Hingham Institution for Savings
Annual Report 2017

Plain-text annual report

2017 ANNUAL REPORT F i n a n c i a l H i g h l i g h t s Fr o m t h e P r e s i d e n t 13.4 22.3 19.3 23.4 25.8 1.34 2.10 1.46 1.56 1.66 48.49 57.08 64.83 75.50 87.29 16.5 1.32 1.24 1.16 1.06 1.10 13 14 15 16 17 Net Income* ($ in millions) 13 14 15 16 17 Dividends Declared** ($ per share) 13 14 15 16 17 Book Value ($ per share) 1,356.4 1,552.2 1,768.5 2,014.6 2,284.6 940.9 1,089.2 1,217.0 1,366.1 1,505.9 1,078.9 1,238.7 1,405.5 1,605.6 1,834.0 To Our Business Partners: 2017 was another outstanding year for Hingham Institution for Savings. We earned $25.8 million for our owners, a 10.0% increase from 2016. Our return on average equity of 14.73% and return on average assets of 1.21% place us among the most profitable banks in the country. Net loans increased by 14.2% to $1.834 billion, deposits increased by 10.2% to $1.506 billion, and total assets increased by 13.4% to $2.285 billion. Book value per share rose 15.6% in 2017 from $75.50 to $87.29 per share. This excludes capital returned to the shareholders through regular and special dividends - we declared $1.66 in dividends per share in 2017. The trailing five year compound annual growth rate in book value per share, the best measure of long-term value creation, rose to 14.9%. The efficiency ratio fell to a record low of 30.06%, a reflection of our disciplined cost control and process improvement culture. Although our financial results in 2017 were strong, the Bank’s success reflects the fact that banking is a long-term business. Performance in any one period, particularly one where tailwinds were with us, should be viewed cautiously. Such periods are historically fraught with peril in our industry. The real test of performance in banking is a company’s record of compounding shareholder capital over time and through cycles. As a publicly-traded, closely-held business, we are corporate in form but a partnership in spirit. Our partnership will always lend and invest with this in mind. This means that we must balance improving near-term efficiency with ensuring that we have the people, products, and tech- nology necessary to serve our customers and manage risk as we grow. We made significant investments this year in digital banking capabilities - from our new consumer website to payments and cash management tools for businesses - that support our relationship-focused approach. We anticipate significant product and design enhancements in coming years, including online account opening and new payment options, for which there is considerable market demand. We also continue to develop strong teams to support our digital and private banking efforts. Our model - personalized service, combined with digital excellence and low fees - is the future of our industry. We also began building our business in greater Washington D.C., providing commercial real estate financing and private bank- ing services to the same kind of real estate investors, families, and nonprofits that we serve in Boston. We believe that the banking market in Washington, D.C. has experienced a level of consolidation and disruption that has left these customers underserved. We offer a commitment to independence, a balance sheet that can support meaningful lending relationships up to $35 million, and speed and surety of execution. If you own or manage commercial real estate in Boston or Washington, call us. Since the present management group became associated with the Bank twenty five years ago, it has been our objective to build one of America’s great banks, characterized by superior long-term financial results, a fortress balance sheet that pro- vides unquestionable assurance to our depositors, and an enduring culture of growth and success. We are well on our way. 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 Assets ($ in millions) Deposits ($ in millions) Loans, net ($ in millions) *Net Income: 2014 includes a one-time net gain of $5.7 million related to a non-taxable life insurance death benefit (light shading reflects this one-time gain). **Dividends Declared: Dividends declared chart includes the total regular dividends declared (dark shading) and the total dividends declared including any special dividends (light shading). Very truly yours, Robert H. Gaughen, Jr. President and Chairman of the Board  2 5 Ye a r s o f P e r f o r m a n c e B o o k V a l u e P e r S h a r e $90 $80 $70 $60 $50 $40 $30 $20 $10 $7.35 $87.29 $90 $80 $70 $60 $50 $40 $30 $20 $10 (dollars in thousands, except per share data) * 1993 * 1994 * 1995 * 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Assets Total Net Loans Book Value Per Share Return on Equity Earnings Per Share (Basic) $ $ $ $ 147,889 $ 76,936 $ 7.35 $ 153,192 $ 100,398 $ 8.24 $ 175,409 $ 119,472 $ 9.17 $ 201,586 $ 151,166 $ 9.87 $ 222,584 $ 172,839 $ 10.93 $ 260,076 $ 204,774 $ 12.05 $ 291,183 $ 229,687 $ 12.83 $ 337,881 $ 266,568 $ 14.46 $ 386,181 $ 282,386 $ 16.38 $ 426,430 $ 320,692 $ 18.48 $ 483,954 $ 358,778 $ 19.68 $ 547,051 $ 415,538 $ 21.29 $ 628,251 $ 488,126 $ 23.01 $ 1.34% 17.09% 11.11% 11.06% 13.00% 13.18% 13.07% 15.17% 15.95% 16.58% 13.53% 13.56% 13.20% 691,652 $ 539,104 $ 24.47 $ 9.18% 744,602 $ 593,915 $ 25.85 $ 8.40% 806,193 $ 647,255 $ 28.20 $ 11.08% 0.10 $ 1.33 $ 0.98 $ 1.05 $ 1.36 $ 1.53 $ 1.65 $ 2.07 $ 2.49 $ 2.91 $ 2.58 $ 2.80 $ 2.95 $ 2.19 $ 2.12 $ 2.96 $ * per share data for 1993, 1994, 1995 and 1996 adjusted for the 3 for 2 stock split 925,560 $ 1,017,845 $ 1,127,276 $ 1,205,884 $ 1,356,441 $ 1,552,205 $ 1,768,528 $ 2,014,599 $ 2,284,599 949,662 $ 1,078,879 $ 1,238,656 $ 1,405,533 $ 1,605,647 $ 1,833,987 718,242 $ 87.29 30.74 $ 14.73% 12.08 792,910 $ 34.24 $ 849,776 $ 38.70 $ 10.46 $ 57.08 $ 10.99 $ 64.83 $ 43.65 $ 75.50 $ 48.49 $ 5.68 $ 3.79 $ 6.28 $ 6.25 $ 4.81 $ 9.09 $ 15.34% 13.52% 14.67% 12.78% 15.05% 19.30% 14.81% 15.59% A l a n G a u n o u x Owner, G Properties Washington, D.C. Alan Gaunoux is the owner of G Properties, a real estate investment firm in Washington, D.C. He worked with Hingham to finance his properties in Georgetown because of the Bank’s competitive rates and flexible approach to a complex transaction. With projects across Washington, Alan appreciates Hingham’s ability to serve his banking needs remotely with dedicated lenders and relationship managers. His father first acquired property on M Street in 1954 and he was pleased to partner with another multi-generational, family-run business. “Hingham was critical to executing a challenging real estate transaction for me. They humanize the banking experience.” ALAN GAUNOUX U n i t e d S o u t h E n d S e t t l e m e n t s Maicharia Z. Weir Lytle, President & CEO Nikki Stewart, Vice President of Development For over a century, United South End Settlements has worked to disrupt the cycle of poverty by offering education, job training, and enrichment programs to the South End community in Boston. USES’s programs include early childhood education, enrichment programming for school-aged children, and workforce development training designed to empower youth and adults in their everyday lives. Hingham provided financing to USES which gave them added flexibility during their capital campaign. USES utilizes the Bank for its business banking needs and is pleased with Hingham’s attention to detail and high-touch client service. Hingham’s dedication to philanthropy and the local community is a meaningful aspect of the relationship with USES. “Hingham’s support of the local community aligns “Hingham’s support of the local community aligns with the USES’ mission. We value our partnership with USES’s mission. We value our partnership with the Bank.” with the Bank.” MACHARIA Z. WEIR LYTLE MAICHARIA Z. WEIR LYTLE J o s h P o s n e r Founder & CEO, Rising Tide Development, LLC Cambridge, MA “The people at Hingham genuinely care about my business and our relationship - that’s not something you experience at many other banks.” JOSH POSNER Josh Posner is a well-known developer in Massachusetts who has devoted his career to affordable housing. Unlike other developers, Rising Tide Development focuses on bridging the divide between traditional and affordable housing by creating communities where both exist side-by-side. By building high quality homes in prosperous communities, Posner’s approach transforms the once negative perception of affordable housing. Hingham has worked with Josh for several years financing the construction of his newest community, Beach Plum Village, on Nantucket. Josh appreciated Hingham’s customized approach to lending. S t a c y K o e p p e l Executive Director of the Ellis South End Neighborhood Association S e t h K o e p p e l Senior Vice President of Sales, eRAD Technologies “The people at Hingham are professional, trustworthy, and genuine. We feel fortunate to have found a bank that puts their clients first.” STACY & SETH KOEPPEL The South End has a special place in the hearts of Stacy and Seth Koeppel. The couple lived in the Boston neighborhood as newlyweds and although careers took them away, they promised each other that someday they would come back. In 2000, they returned to purchase a beautiful brownstone on Union Park where they live today with their two children. Seth and Stacy came to Hingham when they had the opportunity to purchase another unit in their building. The transaction was seamless and they built a meaningful relationship with our South End Manager in the process. Seth and Stacy are family-oriented and deeply involved in the community - they were happy to find a bank similarly committed. J o e P e r r y Head of School, Derby Academy Hingham, MA Derby Academy and Hingham Institution for Savings are two of the oldest organizations in Hingham. Two years ago, they jointly established the Hingham Institution for Savings Merit Scholarship. The full-tuition scholarship is granted to one recipient per year who could not otherwise afford Derby and supports them throughout their tenure at the school. The Bank and its principals have supported Derby’s educational mission financially and through service on the Board for over twenty years. We are pleased to support the expansion of this mission to underserved communities in years to come. “Thanks to the generosity of the Bank, the Hingham Institution for Savings Merit Scholarship brings an ongoing partnership between two of Hingham’s oldest institutions while continuing to support a new generation of learners.” JOE PERRY B o b Y o u n g President, The Young Group Falls Church, VA “A small bank with exceptional client service is vital to my business and Hingham has filled that role.” BOB YOUNG Bob Young’s firm, The Young Group, is a real estate development firm that specializes in commercial and residential projects throughout Northern Virginia. Bob is known for his Art-Nouveau floral style buildings which are prominent in the city of Falls Church. The Bank has worked with Bob to finance several of his Falls Church projects. He chose Hingham for its personal, hands-on approach. Bob views his employees as an extension of his family and was looking for a Bank that shared these values. Our relationship with The Young Group has expanded to include a full range of banking services for the business. S e l e c t e d F i n a n c i a l D a t a B o a r d o f D i r e c t o r s At December 31, 2013 2014 2015 2016 2017 $ 1,356,441 102,847 106,369 $ 532,845 498,592 53,520 913 8,509 940,906 302,732 103,217 (In Thousands) $ 1,768,528 261,013 40,603 635,522 681,601 95,433 644 9,905 1,217,027 402,464 138,015 1,552,205 177,222 70,570 576,665 607,851 60,371 996 9,108 1,089,217 329,602 121,515 $ 2,014,599 322,932 27,168 685,674 796,063 131,778 678 11,030 1,366,109 475,318 161,024 $ 2,284,599 355,229 34,304 721,809 998,567 122,715 701 12,537 1,505,862 579,164 186,158 At or For the Years Ended December 31, 2013 2014 2015 2016 2017 (Dollars in Thousands, Except Per Share Amounts) $ $ $ $ 49,342 10,502 38,840 380 1,604 17,453 22,611 9,240 13,371 6.28 6.28 $ $ $ $ 56,193 9,936 46,257 625 7,863 20,089 33,406 11,142 22,264 10.46 10.44 $ $ $ $ 61,859 10,910 50,949 625 1,483 19,031 32,776 13,430 19,346 9.09 9.02 $ $ $ $ 71,769 13,385 58,384 1,135 1,735 19,215 39,769 16,346 23,423 10.99 10.89 $ $ $ $ 81,059 17,261 63,798 1,505 1,410 19,576 44,127 18,370 25,757 12.08 11.81 Balance Sheet Data: Total assets Cash & cash equivalents Securities available for sale Loans: Residential loans Commercial mortgage Construction Other Allowance for loan losses Deposits Federal Home Loan Bank advances Stockholders’ equity 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 Shares outstanding, at year end 1.07 % 13.52 7.89 3.07 3.19 43.15 1.34 $ $ 48.49 2,128,750 1.52 % 19.30 7.87 3.13 3.23 37.12 2.10 $ $ 57.08 2,128,750 1.18 % 14.81 7.97 3.06 3.17 36.32 1.46 $ $ 64.83 2,128,750 1.22 % 15.59 7.85 2.99 3.10 32.15 1.56 $ $ 75.50 2,132,750 1.21 % 14.73 8.22 2.91 3.05 30.06 1.66 $ $ 87.29 2,132,750 Standing (left to right): Edward L. Sparda Scott L. Moser Michael J. Desmond Robert A. Lane, Esq. Seated (left to right): Brian T. Kenner, Esq. Kara Gaughen Smith Robert H. Gaughen, Jr., Esq. Jacqueline M. Youngworth Robert K. Sheridan, Esq. Patrick R. Gaughen Julio R. Hernando, Esq. Kevin W. Gaughen, Esq. Stacey M. Page Ronald D. Falcione Geoffrey C. Wilkinson, Sr., Howard M. Berger, Esq. S t o c k h o l d e r I n f o r m a t i o n 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, 2017, there were approximately 238 stockholders of record, holding 140,282 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 prices for the Bank’s common stock reported by NASDAQ. 2017 First Quarter Second Quarter Third Quarter Fourth Quarter 2016 First Quarter Second Quarter Third Quarter Fourth Quarter High Low $ 200.90 $ 148.02 185.96 196.71 242.00 $ 127.71 137.45 139.90 203.01 166.45 174.47 191.45 $ 115.80 118.00 120.25 132.00 The closing sale price of the Bank’s common stock at December 31, 2017 was $207.00 per share. Hingham Institution for Savings 55 Main Street Hingham, MA 02043 (781) 749-2200 President and Chief Executive Officer Robert H. Gaughen, Jr. Investor Inquiries Patrick R. Gaughen Executive Vice President Transfer Agent and Registrar Computershare P.O. Box 505000 Louisville, KY 40233 (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 Goodwin Procter 100 Northern Avenue Boston, MA 02210 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, 2017, 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. BOSTON Beacon Hill South End COHASSET HINGHAM Hingham Square South Hingham Linden Ponds HULL NANTUCKET NORWELL/HANOVER SCITUATE WEYMOUTH www.hinghamsavings.com Member FDIC/Member DIF | Equal Housing Lender 

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