HINGHAM, Mass, April 13, 2023 (GLOBE NEWSWIRE) — HINGHAM INSTITUTION FOR SAVINGS (NASDAQ: HIFS), Hingham, Massachusetts announced results for the quarter ended March 31, 2023.
Earnings
Net income for the quarter ended March 31, 2023 was $8,510,000 or $3.96 per share basic and $3.87 per share diluted, as compared to $11,864,000 or $5.54 per share basic and $5.38 per share diluted for the same period last year. The Bank’s annualized return on average equity for the first quarter of 2023 was 8.67%, and the annualized return on average assets was 0.82%, as compared to 13.10% and 1.37% for the same period last year. Net income per share (diluted) for the first quarter of 2023 decreased by 28% compared to the same period in 2022.
Core net income for the quarter ended March 31, 2023, which represents net income excluding the after-tax gains and losses on equity securities, both realized and unrealized, was $5,744,000 or $2.67 per share basic and $2.61 per share diluted, as compared to $15,105,000 or $7.05 per share basic and $6.85 per share diluted for the same period last year. The Bank’s annualized core return on average equity for the first quarter of 2023 was 5.85% and the annualized core return on average assets was 0.56%, as compared to 16.68% and 1.74% for the same period last year. Core net income per share (diluted) for the first quarter of 2023 decreased by 62% over the same period in 2022.
See Page 9 for a Non-GAAP reconciliation between net income and core net income. In calculating core net income, the Bank did not make any adjustments other than those relating to after-tax gains and losses on equity securities, realized and unrealized.
Balance Sheet
Total assets increased to $4.206 billion at March 31, 2023, representing 1% annualized growth year-to-date and 15% growth from March 31, 2022.
Net loans increased to $3.672 billion at March 31, 2023, representing 2% annualized growth year-to-date and 16% growth from March 31, 2022. Origination activity was concentrated in the Boston and Washington D.C. markets and remained focused on multifamily commercial real estate.
Retail and business deposits increased to $1.988 billion at March 31, 2023, representing 20% annualized growth year-to-date and 11% growth from March 31, 2022. Non-interest-bearing deposits, included in retail and business deposits, decreased to $375.9 million at March 31, 2023, representing a 12% annualized decline year-to-date and a 7% decline from March 31, 2022. The Bank worked to capitalize on the market disruption generated by the failure or instability of larger regional banks to develop new relationships with commercial, non-profit, and existing customers. These shifts reflect significant new commercial relationships, offset by the flow of funds into higher yielding interest-bearing accounts at the Bank. 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, has historically been appealing to customers in times of uncertainty.
Wholesale deposits, which include brokered and listing service time deposits, decreased to $531.9 million at March 31, 2023, representing a 53% annualized decline year-to-date and an 11% decline from March 31, 2022, as the Bank continued to manage its wholesale funding mix between wholesale time deposits and Federal Home Loan Bank advances in order mitigate the negative impact of increasing short term rates in the cost of funds.
Borrowings from the Federal Home Loan Bank totaled $1.265 billion at March 31, 2023, a 1% decline from December 31, 2022, and a 46% increase from March 31, 2022. As of March 31, 2023, the Bank maintained an additional $739.7 million in immediately available borrowing capacity at the Federal Home Loan Bank of Boston and the Federal Reserve Bank.
Book value per share was $182.89 as of March 31, 2023, representing both a 7% annualized growth year-to-date and growth from March 31, 2022. In addition to the increase in book value per share, the Bank declared $3.09 in dividends per share since March 31, 2022, including a special dividend of $0.63 per share declared during the fourth quarter of 2022.
On March 29, 2023, the Bank declared a regular cash dividend of $0.63 per share. This dividend will be paid on May 10, 2023 to stockholders of record as of May 1, 2023. This was the Bank’s 117th consecutive quarterly dividend and the Bank has consistently increased regular quarterly cash dividends over the last twenty-eight years. The Bank has also declared special cash dividends in each of the last twenty-eight years, typically in the fourth quarter.
The Bank sets the level of the special dividend based on the Bank’s capital requirements and the prospective return on other capital allocation options. This may result in special dividends, if any, significantly above or below the regular quarterly dividend. Future regular and special dividends will be considered by the Board of Directors on a quarterly basis.
Operational Performance Metrics
The net interest margin for the quarter ended March 31, 2023 decreased 184 basis points to 1.46%, as compared to 3.30% for the same period last year. 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 higher rates on the Bank’s retail and commercial deposits. During this period, the increase in the cost of funds was partially offset by a higher yield on interest-earning assets, driven primarily by an increase in the interest on reserves held at the Federal Reserve Bank of Boston, a higher Federal Home Loan Bank of Boston stock dividend and to a lesser extent, an increase in the yield on loans.
In a linked quarter comparison, the net interest margin for the quarter ended March 31, 2023 decreased 63 basis points to 1.46%, as compared to 2.09% in the quarter ended December 31, 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 strong in the first quarter. At March 31, 2023, non-performing assets totaled 0.01% of total assets, compared to 0.03% at December 31, 2022 and 0.00% at March 31, 2022. Non-performing loans as a percentage of the total loan portfolio totaled 0.01% at March 31, 2023, compared to 0.03% at December 31, 2022 and 0.00% at March 31, 2022. The Bank did not record any charge-offs in the first three months of 2023 or 2022.
The Bank did not own any foreclosed property at March 31, 2023, December 31, 2022 and March 31, 2022. In the first quarter of 2023, the Bank foreclosed on a small commercial property in Massachusetts and purchased the property at auction. The Bank subsequently sold the property within the quarter and recovered all principal, interest, and expenses. The Bank also recognized an additional $85,000 gain on sale, reflected as a contra expense in foreclosure and related expense in the Consolidated Statement of Net Income.
The efficiency ratio, as defined on page 5 below, increased to 45.96% for the first quarter of 2023, as compared to 21.82% for the same period last year. Operating expenses as a percentage of average assets fell to 0.68% for the first quarter of 2023, as compared to 0.72% for 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.
Chairman Robert H. Gaughen Jr. stated, “Returns on equity and assets in the first quarter were significantly lower than our long-term performance, reflecting the challenge from the increase in short-term interest rates over the last twelve months. The Bank’s business model has been built over time to compound shareholder capital through all stages of the economic cycle. 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.
During material yield curve inversions, it is important that we prioritize long-term investments, despite the temporary pressure on margins and lower net income. This means capitalizing on current market conditions to attract new deposit and loan customers, as well as talented staff that can help us continue to build our business well into the future.”
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 March 31, 2023 with the Federal Deposit Insurance Corporation (FDIC) on or about May 5, 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.
Annual Meeting
The Bank will hold its Annual Meeting of Stockholders (the “Meeting”) at 2:00PM EST on Thursday, April 27, 2023 at the Old Derby Academy, located at 34 Main Street, Hingham, Massachusetts. Stockholders may also attend the Meeting by means of remote communication via a video conference. Immediately following the business meeting, the Bank will hold an informal meeting to discuss the results of the prior year and the operations of the Bank, as well as a question and answers session. We strongly encourage all shareholders to vote by proxy. Electronic voting will not be available. Registration for the meeting is available on the Bank’s website (click here). In addition to participating in the meeting itself, we also encourage shareholders to submit questions in writing in advance using the form on the Bank’s website.
Current Expected Credit Losses (“CECL”)
On January 1, 2023, the Bank adopted ASU 2016-13 – Measurement of Credit Losses on Financial Instruments, and recorded a one-time transition amount of $545,000, net of taxes, as a decrease to retained earnings. This amount represents additional reserves for loans that existed upon adopting the new guidance. No reserves were recorded for unfunded commitments. The adoption of CECL did not have a material impact on the Bank’s regulatory capital ratios.
HINGHAM INSTITUTION FOR SAVINGS
Selected Financial Ratios
| Three Months Ended March 31, |
|||||
| 2022 | 2023 | ||||
| (Unaudited) | |||||
| Key Performance Ratios | |||||
| Return on average assets (1) | 1.37 | % | 0.82 | % | |
| Return on average equity (1) | 13.10 | 8.67 | |||
| Core return on average assets (1) (5) | 1.74 | 0.56 | |||
| Core return on average equity (1) (5) | 16.68 | 5.85 | |||
| Interest rate spread (1) (2) | 3.24 | 0.92 | |||
| Net interest margin (1) (3) | 3.30 | 1.46 | |||
| Operating expenses to average assets (1) | 0.72 | 0.68 | |||
| Efficiency ratio (4) | 21.82 | 45.96 | |||
| Average equity to average assets | 10.45 | 9.51 | |||
| Average interest-earning assets to average interest bearing liabilities | 125.86 | 121.68 | |||
| March 31, 2022 |
December 31, 2022 |
March 31, 2023 |
||||||||||
| (Unaudited) | ||||||||||||
| Asset Quality Ratios | ||||||||||||
| Allowance for credit losses/total loans | 0.68 | % | 0.68 | % | 0.69 | % | ||||||
| Allowance for credit losses/non-performing loans | 16,606.92 | 2,139.39 | 5,169.01 | |||||||||
| Non-performing loans/total loans | — | 0.03 | 0.01 | |||||||||
| Non-performing loans/total assets | — | 0.03 | 0.01 | |||||||||
| Non-performing assets/total assets | — | 0.03 | 0.01 | |||||||||
| Share Related | ||||||||||||
| Book value per share | $ | 170.49 | $ | 179.74 | $ | 182.89 | ||||||
| Market value per share | $ | 343.20 | $ | 275.96 | $ | 233.44 | ||||||
| Shares outstanding at end of period | 2,142,400 | 2,147,400 | 2,147,400 | |||||||||
(1) Annualized.
(2) Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest-earning assets.
(4) The efficiency ratio represents total operating expenses, divided by the sum of net interest income and total other income (loss), excluding gain (loss) on equity securities, net.
(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.
HINGHAM INSTITUTION FOR SAVINGS
Consolidated Balance Sheets
| (In thousands, except share amounts) | March 31, 2022 |
December 31, 2022 |
March 31, 2023 |
|||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | 5,371 | $ | 7,936 | $ | 5,727 | ||
| Federal Reserve and other short-term investments | 291,497 | 354,097 | 346,713 | |||||
| Cash and cash equivalents | 296,868 | 362,033 | 352,440 | |||||
| CRA investment | 8,874 | 8,229 | 8,361 | |||||
| Other marketable equity securities | 83,190 | 54,967 | 59,115 | |||||
| Securities, at fair value | 92,064 | 63,196 | 67,476 | |||||
| Securities held to maturity, at amortized cost | 3,500 | 3,500 | 3,500 | |||||
| Federal Home Loan Bank stock, at cost | 35,508 | 52,606 | 52,316 | |||||
| Loans, net of allowance for credit losses of $21,589 at March 31, 2022, $24,989 at December 31, 2022 and $25,690 at March 31, 2023 | 3,176,975 | 3,657,782 | 3,672,258 | |||||
| Bank-owned life insurance | 13,073 | 13,312 | 13,395 | |||||
| Premises and equipment, net | 16,210 | 17,859 | 18,056 | |||||
| Accrued interest receivable | 5,887 | 7,122 | 7,161 | |||||
| Deferred income tax asset, net | 387 | 4,061 | 3,432 | |||||
| Other assets | 6,394 | 12,328 | 15,901 | |||||
| Total assets | $ | 3,646,866 | $ | 4,193,799 | $ | 4,205,935 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY
| Interest-bearing deposits | $ | 1,990,848 | $ | 2,118,045 | $ | 2,144,387 | ||
| Non-interest-bearing deposits | 404,045 | 387,244 | 375,887 | |||||
| Total deposits | 2,394,893 | 2,505,289 | 2,520,274 | |||||
| Federal Home Loan Bank advances | 865,000 | 1,276,000 | 1,265,000 | |||||
| Mortgagors’ escrow accounts | 9,646 | 12,323 | 13,123 | |||||
| Accrued interest payable | 298 | 4,527 | 5,713 | |||||
| Other liabilities | 11,768 | 9,694 | 9,087 | |||||
| Total liabilities | 3,281,605 | 3,807,833 | 3,813,197 | |||||
| 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 March 31, 2022, 2,147,400 shares issued and outstanding at December 31, 2022 and March 31, 2023 | 2,142 | 2,147 | 2,147 | |||||
| Additional paid-in capital | 12,735 | 13,061 | 13,068 | |||||
| Undivided profits | 350,384 | 370,758 | 377,523 | |||||
| Accumulated other comprehensive income | — | — | — | |||||
| Total stockholders’ equity | 365,261 | 385,966 | 392,738 | |||||
| Total liabilities and stockholders’ equity | $ | 3,646,866 | $ | 4,193,799 | $ | 4,205,935 | ||
HINGHAM INSTITUTION FOR SAVINGS
Consolidated Statements of Income
| Three Months Ended March 31, |
|||||||
| (In thousands, except per share amounts) | 2022 | 2023 | |||||
| (Unaudited) | |||||||
| Interest and dividend income: | |||||||
| Loans | $ | 29,760 | $ | 36,416 | |||
| Debt securities | 33 | 33 | |||||
| Equity securities | 258 | 903 | |||||
| Federal Reserve and other short-term investments | 110 | 3,374 | |||||
| Total interest and dividend income | 30,161 | 40,726 | |||||
| Interest expense: | |||||||
| Deposits | 1,504 | 13,800 | |||||
| Federal Home Loan Bank advances | 492 | 12,015 | |||||
| Total interest expense | 1,996 | 25,815 | |||||
| Net interest income | 28,165 | 14,911 | |||||
| Provision for loan losses | 1,158 | 156 | |||||
| Net interest income, after provision for loan losses | 27,007 | 14,755 | |||||
| Other income (loss): | |||||||
| Customer service fees on deposits | 175 | 138 | |||||
| Increase in cash surrender value of bank-owned life insurance | 93 | 83 | |||||
| Gain (loss) on equity securities, net | (4,157) | 3,548 | |||||
| Miscellaneous | 26 | 63 | |||||
| Total other income (loss) | (3,863) | 3,832 | |||||
| Operating expenses: | |||||||
| Salaries and employee benefits | 3,644 | 4,306 | |||||
| Occupancy and equipment | 374 | 391 | |||||
| Data processing | 614 | 653 | |||||
| Deposit insurance | 283 | 650 | |||||
| Foreclosure and related | (21) | (74) | |||||
| Marketing | 191 | 212 | |||||
| Other general and administrative | 1,124 | 845 | |||||
| Total operating expenses | 6,209 | 6,983 | |||||
| Income before income taxes | 16,935 | 11,604 | |||||
| Income tax provision | 5,071 | 3,094 | |||||
| Net income | $ | 11,864 | $ | 8,510 | |||
| Cash dividends declared per common share | $ | 0.57 | $ | 0.63 | |||
| Weighted average shares outstanding: | |||||||
| Basic | 2,142 | 2,147 | |||||
| Diluted | 2,206 | 2,200 | |||||
| Earnings per share: | |||||||
| Basic | $ | 5.54 | $ | 3.96 | |||
| Diluted | $ | 5.38 | $ | 3.87 | |||
HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis
| Three months ended | ||||||||||||||||||||||||||
| March 31, 2022 | December 31, 2022 | March 31, 2023 | ||||||||||||||||||||||||
| 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) | $ | 3,077,644 | $ | 29,760 | 3.87 | % | $ | 3,624,745 | $ | 35,714 | 3.94 | % | $ | 3,682,517 | $ | 36,416 | 3.96 | % | ||||||||
| Securities (3) (4) | 94,899 | 291 | 1.23 | 103,033 | 749 | 2.91 | 99,693 | 936 | 3.76 | |||||||||||||||||
| Short-term investments (5) | 240,755 | 110 | 0.18 | 287,286 | 2,766 | 3.85 | 294,513 | 3,374 | 4.58 | |||||||||||||||||
| Total interest-earning assets | 3,413,298 | 30,161 | 3.53 | 4,015,064 | 39,229 | 3.91 | 4,076,723 | 40,726 | 4.00 | |||||||||||||||||
| Other assets | 52,987 | 47,959 | 53,809 | |||||||||||||||||||||||
| Total assets | $ | 3,466,285 | $ | 4,063,023 | $ | 4,130,532 | ||||||||||||||||||||
| Liabilities and stockholders’ equity: | ` | |||||||||||||||||||||||||
| Interest-bearing deposits (6) | $ | 2,028,082 | 1,504 | 0.30 | % | $ | 2,221,963 | 8,793 | 1.58 | % | $ | 2,250,188 | 13,800 | 2.45 | % | |||||||||||
| Borrowed funds | 683,920 | 492 | 0.29 | 1,036,944 | 9,481 | 3.66 | 1,100,156 | 12,015 | 4.37 | |||||||||||||||||
| Total interest-bearing liabilities | 2,712,002 | 1,996 | 0.29 | 3,258,907 | 18,274 | 2.24 | 3,350,344 | 25,815 | 3.08 | |||||||||||||||||
| Non-interest-bearing deposits | 383,816 | 408,951 | 378,089 | |||||||||||||||||||||||
| Other liabilities | 8,267 | 9,282 | 9,452 | |||||||||||||||||||||||
| Total liabilities | 3,104,085 | 3,677,140 | 3,737,885 | |||||||||||||||||||||||
| Stockholders’ equity | 362,200 | 385,883 | 392,647 | |||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 3,466,285 | $ | 4,063,023 | $ | 4,130,532 | ||||||||||||||||||||
| Net interest income | $ | 28,165 | $ | 20,955 | $ | 14,911 | ||||||||||||||||||||
| Weighted average interest rate spread | 3.24 | % | 1.67 | % | 0.92 | % | ||||||||||||||||||||
| Net interest margin (7) | 3.30 | % | 2.09 | % | 1.46 | % | ||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities (8) | 125.86 | % | 123.20 | % | 121.68 | % | ||||||||||||||||||||
| (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 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 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.
| Three Months Ended March 31, |
|||||||
| (In thousands, unaudited) | 2022 | 2023 | |||||
| Non-GAAP reconciliation: | |||||||
| Net Income | $ | 11,864 | $ | 8,510 | |||
| (Gain) loss on equity securities, net | 4,157 | (3,548 | ) | ||||
| Income tax expense (benefit) (1) | (916 | ) | 782 | ||||
| Core Net Income | $ | 15,105 | $ | 5,744 | |||
(1) The equity securities are held in a tax-advantaged subsidiary corporation. The income tax effect of the (gain) loss on equity securities, net, was calculated using the effective tax rate applicable to the subsidiary.
