Hanover Bancorp, Inc. Reports 2024 Full Year And Fourth Quarter Results Highlighted by Fourth Quarter Robust Margin Expansion and Record Non-interest Income

Fourth Quarter Performance Highlights

• Net Income: Net income for the quarter ended December 31, 2024 totaled $3.9 million or $0.52 per diluted share (including Series A preferred shares).
• Record Non-interest Income: The Company reported record non-interest income of $4.2 million for the quarter ended December 31, 2024, an increase of $0.2 million or 5.89% from the quarter ended September 30, 2024 and $0.9 million or 28.67% from the quarter ended December 31, 2023.
• Net Interest Income: Net interest income was $13.8 million for the quarter ended December 31, 2024, an increase of $0.7 million or 5.39% from the quarter ended September 30, 2024 and $1.1 million, or 9.08% from the quarter ended December 31, 2023.
• Net Interest Margin: The Company's net interest margin during the quarter ended December 31, 2024 increased to 2.53% from 2.37% in the quarter ended September 30, 2024 and 2.40% in the quarter ended December 31, 2023.
• Strong Liquidity Position: At December 31, 2024, undrawn liquidity sources, which include cash and unencumbered securities and secured and unsecured funding capacity, totaled $713.1 million, or approximately 283% of uninsured deposit balances.
• Deposit Activity: Core deposits, consisting of Demand, NOW, Savings and Money Market, increased $3.1 million or 0.84% annualized from September 30, 2024 and $74.1 million or 5.36% from December 31, 2023. Demand deposits increased $5.3 million or 10.33% annualized from September 30, 2024 and $3.9 million or 1.86% from December 31, 2023. Total deposits increased $49.7 million or 2.61% from December 31, 2023. Insured and collateralized deposits, which include municipal deposits, accounted for approximately 87% of total deposits at December 31, 2024.

• Loan Diversification Strategy: The continued success in loan diversification resulted in C&I loans increasing by $61.0 million, or 56.52%, year over year, increasing to 8.51% of total loans at December 31, 2024. In addition, the commercial real estate concentration ratio improved, declining from 432% of capital at December 31, 2023 to 385% of capital at December 31, 2024. The Company continues to focus loan growth primarily in residential loan products originated for sale to specific buyers in the secondary market, C&I and SBA loans, which strategically enhances our management of liquidity and capital while producing additional non-interest income.
• Asset Quality: At December 31, 2024, the Bank's asset quality remained solid with non-performing loans totaling $16.4 million, representing 0.82% of the total loan portfolio, while the allowance for credit losses was 1.15% of total loans. Loans secured by office space accounted for 2.45% of the total loan portfolio with a total balance of $48.7 million, of which less than 1% is located in Manhattan.
• Banking Initiatives: At December 31, 2024, the Company's banking initiatives reflected continuing momentum:
  • SBA & USDA Banking: Gains on sale of SBA loans totaled $2.5 million for the quarter ended December 31, 2024, representing a 9.76% increase over the comparable 2023 quarter. Total SBA loans sold were $30.9 million for the quarter ended December 31, 2024, representing a 3.98% increase over the comparable 2023 quarter. Premiums earned on the sale of SBA loans increased to 9.06% for the quarter ended December 31, 2024 from 8.26% for the quarter ended December 31, 2023.
  • C&I Banking/Hauppauge Business Banking Center: The C&I Banking Team and the Hauppauge Business Banking Center increased deposits to $96.4 million as of December 31, 2024 from $44.9 million at December 31, 2023. This growth has continued since year end, with these deposits reaching $104 million at January 27, 2025. Loan originations tied to this office were $33.5 million during the fourth quarter of 2024 and $88.4 million for the full year. Momentum continues to build with deposit and C&I loan pipelines related to this office of $43 million and $112 million, respectively.
  • Residential Lending: The Bank continues to originate loans for its portfolio and for sale in the secondary market under its recently developed flow origination program. Of the $26.1 million in closed loans originated in the quarter ended December 31, 2024, $11.7 million were originated for the Bank's portfolio and reflected a weighted average yield of 6.88% before origination and other fees, which average 50-100 bps per loan, and a weighted average LTV of 62%. The remaining $14.4 million of closed loans were originated for sale in the secondary market. Under this program, the Bank produced total gains of $0.5 million and a resulting premium of 2.42% in the fourth quarter of 2024.
• Technology: The Company expects to complete a core processing system conversion from its existing provider to FIS Horizon on or about February 15, 2025. This conversion is expected to deliver immediate and tangible benefits to the Bank's operations and customers, offering material improvements in user interfaces, functionality and efficiency that will better support our commitment to a digital forward future on better financial terms.

• Tangible Book Value Per Share: Tangible book value per share (including Series A preferred shares) was $23.86 at December 31, 2024, an increase of 9.97% annualized from $23.28 at September 30, 2024 and 6.00% from $22.51 at December 31, 2023.

• Quarterly Cash Dividend: The Company's Board of Directors approved a $0.10 per share cash dividend on both common and Series A preferred shares payable on February 19, 2025 to stockholders of record on February 12, 2025.

Earnings Summary for the Quarter Ended December 31, 2024

The Company reported net income for the quarter ended December 31, 2024 of $3.9 million or $0.52 per diluted share (including Series A preferred shares), versus $3.8 million or $0.51 per diluted share (including Series A preferred shares) in the quarter ended December 31, 2023. Returns on average assets, average stockholders' equity and average tangible equity were 0.70%, 7.98% and 8.87%, respectively, for the quarter ended December 31, 2024, versus 0.69%, 8.10% and 9.06%, respectively, for the comparable quarter of 2023.

While net interest income and non-interest income increased during the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023, these gains were partially offset by an increase in non-interest expenses, particularly compensation and benefits. The increase in non-interest income is primarily related to the increases in the gain on sale of loans held-for-sale and loan servicing and fee income. This increase is reflective of the strengthening of secondary market premiums in connection with sales of SBA loans and the gains on the recently developed residential loan flow program. The increase in compensation and benefits expense in the fourth quarter of 2024 versus the comparable 2023 quarter was primarily related to lower deferred loan origination costs that were offset by lower incentive compensation expense resulting from reduced lending activity.

Net interest income was $13.8 million for the quarter ended December 31, 2024, an increase of $1.1 million, or 9.08%, versus the comparable 2023 quarter due to improvement of the Company's net interest margin to 2.53% in the 2024 quarter from 2.40% in the comparable 2023 quarter. The yield on interest earning assets increased to 6.06% in the 2024 quarter from 5.91% in the comparable 2023 quarter, an increase of 15 basis points that was partially offset by a 5 basis point increase in the cost of interest-bearing liabilities to 4.24% in 2024 from 4.19% in the fourth quarter of 2023. The increase in the net interest margin was a result of the recent reductions in the Fed Funds effective rate and the liability sensitive nature of the Bank's balance sheet.

Earnings Summary for the Year Ended December 31, 2024

For the year ended December 31, 2024, the Company reported net income of $12.3 million or $1.66 per diluted share (including Series A preferred shares), versus $13.6 million or $1.84 per diluted share (including Series A preferred shares) a year ago.

The decrease in net income recorded for the year ended December 31, 2024 from the comparable 2023 period resulted from an increase in the provision for credit losses and an increase in non-interest expense, which were partially offset by an increase in non-interest income. The year-over-year increase in the provision for credit losses was primarily related to the recording of a $4.0 million provision for credit losses in the June 2024 quarter that was mainly attributable to an ACL on an individually evaluated loan of $2.5 million and $1.1 million related to ongoing enhancements to the CECL model. The increase in non-interest income is primarily related to the increases in the gain on sale of loans held-for-sale and loan servicing and fee income which were partially offset by a decrease in other operating income. In September 2023, the Company settled ongoing litigation and received a settlement payment of $975 thousand which was recorded in other operating income. The increase in non-interest expense was primarily attributed to additional staff for the SBA, C&I Banking and Operations teams. The Company's effective tax rate decreased to 24.62% for the year ended December 31, 2024 from 25.85% in the comparable 2023 period.

Net interest income was $53.1 million for the year ended December 31, 2024, an increase of $1.2 million, or 2.32% from the comparable 2023 period. The Company's net interest margin was 2.44% in 2024 and 2.59% in 2023. The yield on interest earning assets increased to 6.12% in 2024 from 5.67% in 2023, an increase of 45 basis points that was offset by a 72 basis point increase in the cost of interest-bearing liabilities to 4.40% in 2024 from 3.68% in 2023 due to the rapid and significant rise in market interest rates.

Our imminent core system conversion is expected to position us to compete more effectively across all lines of business, as customers expect greater convenience and technological capabilities, and will enable the Bank to realize operational efficiencies while maximizing our customer appeal. The substantial improvement in features and functionality expected with the conversion will be achieved on better financial terms than under our current system, enabling us to realize a material gain in performance with no adverse impact to operating expenses.

Michael P. Puorro, Chairman and Chief Executive Officer, commented on the Company's quarterly results: "We are pleased with fourth-quarter results. Notable increases in net interest margin, tangible book value, returns on average assets and average tangible equity complemented further improvement in our CRE concentration ratio and sound credit quality, bringing 2024 to a well-rounded conclusion. Building on this momentum, we enter 2025 with strong loan and deposit pipelines across our critical verticals, including C&I, SBA and Residential Banking and the benefit of diversified income streams. Ongoing performance will be enhanced by our pending core system conversion, which will deliver tangible operational efficiencies and customer benefits, and could be positively impacted by further Federal Open Market Committee ("FOMC”) rate decreases, an improved yield curve, a favorable banking environment and potential qualification for the Russell 2000, which would increase institutional ownership and enhance the liquidity of our stock. We continue to focus on scaling our key verticals while maintaining prudent expense management, which we believe will increase shareholder value through enhanced performance.”

Balance Sheet Highlights

Total assets at December 31, 2024 were $2.31 billion versus $2.27 billion at December 31, 2023. Total securities available for sale at December 31, 2024 were $83.8 million, an increase of $22.3 million from December 31, 2023, primarily driven by growth in U.S. Treasury securities, corporate bonds and mortgage-backed securities.

Total deposits at December 31, 2024 were $1.95 billion, an increase of $49.7 million or 2.61%, compared to $1.90 billion at December 31, 2023. Our loan to deposit ratio was 102% at December 31, 2024 and 103% at December 31, 2023.

The Company had $509.3 million in total municipal deposits at December 31, 2024, at a weighted average rate of 3.72% versus $528.1 million at a weighted average rate of 4.62% at December 31, 2023. The Company's municipal deposit program is built on long-standing relationships developed in the local marketplace. This core deposit business will continue to provide a stable source of funding for the Company's lending products at costs lower than those of consumer deposits and market-based borrowings. The Company continues to broaden its municipal deposit base and currently services 39 customer relationships.

Total borrowings at December 31, 2024 were $107.8 million, with a weighted average rate and term of 4.11% and 23 months, respectively. At December 31, 2024 and 2023, the Company had $107.8 million and $126.7 million, respectively, of term FHLB advances outstanding. The Company had no FHLB overnight borrowings outstanding at December 31, 2024 and 2023. At December 31, 2024 the Company had no borrowings outstanding from the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPPLF”), while at December 31, 2023 the Company had $2.3 million in borrowings from the PPPLF. The Company had no borrowings outstanding under lines of credit with correspondent banks at December 31, 2024 and 2023.

Stockholders' equity was $196.6 million at December 31, 2024 compared to $184.8 million at December 31, 2023. The $11.8 million increase was primarily due to an increase of $9.4 million in retained earnings and a decrease of $1.1 million in accumulated other comprehensive loss. The increase in retained earnings was due primarily to net income of $12.3 million for the year ended December 31, 2024, which was offset by $2.9 million of dividends declared. The accumulated other comprehensive loss at December 31, 2024 was 0.68% of total equity and was comprised of a $1.0 million after tax net unrealized loss on the investment portfolio and a $0.3 million after tax net unrealized loss on derivatives.

Loan Portfolio

For the year ended December 31, 2024, the Bank's loan portfolio grew to $1.99 billion, an increase of $28.3 million or 1.45%. Growth was concentrated primarily in residential, SBA and C&I loans. At December 31, 2024, the Company's residential loan portfolio (including home equity) amounted to $729.3 million, with an average loan balance of $483 thousand and a weighted average loan-to-value ratio of 57%. Commercial real estate and multifamily loans totaled $1.09 billion at December 31, 2024, with an average loan balance of $1.5 million and a weighted average loan-to-value ratio of 59%. As will be discussed below, approximately 37% of the multifamily portfolio is subject to rent regulation. The Company's commercial real estate concentration ratio continued to improve, decreasing to 385% of capital at December 31, 2024 from 432% of capital at December 31, 2023, with loans secured by office space accounting for 2.45% of the total loan portfolio and totaling $48.7 million. The Company's loan pipeline with executed term sheets at December 31, 2024 is approximately $237 million, with approximately 89% being niche-residential, conventional C&I and SBA & USDA lending opportunities.

The Bank's investments in diversification continue to deliver results, with the volume of SBA & USDA loans originated for sale and the volume of residential loans originated for sale sustaining momentum. During the quarter ended December 31, 2024, the Company sold $19.1 million of residential loans under this program and recorded gains on sale of loans held-for-sale of $0.5 million. During the quarters ended December 31, 2024 and 2023, the Company sold approximately $30.9 million and $29.7 million, respectively, in the government guaranteed portion of SBA loans and recorded gains on sale of loans held-for-sale of $2.5 million and $2.3 million, respectively. We expect the volume of activity to increase in 2025. Because we continue to prioritize the management of liquidity and capital, new business development with respect to residential and SBA & USDA lending is largely focused on originations for sale over portfolio growth. Conversely, portfolio growth is the primary focus of our C&I Banking initiative, which continues to drive deposit and loan growth at our Hauppauge Business Banking Center and will expand with the pending launch of our Port Jefferson branch.

Commercial Real Estate Statistics

A significant portion of the Bank's commercial real estate portfolio consists of loans secured by Multi-Family and CRE-Investor owned real estate that are predominantly subject to fixed interest rates for an initial period of 5 years. The Bank's exposure to Land/Construction loans is minor at $13.5 million, all at floating interest rates, and CRE-owner occupied loans have a mix of floating rates. As shown below, 23% of the loan balances in these combined portfolios will mature in 2025 and 2026, with another 55% maturing in 2027.