Hingham Savings Reports 2023 Results

HINGHAM, Mass., Jan. 20, 2023 (GLOBE NEWSWIRE) — HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced earnings for the fourth quarter and the year ended December 31, 2023.

Earnings

Net income for the year ended December 31, 2023 was $67,458,000 or $31.50 per share basic and $30.65 per share diluted, as compared to $50,771,000 or $23.76 per share basic and $23.25 per share diluted for the same period last year. The Bank’s return on average equity for the year ended December 31, 2023 was 20.62%, and the return on average assets was 2.25%, as compared to 18.96% and 1.88% for the same period in 2020. Net income per share (diluted) for 2023 increased by 32% over the same period in 2020.

Core net income for the year ended December 31, 2023, 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 $56,563,000 or $26.42 per share basic and $25.70 per share diluted, as compared to $44,443,000 or $20.80 per share basic and $20.36 per share diluted for the same period last year. The Bank’s core return on average equity for the year ended December 31, 2023 was 17.29%, and the core return on average assets was 1.89%, as compared to 16.60% and 1.65% for the same period in 2020. Core net income per share (diluted) for 2023 increased by 26% over the same period in 2020.

Net income for the quarter ended December 31, 2023 was $16,674,000 or $7.78 per share basic and $7.56 per share diluted, as compared to $17,042,000 or $7.97 per share basic and $7.78 per share diluted for the same period last year. The Bank’s annualized return on average equity for the fourth quarter of 2023 was 19.14%, and the annualized return on average assets was 2.05%, as compared to 23.83% and 2.46% for the same period in 2020. Net income per share (diluted) for the fourth quarter of 2023 decreased by 3% over the same period in 2020.

Core net income for the quarter ended December 31, 2023, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, was $15,033,000 or $7.02 per share basic and $6.81 per share diluted, as compared to $12,791,000 or $5.99 per share basic and $5.84 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the fourth quarter of 2023 was 17.26%, and the annualized core return on average assets was 1.85%, as compared to 17.89% and 1.85% for the same period in 2020. Core net income per share (diluted) for the fourth quarter of 2023 increased by 17% 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 year ended December 31, 2023 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 year ended December 31, 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 also 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 9 for a Non-GAAP reconciliation between net income and core net income.

Balance Sheet

Total assets increased to $3.431 billion at December 31, 2023, representing 20% growth from December 31, 2020.

Net loans totaled $2.999 billion at December 31, 2023, representing 20% growth from December 31, 2020. Growth was concentrated in the Bank’s commercial real estate portfolio.

Total deposits, including wholesale deposits, increased to $2.393 billion at December 31, 2023, representing 12% growth from December 31, 2020. Total retail and business deposits increased to $1.709 billion at December 31, 2023, representing 7% growth from December 31, 2020. Non-interest bearing deposits, included in retail and business deposits, increased to $389.1 million at December 31, 2023, representing 24% growth from December 31, 2020. This growth was offset by a significant decline in retail time deposits, as the Bank allowed higher rate maturing time deposits to roll off. In 2023, the Bank continued to reduce the balance of excess reserves held at the Federal Reserve Bank as a percentage of assets and managed 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 $165.52 as of December 31, 2023, representing 21% growth from December 31, 2020. In addition to the increase in book value per share, the Bank has declared $2.83 in dividends per share since December 31, 2020, including a special dividend of $0.75 per share declared during the fourth quarter of 2023. The Bank increased its regular dividend per share in each of the last four quarters. The trailing five year compound annual growth rate in book value per share, an important measure of long-term value creation, was 17%.

Operational Performance Metrics

The net interest margin for the year ended December 31, 2023 increased 26 basis points to 3.48%, as compared to 3.22% in the prior year. The net interest margin for the quarter ended December 31, 2023 increased 3 basis points to 3.46%, as compared to 3.43% for the same period last year. In the year ended December 31, 2023, and to a lesser extent, in the quarter ended December 31, 2023, the Bank benefited from a 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 consistent 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 a lower yield on loans and a decrease in Federal Home Loan Bank stock dividends declared during the same periods.

Key credit and operational metrics remained satisfactory in the fourth quarter. At December 31, 2023, non-performing assets totaled 0.01% of total assets, as compared to 0.27% at December 31, 2020. Non-performing loans as a percentage of the total loan portfolio totaled 0.01% at December 31, 2023, as compared to 0.16% at December 31, 2020.

At December 31, 2023, the Bank did not own any foreclosed property, as compared to $3.8 million at December 31, 2020. This balance consisted of a single residential property which was sold during the first quarter of 2023.

The Bank recorded $1,000 of net charge-offs in 2023, as compared to $260,000 in 2020. The prior year net charge-off related primarily to the foreclosed property discussed above.

The efficiency ratio, as defined on page 4 below, fell to 21.31% in 2023, as compared to 25.48% in 2020. Operating expenses as a percentage of average assets fell to 0.74% in 2023, as compared to 0.82% in 2020. The Bank remains focused on reducing waste through an ongoing process of continuous improvement.

Chairman and Chief Executive Officer Robert H. Gaughen Jr. stated, “Returns on equity and assets were strong in 2023, although such performance must be viewed cautiously, especially when tailwinds have blown strongly in our favor. We must be prepared for considerably more adverse conditions in the future. 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 annual financial results are summarized in the earnings release, but shareholders are encouraged to read the Bank’s annual report on Form 10-K, which is generally available several weeks after the earnings release. The Bank expects to file Form 10-K for the year ended December 31, 2023 with the Federal Deposit Insurance Corporation (FDIC) on or about March 9, 2023.

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 SAVINGS
Selected Financial Ratios

  Three Months Ended
December 31,		   Twelve Months Ended
December 31,
  2020   2021   2020   2021
(Unaudited)                      
                       
Key Performance Ratios                      
Return on average assets (1) 2.46 %   2.05 %   1.88 %   2.25 %
Return on average equity (1) 23.83     19.14     18.96     20.62  
Core return on average assets (1) (5) 1.85     1.85     1.65     1.89  
Core return on average equity (1) (5) 17.89     17.26     16.60     17.29  
Interest rate spread (1) (2) 3.31     3.39     3.03     3.40  
Net interest margin (1) (3) 3.43     3.46     3.22     3.48  
Operating expenses to average assets (1) 0.80     0.71     0.82     0.74  
Efficiency ratio (4) 23.57     20.62     25.48     21.31  
Average equity to average assets 10.34     10.73     9.93     10.93  
Average interest-earning assets to average interest-bearing liabilities 125.62     127.01     123.64     127.22  
                       
  December 31, 2020     December 31, 2023         
(Unaudited)                      
                       
Asset Quality Ratios                      
Allowance for loan losses/total loans   0.69 %     0.68 %        
Allowance for loan losses/non-performing loans   438.28       4,784.78          
                       
Non-performing loans/total loans   0.16       0.01          
Non-performing loans/total assets   0.14       0.01          
Non-performing assets/total assets   0.27       0.01          
                       
Share Related                      
Book value per share $ 137.02     $ 165.52          
Market value per share $ 216.00     $ 419.88          
Shares outstanding at end of period   2,137,900       2,142,400          

(1) Annualized for the three months ended December 31, 2020 and 2023.

(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 2023, 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 twelve months ended December 31, 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 twelve months ended December 31, 2020 have been recalculated accordingly.

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Balance Sheets

(In thousands, except share amounts)   December 31,
2020		   December 31,
2023
(Unaudited)            
ASSETS            
             
Cash and due from banks   $ 6,798   $ 5,428
Federal Reserve and other short-term investments     227,188     265,733
Cash and cash equivalents     233,986     271,161
             
CRA investment     9,580     9,306
Other marketable equity securities     56,282     79,167
Securities, at fair value     65,862     88,473
Securities available for sale, at fair value     6     —
Securities held to maturity, at amortized cost     —     3,500
Federal Home Loan Bank stock, at cost     19,345     29,908
Loans, net of allowance for loan losses of $17,404 at December 31, 2020 and $20,431 at December 31, 2023     2,495,331     2,999,096
Foreclosed assets     3,826     —
Bank-owned life insurance     12,657     12,980
Premises and equipment, net     15,248     15,825
Accrued interest receivable     5,267     5,467
Deferred income tax asset, net     763     —
Other assets     4,802     4,755
Total assets   $ 2,857,093   $ 3,431,165

LIABILITIES AND STOCKHOLDERS’ EQUITY

             
Interest-bearing deposits   $ 1,825,700   $ 2,003,717
Non-interest-bearing deposits     313,497     389,148
Total deposits     2,139,197     2,392,865
Federal Home Loan Bank advances     408,031     665,000
Mortgagors’ escrow accounts     8,770     9,183
Accrued interest payable     252     198
Deferred income tax liability, net     —     536
Other liabilities     7,900     8,771
Total liabilities     2,564,150     3,076,553
             
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; 2,137,900 shares issued and outstanding at December 31, 2020 and 2,142,400 shares issued and outstanding at December 31, 2023     2,138     2,142
Additional paid-in capital     12,460     12,728
Undivided profits     278,345     339,742
Total stockholders’ equity     292,943     354,612
Total liabilities and stockholders’ equity   $ 2,857,093   $ 3,431,165

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Net Income

            Three Months Ended   Twelve Months Ended
            December 31,   December 31,
(In thousands, except per share amounts)     2020     2021   2020   2021  
(Unaudited)                    
Interest and dividend income:                          
  Loans       $ 26,038   $ 29,182   $ 103,797   $ 109,449  
  Debt securities         —     33     —     84  
  Equity securities         264     134     1,666     696  
  Federal Reserve and other short-term investments   55     78     899     262  
    Total interest and dividend income     26,357     29,427     106,362     110,491  
Interest expense:                            
  Deposits         2,568     1,518     16,186     6,868  
  Federal Home Loan Bank and Federal Reserve Bank advances         513     300     4,969     1,158  
  Mortgage payable       —     —     3     —  
    Total interest expense       3,081     1,818     21,158     8,026  
    Net interest income       23,276     27,609     85,204     102,465  
Provision for loan losses       175     1,200     2,288     3,028  
Net interest income, after provision for loan losses   23,101     26,409     82,916     99,437  
Other income:                            
  Customer service fees on deposits     177     192     678     746  
  Increase in cash surrender value of bank-owned life insurance         51     79     219     323  
  Gain on equity securities, net         5,453     2,105     7,916     11,820  
  Gain on disposal of fixed assets         —     —     218     2,337  
  Miscellaneous         47     22     161     82  
    Total other income       5,728     2,398     9,192     15,308  
Operating expenses:                            
  Salaries and employee benefits       3,278     3,566     13,155     13,988  
  Occupancy and equipment         422     368     1,854     1,450  
  Data processing         443     571     1,909     2,003  
  Deposit insurance         211     252     860     933  
  Foreclosure and related         207     2     528     (49 )
  Marketing         145     140     545     563  
  Other general and administrative         846     855     3,127     3,188  
    Total operating expenses       5,552     5,754     21,978     22,076  
Income before income taxes       23,277     23,053     70,130     92,669  
Income tax provision         6,235     6,379     19,359     25,211  
    Net income       $ 17,042   $ 16,674   $ 50,771   $ 67,458  
                                 
Cash dividends declared per share   $ 1.17   $ 1.30   $ 2.47   $ 2.83  
                         
Weighted average shares outstanding:                        
  Basic         2,137     2,142     2,137     2,141  
  Diluted         2,189     2,206     2,183     2,201  
                                 
Earnings per share:                          
  Basic       $ 7.97   $ 7.78   $ 23.76   $ 31.50  
  Diluted       $ 7.78   $ 7.56   $ 23.25   $ 30.65  

HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis

  Three Months Ended December 31,  
  2020     2021  
  AVERAGE
BALANCE		  
INTEREST		   YIELD/
RATE (8)		     AVERAGE
BALANCE		  
INTEREST		   YIELD/
RATE (8)		  
(Dollars in thousands)                                  
(Unaudited)                                  
                                   
Loans (1) (2) $ 2,440,571   $ 26,038   4.27 %   $ 2,908,433   $ 29,182   4.01 %
Securities (3) (4)   62,966     264   1.68       82,113     167   0.81  
Federal Reserve and other short-term investments   214,403     55   0.10       204,815     78   0.15  
Total interest-earning assets   2,717,940     26,357   3.88       3,195,361     29,427   3.68  
Other assets   48,848                 52,128            
Total assets $ 2,766,788               $ 3,247,489            
                                   
Interest-bearing deposits (5) $ 1,843,689     2,568   0.56     $ 2,087,523     1,518   0.29  
Borrowed funds   319,931     513   0.64       428,315     300   0.28  
Total interest-bearing liabilities   2,163,620     3,081   0.57       2,515,838     1,818   0.29  
Non-interest-bearing deposits   309,975                 375,139            
Other liabilities   7,153                 8,022            
Total liabilities   2,480,748                 2,898,999            
Stockholders’ equity   286,040                 348,490            
Total liabilities and stockholders’ equity $ 2,766,788               $ 3,247,489            
Net interest income       $ 23,276               $ 27,609      
                                   
Weighted average spread             3.31 %               3.39 %
                                   
Net interest margin (6)             3.43 %               3.46 %
                                   
Average interest-earning assets to average interest-bearing liabilities (7)   125.62 %               127.01 %          
(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
Net Interest Income Analysis

  Twelve Months Ended December 31,  
  2020     2021  
  AVERAGE
BALANCE		  
INTEREST		   YIELD/
RATE		     AVERAGE
BALANCE		  
INTEREST		   YIELD/
RATE		  
(Dollars in thousands)                                  
(Unaudited)                                  
                                   
Loans (1) (2) $ 2,370,869   $ 103,797   4.38 %   $ 2,667,812   $ 109,449   4.10 %
Securities (3) (4)   65,318     1,666   2.55       70,419     780   1.11  
Federal Reserve and other short-term investments   212,490     899   0.42       204,500     262   0.13  
Total interest-earning assets   2,648,677     106,362   4.02       2,942,731     110,491   3.75  
Other assets   46,986                 51,635            
Total assets $ 2,695,663               $ 2,994,366            
                                   
Interest-bearing deposits (5) $ 1,677,107     16,186   0.97     $ 1,993,863     6,868   0.34  
Borrowed funds   465,161     4,972   1.07       319,193     1,158   0.36  
Total interest-bearing liabilities   2,142,268     21,158   0.99       2,313,056     8,026   0.35  
Non-interest-bearing deposits   277,924                 346,992            
Other liabilities   7,748                 7,147            
Total liabilities   2,427,940                 2,667,195            
Stockholders’ equity   267,723                 327,171            
Total liabilities and stockholders’ equity $ 2,695,663               $ 2,994,366            
Net interest income       $ 85,204               $ 102,465      
                                   
Weighted average spread             3.03 %               3.40 %
                                   
Net interest margin (6)             3.22 %               3.48 %
                                   
Average interest-earning assets to average interest-bearing liabilities (7)   123.64 %               127.22 %          
(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.

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 on equity securities, net, and after-tax gain on disposal of fixed assets.

            Three Months Ended   Twelve Months Ended
            December 31,   December 31,
(In thousands, unaudited)     2020       2021     2020     2021  
                     
Non-GAAP reconciliation:                          
Net income     $ 17,042     $ 16,674     $ 50,771     $ 67,458  
Gain on equity securities, net       (5,453 )     (2,105 )     (7,916 )     (11,820 )
Income tax expense (1)       1,202       464       1,745       2,605  
Gain on disposal of fixed assets       —       —       (218 )     (2,337 )
Income tax expense         —       —       61       657  
Core net income     $ 12,791     $ 15,033     $ 44,443     $ 56,563  

(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.

Hingham Institution for Saving

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