117: Hingham Savings Annual Meeting Notes & Other Updates
Links to some articles and news related to Watchlist companies, plus a sprinkling of commentary
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Creightons, PLC
C-Suite / Board Changes: UK-based beauty products maker Creightons announced important changes after Bernard Johnson left in November. Since then we’ve been a bit in the dark. Marketing head, Pippa Clark, was named MD (equivalent to CEO). Additionally, current chair (and 25% owner) William McIlroy is stepping down as Chair/CEO but staying on the board. Director Paul Forster will assume the non-executive chairman position. Additionally, Brian Geary joined the board as a non-executive director (he and his family own 10% of the company).
Hingham Institution for Savings
Annual meeting: Hingham held its annual meeting yesterday. I drove down to attend in person and met up with some fantastic fellow shareholders / fellow value investors. The link to the replay is usually posted to the website within a week. Here are my high-level takeaways:
Credit quality remains pristine. Not a single one of their 1,700 commercial loans is past due or delinquent. In the entirety of the bank there is one $460,000 resi loan 15 days past due.
They are not looking to change anything about the structure of the bank in a major way, though there are some changes coming at the margin.
One of those changes is moving from a 5 year reset at year 5 to a one year reset at year five. The reason for this is that the 54321 prepayment penalty doesn’t get put in place for the resets so it’s disadvantageous to the bank. I do wonder if the reset will be over the one year benchmark and how that will affect things. In any event, this will help with future inversions and step rises like the current cycle.
They are pushing out the duration on HLB funding and CDs just a touch, but nothing major.
They are looking at potential branch locations, perhaps north of Boston in Cambridge if the can find a good long-term spot.
“Credit risk kills banks” Love this quote
Recommended reading FHFA analysis of the FHLB system at 100 years old. Link here.
They test the Fed discount window from time to time, typically borrowing for a day and then repaying it. Unlike the FHLB, which has fine-tuned its processes, the discount window is a bit clunky and underdeveloped. The WSJ had a good article on it discussing the need to take away the stigma from using it.
Recommended reading Heather Knight of the SF Chronicle for a fair/balanced view of the city.
They were wrong on the speed with which fragmentation would happen when JP Morgan bought First Republic, although that’s starting to happen now. People are leaving and there is friction with the JPM systems. This produces an opportunity for Hingham.
Buybacks are still on the backburner as the bank focuses on the organic reinvestment opportunities in front of it. The bank sees the long term value of brining on a multi-generational borrower who brings deposits and grows their portfolio as right now more attractive than buybacks.
They highlighted the speed of execution that Hingham can deliver.
Discussion about an Alexandria, VA office building that they saw as differentiated. Other banks have just been walking away from deals when they hear office but Hingham puts its hands on the property and sees the nuance. In this case the office building has lawyers for tenants and the building is right next to the courthouse. Such a property is going to have far better prospects than another building or a similar one a mile away. Clearly lawyers are going to want to be close to court, and will need to be in person.
Another reminder about the structure of the bank. They are structured to make money through the cycle. The liability sensitivity is beneficial over time since there is typically a positive slope (avg. of 125bps) and then a ~200bps spread for credit and overhead. Levered that should produce an ROE in the mid-teens.
They think of themselves not as bankers but as owners.
A fun ending story related to the point above about the time Patrick and Robert went to the address in the proxy statement of a bank only to find a confused front desk clerk. The chair finally came out and they were told that the shareholders attended the lunch and that the meeting was for the board only. Perplexed, they came back the next year for the lunch and made sure to have some of the double course of desserts.
Stay rational! —Adam
