HIFS Hingham Institution for Savings

HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced results for the quarter ended September 30, 2024.

Earnings

Net income for the quarter ended September 30, 2024 was $5,846,000 or $2.68 per share basic and $2.66 per share diluted, as compared to $3,297,000 or $1.53 per share basic and $1.50 per share diluted for the same period last year. The Bank’s annualized return on average equity for the third quarter of 2024 was 5.52%, and the annualized return on average assets was 0.54%, as compared to 3.25% and 0.31% for the same period last year. Net income per share (diluted) for the third quarter of 2024 increased by 77% compared to the same period in 2023.

Core net income for the quarter ended September 30, 2024, which represents net income excluding the after-tax gain on equity securities, both realized and unrealized, and the after-tax gain on the disposal of fixed assets, was $3,163,000 or $1.45 per share basic and $1.44 per share diluted, as compared to $2,895,000 or $1.35 per share basic and $1.32 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the third quarter of 2024 was 2.99% and the annualized core return on average assets was 0.29%, as compared to 2.85% and 0.27% for the same period last year. Core net income per share (diluted) for the third quarter of 2024 increased by 9% over the same period in 2023.

Net income for the nine months ended September 30, 2024 was $16,816,000 or $7.73 per share basic and $7.67 per share diluted, as compared to $20,056,000 or $9.33 per share basic and $9.14 per share diluted for the same period last year. The Bank’s annualized return on average equity for the first nine months of 2024 was 5.35%, and the annualized return on average assets was 0.52%, as compared to 6.70% and 0.64% for the same period in 2023. Net income per share (diluted) for the first nine months of 2024 decreased by 16% over the same period in 2023.

Core net income for the nine months ended September 30, 2024, which represents net income excluding the after-tax gain on securities, both realized and unrealized, and the after-tax gain on the disposal of fixed assets, was $7,558,000 or $3.47 per share basic and $3.45 per share diluted, as compared to $12,686,000 or $5.90 per share basic and $5.78 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the first nine months of 2024 was 2.41%, and the annualized core return on average assets was 0.23%, as compared to 4.24% and 0.41% for the same period in 2023. Core net income per share (diluted) for the first nine months of 2024 decreased by 40% over the same period in 2023.

See Page 10 for a reconciliation between Generally Accepted Accounting Principles (“GAAP”) net income and non-GAAP core net income. GAAP requires that gains and losses on equity securities, net of tax, realized and unrealized, be recognized in the Consolidated Statements of Income. In calculating core net income, the Bank did not make any adjustments other than those relating to after-tax gain on equity securities, realized and unrealized, and the after-tax gain on disposal of fixed assets.

Balance Sheet

Total assets were $4.450 billion at September 30, 2024, representing a 1% annualized decline year-to-date and 2% growth from September 30, 2023.

Net loans were $3.863 billion at September 30, 2024, representing a 2% annualized decline year-to-date and 1% growth from September 30, 2023. Origination activity was concentrated in the Boston and Washington D.C. markets and remained focused on stabilized multifamily commercial real estate and multifamily construction. The Bank continues to evaluate new opportunities in the San Francisco market, where interest in acquisitions and refinancing activity from the Bank’s customers began to pick up in 2024. In the third quarter of 2024, the Bank continued to experience loan prepayments more consistent with historic trends, including continued significant turnover in the Bank’s construction portfolio. As noted below, asset quality remained strong and finding high-quality loan assets remains a core business objective of the Bank.

Retail and business deposits were $1.977 billion at September 30, 2024, representing 8% annualized growth year-to-date and 3% growth from September 30, 2023. Non-interest-bearing deposits, included in retail and business deposits, were $358.0 million at September 30, 2024, representing 7% annualized growth year-to-date and stable from September 30, 2023.

Growth in non-interest bearing and money market balances in the first nine months of 2024 reflected the Bank’s focus on developing and deepening deposit relationships with new and existing commercial and non-profit customers. Investments in new relationship managers over the last nine months continued to contribute to deposit growth in the third quarter of 2024. The Bank continues to recruit actively for talented commercial bankers in Boston, Washington, and San Francisco, particularly as respected competitors have exited these markets or merged with larger regional banks.

The stability of the Bank’s balance sheet, as well as full and unlimited deposit insurance through the Bank’s participation in the Massachusetts Depositors Insurance Fund, continues to be appealing to customers in times of uncertainty.

Wholesale funds, which includes Federal Home Loan Bank borrowings, brokered deposits, and Internet listing service deposits were $2.015 billion at September 30, 2024, representing a 10% annualized decline year-to-date and 1% growth from September 30, 2023. In the first nine months of 2024, the Bank continued to manage its wholesale funding mix to optimize the cost of funds while taking advantage of the inverted yield curve by adding lower rate longer term liabilities. Wholesale deposits, which include brokered and Internet listing service time deposits, were $482.2 million at September 30, 2024, representing a 1% annualized decline year-to-date and a 2% decline from September 30, 2023. Borrowings from the Federal Home Loan Bank totaled $1.531 billion at September 30, 2024, representing a 13% annualized decline from December 31, 2023, and 1% growth from September 30, 2023. As of September 30, 2024, the Bank maintained an additional $815.5 million in immediately available borrowing capacity at the Federal Home Loan Bank of Boston and the Federal Reserve Bank, in addition to $368.1 million in cash and cash equivalents.

Book value per share was $193.42 as of September 30, 2024, representing 3% annualized growth year-to-date and 4% growth from September 30, 2023. This growth is not consistent with the Bank’s long-term objectives. In addition to the increase in book value per share, the Bank declared $2.52 in dividends per share since September 30, 2023.

On September 25, 2024, the Bank declared a regular cash dividend of $0.63 per share. This dividend will be paid on November 13, 2024 to stockholders of record as of November 4, 2024. This was the Bank’s 123rd consecutive quarterly dividend.

The Bank has also generally declared special cash dividends in each of the last twenty-nine years, typically in the fourth quarter, but did not declare a special dividend in 2023. 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, particularly the incremental return on capital from new loan originations. 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, 2024 increased 11 basis points to 1.07%, as compared to 0.96% in the quarter ended June 30, 2024. This was the second consecutive quarter of continued expansion. This improvement was the result of an increase in the yield on earning assets combined with a decline in the cost of interest-bearing liabilities. The six basis points increase in the yield on earning assets was driven primarily by a higher yield on loans, as the Bank continued to originate loans at higher rates and reprice existing loans. The cost of interest-bearing liabilities fell three basis points, as the Bank began to reduce rates later in the third quarter and continued to take advantage of the inverted yield curve by adding lower rate FHLB advances and brokered deposits. The net interest margin in the final month of the third quarter of 2024 was 1.14% annualized.

Key credit and operational metrics remained strong in the third quarter of 2024. At September 30, 2024, non-performing assets totaled 0.04% of total assets, compared to 0.03% at December 31, 2023 and 0.00% at September 30, 2023. Non-performing loans as a percentage of the total loan portfolio totaled 0.04% at both September 30, 2024 and December 31, 2023, as compared to 0.01% at September 30, 2023. The Bank did not record any charge-offs in the first nine months of 2024 or 2023. All non-performing assets and loans cited above were and are residential, owner-occupant loans.

The Bank did not have any delinquent or non-performing commercial real estate loans as of September 30, 2024, December 31, 2023, or September 30, 2023. The Bank did not own any foreclosed property as of September 30, 2024, December 31, 2023 or September 30, 2023.

The efficiency ratio, as defined on page 5 below, fell to 62.19% for the third quarter of 2024, as compared to 68.57% in the prior quarter and 62.55% for the same period last year. Operating expenses as a percentage of average assets rose to 0.68% for the third quarter of 2024, as compared to 0.67% for the prior quarter and the same period last year. As the efficiency ratio can be significantly influenced by the level of net interest income, the Bank utilizes these paired figures together to assess its operational efficiency over time. During periods of significant net interest income volatility, the efficiency ratio in isolation may over or understate the underlying operational efficiency of the Bank. The Bank remains focused on reducing waste through an ongoing process of continuous improvement and standard work that supports operational leverage, positioning the Bank to operate more efficiently in future.

Chairman Robert H. Gaughen Jr. stated, “Returns on equity and assets in the third quarter of 2024 were significantly lower than our long-term performance, reflecting the challenge from the increase in short-term interest rates over the last twenty-four months and a historically long and deep inversion of the yield curve. These conditions have posed a significant - albeit ultimately temporary - challenge to our business model. Our core business has been particularly challenged during this period and our investment operations have been critical to sustaining some growth in book value per share in this environment. As our assets continue to reprice higher and our liabilities, including both deposits and wholesale funding, reprice lower, conditions have become somewhat more favorable for our model.

While this market environment has been extraordinarily challenging, the Bank’s business model has been built over time to compound shareholder capital through economic cycles. During all such periods, 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. I believe that over the past twenty-four months we have retained this focus and it will serve us well as our business emerges from this period.”

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 September 30, 2024 with the Federal Deposit Insurance Corporation (FDIC) on or about November 6, 2024.

Incorporated in 1834, Hingham Institution for Savings is one of America’s oldest banks. The Bank maintains offices in Boston, Nantucket, Washington, D.C., and San Francisco.

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,
	2023			2024			2023			2024
(Unaudited)
Key Performance Ratios
Return on average assets (1)	0.31	%		0.54	%		0.64	%		0.52	%
Return on average equity (1)	3.25			5.52			6.70			5.35
Core return on average assets (1) (5)	0.27			0.29			0.41			0.23
Core return on average equity (1) (5)	2.85			2.99			4.24			2.41
Interest rate spread (1) (2)	0.39			0.34			0.65			0.24
Net interest margin (1) (3)	1.05			1.07			1.26			0.96
Operating expenses to average assets (1)	0.67			0.68			0.68			0.67
Efficiency ratio (4)	62.55			62.19			53.69			68.76
Average equity to average assets	9.59			9.82			9.58			9.65
Average interest-earning assets to average interest-bearing liabilities	120.53			120.59			121.28			120.14

	September 30,2023				December 31,2023				September 30,2024
(Unaudited)
Asset Quality Ratios
Allowance for credit losses/total loans		0.69	%		0.68		%			0.69	%
Allowance for credit losses/non-performing loans		13,528.72			1,804.47					1,662.35
Non-performing loans/total loans		0.01			0.04					0.04
Non-performing loans/total assets		0.00			0.03					0.04
Non-performing assets/total assets		0.00			0.03					0.04
Share Related
Book value per share	$	186.74			$	188.50			$	193.42
Market value per share	$	186.75			$	194.40			$	243.31
Shares outstanding at end of period		2,152,400				2,162,400				2,180,250

(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 is a non-GAAP measure that 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.
(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.

HINGHAM INSTITUTION FOR SAVINGSConsolidated Balance Sheets
(In thousands, except share amounts)	September 30,2023				December 31,2023				September 30,2024
(Unaudited)
ASSETS
Cash and due from banks	$	6,122			$	5,654			$	7,147
Federal Reserve and other short-term investments		347,419				356,823				360,953
Cash and cash equivalents		353,541				362,477				368,100
CRA investment		7,973				8,853				9,040
Other marketable equity securities		65,213				70,949				88,604
Securities, at fair value		73,186				79,802				97,644
Securities held to maturity, at amortized cost		3,500				3,500				6,493
Federal Home Loan Bank stock, at cost		62,457				69,574				62,812
Loans, net of allowance for credit losses of $26,381 at September 30, 2023, $26,652 at December 31, 2023 and $26,980 at September 30, 2024		3,808,599				3,914,244				3,863,105
Bank-owned life insurance		13,562				13,642				13,899
Premises and equipment, net		17,027				17,008				16,565
Accrued interest receivable		7,722				8,554				8,395
Deferred income tax asset, net		1,949				974				—
Other assets		15,179				14,172				12,743
Total assets	$	4,356,722			$	4,483,947			$	4,449,756

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits	$	2,056,582			$	2,010,918			$	2,103,123
Non-interest-bearing deposits		359,070				339,059				358,009
Total deposits		2,415,652				2,349,977				2,461,132
Federal Home Loan Bank advances		1,509,000				1,692,675				1,530,500
Mortgagors’ escrow accounts		13,773				13,942				14,589
Accrued interest payable		8,311				12,261				11,025
Deferred income tax liability, net		—				—				1,739
Other liabilities		8,039				7,472				9,069
Total liabilities		3,954,775				4,076,327				4,028,054
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; 2,152,400 shares issued and outstanding at September 30, 2023, 2,162,400 shares issued and outstanding at December 31, 2023 and 2,180,250 shares issued and outstanding at September 30, 2024		2,152				2,162				2,180
Additional paid-in capital		13,439				14,150				15,519
Undivided profits		386,356				391,308				404,003
Total stockholders’ equity		401,947				407,620				421,702
Total liabilities and stockholders’ equity	$	4,356,722			$	4,483,947			$	4,449,756

HINGHAM INSTITUTION FOR SAVINGSConsolidated Statements of Income
				Three Months Ended								Nine Months Ended
				September 30,								September 30,
(In thousands, except per share amounts)				2023				2024				2023				2024
(Unaudited)
Interest and dividend income:
		Loans		$	40,245			$	45,035			$	114,467			$		132,820
		Debt securities			32				93				98					225
		Equity securities			1,163				1,532				3,110					4,533
		Federal Reserve and other short-term investments			3,598				2,802				10,078					8,374
			Total interest and dividend income		45,038				49,462				127,753					145,952
Interest expense:
		Deposits			20,010				21,371				50,618					64,658
		Federal Home Loan Bank and Federal Reserve Bank advances			14,042				16,610				38,208					50,361
			Total interest expense		34,052				37,981				88,826					115,019
			Net interest income		10,986				11,481				38,927					30,933
Provision for credit losses					241				40				847					328
	Net interest income, after provision for credit losses				10,745				11,441				38,080					30,605
Other income:
	Customer service fees on deposits				131				136				410					411
	Increase in cash surrender value of bank-owned life insurance				84				94				250					257
	Gain on equity securities, net				486				3,442				9,424					11,876
	Gain on disposal of fixed assets				44				—				44					—
	Miscellaneous				59				52				176					156
			Total other income		804				3,724				10,304					12,700
Operating expenses:
		Salaries and employee benefits			4,069				4,237				12,560					12,768
		Occupancy and equipment			435				408				1,206					1,233
		Data processing			743				793				2,142					2,286
		Deposit insurance			666				743				1,906					2,372
		Foreclosure and related			29				15				(19	)				61
		Marketing			152				141				641					417
		Other general and administrative			949				978				2,913					2,699
			Total operating expenses		7,043				7,315				21,349					21,836
Income before income taxes					4,506				7,850				27,035					21,469
Income tax provision					1,209				2,004				6,979					4,653
			Net income	$	3,297			$	5,846			$	20,056			$		16,816
Cash dividends declared per share				$	0.63			$	0.63			$	1.89			$		1.89
Weighted average shares outstanding:
		Basic			2,151				2,180				2,149					2,177
		Diluted			2,192				2,197				2,195					2,192
Earnings per share:
		Basic		$	1.53			$	2.68			$	9.33			$		7.73
		Diluted		$	1.50			$	2.66			$	9.14			$		7.67

HINGHAM INSTITUTION FOR SAVINGSNet Interest Income Analysis
	Three Months Ended
	September 30, 2023										June 30, 2024										September 30, 2024
	Average Balance (9)				Interest		Yield/Rate (10)				Average Balance (9)					Interest	Yield/ Rate (10)				Average Balance (9)				Interest		Yield/Rate (10)
(Dollars in thousands)
(Unaudited)
Assets
Loans (1) (2)	$	3,802,045			$	40,245		4.23	%		$	3,980,111			$	44,665		4.49	%		$	3,915,967			$	45,035		4.56	%
Securities (3) (4)		107,432				1,195		4.45				119,477				1,638		5.48				122,715				1,625		5.25
Short-term investments (5)		264,160				3,598		5.45				202,379				2,745		5.43				207,446				2,802		5.36
Total interest-earning assets		4,173,637				45,038		4.32				4,301,967				49,048		4.56				4,246,128				49,462		4.62
Other assets		61,529										66,218										69,148
Total assets	$	4,235,166									$	4,368,185									$	4,315,276
Liabilities and stockholders’ equity:				`
Interest-bearing deposits (6)	$	2,200,952				20,010		3.64	%		$	2,149,753				22,141		4.12	%		$	2,071,780				21,371		4.09	%
Borrowed funds		1,261,652				14,042		4.45				1,437,335				16,539		4.60				1,449,491				16,610		4.55
Total interest-bearing liabilities		3,462,604				34,052		3.93				3,587,088				38,680		4.31				3,521,271				37,981		4.28
Non-interest-bearing deposits		353,543										346,663										355,768
Other liabilities		12,958										15,503										14,577
Total liabilities		3,829,105										3,949,254										3,891,616
Stockholders’ equity		406,061										418,931										423,660
Total liabilities and stockholders’ equity	$	4,235,166									$	4,368,185									$	4,315,276
Net interest income					$	10,986									$	10,368									$	11,481
Weighted average interest rate spread								0.39	%									0.25	%									0.34	%
Net interest margin (7)								1.05	%									0.96	%									1.07	%
Average interest-earning assets to average interest-bearing liabilities (8)		120.53	%									119.93	%									120.59	%

(1)		Before allowance for credit 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 cash held at the Federal Reserve Bank.
(6)		Includes mortgagors' escrow accounts.
(7)		Net interest income divided by average total interest-earning assets.
(8)		Total interest-earning assets divided by total interest-bearing liabilities.
(9)		Average balances are calculated on a daily basis.
(10)		Annualized.

HINGHAM INSTITUTION FOR SAVINGSNet Interest Income Analysis
	Nine Months Ended September 30,
	2023										2024
	Average Balance (9)				Interest			Yield/ Rate (10)			Average Balance (9)				Interest			Yield/ Rate (10)
(Dollars in thousands)
(Unaudited)
Loans (1) (2)	$	3,737,198			$	114,467		4.08	%		$	3,950,610			$	132,820		4.48	%
Securities (3) (4)		103,454				3,208		4.13				119,477				4,758		5.30
Short-term investments (5)		267,922				10,078		5.02				206,029				8,374		5.41
Total interest-earning assets		4,108,574				127,753		4.15				4,276,116				145,952		4.55
Other assets		57,360										66,477
Total assets	$	4,165,934									$	4,342,593
Interest-bearing deposits (6)	$	2,215,719				50,618		3.05			$	2,106,667				64,658		4.09
Borrowed funds		1,172,019				38,208		4.35				1,452,606				50,361		4.62
Total interest-bearing liabilities		3,387,738				88,826		3.50				3,559,273				115,019		4.30
Non-interest-bearing deposits		367,541										349,545
Other liabilities		11,362										14,780
Total liabilities		3,766,641										3,923,598
Stockholders’ equity		399,293										418,995
Total liabilities and stockholders’ equity	$	4,165,934									$	4,342,593
Net interest income					$	38,927									$	30,933
Weighted average interest rate spread								0.65	%									0.24	%
Net interest margin (7)								1.26	%									0.96	%
Average interest-earning assets to average interest-bearing liabilities (8)		121.28	%									120.14	%

(1)		Before allowance for credit 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 cash held at the Federal Reserve Bank.
(6)		Includes mortgagors' escrow accounts.
(7)		Net interest income divided by average total interest-earning assets.
(8)		Total interest-earning assets divided by total interest-bearing liabilities.
(9)		Average balances are calculated on a daily basis.
(10)		Annualized.

HINGHAM INSTITUTION FOR SAVINGS Non-GAAP Reconciliation

The Bank believes the presentation of the following non-GAAP financial measures provide useful supplemental information that is essential to an investor’s proper understanding of results of operations and financial condition of the Bank. Management uses these measures in its analysis of the Bank’s performance. These non-GAAP measures should not be viewed as substitutes for the financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other banks.

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 and the after-tax gain on disposal of fixed assets.

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(In thousands, unaudited)	2023				2024				2023				2024
Non-GAAP reconciliation:
Net income	$	3,297			$	5,846			$	20,056			$		16,816
Gain on equity securities, net		(486	)			(3,442	)			(9,424	)				(11,876	)
Income tax expense expense (1)		116				759				2,086					2,618
Gain on disposal of fixed assets		(44	)			—				(44	)				—
Income tax expense		12				—				12					—
Core net income	$	2,895			$	3,163			$	12,686			$		7,558

(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.

The table below presents the calculation of the efficiency ratio, a non-U.S. GAAP performance measure that management uses to assess operational efficiency which 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.

	Three Months Ended															Nine Months Ended
	September 30,					June 30,					September 30,					September 30,
(In thousands, unaudited)	2023					2024					2024					2023					2024
Non-U.S. GAAP efficiency ratio calculation:
Operating expenses	$	7,043				$	7,294				$	7,315				$	21,349				$	21,836
Net interest income	$	10,986				$	10,368				$	11,481				$	38,927				$	30,933
Other income		804					2,733					3,724					10,304					12,700
Gain on equity securities, net		(486	)				(2,464	)				(3,442	)				(9,424	)				(11,876	)
Gain on disposal of fixed assets		(44	)				—					—					(44	)				—
Total revenue	$	11,260				$	10,637				$	11,763				$	39,763				$	31,757
Efficiency ratio		62.55		%			68.57		%			62.19		%			53.69		%			68.76		%

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