Hanover Bancorp, Inc. Surpasses $500 Million in Total Assets and Reports Fiscal Year and Calendar Third Quarter 2017 Results Highlighted by Record Core Operating Earnings, Continued Strong Loan Growth, and Exceptional Asset Quality

Fiscal Year and Calendar Quarter Performance Highlights

• Record Core Operating⁽¹⁾ Earnings: Core operating net income for the fiscal year ended September 30, 2017 increased by 24.6% to a record $2.45 million or $0.88 per diluted common share versus $1.97 million and $0.75, respectively, a year ago. Core operating net income for the quarter ended September 30, 2017 was $703 thousand or $0.24 per diluted share, compared to $593 thousand or $0.22 per diluted share recorded in the comparable 2016 quarter, representing an 18.5% year-over-year increase.
• Company Surpasses $500 Million in Total Assets:  The Company continued its robust growth as assets totaled $501.4 million at September 30, 2017, up $139.1 million, or 38.4%, from September 30, 2016.
• Strong Year-over-Year Loan Growth: At September 30, 2017, total loans outstanding amounted to $422.6 million or 84.3% of total assets, up $121.5 million, or 40.4%, from September 30, 2016 as the Bank continues to successfully leverage its capital into prudent loan originations.
• Continued Capital Strength: The Bank’s Tier 1 Leverage capital and Total Risk-Based capital ratios were 10.06% and 17.82%, respectively, at September 30, 2017, significantly above the regulatory minimums for a well-capitalized institution.
• Industry Leading Asset Quality: At September 30, 2017, the Bank’s asset quality was pristine and class-leading among all financial institutions as the loan portfolio possessed no delinquent loans and, for the eleventh consecutive quarter, no non-performing loans.
• Net Interest Income Growth: The Bank recorded net interest income of $3.7 million for the quarter ended September 30, 2017, an increase of $833 thousand, or 28.8%, from the quarter ended September 30, 2016 and up 11.1% on a linked quarter basis.
• Strong Net Interest Margin: The Company’s net interest margin for the third quarter of 2017 was 3.14%.
• New Branch Location: In August 2017, the Company opened a new branch in its Mineola, N.Y. corporate administrative office.  This is the Company’s third full service branch location. 
  

1) See page 8 for an explanation of “Core Operating Earnings” which is a non-GAAP financial measure. 

MINEOLA, N.Y., Oct. 27, 2017 (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 fiscal year and calendar quarter periods ended September 30, 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 Fiscal Year Ended September 30, 2017

The Company recorded record core operating net income for the fiscal year ended September 30, 2017 of $2.45 million or $0.88 per diluted share, compared to $1.97 million or $0.75 per diluted share recorded in the comparable prior fiscal year ended September 30, 2016, representing a 24.6% increase in core operating net income and 17.3% growth in diluted per share earnings. Reported earnings for the fiscal year ended September 30, 2017, which include a $297 thousand after-tax non-recurring severance charge, were $2.15 million or $0.78 per diluted common share, representing a 9.5% increase when compared to 2016 fiscal year results.

The improvement in 2017 core operating earnings resulted principally from a $3.0 million or 30.3% increase in net interest income when compared to fiscal year 2016.  This improvement was due to strong year-over-year growth in average interest-earning assets (up $127.1 million or 44.9%), primarily due to continued expansion of the Company’s average loan portfolio (up $96.1 million or 36.5% versus fiscal year 2016).  Also contributing to the growth in earnings was a $697 thousand increase in non-interest income in 2017 resulting from improvements in gain on sale of loans held-for-sale (up $390 thousand), mortgage banking income (up $205 thousand) and mortgage servicing income (up $116 thousand).  Partially offsetting the foregoing improvements were increases in non-interest expense (up $2.7 million due largely to growth in compensation and benefits and occupancy and equipment expense in connection with additional branch locations and, to a lesser extent, the new corporate headquarters building), provision for loan losses expense (up $150 thousand) and a 35 basis point narrowing of the net interest margin from 3.49% to 3.14% in fiscal year 2017 resulting principally from higher funding costs in the current year.

Earnings Summary for the Calendar Quarter Ended September 30, 2017

The Company also recorded record core operating net income of $703 thousand or $0.24 per diluted common share in the calendar quarter ended September 30, 2017, versus $593 thousand or $0.22 per diluted common share in the comparable 2016 period. The 2017 results represent an 18.5% increase in core operating net income, principally due to an $833 thousand or 28.8% increase in net interest income.  Partially offsetting the improvement in net interest income were increases in non-interest expenses (up $551 thousand) and the provision for loan losses (up $75 thousand).

Michael P. Puorro, Chairman, President and Chief Executive Officer, reflected on the Company’s results, “We are pleased to report that our fiscal year-end results produced asset growth of $139.1 million which led to year over year record levels of net interest income and core operating earnings growth of 30.3% and 24.6%, respectively. Our most recent quarter-end results continued to produce record levels of net income and net interest income highlighted by loan growth on both a year over year and annualized linked quarter basis exceeding 40.0%.  We are proud to report that at September 30, 2017, the Company surpassed $500 million in total assets and our growth outlook remains robust as our current loan pipeline exceeds $94.0 million and we continue to invest in the Company’s future through talent acquisition, franchising and the completion of our corporate administrative headquarters. As we remain steadfastly selective in our loan underwriting, our growth story continues to be highlighted by industry leading asset quality. At quarter-end, we possessed no delinquent loans and for the eleventh consecutive quarter, our loan portfolio had no non-performing loans. We are also extremely pleased that our Forest Hills branch location continues to exceed expectations and our new Mineola branch, located on the first floor of our new state-of-the-art corporate administrative headquarters, has been welcomed into the community and is making excellent progress in the first few weeks after opening.”

Mr. Puorro further noted, “Our ability to generate shareholder value is reflected by the continued success in each of our capital raising efforts at successively higher stock prices resulting in robust growth in book value per share which increased by $1.27 per share, or 10.5%, year over year, to $13.41 per share at September 30, 2017.  We achieved these results while still maintaining a core efficiency ratio that is class-leading amongst peers our size.”

Robust Balance Sheet Growth

Total assets at September 30, 2017 increased by $139.1 million or 38.4% to $501.4 million versus the comparable 2016 date as the Bank continued to prudently grow its loan portfolio (up $121.5 million or 40.4%) without sacrificing asset quality. The balance sheet expansion was fueled by increased levels of deposits (up $106.2 million), borrowings (up $22.1 million) and shareholders’ equity (up $9.7 million). 

Total deposits at September 30, 2017 were $372.7 million, representing growth of $106.2 million, or 39.8% from September 30, 2016, the result of an increase in time certificates of deposit of $111.1 million. Management continues to be pro-active in securing longer-term retail certificates of deposit in the current low interest rate environment. The Bank has also utilized Federal Home Loan Bank of New York (“FHLB”) borrowings to fund loan growth. Management continues to be successful in expanding its FHLB borrowing capacity which is strategically utilized to enhance the Bank’s liquidity position and interest-rate-risk profile by providing the flexibility to strategically 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 prevailing favorable rates.  Although this strategy is more costly than other shorter-term alternatives, management believes it will better protect and enhance future earnings during the anticipated rising interest rate cycle in the years ahead. Total FHLB borrowings at September 30, 2017 were $71.5 million with a weighted average rate and term of 1.46% and 34 months, respectively. Currently, the Bank has approximately $24 million of additional borrowing capacity from the FHLB.

Stockholder’s equity grew by $9.7 million to $41.8 million at September 30, 2017 compared to $32.1 million at September 30, 2016 resulting in a $1.27 or 10.5% increase in book value per share at the same date.  The Company’s executive management team and Board remain focused on continued enhancement of shareholder value through prudent growth, tight expense control and effective relationship management. Insiders continue to make significant investments of their own capital into Hanover Bancorp, Inc. Such ownership investments now represent approximately 26% of shares outstanding at September 30, 2017. To support further asset growth, the Company is currently raising capital privately.

The Company’s average cost of funds increased to 1.41% for the quarter ended September 30, 2017, from 1.20% a year ago and 1.38% on a linked quarter basis. The higher cost of funds primarily results from the Bank’s strategy of 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 funding has intensified in recent months in the Company’s core geographic market. Offsetting the three basis point increase in the average cost of funds from the June 2017 quarter has been a corresponding five basis point improvement in the average yield on interest-earning assets to 4.48% during the third quarter of 2017.

Strong Loan Portfolio and Industry Leading Asset Quality

For the twelve month period ended September 30, 2017, the Bank’s loan portfolio grew by $121.5 million, or 40.4%, to $422.6 million, with the growth concentrated primarily in fixed and 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 has historically provided 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 $112.0 million with an average loan balance of approximately $511 thousand and a weighted average loan-to-value ratio of 55%. At September 30, 2017, the Company’s residential loan portfolio, excluding loans held for sale, amounted to $248.6 million, with an average loan balance of $377 thousand and a weighted average loan-to-value ratio of 52%. During the same twelve month period, the Bank originated $52.9 million in commercial real estate loans, inclusive of multi-family loans, with an average loan balance of approximately $1.1 million and a weighted average loan-to-value ratio of 62%. Commercial real estate loans totaled $177.1 million at September 30, 2017, with an average loan balance of $964 thousand and a weighted average loan-to-value ratio of 59%.

As a result of robust asset generation capabilities, the Bank has been able to record additional income on an ongoing basis 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 continued growth in interest income while also realizing gains on the sale of loans to others and recording servicing income. During the fiscal year and calendar quarter ended September 30, 2017, the Bank realized gains on sales of loans held-for-sale of $937 thousand and $316 thousand, respectively, versus $547 thousand and $189 thousand in the comparable 2016 periods.

The Bank’s asset quality ratios are pristine and class leading among its peer group of community banks. At September 30, 2017, the portfolio possessed no delinquent loans and for the eleventh consecutive quarter, no non-performing loans. During the quarter ended September 30, 2017, the Bank’s provision for loan losses was $450,000 and its allowance for loan losses balance at September 30, 2017 was $4.80 million versus $3.42 million a year ago. The Bank continues to record a quarterly provision for loan losses expense due to ongoing growth in the loan portfolio. The allowance for loan losses as a percent of total loans was 1.13% at September 30, 2017 versus 1.14% at September 30, 2016. 

Net Interest Margin

The Bank’s net interest margin remained strong for the quarter ended September 30, 2017 at 3.14% versus 3.44% in the comparable 2016 quarter and 3.14% in the quarter ended June 30, 2017. The 30 basis point decrease in the net interest margin versus 2016 was primarily attributable to a 21 basis point increase in the Bank’s average cost of funds in 2017.  The increased cost of funds in 2017 resulted from a greater reliance on higher-cost borrowings in the current year, including a holding company note payable that had only a negligible impact on the 2016 margin, coupled with significant competition for retail deposits in the local marketplace in the current year.

New Branch Opening

The Company is pleased to report on the opening of its third full-service branch in Mineola, N.Y. on the first floor of its recently opened corporate administrative facility.  This branch is housed in an efficient 650 square feet and is expected to service the banking needs of the local retail, small business and municipal customer base.  The Forest Hills, Queens, branch, opened in March 2017, has been a great success to date, generating in excess of $32 million in new deposit balances since its opening.

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.

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