HIFS Hingham Institution for Savings

HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced results for the quarter ended June 30, 2022.

Earnings

Net income for the quarter ended June 30, 2022 was $3,191,000 or $1.49 per share basic and $1.45 per share diluted, as compared to $20,422,000 or $9.54 per share basic and $9.28 per share diluted for the same period last year. The Bank’s annualized return on average equity for the second quarter of 2022 was 3.43%, and the annualized return on average assets was 0.34%, as compared to 25.51% and 2.83% for the same period in 2021. Net income per share (diluted) for the second quarter of 2022 decreased by 84% over the same period in 2021.

Core net income for the quarter ended June 30, 2022, 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 $15,260,000 or $7.12 per share basic and $6.93 per share diluted, as compared to $13,795,000 or $6.44 per share basic and $6.27 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the second quarter of 2022 was 16.42%, and the annualized core return on average assets was 1.63%, as compared to 17.24% and 1.91% for the same period in 2021. Core net income per share (diluted) for the second quarter of 2022 increased by 11% over the same period in 2021.

Net income for the six months ended June 30, 2022 was $15,055,000 or $7.02 per share basic and $6.83 per share diluted, as compared to $36,772,000 or $17.18 per share basic and $16.73 per share diluted for the same period last year. The Bank’s annualized return on average equity for the first six months of 2022 was 8.20%, and the annualized return on average assets was 0.83%, as compared to 23.67% and 2.58% for the same period in 2021. Net income per share (diluted) for the first six months of 2022 decreased by 59% over the same period in 2021.

Core net income for the six months ended June 30, 2022, 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 $30,365,000 or $14.17 per share basic and $13.78 per share diluted, as compared to $27,520,000 or $12.86 per share basic and $12.52 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the first six months of 2022 was 16.55%, and the annualized core return on average assets was 1.68%, as compared to 17.72% and 1.93% for the same period in 2021. Core net income per share (diluted) for the first six months of 2022 increased by 10% over the same period in 2021.

See Page 9 for a Non-GAAP reconciliation between net income and core net income. In calculating core net income, the Bank did not make any adjustments other than those relating to after-tax gains and losses on equity securities, realized and unrealized and after-tax gains on the disposal of fixed assets.

Balance Sheet and Capital Management

Total assets were $3.996 billion at June 30, 2022, representing 33% annualized growth year-to-date and 34% growth from June 30, 2021.

Net loans increased to $3.508 billion at June 30, 2022, representing 34% annualized growth year-to-date and 33% growth from June 30, 2021. Growth was concentrated in the Bank’s commercial real estate portfolio.

Total deposits, including wholesale deposits, were $2.468 billion at June 30, 2022, representing 6% annualized growth year-to-date and 5% growth from June 30, 2021. Total retail and business deposits increased to $1.763 billion at June 30, 2022, representing 6% annualized growth year-to-date and 7% growth from June 30, 2021. Non-interest-bearing deposits, included in retail and business deposits, increased to $399.5 million at June 30, 2022, representing 5% annualized growth year-to-date and 12% growth from June 30, 2021. During the first half of 2022, the Bank used wholesale funds to help fund the strong loan growth experienced during the period.

Book value per share was $171.23 as of June 30, 2022, representing 7% annualized growth year-to-date and 12% growth from June 30, 2021. In addition to the increase in book value per share, the Bank has declared $2.99 in dividends per share since June 30, 2021, including a special dividend of $0.75 per share declared during the fourth quarter of 2021. The Bank increased its regular quarterly dividend in each of the last four quarters.

On June 29, 2022, the Bank’s Board of Directors declared a regular cash dividend of $0.59 per share. This represents an increase of 4% over the previous regular quarterly dividend of $0.57 per share. The dividend will be paid on August 10, 2022 to stockholders of record as of August 1, 2022. This will be the Bank’s 114th consecutive quarterly dividend and the Bank has consistently increased regular quarterly cash dividends over the last twenty-seven years. The Bank has also declared special cash dividends in each of the last twenty-seven 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, 2022 decreased 25 basis points to 3.21%, as compared to 3.46% for the same period last year. This decline was driven by a declining yield on interest-earning assets, resulting primarily from a lower yield on loans, combined with a higher cost of interest-bearing liabilities. The net interest margin for the six months ended June 30, 2022 decreased 25 basis points to 3.25%, as compared to 3.50% for the same period last year. This decline was driven by a declining yield on interest-earning assets, resulting primarily from a lower yield on loans.

Key credit and operational metrics remained strong in the second quarter. At June 30, 2022, non-performing assets totaled 0.02% of total assets, compared to 0.01% at both December 31, 2021 and June 30, 2021. Non-performing loans as a percentage of the total loan portfolio totaled 0.03% at June 30, 2022, compared to 0.01% at both December 31, 2021 and June 30, 2021.

The Bank recorded $50,000 in net recoveries in the first six months of 2022, as compared to $1,000 in net charge-offs for the same period last year.

The Bank did not own any foreclosed property at June 30, 2022, December 31, 2021 and June 30, 2021.

The efficiency ratio, as defined on page 4 below, fell slightly to 21.30% for the second quarter of 2022, as compared to 21.37% for the same period last year. Operating expenses as a percentage of average assets fell to 0.68% in the second quarter of 2022, as compared to 0.74% for the same period last year. The Bank remains focused on reducing waste through an ongoing process of continuous improvement and standard work that supports operational leverage.

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 in our core operations were adequate in the second quarter of 2022, although we face a range of headwinds, including significant near-term pressure on our net interest margin. In our business operations, we had significant growth across all three markets in our commercial real estate group with both new and existing relationship customers. We are carefully managing this growth moving forward, particularly as growth in our commercial deposits in the same period was modest by comparison. In our investment operations, we remain generally satisfied with the performance of our portfolio companies and we continue to increase our ownership of these companies as market conditions have presented opportunities to do so. As always, 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, 2022 with the FDIC on or about August 5, 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 SAVINGSSelected Financial Ratios

	Three Months EndedJune 30,						Six Months EndedJune 30,
	2021			2022			2021			2022
(Unaudited)
Key Performance Ratios
Return on average assets (1)	2.83	%		0.34	%		2.58	%		0.83	%
Return on average equity (1)	25.51			3.43			23.67			8.20
Core return on average assets (1) (5)	1.91			1.63			1.93			1.68
Core return on average equity (1) (5)	17.24			16.42			17.72			16.55
Interest rate spread (1) (2)	3.39			3.11			3.42			3.18
Net interest margin (1) (3)	3.46			3.21			3.50			3.25
Operating expenses to average assets (1)	0.74			0.68			0.75			0.70
Efficiency ratio (4)	21.37			21.30			21.70			21.55
Average equity to average assets	11.08			9.92			10.89			10.17
Average interest-earning assets to average interest-bearing liabilities	127.44			124.97			126.78			125.39

	June 30, 2021				December 31,2021				June 30, 2022
(Unaudited)
Asset Quality Ratios
Allowance for loan losses/total loans		0.69	%		0.68		%				0.68	%
Allowance for loan losses/non-performing loans		6,159.12			4,784.78						2,428.23
Non-performing loans/total loans		0.01			0.01						0.03
Non-performing loans/total assets		0.01			0.01						0.02
Non-performing assets/total assets		0.01			0.01						0.02
Share Related
Book value per share	$	153.02			$	165.52			$	171.23
Market value per share	$	290.50			$	419.88			$	283.77
Shares outstanding at end of period		2,142,400				2,142,400				2,145,400

(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.
(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.

HINGHAM INSTITUTION FOR SAVINGSConsolidated Balance Sheets

(In thousands, except share amounts)	June 30, 2021				December 31,2021					June 30, 2022
(Unaudited)
ASSETS
Cash and due from banks	$	7,734			$	5,428				$	7,670
Federal Reserve and other short-term investments		198,590				265,733					303,223
Cash and cash equivalents		206,324				271,161					310,893
CRA investment		9,439				9,306					8,626
Other marketable equity securities		69,311				79,167					68,459
Equity securities, at fair value		78,750				88,473					77,085
Securities available for sale, at fair value		5				—					—
Securities held to maturity, at amortized cost		3,500				3,500					3,500
Federal Home Loan Bank stock, at cost		14,732				29,908					47,316
Loans, net of allowance for loan losses of $18,231 at June 30, 2021, $20,431 at December 31, 2021 and $24,088 at June 30, 2022		2,630,332				2,999,096					3,507,936
Bank-owned life insurance		12,822				12,980					13,150
Premises and equipment, net		15,103				15,825					16,617
Accrued interest receivable		5,158				5,467					6,111
Deferred income tax asset, net		—				—					3,793
Other assets		7,039				4,755					9,202
Total assets	$	2,973,765			$	3,431,165				$	3,995,603
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits	$	1,985,442			$	2,003,717				$	2,068,443
Non-interest-bearing deposits		358,195				389,148					399,478
Total deposits		2,343,637				2,392,865					2,467,921
Federal Home Loan Bank advances		285,600				665,000					1,140,000
Mortgagors’ escrow accounts		8,321				9,183					11,822
Accrued interest payable		158				198					1,003
Deferred income tax liability, net		1,201				536					—
Other liabilities		7,014				8,771					7,497
Total liabilities		2,645,931				3,076,553					3,628,243
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; 2,142,400 shares issued and outstanding at June 30, 2021 and December 31, 2021 and 2,145,400 shares issued and outstanding at June 30, 2022		2,142				2,142					2,145
Additional paid-in capital		12,715				12,728					12,908
Undivided profits		312,977				339,742					352,307
Accumulated other comprehensive income		—				—					—
Total stockholders’ equity		327,834				354,612					367,360
Total liabilities and stockholders’ equity	$	2,973,765			$	3,431,165				$	3,995,603

HINGHAM INSTITUTION FOR SAVINGSConsolidated Statements of Income

	Three Months Ended								Six Months Ended
	June 30,								June 30,
(In thousands, except per share amounts)	2021				2022				2021				2022
(Unaudited)
Interest and dividend income:
Loans	$	26,215			$	32,406			$	52,964			$		62,166
Debt securities		18				33				18					66
Equity securities		173				286				391					544
Federal Reserve and other short-term investments		54				519				106					629
Total interest and dividend income		26,460				33,244				53,479					63,405
Interest expense:
Deposits		1,692				2,102				3,799					3,606
Federal Home Loan Bank and Federal Reserve Bank advances		212				1,431				656					1,923
Mortgage payable		—				—				—					—
Total interest expense		1,904				3,533				4,455					5,529
Net interest income		24,556				29,711				49,024					57,876
Provision for loan losses		550				2,449				828					3,607
Net interest income, after provision for loan losses		24,006				27,262				48,196					54,269
Other income (loss):
Customer service fees on deposits		192				140				373					315
Increase in cash surrender value of bank-owned life insurance		84				77				165					170
Gain (loss) on equity securities, net		6,346				(15,482	)			9,713					(19,639	)
Gain on disposal of fixed assets		2,337				—				2,337					—
Miscellaneous		21				20				36					46
Total other income (loss)		8,980				(15,245	)			12,624					(19,108	)
Operating expenses:
Salaries and employee benefits		3,459				3,862				6,985					7,506
Occupancy and equipment		325				315				731					689
Data processing		482				648				943					1,262
Deposit insurance		227				518				450					801
Foreclosure and related		7				8				(75	)				(13	)
Marketing		104				315				228					506
Other general and administrative		708				713				1,500					1,837
Total operating expenses		5,312				6,379				10,762					12,588
Income before income taxes		27,674				5,638				50,058					22,573
Income tax provision		7,252				2,447				13,286					7,518
Net income	$	20,422			$	3,191			$	36,772			$		15,055
Cash dividends declared per share	$	0.51			$	0.59			$	1.00			$		1.16
Weighted average shares outstanding:
Basic		2,142				2,145				2,140					2,144
Diluted		2,200				2,203				2,198					2,204
Earnings per share:
Basic	$	9.54			$	1.49			$	17.18			$		7.02
Diluted	$	9.28			$	1.45			$	16.73			$		6.83

HINGHAM INSTITUTION FOR SAVINGSNet Interest Income Analysis

	Three Months Ended June 30,
	2021								2022
	AVERAGE BALANCE			INTEREST			YIELD/ RATE (8)		AVERAGE BALANCE			INTEREST			YIELD/ RATE (8)
(Dollars in thousands)
(Unaudited)
Loans (1) (2)	$	2,567,437		$	26,215		4.08	%	$	3,350,290		$	32,406		3.87	%
Securities (3) (4)		65,463			191		1.17			109,378			319		1.17
Federal Reserve and other short-term investments		205,636			54		0.11			239,797			519		0.87
Total interest-earning assets		2,838,536			26,460		3.73			3,699,465			33,244		3.59
Other assets		51,008								47,480
Total assets	$	2,889,544							$	3,746,945
Interest-bearing deposits (5)	$	1,970,226			1,692		0.34		$	2,048,311			2,102		0.41
Borrowed funds		257,117			212		0.33			912,034			1,431		0.63
Total interest-bearing liabilities		2,227,343			1,904		0.34			2,960,345			3,533		0.48
Non-interest-bearing deposits		335,541								408,033
Other liabilities		6,503								6,782
Total liabilities		2,569,387								3,375,160
Stockholders’ equity		320,157								371,785
Total liabilities and stockholders’ equity	$	2,889,544							$	3,746,945
Net interest income				$	24,556							$	29,711
Weighted average spread							3.39	%							3.11	%
Net interest margin (6)							3.46	%							3.21	%
Average interest-earning assets to average interest-bearing liabilities (7)		127.44	%							124.97	%

(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,
	2021								2022
	AVERAGE BALANCE			INTEREST			YIELD/ RATE (8)		AVERAGE BALANCE			INTEREST			YIELD/ RATE (8)
(Dollars in thousands)
(Unaudited)
Loans (1) (2)	$	2,532,473		$	52,964		4.18	%	$	3,214,720		$	62,166		3.87	%
Securities (3) (4)		64,699			409		1.26			102,179			610		1.19
Federal Reserve and other short-term investments		205,263			106		0.10			240,273			629		0.52
Total interest-earning assets		2,802,435			53,479		3.82			3,557,172			63,405		3.56
Other assets		49,366								50,219
Total assets	$	2,851,801							$	3,607,391
Interest-bearing deposits (5)	$	1,926,769			3,799		0.39		$	2,038,252			3,606		0.35
Borrowed funds		283,752			656		0.46			798,607			1,923		0.48
Total interest-bearing liabilities		2,210,521			4,455		0.40			2,836,859			5,529		0.39
Non-interest-bearing deposits		323,736								395,991
Other liabilities		6,873								7,522
Total liabilities		2,541,130								3,240,372
Stockholders’ equity		310,671								367,019
Total liabilities and stockholders’ equity	$	2,851,801							$	3,607,391
Net interest income				$	49,024							$	57,876
Weighted average spread							3.42	%							3.17	%
Net interest margin (6)							3.50	%							3.25	%
Average interest-earning assets to average interest-bearing liabilities (7)		126.78	%							125.39	%

(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, and after-tax gain on disposal of fixed assets.

	Three Months Ended								Six Months Ended
	June 30,								June 30,
(In thousands, unaudited)	2021				2022				2021				2022
Non-GAAP reconciliation:
Net income	$	20,422			$	3,191			$	36,772			$		15,055
(Gain) loss on equity securities, net		(6,346	)			15,482				(9,713	)				19,639
Income tax expense (benefit) (1)		1,399				(3,413	)			2,141					(4,329	)
Gain on disposal of fixed assets		(2,337	)			—				(2,337	)				—
Income tax expense		657				—				657					—
Core net income	$	13,795			$	15,260			$	27,520			$		30,365

(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