Hingham Institution for Savings
Annual Report 2013

Plain-text annual report

FINAL cover HIFS 2013 annual report_Layout 1 3/1/14 1:04 PM Page 1 OFFICES BOSTON BEACON HILL SOUTH END COHASSET HINGHAM HINGHAM SQUARE SOUTH HINGHAM LINDEN PONDS HULL NANTUCKET NORWELL/HANOVER SCITUATE SOUTH WEYMOUTH www.hinghamsavings.com Member FDIC/Member DIF Equal Housing Lender 2013 ANNUAL REPORT HINGHAM INSTITUTION FOR SAVINGS ESTABLISHED 1834 Financial Highlights 8.0 10.2 12.1 13.3 13.4 1.09 1.19 1.25 1.30 1.34 09 10 11 12 13 09 10 11 12 13 Net Income ($ in millions) Dividends Declared ($ per share) 925.6 1,017.8 1,127.3 1,205.9 1,356.4 631.1 730.0 787.6 869.9 940.9 718.2 792.9 849.8 949.7 1,078.9 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 Assets ($ in millions) Deposits ($ in millions) Loans, net ($ in millions) From the President Dear Shareholders, 2013 was another outstanding year for Hingham Savings. We produced record earnings for you, our ownership, with a return on average equity of 13.52% and a return on average assets of 1.07%. These earnings were driven by strong balance sheet growth in both real estate loans and deposits. They are among the strongest in our industry. Our conservative and risk-averse management of our investment portfolio, weighted heavily in favor of cash, allowed us to avoid the significant bond market losses of many of our competitors. We continued our strategy of measured, organic growth, opening a new branch on Main Street in Nantucket. We have been warmly received on the Island and our performance there has already exceeded our expectations. In 2013, deposits increased by $71.0 million, or 8%, net loans increased by $129.2 million, or 14%, and total assets increased by 12%. Our rigorous cost control produced an efficiency ratio of 43%; non-interest expenses as a percentage of average total assets reached a record low of 1.40%. Book value per share increased to $48.49 per share from $43.65 per share, reflecting the strong return on average equity and the continuation of our dividend strategy, in which we return a significant portion of our earnings to the ownership. In 2013, we declared $1.34 in total cash dividends per share. This was the 19th consecutive year in which the Bank increased total cash dividends per share. Despite the apparent tailwinds in the real estate markets, we are committed to the conservative strategies that have delivered superior long-term returns to our owners without undue risk. We continue to insist on a substantial margin of safety in our commercial real estate operations where we now commit the majority of our capital. We aggressively manage our troubled assets, of which we have few, and in 2013 we actually produced net recoveries to our loan loss reserve. Our residential lending and retail franchises continue to be market leaders, with strong brand recognition, outstanding service, and loyal customers. We continue to be opportunistic about expansion, recognizing, however, that growth must enhance earnings available to the shareholders. There are no empire-builders at Hingham. In his 2006 letter to the shareholders of Berkshire Hathaway, Warren Buffett observed that “every day, in countless ways, the competitive position of our businesses grow either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. If we treat customers with indifference or tolerate bloat, our businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.” At Hingham, we look to grow stronger every day in 2014 and beyond. We appreciate your continued support and we look forward to working on your behalf. Very truly yours, Robert H. Gaughen Jr. President & Chief Executive Officer Cohasset Golf Club Established in 1894, the Cohasset Golf Club is a premier golf course designed by legendary architect Donald Ross. Attention to detail is crucial for smooth operations at CGC, and that’s just one reason why Treasurer Don Grilli recommended Hingham Savings in 2009 to finance the club’s capital projects. This year, CGC moved their operating accounts to Hingham Savings, and has been impressed with the client-friendly service, knowledgeable staff and straightforward processes. By all accounts, the seamless transition has been a hole-in-one. Alex Boyd, Vice President, Commercial Loan Officer, Hingham Savings Jim Simmons, General Manager, Cohasset Golf Club Donald Grilli, Treasurer, Cohasset Golf Club “Hingham Savings has exceeded our expectations in every way – in commercial loan services as well as business banking – the personal service and attention to detail has been superb.” DonalD Grilli Ken Oringer Chef Ken Oringer owns seven successful restaurants, has received the Best Chef Northeast 2001 award from the James Beard Foundation, won Food Network’s Iron Chef America, and has been selected for Star Chefs Rising Stars Mentor Award. A world traveler, he brings a strong culinary philosophy of authenticity and innovation to his inspired dishes. When it came time to settle down in Boston with his young family, he chose Hingham Savings as his Bank for financing his new home because he knows we share his high standards for attention to detail and professional excellence. Ken Oringer, Chef and Restaurateur, Clio, Uni, Toro, and La Verdad (Boston), Earth (Kennebunkport), Toro (NYC) “Hingham Savings has shown me that they stand behind their reputation, with great service and a helpful attitude – they are the real deal, and it is great to have authenticity in your Bank.” Ken orinGer “We can count on Hingham Savings to understand our needs and respond quickly to make things happen.” FranKlin W. Simon The Simon Companies Founded in 1966, The Simon Companies is a leading real estate investment firm that has developed and managed a substantial portfolio of commercial properties and more than 4000 multifamily units throughout New England. They demonstrate an extraordinary commitment to excellence in their projects, and the choice of Hingham Savings for their commercial financing is consistent with their own stellar credentials. Like The Simon Companies, the senior management team at Hingham Savings brings more than a century of industry know-how to their work. The Simons recognize the Bank’s strength, speed, and ability to deliver solid commercial lending solutions. John G. Snyder, Senior Vice President and General Counsel Hinda Simon Snyder, Executive Vice President Franklin W. Simon, Founder and President Artists Association of Nantucket The AAN was launched in the fall of 1945, charged with fostering the visual arts on Nantucket. Today, more than 240 artists are part of this vibrant arts community, and they have moved forward to create Nantucket’s first Visual Arts Center, to open in Fall 2014. Executive Director Cecil Barron Jensen views the Center as an exciting opportunity, and the organization is pleased with how Hingham Savings moved quickly and thoughtfully to deliver a financing solution that allows the AAN’s dollars to work harder. Hingham Savings is proud to be a part of our client’s vision, with creative solutions and an ability to keep the process simple. Cecil Barron Jensen, Executive Director Sara Congdon, Nantucket Branch Manager, Hingham Savings “Hingham Savings has helped us to fulfill our mission, with services that are both creative and responsive.” CeCil Barron JenSen “Hingham Savings’ thorough knowledge of the market, innovative thinking, and ability to move quickly has made them a trusted partner on our projects.” neW BoSton VentureS New Boston Ventures For more than 25 years, the award-winning team of David Goldman and Dennis Kanin has achieved impressive success in the creation of landmark developments throughout Greater Boston, with new construction as well as the preservation and adaptive re-use of historic structures. They have worked with Hingham Savings since 2007 on their project financing and business banking. The relationship has grown to include their personal banking as well, and they recognize that the Bank’s strong reputation and outside-the-box thinking is a good match with their own values. Hingham Savings has served as a trusted partner on several projects, including two recent developments in Boston’s South End. David Goldman, Co-founder, Principal Robert H. Gaughen, Jr. President and CEO, Hingham Savings Dennis Kanin, Co-founder, Principal The Salvation Army Building, 407-409 Shawmut Ave, Boston Zero Worcester Square, Washington Street, Boston David Shukis and Susan Blair David T. Shukis, CFA: Head of Global Investment, Cambridge Associates Susan Blair, Homemaker Longtime residents of Hingham, David Shukis and Susan Blair enjoy their beautifully restored historic home and active community life, as well as their vacation home on Nantucket. When it came time to refinance, they were very pleased to learn that Hingham Savings also lends on Nantucket. They were delighted with how easy the Bank made the refinancing process for them, and discovered that Hingham Savings can provide exceptional, personal service, both on and off-island. David and Susan look forward to visiting the Bank’s newest branch on Nantucket. “Working with our loan officer was a pleasure throughout the mortgage process. We were guided through every step along the way. Hingham Savings knows how to treat people well.” DaViD t. ShuKiS anD SuSan Blair Board of Directors Howard M. Berger, Esq. Michael J. Desmond Marion J. Fahey Ronald D. Falcione Kevin W. Gaughen, Esq. Patrick R. Gaughen Robert H. Gaughen, Jr., Esq. Julio R. Hernando, Esq. Brian T. Kenner, Esq. Robert A. Lane, Esq. Scott L. Moser Stacey M. Page Robert K. Sheridan Edward L. Sparda Geoffrey C. Wilkinson, Sr. Jacqueline M. Youngworth Selected Financial Data Selected Financial Data. The following information does not purport to be complete and is qualified in its entirety by the more detailed information contained elsewhere herein. Balance Sheet Data: Total assets … … … … … … … … … Securities available for sale… … … … Loans: Residential loans … … … … … … … Commercial mortgage … … … … … Construction … … … … … … … … Other … … … … … … … … … … … Allowance for loan losses … … … … Deposits … … … … … … … … … … Federal Home Loan Bank advances… Stockholders’ equity … … … … … … 2013 2012 2011 2010 2009 At December 31, $ 1,356,441 106,369 $ 1,205,884 102,866 $ 1,127,276 96,689 $ 1,017,845 95,071 $ 925,560 96,374 532,845 498,592 53,520 913 8,509 940,906 302,732 103,217 457,217 438,037 60,390 869 7,999 869,886 234,355 92,799 408,607 404,343 42,269 1,090 7,516 787,573 247,471 82,265 385,525 383,361 29,065 958 6,905 729,960 207,580 72,736 2013 Years Ended December 31, 2010 2012 (Dollars in Thousands, Except Per Share Amounts) 2011 350,433 348,700 23,228 833 5,737 631,087 222,636 65,293 2009 Income Statement Data: Total interest and dividend income …………… Total interest expense…………………………… Net interest income …………………… Provision for loan losses …………………… Other income …………………………………… Operating expenses ..………………………… Income before income taxes ……………. Income tax provision .………………………… Net income ……………………………… Earnings per common share: Basic……………………………………………… Diluted…………………………………………… Financial Ratios: Return on average assets……………………… Return on average equity……………………… Average equity to average assets……………… Interest rate spread………………………………. Net interest margin……………………………… Efficiency ratio…………………………………… … Cash dividends declared per common share …… Book value per common share ………………… $ 49,342 $ 10,502 38,840 48,831 $ 10,937 37,894 380 1,678 17,257 22,611 9,240 13,371 725 1,666 16,434 22,401 9,111 $ 13,290 $ 48,444 $ 12,618 35,826 1,100 1,700 16,091 20,335 8,273 12,062 $ 46,825 $ 15,098 31,727 1,300 1,627 14,978 17,076 6,848 10,228 $ 44,798 17,599 27,199 1,700 2,008 14,371 13,136 5,091 8,045 $ $ $ $ 6.28 $ 6.25 $ 5.68 $ 4.81 $ 6.28 $ 6.25 $ 5.67 $ 4.81 $ 1.07 % 13.52 7.89 3.07 3.19 43.26 1.34 48.49 $ $ 1.15 % 15.05 7.62 3.25 3.38 41.54 1.30 43.65 $ $ 1.14 % 15.34 7.44 3.36 3.50 42.88 1.25 38.70 $ $ 1.05 % 14.67 7.14 3.20 3.37 44.91 1.19 34.24 $ $ 3.79 3.79 0.93 % 12.78 7.26 3.11 3.30 49.20 1.09 30.74 Comparative Stock Performance Graph Comparative Stock Performance Graph The chart which appears below sets forth the percentage change, on an annual basis, in the cumulative total return on the Bank’s Common Stock since December 31, 2008 through December 31, 2013. For comparative purposes, changes in the cumulative total return on the three indices of publicly traded stocks (the “Indices”) are also set forth on the chart. The NASDAQ Composite Index reflects the total return of a group of stocks in a cross section of industries. Many of these stocks have substantially larger market capitalizations than the Bank. The SNL Bank and Thrift Index tracks a national group of publicly traded bank and thrift institutions. The final Index, SNL New England Thrift Index, tracks a peer group of all publicly traded thrift institutions located in New England. SNL Securities is a research and publishing firm specializing in the collection and dissemination of data on the banking, thrift, and financial services industries. The chart begins with an equal base value of $100 for the Bank’s stock and for each of the Indices on December 31, 2007 and reflects year-end closing prices and dividends paid thereafter by the Bank and by the companies which comprise the Indices. The chart assumes full reinvestment of such dividends. Information about the Indices has been obtained from sources believed to be reliable, but neither the accuracy nor the completeness of such information is guaranteed by the Bank. Total Return Performance 400 350 300 250 Hingham Institution for Savings NASDAQ Composite SNL New England Thrift SNL Bank and Thrift e u l a V x e d n I 200 150 100 50 0 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 Index Hingham Institution for Savings NASDAQ Composite SNL New England Thrift SNL Bank and Thrift Period Ending 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 100.00 100.00 100.00 100.00 127.07 145.36 95.15 98.66 190.47 171.74 97.53 110.14 209.91 170.38 96.57 85.64 281.25 200.63 102.53 115.00 359.61 281.22 129.39 157.46 Consolidated Balance Sheets CONSOLIDATED BALANCE SHEETS ASSETS December 31, 2013 2012 Cash and due from banks ................................................................................... Short-term investments ...................................................................................... Cash and cash equivalents ............................................................................ $ (In Thousands) $ 11,922 90,925 102,847 Certificates of deposit ........................................................................................ Securities available for sale, at fair value ............................................................. Federal Home Loan Bank stock, at cost ............................................................... Loans, net of allowance for loan losses of $8,509,000 in 2013 and $7,999,000 in 2012 ................................................ Foreclosed assets .............................................................................................. Bank-owned life insurance ................................................................................. Premises and equipment, net .............................................................................. Accrued interest receivable ................................................................................ Deferred income tax asset, net ........................................................................... Other assets...................................................................................................... Total assets ................................................................................................ 13,011 106,369 15,978 1,078,879 271 15,375 15,854 2,792 2,934 2,131 $ 1,356,441 7,961 79,373 87,334 13,737 102,866 14,105 949,662 471 14,945 14,180 2,667 2,556 3,361 $ 1,205,884 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits .......................................................................................................... Federal Home Loan Bank advances..................................................................... Mortgage payable............................................................................................. Mortgagors’ escrow accounts............................................................................. Accrued interest payable.................................................................................... Other liabilities................................................................................................. Total liabilities ........................................................................................... $ 940,906 302,732 1,020 3,709 490 4,367 1,253,224 $ 869,886 234,355 1,065 3,231 478 4,070 1,113,085 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; 2,128,750 shares issued and outstanding at December 31, 2013 and 2,125,750 issued and outstanding at December 31, 2012 ................................................................................. Additional paid-in capital.............................................................................. Undivided profits......................................................................................... Accumulated other comprehensive income (loss)............................................. Total stockholders’ equity....................................................................... Total liabilities and stockholders’ equity.......................................................... — — 2,129 10,659 90,449 (20) 103,217 $ 1,356,441 2,126 10,519 79,930 224 92,799 $ 1,205,884 Consolidated Statements of Net Income CONSOLIDATED STATEMENTS OF NET INCOME Years Ended December 31, 2012 (In Thousands, Except Per Share Amounts) 2013 2011 Interest and dividend income: Loans ……………………………………………………………………… Debt securities …………………………………………………………… Equity securities…………………………………………………………… Short-term investments and certificates of deposit ……………………… Total interest and dividend income …………………………………… Interest expense: Deposits…………………………………………………………………… Federal Home Loan Bank advances ……………………………………… Mortgage payable ………………………………………………………… Total interest expense ………………………………………………… Net interest income …………………………………………………………… Provision for loan losses ……………………………………………………… Net interest income, after provision for loan losses ………………………… Other income: Customer service fees on deposits………………………………………… Increase in Bank-owned life insurance…………………………………… Miscellaneous …………………………………………………………… Total other income …………………………………………………… Operating expenses: Salaries and employee benefits …………………………………………… Data processing …………………………………………………………… Occupancy and equipment ……………………………………………… Deposit insurance ………………………………………………………… Foreclosure………………………………………………………………… Marketing ………………………………………………………………… Other general and administrative ………………………………………… Total operating expenses……………………………………………… Income before income taxes ………………………………………………… Income tax provision ………………………………………………………… Net income ……………………………………………………………… Earnings per common share: Basic ……………………………………………………………………… Diluted …………………………………………………………………… $ $ $ $ 48,455 407 181 299 49,342 5,660 4,779 63 10,502 38,840 380 38,460 1,019 430 229 1,678 10,602 1,015 1,868 684 186 557 2,615 17,527 22,611 9,240 13,371 6.28 6.28 $ $ $ $ 47,753 526 198 354 48,831 5,858 5,014 65 10,937 37,894 725 37,169 1,008 421 237 1,666 9,643 884 1,709 611 336 654 2,597 16,434 22,401 9,111 13,290 6.25 6.25 $ $ $ $ 47,191 749 153 351 48,444 6,751 5,799 68 12,618 35,826 1,100 34,726 987 450 263 1,700 8,894 883 1,528 701 1,038 650 2,397 16,091 20,335 8,273 12,062 5.68 5.67 Stockholder Information Hingham Institution for Savings 55 Main Street Hingham, MA 02043 (781) 749-2200 President and Chief Executive Officer Robert H. Gaughen, Jr. Investor Inquiries William M. Donovan, Jr. Vice President –Administration TransferAgent and Registrar Computershare P.O. Box 30170 College Station, TX 77842-3170 (800) 288-9541 Online Registered Shareholder Access www.computershare.com/investor Independent Registered Public Accounting Firm Wolf & Company, P.C. 99 High Street Boston, MA 02110 Special Counsel WilmerHale 60 State Street Boston, MA 02109 Form 10-K and Proxy Statement A copy of the Bank’s Annual Report on Form 10-K and Proxy Statement for the fiscal year ended December 31, 2013, as filed with the Federal Deposit Insurance Corporation, may be obtained without charge by any stockholder of the Bank upon written request addressed to the Investor Relations Department. Additionally, the Bank’s Annual Report on Form 10-K and the Proxy Statement are available electronically at www.hinghamsavings.com Stock Data Hingham Institution for Savings’ common shares are listed and traded on The NASDAQ Stock Market under the symbol HIFS. As of December 31, 2013, there were approximately 334 stockholders of record, holding 611,345 outstanding shares of common stock. These shares do not include the number of persons who hold their shares in nominee or street name through various brokerage firms. The following table presents the quarterly high and low bid prices for the Bank’s common stock reported by NASDAQ. 2013 First Quarter Second Quarter Third Quarter Fourth Quarter 2012 First Quarter Second Quarter Third Quarter Fourth Quarter High $ 72.94 70.46 77.00 79.56 $ 56.94 61.40 66.99 82.34 Low $ 62.63 57.69 66.01 66.01 $ 47.90 53.79 57.74 59.55 The closing sale price of the Bank’s common stock at December 31, 2013 was $78.49 per share. FINAL cover HIFS 2013 annual report_Layout 1 3/1/14 1:04 PM Page 1 OFFICES BOSTON BEACON HILL SOUTH END COHASSET HINGHAM HINGHAM SQUARE SOUTH HINGHAM LINDEN PONDS HULL NANTUCKET NORWELL/HANOVER SCITUATE SOUTH WEYMOUTH www.hinghamsavings.com Member FDIC/Member DIF Equal Housing Lender 2013 ANNUAL REPORT 

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