 Loans   $26,038 $29,182 $103,797 $109,449 
 Debt securities      33    84 
 Equity securities    264  134  1,666  696 
 Federal Reserve and other short-term investments 55  78  899  262 
  Total interest and dividend income  26,357  29,427  106,362  110,491 
Interest expense:              
 Deposits    2,568  1,518  16,186  6,868 
 Federal Home Loan Bank and Federal Reserve Bank advances    513  300  4,969  1,158 
 Mortgage payable       3   
  Total interest expense   3,081  1,818  21,158  8,026 
  Net interest income   23,276  27,609  85,204  102,465 
Provision for loan losses   175  1,200  2,288  3,028 
Net interest income, after provision for loan losses 23,101  26,409  82,916  99,437 
Other income:              
 Customer service fees on deposits  177  192  678  746 
 Increase in cash surrender value of bank-owned life insurance    51  79  219  323 
 Gain on equity securities, net    5,453  2,105  7,916  11,820 
 Gain on disposal of fixed assets        218  2,337 
 Miscellaneous    47  22  161  82 
  Total other income   5,728  2,398  9,192  15,308 
Operating expenses:              
 Salaries and employee benefits   3,278  3,566  13,155  13,988 
 Occupancy and equipment    422  368  1,854  1,450 
 Data processing    443  571  1,909  2,003 
 Deposit insurance    211  252  860  933 
 Foreclosure and related    207  2  528  (49)
 Marketing    145  140  545  563 
 Other general and administrative    846  855  3,127  3,188 
  Total operating expenses   5,552  5,754  21,978  22,076 
Income before income taxes   23,277  23,053  70,130  92,669 
Income tax provision    6,235  6,379  19,359  25,211 
  Net income   $17,042 $16,674 $50,771 $67,458 
                 
Cash dividends declared per share $1.17 $1.30 $2.47 $2.83 
             
Weighted average shares outstanding:            
 Basic    2,137  2,142  2,137  2,141 
 Diluted    2,189  2,206  2,183  2,201 
                 
Earnings per share:             
 Basic   $7.97 $7.78 $23.76 $31.50 
 Diluted   $7.78 $7.56 $23.25 $30.65 

HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis

 Three Months Ended December 31,  
 2020  2021 
 AVERAGE
BALANCE
 
INTEREST
 YIELD/
RATE (8)
  AVERAGE
BALANCE
 
INTEREST
 YIELD/
RATE (8)
 
(Dollars in thousands)                 
(Unaudited)                 
                  
Loans (1) (2)$2,440,571 $26,038 4.27% $2,908,433 $29,182 4.01%
Securities (3) (4) 62,966  264 1.68   82,113  167 0.81 
Federal Reserve and other short-term investments 214,403  55 0.10   204,815  78 0.15 
Total interest-earning assets 2,717,940  26,357 3.88   3,195,361  29,427 3.68 
Other assets 48,848        52,128      
Total assets$2,766,788       $3,247,489      
                  
Interest-bearing deposits (5)$1,843,689  2,568 0.56  $2,087,523  1,518 0.29 
Borrowed funds 319,931  513 0.64   428,315  300 0.28 
Total interest-bearing liabilities 2,163,620  3,081 0.57   2,515,838  1,818 0.29 
Non-interest-bearing deposits 309,975        375,139      
Other liabilities 7,153        8,022      
Total liabilities 2,480,748        2,898,999      
Stockholders’ equity 286,040        348,490      
Total liabilities and stockholders’ equity$2,766,788       $3,247,489      
Net interest income   $23,276       $27,609   
                  
Weighted average spread      3.31%       3.39%
                  
Net interest margin (6)      3.43%       3.46%
                  
Average interest-earning assets to average interest-bearing liabilities (7) 125.62%       127.01%     


(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,  
 2020  2021 
 AVERAGE
BALANCE
 
INTEREST
 YIELD/
RATE
  AVERAGE
BALANCE
 
INTEREST
 YIELD/
RATE
 
(Dollars in thousands)                 
(Unaudited)                 
                  
Loans (1) (2)$2,370,869 $103,797 4.38% $2,667,812 $109,449 4.10%
Securities (3) (4) 65,318  1,666 2.55   70,419  780 1.11 
Federal Reserve and other short-term investments 212,490  899 0.42   204,500  262 0.13 
Total interest-earning assets 2,648,677  106,362 4.02   2,942,731  110,491 3.75 
Other assets 46,986        51,635      
Total assets$2,695,663       $2,994,366      
                  
Interest-bearing deposits (5)$1,677,107  16,186 0.97  $1,993,863  6,868 0.34 
Borrowed funds 465,161  4,972 1.07   319,193  1,158 0.36 
Total interest-bearing liabilities 2,142,268  21,158 0.99   2,313,056  8,026 0.35 
Non-interest-bearing deposits 277,924        346,992      
Other liabilities 7,748        7,147      
Total liabilities 2,427,940        2,667,195      
Stockholders’ equity 267,723        327,171      
Total liabilities and stockholders’ equity$2,695,663       $2,994,366      
Net interest income   $85,204       $102,465   
                  
Weighted average spread      3.03%       3.40%
                  
Net interest margin (6)      3.22%       3.48%
                  
Average interest-earning assets to average interest-bearing liabilities (7) 123.64%       127.22%     


(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.


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

      Three Months Ended Twelve Months Ended
      December 31, December 31,
(In thousands, unaudited)  2020   2021  2020  2021 
           
Non-GAAP reconciliation:             
Net income  $17,042  $16,674  $50,771  $67,458 
Gain on equity securities, net   (5,453)  (2,105)  (7,916)  (11,820)
Income tax expense (1)   1,202   464   1,745   2,605 
Gain on disposal of fixed assets         (218)  (2,337)
Income tax expense          61   657 
Core net income  $12,791  $15,033  $44,443  $56,563 

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



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