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Retail and business deposits were $1.893 billion at March 31, 2024, representing 7% annualized growth year-to-date and a 5% decline from March 31, 2023. Non-interest-bearing deposits, included in retail and business deposits, were $347.4 million at March 31, 2024, representing 10% annualized growth year-to-date and an 8% decline from March 31, 2023.

Growth in non-interest bearing and money market balances 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 in late 2023, combined with changes to our marketing approach, began to show some initial results. The Bank also added a new relationship manager in its Specialized Deposit Group in San Francisco during the quarter, as well as a specialist that supports the delivery of cash management services to our commercial customers. The Bank continues to recruit actively for talented retail and 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 listing service deposits were $2.185 billion at March 31, 2024, representing 1% annualized growth year-to-date and 22% growth from March 31, 2023, as the Bank continued to manage its wholesale funding mix to optimize the cost of funds while adding duration where appropriate. Wholesale deposits, which include brokered and listing service time deposits, were $500.4 million at March 31, 2024, representing 10% annualized growth year-to-date and a 6% decline from March 31, 2023. Borrowings from the Federal Home Loan Bank totaled $1.685 billion at March 31, 2024, representing a 2% annualized decline from December 31, 2023, and 33% growth from March 31, 2023. As of March 31, 2024, the Bank maintained an additional $677.8 million in immediately available borrowing capacity at the Federal Home Loan Bank of Boston and the Federal Reserve Bank, in addition to $373.2 million in cash and cash equivalents.

Book value per share was $190.07 as of March 31, 2024, representing a 3% annualized growth year-to-date and 4% growth from March 31, 2023. In addition to the increase in book value per share, the Bank declared $2.52 in dividends per share since March 31, 2023.

On March 27, 2024, the Bank declared a regular cash dividend of $0.63 per share. This dividend will be paid on May 15, 2024 to stockholders of record as of May 6, 2024. This was the Bank’s 121st 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 March 31, 2024 decreased 4 basis points to 0.85%, as compared to 0.89% in the quarter ended December 31, 2023. It was stable on a monthly basis throughout the quarter. This was primarily the result of an increase in the cost of interest-bearing liabilities, driven primarily by an increase in the cost of the Bank’s wholesale funding sources and higher rates on the Bank’s retail and commercial deposits, partially offset by 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. The pace of net interest margin compression slowed substantially as compared to prior quarters. The net interest margin appears to be stabilizing at this point, as short-term market rates have remained stable, the pace of increase in the Bank’s deposit costs has slowed or reversed in some products, and asset yields continue to climb slowly and sustainably.

The net interest margin for the quarter ended March 31, 2024 decreased 61 basis points to 0.85%, as compared to 1.46% 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 funding sources. 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 an increase in the yield on loans.

Key credit and operational metrics remained strong in the first quarter. At March 31, 2024, non-performing assets totaled 0.04% of total assets, compared to 0.03% at December 31, 2023 and 0.01% at March 31, 2023. Non-performing loans as a percentage of the total loan portfolio totaled 0.04% at March 31, 2024, compared to 0.04% at December 31, 2023 and 0.01% at March 31, 2023. The Bank did not record any charge-offs in the first three 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 March 31, 2024, December 31, 2023, or March 31, 2023. The Bank did not own any foreclosed property at March 31, 2024, December 31, 2023 or March 31, 2023.

The efficiency ratio, as defined on page 5 below, increased to 77.24% for the first quarter of 2024, as compared to 45.96% for the same period last year. Operating expenses as a percentage of average assets fell to 0.67% for the first quarter of 2024, as compared to 0.68% 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 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 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 growth in book value per share in this environment.

We are cautiously optimistic that this challenge will fade over this year. To the extent we can capitalize on the inverted yield curve and reduce liability sensitivity slightly via our wholesale funding activities, we will do so. This normalization of the yield curve will eventually allow us to achieve more satisfactory returns as we obtain higher rates on new and adjusting loans and incremental funding pressure abates.

While the current market environment has been extraordinarily challenging, the Bank’s business model has been built over time to compound shareholder capital over an 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. I believe that over the past twenty-four months we have retained this focus.”

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, 2024 with the Federal Deposit Insurance Corporation (FDIC) on or about May 8, 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.

Annual Meeting

The Bank will hold its Annual Meeting of Stockholders (the “Meeting”) at 2:00PM EST on Thursday, April 25, 2024 at the Old Derby Academy, located at 34 Main Street, Hingham, Massachusetts. Stockholders may also observe the Meeting by streaming video. 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.

(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.

(5) Non-GAAP measurements that represent return on average assets and return on average equity, excluding the after-tax gain on equity securities, net.

HINGHAM INSTITUTION FOR SAVINGS
Consolidated Balance Sheets

LIABILITIES AND STOCKHOLDERS’ EQUITY

HINGHAM INSTITUTION FOR SAVINGS
Net Interest Income Analysis

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.

(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.