3. 31. 2021
Hanover Bancorp, Inc. Reports Second Fiscal Quarter 2021 Results highlighted by Record Net Interest Income and Record Net Interest Margin
Second Fiscal Quarter Performance Highlights
- Net Income: Net income for the calendar quarter ended March 31, 2021 totaled $2.1 million or $0.48 per diluted common share, versus $249 thousand or $0.06 per diluted common share recorded in the comparable 2020 period. The Company recorded core (non-GAAP) net income and core diluted earnings per share of $2.2 million and $0.51, respectively, in the calendar quarter ended March 31, 2021 versus $661 thousand and $0.16, respectively, in the comparable quarter ended March 31, 2020. The Company recorded net income for the six months ended March 31, 2021 of $3.6 million or $0.84 per diluted common share compared with $2.0 million or $0.48 per diluted common share in the comparable 2020 six-month period. The Company recorded core (non-GAAP) net income and core diluted earnings per common share of $3.9 million and $0.91, respectively, for the six months ended March 31, 2021 versus $2.8 million and $0.66, respectively, in the six months ended March 31, 2020.
- Balance Sheet: Assets totaled $890.4 million at March 31, 2021, down $5.2 million from March 31, 2020 and up $13.5 million from December 31, 2020.
- Continued Capital Strength: Hanover Community Bank’s Tier 1 leverage ratio was 12.00% and its Total Risk-Based capital ratio was 22.49% at March 31, 2021, each significantly above the regulatory minimums for a well-capitalized institution.
- Increase in Tangible Book Value Per Share: Tangible book value per common share increased by 9.5% to $19.19 at March 31, 2021 from $17.53 at the comparable 2020 date.
- Year-Over-Year Loan Growth: Total loans outstanding at March 31, 2021 were $763.6 million or 85.8% of total assets, an increase of $71.5 million (10.3%) from March 31, 2020 and up $34.8 million (4.8%) from December 31, 2020.
- Record Net Interest Income: Net interest income grew to a record $7.8 million for the quarter ended March 31, 2021, an increase of $1.3 million, or 19.7%, versus the comparable 2020 quarter.
- Record Net Interest Margin: The Company’s net interest margin increased significantly during the quarter ended March 31, 2021 to a record 3.79% versus 3.06% in the quarter ended March 31, 2020 and 3.53% in the quarter ended December 31, 2020.
- Savoy Acquisition: On August 27, 2020, the Company announced that it had entered into a definitive agreement to acquire Savoy Bank (“Savoy”). Savoy is a community commercial bank with total assets of $692 million, total loans of $607 million (including PPP loans) and total deposits of $365 million at March 31, 2021. Savoy operates one branch in midtown Manhattan. This transaction is expected to be completed in the second quarter of 2021, subject to regulatory approvals and other customary closing conditions.
Mineola, NY – April 27, 2021 – Hanover Bancorp, Inc. (“Hanover” or “the Company”), the holding company for Hanover Community Bank (“the Bank”) today reported significant performance achievements for the quarter ended March 31, 2021, highlighted by strong capital and loan growth in addition to record levels of net interest income and net interest margin.
Earnings Summary for the Quarter Ended March 31, 2021 The Company reported net income for the calendar quarter ended March 31, 2021 of $2.1 million or $0.48 per diluted common share, representing an increase of $1.8 million from the comparable year ago period when net income totaled $249 thousand or $0.06 per diluted common share. Second fiscal quarter returns on average total assets and average stockholders’ equity were 0.97% and 10.28%, respectively, in 2021versus 0.11% and 1.34% in the year ago period.
The improvement in net income recorded in the second fiscal quarter of 2021 resulted from a $1.3 million or 19.7% increase in net interest income, an $800 thousand reduction in the provision for loan losses and a $254 thousand increase in non-interest income versus the comparable 2020 period. Partially offsetting these positive factors was a $94 thousand or 1.7% increase in total operating expenses in the second fiscal quarter of 2021 from the year ago quarter. The year-over-year growth in net interest income was due to a substantial widening of the Company’s net interest margin to 3.79% in 2021 from 3.06% in the comparable 2020 quarter. The margin improvement resulted principally from a 110 basis point reduction in the cost of average interest-bearing liabilities to 0.96% in 2021, largely due to a 125 basis point reduction in the average rate paid on savings and time deposits in the 2021 quarter. Also adding to the wider margin was a shift in the average interest-earning asset mix resulting from a $28.3 million increase in average loans outstanding coupled with a $55.2 million reduction in low yielding average interest-earning cash in the second fiscal quarter of 2021 versus the comparable 2020 period. The reduction in the provision for loan losses in the second fiscal quarter of 2021 was due to the additional provision taken in the second fiscal quarter of 2020 due to economic concerns primarily related to the COVID-19 pandemic. Although the economy in the Company’s market area appears to have stabilized in 2021, the Company did not reverse any previously recognized loan loss provisions due to continued economic uncertainty. The growth in noninterest income in the second fiscal quarter of 2021 resulted primarily from a $240 thousand gain on the sale of a security available for sale and a $68 thousand or 119.3% increase in loan fees and service charges.
Excluding merger-related charges recorded in the second fiscal quarter of 2021 and litigation and proxy contest expenses recorded in the comparable 2020 period, core (non-GAAP) operating net income was $2.2 million or $0.51 per diluted common share, up $1.5 million versus 2020 core operating net income. Second fiscal quarter core returns on average total assets and average stockholders’ equity, excluding merger, litigation, and proxy-related charges in each respective period, were 1.02% and 10.88%, respectively in 2021, versus 0.30% and 3.56% a year ago.
Earnings Summary for the Six Months Ended March 31, 2021
For the six months ended March 31, 2021, the Company reported net income of $3.6 million or $0.84 per diluted common share versus $2.0 million or $0.48 per diluted common share a year ago.
The improved level of earnings in 2021 resulted from a $1.9 million increase in net interest income, principally due to a 50 basis point widening of the company’s net interest margin to 3.66% in the six months ended March 31, 2021, a $700 thousand reduction in the provision for loan losses and a reduction in the effective tax rate to 20.4% in 2021 from 22.4% a year ago. Partially offsetting these positive factors was a $152 thousand reduction in non-interest income in the 2021 period coupled with a $533 thousand increase in total operating expenses, principally resulting from growth in compensation and benefits related to increased headcount as the Company has continued to grow and create the infrastructure required for a public reporting company. Experienced executives have also been added to implement new product initiatives such as municipal banking along with expanded commercial real estate and commercial and industrial lending.
Michael P. Puorro, Chairman and Chief Executive Officer, commented on the Company’s results: “I am extremely pleased with Hanover’s second fiscal quarter 2021 financial results which produced record levels of net interest income and net interest margin and prudent loan growth. We will continue to be very cautious when extending credit until the economy shows signs of sustained improvement though I am confident that recent indications bode well for a strong recovery during the balance of 2021. As I have previously stated, we continue to work proactively with our borrowers who have been granted loan forbearances and we have had great success to date in returning the vast majority of these borrowers back to regular payment status. I am also very excited about our strategic merger with Savoy Bank that we are confident will create one of the premier community banks in the metro New York City area with under $5 billion in total assets. We have highly complementary lending niches, and we believe that Savoy’s funding profile will benefit greatly from Hanover’s rapid progress in building out several niche core deposit businesses, including our municipal banking function, which fueled our record net interest margin this quarter. I am also looking forward to working closely with Mac Wilcox, Savoy’s President and CEO who will join Hanover as Senior Executive Vice President, Head of Commercial Lending and Chief Revenue Officer, as well as Metin Negrin and Elena Sisti from Savoy who will be joining Hanover’s Board of Directors. The merger is expected to close in the second quarter of 2021, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by Savoy’s shareholders.”
Mr. Puorro also noted, “Growth in shareholder value is always our highest priority at Hanover
Bancorp. This hallmark of our success continues to be reflected by growth in tangible book value
per share which increased by $1.66, or 9.5%, to $19.19 per share at March 31, 2021 versus the
comparable 2020 date.”
Balance Sheet GrowthTotal assets at March 31, 2021 were $890.4 million versus $895.6 million at the comparable 2020 date. Total deposits at the same date were largely flat at $718.2 million when compared to March 31, 2020, however, there was a significant shift in the deposit mix as core deposits (Demand, N.O.W., Savings and Money Market) increased year-over-year by $171.2 million while Time Deposits declined by $170.1 million. Management reduced usage of its Federal Home Loan Bank (“FHLB”) borrowing capacity in the second fiscal quarter of 2021 as other lower cost funding options were utilized to replace maturing FHLB advances. Borrowings at March 31, 2021 declined by $25.0 million to $56.4 million, with a weighted average rate and term of 1.23% and 24 months, respectively. At March 31, 2021, the Bank had $154.0 million of additional borrowing capacity from the FHLB.
Stockholders’ equity increased by $7.7 million to $82.2 million at March 31, 2021 from the comparable 2020 date resulting in an 9.5% increase in tangible book value per share over the past twelve months to $19.19 at March 31, 2021.
The Company’s average cost of interest-bearing liabilities decreased to 0.96% for the quarter ended March 31, 2021, from 2.06% a year ago and declined from 1.26% on a linked quarter basis. Partially offsetting the improvement in the Company’s average cost of interest-bearing liabilities from the March 2020 period was a 27 basis point reduction in the average yield on interest-earning assets to 4.56% during the calendar quarter ended March 31, 2021, primarily driven by lower average loan yields (down 49 basis points in 2021) resulting principally from the lower interest rate environment that continues to prevail in 2021.
Strong Loan Portfolio Growth
For the twelve months ended March 31, 2021, the Bank’s loan portfolio, net of sales, grew by $71.5 million, or 10.3%. Year over year growth was concentrated primarily in multi-family, commercial real estate, and PPP loans. At March 31, 2021, the Company’s residential loan portfolio amounted to $432.5 million, with an average loan balance of $430 thousand and a weighted average loan-to-value ratio of 52%. Commercial real estate loans totaled $293.7 million at March 31, 2021, with an average loan balance of $816 thousand and a weighted average loan-to-value ratio of 53%. The Company’s commercial real estate concentration ratio was 247% of capital at March 31, 2021 versus 235% of capital at the comparable 2020 date.
Historically, the Bank has been able to generate additional income by strategically originating and selling its primary lending products to other financial institutions at premiums, while also retaining servicing rights in some sales. The Bank expects that it will continue to originate loans, for its own portfolio and for sale, which will result in continued growth in interest income while also realizing gains on sale of loans to others and recording servicing income. The loan sale market was negatively impacted by the COVID-19 pandemic during much of 2020 although current indications are that it is again close to normalizing. During the quarter ended March 31, 2021, the Company sold $9.4 million in performing loans and recorded gains on the sale of loans held-for-sale of $295 thousand versus gains of $181 thousand in the quarter ended December 31, 2020 and gains of $339 thousand in the quarter ended March 31, 2020. During the twelve months ended March 31, 2021, the Company recorded cumulative gains of $491 thousand on the sale of performing loans held-for-sale.
At March 31, 2021, the Company reported $9.4 million in non-performing loans which
represented 1.22% of total loans outstanding, as compared to $1.7 million in nonperforming
loans, or 0.25% of total loans outstanding at March 31, 2020. The increase in non-performing
loans in 2021 resulted from the addition of several credits where the borrowers had been granted
forbearance in 2020 and where management believed it unlikely that the borrowers would be
able to comply with the terms of their modified payment plans. The Company believes that each
of these loans is well secured. During the second fiscal quarter of 2021, the Company recorded
a provision for loan losses expense of $200 thousand. The March 31, 2021 allowance for loan
losses balance was $8.2 million versus $7.8 million a year ago. The allowance for loan losses
as a percent of total loans was 1.07% at March 31, 2021 versus 1.09% at December 31, 2020
and 1.13% at March 31, 2020. The allowance for loan losses as a percent of total originated
loans was 1.18% at March 31, 2021.
Record Net Interest Margin
The Bank’s net interest margin improved to a record 3.79% during the second fiscal quarter of
2021, versus 3.06% in the comparable 2020 quarter and 3.53% in the quarter ended December
31, 2020. The 73 basis point increase in the Bank’s net interest margin versus the comparable
2020 quarter was primarily attributable to a 110 basis point reduction in the cost of average
interest-bearing liabilities to 0.96% from 2.06% a year ago. The lower cost of funds in 2021 was
the result of a significant reduction in the cost of interest-bearing deposits in 2021 (down 125
basis points), accompanied by a shift in the Company’s deposit mix to a greater concentration
of core deposit balances. Also contributing to the wider margin in the second fiscal quarter of
2021 was a decrease in lower-yielding average interest-bearing cash on the balance sheet
(down $55.2 million). Partially offsetting the positive impact of the foregoing factors, the average
rate on total interest-earning assets declined by 27 basis points to 4.56% in the second fiscal
quarter of 2021 versus the comparable 2020 period. This reduction in yield was largely the result
of a 49 basis point decrease in the average loan yield to 4.99% in 2021.
Operating Efficiency Ratio
The Bank’s operating efficiency ratio was 69.4% in the second fiscal quarter of 2021 versus
81.0% a year ago. The second fiscal quarter 2021 core operating efficiency ratio, which
excludes merger-related charges, was 67.5%.
About Hanover Community Bank and Hanover Bancorp, Inc.
Hanover Bancorp, Inc., is a locally owned and operated privately held stock bank holding
company for Hanover Community Bank, a community commercial bank focusing on highly
personalized and efficient services and products responsive to local needs. Management and
the Board of Directors are comprised of a select group of successful local businessmen and
women who are committed to the success of the Bank by knowing and understanding the metroNew York area’s financial needs and opportunities. Backed by state-of-the-art technology,
Hanover offers a full range of financial services. Hanover employs a complete suite of consumer
and commercial banking products and services, including multi-family and commercial
mortgages, residential loans, business loans and lines of credit. Hanover also offers its
customers access to 24-hour ATM service with no fees attached, free checking with interest,
telephone banking, advanced technologies in mobile and internet banking for our consumer and
business customers, safe deposit boxes and much more. The Company’s corporate
administrative office is located in Mineola, New York where it also operates a full service branch office along with additional branch locations in Garden City Park, Forest Hills, Flushing, Sunset Park, and Chinatown, New York.
Hanover Community Bank is a member of the Federal Deposit Insurance Corporation and is an Equal Housing/Equal Opportunity Lender. For further information, call 516-548-8500 or visit the Bank’s website at www.hanoverbank.com.
This discussion includes non-GAAP financial measures of the Company’s core net income, core net interest margin, core returns on average assets and shareholders’ equity, and core operating efficiency ratio. A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company’s management believes that the presentation of non-GAAP financial measures provides both management and investors with a greater understanding of the Company’s operating results and trends in addition to the results measured in accordance with GAAP. While management uses non-GAAP financial measures in its analysis of the Company’s performance, this information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with U.S. GAAP or considered to be more important than financial results determined in accordance with U.S. GAAP. The Company’s non-GAAP financial measures may not be comparable to similarly titled measures used by other financial institutions.
With respect to the calculations of core operating net income and core operating efficiency ratio for the periods presented in this discussion, reconciliations to the most comparable U.S. GAAP measures are provided in the tables that follow.
This release may contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” “predict,” “continue,” and “potential” or the negative of these terms or other comparable terminology. Examples of forwardlooking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Hanover Bancorp, Inc. Any or all of the forwardlooking statements in this release and in any other public statements made by Hanover Bancorp, Inc. may turn out to be incorrect. They can be affected by inaccurate assumptions Hanover Bancorp, Inc. might make or by known or unknown risks and uncertainties. Further, the adverse effect of the COVID-19 pandemic on the Company, its customers, and the communities where it operates may adversely affect the Company’s business, results of operations and financial condition for an indefinite period. Consequently, no forward-looking statement can be guaranteed. Hanover Bancorp, Inc. does not intend to update any of the forward-looking statements after the date of this release or to conform these statements to actual events.
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