HIFS Earnings Were Disappointing Or Not (Issue #70)
With Hingham Institution For Savings (NASDAQ: HIFS — $m) I struggle to...
As a newsletter writer my job is to look at information and summarize and analyze it. With Hingham Institution For Savings (NASDAQ: HIFS — $469.22m) I struggle to comment in a productive way. Because of this I am going to write with two different voices. The HIFS Sympathizer and the HIFS Doubter. Agree with either or neither. I don’t want to come across as someone who doesn’t understand the risks of banking (which are many and massive), but I generally trust the management team and have confidence in Hingham as a company.
Here are the facts:
Net Income increased ~2.6x year/year to ~$8.2m for Q2 2023
8.27% ROE and 0.80% ROA for Q2 2023 compared to 3.43% and 0.34% for Q2 2022
Core Net Income (Excluding Securities Gain/Loss) down ~73% year/year to $4m for Q2 2023
4.06% Core ROE and 0.39% Core ROA for Q2 2023 compared to 16.42% and 1.63% for Q2 2022
8.47% ROE and 0.81% ROA for first 6 months 2023 compared to 8.20% and 0.83% for first 6 months 2022
Net Income increased ~12% year/year for first 6 months 2023
Net Interest Margin decreased 193 bips year/year to 1.28%
0% non performing assets and charge-offs
55.03% Efficiency Ratio from 21.30% Q2 2022
HIFS Sympathizer:
While these are not the growth numbers we have historically seen Hingham chose to take the performance hit as opposed to trying to squeeze out a more favorable short term result that could pose long term threats. Net Interest Margin compression is real and the bank felt the strain, but, as I have been saying, Hingham underperforming would still be a record year for the average bank. For example, their Efficiency Ratio up to 55.03% from 21.30% a year ago is significant, but 55% for many banks would be a solid year. Further, the ~8% Core ROE is not great for the bank, but again would be commendable for a non-Hingham bank. The ROE for the first 6 months of the year is also more consistent with results from the same period last year.
Finally, Hingham had no non-performing assets or charge-offs. For those less familiar with the operation Hingham’s charge-offs have rounded to zero for the passed 20+ years, including 2020 when they climbed to $240,000 on a ~$4bn loan book (the following year they were $1,200).
HIFS Doubter:
Hingham’s performance in this quarter year/year is subpar. They are truly feeling the effects of net interest margin compression. The bank’s efficiency is being majorly hit. What was once a key strength of theirs is now becoming a weakness. The existing loan portfolio may be solid with many safe loans that rare don’t perform or charge-off, however, looking forward there will be fewer short term opportunities to meaningfully grow the loan book.
On a larger scale this is not a time for bank investing. There is too much pressure on the already tense environment.
“Banking is business in a pressure cooker.”
I personally agree more with the HIFS Sympathizer view, but I hope I was able to at least partially shed light on the anti side as well.
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Until Thursday,
Soren
Thanks for the article. It would be great if you can comment on 3rd quarter results as well.