• Hingham Savings Reports 2022 Results

    Source: Nasdaq GlobeNewswire / 19 Jan 2023 16:01:01   America/New_York

    HINGHAM, Mass., Jan. 19, 2023 (GLOBE NEWSWIRE) -- HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced earnings for the fourth quarter and the year ended December 31, 2022.

    Earnings

    Net income for the year ended December 31, 2022 was $37,519,000 or $17.49 per share basic and $17.04 per share diluted, as compared to $67,458,000 or $31.50 per share basic and $30.65 per share diluted for the same period last year. The Bank’s return on average equity for the year ended December 31, 2022 was 10.01%, and the return on average assets was 0.98%, as compared to 20.62% and 2.25% for the same period in 2021. Net income per share (diluted) for 2022 decreased by 44% over the same period in 2021.

    Core net income for the year ended December 31, 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 $54,569,000 or $25.44 per share basic and $24.78 per share diluted, as compared to $56,563,000 or $26.42 per share basic and $25.70 per share diluted for the same period last year. The Bank’s core return on average equity for the year ended December 31, 2022 was 14.56%, and the core return on average assets was 1.43%, as compared to 17.29% and 1.89% for the same period in 2021. Core net income per share (diluted) for 2022 decreased by 4% over the same period in 2021.

    Net income for the quarter ended December 31, 2022 was $11,965,000 or $5.58 per share basic and $5.44 per share diluted, as compared to $16,674,000 or $7.78 per share basic and $7.56 per share diluted for the same period last year. The Bank’s annualized return on average equity for the fourth quarter of 2022 was 12.40%, and the annualized return on average assets was 1.18%, as compared to 19.14% and 2.05% for the same period in 2021. Net income per share (diluted) for the fourth quarter of 2022 decreased by 28% over the same period in 2021.

    Core net income for the quarter ended December 31, 2022, which represents net income excluding the after-tax gains and losses on securities, both realized and unrealized, was $9,713,000 or $4.53 per share basic and $4.42 per share diluted, as compared to $15,033,000 or $7.02 per share basic and $6.81 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the fourth quarter of 2022 was 10.07%, and the annualized core return on average assets was 0.96%, as compared to 17.26% and 1.85% for the same period in 2021. Core net income per share (diluted) for the fourth quarter of 2022 decreased by 35% over the same period in 2021.

    See Page 10 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, as applicable.

    Balance Sheet

    Total assets increased to $4.194 billion at December 31, 2022, representing 22% growth from December 31, 2021.

    Net loans totaled $3.658 billion at December 31, 2022, representing 22% growth from December 31, 2021. Growth was concentrated in multifamily assets in the Bank’s commercial real estate portfolio.

    Total deposits, including wholesale deposits, increased to $2.505 billion at December 31, 2022, representing 5% growth from December 31, 2021. Total retail and business deposits increased to $1.892 billion at December 31, 2022, representing 11% growth from December 31, 2021. Non-interest bearing deposits, included in retail and business deposits, decreased to $387.2 million at December 31, 2022, representing less than a 1% decline from December 31, 2021. During 2022, the Bank continued to focus on developing relationships to grow its commercial deposits, implemented special time deposit offerings, and used wholesale funds to help fund the strong loan growth experienced during the period.

    Book value per share was $179.74 as of December 31, 2022, representing 9% growth from December 31, 2021. In addition to the increase in book value per share, the Bank has declared $3.03 in dividends per share since December 31, 2021, including a special dividend of $0.63 per share declared during the fourth quarter of 2022. 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 15.5%.

    Operational Performance Metrics

    The net interest margin for the year ended December 31, 2022 decreased 67 basis points to 2.81%, as compared to 3.48% in the prior year. In the twelve months ended December 31, 2022, the Bank experienced a substantial increase in the cost of interest-bearing liabilities when compared to the prior year. This was driven primarily by the repricing of the Bank’s wholesale borrowings, wholesale deposits, and to a lesser extent, higher rates on the Bank’s retail and commercial deposits. During this period, the increase in the cost of funds was combined with a slight decline in the yield on interest-earning assets, driven primarily by a lower yield on loans booked early in 2022, partially offset by an increase in the interest on reserves held at the Federal Reserve Bank of Boston and Federal Home Loan Bank of Boston stock dividends.

    The net interest margin for the quarter ended December 31, 2022 decreased 137 basis points to 2.09%, as compared to 3.46% in the same quarter in 2021. During this period, the Bank experienced a more significant increase in the cost of interest-bearing liabilities when compared to the same period in the prior year, driven by the same factors described above. The higher cost of funds was partially offset by an increase in the yield on interest-earning assets, driven primarily by an increase in the interest on reserves held at the Federal Reserve Bank of Boston and Federal Home Loan Bank of Boston stock dividends, partially offset by a lower yield on loans booked early in 2022.

    In a linked quarter comparison, the net interest margin for the quarter ended December 31, 2022 decreased 67 basis points to 2.09%, as compared to 2.76% in the quarter ended September 30, 2022. This was primarily the result of the continued and significant increase in the cost of interest-bearing liabilities, driven primarily by an increase in the cost of the Bank’s wholesale funding sources, partially offset by an increase in the interest on reserve balances held at the Federal Reserve Bank of Boston and an increase in the yield on loans from the prior quarter. The increase in the yield on loans was driven by both new loan originations at higher rates and the repricing of existing adjustable rate loans.

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

    The Bank recorded $50,000 of net recoveries in 2022, as compared to $1,000 of net charge-offs in 2021.

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

    The efficiency ratio, as defined on page 5 below, increased to 24.81% in 2022, as compared to 21.31% in 2021. Operating expenses as a percentage of average assets fell to 0.70% in 2022, as compared to 0.74% in 2021. 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.

    These operational metrics reflect the Bank’s disciplined focus on credit quality and expense management.

    Chairman and Chief Executive Officer Robert H. Gaughen Jr. stated, “Returns on equity and assets were modest in 2022 relative to our recent performance, reflecting the substantial pressure on the net interest margin as the Bank’s balance sheet adjusted to significantly higher short-term interest rates and the Bank’s equity investment holdings fell in value. The Bank has always maintained a relatively liability-sensitive balance sheet and consequently rapid increases in short-term interest rates have a much more significant impact on the Bank’s funding costs than its asset yields.

    The Bank’s business model has been built over time to compound shareholder capital through all stages of the economic cycle, with the understanding that there may be periods where the Bank’s short-term performance exceeds or falls short of its long-term performance. During all such periods - whether fair or foul weather - 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, 2022 with the Federal Deposit Insurance Corporation (FDIC) on or about March 8, 2023.

    The Bank expects to hold its Annual Meeting of Shareholders in Hingham, MA on Thursday, April 27, 2023 in the afternoon. Additional information will follow in the Bank’s Proxy Statement later in the first quarter of 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,
     2021 2022 2021 2022
    (Unaudited)           
                
    Key Performance Ratios           
    Return on average assets (1)2.05% 1.18% 2.25% 0.98%
    Return on average equity (1)19.14  12.40  20.62  10.01 
    Core return on average assets (1) (5)1.85  0.96  1.89  1.43 
    Core return on average equity (1) (5)17.26  10.07  17.29  14.56 
    Interest rate spread (1) (2)3.39  1.67  3.40  2.60 
    Net interest margin (1) (3)3.46  2.09  3.48  2.81 
    Operating expenses to average assets (1)0.71  0.70  0.74  0.70 
    Efficiency ratio (4)20.62  33.54  21.31  24.81 
    Average equity to average assets10.73  9.50  10.93  9.81 
    Average interest-earning assets to average interest-bearing liabilities127.01  123.20  127.22  124.30 
                


     December 31, 2021 December 31, 2022
    (Unaudited)       
            
    Asset Quality Ratios       
    Allowance for loan losses/total loans 0.68% 0.68%
    Allowance for loan losses/non-performing loans 4,784.78  2,139.39 
           
    Non-performing loans/total loans 0.01  0.03 
    Non-performing loans/total assets 0.01  0.03 
    Non-performing assets/total assets 0.01  0.03 
            
    Share Related      
    Book value per share$165.52  $179.74 
    Market value per share$419.88  $275.96 
    Shares outstanding at end of period 2,142,400   2,147,400 
            

    (1) Annualized for the three months ended December 31, 2021 and 2022.

    (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 SAVINGS
    Consolidated Balance Sheets

    (In thousands, except share amounts)December 31,
    2021
     December 31,
    2022
    (Unaudited)       
    ASSETS       
            
    Cash and due from banks$5,428  $7,936 
    Federal Reserve and other short-term investments 265,733   354,097 
    Cash and cash equivalents 271,161   362,033 
            
    CRA investment 9,306   8,229 
    Other marketable equity securities 79,167   54,967 
    Securities, at fair value 88,473   63,196 
    Securities held to maturity, at amortized cost 3,500   3,500 
    Federal Home Loan Bank stock, at cost 29,908   52,606 
    Loans, net of allowance for loan losses of $20,431 at December 31, 2021 and $24,989 at December 31, 2022 2,999,096   3,657,782 
    Foreclosed assets     
    Bank-owned life insurance 12,980   13,312 
    Premises and equipment, net 15,825   17,859 
    Accrued interest receivable 5,467   7,122 
    Deferred income tax asset, net    4,061 
    Other assets 4,755   12,328 
    Total assets$3,431,165  $4,193,799 

    LIABILITIES AND STOCKHOLDERS’ EQUITY

    Interest-bearing deposits$2,003,717  $2,118,045 
    Non-interest-bearing deposits 389,148   387,244 
    Total deposits 2,392,865   2,505,289 
    Federal Home Loan Bank advances 665,000   1,276,000 
    Mortgagors’ escrow accounts 9,183   12,323 
    Accrued interest payable 198   4,527 
    Deferred income tax liability, net 536    
    Other liabilities 8,771   9,694 
    Total liabilities 3,076,553   3,807,833 
            
    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 December 31, 2021 and 2,147,400 shares issued and outstanding at December 31, 2022 2,142   2,147 
    Additional paid-in capital 12,728   13,061 
    Undivided profits 339,742   370,758 
    Total stockholders’ equity 354,612   385,966 
    Total liabilities and stockholders’ equity$3,431,165  $4,193,799 
            

    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) 2021   2022  2021 2022
    (Unaudited)           
    Interest and dividend income:             
    Loans$29,182  $35,714  $109,449  $132,089 
    Debt securities 33   33   84   132 
    Equity securities 134   716   696   1,752 
    Federal Reserve and other short-term investments 78   2,766   262   5,055 
    Total interest and dividend income 29,427   39,229   110,491   139,028 
    Interest expense:             
    Deposits 1,518   8,793   6,868   16,882 
    Federal Home Loan Bank and Federal Reserve Bank advances 300   9,481   1,158   16,012 
    Total interest expense 1,818   18,274   8,026   32,894 
    Net interest income 27,609   20,955   102,465   106,134 
    Provision for loan losses 1,200   600   3,028   4,508 
    Net interest income, after provision for loan losses 26,409   20,355   99,437   101,626 
    Other income (loss):             
    Customer service fees on deposits 192   146   746   602 
    Increase in cash surrender value of bank-owned life insurance 79   80   323   332 
    Gain (loss) on equity securities, net 2,105   2,979   11,820   (21,777)
    Gain on disposal of fixed assets       2,337    
    Miscellaneous 22   57   82   124 
    Total other income (loss) 2,398   3,262   15,308   (20,719)
    Operating expenses:             
    Salaries and employee benefits 3,566   4,153   13,988   15,831 
    Occupancy and equipment 368   350   1,450   1,378 
    Data processing 571   804   2,003   2,757 
    Deposit insurance 252   515   933   1,862 
    Foreclosure and related 2   19   (49)  24 
    Marketing 140   279   563   1,031 
    Other general and administrative 855   1,003   3,188   3,709 
    Total operating expenses 5,754   7,123   22,076   26,592 
    Income before income taxes 23,053   16,494   92,669   54,315 
    Income tax provision 6,379   4,529   25,211   16,796 
    Net income$16,674  $11,965  $67,458  $37,519 
                  
    Cash dividends declared per share$1.30  $1.26  $2.83  $3.03 
                  
    Weighted average shares outstanding:             
    Basic 2,142   2,146   2,141   2,145 
    Diluted 2,206   2,198   2,201   2,202 
                  
    Earnings per share:             
    Basic$7.78  $5.58  $31.50  $17.49 
    Diluted$7.56  $5.44  $30.65  $17.04 
                    

    HINGHAM INSTITUTION FOR SAVINGS
    Net Interest Income Analysis

     Three Months Ended December 31,
     2021 2022
     AVERAGE BALANCE INTEREST YIELD/ RATE (8) AVERAGE BALANCE INTEREST YIELD/ RATE (8)
    (Dollars in thousands)                     
    (Unaudited)                     
                          
    Loans (1) (2)$2,908,433  $29,182  4.01% $3,624,745  $35,714  3.94%
    Securities (3) (4) 82,113   167  0.81   103,033   749  2.91 
    Federal Reserve and other short-term investments 204,815   78  0.15   287,286   2,766  3.85 
    Total interest-earning assets 3,195,361   29,427  3.68   4,015,064   39,229  3.91 
    Other assets 52,128          47,959        
    Total assets$3,247,489         $4,063,023        
                          
    Interest-bearing deposits (5)$2,087,523   1,518  0.29  $2,221,963   8,793  1.58 
    Borrowed funds 428,315   300  0.28   1,036,944   9,481  3.66 
    Total interest-bearing liabilities 2,515,838   1,818  0.29   3,258,907   18,274  2.24 
    Non-interest-bearing deposits 375,139          408,951        
    Other liabilities 8,022          9,282        
    Total liabilities 2,898,999          3,677,140        
    Stockholders’ equity 348,490          385,883        
    Total liabilities and stockholders’ equity$3,247,489         $4,063,023        
    Net interest income    $27,609         $20,955    
                          
    Weighted average spread        3.39%         1.67%
                          
    Net interest margin (6)        3.46%         2.09%
                          
    Average interest-earning assets to average interest-bearing liabilities (7) 127.01%         123.20%       
                          


    (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,
     2021 2022
     AVERAGE BALANCE INTEREST YIELD/ RATE AVERAGE BALANCE INTEREST YIELD/ RATE
    (Dollars in thousands)                     
    (Unaudited)                     
                          
    Loans (1) (2)$2,667,812  $109,449  4.10% $3,404,674  $132,089  3.88%
    Securities (3) (4) 70,419   780  1.11   105,612   1,884  1.78 
    Federal Reserve and other short-term investments 204,500   262  0.13   263,606   5,055  1.92 
    Total interest-earning assets 2,942,731   110,491  3.75   3,773,892   139,028  3.68 
    Other assets 51,635          47,772        
    Total assets$2,994,366         $3,821,664        
                          
    Interest-bearing deposits (5)$1,993,863   6,868  0.34  $2,118,798   16,882  0.80 
    Borrowed funds 319,193   1,158  0.36   917,252   16,012  1.75 
    Total interest-bearing liabilities 2,313,056   8,026  0.35   3,036,050   32,894  1.08 
    Non-interest-bearing deposits 346,992          402,890        
    Other liabilities 7,147          7,857        
    Total liabilities 2,667,195          3,446,797        
    Stockholders’ equity 327,171          374,867        
    Total liabilities and stockholders’ equity$2,994,366         $3,821,664        
    Net interest income    $102,465         $106,134    
                          
    Weighted average spread        3.40%         2.60%
                          
    Net interest margin (6)        3.48%         2.81%
                          
    Average interest-earning assets to average interest-bearing liabilities (7) 127.22%         124.30%       


    (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.
       

     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 (loss) 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) 2021   2022  2021 2022
              
    Non-GAAP reconciliation:           
    Net income$16,674  $11,965  $67,458  $37,519 
    (Gain) loss on equity securities, net (2,105)  (2,979)  (11,820)  21,777 
    Income tax expense (benefit) (1) 464   727   2,605   (4,727)
    Gain on disposal of fixed assets       (2,337)   
    Income tax expense       657    
    Core net income$15,033  $9,713  $56,563  $54,569 
                    

    (1) The equity securities are mostly held in a tax-advantaged subsidiary corporation. The income tax effect of the gain on equity securities, net, was calculated using the applicable effective tax rates.

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


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