HIFS Hingham Institution for Savings

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