HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced results for the quarter ended March 31, 2021.

Earnings

Net income for the quarter ended March 31, 2021 was $16,350,000 or $7.65 per share basic and $7.45 per share diluted, as compared to $2,185,000 or $1.02 per share basic and $1.00 per share diluted for the same period last year. The Bank’s annualized return on average equity for the first quarter of 2021 was 21.72%, and the annualized return on average assets was 2.32%, as compared to 3.46% and 0.33% for the same period last year. Net income per share (diluted) for the first quarter of 2021 increased by 645% compared to the same period in 2020.

Core net income for the quarter ended March 31, 2021, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, was $13,725,000 or $6.42 per share basic and $6.25 per share diluted, as compared to $8,479,000 or $3.97 per share basic and $3.88 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the first quarter of 2021 was 18.23% and the annualized core return on average assets was 1.95%, as compared to 13.44% and 1.30% for the same period last year. Core net income per share (diluted) for the first quarter of 2021 increased by 61% over the same period in 2020.

See Page 8 for a Non-GAAP reconciliation between net income and core net income. In calculating core net income, the Bank does not make any adjustments other than those relating to after-tax gains and losses on securities, realized and unrealized.

Balance Sheet and Capital Management

Total assets were $2.844 billion at March 31, 2021, representing a 2% annualized decline year-to-date and 7% growth from March 31, 2020. Asset growth was below loan growth as the Bank continued to manage the balance sheet to minimize the carrying cost of its on-balance sheet liquidity.

Net loans increased to $2.508 billion at March 31, 2021, representing 2% annualized growth year-to-date and 8% growth from March 31, 2020. Growth was concentrated in the Bank’s commercial real estate portfolio.

Total deposits, including wholesale deposits, increased to $2.274 billion at March 31, 2021, representing 25% annualized growth year-to-date and 33% growth from March 31, 2020. Total retail and business deposits increased to $1.621 billion at March 31, 2021, representing 8% annualized growth year-to-date and 9% growth from March 31, 2020. Non-interest-bearing deposits, included in retail and business deposits, increased to $327.3 million at March 31, 2021, representing 18% annualized growth year-to-date and 34% growth from March 31, 2020. During the first quarter 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 $144.12 as of March 31, 2021, representing 21% annualized growth year-to-date and 24% growth from March 31, 2020. In addition to the increase in book value per share, the Bank declared $2.54 in dividends per share since March 31, 2020, including a special dividend of $0.70 per share declared during the fourth quarter of 2020. The Bank announced increases in its regular quarterly dividend in each of the last four quarters.

In March 2021, the Bank declared a regular cash dividend of $0.49 per share. This represented an increase of 4% over the previous regular quarterly dividend of $0.47 per share. This dividend will be paid on April 21, 2021 to stockholders of record as of April 12, 2021. This was the Bank’s 109th 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.

The Bank has previously communicated the declaration of the regular dividend via a separate press release. Going forward, the announcement of regular and special dividends, if any, will be communicated along with the quarterly results to simplify our internal process and reduce our costs.

Operational Performance Metrics

The net interest margin for the quarter ended March 31, 2021 increased 72 basis points to 3.54%, as compared to 2.82% 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 first quarter. At March 31, 2021, non-performing assets totaled 0.02% of total assets, compared to 0.27% at December 31, 2020 and 0.19% at March 31, 2020. Non-performing loans as a percentage of the total loan portfolio totaled 0.02% at March 31, 2021, compared to 0.16% at December 31, 2020 and 0.06% at March 31, 2020. The Bank recorded $1,000 in net charge-offs in the first three 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 March 31, 2021, the Bank did not own any foreclosed property, as compared to $3.6 million and $3.8 million at March 31, 2020 and December 31, 2020, respectively. This prior holding consisted exclusively of a single residential property that was purchased at auction in January 2020. The balance at December 31, 2020 included the capitalization of repairs and improvements completed by the Bank following acquisition, net of a writedown of $100,000 recorded in the fourth quarter of 2020. The property was sold during the first quarter of 2021 and the Bank recorded a $68,000 loss on disposal, included in foreclosure and related expenses.

The efficiency ratio fell to 22.02% for the first quarter of 2021, as compared to 30.64% for the same period last year. Operating expenses as a percentage of average assets fell to 0.77% for the first quarter of 2021, as compared to 0.86% 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.

Annual Meeting

The Bank will hold its Annual Meeting of Stockholders at 3:00PM EST on Thursday, April 29th, 2021 via Zoom. Although we anticipate that a handful of Bank staff will be present at our Main Office for the business section of the meeting, we do not believe the public health environment will allow the Bank to hold a traditional in-person meeting in 2021. Immediately following the business meeting, the Bank will hold an informal meeting to discuss the results of the prior year and the operations of the Bank, as well as a questions and answers session. We strongly encourage all shareholders to vote by proxy. Electronic voting will not be available. Registration for the meeting is available on the Bank’s Investor Relations website (click here).

Chairman Robert H. Gaughen Jr. stated, “Returns on equity and assets were satisfactory in the first quarter of 2021, although performance in any one period should always be viewed cautiously, especially when tailwinds are blowing strongly in our favor. These tailwinds will not blow forever and we must be prepared for environments in which headwinds prevail. In doing so, 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 this earnings release, but shareholders are encouraged to read the Bank’s quarterly report on Form 10-Q, which is generally available several weeks after the earnings release. The Bank expects to file Form 10-Q for the quarter ended March 31, 2021 with the Federal Deposit Insurance Corporation (FDIC) on or about May 5, 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.

The Bank’s shares of common stock are listed and traded on The NASDAQ Stock Market under the symbol HIFS.

HINGHAM INSTITUTION FOR SAVINGSSelected Financial Ratios

  Three Months EndedMarch 31,
  2020   2021
(Unaudited)          
           
Key Performance Ratios          
Return on average assets (1) 0.33 %   2.32 %
Return on average equity (1) 3.46     21.72  
Core return on average assets (1) (5) 1.30     1.95  
Core return on average equity (1) (5) 13.44     18.23  
Interest rate spread (1) (2) 2.52     3.44  
Net interest margin (1) (3) 2.82     3.54  
Operating expenses to average assets (1) 0.86     0.77  
Efficiency ratio (4) 30.64     22.02  
Average equity to average assets 9.67     10.70  
Average interest-earning assets to average interest bearing liabilities 121.37     126.10  
           
  March 31, 2020   December 31,2020   March 31, 2021
(Unaudited)                      
                       
Asset Quality Ratios                      
Allowance for loan losses/total loans   0.68 %   0.69 %     0.70 %
Allowance for loan losses/non-performing loans   1,099.51     438.28       2,870.29  
                     
Non-performing loans/total loans   0.06     0.16       0.02  
Non-performing loans/total assets   0.05     0.14       0.02  
Non-performing assets/total assets   0.19     0.27       0.02  
                     
Share Related                    
Book value per share $ 116.34     $ 137.02     $ 144.12  
Market value per share $ 144.99     $ 216.00     $ 283.76  
Shares outstanding at end of period   2,136,750       2,137,900       2,139,400  
                       

(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 first quarter of 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.

HINGHAM INSTITUTION FOR SAVINGSConsolidated Balance Sheets

(In thousands, except share amounts) March 31, 2020   December 31, 2020   March 31, 2021
(Unaudited)                
ASSETS                
                 
Cash and due from banks $ 7,797   $ 6,798   $ 6,267
Federal Reserve and other short-term investments   203,729     227,188     208,206
Cash and cash equivalents   211,526     233,986     214,473
                 
CRA investment   8,532     9,580     9,412
Debt securities available for sale   10     6     5
Other marketable equity securities   38,407     56,282     59,448
Securities, at fair value   46,949     65,868     68,865
Federal Home Loan Bank stock, at cost   29,868     19,345     14,185
Loans, net of allowance for loan losses of $15,833 at March 31, 2020, $17,404 at December 31, 2020 and $17,681 at March 31, 2021   2,320,369     2,495,331     2,507,873
Foreclosed assets   3,600     3,826    
Bank-owned life insurance   12,785     12,657     12,738
Premises and equipment, net   15,418     15,248     15,247
Accrued interest receivable   5,183     5,267     5,109
Deferred income tax asset, net   3,153     763     203
Other assets   5,720     4,802     5,421
Total assets $ 2,654,571   $ 2,857,093   $ 2,844,114
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Interest-bearing deposits $ 1,468,349   $ 1,825,700   $ 1,946,327
Non-interest-bearing deposits   244,546     313,497     327,279
Total deposits   1,712,895     2,139,197     2,273,606
Federal Home Loan Bank advances   676,231     408,031     246,200
Mortgagors’ escrow accounts   7,894     8,770     9,052
Accrued interest payable   359     252     154
Other liabilities   8,593     7,900     6,761
Total liabilities   2,405,972     2,564,150     2,535,773
                 
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; 2,136,750 shares issued and outstanding at March 31, 2020, 2,137,900 shares issued and outstanding at December 31, 2020 and 2,139,400 shares issued and outstanding at March 31, 2021   2,137     2,138     2,139
Additional paid-in capital   12,322     12,460     12,556
Undivided profits   234,140     278,345     293,646
Accumulated other comprehensive income          
Total stockholders’ equity   248,599     292,943     308,341
Total liabilities and stockholders’ equity $ 2,654,571   $ 2,857,093   $ 2,844,114
                 

HINGHAM INSTITUTION FOR SAVINGSConsolidated Statements of Income

  Three Months EndedMarch 31,
(In thousands, except per share amounts) 2020   2021
(Unaudited)          
           
Interest and dividend income:          
Loans $ 25,710     $ 26,749  
Equity securities   498       218  
Federal Reserve and other short-term investments   741       52  
Total interest and dividend income   26,949       27,019  
           
Interest expense:          
Deposits   5,941       2,107  
Federal Home Loan Bank advances   2,947       444  
Mortgage payable   3        
Total interest expense   8,891       2,551  
Net interest income   18,058       24,468  
Provision for loan losses   1,138       278  
Net interest income, after provision for loan losses   16,920       24,190  
Other income (loss):          
Customer service fees on deposits   172       181  
Increase in cash surrender value of bank-owned life insurance   58       81  
Gain (loss) on equity securities, net   (8,074 )     3,367  
Gain on disposal of fixed assets   218        
Miscellaneous   53       15  
Total other income (loss)   (7,573 )     3,644  
Operating expenses:          
Salaries and employee benefits   3,380       3,526  
Occupancy and equipment   455       406  
Data processing   489       461  
Deposit insurance   183       223  
Foreclosure and related   126       (82 )
Marketing   180       124  
Other general and administrative   807       792  
Total operating expenses   5,620       5,450  
Income before income taxes   3,727       22,384  
Income tax provision   1,542       6,034  
Net income $ 2,185     $ 16,350  
           
Cash dividends declared per common share $ 0.42     $ 0.49  
           
Weighted average shares outstanding:          
Basic   2,136       2,138  
Diluted   2,184       2,195  
           
Earnings per share:          
Basic $ 1.02     $ 7.65  
Diluted $ 1.00     $ 7.45  
           

HINGHAM INSTITUTION FOR SAVINGSNet Interest Income Analysis

  Three Months Ended March 31,  
  2020     2021  
  AVERAGE BALANCE   INTEREST   YIELD/ RATE (8)     AVERAGE BALANCE   INTEREST   YIELD/ RATE (8)  
(Dollars in thousands)                                  
(Unaudited)                                  
                                   
Loans (1) (2) $ 2,271,019   $ 25,710   4.53 %   $ 2,497,119   $ 26,749   4.28 %
Securities (3) (4)   65,302     498   3.05       63,927     218   1.36  
Federal Reserve and other short-term investments   228,170     741   1.30       204,887     52   0.10  
Total interest-earning assets   2,564,491     26,949   4.20       2,765,933     27,019   3.91  
Other assets   46,536                 47,705            
Total assets $ 2,611,027               $ 2,813,638            
                                   
Interest-bearing deposits (5) $ 1,513,343     5,941   1.57     $ 1,882,830     2,107   0.45  
Borrowed funds   599,659     2,950   1.97       310,683     444   0.57  
Total interest-bearing liabilities   2,113,002     8,891   1.68       2,193,513     2,551   0.47  
Non-interest-bearing deposits   238,005                 311,800            
Other liabilities   7,589                 7,246            
Total liabilities   2,358,596                 2,512,559            
Stockholders’ equity   252,431                 301,079            
Total liabilities and stockholders’ equity $ 2,611,027               $ 2,813,638            
Net interest income       $ 18,058               $ 24,468      
                                   
Weighted average spread             2.52 %               3.44 %
                                   
Net interest margin (6)             2.82 %               3.54 %
                                   
Average interest-earning assets to average interest-bearing liabilities (7)   121.37 %               126.10 %          
                                   

(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 SAVINGSNon-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.

  Three Months EndedMarch 31,
(In thousands, unaudited) 2020   2021
           
Non-GAAP reconciliation:          
Net Income $ 2,185     $ 16,350  
(Gain) loss on equity securities, net   8,074       (3,367 )
Income tax expense (benefit) (1)   (1,780 )     742  
Core Net Income $ 8,479     $ 13,725  
               

(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.

CONTACT:       Patrick R. Gaughen, President and Chief Operating Officer (781) 783-1761
     
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