Hanover Bancorp, Inc. (HNVR): Building a Solid Foundation in the Metro-New York Region

Published on March 12, 2025 | Ticker: HNVR

Hanover Bancorp, Inc. is a community commercial bank holding company that provides a range of banking services with a focus on personalized solutions in the metro-New York area. The company, incorporated in 2016, operates through its wholly-owned subsidiary, Hanover Community Bank, which commenced operations in 2008. With a strong foothold in the region, Hanover Bancorp has navigated the challenges of the past few years with resilience, positioning itself for continued growth and success.

Business Overview and History

Hanover Bancorp's roots can be traced back to 2008, when Hanover Community Bank was founded in Mineola, New York. The Bank was established with the mission of serving the local community with personalized banking services, catering to the unique needs of its customers. In its early years, the Bank faced the challenge of establishing itself in a competitive banking market dominated by larger institutions. However, its commitment to customer service and local focus allowed it to steadily grow its customer base and loan portfolio.

Over the years, the Bank has expanded its presence throughout the metro-New York area, opening additional branches in Nassau, Suffolk, Queens, Kings (Brooklyn), and New York (Manhattan) Counties in New York, as well as in Monmouth County, New Jersey. This expansion has been crucial in diversifying the bank's balance sheet and establishing a strong presence in the region.

In 2016, Hanover Bancorp, Inc. was incorporated as the holding company for Hanover Community Bank, solidifying the organization's structure and enabling it to better serve its growing customer base. This corporate restructuring was designed to provide greater financial flexibility and position the organization for future growth. The Company's strategic focus has been on fostering strong relationships with businesses and individuals within its target markets, offering a wide range of lending and deposit products tailored to meet their financial needs.

Hanover Bancorp's loan portfolio is diversified across residential real estate, multi-family, commercial real estate, commercial and industrial, construction and land development, and consumer loans. As of September 30, 2024, the Company's total loans stood at $2.01 billion, with commercial real estate loans (including multi-family and construction) accounting for 54.2% of the total loan portfolio. The residential real estate loan segment represented 37.2% of total loans, while commercial and industrial loans made up 8.6% of the portfolio. Consumer loans accounted for a small portion at 0.2% of total loans.

The Company's deposit base is also well-diversified, with a strong emphasis on core deposits, which represented 74.2% of total deposits as of September 30, 2024, up from 72.6% at the end of 2023. Hanover Bancorp has built a solid foundation in the municipal deposit market, servicing 39 customer relationships and holding $366.2 million in municipal deposits, or 18.7% of total deposits, as of the same date. Demand deposits, a key component of the company's core deposit base, accounted for 10.5% of total deposits at the end of the third quarter.

Financials

Financial Performance and Ratios

Hanover Bancorp has demonstrated solid financial performance over the years, with consistent growth in key metrics. For the fiscal year ended September 30, 2023, the Company reported annual net income of $15.16 million, annual revenue of $105.04 million, annual operating cash flow of $16.40 million, and annual free cash flow of $12.99 million.

For the third quarter of 2024, Hanover Bancorp reported revenue of $17.06 million and net income of $3.54 million. Year-over-year, revenue increased by 10.00% compared to Q3 2023, driven by higher interest income from loan growth and higher non-interest income from growth in the bank's government guaranteed lending activities. Net income remained flat compared to the same period in the previous year.

The Company's financial ratios also reflect a healthy financial position. As of September 30, 2024, Hanover Bancorp's return on assets (ROA) stood at 0.62%, return on equity (ROE) was 7.35%, and the tangible common equity (TCE) ratio was 7.49%. These ratios compare favorably to industry benchmarks, indicating the Company's ability to generate consistent returns for its shareholders while maintaining a strong capital base.

Liquidity

Hanover Bancorp maintains a strong liquidity position, which is essential for meeting its financial obligations and supporting its growth initiatives. The Company's well-diversified deposit base, with a focus on core deposits, provides a stable source of funding. Additionally, the Bank's strong relationships with correspondent banks and access to various liquidity facilities, including the Federal Home Loan Bank, further enhance its liquidity profile.

As of September 30, 2024, Hanover Bancorp reported the following liquidity metrics:

Debt/Equity ratio: 0.83

Cash and cash equivalents: $141.23 million
Available credit lines: - $692.00 million in borrowing capacity at the Federal Home Loan Bank of New York, of which $125.81 million was utilized - $263.70 million collateralized line of credit from the Federal Reserve Bank of New York, with no outstanding borrowings - $92.00 million in unsecured lines of credit from correspondent banks, with no outstanding borrowings
Current ratio: 0.18
Quick ratio: 0.18

These metrics demonstrate the Company's strong liquidity position and ability to meet its short-term obligations.

Recent Developments and Outlook

Hanover Bancorp has continued to execute on its growth strategy, expanding its presence in the metro-New York region. In May 2023, the Company opened its Hauppauge Business Banking Center in Suffolk County, New York, which serves as the nexus for its expanded commercial lending and deposit activities. Additionally, the Bank has received regulatory approval for the opening of a full-service branch in Port Jefferson, New York, which is expected to be operational in the first quarter of 2025.

In October 2023, the Company announced that it had received regulatory approval to change its state of incorporation from New York to Maryland, a move that is expected to enhance its regulatory compliance and strategic flexibility.

Hanover Bancorp has also diversified its revenue streams by expanding its government-guaranteed lending activities, particularly in the SBA loan market. During the nine months ended September 30, 2024, the Company sold approximately $81.8 million in the government-guaranteed portion of SBA loans, generating $7.4 million in net gains. Additionally, the Bank has initiated the development of a flow origination program for residential loans, positioning it to resume residential loan sales and generate fee income.

The residential real estate loan portfolio grew to $745.9 million as of September 30, 2024, up from $714.8 million at the end of 2023. This growth was driven by the company's efforts to build out its residential mortgage origination capabilities. The multi-family and commercial real estate portfolios stood at $557.6 million and $520.4 million, respectively, at the end of the third quarter of 2024.

Hanover Bancorp's asset quality metrics have remained relatively stable, with non-accrual loans at 0.77% of total loans as of September 30, 2024, compared to 0.74% at the end of 2023. The allowance for credit losses stood at 1.17% of total loans at the end of the third quarter, up from 1.00% at the end of 2023, reflecting the company's conservative approach to credit risk management.

The company recorded a provision for credit losses of $0.5 million in the third quarter of 2024, down from $0.7 million in the same period of the prior year. This decrease was largely due to improvements in the macroeconomic outlook and the company's ongoing efforts to enhance its credit risk modeling and underwriting practices.

Despite the challenges posed by the COVID-19 pandemic and the rapidly rising interest rate environment, Hanover Bancorp has demonstrated its resilience and adaptability. The Company's focus on personalized banking services, strong client relationships, and diversified loan and deposit portfolios have enabled it to navigate these turbulent times effectively.

Looking ahead, Hanover Bancorp remains well-positioned for continued growth and success. The Company's strategic initiatives, such as the expansion into Suffolk County and the strengthening of its government-guaranteed lending business, are expected to contribute to its financial performance in the coming years. Additionally, the Company's strong capital position and liquidity profile provide a solid foundation for future growth and allow it to capitalize on emerging opportunities in its target markets.

Risks and Challenges

While Hanover Bancorp has navigated the recent challenges successfully, the Company faces ongoing risks and potential headwinds that warrant consideration:

1. Interest Rate Risk: The Company's net interest margin and profitability are susceptible to changes in interest rates, which have been rapidly increasing in recent years. Hanover Bancorp's ability to manage its asset-liability mix and effectively hedge its interest rate exposure will be crucial in maintaining its financial performance.

2. Concentration Risk: A significant portion of Hanover Bancorp's loan portfolio is concentrated in commercial real estate, including multi-family and construction loans. This concentration exposes the Company to potential economic downturns or changes in the real estate market that could adversely impact the creditworthiness of its borrowers.

3. Regulatory Environment: As a community bank, Hanover Bancorp is subject to a complex and evolving regulatory landscape. Changes in banking regulations or increased compliance requirements could impact the Company's operations and profitability.

4. Competition: Hanover Bancorp operates in a highly competitive market, facing competition from larger regional and national banks, as well as non-bank lenders and fintech providers. The Company's ability to maintain its market share and attract and retain customers will be crucial to its long-term success.

5. Talent Retention: Hanover Bancorp's success is heavily dependent on its ability to attract, develop, and retain talented employees. The Company's ability to compete for and retain skilled professionals in the banking industry will be a key factor in its continued growth and performance.

Conclusion

Hanover Bancorp, Inc. has established itself as a well-respected community bank in the metro-New York region, providing personalized banking services and solutions to its customers. The Company's diversified loan portfolio, strong deposit base, and strategic initiatives have positioned it for continued growth and success.

Despite the various risks and challenges facing the banking industry, Hanover Bancorp has demonstrated its resilience and adaptability, navigating the recent turbulent times effectively. With its focus on fostering strong client relationships, expanding its presence in key markets, and diversifying its revenue streams, the Company is well-positioned to capitalize on future opportunities and deliver long-term value for its shareholders.

The Company's solid financial performance, as evidenced by its growing revenue and consistent net income, along with its strong liquidity position and conservative approach to credit risk management, provides a stable foundation for future growth. As Hanover Bancorp continues to execute its strategic initiatives and capitalize on opportunities in its target markets, it is poised to strengthen its position as a leading community bank in the metro-New York region.