Hanover Bancorp, Inc. Reports Third Calendar Quarter and Fiscal Year 2021 Results highlighted by Record Levels of Net Income, Net Interest Income and Net Interest Margin
Third Calendar Quarter and Fiscal Year Performance Highlights
- Net Income: Net income for the quarter ended September 30, 2021, totaled $7.1 million or $1.25 per diluted common share, versus $1.5 million or $0.37 per diluted common share recorded in the same period a year ago. The Company recorded adjusted (non-GAAP) net income (excluding merger-related charges) of $7.2 million in the quarter ended September 30, 2021, versus adjusted (non-GAAP) net income of $1.7 million in the comparable 2020 quarter. The Company recorded net income for the fiscal year ended September 30, 2021, of $10.9 million or $2.28 per diluted common share compared with $5.0 million or $1.18 per diluted common share in the 2020 fiscal year. The Company recorded adjusted (non-GAAP) net income (primarily excluding merger-related charges) of $14.4 million for the fiscal year ended September 30, 2021, versus adjusted (non-GAAP) net income of $5.9 million in the 2020 fiscal year.
- Financial Performance Metrics: Returns on average total assets and average stockholders’ equity were 1.88% and 23.45%, respectively, in the quarter ended September 30, 2021, versus 0.76% and 7.97% in the comparable 2020 period.
- Record Net Interest Income: Net interest income was $16.1 million for the quarter ended September 30, 2021, an increase of $8.8 million, or 119.0%, versus the comparable 2020 quarter.
- Record Net Interest Margin: The Company’s net interest margin increased significantly during the quarter ended September 30, 2021, to 4.51% versus 3.74% in the quarter ended June 30, 2021, and 3.73% in the quarter ended September 30, 2020. Excluding the impact of net purchase accounting accretion, the Company’s net interest margin was 3.76% and 3.55% in the quarters ended September 30, 2021, and June 30, 2021, respectively.
- Balance Sheet: Assets totaled $1.48 billion at September 30, 2021, versus $1.54 billion at June 30, 2021, and $851.6 million at September 30, 2020.
- Capital Strength: The Bank’s Tier 1 leverage ratio was 9.45% and its Total Risk-Based capital ratio was 15.59% at September 30, 2021, each significantly above the regulatory minimums for a well-capitalized institution.
- Tangible Book Value Per Share: Tangible book value per common share increased to $18.49 at September 30, 2021, from $17.40 at June 30, 2021, and $18.23 at September 30, 2020.
- Strong Lending Activity: On a linked quarter basis, the Company exhibited net loan growth, excluding Paycheck Protection Program (“PPP”) loans, of $53.8 million or 20.45% on an annualized basis. At September 30, 2021, the Company’s loan pipeline was approximately $319.0 million.
- Expansion into New Jersey Market:
The Company intends to open a full-service branch and loan production office in Freehold, New Jersey in December. This location will expand the Company’s niche Small Business Administration (“SBA”) lending footprint into both the New Jersey and eastern Pennsylvania marketplaces.
Mineola, NY – October 28, 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 September 30, 2021, highlighted by record levels of net income, net interest income and net interest margin. Further, the Company successfully completed the full integration of its Savoy Bank acquisition during the third quarter.
Earnings Summary for the Quarter Ended September 30, 2021
The Company reported net income for the quarter ended September 30, 2021, of $7.1 million or $1.25 per diluted common share, versus $1.5 million or $0.37 per diluted common share in the comparable year ago period, representing an increase of $5.5 million. Returns on average total assets and average stockholders’ equity were 1.88% and 23.45%, respectively, in the quarter ended September 30, 2021, versus 0.76% and 7.97% in the comparable 2020 period.
The improvement in net income recorded in the third calendar quarter of 2021 resulted from an $8.8 million or 119.0% increase in net interest income coupled with a $1.6 million improvement in non-interest income. Partially offsetting these positive factors was a $2.4 million increase in total operating expenses, principally resulting from growth in compensation and benefits due largely to growth in personnel from the acquisition of Savoy Bank (“Savoy”) in May 2021, coupled with a $600 thousand increase in the provision for loan losses expense due to growth in the loan portfolio in the third calendar quarter of 2021. The year-over-year growth in net interest income was due to a substantial widening of the Company’s net interest margin to 4.51% in 2021 from 3.73% in the comparable 2020 quarter. The margin improvement resulted principally from an increase in average interest-earning assets of $633.7 million in 2021, primarily related to the acquisition of Savoy, and a 91 basis point reduction in the cost of interest-bearing liabilities to 0.55% in 2021 from the third calendar quarter of 2020.Excluding merger-related charges recorded in the third calendar quarter of 2021, adjusted (non-GAAP) net income was $7.2 million or $1.28 per diluted common share, versus 2020 adjusted net income of $1.7 million or $0.41 per diluted common share. Third calendar quarter returns on average total assets and average stockholders’ equity, excluding merger-related charges in each period, were 1.92% and 23.95%, respectively in 2021, versus 0.84% and 8.91% a year ago.
Earnings Summary for the Fiscal Year Ended September 30, 2021
For the fiscal year ended September 30, 2021, the Company reported net income of $10.9 million or $2.28 per diluted common share, versus $5.0 million or $1.18 per diluted common share a year ago. Returns on average total assets and average stockholders’ equity for the fiscal year ended September 30, 2021, were 0.99% and 11.53%, respectively, versus 0.58% and 6.63% in the fiscal year ended September 30, 2020.The significant improvement in earnings compared to the prior year period resulted from increases in net interest income (up $14.6 million) and non-interest income (up $2.0 million) and a $250 thousand reduction in the provision for loan losses expense in the 2021 period. The growth in net interest income resulted from a 68 basis point improvement in the net interest margin to 3.97% in 2021 coupled with growth in average interest-earning assets of $226.0 million versus the year ago period. Partially offsetting these positive factors was a $9.0 million increase in total operating expenses, due principally to significant increases in acquisition-related costs and compensation and benefits expenses, each due to the Savoy acquisition in fiscal year 2021, and an increase in the Company’s effective tax rate to 22.8% in 2021 from 20.0% a year ago
Michael P. Puorro, Chairman and Chief Executive Officer, commented on the Company’s results: “I am extremely pleased with Hanover’s third calendar quarter 2021 financial results which produced record levels of net income, net interest income and net interest margin for the Company. I am also very excited to announce that we successfully completed the full integration of our strategic acquisition of Savoy Bank which will now enable us to build our earning asset base across multiple highly profitable lending niches. We now possess a well-diversified earning asset engine primarily funded by strong deposit generating businesses. Further, we are currently exploring several FinTech-related partnerships that, if completed, would benefit us in generating additional low-cost deposit funding. We also believe that Hanover can capitalize on the merger disruption caused by the large number of recently announced or closed bank mergers in our marketplace. We are confident that these factors, coupled with an improving local economy, will help us create one of the premier community banks in the metro New York City area.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 on a linked quarter basis by $1.09, or 6.3%, to $18.49 per share at September 30, 2021.
Balance Sheet Highlights
Total assets at September 30, 2021, grew to $1.48 billion versus $851.6 million at the comparable 2020 date primarily due to the Savoy acquisition. Total deposits at September 30, 2021, increased to $1.16 billion compared to $664.8 million at September 30, 2020, the result of growth in core deposits (Demand, N.O.W., Savings and Money Market) of $516.8 million resulting from deposits acquired in the Savoy transaction as well as significant growth in the Company’s municipal deposits.
The Company had $350.5 million in total municipal deposits at September 30, 2021, at a weighted rate of 0.23% versus $14.9 million at the comparable 2020 date. The Company’s municipal deposit program is built on long-standing relationships developed in the local marketplace. This core deposit business will continue to provide a stable source of funding for the Company’s lending products at costs lower than consumer banking.
Total borrowings at September 30, 2021, were $159.6 million, including $117.7 million in Federal Reserve Paycheck Protection Program Liquidity Facility advances, with a weighted average rate and term of 0.62% and 43 months, respectively. Management reduced usage of its Federal Home Loan Bank (“FHLB”) borrowing capacity in the third calendar quarter of 2021 as other lower cost funding options were utilized to replace maturing FHLB advances. At September 30, 2021, the Bank had $41.7 million of FHLB advances outstanding versus $69.0 million a year ago. The Company had $35.9 million in additional borrowing capacity from the FHLB at September 30, 2021.Stockholders’ equity increased to $122.5 million at September 30, 2021, from $78.0 million at the comparable 2020 date resulting in an increase in tangible book value per share over the past twelve months to $18.49 at September 30, 2021, from $18.23 at the comparable 2020 date.
Loan Portfolio Growth and Allowance for Loan Losses
On a linked quarter basis, the Company exhibited net loan growth, excluding PPP loans, of $53.8 million or 20.45 % on an annualized basis. For the twelve months ended September 30, 2021, the Bank’s loan portfolio grew to $1.25 billion, primarily due to the acquisition of Savoy. Year over year growth was concentrated primarily in multi-family, commercial real estate, and PPP loans. At September 30, 2021, the Company’s residential loan portfolio amounted to $444.1 million, with an average loan balance of $419 thousand and a weighted average loan-to-value ratio of 53%. Commercial real estate loans totaled $630.9 million at September 30, 2021, with an average loan balance of $1.1 million and a weighted average loan-to-value ratio of 55%. The Company’s commercial real estate concentration ratio was 355% of capital at September 30, 2021, versus 246% of capital at the comparable 2020 date. At September 30, 2021, the Company’s loan pipeline was approximately $319.0 million with a weighted average coupon, excluding fees, of 4.26%.
Historically, the Bank has generated 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. During the quarter ended September 30, 2021, the Company sold $12.6 million in performing residential and SBA loans and recorded gains on the sale of loans held-for-sale of $619 thousand versus gains of $212 thousand in the quarter ended June 30, 2021. The Company did not record any gains on the sale of performing loans in the quarter ended September 30, 2020. During the twelve months ended September 30, 2021, the Company recorded cumulative gains of $1.3 million on the sale of loans held-for-sale.During the third calendar quarter of 2021, the Bank recorded a provision for loan losses expense of $700 thousand. The September 30, 2021, allowance for loan losses balance was $8.6 million versus $7.9 million a year ago. The allowance for loan losses as a percent of total loans was 0.69% at September 30, 2021, versus 0.61% at June 30, 2021, and 1.09% at September 30, 2020. The allowance for loan losses as a percent of total loans excluding acquired loans (“originated loans”) was 1.13% at September 30, 2021. At September 30, 2021, non-performing loans totaled $9.5 million of which $4.8 million represented legacy Savoy Bank originated loans that were either written down to fair value at the acquisition date or are 100% guaranteed by the SBA. The remaining $4.7 million of non-performing loans represent Hanover originated residential credits with a weighted average loan-to-value ratio of 60%.
Record Net Interest Margin
The Bank’s net interest margin improved to a record 4.51% during the third calendar quarter of 2021, versus 3.73% in the comparable 2020 quarter and 3.74% in the quarter ended June 30, 2021. Excluding the impact of net purchase accounting accretion, the Company’s net interest margin was 3.76% and 3.55% in the quarters ended September 30, 2021, and June 30, 2021, respectively.
Expansion into New Jersey Market
The Company intends to open a full-service branch and loan production office in Freehold, New Jersey in December. This location, coupled with our success in recruiting business development officers in recent months, will expand the Company’s SBA lending footprint into both the New Jersey and eastern Pennsylvania marketplaces.
Operating Efficiency Ratio
The Bank’s operating efficiency ratio was 44.6% in the third calendar quarter of 2021 versus 74.3% a year ago. The third calendar quarter 2021 adjusted (non-GAAP) operating efficiency ratio, which excludes merger-related charges, was 43.5%.
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 metro-New 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, Rockefeller Center 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.
Non-GAAP Disclosure
This discussion includes non-GAAP financial measures, including the Company’s adjusted operating earnings, adjusted net interest margin, adjusted returns on average assets and shareholders’ equity, and adjusted 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 adjusted operating net income and adjusted 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.
Forward-Looking Statements
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 forward-looking 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 forward-looking 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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