9. 30. 2020
Hanover Bancorp, Inc. Reports Third Calendar Quarter and Fiscal Year 2020 Results highlighted by Record Net Interest Income and Record Net Interest Margin
Third Calendar Quarter and Fiscal Year Performance Highlights
- Net Income: GAAP Net income for the quarter ended September 30, 2020 totaled $1.5 million or $0.37 per diluted common share, versus $1.4 million or $0.32 per diluted common share recorded in the same period a year ago. The Company recorded core (non-GAAP) net income of $1.7 million in the quarter ended September 30, 2020 versus core net income of $1.8 million in the comparable 2019 quarter. The Company recorded GAAP net income for the fiscal year ended September 30, 2020 of $5.0 million or $1.18 per diluted common share compared with $8.1 million or $2.05 per diluted common share in the 2019 fiscal year. The Company recorded core (nonGAAP) net income of $5.9 million for the fiscal year ended ended September 30, 2020 versus core net income of $8.7 million in the 2019 fiscal year.
- Balance Sheet: Assets totaled $851.6 million at September 30, 2020, up $13.6 million from June 30, 2020 and up $2.8 million from September 30, 2019.
- Continued Capital Strength: The Bank’s Tier 1 capital ratio was 11.22% and its Total Risk-Based capital ratio was 20.75% at September 30, 2020, 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 7.7% to $18.23 at September 30, 2020 from $16.92 at the comparable 2019 date.
- Year-Over-Year Loan Growth: Total loans outstanding at September 30, 2020 were $725.0 million or 85.1% of total assets, an increase of $4.7 million from June 30, 2020 and up $4.6 million from September 30, 2019.
- Excellent Asset Quality: At September 30, 2020, the Bank’s asset quality remained pristine with non-performing loans representing only 0.13% of the total portfolio.
- Record Net Interest Income: Net interest income was $7.4 million for the quarter ended September 30, 2020, an increase of $1.0 million, or 16.4%, versus the comparable 2019 quarter.
- Record Net Interest Margin: The Company’s net interest margin increased significantly during the quarter ended September 30, 2020 to 3.73% versus 3.13% in 2 the quarter ended June 30, 2020 and 3.24% in the quarter ended September 30, 2019.
- Continued Growth Through 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 $588 million, total loans of $547 million and total deposits of $334 million at September 30, 2020. Savoy operates one branch in midtown Manhattan. This transaction is expected to be completed in the first half of 2021, subject to regulatory approvals and other customary closing conditions.
Mineola, NY – October 23, 2020 – 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 September 30, 2020, highlighted by strong capital, excellent asset quality and record levels of net interest income and net interest margin.
Earnings Summary for the Quarter Ended September 30, 2020
The Company reported GAAP net income for the quarter ended September 30, 2020 of $1.5
million or $0.37 per diluted common share, versus $1.4 million or $0.32 per diluted common
share in the comparable year ago period, representing an increase of $136 thousand or 9.6%.
The improvement in GAAP net income recorded in the third calendar quarter of 2020 resulted from a $1.0 million or 16.4% increase in net interest income coupled with a reduction in the Company’s effective tax rate to 15.6% in 2020 from 32.4% a year ago. Partially offsetting these
positive factors was a $785 thousand decrease in noninterest income due to a lower gain on sale of loans held-for-sale in 2020 and a $758 thousand increase in total operating expenses principally resulting from growth in compensation and benefits and occupancy and equipment, due largely to growth in personnel and branch facilities as a result of the acquisition of Chinatown Federal Savings Bank (“CFSB”) in August 2019. The year-over-year growth in net interest income was due to a substantial widening of the Company’s net interest margin to 3.73% in 2020 from 3.24% in the comparable 2019 quarter. The margin improvement resulted principally from a 68 basis point reduction in the cost of interest-bearing liabilities to 1.46% in 2020 coupled with a 44.0% increase in average noninterest-bearing demand deposit balances in the third calendar quarter of 2020.
Excluding merger-related charges recorded in the third calendar quarter of 2020, core (nonGAAP) operating net income was $1.7 million or $0.41 per diluted common share, down $67 thousand or 3.7% versus 2019 core operating net income. Third calendar quarter returns on average total assets and average stockholders’ equity, excluding merger-related charges in each period, were 0.84% and 8.90%, respectively in 2020, versus 0.89% and 10.11% a year ago.
Earnings Summary for the Fiscal Year Ended September 30, 2020
For the fiscal year ended September 30, 2020, the Company reported GAAP net income of $5.0 million or $1.18 per diluted common share versus $8.1 million or $2.05 per diluted common share a year ago.
The reduction in earnings in 2020 resulted from a $4.8 million increase in total operating expenses, principally due to growth in personnel and branch facilities as a result of the CFSB acquisition, a $3.4 million decrease in non-interest income and a $600 thousand increase in the provision for loan losses due to economic concerns primarily related to the COVID-19 pandemic. Partially offsetting these factors was a $4.7 million improvement in net interest income and a reduction in the Company’s effective income tax rate to 20.2% in 2020 from 24.5% in 2019.
Michael P. Puorro, Chairman and Chief Executive Officer, commented on the Company’s results: “Given the ongoing challenges posed by a combination of near-zero interest rates and the continued economic uncertainty facing many of our clients, I am extremely pleased with Hanover’s third calendar quarter 2020 financial results which produced record levels of net interest income and net interest margin despite reduced balance sheet growth while we continue to err on the side of caution when extending credit until the economy shows signs of sustained improvement. We are working diligently with our borrowers who have been granted loan forbearances and 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 recently announced 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. 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. The merger is expected to close in the first half of 2021, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by Savoy’s shareholders.”
“I am also pleased to report that, on October 7, 2020, we completed a $25 million private placement of fixed-to-floating rate subordinated notes. The notes will initially bear an interest rate of 5.00% per annum until October 15, 2025. After that date, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then-current three-month secured overnight funding rate plus 487.4 basis points. A portion of the proceeds were used to pay off the Company’s $15 million, 5.85% fixed rate line of credit. The balance of the proceeds will be used for acquisition financing and general corporate purposes, including contributing equity capital to Hanover Community Bank.”
Mr. Puorro also noted, “Growth in shareholder value is always our number one priority at Hanover Bancorp. This hallmark of our success continues to be reflected by growth in tangible book value per share which increased by $1.31, or 7.7%, to $18.23 per share at September 30, 2020 versus the comparable 2019 date.”
Balance Sheet Growth
Total assets for the period ended September 30, 2020 were $851.6 million versus $848.8 million at the comparable 2019 date. Total deposits at the same date increased by 2.2% to $664.8 million when compared to September 30, 2019, the result of growth in core deposits (Demand, N.O.W., Savings and Money Market) of $5.2 million. Management reduced usage of its Federal Home Loan Bank (“FHLB”) borrowing capacity in the third calendar quarter of 2020 as other lower cost funding options were utilized to replace maturing FHLB advances. FHLB borrowings can be used to enhance both the Bank’s liquidity position and its interest rate risk profile when the need arises. Total borrowings at September 30, 2020 were $85.2 million, including $16.2 million in Federal Reserve Bank Paycheck Protection (“PPP”) Liquidity Facility advances, with a weighted average rate and term of 1.17% and 24 months, respectively. At September 30, 2020, the Bank had $58.5 million of additional borrowing capacity from the FHLB.
Stockholders’ equity increased by $6.1 million to $78.0 million at September 30, 2020 from the comparable 2019 date resulting in an 7.7% increase in tangible book value per share over the past twelve months to $18.23 at September 30, 2020. Insiders have made significant investments of their own capital into Hanover Bancorp, Inc. Insider ownership represented approximately 24% of total shares outstanding at September 30, 2020.
The Company’s average cost of interest-bearing liabilities decreased to 1.46% for the calendar quarter ended September 30, 2020, from 2.14% a year ago and declined from 1.79% on a linked quarter basis. Partially offsetting the improvement in the Company’s average cost of interestbearing liabilities from the September 2019 quarter was an 11 basis point reduction in the average yield on interest-earning assets to 4.94% during the third calendar quarter of 2020, primarily driven by lower average loan yields (down 13 basis points in 2020) resulting principally from the lower interest rate environment in 2020.
Strong Loan Portfolio and Excellent Asset Quality
For the twelve months ended September 30, 2020, the Bank’s loan portfolio, net of sales, grew by $4.6 million, or 0.6%. Year over year growth was concentrated primarily in PPP and commercial real estate loans. Earlier this year, management made a decision to reduce residential loan originations and maintain additional liquidity until the impact of the COVID-19 pandemic became clearer. Although the local economy has shown preliminary signs of improvement, management continues to cautiously consider opportunities to expand the loan portfolio. At September 30, 2020, the Company’s residential loan portfolio amounted to $453.8 million, with an average loan balance of $430 thousand and a weighted average loan-to-value ratio of 52%. Commercial real estate loans totaled $250.5 million at September 30, 2020, with an average loan balance of $722 thousand and a weighted average loan-to-value ratio of 49%. The Company’s commercial real estate concentration ratio was 246% of capital at September 30, 2020 versus 265% of capital at the comparable 2019 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 the past few quarters although current indications are that it continues to improve and may be close to normalizing. During the quarter ended September 30, 2020, the Company sold $3.4 million in performing loans at par versus recognizing a gain of $15 thousand in the quarter ended June 30, 2020 and a gain of $818 thousand in the quarter ended September 30, 2019. During the twelve months ended September 30, 2020, the Company sold $34.4 million in performing loans held-for-sale and recorded cumulative gains of $917 thousand.
The Bank’s asset quality ratios continue to remain strong and among the best in its peer group of community banks. At September 30, 2020, the Company reported $953 thousand in nonperforming loans which represented 0.13% of total loans outstanding. During the third calendar quarter of 2020, the Bank recorded a provision for loan losses expense of $100 thousand. The September 30, 2020 allowance for loan losses balance was $7.9 million versus $7.1 million a year ago. The allowance for loan losses as a percent of total loans was 1.09% at September 30, 2020 versus 1.11% at June 30, 2020 and 0.99% at September 30, 2019. The allowance for loan losses as a percent of total originated loans was 1.22% at September 30, 2020.
Record Net Interest Margin
The Bank’s net interest margin improved to a record 3.73% during the third calendar quarter of 2020, versus 3.24% in the comparable 2019 quarter and 3.13% in the quarter ended June 30, 2020. The 49 basis point increase in the Bank’s net interest margin versus 2019 was primarily attributable to a 68 basis point reduction in the yield on average interest-bearing liabilities to 1.46% from 2.14% a year ago. The lower cost of funds in 2020 was the result of a significant reduction in the cost of interest-bearing deposits in 2020 (down 73 basis points), accompanied by a shift in the Company’s deposit mix to a greater concentration of non-interest-bearing demand deposit balances. Also contributing to the wider margin in the third calendar quarter of 2020 was a decrease in lower-yielding average interest-bearing cash on the balance sheet (down $26.9 million). Partially offsetting the positive impact of the foregoing factors, the average rate on total interest-earning assets declined by 11 basis points to 4.94% in the third calendar quarter of 2020 versus the comparable 2019 period. This reduction in yield was largely the result of a 13 basis point decrease in the average loan yield to 5.25% in 2020.
Operating Efficiency Ratio
The Bank’s GAAP operating efficiency ratio was 74.3% in the third calendar quarter of 2020 versus 71.3% a year ago. The third calendar quarter 2020 core operating efficiency ratio, which excludes merger-related charges, was 71.4%.
Continued Growth Through Acquisition
On August 27, 2020, the Company announced that it had entered into a definitive agreement to acquire Savoy Bank (“Savoy”) in a stock and cash transaction valued at approximately $63 million. Savoy is a community commercial bank with total assets of $588 million, total loans of $547 million and total deposits of $334 million at September 30, 2020. Savoy operates one branch in midtown Manhattan. This transaction is expected to be completed in the first half of 2021, subject to regulatory approvals and other customary closing conditions.
The merger combines two complementary banking platforms to create one of the premier sub- $5 billion asset sized community banks serving the greater New York City metro market. The combined company will be uniquely positioned to capitalize on market opportunities due to recent and ongoing consolidation and broaden the channels and customers it serves through increased scale, expanded product offerings and employment of digital initiatives. The combined company will have approximately $1.6 billion in assets, $1.1 billion in total deposits and 8 branches, including 6 branches in the New York City market, with the expectation that an additional branch in New Jersey will be opened prior to closing. Hanover will continue to operate Savoy’s single midtown Manhattan branch office and it will become the focal point and headquarters for Hanover’s business development efforts in the New York City market.
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 operating earnings, 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 of time. 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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