Hanover Bancorp, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023, compared with fiscal 2022. Although the request identifies 2023 Q4, this filing reports annual results, not standalone fourth-quarter results. Hanover changed its year-end to December 31 and planned a transition quarter for October 1–December 31, 2023.
Business context and financial position
Hanover is a community bank holding company serving the New York metropolitan area and parts of New Jersey. Its lending is heavily focused on real estate, alongside commercial and industrial and government-guaranteed lending. At September 30, 2023, it reported $2.15 billion in assets, $1.87 billion in loans, $1.74 billion in deposits, and $185.9 million in stockholders’ equity.
Financial results and key metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net interest income | $54.5 million | $61.3 million |
| Net interest margin | 2.85% | 4.18% |
| Net income | $15.2 million | $23.6 million |
| Diluted EPS | $2.05 | $3.68 |
| Provision for loan losses | $3.4 million | $4.5 million |
| Non-interest income | $8.8 million | $8.9 million |
| Non-interest expense | $39.7 million | $35.2 million |
| Return on average assets / equity | 0.77% / 8.40% | 1.55% / 16.14% |
- Interest income rose 53.5% to $105.0 million, but interest expense increased to $50.6 million from $7.2 million as funding costs rose sharply. The average cost of interest-bearing liabilities increased to 3.18% from 0.62%.
- Operating cash flow was $16.4 million, versus $25.1 million. Investing activities used $256.4 million, primarily reflecting loan growth; financing activities provided $282.6 million. Cash and cash equivalents rose $42.7 million to $192.6 million.
- Loans grew to $1.87 billion from $1.62 billion; deposits to $1.74 billion from $1.53 billion. Approximately 95% of loans were real-estate secured. The allowance for loan losses was $14.7 million, or 0.78% of loans held for investment; net charge-offs were $1.6 million.
- Nonperforming assets were $15.1 million, or 0.70% of assets, compared with $13.5 million, or 0.73%, a year earlier. Total stockholders’ equity was $185.9 million. The Bank’s total risk-based capital ratio was 14.60%, and it was classified as well capitalized.
- At year-end, cash and cash equivalents were $192.6 million. Undrawn liquidity sources totaled $534.7 million, reported as approximately 204% of uninsured deposits. About 85% of deposits were insured or collateralized.
- Borrowings were $179.8 million on the balance sheet, in addition to $24.6 million of subordinated debentures. The subordinated notes have $25.0 million principal, mature in 2030, and reset to a floating rate in October 2025.
Material changes versus FY2022
- Net income declined 35.6%, primarily due to lower net interest income, reduced loan-sale gains and purchase-accounting accretion, and higher operating expenses.
- Net interest margin contracted 133 basis points. Higher asset yields did not offset the rapid rise in deposit and borrowing costs.
- Loan-sale gains fell to $4.1 million from $5.1 million, reflecting lower SBA sale volume, no residential loan sales, and weak secondary-market premiums earlier in the year.
- Non-interest expense rose $4.5 million, including increases in compensation, occupancy, data processing, professional fees, and FDIC premiums. Net charge-offs increased from $0.2 million to $1.6 million.
- Growth was concentrated in residential mortgages, commercial real estate, and C&I loans. C&I loans increased 87% to $87.6 million; residential loans increased approximately 27% to $657.3 million.
Outlook, risks, contingencies, and unusual items
- The filing provides no quantified earnings or margin guidance. Management identifies C&I lending as a growth area and describes plans for prudent growth, including potential acquisitions; outcomes depend on market conditions, execution, and regulatory approval.
- Key exposures include rising funding costs and interest-rate sensitivity, competition for deposits, liquidity and funding access, and concentration in the New York metropolitan economy and real estate. Commercial real estate loans were 448% of risk-based capital; management reported 7% portfolio growth during FY2023.
- Residential lending is concentrated in non-qualified mortgages; approximately 69% of the one- to four-family portfolio was rental property and 91% was secured in New York City boroughs and Nassau County. Management also flags SBA program, servicing, and repurchase risks.
- CECL adoption was scheduled for October 1, 2023. The company was still finalizing its calculation and did not provide a clear estimate of the adoption adjustment; it did not expect a material securities-portfolio impact.
- In September 2023, Hanover settled ongoing litigation and recorded $975,000 in other income. The filing says no pending legal proceeding was expected to have a material adverse effect. No goodwill impairment was recorded after quantitative testing.
- The company began offering services to state-licensed cannabis businesses in the fourth calendar quarter of 2023; federal legal and regulatory uncertainty creates compliance and enforcement risks.
- The Board approved a repurchase program for up to 366,050 shares, approximately 5% of outstanding common stock; no shares had been repurchased through the filing date. A $0.10-per-share quarterly dividend was declared after year-end and paid in November 2023.
- The financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an ICFR attestation because Hanover was an emerging growth company.
Important facts for investors to verify
- Whether deposit pricing and funding mix stabilize enough to arrest the decline in net interest margin and earnings.
- Recent trends in uninsured deposits, deposit maturities, available borrowing capacity, and use or cost of wholesale funding.
- Commercial real estate and residential investor-loan performance, including criticized loans, delinquencies, charge-offs, collateral values, and reserve adequacy.
- The actual CECL transition adjustment and subsequent allowance and provision trends.
- Results of the cannabis banking initiative, and any material regulatory, legal, or compliance developments.
- Whether capital, liquidity, and earnings support the dividend and any execution of the authorized share repurchase program.