HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced third quarter results for 2021.

Earnings

Net income for the quarter ended September 30, 2021 was $14,012,000 or $6.54 per share basic and $6.36 per share diluted, as compared to $15,206,000 or $7.12 per share basic and $6.96 per share diluted for the same period last year. The Bank’s annualized return on average equity for the third quarter of 2021 was 16.57%, and the annualized return on average assets was 1.85%, as compared to 22.23% and 2.26% for the same period in 2020. Net income per share (diluted) for the third quarter of 2021 decreased by 9% over the same period in 2020.

Core net income for the quarter ended September 30, 2021, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, was $14,010,000 or $6.54 per share basic and $6.36 per share diluted, as compared to $12,394,000 or $5.80 per share basic and $5.68 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the third quarter of 2021 was 16.56%, and the annualized core return on average assets was 1.85%, as compared to 18.12% and 1.84% for the same period in 2020. Core net income per share (diluted) for the third quarter of 2021 increased by 12% over the same period in 2020.

Net income for the nine months ended September 30, 2021 was $50,784,000 or $23.72 per share basic and $23.09 per share diluted, as compared to $33,729,000 or $15.79 per share basic and $15.46 per share diluted for the same period last year. The Bank’s annualized return on average equity for the first nine months of 2021 was 21.16%, and the annualized return on average assets was 2.33%, as compared to 17.19% and 1.68% for the same period in 2020. Net income per share (diluted) for the first nine months of 2021 increased by 49% over the same period in 2020.

Core net income for the nine months ended September 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 $41,530,000 or $19.40 per share basic and $18.88 per share diluted, as compared to $31,652,000 or $14.81 per share basic and $14.51 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the first nine months of 2021 was 17.31%, and the annualized core return on average assets was 1.90%, as compared to 16.13% and 1.58% for the same period in 2020. Core net income per share (diluted) for the first nine months of 2021 increased by 30% 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 nine months ended September 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 nine 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 recorded in the current year, 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.

Balance Sheet

Total assets increased to $3.165 billion at September 30, 2021, representing 14% annualized growth year-to-date and 16% growth from September 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 $2.800 billion at September 30, 2021, representing 16% annualized growth year-to-date and 19% growth from September 30, 2020. Growth was concentrated in the Bank’s commercial real estate portfolio.

Total deposits, including wholesale deposits, increased to $2.416 billion at September 30, 2021, representing 17% annualized growth year-to-date and 19% growth from September 30, 2020. Total retail and business deposits increased to $1.691 billion at September 30, 2021, representing 8% annualized growth year-date and 10% growth from September 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 $366.4 million at September 30, 2021, representing 22% annualized growth year-to-date and 21% growth from September 30, 2020. During the first nine months 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 $159.03 as of September 30, 2021, representing 21% annualized growth year-to-date and 22% growth from September 30, 2020. In addition to the increase in book value per share, the Bank has declared $2.70 in dividends per share since September 30, 2020, including a special dividend of $0.70 per share declared during the fourth quarter of 2020. The Bank increased its regular dividend per share in each of the last four quarters.

On September 29, 2021, the Bank’s Board of Directors declared a regular cash dividend of $0.53 per share. This represents an increase of 4% over the previous regular quarterly dividend of $0.51 per share. The dividend will be paid on November 10, 2021 to stockholders of record as of November 1, 2021. This will be the Bank’s 111th 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 September 30, 2021 increased 2 basis points to 3.48%, as compared to 3.46% for the same period last year. The net interest margin for the nine months ended September 30, 2021 increased 34 basis points to 3.49%, as compared to 3.15% for the same period last year. In the nine months ended September 30, 2021, and to a lesser extent, in the quarter ended September 30, 2021, the Bank benefited from a sharp 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 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 periods.

Key credit and operational metrics remained satisfactory in the third quarter. At September 30, 2021, non-performing assets totaled 0.01% of total assets, compared to 0.27% at December 31, 2020 and 0.23% at September 30, 2020. Non-performing loans as a percentage of the total loan portfolio totaled 0.01% at September 30, 2021, compared to 0.16% at December 31, 2020 and 0.10% at September 30, 2020.

The Bank recorded $1,000 of net charge-offs for the nine months ended September 30, 2021, as compared to $709,000 of net charge-offs for the same period last year. The prior year charge-off related primarily to the foreclosed property discussed below.

At September 30, 2021, the Bank did not own any foreclosed property, as compared to $3.9 million and $3.8 million at September 30, 2020 and December 31, 2020, respectively. This balance consisted of a single residential property which was sold during the first quarter of 2021.

The efficiency ratio fell to 21.29% for the third quarter of 2021, as compared to 23.50% for the same period last year. Operating expenses as a percentage of average assets fell to 0.74% in the third quarter of 2021, as compared to 0.81% for the same period last year. The Bank remains focused on reducing waste through an ongoing process of continuous improvement.

The Bank completed the previously announced closure of its Norwell branch in September 2021. The Bank will explore options to maximize the long-term value of the property whether through sale or lease.

Chairman Robert H. Gaughen Jr. stated, “Returns on equity and assets were strong in the third 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 September 30, 2021 with the FDIC on or about November 3, 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 EndedSeptember 30,   Nine Months EndedSeptember 30,
    2020   2021   2020   2021
(Unaudited)                        
                         
Key Performance Ratios                        
Return on average assets (1)   2.26 %   1.85 %   1.68 %   2.33 %
Return on average equity (1)   22.23     16.57     17.19     21.16  
Core return on average assets (1) (5)   1.84     1.85     1.58     1.90  
Core return on average equity (1) (5)   18.12     16.56     16.13     17.31  
Interest rate spread (1) (2)   3.31     3.42     2.93     3.41  
Net interest margin (1) (3)   3.46     3.48     3.15     3.49  
Operating expenses to average assets (1)   0.81     0.74     0.82     0.75  
Efficiency ratio (4)   23.50     21.29     26.19     21.56  
Average equity to average assets   10.18     11.20     9.79     11.00  
Average interest-earning assets to average interest-                        
bearing liabilities   124.72     128.29     122.96     127.30  
                         
  September 30,2020   December 31, 2020   September 30,2021
(Unaudited)                      
                       
Asset Quality Ratios                      
Allowance for loan losses/total loans   0.71 %   0.69 %   0.68 %
Allowance for loan losses/non-performing loans   699.75     438.28     5,297.80  
                   
Non-performing loans/total loans   0.10     0.16     0.01  
Non-performing loans/total assets   0.09     0.14     0.01  
Non-performing assets/total assets   0.23     0.27     0.01  
                   
Share Related                  
Book value per share $ 130.24     $ 137.02   $ 159.03  
Market value per share $ 184.00     $ 216.00   $ 336.70  
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, 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 nine months ended September 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 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 nine months ended September 30, 2020 have been recalculated accordingly.

 
 
HINGHAM INSTITUTION FOR SAVINGSConsolidated Balance Sheets
 
(In thousands, except share amounts) September 30,2020   December 31, 2020   September 30, 2021
(Unaudited)                
ASSETS                
                 
Cash and due from banks $ 9,816   $ 6,798   $ 5,711
Federal Reserve and other short-term investments   229,555     227,188     213,442
Cash and cash equivalents   239,371     233,986     219,153
                 
CRA investment   8,604     9,580     9,395
Other marketable equity securities   48,744     56,282     72,702
Equity securities, at fair value   57,348     65,862     82,097
Securities available for sale, at fair value   6     6     5
Securities held to maturity, at amortized cost           3,500
Federal Home Loan Bank stock, at cost   18,985     19,345     18,908
Loans, net of allowance for loan losses of $16,780                
at September 30, 2020, $17,404 at December 31, 2020 and $19,231 at September 30, 2021   2,358,983     2,495,331     2,800,477
Foreclosed assets   3,926     3,826    
Bank-owned life insurance   12,895     12,657     12,901
Premises and equipment, net   15,294     15,248     15,476
Accrued interest receivable   5,116     5,267     5,270
Deferred income tax asset, net   1,176     763    
Other assets   6,045     4,802     7,042
Total assets $ 2,719,145   $ 2,857,093   $ 3,164,829

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 
Interest-bearing deposits $ 1,722,970   $ 1,825,700   $ 2,049,930
Non-interest-bearing deposits   303,774     313,497     366,398
Total deposits   2,026,744     2,139,197     2,416,328
Federal Home Loan Bank advances   399,031     408,031     390,000
Mortgagors’ escrow accounts   8,105     8,770     8,683
Accrued interest payable   274     252     179
Deferred income tax liability, net           1,206
Other liabilities   6,679     7,900     7,717
Total liabilities   2,440,833     2,564,150     2,824,113
                 
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 September 30, 2020, 2,137,900 shares issued and outstanding and December 31, 2020 and 2,142,400 shares issued and outstanding at September 30, 2021   2,137     2,138     2,142
Additional paid-in capital   12,371     12,460     12,722
Undivided profits   263,804     278,345     325,852
Accumulated other comprehensive income          
Total stockholders’ equity   278,312     292,943     340,716
Total liabilities and stockholders’ equity $ 2,719,145   $ 2,857,093   $ 3,164,829
                 

HINGHAM INSTITUTION FOR SAVINGSConsolidated Statements of Income
         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(In thousands, except per share amounts)   2020     2021   2020   2021  
(Unaudited)                  
Interest and dividend income:                      
  Loans $ 26,193   $ 27,303   $ 77,759   $ 80,267  
  Debt securities       33         51  
  Equity securities   441     171     1,402     562  
  Federal Reserve and other short-term investments   47     78     844     184  
  Total interest and dividend income   26,681     27,585     80,005     81,064  
Interest expense:                      
  Deposits   3,285     1,551     13,618     5,350  
  Federal Home Loan Bank and Federal Reserve Bank advances   567     202     4,456     858  
  Mortgage payable           3      
  Total interest expense   3,852     1,753     18,077     6,208  
  Net interest income   22,829     25,832     61,928     74,856  
Provision for loan losses   350     1,000     2,113     1,828  
    Net interest income, after provision for loan losses   22,479     24,832     59,815     73,028  
Other income:                      
  Customer service fees on deposits   181     181     501     554  
  Increase in cash surrender value of bank-owned life insurance   51     79     168     244  
  Gain on equity securities, net   3,607     2     2,463     9,715  
  Gain on disposal of fixed assets           218     2,337  
  Miscellaneous   33     24     114     60  
    Total other income   3,872     286     3,464     12,910  
Operating expenses:                      
  Salaries and employee benefits   3,210     3,437     9,877     10,422  
  Occupancy and equipment   503     351     1,432     1,082  
  Data processing   502     489     1,466     1,432  
  Deposit insurance   212     231     649     681  
  Foreclosure and related   167     24     321     (51 )
  Marketing   116     195     400     423  
  Other general and administrative   718     833     2,281     2,333  
  Total operating expenses   5,428     5,560     16,426     16,322  
Income before income taxes   20,923     19,558     46,853     69,616  
Income tax provision   5,717     5,546     13,124     18,832  
  Net income $ 15,206   $ 14,012   $ 33,729   $ 50,784  
                         
Cash dividends declared per share $ 0.45   $ 0.53   $ 1.30   $ 1.53  
                       
Weighted average shares outstanding:                      
  Basic   2,137     2,142     2,137     2,141  
  Diluted   2,183     2,202     2,181     2,199  
                         
Earnings per share:                      
  Basic $ 7.12   $ 6.54   $ 15.79   $ 23.72  
  Diluted $ 6.96   $ 6.36   $ 15.46   $ 23.09  
                           

HINGHAM INSTITUTION FOR SAVINGSNet Interest Income Analysis
 
  Three Months Ended September 30,  
  2020     2021  
  AVERAGE BALANCE   INTEREST   YIELD/ RATE (8)     AVERAGE BALANCE   INTEREST   YIELD/ RATE (8)  
(Dollars in thousands)                                  
(Unaudited)                                  
                                   
Loans (1) (2) $ 2,391,761   $ 26,193   4.38 %   $ 2,693,457   $ 27,303   4.05 %
Securities (3) (4)   63,151     441   2.79       69,978     204   1.17  
Federal Reserve and other short-term investments   184,710     47   0.10       202,685     78   0.15  
Total interest-earning assets   2,639,622     26,681   4.04       2,966,120     27,585   3.72  
Other assets   48,456                 55,606            
Total assets $ 2,688,078               $ 3,021,726            
                                   
Interest-bearing deposits (5) $ 1,756,238     3,285   0.75     $ 2,032,203     1,551   0.31  
Borrowed funds   360,271     567   0.63       279,796     202   0.29  
Total interest-bearing liabilities   2,116,509     3,852   0.73       2,311,999     1,753   0.30  
Non-interest-bearing deposits   290,803                 364,599            
Other liabilities   7,156                 6,812            
Total liabilities   2,414,468                 2,683,410            
Stockholders’ equity   273,610                 338,316            
Total liabilities and stockholders’ equity $ 2,688,078               $ 3,021,726            
Net interest income       $ 22,829               $ 25,832      
                                   
Weighted average spread             3.31 %               3.42 %
                                   
Net interest margin (6)             3.46 %               3.48 %
                                   
Average interest-earning assets to average                                  
interest-bearing liabilities (7)   124.72 %               128.29 %          

(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
 
  Nine Months Ended September 30,  
  2020     2021  
  AVERAGE BALANCE   INTEREST   YIELD/ RATE (8)     AVERAGE BALANCE   INTEREST   YIELD/ RATE (8)  
(Dollars in thousands)                                  
(Unaudited)                                  
                                   
Loans (1) (2) $ 2,347,466   $ 77,759   4.42 %   $ 2,586,723   $ 80,267   4.14 %
Securities (3) (4)   66,107     1,402   2.83       66,478     613   1.23  
Federal Reserve and other short-term investments   211,847     844   0.53       204,395     184   0.12  
Total interest-earning assets   2,625,420     80,005   4.06       2,857,596     81,064   3.78  
Other assets   46,361                 51,469            
Total assets $ 2,671,781               $ 2,909,065            
                                   
Interest-bearing deposits (5) $ 1,621,175     13,618   1.12     $ 1,962,300     5,350   0.36  
Borrowed funds   513,925     4,459   1.16       282,419     858   0.41  
Total interest-bearing liabilities   2,135,100     18,077   1.13       2,244,719     6,208   0.37  
Non-interest-bearing deposits   267,162                 337,507            
Other liabilities   7,947                 6,852            
Total liabilities   2,410,209                 2,589,078            
Stockholders’ equity   261,572                 319,987            
Total liabilities and stockholders’ equity $ 2,671,781               $ 2,909,065            
Net interest income       $ 61,928               $ 74,856      
                                   
Weighted average spread             2.93 %               3.41 %
                                   
Net interest margin (6)             3.15 %               3.49 %
                                   
Average interest-earning assets to average                                  
interest-bearing liabilities (7)   122.96 %               127.30 %          

(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 on equity securities, net, and after-tax gain on disposal of fixed assets.
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(In thousands, unaudited)     2020       2021     2020     2021  
                     
Non-GAAP reconciliation:                        
Net income   $ 15,206     $ 14,012     $ 33,729     $ 50,784  
Gain on equity securities, net     (3,607 )     (2 )     (2,463 )     (9,715 )
  Income tax expense (1)     795             543       2,141  
Gain on disposal of fixed assets                 (218 )     (2,337 )
  Income tax expense                 61       657  
Core net income   $ 12,394     $ 14,010     $ 31,652     $ 41,530  

(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.

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

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