Hanover Bancorp, Inc. Reports Calendar Fourth Quarter 2018 Results Highlighted by Record Net Income and Earnings per Share, Strong Net Interest Margin and Exceptional Asset Quality

Performance Highlights

• Record Net Income and Earnings per Share: Net income for the quarter ended December 31, 2018 improved to a record $2.3 million or $0.61 per diluted common share, versus a loss of $78 thousand or ($0.02) per diluted common share recorded in the comparable 2017 period. The loss recorded in the fourth quarter of 2017 resulted principally from the impact of an $876 thousand one-time non-recurring charge to reduce the carrying value of the Company’s deferred tax asset due to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).
• Balance Sheet: Total assets were $651.5 million at December 31, 2018, up $1.5 million, or 0.2%, from September 30, 2018 and up $110.3 million, or 20.4%, from December 31, 2017 due to continued strong loan growth.
• Continued Capital Strength: The Bank’s Tier 1 capital ratio was 11.30% and its Total Risk-Weighted Capital Ratio was 22.27% at December 31, 2018, each significantly above the regulatory minimums for a well-capitalized institution.
• Strong Year-Over-Year Loan Growth: Total loans outstanding at December 31, 2018 were $566.1 million or 86.9% of total assets, an increase of $6.7 million, or 1.2%, from September 30, 2018 and up $91.4 million or 19.3%, from December 31, 2017 as the Bank continues to successfully leverage its capital into new loan originations. The growth in loans recorded during the fourth quarter of 2018 is net of $61.2 million in sales of performing credits during that period.  For the quarter ended December 31, 2018, gross loan originations were $92.0 million, an increase of 20.1% over the prior year quarter.
• Excellent Asset Quality: At December 31, 2018, the Bank’s asset quality remained pristine and class leading among all financial institutions as the loan portfolio, for the sixteenth consecutive quarter, possessed no non-performing loans.
• Core Net Interest Income Growth: Core net interest income grew to a record $5.6 million for the quarter ended December 31, 2018, an increase of $1.3 million, or 31.4%, from the comparable 2017 quarter.
• Strong Core Net Interest Margin: The Company’s core net interest margin for the quarter ended December 31, 2018 was 3.43% versus 3.33% in the quarter ended September 30, 2018 and 3.35% in the quarter ended December 31, 2017.
• New Branch Locations:  The Company has received all required regulatory approvals for a new branch in Flushing, Queens, N.Y., which is expected to open in February. 
• Market Expansion Through Acquisition:  On September 20, 2018, the Company announced that it had entered into a definitive agreement to acquire Chinatown Federal Savings Bank (“CFSB”).  CFSB is a community savings bank that operates three branches, two in Manhattan and one in Sunset Park, Brooklyn.  CFSB had total assets of $133 million, total loans of $93 million and total deposits of $102 million at December 31, 2018.  This transaction is expected to be completed in the second quarter of 2019, subject to regulatory approvals and other customary closing conditions.

MINEOLA, New York, Jan. 22, 2019 (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, 2018, highlighted by record levels of total assets, net income and net interest income, earnings per common share, continued momentum in year-over-year loan and deposit growth and outstanding asset quality.

Earnings Summary for the Quarter Ended December 31, 2018

The Company recorded record net income for the quarter ended December 31, 2018 of $2.3 million or $0.61 per diluted common share, versus a loss of $78 thousand or ($0.02) per diluted common share in the comparable 2017 quarter. Core operating net income for the fourth quarter of 2018 was $2.4 million versus $853 thousand in the year ago period, an increase of $1.6 million or 183.1%.

The significant improvement in net income achieved in the December quarter resulted principally from a $1.3 million or 31.4% increase in core net interest income in 2018 versus the fourth quarter of 2017 coupled with the impact of the $876 thousand deferred tax non-recurring charge recorded in the fourth quarter of 2017. Growth in average interest-earning assets (up $141.6 million or 28.3%) resulting from an increase in average total loans of $131.9 million or 28.8%, coupled with an eight basis point widening of the core net interest margin (net of a debt restructuring charge in 2017) to 3.43% in the fourth quarter of 2018, accounted for the improvement in core net interest income. An increase of $888 thousand or 205.1% in non-interest income, resulting from significant growth in gains on the sale of loans held-for-sale, and a $325 thousand reduction in the provision for loan losses, also contributed to the year-over-year increase in earnings. Partially offsetting the foregoing improvements was an increase in non-interest expense of $698 thousand in the fourth quarter of 2018 versus the comparable year ago period.  The higher level of non-interest expense resulted principally from growth in compensation and benefits and occupancy and equipment in connection with an increase in staff to support the Company’s continued growth and operations. Additional marketing and advertising and acquisition transaction costs also contributed to the year-over-year increase in operating expenses.

Michael P. Puorro, Chairman, President and Chief Executive Officer, commented on the Company’s results: “Over the past year we have achieved asset growth of approximately $110 million or 20% and we continue to expand our ability to generate non-interest income which has led to another quarter of both record earnings and net interest income.  When compared to last year, we have been able to report a $2.4 million increase in quarterly GAAP net income and a corresponding increase in earnings per share and tangible book value per share while we continue to invest in the Company’s future through talent acquisition and franchise building.  Fourth quarter core operating net income, which excludes the impacts of a $119 thousand pre-tax write-down on Company owned real estate in 2018 and the Tax Act in 2017, improved by $1.6 million or 183.1% in 2018 versus the comparable 2017 period.  We also achieved year-over-year core net interest income growth of 31.4%, loan growth of 19.3% net of $160 million in sales during the last twelve months, and deposit growth of 18.0%.  As we remain steadfastly selective in our loan underwriting, our growth story continues to be highlighted by industry leading asset quality.  At December 31, 2018, for the sixteenth consecutive quarter, our loan portfolio had no non-performing loans.  We believe that our growth outlook remains robust as evidenced by our most recent quarter-end originations of $90 million and our current loan pipeline of $111 million, one of our largest ever.  Additionally, we are very excited about our agreement to acquire Chinatown Federal Savings Bank which will provide us with three new high-visibility branch offices in Manhattan and Brooklyn in addition to our new branch location in Flushing, Queens, which is expected to open next month.  Growth in low cost core deposits is a significant focus for the Hanover management team and we are confident that these additional branch locations will help us achieve that goal.”

Mr. Puorro further noted, “Our ability to generate shareholder value continues to be reflected by our success to date in each capital raising effort at successively higher stock prices, most recently at $18.95 per share for $8 million in new capital, coupled with continued robust growth in book value per share which increased by $2.70, or 20.0%, to $16.20 per share at December 30, 2018 from the comparable 2017 date. We’ve been able to achieve these results while maintaining a core operating efficiency ratio that is also class-leading amongst peers our size.”

Strong Balance Sheet Growth

Total assets for the quarter ended December 31, 2018 amounted to $651.5 million, an increase of $110.3 million from the comparable 2017 date as the Bank continued to record significant loan portfolio growth (up $91.4 million) without any sacrifice in asset quality. The year-over-year balance sheet growth was funded by increases in total deposits (up $71.3 million), borrowings (up $20.3 million) and shareholders’ equity (up $16.7 million).

Total deposits at December 31, 2018 grew by 18.0% to $466.6 million versus December 31, 2017, the result of growth in core deposits (up $53.2 million) and time deposits (up $18.1 million). Core deposits grew by 40.2% as the result of increases in Demand, N.O.W. and Money Market accounts. Management has also been 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. FHLB borrowings will continue to be 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 borrowings at December 31, 2018 were $104.1 million with a weighted average rate and term of 1.81% and 20 months, respectively. At December 31, 2018, the Bank had $103.4 million of additional borrowing capacity from the FHLB.

Shareholders’ equity grew by $16.7 million to $60.6 million at December 31, 2018 from the comparable 2017 date resulting in a $2.70 or 20.0% increase in book value per share over the past twelve months to $16.20 at December 31, 2018.  The Company’s executive management team and Board of Directors are always 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 insider ownership investments represented approximately 29% of total shares outstanding at December 31, 2018.

The Company’s average cost of interest-bearing liabilities increased to 1.92% for the quarter ended December 31, 2018, from 1.55% (net of a 2017 debt restructuring charge) a year ago and 1.84% on a linked quarter basis. This increase is primarily due to higher market interest rates in 2018, significant ongoing competition for deposits in the Bank’s core geographic area and an increase in non-deposit funding when compared to the year ago period.  Partially offsetting the 37 basis point increase in the Company’s average cost of interest-bearing liabilities from the December 2017 quarter was a corresponding 34 basis point improvement in the average yield on interest-earning assets to 5.08% during the fourth quarter of 2018, primarily driven by higher loan yields and a continued shift in the loan portfolio mix to a lesser reliance on lower-yielding multi-family credits in 2018.

Strong Loan Portfolio and Industry Leading Asset Quality

For the twelve months ended December 31, 2018, the Bank’s loan portfolio, net of sales, grew by $91.4 million, or 19.3%, with the growth concentrated primarily in adjustable-rate two-to-four family residential loans. Management employs a strategy of concentrating its loan growth in these products with shorter 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 year, originations of our niche adjustable-rate residential product amounted to $226.8 million with an average loan balance of approximately $530 thousand and a weighted average loan-to-value ratio of 56%. At December 31, 2018, the Company’s residential loan portfolio amounted to $386.2 million, with an average loan balance of $387 thousand and a weighted average loan-to-value ratio of 53%. During the same twelve month period, the Bank originated $29.0 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 59%. Commercial real estate loans totaled $173.0 million at December 31, 2018, with an average loan balance of $939 thousand and a weighted average loan-to-value ratio of 57%. The Company’s commercial real estate concentration ratio was 208% of capital at December 31, 2018 versus 275% of capital at the comparable 2017 date.

Through its strong asset growth 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 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 December 31, 2018, the Company sold $61 million in performing loans and recorded gains on the sale of loans held-for-sale of $1.3 million versus gains of $878 thousand in the quarter ended September 30, 2018 and gains of $370 thousand in the quarter ended December 31, 2017.  During the twelve months ended December 31, 2018, the Company sold $159.5 million in performing loans held-for-sale and recorded cumulative gains of $3.3 million.

The Bank’s asset quality ratios remain pristine and class leading among its peer group of community banks. At December 31, 2018, the loan portfolio, for the sixteenth consecutive quarter, had no non-performing loans. During the quarter ended December 31, 2018, the Bank’s provision for loan losses was $225 thousand and the December 31, 2018 allowance for loan losses balance was $6.7 million versus $5.3 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 1.19% at December 31, 2018, 1.16% at September 30, 2018 and 1.13% at December 31, 2017. 

Net Interest Margin

The Bank’s core net interest margin continued to remain strong for the quarter ended December 31, 2018 at 3.43% versus 3.35% in the comparable 2017 quarter and 3.33% in the quarter ended September 30, 2018. The eight basis point increase in the Bank’s core net interest margin versus 2017 (net of a 2017 debt restructuring charge) was primarily attributable to a 34 basis point increase in the yield on average interest-earning assets to 5.08% from 4.74% a year ago.  This improvement was largely the result of a 29 basis point increase in the average loan yield to 5.25% in 2018. The Bank’s average cost of interest-bearing liabilities (net of a 2017 debt restructuring charge) rose by 37 basis points to 1.92% in the fourth quarter of 2018 as the result of continued increases in short-term interest rates, significant competition for deposits in the Company’s market area and a reliance on non-core funding sources, principally certificates of deposit and FHLB borrowings. Year-over-year growth in average core deposits of 23.3% versus the quarter ended December 31, 2017, due principally to growth in demand deposits and money market accounts, coupled with a 34.5% increase in average stockholders’ equity partially mitigated the higher cost of funds in the fourth quarter.

Operating Leverage and Efficiency Ratio

The Bank’s operating efficiency ratio was 52.2% in the fourth quarter of 2018 as compared to 60.9% a year ago.  The Company’s core operating efficiency ratio was 50.5% during the quarter ended December 31, 2018 versus a core efficiency ratio of 59.8% in the comparable 2017 quarter.  The core operating efficiency ratio excludes the impact of a non-recurring real estate carrying value write-down and debt restructuring charge in applicable periods.  Although total operating expenses have risen on a year-over-year basis, the Bank’s net operating revenue continues to grow at a faster pace, thereby creating positive operating leverage.  Pre-provision net revenue (net interest income plus non-interest income minus total operating expenses) has improved for eight consecutive quarters and represented 2.06% of average total assets on an annualized basis during the fourth quarter of 2018.

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 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 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.hanoverbank.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.

Investor and Press Contact:
Brian K. Finneran
Chief Financial Officer
(516) 548-8500