Hingham Institution for Savings
Annual Report 2018

Plain-text 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 C h a i r m a n a n d t h e P r e s i d e n t 22.3 19.3 23.4 25.8 30.4 2.10 1.46 1.56 1.66 1.92 57.08 64.83 75.50 87.29 99.67 16.5 1.16 1.10 1.42 1.32 1.24 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 Net Income* ($ in millions) Dividends Declared** ($ per share) Book Value ($ per share) 1,552 1,769 2,015 2,285 2,409 1,089 1,217 1,366 1,506 1,573 1,239 1,406 1,606 1,834 2,009 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 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). To Our Business Partners: 2018 was another outstanding year for Hingham Institution for Savings. We earned a record $30.4 million dollars for our owners, an 18% increase from 2017. Our return on average equity of 14.97% and return on average assets of 1.32% place us among the most profitable banks in the country. Net loans increased by 10% to $2.009 billion, deposits increased by 4% to $1.573 billion, and total assets increased by 5% to $2.409 billion. Book value per share rose 14% in 2018 from $87.29 to $99.67 per share. This excludes capital returned to the shareholders through regular and special dividends - we declared $1.92 in dividends per share in 2018. The trailing five year compound annual growth rate in book value per share, an important measure of long-term value creation, rose to 15.5%. The efficiency ratio fell to a record low of 29.89%, a reflection of our disciplined approach to expense control. As we survey the markets in which we operate, we believe that quality real estate in structurally advantaged urban markets like Boston and Washington D.C. will perform well through cycles. These cities have extraordinary concentrations of talent, innovation, and industry - concentrations that are intensifying over time. They are served, however, by fewer small and mid-sized banks. Both markets have seen meaningful consolidation in the last year, diminishing the choices available to strong commercial, institutional, and nonprofit customers. This will create opportunities for Hingham. We have the advantage of scale, with the capacity to handle lending relationships over $40 million, combined with a commitment to independence and a decision-making process that guarantees speed and surety of execution. We continue to look for strong commercial lenders and relationship managers in both markets to help us take advantage of these opportunities. We are planning for a permanent home in Washington, where we will build out a local team, as well as an expanded presence in Boston and Cambridge, where we believe there are significant opportunities for growth. We continue to make investments in our digital capabilities - in payments, account opening, analytics, and security - that support our relationship-based approach. Our model - personalized service, combined with digital excellence and low fees - is the future of our industry. Since the present management group became associated with the Bank twenty six 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 provides unquestionable assurance to our depositors, and an enduring culture of growth and success. We are well on our way. Very truly yours, Robert H. Gaughen, Jr. Chairman of the Board and Chief Executive Officer Patrick R. Gaughen President and Chief Operating Officer  2 6 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 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $7.35 $99.67 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 (dollars in thousands, except per share data) Total Assets Total Net Loans Book Value Per Share Return on Equity Earnings Per Share (Basic) 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 2018 $ 147,889 $ 153,192 76,936 $ 100,398 $ 8.24 $ 17.09% 1.33 0.10 $ 7.35 $ 1.34% $ $ 175,409 $ 119,472 9.17 $ 11.11% 0.98 $ $ 201,586 $ 151,166 9.87 $ 11.06% 1.05 $ $ 222,584 $ 172,839 10.93 $ 13.00% 1.36 $ $ 260,076 $ 204,774 12.05 $ 13.18% 1.53 $ $ 291,183 $ 229,687 12.83 $ 13.07% 1.65 $ $ 337,881 $ 266,568 14.46 $ 15.17% 2.07 $ $ 386,181 $ 282,386 16.38 $ 15.95% 2.49 $ $ 426,430 $ 320,692 18.48 $ 16.58% 2.91 $ $ 483,954 $ 358,778 19.68 $ 13.53% 2.58 $ $ 547,051 $ 415,538 21.29 $ 13.56% 2.80 $ $ 628,251 $ 488,126 23.01 $ 13.20% 2.95 $ $ 691,652 $ 539,104 24.47 $ 9.18% 2.19 $ $ 744,602 $ 593,915 25.85 $ 8.40% 2.12 $ $ 806,193 $ 647,255 28.20 $ 11.08% 2.96 $ $ 925,560 $ 718,242 30.74 $ 12.78% 3.79 $ $ 1,017,845 792,910 $ 34.24 $ 14.67% 4.81 $ $ 1,127,276 849,776 $ 38.70 $ 15.34% 5.68 $ $ 1,205,884 949,662 $ 43.65 $ 15.05% 6.25 $ $ 1,356,441 $ 1,078,879 48.49 $ 13.52% 6.28 $ $ 1,552,205 $ 1,238,656 57.08 $ 19.30% 10.46 $ $ 1,768,528 $ 1,405,533 64.83 $ 14.81% 9.09 $ $ 2,014,599 $ 1,605,647 75.50 $ 15.59% 10.99 $ $ 2,284,599 $ 1,833,987 87.29 $ 14.73% 12.08 $ $ 2,408,587 $ 2,009,288 99.67 $ 14.97% 14.25 $ * per share data for 1993, 1994, 1995 and 1996 adjusted for the 3 for 2 stock split B o s t o n C e n t e r f o r t h e A r t s listed from left to right Molly McDonald, Vice Chair John G.F. Ruggieri-Lam, Chairman of the Board Kristi Keefe, Chief Operating Officer Gregory Ruffer, President & CEO Situated in Boston’s South End, the Boston Center for the Arts provides a place for visual and performing artists to express and celebrate creativity. The campus occupies a historic city block opposite to Hingham’s South End office and welcomes over 200,000 visitors a year to theatre performances, art exhibitions and other community events. Finding a banking partner that supports the vitality and growth of local community organizations was critical to BCA President Gregory Ruffer. Hingham’s deep understanding of nonprofit financial management and approach to customized service made the relationship a natural fit. “Hingham shares our passion for community growth - they are an excellent banking partner.” GREGORY RUFFER President & CEO W o l l a s t o n G o l f C l u b David Gooding, President Milton, Massachusetts Wollaston Golf Club, established in 1895, is known for an outstanding course and gracious hospitality. When it came to banking, the Club sought a partner that could deliver client-first service. Wollaston initially came to Hingham to finance a major construction project, including a new golf building and renovation of their existing clubhouse. Based on their positive experience, the Club decided to move their entire banking relationship. With a dedicated relationship manager, Hingham provides the Club with timely, personalized service. “Hingham’s support of the local community aligns with “Hingham made what we expected to be a challenging the USES’ mission. We value our partnership with the process appear seamless. We can’t wait to share the Bank.” Club’s transformation with our members.” MACHARIA Z. WEIR LYTLE DAVID GOODING President R o c k C r e e k P r o p e r t y G r o u p listed from left to right Gary Schlager, Co-Founder Andrew Glick, Co-Founder Washington, DC “Meaningful relationships are a critical component to our business - we are fortunate that Hingham shares this approach.” ANDREW GLICK Co-Founder In 2000, Andy Glick and Gary Schlager co-founded Rock Creek Property Group, a real estate investment and development company. Rock Creek takes a strategic approach to investment, focusing on high quality real estate and establishing purposeful use for each property they pursue. Hingham has financed two Rock Creek properties in Washington. The 1920s-era historic Takoma Theater renovation combines modern functional uses with preservation of historic elements, including the iconic signage. Children’s National Medical Center plans to house its pediatric facility for behavioural health and medicine, hearing, speech and autism in the Theater. Rock Creek also acquired and renovated a building in the historic Shaw neighborhood, re-purposing the building as office space for Howard University. Rock Creek appreciated Hingham’s streamlined process, competitive rates and flexibility. G h i t a A k k a r President, Highline Development Boston, Massachusetts “The lenders at Hingham are responsive no matter what time of day. Their service has been spectacular.” GHITA AKKAR President Ghita Akkar is the President of Highline Development, a real estate development firm in Boston. Ghita’s work focuses on modernizing historic Boston brownstones while preserving their character and charm. Ghita came to Hingham to finance a construction project in Boston’s South End in the sought-after “8 Streets” neighborhood, only steps from the Bank’s South End office. Hingham’s expeditious service, flexible approach, and area knowledge were important to Ghita - we look forward to supporting her firm as it grows. M a r i a M i t c h e l l A s s o c i a t i o n David Gagnon, Executive Director Nantucket, Massachusetts The Maria Mitchell Association was founded over 115 years ago to celebrate the life and accomplishments of Maria Mitchell - a 19th century astronomer, naturalist and educator born on Nantucket. The Association operates two observatories, a research center, a natural science museum, an aquarium, the historic birthplace of Maria Mitchell, and provides year-round science and history programming. When an opportunity arose to acquire real estate adjacent to its downtown property, the Association came to Hingham for the financing. In Hingham, the Association found a stable, local partner committed to the advancement of science and the preservation of Nantucket as a natural resource and living laboratory for future generations. “Hingham has a genuine appreciation for the mission of the Maria Mitchell Association. We value the community focus of the Bank.” DAVID GAGNON Executive Director T h e D a n e s h G r o u p listed from left to right Joshua Danesh, Principal David Danesh, Principal Mordecai Danesh, Founder and President Daniel Danesh, Principal Brookline, Massachusetts “Since we started doing business with Hingham over 20 years ago, their commitment to excellence in client service has remained consistent.” MORDECAI DANESH Founder and President The Danesh Group is a family-owned real estate development and management firm with projects across greater Boston. Since 1996, Mordecai Danesh has been working with Hingham on an array of commercial, residential and mixed-use projects. Most recently, Hingham is financing the Danesh Group’s mixed-use project on Harvard Street near Coolidge Corner in Brookline. In the last several years, Mordecai’s three sons - David, Daniel, and Joshua, have become actively involved in the business. As a multigenerational family-run Bank, Hingham understands family businesses and provides the flexible, tailored banking service these firms need to thrive. 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 Balance Sheet Data: Total assets Cash & cash equivalents Securities 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 (loss) Operating expenses Income before income taxes Income tax provision Net income Core net income ** Earnings per common share: Basic Diluted Financial Ratios: 2014 2015 At December 31, 2018 2016 (In Thousands) $ 1,552,205 177,222 70,570 576,665 607,851 60,371 996 9,108 1,089,217 329,602 121,515 $ 1,768,528 261,013 40,603 $ 2,014,599 322,932 27,168 $ 635,522 681,601 95,433 644 9,905 1,217,027 402,464 138,015 685,674 796,063 131,778 678 11,030 1,366,109 475,318 161,024 2017 2018 $ 2,284,599 355,229 34,304 721,809 998,567 122,715 701 12,537 1,505,862 579,164 186,158 2,408,587 295,975 38,460 741,841 1,150,535 127,274 542 13,808 1,573,154 606,600 212,576 At or For the Years Ended December 31, 2018 2014 * 2015 2016 2017 2018 (Dollars in Thousands, Except Per Share Amounts) $ $ $ $ $ 56,193 9,936 46,257 625 7,863 20,089 33,406 11,142 22,264 22,267 $ $ $ 61,859 10,910 50,949 625 1,483 19,031 32,776 13,430 19,346 19,327 10.46 $ 10.44 $ 9.09 9.02 $ $ $ $ $ 71,769 13,385 58,384 1,135 1,735 19,215 39,769 16,346 23,423 23,202 $ $ $ 81,059 17,261 63,798 1,505 1,410 19,576 44,127 18,370 25,757 25,708 $ $ $ 94,169 28,384 65,785 1,270 (1,735) 20,051 42,729 12,330 30,399 32,776 10.99 $ 10.89 $ 12.08 11.81 $ $ 14.25 13.90 Return on average assets Return on average equity Core return on average assets ** Core 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 1.52 % 19.30 1.52 19.30 7.87 3.13 3.23 37.12 2.10 $ 57.08 $ 2,128,750 $ $ 1.18 % 14.81 1.18 14.80 7.97 3.06 3.17 36.32 1.46 64.83 2,128,750 1.22 % 15.59 1.21 15.44 7.85 2.99 3.10 32.15 1.56 $ 75.50 $ 2,132,750 1.21 % 14.73 1.21 14.70 8.22 2.91 3.05 30.06 1.66 87.29 2,132,750 $ $ 1.32 % 14.97 1.42 16.14 8.80 2.66 2.90 29.89 1.92 99.67 2,132,750 $ $ * Includes a net gain of approximately $5.7 million related to non-taxable life insurance death benefit received in 2014. * ** Non-GAAP measure which excludes after-tax gain (loss) on equity securities. 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, 2018, there were approximately 225 stockholders of record, holding 129,727 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. 2018 First Quarter Second Quarter Third Quarter Fourth Quarter 2017 First Quarter Second Quarter Third Quarter Fourth Quarter High Low $ 233.13 229.40 227.50 229.99 $ 195.05 201.89 213.84 194.03 $ 200.90 $ 148.02 185.96 196.71 242.00 166.45 174.47 191.45 The closing sale price of the Bank’s common stock at December 31, 2018 was $197.74 per share. Hingham Institution for Savings 55 Main Street Hingham, MA 02043 (781) 749-2200 Chairman and Chief Executive Officer Robert H. Gaughen, Jr. Investor Inquiries Patrick R. Gaughen President and Chief Operating Officer 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, 2018, 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. 

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