Hanover Bancorp, Inc. Reports Calendar Fourth Quarter 2017 Results Highlighted by Record Core Operating Earnings, Robust Loan Growth and Exceptional Asset Quality

Performance Highlights

  • Record Core Operating Earnings: Core operating net income for the quarter ended December 31, 2017 improved by 66.0% to a record $853 thousand or $0.27 per diluted common share, compared to $514 thousand or $0.19 per diluted common share recorded in the comparable 2016 period. The Company recorded a $78 thousand net loss for the quarter ended December 31, 2017 after accounting for the impact of a one-time non-recurring charge to reduce the carrying value of deferred tax assets by $876 thousand. This adjustment was required as a result of a reduction in the Company’s Federal corporate tax rate from 34% to 21% due to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Company also recorded a one-time non-recurring debt extinguishment charge of $83 thousand ($55,000 after tax) during the fourth quarter of 2017. The cumulative impact of these charges resulted in a loss per diluted common share of ($0.02) in 2017.
  • Balance Sheet Growth: Assets totaled $541.2 million at December 31, 2017, up $39.8 million, or 7.9%, from September 30, 2017 and up $160.3 million, or 42.1%, from December 31, 2016 due to continued strong loan growth.
  • Continued Capital Strength: The Bank’s Tier 1 capital ratio was 10.99% and its Total Risk-Weighted Capital Ratio was 19.82% at December 31, 2017, each significantly above the regulatory minimums for a well-capitalized institution.
  • Robust Year-over-Year Loan Growth: Total loans outstanding at December 31, 2017, were $474.7 million or 87.7% of total assets, an increase of $52.0 million, or 12.3%, from September 30, 2017 and up $158.2 million or 50.0%, from December 31, 2016 as the Bank continues to successfully leverage its capital into prudent loan originations.
  • Excellent Asset Quality: At December 31, 2017, the Bank’s asset quality remained pristine and class leading among all financial institutions as the loan portfolio, for the twelfth consecutive quarter, possessed no non-performing loans.
  • Net Interest Income Growth: Net interest income grew to a record $4.2 million for the quarter ended December 31, 2017, an increase of $1.4 million, or 52.1%, from the comparable 2016 quarter.
  • Strong Core Net Interest Margin: The Company’s core net interest margin for the quarter ended December 31, 2017 improved to 3.35% from 3.14% in the quarter ended September 30, 2017 and 3.05% in the quarter ended December 31, 2016.
  • New Branch Location: The Company has received all required regulatory approvals to open a new branch in Flushing, Queens, N.Y. Management expects the branch to open during the second quarter of 2018.

MINEOLA, N.Y., Jan. 24, 2018 (GLOBE NEWSWIRE) -- 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 December 31, 2017, highlighted by record core operating earnings, continued momentum in year-over-year loan growth, outstanding asset quality, and record net interest income.

Earnings Summary for the Quarter Ended December 31, 2017

The Company recorded record core operating net income for the quarter ended December 31, 2017 of $853 thousand or $0.27 per diluted common share, versus $514 thousand or $0.19 per diluted common share in the comparable 2016 quarter, which represents an increase of $339 thousand, or 66.0%. A net loss of $78 thousand for GAAP purposes, which included $931 thousand in after-tax, one-time non-recurring charges, was reported for the quarter ended December 31, 2017.

The significant improvement in core operating earnings achieved in the quarter ended December 31, 2017 resulted principally from a $1.4 million or 52.1% increase in net interest income versus the comparable 2016 period. This improvement resulted from a strong year-over-year increase in average interest-earning assets (up $138.8 million or 38.4%) due to robust growth in average total loans of $142.8 million or 45.3%, coupled with a 30 basis point widening of the core net interest margin to 3.35% in the fourth quarter of 2017. An increase in non-interest income of $57 thousand or 15.2%, resulting from growth in gains on the sale of loans and investments held-for-sale, also contributed to the core earnings improvement. Partially offsetting the foregoing improvements were increases in non-interest expenses (up $657 thousand) and the provision for loan losses (up $325 thousand). The increase in non-interest expenses resulted principally from growth in compensation and benefits, occupancy and equipment and professional fees in connection with an increase in staff to support ongoing growth and operations, additional branch locations and, to a lesser extent, the Company’s new headquarters building.

Michael P. Puorro, Chairman, President and Chief Executive Officer, commented on the Company’s results, “We are pleased to report that our quarter-end results produced another period of record core earnings and net interest income highlighted by loan growth on both a year over year and annualized linked quarter basis of approximately 50.0%. We continue to prudently manage our loan growth through steadfastly remaining selective in our loan underwriting as evidenced by our industry leading asset quality and for the twelfth consecutive quarter, our loan portfolio possessed no delinquent loans. Our growth outlook remains robust as our current loan pipeline exceeds $80.0 million and we are pleased to report that the Company has received all required regulatory approvals to open our fourth branch in Flushing, Queens, N.Y. We expect to open this branch this upcoming summer.

Mr. Puorro further noted, “Despite the fact that our quarter-end earnings reflect a one-time revaluation of our deferred tax assets of $876 thousand resulting from the recent enactment of the Tax Cuts and Jobs Act, we are pleased to note that the reduction in our on-going federal tax rate to 21% will enable us to utilize these tax savings and further invest into the Company’s future through additional talent acquisition, franchising and investment in new technologies.”

Strong Balance Sheet Growth

Total assets for the quarter ended December 31, 2017 increased by $160.3 million to $541.2 million from the comparable 2016 date as the Bank continued to grow its loan portfolio (up $158.2 million) without sacrificing asset quality. The year-over-year balance sheet growth was funded by increases in total deposits (up $110.5 million), borrowings (up $31.9 million) and shareholders’ equity (up $11.4 million).

Total deposits at December 31, 2017 amounted to $395.3 million, representing growth of $110.5 million, or 38.8% from December 31, 2016, the result of an increase in time certificates of deposit of $123.8 million. Management continues to be pro-active in securing longer-term certificates of deposit and Federal Home Loan Bank of New York (“FHLB”) borrowings to fund loan growth at prevailing favorable rates in the early stages of a rising rate environment. Management continues to be successful in expanding its FHLB borrowing capacity which is strategically utilized to enhance both the Bank’s liquidity position and its interest rate risk profile by providing the flexibility to borrow from the FHLB for terms of two to four years. When prudent to do so, the Bank will be pro-active in securing longer-term advances from the FHLB at favorable rates as management believes it will better protect and enhance future earnings during the anticipated rising interest rate cycle in the years ahead. This strategy is being used selectively to supplement management’s ongoing effort to build low cost core deposit balances through relationship banking at each of its branch locations. Total FHLB borrowings at December 31, 2017 were $83.8 million with a weighted average rate and term of 1.53% and 30 months, respectively. At December 31, 2017, the Bank had $25.6 million of additional borrowing capacity from the FHLB.

Shareholders’ equity grew by $11.4 million to $44.0 million at December 31, 2017 from $32.6 million at December 31, 2016 resulting in a $1.16 or 9.4% increase in book value per share over the past twelve months to $13.50 at December 31, 2017. The Company’s executive management team and Board of Directors remain focused on continued enhancement of shareholder value through prudent asset growth, effective expense management and the development of long-term customer relationships in its primary markets. Insiders continue to make significant investments of their own capital into Hanover Bancorp, Inc. Such ownership investments now represent approximately 27% of total shares outstanding at December 31, 2017.

The Company’s average cost of funds increased to 1.48% for the quarter ended December 31, 2017, from 1.33% a year ago and 1.41% on a linked quarter basis. The increase in the cost of interest bearing liabilities primarily relates to the Bank obtaining longer term certificates of deposit funding in anticipation of higher rates expected in the future. Competition for medium- and long-term certificates of deposit, fueled by a strong local economy, continues to intensify in the Company’s core geographic market. Offsetting the seven basis point increase in the Company’s average cost of funds from the September 2017 quarter has been a corresponding 27 basis point improvement in the average yield on interest-earning assets to 4.74% during the fourth quarter of 2017.

Strong Loan Portfolio and Industry Leading Asset Quality

For the twelve month period ended December 31, 2017, the Bank’s loan portfolio grew by $158.2 million, or 50.0%, with the growth concentrated primarily in adjustable-rate two-to-four family residential loans, multi-family loans, and mixed-use commercial real estate loans. Management continues to employ a strategy of concentrating its loan growth in these products with short durations, which provides the Bank with traditionally safe credit quality at acceptable credit spreads, greater liquidity and an enhanced interest-rate-risk profile. Over the past twelve months, originations of our niche adjustable-rate residential product amounted to $147.3 million with an average loan balance of approximately $517 thousand and a weighted average loan-to-value ratio of 56%. At December 31, 2017, the Company’s residential loan portfolio amounted to $242.9 million, with an average loan balance of $377 thousand and a weighted average loan-to-value ratio of 53%. During the same twelve month period, the Bank originated $58.3 million in commercial real estate loans, inclusive of multi-family loans, with an average loan balance of approximately $1.2 million and a weighted average loan-to-value ratio of 63%. Commercial real estate loans totaled $176.2 million at December 31, 2017, with an average loan balance of $918 thousand and a weighted average loan-to-value ratio of 59%. The Company’s commercial real estate concentration ratio was 275% at December 31, 2017 versus 342% at the comparable 2016 date.

As a result of the Bank’s robust asset generation capabilities, 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 in certain transactions, also retaining servicing rights. The Bank expects that it will continue to originate loans, for its own portfolio and for sale, which will result in a continued growth in interest income while also realizing gains on sale of loans to others and recording servicing income. During the quarter ended December 31, 2017, gains on the sale of loans held-for-sale amounted to $370 thousand versus $316 thousand in the quarter ended September 30, 2017 and $198 thousand in the quarter ended December 31, 2016.

The Bank’s asset quality ratios are pristine and class leading among its peer group of community banks. At December 31, 2017, the loan portfolio, for the twelfth consecutive quarter, had no non-performing loans. During the quarter ended December 31, 2017, the Bank’s provision for loan losses was $550,000 and its allowance for loan losses balance at December 31, 2017 was $5.35 million versus $3.65 million a year ago. The Bank continues to record a quarterly provision for loan losses expense due to the ongoing growth in the loan portfolio. The allowance for loan losses as a percent of total loans was 1.13% at December 31, 2017 versus 1.15% at December 31, 2016.

Net Interest Margin

The Bank’s core net interest margin remained strong for the quarter ended December 31, 2017 at 3.35% versus 3.05% in the comparable 2016 quarter and 3.14% in the quarter ended September 30, 2017. The 30 basis point increase in the Bank’s net interest margin versus 2016 was primarily attributable to a 45 basis point increase in the yield on average interest-earning assets to 4.74% from 4.29% a year ago. This improvement was driven by a 22 basis point increase in the average loan yield to 4.96% in 2017. The Company’s average cost of funds rose by 15 basis points to 1.48% in the fourth quarter of 2017 as the result of an increased reliance on non-core funding sources, principally time certificates of deposit and FHLB borrowings.

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 modern 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 customers 24-hour ATM service with no fees attached, free checking with interest, telephone banking, the most advanced technologies in mobile and internet banking for our consumer and business customers, safe deposit boxes and much more. The Company recently moved its corporate administrative office to Mineola, New York where it operates a full service branch location along with branch locations in Garden City Park, N.Y. and Forest Hills, Queens, N.Y.

Hanover Community Bank is a member of the Federal Deposit Insurance Corporation and is an Equal Housing/Equal Opportunity Lender. For further information, call 516-248-4868 or visit the Bank’s website at www.hanovercommunitybank.com.

Non-GAAP Disclosure

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 provide 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 these 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 GAAP or considered to be more important than financial results determined in accordance with 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, core net interest income, core net interest margin 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.

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. 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.

Contact: Brian K. Finneran, EVP & Chief Financial Officer
Michelle Mihas, VP & Corporate Secretary
516-548-8500


HANOVER BANCORP, INC.
STATEMENTS OF CONDITION - (unaudited)
(dollars in thousands)
December 31, September 30, December 31,
2017 2017 2016
ASSETS
Cash and cash equivalents$ 35,502 $ 34,952 $ 34,144
Securities- Available for sale, at fair value 260 1,526 -
Investments-Held to Maturity 13,607 13,872 12,415
Loans Held for Sale - 10,353 4,334
Loans, net of deferred loan fees and costs 474,670 422,627 316,442
Less: allowance for loan losses (5,345) (4,795) (3,645)
Loans, net 469,325 417,832 312,797
Other assets 22,513 22,823 17,211
Assets$ 541,207 $ 501,358 $ 380,901
LIABILITIES AND SHAREHOLDERS' EQUITY
Core Deposits $ 132,540 $ 138,726 $ 145,890
Time Deposits 262,780 234,004 138,950
Total Deposits 395,320 372,730 284,840
Borrowings 83,767 73,955 51,886
Note Payable 14,976 8,414 8,407
Other Liabilities 3,181 4,481 3,176
Liabilities 497,244 459,580 348,309
Shareholders' Equity 43,963 41,778 32,592
Liabilities and Shareholders' Equity$ 541,207 $ 501,358 $ 380,901


HANOVER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME - (unaudited)
(dollars in thousands, except per share data)
Quarter Ended Quarter Ended
12/31/2017 12/31/2016
Interest income$ 5,975 $ 3,913
Interest expense 1,747 1,133
Net interest income 4,228 2,780
Provision for loan losses 550 225
Net interest income after provision for loan losses 3,678 2,555
Loan fees and service charges 34 12
Mortgage servicing income 1 76
Service charges on deposit accounts 8 3
Mortgage banking income - 87
Gain on sale of investments 20 -
Gain on sale of loans held-for-sale 370 198
Non-interest income 433 376
Compensation and benefits 1,455 1,158
Occupancy and equipment 505 267
Data processing 113 92
Advertising 81 64
Professional fees 328 227
Other operating expenses 292 309
Non-interest expense 2,774 2,117
Income before income taxes 1,337 814
Income tax expense 484 300
Core operating net income 853 514
Non-recurring charges, net of tax 931 -
Net (loss) income$ (78) $ 514
Basic earnings per share-Core$ 0.27 $ 0.19
Diluted earnings per share-Core$ 0.27 $ 0.19
Basic (loss) earnings per share-GAAP basis$ (0.02) $ 0.19
Diluted (loss) earnings per share-GAAP basis$ (0.02) $ 0.19
Note: Prior period information has been adjusted to conform to current period presentation.


HANOVER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME - (unaudited)
QUARTERLY TREND
(dollars in thousands, except per share data)
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
12/31/2017 9/30/2017 6/30/2017 3/31/2017
Interest income$ 5,975 $ 5,312 $ 4,746 $ 4,189
Interest expense (1) 1,747 1,583 1,391 1,173
Net interest income 4,228 3,729 3,355 3,016
Provision for loan losses 550 450 475 225
Net interest income after provision for loan losses 3,678 3,279 2,880 2,791
Loan fees and service charges 34 26 20 6
Mortgage servicing income 1 40 75 -
Service charges on deposit accounts 8 11 4 5
Mortgage banking income - 14 168 60
Gain on sale of investments 20 - - -
Gain on sale of loans held-for-sale 370 316 255 168
Non-interest income 433 407 522 239
Compensation and benefits 1,455 1,451 1,280 1,267
Occupancy and equipment 505 477 365 297
Data processing 113 110 104 100
Advertising 81 91 86 58
Professional fees 328 169 181 201
Other operating expenses 292 260 291 229
Non-interest expense 2,774 2,558 2,307 2,152
Core operating income before income taxes 1,337 1,128 1,095 878
Income tax expense 484 425 417 324
Core operating net income 853 703 678 554
Non-recurring charges, net of tax 931 - 297 -
Net (loss) income$ (78) $ 703 $ 381 $ 554
Basic earnings per share-Core$ 0.27 $ 0.24 $ 0.24 $ 0.21
Diluted earnings per share-Core$ 0.27 $ 0.24 $ 0.23 $ 0.20
Basic (loss) earnings per share-GAAP basis$ (0.02) $ 0.24 $ 0.14 $ 0.21
Diluted (loss) earnings per share-GAAP basis$ (0.02) $ 0.24 $ 0.13 $ 0.20
Note: Prior period information has been adjusted to conform to current period presentation.


HANOVER BANCORP, INC.
SELECTED FINANCIAL DATA - (unaudited)
(dollars in thousands, except per share data)
Quarter Ended Quarter Ended Quarter Ended
12/31/2017 9/30/2017 12/31/2016
Asset Quality:
Allowance for Loan Losses$ 5,345 $ 4,795 $ 3,645
Allowance for Loan Losses to Total Loans (1) 1.13% 1.13% 1.15%
Non-Performing Loans$ - $ - $ -
Non-Performing Loans/Total Loans N/A N/A N/A
Non-Performing Loans/Total Assets N/A N/A N/A
Allowance for Loan Losses/ Non-Performing Loans N/A N/A N/A
Capital (Bank Only):
Tier 1 Capital $ 56,731 $ 48,953 $ 38,689
Tier 1 Leverage Ratio 10.99% 10.06% 10.37%
Common Equity Tier 1 Capital Ratio 18.56% 16.56% 17.69%
Tier 1 Risk Based Capital Ratio 18.56% 16.56% 17.69%
Total Risk Based Capital Ratio 19.81% 17.82% 18.95%
Other:
Average Interest-Earning Assets$ 500,230 $ 471,122 $ 361,477
Average Interest-Bearing Liabilities 445,994 422,673 315,985
Average Loans 457,756 412,512 314,946
Average Deposits 380,697 366,346 278,045
Average Borrowings 88,119 77,537 60,292
Share Data:
Common Shares Outstanding 3,255,669 3,115,907 2,641,994
Book Value per Share$13.50 $13.41 $12.34
Tangible Book Value per Share$13.40 $13.30 $12.24
Quarter Ended Quarter Ended Quarter Ended
12/31/2017 9/30/2017 12/31/2016
Profitability:
Return on Average Assets 0.66%(2) 0.57% 0.55%
Return on Average Equity 7.85%(2) 7.14% 6.27%
Yield on Average Interest Earning Assets 4.74% 4.47% 4.29%
Cost of Average Interest Bearing Liabilities 1.55%(3) 1.49% 1.42%
Cost of Funds 1.48%(3) 1.41% 1.33%
Net Interest Rate Spread (4) 3.18%(3) 2.99% 2.87%
Net Interest Margin (5) 3.35%(3) 3.14% 3.05%
Non-Interest Expense to Average Assets 2.13% 2.08% 2.25%
Operating Efficiency Ratio 59.76%(3) 61.84% 67.08%


(1) Calculation excludes loans held for sale.
(2) Calculation excludes the non-recurring deferred tax asset charge of $876,000 and $55,000 after tax debt restructuring charge.
(3) Calculation excludes the non-recurring debt restructuring charge of $83,000.
(4) Net interest rate spread represents the difference between the yield on average interest-earning
assets and the cost of average interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average interest-earning assets.
Note: Prior period information has been adjusted to conform to current period presentation
N/A: Such ratios are not applicable as the Bank has no non-performing loans and assets


HANOVER BANCORP, INC.
NON-GAAP DISCLOSURE - (unaudited)
(dollars in thousands)
Reconciliation of As Reported (GAAP) and non-GAAP Financial Measures
Quarter Ended Quarter Ended
Core operating net income12/31/2017 12/31/2016
Net (loss) income, as reported$ (78) $ 514
Adjustments:
Non-recurring debt restructure charge 83 -
Total adjustments, before income taxes 83 -
Adjustment for reported effective tax rate 28
Subtotal adjustments, after income taxes 55 -
Non-recurring deferred tax asset charge 876
Total adjustments, after income taxes 931 -
Core operating net income$ 853 $ 514
Quarter Ended Quarter Ended
Core operating expenses12/31/2017 12/31/2016
Operating expenses, as reported$ 2,774 $ 2,117
Non-interest income, as reported 433 376
Net-interest income, as reported 4,145 2,780
Adjustments:
Non-recurring debt restructure charge 83 -
Core net interest income: 4,228 2,780
Core operating efficiency ratio:
Core net-interest income 4,228 2,780
Non-interest income 433 376
Adjust for net gain on sale of securities available for sale (20) -
Core total revenue 4,641 3,156
Core operating efficiency ratio 59.76% 67.08%
Quarter Ended Quarter Ended
Core net interest income / margin12/31/2017 12/31/2016
Net interest income / margin$ 4,145 3.29% $ 2,780 3.05%
Non-recurring debt restructure charge 83 0.06% - 0.00%
Core net interest income / margin$ 4,228 3.35% $ 2,780 3.05%

Source:Hanover Bancorp