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 SAVINGSSelected Financial Ratios

  Three Months EndedJune 30,   Six Months EndedJune 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 assets 9.52     11.08     9.59     10.89  
Average interest-earning assets to average interest- bearing liabilities 122.79     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 SAVINGSConsolidated 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 SAVINGSConsolidated 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 SAVINGSNet 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 SAVINGSNet 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.

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

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