Hanover Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2021; balance-sheet comparisons are to September 30, 2020. The quarter includes Savoy Bank from its May 26, 2021 acquisition. Unless noted, dollar figures below are in millions.
Business context and financial performance
Hanover Community Bank is a New York community bank focused on residential and commercial lending and deposit services. The Savoy acquisition substantially expanded the company’s balance sheet and loan and deposit base.
| Metric | Quarter ended June 30, 2021 | Comparable 2020 quarter | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue (net interest income plus non-interest income) | $11.10 | $6.60 | $27.21 | $20.99 |
| Net interest income | $10.45 | $6.50 | $25.58 | $19.76 |
| Net income | $0.22 | $1.41 | $3.80 | $3.43 |
| Diluted earnings per share | $0.05 | $0.33 | $0.85 | $0.81 |
| Net interest margin | 3.74% | 3.13% | 3.69% | 3.15% |
Quarterly earnings fell despite higher revenue, primarily because non-interest expense rose $6.1 million, including $3.9 million of Savoy acquisition costs and higher compensation. Nine-month net income increased 10.7%; the $5.8 million increase in net interest income and lower loan-loss provision largely offset higher acquisition and operating costs. The quarterly margin was 3.56% excluding $478,000 of Savoy purchase-accounting accretion.
Balance sheet, cash flow, debt and liquidity
- At June 30, 2021, total assets were $1.54 billion, loans held for investment were $1.29 billion, deposits were $1.16 billion, and stockholders’ equity was $115.2 million. Compared with September 30, 2020, assets rose from $851.6 million, loans from $725.0 million, deposits from $664.8 million, and equity from $78.0 million, primarily due to Savoy.
- Cash and cash equivalents were $170.9 million, compared with $80.2 million at September 30, 2020. Nine-month operating cash flow was $7.0 million, investing cash flow was $37.2 million, and financing cash flow was $46.6 million. Acquisition-related cash flows materially affected investing activity.
- Total borrowings were approximately $253.1 million, including $176.9 million under the PPP Liquidity Facility, $51.5 million of FHLB advances, and $24.5 million of subordinated debentures. The subordinated notes carry a 5.00% fixed rate through October 2025, then reset to three-month SOFR plus 487.4 basis points. The company had $55 million of available correspondent-bank lines and reported further FHLB borrowing capacity.
- Core deposits were $698.7 million, or about 60% of deposits. Time deposits of $349.1 million were scheduled to mature within 12 months; management expected to replace a substantial portion. The filing reports the Bank was well capitalized: 14.05% CET1, 15.01% total risk-based capital, and 11.20% leverage ratio at June 30.
Material changes, risks and management commentary
- Savoy acquisition: Completed May 26 for a final aggregate purchase price of $65.5 million, with 1,357,567 Hanover shares issued. The initial purchase accounting recorded $16.4 million of goodwill and a $490,000 core deposit intangible. Fair-value estimates and acquisition costs remained subject to adjustment for up to one year after closing. Pro forma information excludes cost savings not yet realized.
- Credit quality: Non-accrual loans increased to $7.0 million, or 0.54% of loans, from $953,000 at September 30, 2020. Including $2.9 million of non-accrual loans held for sale, non-performing assets were $9.9 million. The allowance was $7.9 million, or 0.61% of loans; management considered it adequate and reported no specific reserves on non-accrual loans. Special Mention and Substandard loans totaled $52.7 million, with the increase largely attributable to Savoy’s acquired portfolio. The allowance is a critical estimate and may require future additions.
- The company had modified 519 loans totaling $367.1 million under COVID-related programs; 34 loans totaling $34.0 million remained in forbearance at June 30. Management cited economic uncertainty, borrower repayment capacity, the end of government support, and potential changes in credit-loss estimates as risks. COVID-19 effects remain uncertain.
- Management described the local economy as showing signs of improvement but said it was cautiously evaluating loan growth. No quantitative earnings or margin guidance is provided. Management expects to continue originating loans for portfolio and sale, but noted pandemic-related disruption to the loan-sale market. Integration costs, realization of merger synergies, deposit retention, competition, interest-rate changes, and economic conditions are among the stated risks.
- Interest-rate sensitivity estimates at June 30 showed a 17.6% decline in economic value of equity under a +400 basis-point shock, while estimated 12-month net interest income rose 0.9%; under a -100 basis-point shock, estimated net interest income fell 5.9%. The filing states these results were within policy limits.
Important facts for investors to verify
- Final Savoy purchase accounting, goodwill valuation and impairment exposure, core-deposit intangible amortization, and the timing and amount of expected synergies.
- Credit performance of Savoy-acquired and COVID-modified borrowers, including criticized loans, non-accrual balances, collateral values, and allowance adequacy.
- Deposit retention and pricing, especially the $349.1 million of time deposits maturing within 12 months, and the continued use and repayment profile of PPP-related borrowings.
- Whether reported margins and earnings are sustainable after acquisition-related accretion and one-time costs; the filing gives no forward quantitative guidance.
- The filing’s cover page marks “No” for having filed all required reports during the preceding 12 months; investors may wish to confirm the company’s filing-status context.