Hingham Savings Reports 2021 Results

·17 min read

HINGHAM, Mass., Jan. 20, 2022 (GLOBE NEWSWIRE) -- HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced earnings for the fourth quarter and the year ended December 31, 2021.

Earnings

Net income for the year ended December 31, 2021 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, 2021 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 2021 increased by 32% over the same period in 2020.

Core net income for the year ended December 31, 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 $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, 2021 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 2021 increased by 26% over the same period in 2020.

Net income for the quarter ended December 31, 2021 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 2021 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 2021 decreased by 3% over the same period in 2020.

Core net income for the quarter ended December 31, 2021, 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 2021 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 2021 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, 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 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, 2021, representing 20% growth from December 31, 2020.

Net loans totaled $2.999 billion at December 31, 2021, 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, 2021, representing 12% growth from December 31, 2020. Total retail and business deposits increased to $1.709 billion at December 31, 2021, 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, 2021, 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 2021, 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, 2021, 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 2021. 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, 2021 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, 2021 increased 3 basis points to 3.46%, as compared to 3.43% for the same period last year. In the year ended December 31, 2021, and to a lesser extent, in the quarter ended December 31, 2021, 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, 2021, 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, 2021, as compared to 0.16% at December 31, 2020.

At December 31, 2021, 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 2021.

The Bank recorded $1,000 of net charge-offs in 2021, 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 2021, as compared to 25.48% in 2020. Operating expenses as a percentage of average assets fell to 0.74% in 2021, 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 2021, 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, 2021 with the Federal Deposit Insurance Corporation (FDIC) on or about March 9, 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 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, 2021

(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 2021.

(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 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,
2021

(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, 2021

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, 2021

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.

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


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